year
stringclasses 4
values | company_code
stringlengths 1
5
| text
stringlengths 15
53.7k
| year_company_code
stringlengths 6
10
|
|---|---|---|---|
2017 | CATM | CATM
#Go ahead operator.
Then we will say thank you to all of you for your interest in Cardtronics, and have a great day.
Thank you.
| 2017_CATM |
2018 | MDU | MDU
#Hello.
My name is Shelby, and I'll be your conference facilitator.
At this time, I would like to welcome everyone to the MDU Resources Group 2018 First Quarter Conference Call.
(Operator Instructions) This call will be available for replay beginning at 5:00 p.
m.
Eastern Time today through 11:59 p.
Eastern Time on May 17.
The conference ID number for the replay is 5478625.
The number to dial for the replay is 1 (855) 859-2056 or (404) 537-3406.
I would now like to turn the call over to <UNK> <UNK>, Vice President, Chief Financial Officer and Treasurer of MDU Resources Group.
Thank you.
Mr.
<UNK>, you may begin your conference.
Thank you, Shelby, and good afternoon, everyone.
Welcome to our first quarter 2018 earnings release conference call.
This conference call is being broadcast live to the public over the Internet, and slides will accompany our remarks.
If you would like to view the slides, please go to our website at www.mdu.com and follow the link to the conference call.
Our earnings release is also available on our website.
During the course of this presentation, we will make certain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934.
Although the company believes that its expectations and beliefs are based on reasonable assumptions, actual results may differ materially.
For a discussion of factors that may cause actual results to differ, refer to Item 1A, Risk Factors, in our most recent Form 10-K.
For our call today, I will discuss key financial highlights and then turn the presentation over to Dave <UNK>, President and CEO of MDU Resources, for his formal remarks.
After Dave's remarks, we'll open the line for questions.
In addition to Dave and myself, members of our management team who will be available to answer questions today are: Dave <UNK>, President and CEO of Knife River Corporation; Jeff <UNK>, President and CEO of MDU Construction Services Group; Nicole Kivisto, President and CEO of Cascade Natural Gas, Great Plains Natural Gas, Intermountain Gas and Montana-Dakota Utilities; Trevor Hastings, President and CEO of WBI Energy; and Stephanie Barth, Vice President, Chief Accounting Officer and Controller for MDU Resources.
Yesterday, we announced first quarter earnings from continuing operations of $41.9 million or $0.22 per share compared to $35.5 million or $0.18 per share in 2017.
On a consolidated basis, earnings were $42.4 million or $0.22 per share compared to $37.2 million or $0.19 per share in 2017.
For the first quarter, our combined utility business reported earnings of $45.7 million, up from $42.2 million in the first quarter of last year.
The electric utility segment earned $13.1 million for the quarter compared to $14.3 million in 2017.
This decrease was driven by higher operating costs and depreciation, depletion and amortization expense, partially offset by increased regulatory recovery.
This business also experienced higher retail sales volumes of 3%, driven by all customer classes.
The enactment of the Tax Cuts and Jobs Act reduced operating revenues and income taxes but had a minimal impact on overall earnings since the company assumes the majority of the tax benefits will be refunded to our customers.
At our natural gas utility segment, we had earnings of $32.6 million for the quarter compared to $27.9 million in 2017.
This earnings increase reflects higher adjusted gross margins resulting from approved rate recovery.
This increase in earnings was partially offset by higher operating costs, higher depreciation depletion and amortization expense as a result of increased planned asset balances.
The enactment of the Tax Cuts and Jobs Act resulted in lower income taxes, which were partially offset by revenue amounts reserved pending the outcome of the company's regulatory filings.
At our pipeline and midstream business, earnings were $5.3 million in the first quarter compared to $3.9 million in 2017.
This increase in earnings reflects higher transportation revenues primarily related to organic growth projects that were completed in the second quarter of last year as well as lower income taxes due to the enactment of the Tax Cuts and Jobs Act.
Partially offsetting the increase were higher operation and maintenance expense and higher depreciation, depletion and amortization expense resulting from the organic growth projects.
Our construction services business reported earnings of $15.1 million compared to $7.4 million in 2017 and record first quarter revenues of $334.1 million, up from first quarter 2017 revenues of $299.6 million.
This business's earnings increased due to higher outside and inside specialty contracting workloads and higher outside construction margins.
The increase in margins is a result of higher customer demand driven by the additional number and size of construction projects as well as decreased labor costs, which were attributable to successful job performance.
Higher workloads in areas impacted by storm activity and higher outside equipment sales and rentals also contributed to the increase in margins for the quarter.
Partially offsetting these increases were higher selling, general and administrative expense.
Construction services backlog at the end of the quarter was $675 million, up 28% from the first quarter of 2017.
Our construction materials business reported a normal seasonal loss of $23.5 million in the first quarter compared to a loss of $19.9 million for the same period in 2017 and revenues of $213.4 million, up from first quarter 2017 revenues of $200.9 million.
The decrease in earnings was largely related to a $3.9 million lower income tax benefit in the first quarter due to the enactment of the Tax Cuts and Jobs Act.
While the bottom line loss was larger, this business reported a decreased pretax operating loss in 2018 from higher construction margins, which were positively impacted by increased workloads in states that experienced favorable weather as well as strong demand in some of our regions.
Construction materials backlog for the end of the first quarter was $692 million, up from $486 million at the end of 2017.
And now I'd like to turn the call over to Dave for his formal remarks.
Dave.
Well, thank you, <UNK>, and good afternoon, everyone.
Thank you for your interest in MDU Resources and for taking the time to join us today to discuss our first quarter results.
We released our first quarter earnings after the stock market closed yesterday.
We're off to a strong start to 2018 and reported a $0.04 increase in earnings per share from our continuing operations compared to 2017.
All of our businesses performed well throughout the quarter, and we are very pleased with the results.
Our combined utility companies reported record first quarter earnings, largely driven by an increase in natural gas distribution sales, adjusted gross margins.
Approved rate relief and weather normalization helped to offset the warmer winter conditions that we saw in some of our areas.
The outlook for our utility business includes plans for investing $425 million this year and approximately $1.5 billion over the next 5 years with a projected rate base growth of 6% compounded annually.
I'd like to provide a quick update on a couple of our larger projects at the utility group.
The Thunder Spirit Wind expansion project is on track to be completed in the fall of this year.
All major project materials, including wind turbine components, have been received and are awaiting final delivery to the site.
In addition, construction on the Big Stone South to Ellendale 345 kV line has resumed for the season.
This project is on schedule and under budget, with MDU's updated investment projected now at $130 million to $150 million.
At the pipeline business, we had an excellent first quarter and increased earnings year-over-year by 36%.
The 2 expansion projects that were completed in the second quarter of 2017 helped the company move record first quarter volumes of natural gas through the system, with transport volumes up some 17% higher year-over-year.
This business is a full year ahead, with construction expected to begin this month on the 38-mile Valley Expansion Project in Eastern North Dakota and Western Minnesota, along with the 13-mile Line Section 27 project in Northwestern North Dakota in the heart of the Bakken.
We're also pleased to announce in our earnings news release yesterday 2 new organic growth projects at our pipeline business.
The Demicks Lake project is a 14-mile, $30 million natural gas pipeline project in McKenzie County.
Construction here is expected to begin in 2019 with an in-service date in the fall of 2019.
And earlier this year, at our analyst seminar, we talked about the Billings expansion project, and this project is now being called Line Section 22 Expansion.
Construction is scheduled to begin in 2019 with an in-service date in later 2019.
This project is really driven by increased demand in the Billings, Montana area and will increase the system capacity by 22.5 million cubic feet per day and is estimated to cost between $12 million and $15 million.
Both of these projects have secured sufficient customer commitments to proceed.
Expansion projects like these will allow the pipeline group to continue increasing transport volumes that will lead to longer-term earnings growth.
Now I'd like to turn to our 2 construction businesses.
At construction service, this group continues to deliver exceptional revenue and earnings growth.
This business more than doubled its first quarter earnings compared to last year and reported record revenues of $334.1 million.
Throughout the first quarter, construction services sent teams to perform power line repair work following severe ---+ several severe storms, particularly in the Northeast and saw an increase in demand for the sales and rental of electrical tools and utility construction equipment that it manufactures.
At our construction materials group, we've also started the year strong.
And while they reported normal seasonal loss, mild weather in the Pacific Northwest helped the group report a $12.5 million increase in revenues year-over-year, and we're optimistic about the earnings prospect from this business unit going forward.
We recently announced an acquisition at Knife River, which will enhance and expand our construction material services along the Oregon coast.
Teevin & Fischer Quarry, which is headquartered in Seaside, Oregon, is a leading aggregate provider in the area with 6 million tons of aggregate reserves split between its Seaside quarry and its Oak Ranch quarry.
This operation also includes rock crushing equipment and a trucking fleet.
One of the advantages Knife River brings to the operation, in addition to our back-office synergies, is the ability to use these aggregates in self-performed construction projects in Seaside and the surrounding areas.
Our diversification with respect to geographic location spreads our exposure to multiple climates, along with local economies.
As Knife River continues to evaluate additional acquisition opportunities, it is this diversification that will be key to our success as we go forward.
Combined, our construction companies ended the quarter with nearly $1.4 billion in backlog, and we're excited about the opportunities for these businesses as we think about 2018 and beyond.
This completes our individual business unit discussion.
And as we look to the overall corporation, I would like to reiterate that we are on track with our current year expectations.
After looking at the first quarter results, we are reaffirming our current earnings per share range of $1.25 to $1.45.
Furthermore, the company anticipates a 5% to 8% long-term compounded annual growth rate.
Our focus here at MDU Resources has been to produce significant long-term value as we execute our business plans, including organic growth projects and targeted acquisitions, and we're doing just that.
We continue to maintain a strong balance sheet, solid credit ratings and good liquidity.
And for 80 consecutive years, we have continued to provide a competitive dividend for our shareholders.
As always, MDU Resources is committed to operating with high integrity and a focus on safety while creating superior shareholder value as we continue to act on our tagline, that is, building a strong America.
I appreciate your interest in and commitment to MDU Resources and ask now that we open the line to questions.
Operator.
(Operator Instructions) Your first question comes from <UNK> <UNK> of KeyBanc.
I had a question on ---+ in your discussion around construction services, you cite lower labor costs attributable to successful job performance.
Is that ---+ how does that work, sorry.
Could you repeat the first part of that question, <UNK>.
You just broke up just a little bit.
I'm just trying to interpret some of your discussion around construction services where you cite decreased labor costs attributable to successful job performance.
Is that some kind of performance award.
Or how does that dynamic work.
I'll turn it over to Jeff <UNK>, <UNK>.
Thanks for the question.
Yes, it's attributed to our teams being able to beat the labor units that we had in our estimate.
And that is due to planning, it's due to offsite prefabrication, it's due to modular construction.
So we've hit some really good milestones with our company, and we'll continue to improve.
I know you talked about some of the modular construction at Analyst Day.
Can you help ---+ what kind of traction do you have there.
What's the upside.
You said with regard to modular construction, <UNK>.
Yes, yes.
And at the competitive businesses, have you seen customers try to reach through and get a taste of your ---+ the margin that you're experiencing from lower taxes.
Yes, <UNK>, that's a great question.
I'm going to actually ask Dave <UNK> to touch on his business, and then we'll switch gears and have Jeff touch on his.
We have not seen any impact from the tax reform.
Our margins have actually increased on our construction backlog, and so we really haven't seen an impact at all from that.
<UNK>, this is Jeff.
The answer is about the same.
We're seeing with the tax reform, excitement and investment and growth in our economy, which is going to have an impact on our industry.
If you looked at the ADP jobs report yesterday, the economy grew by over 200,000 jobs for the sixth straight month according to the ADP report, and we're looking forward to the Friday jobs report tomorrow from the U.<UNK> Bureau of Labor and Statistics where they're estimating non-farms increase of 195,000 for April, that's another increase.
So good signs for us.
We'll have some constraints on labor availability, but those are good challenges to have.
We're working on solutions for mitigating the labor risks for ourselves and for our customers.
So you kind of indicated margins, looking up, I mean, should we ---+ I think your last guidance was comparable to '17.
Should we ---+ could we look for those to tick up a little bit.
Your next question comes from the line of Chris <UNK> of Williams Capital.
<UNK>, the Oregon acquisition, was that a typical stock-type transaction.
Again, we maybe have a tough ---+ did you say was it a typical stock-type transaction, Chris.
Your typical construction materials have been a stock transaction.
Is that what the Oregon financing looked like.
So Chris, this is <UNK>.
I think as we look ---+ this is a great acquisition for us that kind of expands some of that.
I'll let Dave maybe talk a little bit more about the acquisition itself.
But this is a smaller bolt-on acquisition that we have financed, really to acquire the quarry in that area or a couple of some asset reserves in those areas and not a stock transaction in this case, no.
Chris, this is Jeff.
It made a strong contribution, and our outside companies had a very good quarter, strong quarter.
I mean, they weren't the only ones in our company who had a strong quarter.
We had a good contribution from our inside businesses as well, our health care, data center, mission-critical work, our higher education and our industrial work.
So that just points out that we've got a very good, diversified company and exceptional people.
It's not brand-new in our industry, and some of our competitors have been involved in that longer than we have.
But our initial start has been very positive, and we continue to see demand for this type of service that we can provide.
And we've got the ability to do it and the connections with our customers that are going to allow us to grow in this area.
We're seeing very positive signs of a strong market, and it's just starting.
So we also have the stadium ---+ football stadium that's being built, it just broke ground.
So you named some of the projects, there are several more.
So we're mapping all those opportunities and talking to our customers and making sure that we're going to be able to provide the resources so we continue to operate at a high level.
We can't do them all, but we certainly are involved in many of these that you just mentioned.
Yes.
We haven't seen much activity on the [Elon] project, but we are seeing some activity on Resorts World, and we're hoping to be involved in that.
Thank you, Shelby.
As we noted earlier, our first quarter results represent a good start to 2018.
We're committed to building a strong America and along with being optimistic about our opportunities for the rest of the year and beyond.
We also appreciate your participation on the call today and do appreciate and thank you for your continued interest in MDU Resources.
I'll turn it now over back to the operator.
| 2018_MDU |
2018 | OHI | OHI
#The insurance proceeds, is that in the guidance.
And the timing, would that be second half.
Yes.
when we thought about it, <UNK>, the cash flow will come in likely as a rebuild.
So we'll be able to redeploy it, but it's going to take a period of time.
It is booked as income because we had to take the impairment, but that's not in the numbers.
I would exclude that from the AFFO, just as I excluded the impairment related to it.
Just to follow up on <UNK>'s question, I believe, on the Genesis loan.
So what's assumed there in terms of accruing for interest income on that $48 million loan.
And then there was like a temporary forgiveness to them.
And if you could just give us a sense of kind of what ---+ how that restructuring for Genesis is playing out when you expect interest to continue to repay it again.
So we continue to accrue the interest on that loan, <UNK>.
That's our one significant concession and direct level workout that's really driven by rather 2 big landlords, Welltower and Sabra.
Just to give you a little bit of color on that loan, that loan is fully collateralized, very sufficiently collateralized, including the accrued interest.
So we feel very comfortable about that loan and any scenario.
In terms of where Genesis is headed, we'll leave that to them.
But the pieces, we know we feel good about their progress.
So when did they start paying cash again on the loan.
What's your expectation.
What's in the guidance, I guess.
So the forbearance as of February.
So we don't expect that to come back in <UNK>h unless there are some ---+ there's no other ---+ there's been no other discussion related to it, but it would be ---+ the expectation would be <UNK>h unless we have some change between now and then.
Okay.
And then just on your demographic comment, what's the average entry age of a skilled nursing customer.
Yes.
It's a very interesting, <UNK>.
The utilization rates for skilled, if you look at each age from 65 to 75, the curve is very gradual.
And it moves up, obviously, and then it's the 75- to 76-year-old age group and up each ---+ by each year.
It starts to increase very significantly, as you would expect, all the way in through the 80s and 90s.
It increases each year of age.
So if we, call it, 76 years old as an [interesting] point where you start to accelerate utilization and you think about birth rates beginning to increase in 1940.
So a couple of years ago, we started to see those 1940-year-olds first hit 76, now 77 and 78 years old.
And they're progressing up and we have a lot behind them from a natality perspective from 1940 on.
And then '45, obviously it explodes.
But from '40 on, you have birth rates going up, and that's part of the driver in this demographic and part of the detailed analysis that <UNK> <UNK> and Matthew Gourmand will work on to provide high-level information to our investors.
So the average age of a skilled nursing patient is in the mid-70s.
So 10 ---+ more or less 10 years younger than seniors' housing.
Is that what you guys are seeing.
If you look at ---+ and we'll provide the utilization curve that we've developed as part of our information on ---+ at least on a national basis, we'll provide it.
The mid-70s utilization rates, that's where you really start to see it pick up in a meaningful way.
So I hesitate to say an average, but because it weighs even more heavily as you get out on the curve.
But I think it's fair to think about it as mid-70s and beyond driving a bulk of admissions into our facilities.
Thank you very much for joining our call today.
We'll be available for any follow-up that anyone may have.
Have a great day.
| 2018_OHI |
2016 | FLIR | FLIR
#Well, I think the issue, <UNK>, it's an interesting point that you raise, is how do we leverage technology from the security segment into the other portions of the business.
And they're actually quite applicable.
There's really two fundamental technologies there that can be used elsewhere.
And those are the VMS technology and the cloud-based technologies that the DVTel engineering team is working on.
Those are applicable.
The cloud-based technology is fundamentally applicable across each of our segments and the VMS technology can be utilized in surveillance, in maritime, and of course, it's already being used in the security segment.
The opportunity for having high-level integrated VMS system tied together with the C2 system and then backed up with cloud access capabilities is something that is quite attractive to boaters, for example, in terms of being able to keep an eye on what's going on, on a boat, both while at voyage and while the boat is at the harbor.
Also on the surveillance segment, at the end of the day, what we do in the surveillance segment is we provide ISR capabilities across a variety of platforms.
And the ability to both record and disseminate that information is becoming increasingly important and that's fundamentally what the security segment capabilities will bring to the other segments.
Sure.
Well, we continue to look at opportunities to leverage our core technology and there are still a lot of opportunities out there where thermal technology can be leveraged into other business spaces.
Examples there include machine vision, automation, there's additional opportunities in security, in surveillance, in the UAS space.
There are a number of different opportunities there.
We look at channel expansion opportunities out there as well.
So we have the ability to pick up organizations that will expand our footprint and reach to the market with our existing products.
And then we're also looking at technology expansion, so looking at other wave lengths in the imaging spectrum.
Today we cover sonar and radar, visible imaging, thermal imaging, but there are opportunities in other parts of the spectrum that I think can be leveraged as technologies that can be complementary to the imaging technologies that we do today.
Ask <UNK> to talk about that.
Yes, I think overall, we expect to stay, it won't be quite as strong as the second quarter compared to the net income.
We were a little bit behind in the first quarter.
We made up in the second quarter.
So as a percent of net income, it won't be quite the same range.
But it will still be a very strong second half that would still generate over 100% of net income in term of operating cash flow.
Thanks, <UNK>.
We don't break that out, but what I will tell you, <UNK>, is that it was lower in Q2 than the norm and primarily as a result of the changes that we made in our export licensing processes that delayed some shipments into the second half.
So we expect that to normalize in the second half.
We also, we mentioned in the prepared comments also the security comp for Q2 of last year was a pretty tough one because we had a significant amount of cooled long-range shipments in Q2 of 2015 and very few in Q2 of 2016 and that's just lumpy.
We have a very competitive product line there, but those programs tend to be lumpier than the normal cadence of the uncooled cameras in the security space.
There were.
I'm going to have <UNK> see if he can have that breakout.
I'm not sure if we have it at that level of fidelity, but we have seen a strong order uptake there.
As we mentioned in the prepared comments, our overall government revenues were up 32% and DoD was up 17% and we had very strong growth in the federal area; it was up 140%.
But that's not specific to OEM and emerging.
Do you have a number there.
Yes, the growth, <UNK>, the growth in the cores business that's going to government customers was strong.
It was north of 15% in the quarter.
Sure.
So if we first just look at what things went on from a geographical standpoint, in Q2, we saw the highest growth coming out of the Middle East.
That was up 10%.
US was up 9%, Asia was up 4% and Europe was down 12%, as mentioned previously.
As we previously mentioned, the US government oriented revenue was up 32%.
In terms of Brexit, our exposure there is not terribly significant.
Our total revenues in GBP are less than 4%.
From a cost standpoint, we think we're properly leveraged there so we don't expect to see a significant change in margin.
I think the big question here, and I'm sure everybody is talking about this, is what will the impact be on the EU in total.
We're currently expecting our European revenues to be flat with H1.
We actually had some aberrations last year.
H1 was stronger than H2 from a European revenue standpoint and this year we believe that, that will flatten out.
Last year, we saw that delta primarily because of the fact that we had price increases in a you few of the segments in Q2 of last year and it pulled orders from H2 into H1 and this year we won't see that recur.
Yes, so I mean, thematically, the demand there continues to be high.
Interest level and demand continue to be high as a result of the relevance of our intelligence reconnaissance targeting and explosives detections technologies are, I think, quite relevant and our CDMQ model, thematically, I think is quite well received by customers in the Middle East.
And we're spending a lot of time with it right now.
We're quite strong in border surveillance platforms and in airborne-ISR platforms in the Middle East.
The wild card there is it's just a market that's very difficult to predict.
Timing is, it's the most challenging market that we deal with in terms of predicting timing.
But that said, we're reasonably bullish on the performance that we'll see out of the Middle East in the second half.
Good morning, <UNK>.
We expect the long-term range to be in the low-20%s.
Well, fundamentally, we have revised our export licensing practices, tightened those up and added some additional documentation and process to that.
And that's an effort that <UNK> has been heading up that was carried out in Q2 and it had some aberrations in terms of the delay of the receipt of export licenses for international customers.
And that's revenue that won't go away.
It's revenue that will come back into the plan in the second half of the year.
But it was an aberration for us in terms of our normal cadence of the execution of international revenue.
Yes, some, but I don't have it quantified.
There were some licenses that were delayed from Q2 and that have been received in July.
Yes, the majority of it we'll get back in the third quarter.
That's total FLIR.
I'll have <UNK> look at it.
For the quarter, <UNK>, it's the Middle East for surveillance.
We have the detection business as well.
But for surveillance, which I think is the crux of the question, it was up.
A little over 5%.
For the year ---+
Yes.
5%.
For the year, I'll have to crunch some numbers here.
So we do.
I mean, we know exactly what we're selling in that space.
But I don't want to go to that level of fidelity on unit volumes.
But I can tell you a couple important factors here.
In terms of the number of thermal imaging cameras that are being flown on drones, both commercial and military today, we dominate that space by a long shot.
And we not only have a relationship with DJI, but we have a relationship with several of the other leading commercial drone manufacturers today.
In fact, most commercial drones that are being flown today with thermal cameras on them are being flown with either the FLIR Vue Pro or the DJI FLIR and use XT.
Growth in that business has been quite strong and the penetration is extraordinarily low.
As a percentage of the total number of commercial drones that are being sold today, it's still quite a small number.
But we expect that to continue to grow through three potential initiatives here.
One is product expansion line.
We're expanding the product offering there to be beyond the current product offering which is primarily [tou]-based.
So we'll be adding in lepton-based platforms as well.
We just added radiometric capability, which is remote temperature measurement capability, in the FLIR Vue Pro R and that will get expanded across other manufacturers as well so temperature measurements can be done.
The third issue is the back-end software processing.
The end of the day, these drones get the cameras in the air and the cameras capture images.
But, ultimately, what you do with those images is really where the value gets delivered.
The ability to create 3D orthomosaics and have those be radiometrically calibrated are important characteristics for that market and we've been working very aggressively, both independently and with partners, to develop that capability and we'll have more to talk about that during the second half of the year.
And <UNK>, the year-to-date Middle East is similar.
It's up about 6%.
Thanks, <UNK>.
Great.
Thank you.
I'd like to thank everyone for joining us on the call today.
I'd also like to take a moment to welcome the employees of Armasight and ISD to the FLIR family.
They join a dedicated team of more than 3,000 employees worldwide that are committed to our mission of becoming the world's sixth sense.
I look forward to reporting our progress on that vision on the call next quarter.
Thank you again for joining us today.
| 2016_FLIR |
2018 | KLIC | KLIC
#Thanks, Joe.
Before discussing this quarter's business overview, I wanted to share some specifics regarding our delayed filing.
Following the end of the fiscal quarters, we learned of certain unauthorized transactions by a senior financial employee.
We have made the initial investigations of these transactions with the assistance of outside advisers.
In the course of these investigations, it was discovered that certain warranty accrual in prior periods have been accounted for incorrectly and are therefore misstated.
Although this investigation is ongoing, at the present time, we will be getting certain amount that should be ---+ should have been included in our reserve for future warranty expenses, but instead not reserve but expenses as incurred.
We currently believe that this error was not intentional.
However, considering the timing and the scope of this review, more time is required to benefit our current understanding.
And at this time, we anticipate that we will need to restate fiscal year 2017 due to inconsistency impacting our warranty accruals, affecting both cost of goods sold and the selling, general and administrative expenses.
We do not currently anticipate the effect of these specific and identified adjustments to be materially adverse to the company.
While this is an extremely critical issues, we are working closely with our external advisers and our internal team to [operate] review, remediate and file as soon as possible.
The company is committed to addressing the issue identified and then reestablishing timely financial reporting as soon as possible.
One of the information I have just provided is the company's best estimate at this time.
The investigation is not complete, and the impact of the restatement when finalized may be different, perhaps by a material amount.
With that said, I would like now to discuss our ongoing business prospect.
From a very high level, despite our delayed filing, our favorable end market alignment, near-term technical share gain opportunities and the longer-term potential of advanced packaging provide significant confidence in our ability to generate and deliver strong recurring cash flow well into the future.
During the March quarter alone, we repurchased $21.5 million of our stock in open market transactions, 18% more than was purchased in the entire 2017 fiscal year.
Looking ahead, we foresee the ball-bonding process to continue being the most effective way to interconnect the majority of semiconductor devices, from simple, discrete and LED applications to more complex memory and SiP applications, overlaying this critical benefit with a high growth and step from price-sensitive application touch at the center and the connected devices.
We expect ball bonding to continue to be a dynamic and a growing solution for the whole industry's needs.
Furthermore, we have demonstrated a clear path to optimize this business, so typical share gain in LED as well as enhancing the current revenue opportunities within this sizable market.
Next, within wedge bonding, where we also enjoyed strong equipment productions.
We have significant exposure to legacy and high-growth automotive applications in addition to water, power storage and power control applications, supporting sustainable energy and efficient energy distribution.
Lastly, we have developed a growing portfolio of advanced packaging tool ready to serve the new capability needs of next-generation logic and memory, supported by Wafer Level Packaging, thermal compression and the High-Accuracy Flip Chip processes.
With that said, I would now like to conduct our March quarter's performance.
During the quarter, we were again able to exceed our guidance range with $221.8 million of revenue and currently anticipate net income to be approximately $36 million.
Revenue for the quarter increased 11.1% from the same period in the prior year, driven by increase in both our capital equipment and open market product in the service segment.
Sequentially, Capital Equipment revenue improved by 3.2%, driven primarily by an increase in R&D in the RSU equipment, which more than offset the anticipated reduction from the December quarter when we recognize the revenue from a sizable automotive-related order.
During 2018, we'll continue to make ongoing capital investment in LED capacity for general lighting and also memory, driven by NAND.
Memory application accounted for about 14% of our ball bonder shipment during the March quarters.
Revenue within our Aftermarket Products and Services segment outpaced Capital Equipment growth and increased by 6.1% sequentially.
We continue to make progress on further enhancing this recurring revenue business.
I would now like to turn the call over to <UNK> <UNK>, who will cover this quarter's financial overview in greater detail.
<UNK>.
Thank you, <UNK>.
My remarks today will refer to GAAP results.
Based on our preliminary review, gross margins are anticipated to be in line with our previous expectations of slightly below 45%.
Looking ahead to the remaining 2 quarters of fiscal 2018, we anticipate gross margins to improve to around 45%.
Over the past year, we have driven a renewed focus on cost and supply chain, which is increasing our competitiveness and margins in more price-sensitive markets.
We're currently anticipating net income of approximately $36 million or about $0.51 of EPS.
Our cash balance closed at approximately $628.7 million.
This decrease is overwhelmingly due to the quarter's more aggressive share repurchase program and also increases to working capital largely related to our ongoing operation array.
Looking ahead, our operating model target is still intact.
We currently expect to maintain the existing quarterly operating model of $53 million of fixed expenses plus 5% to 7% of variable expenses tied to revenue.
Regarding tax.
While still evaluating the U.S. tax reform, we currently expect to maintain our long-term 15% effective tax target going forward.
This concludes the financial review portion of our call.
I will now turn the discussion back over to <UNK> for the June quarter's business outlook.
Thank you, <UNK>.
Looking into our June quarters.
We are targeting revenue to be between $255 million to $270 million and are anticipating another very strong revenue year.
Overall, strong IC unit growth come out with all products across [a manner] with yearly profit growing in end market including LED, automotive, memory, 3D sensing and advanced packaging all provide us with additional confidence.
Moreover, we continue to optimize all business and drive meaningful change within the company.
This has already borne fruit in the energy market and also has set the foundation for ---+ ongoing for growth in our recurring revenue business.
We also have new opportunities among our growing advanced packaging portfolio.
In addition, we have recently initiated several new development efforts to further expand this offering and also our served market.
We appreciate your ongoing support, and we look forward to sharing our progress as we continue to execute our long-term strategy.
This concludes our prepared remarks.
I would now like to turn the call back over to Joe for closing comments.
| 2018_KLIC |
2016 | X | X
#Good morning, <UNK>.
Well, you know, if you look at lead times on, I believe Cold Rolled are up to nine weeks right now.
So it's certainly tight out there.
And we do have some flexibility.
But, again, as I said, we need to see a more sustainable volume demand coming into the market before we would restart it.
But we would do it if that was the case.
No question.
Good morning, <UNK>.
The analysis is very broad.
We've always said that we would prepare to do it at the time that it's convenient for us.
Not anybody else's input would make a difference in the moment in which we will pull that trigger.
But we're ready to do it at the right moment.
We always look at the global demand, <UNK>.
But we need to put the fudge factor of the interface with imports in terms of the trade cases.
And they will certainly play a meaningful role in how much the overall global demand and the movement of material around the world would impact us as the domestic market continues to evolve.
Demand in many of the sectors here, as you know, has not been bad.
You look at automotive, the white lines, they've been fairly steady and good.
Some of the other ones are not.
Like you go to mining, for example, and the energy business in general, it's been fairly weak.
So those domestic conditions both here and in Europe are observed with attention.
But we do look at what's happening in the outer world and what are the thresholds based on the curtains that we're trying to put in place to make sure that the fair trade prevails for the most part.
We would if that was the right decision to make.
And don't misunderstand it.
We don't disagree with you.
If you look at where the market was just a couple of months ago to where it is right now, it certainly has changed and then we are confident of it.
Thank you.
Good morning, Chuck.
Thanks, Chuck.
Good morning, <UNK>.
Well, actually, <UNK>, we're very happy and excited with everything that's happening in automotive.
We have several new alternatives that have been given to the OEMs.
I mean, if you look at most of the OEMs that we're working with, the solutions that they are going for are steel solutions.
Many of them are our solutions.
Our engagement has gone beyond just a material.
It's going very heavily towards what we can do with the design engineers of the OEMs in order to come up with designs that are much more prone to receive some of the materials that we're offering, as well as current materials.
So we are very comfortable with what is taking place in that realm for us.
I don't think so.
The capability that we had was mostly technical and intellectual capability, because we've gone beyond the normal board of relationships where you're just talking about a material.
You're talking now about a solution, and there are plenty of contributions that we're making as the design engineers go about crafting the ultimate shapes and structures of the new vehicle.
And our input has been essential for them to really get to the best, safest, lightest and more economical solution that they're looking for.
I think for the most part, they've been concluded.
There are still some that are in the last phase of conclusion.
It shouldn't take very long for that to be done in full.
Good morning.
Well, that project is solely dependent upon the turnaround on the energy demand.
And right now, it's still very low.
We are concluding the warehousing of all of the equipment.
Everything has finally arrived.
It's all taken care of.
We can certainly kick it back on whenever the moment is right.
And we just need to see what happens with that market.
Right now, we're really looking into addressing the very small demand that we're seeing out of the operations and adequating it to make sure that we address cash flows to the best of our ability here.
I think it would probably require between $50 million and $100 million to finish it off.
And we certainly could conclude it between six months and a year, depending on what the conditions are at the time that we reignite it.
Hi, <UNK>.
We are evaluating all options.
We wouldn't take any off the table.
But we're not going to get any more specific than that at this point.
But we know what all of our options are, and that's certainly one of them.
But we know what the full spectrum is.
But beyond that, I don't think we have anything additional to add to that.
Well, the feedback is very good.
I don't think we've ever been as transparent and engaged with them when we analyze the overall of the value chain for them.
And that includes not just the delivery performance, but the way in which we do some forecasting which impacts how we do sales and operations planning.
So I think the progress is real.
And the candidness and the feedback feed into the way in which we do the planning for improvement over here.
So it's certainly a lot better than I've ever seen.
I mean, historically, you know, it depends on the market situation.
If there is a real opportunity for investment, you go a little harder at it.
But on average, 30%, 35% has been the pretty good place to be.
Yes, we're comfortable with the number.
And the big expense was, as I mentioned before, was the conclusion on the position of all of the parts for the EAF.
And, <UNK>, you have another piece of ---+
Direct steel.
No.
Sure.
Yes.
Well, you know, the Canadian process continues to flow as expected.
The market over there is going to be susceptible at the same levels of injuries that you've seen over here.
And it's ---+ we don't have a direct interest at this point in that particular market.
We have enough going on between Europe and here.
We have plenty of opportunities.
And that's what we're really mainly focused ---+ focusing on.
Yes.
I just ---+ before we sign off, I want to acknowledge and thank our employees one more time.
I know it's been hard for them to see the positives because they've been confronted by significant challenge after significant challenge.
However, we certainly would not be where we are today seeing the light at the end of the tunnel without them doing what they've been doing.
Very grateful for that and proud of it.
So thanks, everyone.
| 2016_X |
2015 | TFX | TFX
#That's an all-inclusive number for North America.
There are really two pieces to it.
One was in connection with the filing of our US federal tax return, where the actual expense came in less than what we had been accruing towards as the year had progressed.
And the second issue was related to an initiative to further simplify and rationalize our organizational structure.
So we transferred ownership of certain subsidiaries around the Teleflex group, and a byproduct of this was that it created an increase in the foreign tax credits that would be available to offset future taxes ---+ or US taxes on our non-[criminally] reinvested earnings.
Now, the other benefit of that movement was our ability to repatriate cash, which we did also in the third quarter.
So, there is really two impacts that are driving the rate in the third quarter.
As mentioned, those rates are not something that will impact the rate in future years or on a sustainable basis.
I think the opportunities over the next several years are going to continue to be robust.
One of the things we're seeing in the US market, by way of example here, is it is getting tougher for, let's call them, $100 million revenue companies, to be able to get a seat at the table at IDNs and at GPOs.
And so it's becoming more difficult for them ---+ the increased costs to get your product, for example through China, make global expansion tougher for companies of that size.
Even things like the medical device tax have a lot of those $50 million revenue companies just at the brink or below profitability.
So there have been an increasing number of environmental factors in the healthcare marketplace that make it more difficult for those size companies.
This year, our currency is a negative factor when we try to look at European assets because they have one view of what their sales increases is when they are doing their calculations in their own currency when we have to denominate back into dollars what it's going to do to us.
In many cases what looks like growth to them is actually negative to us by the time we go through the currency translation.
So that's having some short-term impact in terms of how we might see evaluation and they might see evaluation.
Again, once we see a more stable environment where currencies aren't a big issue that will start to evaporate a little it.
That's the only thing I think that's on the horizon that makes the market, at least in acquiring European assets, a little bit more difficult than normal.
So, help me understand what you see by ---+ what you mean by ---+.
(Multiple speakers).
Yes, so in the next 12 to 24 months I would be really surprised if you didn't see that.
Yes.
I think we're still not in the mindset of some kind of transformational acquisition that would be in the billions of dollars.
But, in that, I think our range now is probably in the $300 million to $700 million range where we'd consider that certainly capable, financially, for us to do that, and I would be very surprised if you didn't see one in that period.
Thanks, operator, and thanks everyone for joining us on the call today.
This concludes the Teleflex Incorporated third-quarter 2015 earnings conference call.
| 2015_TFX |
2017 | LEN | LEN
#Sure.
Let me have <UNK> give an answer there.
Let me start and then have <UNK> and <UNK> weigh in, but as I said in my opening remarks, some of what you saw in our gross margin reflects some of the sluggishness that we saw towards the end of last year.
Remember that what we're selling two quarters ago, we're closing now, and as we went through the election season, as we went through some reconciliations in November, the market was a little bit slower than reported and we saw that bleed into December.
We went from kind of sluggish, to better, to strong ---+ in terms of sales.
So as you see things firm up, there's a little bit less incentives and a little bit more price.
Construction costs have been moving up at the same pace.
We feel pretty comfortable as we look at our numbers, as we look at our backlog right now, that our margin is coming back up.
<UNK>.
Yes, I guess the thing I'd say to add to that, <UNK>, is we're spot on with where we thought we would be for the quarter with regard to gross margins.
I think that the analyst community put too much margin in the first half of the year than in the back half of the year.
We are on the trajectory to get to where we guided to.
With regard to WCI, as <UNK> said, it'll have about a 20 to 30 basis point impact in Q2.
But given the fact that WCI had a low cost land position with high gross margins, it will not negatively impact margins for this year on an annualized basis.
Thank you.
I think some of that is driven by the impact of still, a little bit of sluggishness in Houston, but with regard to Houston, we have seen a pick up.
We are starting to see a little of an increase in rig count and we still have a divergence in sales pace between the higher priced and the lower priced ones.
So, Houston was a little soft, but it looks like it's, the picture is getting a little brighter there as we move through the year.
Good morning, Mike.
Okay, so, I'm not really sure where you get your 7%, but let's put that aside and let's understand where my commentary comes from.
Remember that when we are looking at our monthly year-over-year, we're looking at comparison to last year.
So, let's take seasonality out of the equation because we're looking at December to December, January to January, February to February, so the seasonality is injected at both sides.
And what we were seeing in terms of the numbers is a slower and lower comparison in December, a comparable comparison in January, and a substantially higher comparison in February.
So that's the numerical side of the commentary.
But the empirical side is what I look to dovetail with the number side, as I think about these things and I try to think about them in realtime and balance what we're hearing at the front line in the field from our customers and measure that up against what we're seeing in the numbers.
And so the commentary really derives from the kind of traffic patterns, the questions that people are talking about, and the kinds of people that are showing up.
What we are starting to see ---+ I think in my commentary I noted that the millennials are doubled up at about a 60% rate living at home with parents, relatives or roommates.
It's at 115 year high as reported in USA Today.
I don't know if that's exactly the right number, but it is directionally interesting and we're starting to see some of that cohort start to come out to our sale centers and talk about the fact that rental rates are high, rental rates have been moving, rental rates create some instability.
It's time to start thinking about buying a home, 30-year mortgage, fixing the monthly payment and looking at the possibilities and benefits of actual ownership, dovetailing that with the banks talking about coming back to market.
These are the components that kind of make up my sense that there's something afoot in the market that's broader than just one month in a row positive comparison.
So that's kind of where it comes from, Mike.
Well, what I would say, Mike, is that, as we go through the purchases accounting exercise, we look at all the various assets and the assets will be, let's just to use an estimate, be somewhere close to the margins that we get within that marketplace where the assets are.
So as we're performing at a certain level, we would expect the assets in that same market to be somewhere close.
So, the real purchase accounting impact is really in the second quarter as we write up backlog and then as you get beyond the second quarter, for the most part, the integration costs, the write up of backlog is all behind us, we expect.
And then for the second half of the year and beyond, you get back to more normal type of margins that we would expect in that market place and that's probably the best way to think about it.
They are just a little bit ahead of the Company average.
Let's take our last question now.
Yes, this is <UNK>.
We haven't really given any 2018 guidance, but you could expect from my comments earlier that we will get SG&A leverage, you will see a benefit to some gross margin because of lower costs and operating efficiencies, and as we move into the tail end of this year, we'll give guidance for 2018.
I could take that.
We have a little static in the background, but, <UNK>, titles, first quarter is typically the lowest quarter of the year, so that increase is on a very low base and, essentially, we just had some additional pricing in terms of the average sales price of the transactions we had during the quarter were higher on the same overhead base, so we got additional leverage.
So, percentage wise, it looked really good, but nominally, it was really just a small increase.
Okay, so with that, let me say thank you to everybody for joining us.
We feel really good about how our Company is positioned and how the year is starting to shape up.
We think that the overall environment is strong and we look forward to reporting back to you as we go through the rest of the year.
Thank you.
| 2017_LEN |
2017 | HOMB | HOMB
#Say, just maybe a couple of things.
Did I hear, I guess as far as the closing of the Stonegate deal, that it could be later this quarter.
I guess any better time line on kind of how you're thinking about that.
Okay.
All right.
Fair enough.
And then just on the M&A front, <UNK>ny.
I guess given kind of the size of the Stonegate deal, I mean it sounds like you're looking at handful of items.
I mean is it fair to think that they'd probably be on the smaller side rather than the larger side, given the integration and focus on Stonegate in the short term.
Is that fair.
Okay.
Fair enough.
Just maybe last 1 or 2 things.
You talked a fair amount about the payouts.
Just kind of the loan production.
If you look at the loan production in the last several quarters, has it been pretty consistent.
I guess is that the way it sounds.
I mean I know the payouts have impacted the net number, but the production numbers, have they've been reasonably similar quarter-to-quarter.
Perfect.
That's helpful.
Just the last thing, maybe just still for you, <UNK>, was the core margins that I hear, just kind of your thoughts.
I know <UNK> commented about the accretion, but just the core margin and the likelihood that you're not going to significantly raise the deposit cost in the core margin, assuming the recent rate increases is generally kind of flat to up a little bit as ---+ at least over the next couple of quarters.
| 2017_HOMB |
2016 | AEGN | AEGN
#So we already do several refineries on the West Coast for the customer.
And we were able to leverage that relationship.
It is a very good customer for us.
We are extremely pleased to be in the refinery, and so far all the feedback that we have gotten from the customer and from our team is that the transition which occurred in June has gone extremely well.
Obviously, $17 million is an annualized number and we (multiple speakers).
Right.
We will probably get the substantial amount of it this year.
But it is in the range of $14 million, $15 million, probably.
Correct.
So let's just walk through maybe a few more details that we have talked about earlier.
Remember that we control the construction schedule.
We recognize revenue as we produce product and that the contract says we need to be completed by the end of the first quarter in 2018.
What we anticipate is that we will start up the plant at the beginning of Q4.
Obviously, it will be a ramp-up in terms of production during the quarter, but we would expect that we would produce the entire project over three to five quarters.
And a lot of that will depend on how quickly we ramp up production and what kind of production rates we ultimately achieve with the plant.
But what we are projecting is that we will complete the production over three to five quarters starting in Q4 of this year.
I would (multiple speakers).
We believe there is the potential for some follow-on work with this project over the next couple of years.
It is much smaller in terms of significance and scope.
We don't see another large Appomattox type project on this horizon at this time.
We certainly know of several other customers that are watching this project very carefully, and my expectation is that we will hear more out of those as this project progresses.
That is a good question, <UNK>.
I don't have that off the top of my head.
I can certainly follow up with you on that.
We made some write-downs at the end of last year, and that number is down.
It will be in the 10-Q as well, but I will certainly follow up with you on that.
Well, a couple questions there.
I think the first thing is, your assessment of the size of Corrpro Canada is about right.
In terms of the overall business, it has been a very good business for us over the last couple of years in terms of revenue and profitability.
We saw the ---+ what we have seen since the fires, which I mentioned, is just that the work releases have been delayed.
We haven't heard of any cancellations, but we have seen a delay, and as we looked out over the second half of the year, we decided to be conservative and we don't expect any cancellations.
We are sitting on a nice backlog for that business, but as we looked at it, we think those delays will move some of that backlog into 2015 ---+ 2017 that we originally had forecasted to be 2016 work for us.
We do a lot of work up there for some of the major transmission companies.
We also doing a lot of work for smaller companies.
So yes, the delays have been sort of across the board and, to be honest with you, I can't really explain exactly why they are delayed.
I would have thought by now that we would be back at work and going full bore to actually make up for some of the time we lost during the month of May.
But that certainly hasn't occurred.
So we have a very ---+ we very successfully entered the [bi-layer] insulation market in the Gulf of Mexico.
We have ---+ the plant is positioned really well for FBE coating and for doing all types of insulation, not just ultradeep insulation but all insulation.
We certainly have sized that facility down there to break even at much lower revenue maybe than we experienced five or six years ago.
Obviously, this year has been challenging because we know we have a great big project coming, and we have had to size the organization to be able to execute that project.
Going forward, we won't see the kind of revenue that we are going to see in 2017, I don't think, in 2018.
But we believe we can size the plant appropriately for the market and be successful with the work that is in the Gulf Coast.
We don't have anything to believe that that would happen.
And, remember, this is a new plant.
It certainly is in Shell's best interest to make sure that we are done at the end of Q1 in 2018 per their schedule.
This is a huge project.
We haven't seen anything that makes us believe that they are going to change their schedule or their arrangement with us.
And what that leaves us with is that we really have the opportunity to manage the schedule the way we think is most effective.
Certainly, we don't have any plans to push up against the final deadline for the contract, which is why we are really targeting to finish the production over three to five quarters.
It is more of a strategic review of where we expect to take the Company and what we think.
There will be some metrics associated with what we think we can achieve over the long run.
So it is a combination of both.
We are going to be doing that over the next months.
I think I mentioned it on the last quarterly call that we are in the process of developing the databases and the way we transmit information from the field into the database and then from our database into our customers database.
That work is ongoing.
It is going well.
I think what I said on the Q1 call was that we would expect it to be commercial and start introducing that product on a commercial basis going into 2017.
We are still on track to do that.
We did a project review a couple of weeks ago, and I am very excited about what we saw.
It is really going to be a nice step forward for our cathodic protection services business.
We have had ---+ I think what you asked is sort of the state of the wastewater CIPP market.
I'm sorry.
I didn't catch all your questions.
We have seen growth in the overall market this year.
We had a huge Q1 last year, and I think I mentioned on the call that we either had in February or in April that what we expect to see this year was that we wouldn't replicate the orders earlier in the year, but we would have better orders in the second half.
And that is certainly what we have seen.
We had a phenomenal win ---+ number of wins in dollar value of wins in Q2.
We have seen the market opportunity grow this year versus last year.
And as we look at the big table going into the second half of the year, it looks strong to us.
So overall, I think we are very pleased with the state of that market and the size of the bid table.
Yes.
It runs about the same.
We try to manage our share pretty carefully.
We obviously want to win more than our fair share, but we also have to be cognizant of margins in that.
We manage that pretty closely, but we have certainly won our share of work this year.
Well, I think what happened was ---+ really, the gross margins for Fyfe and Underground Solutions are sort of in the same range, but obviously we added SG&A when we added Underground Solutions.
And what happened it is the overall gross margin is probably up a little bit with the addition of Underground Solutions.
But we did add SG&A, and I think we look at operating margin as down just slightly.
We have entered our primary earnings season with the pieces in place for a much improved earnings performance in H2 and an opportunity to build positive momentum as we move into 2017.
We are very excited about the way the business is positioned for organic growth going forward and are looking forward to our calls over the next several quarters.
Thank you for joining us today.
We appreciate it.
Thank you.
| 2016_AEGN |
2015 | DE | DE
#And then was proposed by our actuarial company, so ---+
| 2015_DE |
2016 | FLS | FLS
#Well, right now we're ---+ we haven't changed our guidance in terms of the 40% to 50%.
But as we talked about in terms of our capital allocation priorities, we always look internally and organic first.
One of the things that we are very focused on is this restructuring, and that's where a lot of our cash will go to this year in terms of driving that.
So the priority is going to be our restructuring activities, our capital expenditures, which are anticipated to be more modest than last year but still important growth capital expenditures and then we're still sticking to our 40% to 50%.
No change there.
Yes.
We ---+ in the past couple of years, what we do is when we fund our internal initiatives and our priorities, we've over the last couple of years have returned the excess to our shareholders, which is very important.
So to the extent were those are going to be more cash utilization on important internal initiatives, that the likelihood is that we'll stick to our guidance.
Well, let's say all other things being equal and they aren't because of the restructuring, but let's just start generally with the way to think about it.
First, you look at the volumes.
The volumes in 2015 in terms of project activity were lower than in 2014.
The pricing environment in 2015 was more competitive than it was in 2014, not to the extent of what we saw in 2008 and 2009 because the pricing didn't get near those levels.
So those things flowed through ---+ started flowing through the P&L and last year and are reflective in our compares.
So you'll have absorption, which you address with some of your restructuring activities, and also the pricing environment which you also address with your restructuring activities.
But that's working its way through.
So the marginal impact, or the incremental impact starts to abate because you don't have as much project activity sitting in backlog.
As we look forward, in terms of that ---+ the profile there, so we do need to get at the absorption issue.
So the cost savings will focus on addressing the pricing environment, and also the volume environment that we're in.
And we're designing it to be very, very long term.
The other thing then is you start looking at mix.
If we start driving growth in the aftermarket business, start getting traction in the run rate business, then that can certainly support margins.
Those are the levers and those are really the dynamics around our margin profile.
But we've seen quite a bit of our project activity, certainly from 2014 go through the P&L and we're seeing 2015 now go through the P&L.
There wasn't a lot of project activity at the end of last year, by the way.
Mainly, it's LTI, the acceleration, like I said, of non-cash accrual really relates to a change in our retirement plan.
So accounting convention within a change and when we deploy, you have to actually pull that cause forward so really, it's essentially taking three years of cost and pulling it forward, s o you'll see a modest decline in our amortization of that over the next 36 months.
The majority of that sits in our corporate expense and then a portion of that is allocated down to the segments.
In terms of guidance, probably about I want to say about 50% of that was considered in our guidance and then real accounting adjustments were made in first quarter.
Slight; it's modest over the next three years in terms of reduction in amortization.
It takes ---+ what it does is it reduces its subsequent quarters.
It takes three years to kind of get in the full cycle of this so we'll see this impact in Q1 but it will be less significant but as <UNK> talked about, it is non-cash.
You're welcome.
So <UNK>, I think you said IPD and we haven't seen ---+ okay, no, we haven't seen the big price pressure in IPD.
What we did see was the reduction in oil and gas project activity.
So IPD has some project that can actually be repurposed for other processes as well.
But they were able to line it to the balance of the plant for some of these oil and gas larger projects.
What we saw was a decline in the bookings activity and these were ---+ these aren't huge but there could be $250,000 and above.
We saw significant decline in that year over year.
Offset by more penetration in some of our other industrial chemical applications and distribution.
where we've seen the pricing competitiveness now for really about nine months to a year, is in the EPD segment; it's ---+ a lot of it is in the OE portion of that.
Where we've seen the pricing impact; those are the big large projects, millions of dollar projects that are competitively bid.
Right.
I think the comment about project opportunity is competitively priced will apply to everything.
But the fact is, we ---+it was more volume than anything else in IPD.
Good questions on IPD; the point there is we have an opportunity to take the products that we have.
We've got a good product portfolio, and much better to penetrate the market, is what happens when you get these large project activities; is that it will tend to tilt the entire organization to focus on those.
We've certainly ---+ we've made some changes, not only the leadership of IPD, but in our channel-to-market approach in terms of our sales organization, our distribution leadership to focus on this and we've seen some traction.
So think of these ---+ think of those as we need to address markets better than we have before.
And that's what we intend on doing.
As <UNK> has indicated, previously on the EPD side.
On the IPD side, we also have had some project that we could have taken but for some of the terms and conditions which were extremely onerous.
That's a good question.
We're ---+ this what is much more removed than moved than we've seen in the past.
Because we're ---+ what we're doing is closing facilities and consolidating that into some of our higher performing facilities, even in the OECD countries.
So there's a lot of closures relative to what we've seen before, but then again, what we'll do is we may move the product into a lead product facility, into a mature market and a lot of the work goes into a lower-cost facility in some of the emerging parts of the world.
But this is really designed to position the Company long-term in the industry.
Things we've been literally had on the drawing board now for 2.5 years, we just accelerated it.
I think we've talked about a 30% of our physical capacity is getting taken out.
So actually, there's more square footage in a sense then there is resources.
And a lot of that is because we're building engineering and engineering centers in India to handle higher volumes.
What we're doing with the 30% take-out, what we don't want to do is not be able to address the markets when they become more robust.
So I think the way to think of it is, even though we're taking the physical capacity out, I believe we'll be able to handle at or higher level of volumes than we been able to handle before.
That's important; we want to be sure that we can address our markets because we still believe in the underlying secular drivers in the business.
You're talking about going for standardization.
Actually we work ---+ we welcome that.
We work very closely with some of our large customers to drive that because what it helps us do, is to streamline our manufacturing process, our ability to support it from an aftermarket standpoint but more importantly, turn to our supply chain and drive the value through there.
Keep in mind, standardization does not mean commoditization.
Standardization means we come ---+ we develop a common and expected set of process conditions, under which the equipment will operate.
That actually helps us be more efficient.
It also helps us get more of a share of the customers' wallet as well because when you develop and can deliver the standards, it works well.
I don't - - we don't look at that disfavorably at all; we actually encourage it in ---+ with our customers.
I would add, I mean, we've even gone as far as to put engineering talent in EPC facilities in order to drive that overall standardization strategy that they're ---+ that they've been embarking on over the last couple of years.
We aren't seeing necessarily the restocking yet.
What we talked about is we feel the destocking has abated and they're running just-in-time inventory.
Now that's important, because for that channel to be able to be successful, you've got to be able to deliver in a timely and efficient manner.
And if you look at FCD's performance over the couple of years, the fact that it has the margin profile that it does is reflective of their ability to respond to all customers' needs, particularly our distribution channel.
Now when I did make then comments is when we see some restocking occur that should be a tailwind for us but we have not seen that yet.
Well, it ---+ geo ---+ what we've talked about is that the base aftermarket business has shown some stabilization.
What we haven't seen that we saw in prior years were what we call the small aftermarket projects, some of the efficiency initiatives that some of our customers do.
They're still holding onto that spend at this point in time but we're confident they'll do it because it actually improves the return on their operations but it's been pretty much stable what we've seen across the board in terms of all the operations globally.
Many of these projects that went in, in 2014 and the beginning of 2015 are now going into a period where they need spares during the first two years' worth of operation.
So we are seeing some good activity relative to that in North America, Europe and Asia.
Obviously, Latin America is down given the whole political situation there so that looks ---+ I would say that looks promising.
And we're also seeing in North America, because of the deferrals of the maintenance, we are seeing some emergency repairs start to kick in.
Customers are coming in with very quick turnarounds so that business is now seeing a little bit different, I would say, driver in that business.
And our EMA maintenance business in terms of upgrades on Flood Control.
We mention desalinization and even the refineries are seeing some positive signs there.
| 2016_FLS |
2016 | SLM | SLM
#So at the end of 2018 when I look at our longer term plans, we are probably still in just the high teens approaching 20%.
Look <UNK>, we will do $1.5 billion to $2 billion of ABS a year if it's offered at very attractive prices like it is here today.
The fact of the matter is if you take a look at, say, retail money market deposits where we are paying just about 100 basis points, when you fully load the cost of that for things such as servicing operations and the reserve that we have to hold against short-term deposits, the cost of that funding isn't all that much cheaper than the ABS market.
So we are going to approach this to try and maximize the profitability of the operation here.
And I think getting to that sort of a level makes sense, particularly when you have an asset that has an average life out of the chute of six years.
We think it makes sense to lay in some conservative longer term funding.
But first and foremost we are a bank and we have access to very broad and deep deposit funding market.
And we will continue to take advantage of that as well.
I mean, there's almost none if you look at the disclosure that we publish in our 10-Q.
So if we have 100 basis point shock to interest rates our net income will go up 2.3% over the course of the next two years, which we view as very de minus.
So look, given the massive growth that we expect in this portfolio, and we're going to continue to have something like $3 billion of loans entering repayment every year for the next two years, we do expect the reserve as a percentage of both loans in repayment or total loans to continue to grow.
So looking out a year, if our loan loss allowance today is 117 basis points, maybe that gets to 125, 140-ish basis points a year from now.
If you want to take heart in something, every time I look at a forecast for the allowance for loan losses, we don't achieve it because credit continues to perform somewhat better than we expect.
And that's what we are seeing now, is our cure rates and [loan] rates that exceed our migration model continued to perform very well.
But the long and the short of it is we do expect that loan loss allowance to continue to grow, given the use of our portfolio.
As we've looked at that trend over a period of time, the schools continue to have total cost increases.
And this is tuition plus room and board and other ancillary expenses, some of which are not so ancillary like textbooks, in a range that has been running 3.7% or so.
And we don't see any change in that trajectory.
It's also the case that American families are buying more education, more years of college per student than they had previously.
So as we have tried to compile that, taking into account the demographic flows associated with graduates from high schools, we are in the ballpark.
A 5% number going forward looks like a reasonable estimate.
We have no reason to think ---+ if there's another 20, 25 basis point raise in the December meeting, the post-election meetings, we would expected it to follow the same pattern that the prior one had.
So looking at where the ABS market and the residual market might be, it's recovered quite a bit, somewhere between 8% to 9% premiums.
We talk about 8% being the breakeven.
I think we've also said that in order to move us off of the hold to sell position we'd have to see a premium somewhere probably north of 10%.
I continue to believe that everybody is best served if we stick to one business model, which is the originate and hold, rather than ---+ changing that business model brings an awful lot of uncertainties with it.
We get back to the, how much you can sell, when are you going to sell.
It creates difficulty for models and shareholder expectations and so on and so forth.
So long story short, unless we see a significant improvement in the underlying margin premium, we are going to greedily hold onto all of our student loan assets.
So the product that we've talked about introducing first would be a personal loan.
We have looked at various partnerships with [Syntax] and other providers in the marketplace.
We haven't had any success to date of partnering up with anybody.
We are in the process of developing our own personal loan product.
That probably won't be rolled out until early 2018.
But we will look for opportunities to maybe acquire some assets between now and then in a very modest way.
It's the case that as we've looked at this over the last couple of years, and the metric that we tend to focus on is return on equity.
So we view this as a competition among opportunity costs for various techniques.
And so as long as we continue our growth trajectory, as long as we continue the margins that we are having, and in fact improving, and as long as our return to our shareholders on the balance sheet is a very attractive number, which as you know it is, we will continue to believe that the best use of our shareholders' money is to invest it in this high return and high growth business.
We don't have a foreseeable when that curve is different from our expectations.
Yes.
(Laughter).
You said it better than I could, <UNK>.
So <UNK>, here's why this uncertain tax position had no impact on our earnings per share.
We put up a receivable of income taxes payable.
Offsetting that is an indemnification asset.
This whole situation has to do with a pre-split situation, and it's a 1048 position for uncertain taxes.
Every company has them.
Very few companies discuss the details with the public.
What we would expect would happen is at some point in time this uncertain tax position would be settled either favorably or unfavorably, as in no taxes payable or taxes payable.
And at that point in time we would look to our indemnifier, and if taxes were payable by SLM as a taxpayer we would look to the indemnification and there would be no impact on earnings.
So simply put, this is related to pre-spin activities.
SLM Corp is the taxpayer for pre-spin activities.
If this had to do with anything that took place at the bank prior to the spin, we would be the taxpayer.
Dare I say it, if it's related to companies that were spun off with the Navient businesses, they are ---+ they would be the taxpayer.
And this is all spelled out in public documents.
There is a tax-sharing agreement, a separation and distribution agreement.
And if you have some spare time you can take a look at a Navient 10-K where they spend a significant amount of time talking about indemnifications for pre-spin business activities.
But the basic dynamic here is when we did the spin we thought it was a good idea for the Sallie Mae name to be carried forward.
And when we made that decision, we also took the legal vehicle associated with that, which is also the tax filer for IRS purposes.
We had an agreement at the time that activities that occurred prior to the spin would be on Navient's ticket.
Bank-related activities post-spin would be on Sallie Mae's.
Having said that, we filed the return for 100% of the activities that were existent before the spin and for the bank activities post-spin.
So [anything] that were to occur prior to the spin, as <UNK> says, one is we would have to paid it.
So we have to set it up as a payable on our tax reconciliation.
And secondarily to the extent it was not associated with bank activities but associated with other activities which were related to Navient, Navient that would be the indemnifier for that, which closes the loop.
At this point we can safely say that you have the picture.
If you want to have a follow-up question of the same content, we will take it.
(Laughter).
Thank you, <UNK>.
Okay.
One, thank you all very much for your time and attention this morning.
And secondarily in closing remark, I do want to summarize, it has been a great quarter for us.
It's also a great quarter that occurred during our busy season.
And it's the third straight busy season during which we've experienced wonderful success.
It is the case that service quality is one of the major stories for us in this quarter, which as I noted, we're now in a virtuous cycle in which better service, a friendlier, more efficient interface for our customers yields higher satisfaction with our service and results in a lower cost trajectory as we head into the future.
In summary, our prospects are very good for 2016 and beyond.
These results have all been brought to you by a talented team with whom I have the privilege to work.
And it's a pleasure to report on these accomplishments delivered by that talented, focused team.
So thank you very much, and we will talk to you soon.
| 2016_SLM |
2016 | TRST | TRST
#As the host said, I'm Rob <UNK>, President and CEO of the Bank.
As usual, I'm joined by our CFO, <UNK> <UNK>, and our Chief Banking Officer <UNK> <UNK>.
Also in the room is Kevin Timmons, who a lot of you deal with regularly.
Our plan is the same as always.
I will give a brief summary, then turn it over to <UNK> <UNK> to detail the numbers.
<UNK> <UNK> with the Operations, especially our loan portfolio.
This will leave time for questions you may have.
Our loan growth has been very good.
We ended the quarter at $3.34 billion.
That's up about $100 million year over year.
We have seen some seasonality return to residential mortgage lending.
We've built a decent backlog, which <UNK> will touch on later in the call.
As our release stated, our loan growth was impacted by about $11 million of loans outstanding in our commercial loan portfolio.
As we talked about before, we are seeing some very aggressive lenders in the areas we service, both REITs and standards.
We're working with our existing customers and taking a cautious approach to this lending segment.
Our asset quality remains strong.
Nonperforming assets fell by $5.7 million year over year, resulting in a nonperforming asset ratio of 0.68%, compared to 0.81% a year ago.
Nonperforming loans also showed improvement, as did early-stage delinquencies and charge-offs.
We continue to grow our deposit base to $4.18 billion.
We are encouraged with our core growth and our average deposits per branch continuing to grow and show improvement.
We didn't open any branches this quarter.
As a matter fact, we closed one of our Union Street branches earlier in the year.
The building has been sold, and the closing took place in early July.
Just a good opportunity for consolidation.
Our return on average assets was 0.88%.
Our return on average equity was 9.88%.
Our margin, quarter over quarter, was down a little to 3.09%, but that's actually better than 2015.
We continue to maintain a strong loan loss allowance with solid coverage ratio, which also showed continued improvement.
Our efficiency ratio is 57.7%, higher than we like but better than most.
Certainly the cost of compliance is a factor.
Our tangible equity ratio has shown steady growth, growing this quarter to 8.9%.
We are operating under a formal agreement, I think most of you know that, with the OCC.
While not a lot can be discussed, we are moving forward with a lot of validations, and are optimistic we will emerge a better Company.
(inaudible) did not receive enough votes to pass this year's proxy.
Our Board compensation committee has taken us under review.
As a matter of fact, there was a release last night about our call-back policy.
Most of you know we maintain a relatively large investment portfolio with a very strong liquidity position.
Banking is certainly a challenging environment.
We feel our Company is well-positioned to deal with whatever is thrown at us, and we are very optimistic about the future of our Company.
Now I'm going to turn it over to <UNK> to detail the numbers.
Thanks, <UNK>.
We'd be happy to answer any questions you might have.
Good morning, Alex.
We haven't seen a big change in that number, Alex.
It's about seven and one-half years, and seven and one-half years to nine years, depending on the month.
There has been some extension, but nothing that's significant and ---+ or really even worth mentioning at this point.
So it's a $3.3 billion behemoth [de moose] ---+ like a dinosaur, and it takes a lot of origination to move that either way.
And consumer habits ---+ I think we've talked about on the call before ---+ consumer habits certainly haven't changed, and we haven't seen people sticking with the mortgage just because of that.
They still want the new bathrooms, and they get divorced, and all of those things.
And you also to remember, our average loan balance is probably a little lower than our peer group, too.
What happens is you get ---+ yes ---+ I don't know, do you want to answer it.
What happens is, a lot of times impaired loans, you have to keep them nonperforming for a very long period of time.
So if there's an opportunity ---+ for the life of loan.
If there's an opportunity to unload them at a decent price, Alex, we take advantage of it.
We are not burdened with it.
We've done it several times in the past.
Yes, I think we're spending more time on our deposit pricing, and looking for opportunities in our CD portfolio.
And as far as the investment portfolio goes, we are trying to stay as short as we possibly can, and not getting crazy on that.
If you've held the trigger for as long as we have, we certainly don't want to blow it at the last ---+ at the end of the ---+ at what appears to be the end of a cycle.
Yes, when we look at it, the reality is, is the loan portfolio is still the ---+ and we've said it before, but it's ---+ the loan portfolio is still the best place to put the money.
And you look at last quarter, we did deploy North of $100 million into the investment portfolio.
So we're in the market, but just what Rob said, we're not looking to go too far in right now at what we probably ---+ which is probably [the mob].
Your question about floor earlier, Alex, was perfect, because if Cushing and my father were here, they probably would have said 7%.
(laughter).
Shows how the world has changed.
Thank you
Thank you for your interest in our Company, and have a great day.
| 2016_TRST |
2015 | IDCC | IDCC
#Please stand by.
Good day, everyone.
And welcome to today's InterDigital Third Quarter 2015 Earnings conference call.
Just a reminder that this call is being recorded.
At this time, it's my pleasure to turn the conference over to Mr.
<UNK> <UNK> de <UNK>.
Please go ahead, sir.
Thank you very much.
Good morning, everyone.
And welcome to InterDigital's Third Quarter 2015 Earnings conference call.
With me this morning are <UNK> <UNK>, our President and CEO; and Rick <UNK>, our CFO.
Consistent with last quarter's call, we will offer some highlights about the quarter and the Company and then open the call up for questions.
Before we begin our remarks, I need to remind you that in this call, we will make forward-looking statements regarding our current beliefs, plans and expectations, which are not guarantees of future performance, that are subject to risks and uncertainties that could cause actual results and events to differ materially from results and events contemplated by such forward-looking statements.
These risks and uncertainties include those set forth in our earnings release published yesterday.
As well as those detailed actually this morning, as well as those detailed in our Annual Report on Form 10-K for the year ended December 31st, 2014, our quarterly reports on Form 10-Q for the quarters ending March 31st, 2015, June 30th, 2015, and September 30th, 2015 and from time to time in our other filings with the Securities and Exchange Commission.
These forward-looking statements are made only as of the date hereof, and except as required by law, we undertake no obligation to update or revise any of them, whether as a result of new information, future events or otherwise.
In addition, today's presentation may contain references to non-GAAP financial measures, such as free cash flow, pro forma operating expenses, and non-GAAP net income.
Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures are included in our third quarter 2015 Financial Metrics Tracker, which can accessed on our home page, www.InterDigital.com, by clicking the link on the left side of the page that says Financial Metrics Tracker for Q3 2015.
With that, let me turn the call over to <UNK>.
Thank you, <UNK> and, good morning, everyone.
As you saw in this in morning's release, we delivered another very strong quarter, indeed our sixth quarter in the last two years with revenue of approximately $100 million or more.
Which we will get into numbers in more detail, but the combination of a continued strong top line and dropping expenses, demonstrates the underlying strength of our business model and the skills with which we are executing against it.
A couple points to note for the quarter.
First, with recurring revenue at $78 million ---+ and that number does not include any contribution from Huawei ---+ we remain very comfortable that our wireless terminal unit business can reach an annual royalty platform of around $500 million to $600 million, based on existing agreements and the additional licensing opportunity ahead of us.
When you match that up against the annual expenses of running that business, which is in the $150 million range if you don't include litigation expenses, you have a truly remarkable opportunity for shareholder value creation.
I can assure you we are completely focused as an organization in driving that additional revenue.
Well, we have more than just desire.
We have incredible resources at our disposal, as demonstrated by the new transaction we entered into with Sony in the third quarter.
As you know, the agreement we announced in 2013 with Sony included a joint venture to drive IoT research for the mutual benefit of both companies.
We have now expanded that collaboration, which showcases a vast array of tools that we have used to create an even stronger relationship with an already important customer.
Of course, the transaction included a new patent license agreement with them for their wireless products.
But, it also included an extension of the existing IoT research we are conducting with them, the addition of 5G research we will conduct for them, and various other elements in InterDigital technologies that make this agreement a great reflection of the alignment between our two companies.
It is the type of relationship that reflects one of the hallmarks of our licensing program ---+ flexibility and creativity.
It also sets us apart from other licensing companies, the fact that we are a highly respected research organization with solutions and research capability that customers can find very valuable.
We will continue to pursue these types of relationships with both the remaining unlicensed companies, as well as with our existing customers to build stronger ties.
With success, we would expect to drive not just higher revenue levels, but more predictability and repeatability in our revenue streams as well, which should drive even higher value in the overall enterprise.
Based on what we can bring to bear on license discussions, I remain very confident we can deliver on the revenue line.
<UNK> and I are also very confident we can continue to maintain very strong investment discipline within the organization.
That discipline is very important, as it is the massive operating leverage within this business model and our ability to increase revenues with stable costs, that drive shareholder value.
Our investment discipline is very simple.
Any investment we make has to meaningfully exceed the value of returning capital to shareholders.
For the core licensing business, that means investing at appropriate levels to drive current value, which means working shoulder-to-shoulder with our licensees, and the standards to drive reputation and brand, and give us other tools to conclude deals like we just did with Sony.
The investment must also drive the long-term value of the business in terms of fundamental innovation for the next-generation of wireless services, and we will begin licensing five to ten years from now ---+ and that will layer on to our existing technologies.
We have a great deal of experience managing this type of investment with significant success.
Based on our knowledge of the innovation opportunities and the value that can be delivered back to shareholders, we expect the R&D investment to continue to hold relatively steady.
We also expect litigation expenses to continue to come down.
This is all very good in terms of appropriately maximizing the operating leverage of that core business.
We also have tightly-controlled investment in additional growth businesses, where we believe we have unique capability that gives us a competitive edge for creating substantial value for shareholders.
For us, this opportunity is licensing IoT-driven markets.
As we have discussed before, IoT is not a market, but a market driver, like the original Internet.
It will substantially and disruptively change how every industry and all parts of society operate.
In doing so, it is going to create massive new markets, create new companies, and make others obsolete.
It will also drive substantial new revenue streams; and in doing so, create a tremendous profit opportunity for those that drive the innovations critical to those future IoT systems.
InterDigital is very well-positioned to pursue this opportunity.
Our understanding of current wireless networks enables to us innovate the new technologies that can lead into those networks to effectively connect the tens of billions of data-producing elements that will drive this future state.
Our nearly decade-long pursuit of middleware innovations that will help manage, secure and distribute the massive amounts of data produced by these connections, gives us an additional strong competitive edge.
Indeed, over the past six months, you have seen a steady stream of news from the Company about the advances we are making in driving the 1M band standard, including the significant demonstrations of the capability of our oneMPOWER platform in Korea this week.
Over the coming quarters, we will continue to provide details on this investment, including what technologies we think will be central to this market, how we are organizing our approach, and the overall incremental value we see for shareholders from our successful pursuit of this tremendous opportunity.
Our third area of investment is our small commercial start-up, and strategic external investments.
From an expense standpoint, these investments are relatively small, with our 2016 expense activity target at less than $20 million.
Despite the small investment, the impact of this activity can be significant in terms of helping to drive the ultimate success of our core licensing business, and driving new business opportunity in IOT.
The reason is simple.
The investments must pass two tests.
First, they must withstand significant independent financial scrutiny.
Second, they must be focused in the same spaces where the Company itself is conducting research and development activities.
The result is financially attractive investments that also connect the Company up to the broader set of customers, as well as creative new companies driving new technologies.
That provides significant value back to our main research engines, enhancing the efficiency of that research, and helping to guide its direction.
So to summarize, I am very happy with the opportunities we have in the Company, how we are pursuing those opportunities, the results we are driving, and the future value we are creating.
The wireless world continues to create ---+ crave and reward innovation.
And that is where we live.
Now let me turn the call over to <UNK>.
Thanks, <UNK>.
We are pleased to report another quarter of strong financial results, including our third consecutive quarter with revenue in excess of $100 million.
As many of you know, when looking at our revenue, I focus on the contribution from recurring revenue.
This past quarter, we reported about $79 million of recurring revenue, an increase of 7% compared to the third quarter of 2014.
This increase was driven by a continuation of the strong results we have seen from our Taiwanese-based licensees all year, and does not include any revenue recognition related to our patent license agreement with Huawei.
Our post-arbitration award proceedings with Huawei continue, and we will continue to defer any revenue recognition until all of the criteria for such revenue recognition have been met.
The most recent quarter is also the latest demonstration of the operating leverage that exists within our business.
Despite the 7% increase in recurring revenue, and a 29% increase in total revenue, we reduced our operating expenses by 12% compared to the third quarter of 2014, and 8% sequentially from second quarter 2015.
The reduced operating expenses were primarily attributable to lower litigation expenses.
Even on a pro forma basis, which excludes litigation expenses among other items, our pro forma operating expenses were down slightly compared to third quarter 2014, and approximately 7% sequentially.
The combination of increased revenue and decreased expenses resulted in operating profit that was nearly three times as great as third quarter 2014.
In fact, even on a year-to-date basis, our operating profit is up over 2014.
This increase in year-to-date operating profit is driven by an increase in year-to-date recurring revenue of more than $75 million, paired with a decrease in year-to-date operating expense.
The fact that we were able to drive an increase in year-to-date operating profit is all the more impressive when you consider that 2014 was a very tough comparative year, with nearly $125 million of past sales.
As I previously discussed, our potential to maintain similar operating leverage in the future, combined with an opportunity to significantly expand our share of the 3G, 4G, market under license, serve as the greatest catalyst for near-term growth.
Moving on to other areas, I would like to take a moment to discuss our capital allocation.
We continue to maintain a strong balance sheet with substantial cash reserves.
I do not expect that to change any time soon.
A strong cash position is important to our Company's success, even as we continue to return value to shareholders, through our regular quarterly dividend and our existing stock repurchase authorization, which today has approximately $150 million remaining.
During the most recent quarter, we repurchased over $18 million of our stock, $18 million that is.
Taking a broader view, between the beginning of 2012 and September 30th, 2015, we have returned almost $565 million to our shareholders, including the repurchase of more than 11 million shares for approximately $425 million, plus $141 million of regular and special dividends.
To put that in perspective, over the last three years and nine months, we have repurchased approximately one quarter of the Company's share count.
Not only have we bought back shares, but we have done so intelligently.
Our weighted average purchase price over that period is $38.53.
Our careful execution of these programs has created significant value for our shareholders, and it is a record we are very proud of.
With that I will turn the call back over to <UNK>.
Thank you, <UNK>.
Thank you, <UNK>.
Laurie, if we could open the call for questions right now.
Certainly.
Thank you.
(Operator Instructions).
Our first question today is from <UNK> <UNK> at Dougherty and Company.
Yes.
Thanks for taking my questions, and congrats on the strong quarter and the Sony renewal.
I wanted to start with the Sony renewal.
You are recognizing some past sales from that and it sounded like in the language in the Q that you are expanding that to some new products.
I wondered if you could add any color there.
You know, their volumes have shrunk since the last deal, so the interplay between lower volumes ---+ but then, maybe more products covered.
How should we think about sort of the size of Sony going forward for you guys.
So, you know, you are right that Sony's market position is not the same as it was three years ago.
And so that will be reflected going forward in the transaction.
The other part of that, that is just a fact.
The other parts of the transaction, though, are ---+ in fact, all parts of the transaction are very attractive to us in terms of, not only is it a patent license, but there is access to technology going on within the agreement that will be very, very valuable to us in terms of having a customer out there in the market for the things that we are doing, and to provide some validation for the things that we can.
So we have a great relationship with them sort of top to bottom in that organization between myself and the senior leadership there and a bunch of other people.
And as I said in my comments, it's certainly the type of relationship that we would love to have with many, many of our licensees, because all the things we talked about, with respect to Sony, you know, by building a strong relationship, it made the renewal so much easier to do.
I mean, obviously we had some long nights with them.
But we had a lot of tools at our disposal and there was a lot of trust between the parties and it worked really well.
Okay.
Great.
And then, <UNK>, you mentioned, you know, a lot of confidence in that $500 million to $600 million royalty base.
Obviously, I think maybe the biggest way to get there is more China.
You have got the Huawei proceeding that is pushed out into next year.
I wonder how much that will play into sort of the speed at which you are able to license other people in the market, or does everyone see the writing on the wall because you won the arbitration.
Any color on that would be helpful.
Yes, I think people understand arbitration and worth are very hard to undo.
And so I think the writing is on the wall in terms of what the result of that is going to be, now that they became guaranteed success.
You know, we have ---+ typical with most enforcement proceedings, you know, they're moving along.
I think the French proceeding is scheduled for a ---+ hearing, sorry, I think March of next year, with a decision to quickly follow that.
So I don't think we are on a long timetable for next year, which is good.
And I also, you know, do not expect, only because it typically never happens, this thing to kind of consume all the litigation space.
At some point the parties come to an agreement.
That is certainly what we want to do.
So I do think it is a good ---+ it is a some of what a gating item for the rest of China.
But it may not be an absolute necessity, because for the reasons I gave.
I think people see the writing on the wall.
And there would be some motivation by people to actually get ahead of that decision, if they feel they can negotiate something that for them may be a little bit better.
So, you know, the dialogue over there is better than it has been in China, which is good.
It is never an easy discussion.
But I think we have got pretty good game plan.
Perfect.
Thank you so much.
Our next question today is from <UNK> <UNK> at Sidoti & Co.
Hey, guys.
Thanks for taking my question.
Just a couple quick ones.
One being I guess vis a vis your, you know, where we are in the Huawei proceedings.
I am just curious, you know, sort of post-conclusion of that.
Do you expect to continue the downtrend of litigation expenses, and is that a meaningful piece, you know, in the next couple quarters, or is this pretty low-cost process.
Yes.
So, Matt, we had litigation expense just over $6 million for the quarter in Q3.
You know, I can remember on conference calls a year or two ago, as we were coming off higher periods of litigation, people would say, you know, where do you think that litigation spend could be.
And I would cite $25 million as being a point in our history that I thought we might return to at one point.
We are on that kind of run rate now.
I would not expect it to go dramatically below, because in our history it is relatively low now.
But, you know, there is certainly opportunities to keep it lower than it has been.
And, you know, again litigation is a very important investment for us when we make it.
But, you know, we would much prefer to have an agreement like Sony, where we bring other resources to bear and use that as a way to reach an agreement with our customers.
Yew.
There's couple components of IoT, right.
We always talk about it in three layers.
You have the connection layer, so that is actually the devices themselves that are producing the data and have communication capability associated with them.
You then have this middleware layer, which is really ---+ consumes that data coming up from those devices, secures it, manages it, and then distributes up to the application layer, where the magic happens.
I think the ---+ if you look at the revenue opportunities for us, it almost follows those three tracks.
So we have revenue today coming in on the connection side.
And one of the opportunities for us near term is to build on that is obviously volume, because volume is a major provider of modules, and things like that.
So that nearer-term opportunity to really start to show some strength in the IoT market.
The next layer is this middleware layer.
I think that, you know, what you see in the market today is a lot of proprietary implementations at that middleware layer.
You know, what we are doing is; we are in Korea this week demonstrating the oneMPOWER platform, which is our middleware platform.
There is a lot of interest in Asia, in terms of deploying that standard, and we actually have the most mature solution for that standard.
So in terms of timing and revenue on that, you know, my guess is we are still, you know, it is not a 2016 event.
But I think it starts to build after that as people begin to deploy more standardized IoT solutions.
You know, beyond that at the application and service levels, I think, back a little further down the path for us.
It is not exactly where we play as a Company.
But I think as we gain expertise in the first two layers, opportunities in that third layer will become more apparent to us.
Great, that is all for me.
Thank you.
(Operator Instructions).
And we will go next to <UNK> <UNK> at Barclays.
Hi, guys.
How are you doing.
Congratulations on the quarter.
Thanks.
If you could just touch on the value that you are bringing to the table with regards to JV with Sony, and how you expanded on that relationship; and the opportunity for other deals and JVs like the one you have with Sony going forward.
That would be great.
So I think that is certainly possible.
I think we are not updating our goal to increase it.
I think the goal is the goal.
But there is always the possibility that we can exceed it.
As far as timing, I mean, maybe the next most obvious step is a resolution with Huawei, given the proceedings that we have in place for them.
<UNK> talked about the timing just a couple moments ago with respect to that.
And then, you know, whether or not that accelerates other agreements in China or we are able to use the writing on the wall as we talked about, as a way to get there sooner ---+ you know, they are the different levers that you are looking at.
But we are confident that we can get there.
We think that we have made great progress since we initially set out that goal.
And look forward to taking the next steps.
And just one other thing to note on that.
If you guys ---+ you know, we have talked with you before on this.
It is not like we have to sign 100 new people to get to this goal.
We have a very short list of licensees that get us up to the goal, because you know the market is consolidated.
And it is oh, you think about it is ---+ as <UNK> mentioned, Huawei, it's (inaudible), it is VTE, it is LG.
And, you know, ---+ and Lenovo.
And if we do those successfully, we are there.
So it is a relatively short list.
It allows to us focus as an organization on that short list.
And drive them as hard as we can.
Thanks, <UNK>.
So, you know, generally on LTE, you know, we are very, very comfortable with the research that we have done.
Our position in the standards.
We have got, you know, really good coverage across the standard.
You know, one of the things with the LTE standard is ---+ there is a number of optional features in there that gets deployed over time, and we have got really good coverage on a bunch of those as well.
So I think while we cannot attest to the accuracy of any report that comes out on LTE positioning, they all are very consistent in terms of how they position the Company as one of the leaders of LTE technology.
So we are very happy there.
I think, you know, the 5G opportunity is a really good opportunity for us, because you know, it is going to be a little bit more crowded of a space.
They had their kickoff meeting in Phoenix about a month ago.
And there were 300 participants, which is much more than we have ever seen before, in terms of people wanting to get their intellectual property in and their designs in.
But we have a ---+ you know, our leadership positions in the standard give us a leg up.
I think our knowledge of the underlying systems give us a leg up, because you are not starting from green field, you have to weave these solutions into what is there.
And our knowledge of what is out there, and that is a 40-year knowledge of what's out there; gives us a really good position.
We are very ---+ we have the organization that is sort of laser-focused on 5G.
Really good work at all parts of our organization, I'd say particularly strong work coming out of Europe.
So I am happy with the way that part of the business is operating.
So no issues.
Yes.
Not a lot of change in the last couple quarters.
I mean, I think we continue to be in a market where ---+ I guess I can break the market down a couple of pieces, right.
There is not a lot of quality portfolios that we use today we are seeing coming on to the market.
I think part of that is pricing.
The pricing is just down.
The people with really good stuff are not necessarily bringing them on the market.
You know, that said we still have opportunities in license discussions with folks.
Because that is where they will bring patents to bear, because we will value a good patent in an appropriate way, and it allows us to close license transactions, it is good way for us to do it.
You know, I think generally the IPR landscape, you know, you have a number of companies out there that were very, very, sort of focused on ---+ small portfolios and assertion-based entities, they are really struggling.
My sense is those patent portfolios are probably worth more than maybe what those companies are trading for.
So, you know, I think there is a buying opportunity for us.
And so we keep our ---+ you know, we are focused on seeing if we can find good portfolios that maybe we can pull out of some organizations, do it at what will now be very reasonable prices.
And I think our history has shown that, you know, if we get a portfolio at a good price, we have a very good track record of making money off that.
So, though it is not the world's greatest environment for us to sell stuff in sum, but I think it is a good opportunity in the right situation for us to acquire.
Yes.
I mean, generally I would say, you know, the overall legal environment and regulatory environment is ---+ I'd say it has gotten better.
I would still say it is certainly not the way it was a number of years ago.
So better from a couple perspectives; I think certainly from the US perspective, I think we were very successful in discouraging Congress from pursuing what was really ill-advised changes to the patent laws.
So that looks like it has been shelved, and with the presidential election next year, we would hope it has been ---+ and shelved appropriately.
And I think it is going to continue to be that way.
We hope.
I think that generally we have been and others we are partnering with Qualcomm and others on this very successfully, and kind of making people understand that, you know, a lot of what is going on in the patent side is not fact-based.
It was just based upon people who wanted ---+ had other business objectives in terms of undermining the patent system.
There was an interesting article the other day and it actually talked about how China's respect for intellectual property is on a track to surpass the United States.
And I think those types of articles when they come out, they sort of open people's eyes as to the quality of the reforms that have been done.
You know, arbitration I think ---+ there is a number of parties that are in arbitration with companies.
I think it is the best way for us to position the Company as a reasonable licensor.
We are willing to arbitrate, you know, these disputes.
We are willing to do it on a very simple basis, unbounded basis.
I think that approach by the Company has served us really, really well.
It says we are not afraid to have a third-party determine this for us, as long as that third party is qualified to do it and does it in an efficient way.
We do not want every patent in every jurisdiction to be arbitrated by somebody different.
That is a very inefficient process.
But a single party to do it in a fair and unbiased way, we are happy to do.
So, I think all of that sort of is why the Company is doing well.
I think we are a very, very reasonable Company with really strong technology, and we are open to very reasonable approaches.
So, you know, we are going to ride that horse.
All right.
| 2015_IDCC |
2018 | LNT | LNT
#Good morning, and thank you for joining us.
2017 was another excellent year for our company, and I am happy to share our financial results with you today.
On Slide 2, you will notice that our non-GAAP temperature-normalized earnings of $1.99 per share is 6% higher than 2016's comparable number.
Also, I am reaffirming our 2018 earnings guidance midpoint of $2.11 per share and our long-term earnings growth guidance of 5% to 7%.
Our forecasted long-term growth guidance through 2021 is supported by our capital expenditure plans, modest sales growth, constructive regulatory outcomes and assumes normal temperatures.
It was also re-based off the 2017 non-GAAP temperature-normalized earnings of $1.99 per share.
This was the fifth year in a row that we achieved at least 5% to 7% earnings per share growth and increased our dividend by at least 6%.
Our robust capital plan during this time has helped us transition our generation fleet to one that achieved significant reductions in SOx, NOx, mercury and carbon, and has made our grid stronger and more resilient.
We began the transition of our generation fleet almost a decade ago with the retirements of our smaller, less-efficient fossil fuel-generating stations and the start of our utility-owned wind additions.
In 2017 we achieved some major milestones, including the commercial operation of our 700 megawatt, highly efficient natural gas fire-generating facility in Marshalltown, Iowa; the start of construction of a similar unit at our West Riverside Energy Center in Beloit, Wisconsin; and the announcement of our planned 1,200 megawatt wind additions.
In 2016, the Iowa Utilities board approved the first 500 megawatts of our 1,000 megawatt planned wind additions.
In 2017, we initiated an advanced ratemaking principles docket for the second 500 megawatts.
We expect a ruling on our request for the second 500 megawatts in the coming weeks.
Construction will soon begin at our Upland Prairie Wind Farm, and we are making progress in acquiring additional wind sites to serve our Iowa customers.
Of the 1,000 megawatts we plan to build, our current forecast assumes 300 megawatts will be in service in 2019 and the remaining 700 megawatts will be placed in service in 2020.
For our Wisconsin customers, we signed agreements with our neighboring utilities to purchase Invenergy's Forward Wind Energy Center.
Customers and investors should both benefit as we transfer this wind farm through an existing purchase power agreement to utility-owned.
This purchase has already been approved by the FERC, and we anticipate closing the acquisition in the spring after receiving PSCW approval.
This purchase is included in the capital expenditure plan we released in November, which calls for a total of 200 megawatts of additional wind investment for WP&L.
We continue to analyze options to construct additional wind for our Wisconsin customers.
Our goal is to make the regulatory filing in the first half of 2018.
We would expect approval by the end of the year.
Our plans to add up to 1,200 megawatts of new wind generation will more than double renewable energy for our customers.
We forecast that approximately 30% of Alliant Energy's rated electric capacity will be from renewable sources by 2024.
We've taken major steps in the transformation from our historic path into a future with many new possibilities.
We are closing ash ponds at our coal plants and have started turning those sites into beautiful rain gardens or productive pollinator habitats by incorporating native grasses and flowers.
The largest sites have been designed to have solar panels installed on them in the future.
And several of our retired coal plants have now been demolished so that the land can be restored and redeveloped for those communities.
One very exciting project in Wisconsin involves our Blackhawk Generating Station.
Beloit College has recently purchased it and is repurposing the decommissioned century-old coal plant into a state-of-the-art student center called The Powerhouse.
It'll be a showcase of sustainable design as an illustration of the transformation from the early 20th century into the digital age.
As you are aware, when we make decisions regarding the transition of our fuel sources, customer cost is always top of mind.
We have seen the energy landscape change across the country where lower-cost renewables and cheaper and abundant natural gas have made some of the industry's decades-old traditional sources of energy uncompetitive.
We find ourselves in that circumstance with the Duane Arnold nuclear plant in Iowa.
The purchase power agreement from DAEC expires at the end of 2025, and it appears that there will be more competitive options for our customers.
So last month, NextEra announced on their earnings call that they believed it is unlikely that we will extend the current DAEC PPA.
We are currently analyzing our capacity energy needs post 2025 and look for the most competitive options to serve our customers.
Before I turn the call over to <UNK>, I would like to mention that we have the privilege of serving customers in states that have proven track records of constructive regulation and supportive legislation.
As our industry evolves, the policies that govern the way we do business must also change.
Iowa and Wisconsin are very focused on helping customers save money while providing more opportunities for business growth and job creation.
We will continue to be proactive in our states to help shape energy policy and navigate on behalf of our customers.
In closing, I am excited about our achievements in 2017, and will focus on the following goals for our company in 2018: complete our large construction projects on time and at or below budget in a very safe manner; continue our generation fuel transition with additional fossil plant retirements and the development of our wind generation in the West Riverside Energy Center; deliver on 5% to 7% earnings growth guidance and a 60% to 70% common dividend payout target.
We will continue to manage the company to strike a balance between capital investment, operational and financial discipline and cost impact to customers.
Thank you for your interest in Alliant Energy, and I'll now turn the call over to <UNK>.
Good morning, everyone.
Yesterday we announced 2017 GAAP earnings of $1.99 per share, which include the impacts of the recent tax reform legislation.
Tax reform resulted in an $0.08 per share of non-reoccurring (sic) [nonrecurring] earnings due to remeasuring deferred taxes associated with our nonutility operations and changes in valuation allowances for tax credit carryforwards.
Our 2017 results also include a $0.02 per share non-reoccurring charge for the write-down of regulatory assets as a result of the settlement of IPL's retail electric rate review.
Excluding these 2 non-reoccurring impacts and the $0.06 per share negative impact from milder-than-normal temperatures in 2017, our non-GAAP temperature-normalized earnings were $1.99 per share, which were in line with our expectations.
Please see the earnings walks provided on Slides 3, 4 and 5 of our supplemental slides for more details.
Excluding the impacts of milder temperatures in 2017 and the impacts related to leap year in 2016, we saw slightly positive sales growth in our service territories year-over-year.
We continue to see sales growth from industrial customers offset by lower usage by residential customers, largely due to energy efficiency effort.
The recently enacted tax reform legislation provides a unique and historic opportunity for the company to provide material benefits to customers in both the short and long run.
We are working with our regulators on plans which provide our customers with near-term benefits from tax reform while maintaining strong balance sheets.
This will ensure our company continues to have access to capital at reasonable rates, thereby reducing costs for our customers.
We recently submitted proposals to our state regulators in Iowa and Wisconsin which include a variety of options for customer benefits, including customer billing credits, accelerated asset amortizations, deferral or avoidance of future rate cases and funding for future investments important to our customers.
We have provided a summary of our proposals on Slide 6.
Consistent with the rest of our industry, tax reform is expected to lower our cash flows from operations due to lower customer bills.
As a result of the lower cash flows from operations, we expect to issue a mix of additional debt and equity in the future that allows us to maintain the capital structures authorized for IPL and WPL in their most recent rate reviews.
The timing of these future financings will be dependent on future regulatory decisions on tax reform benefit.
Our equity over the next couple of years will continue to be driven by our utilities' robust capital expenditure plans, including the wind expansion program and the construction of the West Riverside generating facility.
We do not anticipate any changes to the 2018 financing plan we shared last November, which included up to $200 million of new common equity and additional long-term debt at IPL and Alliant Energy Finance.
We've also updated our estimated future tax payments as a result of tax reform.
Alliant Energy now does not expect to make any significant federal income tax payments through 2024, with additional tax payment reductions after 2024 due to wind investments included in our plan.
These estimates are based on current federal net operating losses and credit carryforward positions as well as future amounts of accelerated depreciation expected to be taken on federal income tax returns over the next few years.
Turning to this year's earnings guidance.
Our 2018 consolidated earnings guidance of $2.04 to $2.18 per share remains unchanged.
The earnings guidance by reporting company and our walk between 2017 adjusted EPS and 2018 EPS guidance is on Slide 7.
Slide 8 has been provided to assist you in modeling the effective tax rates for IPL, WPL and AEC, including the impacts of tax reform and the tax benefit riders for 2017 and 2018.
We currently estimate a consolidated effective tax rate of 12% for 2018.
Also note that our 2018 earnings guidance assumes ATC investment earnings and an ROE of 10.2%, effective once FERC issues its decision on the second MISO ROE complaint, which is currently expected sometime during the first half of 2018.
Lastly, we have included our regulatory dockets of note for 2018 on Slide 9.
These current and planned regulatory filings are important components of our 2018 operational and financial results.
In summary, our employees delivered solid financial and operational results for our customers and shareowners in 2017.
Key items of note include: the Marshalltown Generating Station completed on time and under budget; an approved settlement in the IPL retail electric rate review; significant progress with the expansion of wind generation; and cost controls for the benefit of our customers, while we delivered on our earnings commitment to shareowners.
We are looking forward to the opportunities ahead of us in 2018 and believe it will be another successful year for our customers, our shareowners and our employees.
We very much appreciate your continued support of our company and look forward to meeting with many of you next week at the upcoming conference.
As always, we will make our investor relations materials used at the conference, and supplemental materials, available on our website.
At this time, I'll turn the call back over to the operator to facilitate the question-and-answer session.
No, Nick.
We're going to stay with that plan.
You're talking about for rate reviews.
I'm sorry but I don't understand your question.
Yes, from an equity perspective, we're obviously sharing with you what we're doing in 2018 with no planned changes at this point.
We were going to continue to evaluate what the regulatory decisions are.
At this point, we're expecting a decision from both of the 2 major jurisdictions probably sometime in the second quarter.
Following that as well as any additional information we learn about our capital expenditure plan through the decision we're waiting for with the wind plan, we'll probably have some information, I would guess, in a month or 2 to give you some more clarity as to what our equity needs look like beyond that time frame.
Yes.
Probably sometime later this year, Andy.
We obviously need some additional information regarding what the regulators are going to decide on the tax reform benefits and the timing and method of which they're going to go back to the customers.
And then also, we want to have more clarity on the capital expenditure plan, which we're hoping to get here in the next few weeks regarding the second 500 megawatts of the wind in Iowa.
But Andy, we don't expect any changes for 2018's financing plan.
This will be post 2018.
That is correct, yes.
Right now, as we've disclosed on Slide 6 of the supplemental slides, we see some, I would say, modestly accretive impact of tax reform in our earnings but not enough for us to change the 5% to 7% through 2021.
And that's why [like I said we're on] we do ---+ like most utilities, we're going to see some additional rate base growth, but we also see some additional equity needs, and therefore, they offset each other.
Oh, sure.
And what we did, Andy, was we redeemed our poison pill.
We've been receiving some criticism on our governance scores over the last couple of years because we still had our poison pill out there that was not approved by shareowners, and of course, that's not in favor.
So that's ---+ we just redeemed the poison pill just to get in line with other S&P 500 companies.
We were an outlier on that one.
Sure.
So 2 questions.
First, we just want to get the official RPU docket approved.
So our CapEx plan assumes that it will be approved, so that's our assumption.
We'll expect to know, we believe, in a couple of weeks.
So we don't believe there's going to be any changes.
We just want to make sure that's final before we communicate more on the financing plan post 2018.
And the docket in Wisconsin for the Forward Wind Farm is actually in process, and we should expect approval of that in a couple of weeks.
<UNK>, were you going to add something.
No.
Did that answer your questions.
| 2018_LNT |
2016 | PLT | PLT
#Thanks, Lathavia.
Joining me today are <UNK> <UNK>, Plantronics' President and CEO, <UNK> <UNK>, Executive Vice President and Chief Commercial Officer, <UNK> <UNK>, Plantronics' Senior Vice President and CFO and Rich Pickard, VP, General Counsel and Corporate Secretary.
The information presented and discussed today includes forward-looking statements which are made under the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.
The risks and uncertainties related to such statements are detailed in our most recent 10-Q, 10-K and today's press release.
For the remainder of today's call, we will be providing only non-GAAP metrics related to gross margin, operating expenses, operating income, net income and earnings per share.
We've reconciled these measures in our earnings press release and in our quarterly analyst metric sheet, both of which are available on the Investor Relations page of our website.
After the conclusion of today's call, the recording of the call will be available on our website.
Plantronics' first quarter fiscal year 2017 net revenues were $223.1 million.
Our GAAP diluted earnings per share was $0.62 compared with $0.55 in the prior year.
Our non-GAAP diluted earnings per share was $0.76 compared with $0.67 in the prior year.
The difference between GAAP and non-GAAP earnings per share for the first quarter consists of charges for stock-based compensation and restructuring charges all net of the associated tax impact and tax benefits from the release of tax reserves.
Please refer to the full reconciliation of GAAP to non-GAAP in our earnings press release.
With that, I'll open the call for questions.
Sure, I'll ---+ this is <UNK>, I'll start out with the answer on these.
So, first of all on the stereo side, yeah, we've benefited both from a buoyant market which was growing but also obviously we grew above that with some brand new products doing extremely well in terms of expanding our position in the market.
You know, just to give you a rough sense I would say probably about half of it represented buoyancy in the market and about half of it represented market share gains.
I think you asked about the mono side as well.
There we don't think that the market is doing that well and we think this is primarily market share gains on our side due to a new product.
On the gaming side, and I forget exactly the question there, but clearly we had some new products that were well received.
Having said that, we're still at a fairly nascence stage in our business, we'll be adding more toward our portfolio later this year and continue to ramp this over time.
I may have ---+ there may have been enough items to your question that I may have missed one or two, so if I missed something, please let me know what I missed.
Sure.
Sure, well first of all let me just say honestly we, you know, when you sell a headset right now you get all of the revenue right away.
In this case you know, what you're dealing with is a monthly subscription so consider the financial impact to be very modest over time and it actually requires, therefore, apparently large portfolio but having said that, there's no downside after you've sold the initial unit, you're continuing to get revenues and it is extremely high margin revenues and as we broaden that out to more and more customers, we do expect to have a very nice addition to our profitability and, of course this is the other part of it, adding significantly more value to our customers business and being a more valued partner.
Yeah <UNK>, this is <UNK>, I'll take that one.
On our guidance, what I would do is our Q2 guidance that we're offering is very similar to our Q1 results so there's only a small dip in revenues and I expect our revenue mix for Q2 to be pretty similar to what we did in Q1.
So, you know, we will have strong ---+ we do expect to have strong year-over-year growth in consumer for another quarter and growth in enterprise as well, enterprise being maybe flat to up a little bit with growth there coming from UC.
You know, our actual belief is that this is going to be a positive, and let me just explain why.
Number one, in fact, a lot of the people that are focused on that model whether you call it managed services, Cloud hosting type of stuff, for them this is a fantastic fit.
I think for businesses, you know, they've learned that Office 365 represents a wonderful, scalable, flexible opportunity for them to deploy the technology.
I think for the Microsoft sales force, this represents, kind of like I was talking about with our monthly subscription, also a need not to back end load their quarters and their fiscal years, they have to get that out there.
I think across Microsoft they're very interested in converting some of those licenses which are only active on IM and Presence and not yet active on voice.
So we actually believe this will be positive.
Now, having said that, that doesn't mean that it's instantaneous like a switch and going to be a sudden mountain but nonetheless, we think this is going to be positive over the course of the year.
---+ if I could mention, I mean, it also is a perfect reinforcement for our SaaS businesses.
Sorry, go ahead.
So we do think it's positive, obviously it represents a different replacement so I'm going to let <UNK> talk to that a little bit and <UNK>, just FYI, we ---+ because he's still slightly new on the calls, we won't confirm or deny things that we know even if they are, you know, semi-public.
Yeah, thank you very much for that <UNK>.
Essentially <UNK> already gave the way we feel about that.
Clearly we see the ability to add more value when it's a wireless connection or a digital connection as opposed to an analogue connection like a 3.5 millimeter jack.
So, net/net, a move away from a 3.5 millimeter towards something digital and intelligent actually should be overall positive for Plantronics as an industry direction.
Sure, so let me try to answer both of those questions.
First of all, you know, the primary driver was both a great new portfolio of products we had but also a very, very good market for stereo so clearly the growth was strongest in stereo during the quarter.
You know, I think that the short answer to your cross-over is ironically we actually had growth in the mono side as well largely behind a new product even though the category there is not buoyant and so we have not yet reached the cross-over point even though we did have revenue growth so mono is still larger than stereo.
In terms of what to model going forward, we actually do expect the stereo business to grow which doesn't mean that there weren't some initial loads in the quarter, there were, but nonetheless there are still new products coming and we're seeing very good sell-through so we're still expecting to see growth from this level.
I'll try to answer these questions.
Again, we're not going to go too much into this because it's really premature and we're going to share our business model and more on the go-to-market following our fiscal year end conference call which I think will probably be the beginning of May of next year and really it will be <UNK> sharing at that point in time.
I'll give you a few pieces of color on this right now.
First, we do think it is a unique technology.
We do think it is a dramatically better solution, it is not fatiguing like those other solutions are and at the end of the day for most companies who we have talked to, we represent the only solution that they see that could really do what they want allowing them to save a huge amount of real estate, cost [through densification] but to their minds even more importantly improve the productivity of their people and the kind of collaborative environment they want to have for their key talents.
So we view this as absolutely a premium offering and there's much more to it as well, the system is dynamic, it's adaptive, it's self-diagnostic, it's going to be upgraded through additional features and so we view it as night and day different.
You know, in terms of route to market, it is going to go, it is going to have to be, not direct ---+ well, we will support it in the initial phases, we will need channels that are experienced in this sort of thing to install it and so we will be, we will absolutely be maintaining our channel driven overall business model.
So I don't know if we're disclosing that, I'm going to ask <UNK> if we're disclosing ---+ we're ---+ I'm sorry, we're not disclosing that at this time.
Yeah, so <UNK> I'll start, <UNK> might have more to add on this but in terms of gross margins I think we've talked a long time about the fact that our UC products have an average product margin that's right in line with our long-term target of 50% to 52%.
So, with the percentage of UC revenues increasing over time that shouldn't be a problem for us, that should just keep us on track to our long-term target.
Pricing and margins in UC have been very steady and we watched that carefully over time, it's been very steady for us.
Okay, so I just ---+ I was going to make an added comment.
I think that, you know, while the ---+ what <UNK> said is true, when we add in businesses like SaaS and like soundscaping, we think that those represent significant high margin additions to our business that over time represent upside.
Yeah, so our guidance would assume that UC growth, year-over-year growth rates for Q2 are similar to what we experienced in Q1 and for UC for the rest of the year, <UNK> do you want to address that question.
Well, I mean, as always we believe that UC can be a little bit erratic.
Having said that, as you say we do think we're in a fundamental secular growth situation.
As I commented earlier, relative to Microsoft, the same can be true with other vendors, we're continuing to see growing (inaudible) of these sorts of solutions, they represent faster, better, cheaper at the end of the day for companies; better flexibility, lower cost, better features and performance, increasingly easier to manage and so we continue to expect further increase of adoption which over time, again, will grow our business.
Thank you very much.
Thanks everyone again for joining us today, if you have any additional questions, we'll be available afterwards.
Thanks.
| 2016_PLT |
2015 | GT | GT
#Thank you.
Yes, <UNK>, just quick comment on Latin America, in general.
Very difficult environment down there, particularly in Brazil.
I know your question's on Venezuela.
I will just take the opportunity ---+ our teams have been executing well down there.
In light of consumer OE business and truck business there that is down 20% plus.
As you see from our numbers we grew volume above 20% in ---+ consumer replacement volume above 20% in virtually all of our key countries down there.
So the team is executing well there in what is a very difficult environment around currency and inflation and devaluation, in general, excluding Venezuela.
We are pleased with how we're doing, but we clearly see the headwinds going on there.
Venezuela is clearly one of them, and I will have <UNK> address your question in particular.
Yes, sir, <UNK>.
So when you think about, it for us, and for tires, tires are being treated as a priority good.
Right now there's very few forms of transportation in the country.
And we continue to have access to US dollars to buy those raw materials, as I mentioned.
We just received $15 million in the third quarter.
Now, line of sight is limited.
Each company's facts and circumstances are very different.
But we continue to make and sell tires and they are in high demand.
We certainly have a tremendous amount of disclosure related to Venezuela and all of our Q' s and K' s.
For us, we continue to operate the business under normal course.
And really, predicting the future is very difficult for Venezuela.
For us that about $20 million in the fourth quarter takes into consideration the December elections.
And that, historically, and I think everyone would expect that to create even more volatility as we go, than was in the third quarter.
So for us, we see it as a balance estimate for the fourth quarter.
And, <UNK>, I would say from your question on cost savings, we still if you exclude Venezuela, which we've tried to do, they are pretty much on our forecast of cost savings if not actually exceeding it.
So, if you strip Venezuela out, and it certainly does sort of complicate things, but when you take it away I would say we're executing very well against those cost savings.
If that was an underlying question, we feel pretty good about the core business.
Yes.
We have been able to work through the inflation increases even if we have some impact further in our cost savings versus inflation.
It tends to be offset in the price mix versus raws for Venezuela.
You know, we always are monitoring our capital structure and we take a very proactive approach to managing our interest expense, and we will continue to do that.
Now, we obviously can't talk about or comment when we would be in the market or not.
But that is our history and you have seen it recently, right.
In May we amended and restated our European revolving credit facility, and I think it was 75 basis point reduction.
June we amended the US second lien term loan and lowered that by about 100 basis points.
That's been our MO of the past.
I just want to thank everyone for joining us today.
We had a great quarter and we fell very good about finishing off the year.
Thank you very much.
Yes, thank you.
| 2015_GT |
2016 | SFLY | SFLY
#I guess I will start with the last part of your question which was around Shutterfly Business Solutions and the gross margin.
I think as you have probably heard me say all too many times, the SBS business is a lumpy business for us and we are taking steps to improve and try and drive gross margin higher but it is going to bounce around from time to time.
Again, I think we are also starting to see some of the benefits of scale in that business and not only scale in absolute dollar amounts but scale by customers as customers get larger and as we do more for them and as we do it more often, we gain improvement in gross margin there.
And I think our overall gross margin guidance for Q4 reflects both a consumer and the SBS margin.
I think the other piece as we think about the SBS business is, we tend not to think about it on a pure margin basis but tend to think about it as incremental EBITDA dollars that we can drive to the bottom line in order to drive shareholder value.
With regard to ---+ I will turn it over to <UNK> to take the first two around Q3 being seasonally slower and any promotions around product mix.
I think Q3, there was nothing exceptional in Q3 in terms of special promotions we ran or unusual competitive circumstances.
I think it was very much a business as usual quarter for us.
As we noted earlier, the Shutterfly brand performance was pretty positive with the continued double-digit growth and while we saw solid performance across all the categories, the real standouts for us were mobile and personalized gifts.
I will remind you that within personalized gifts, that includes our new statement gifts line which are the first time we have offered a line of personalized but non-photo-based home decor and gifting products and that has gotten off to a nice start.
So I think as you have heard me say multiple times I think one of the things that the Company and <UNK> and I are very much aligned on is thinking about how we drive absolute EBITDA dollars to the bottom line while improving the quality of earnings as well.
So while we focus on margin, it is not the exclusive thing that we focus on.
With regard to tech and dev in particularly, a lot of our success over the last 17 years has been driven by being a technology innovator and I would expect that that will continue.
And so we don't expect any downward or any stepwise reduction in our technology and development spend over time.
I think 3.0 as we have said is a multi-year architectural vision for the Company where projects like the Shutterfly photos and the mobile app come out in a given year.
But we will have other ones next year and when we get through Shutterfly 3.0, there will be the next platform.
So that is where we stand on tech and dev.
With regard to the SBS business again, that business is a lumpy business.
We will continue to look for ways to improve the overall profitability of that business but the way that we think about it internally is how do we get the right customer that can be a multimillion dollar customer that meets our internal gross margin target and that allows us to drive incremental, substantial incremental EBITDA dollars to the bottom line.
I would just add to <UNK>'s point.
I mean I think the uniting theme of his points is our focus on the quality of earnings, on driving long-term free cash flow for shareholders.
And I think if you look at the ---+ our financial performance, you can see it is improving over time.
Today we are reiterating our guidance for revenue and adjusted EBITDA for the full-year and you can see the focus on the quality of earnings is showing in both the improvements in operating income and in earnings per share over time.
As I said earlier, there was nothing exceptional in Q3 in the promotional environment and of course every quarter is different.
Q4 we typically see a number of competitors go more aggressively on promotions.
I think one of the advantages of being the clear leader in this space with our brand recognition and our loyal customers is we can sit back and observe a little bit of what people are doing and we are able to adapt our promotions as necessary.
But we certainly haven't seen anything exceptional so far and if the promotional environment changes then we are certainly prepared.
I think in terms of your question about some of the technical products, the photo management service is what we are now calling Shutterfly Photos.
We talked about that a little bit in the prepared remarks.
We are really proud in Q3 of completing the milestone of migrating our most active users to the all-new Shutterfly Photos.
It is very early days for that.
We will need to go through a full Q4 peak in order to have a really accurate read on how that is changing customer's behavior and the extent to which it is driving incremental sales, higher engagement, etc.
But the early signs in terms of how customers are engaging with it is positive.
I think the second thing you referred to is what we sometimes refer to as algorithmic product creation and what we mean by that is how we use machine running algorithms to help make it very simple for customers to create products, to help them to automatically select their best photos, to lay those photos out in a product for them whether it be a simple product like a mug or a complicated product like a photo book.
And the idea there is that we want our algorithms to do all of the heavy lifting so it can be as simple as just deciding you want to purchase product A versus product B or making some small changes to customize it to your liking like maybe adding a title to the book.
I think when I put those two things together, the Shutterfly photos, cloud photo management service and the algorithmic product creation, what you get I think is a vision in which we are creating a lot of value for customers, we are helping them manage their photos but at the same time, we are able to use our technology to present them with more opportunities to purchase contextually relevant personalized products even when they might not have known they were in the market for a product.
And with Shutterfly Photos, we will get to see more of customer's photos and we anticipate to see those customers more frequently which again means more opportunities to present products to sell.
So the hypothesis about how that drives growth is pretty clear.
In the case of algorithmic product creation, we know from experience that this genuinely increases key metrics like conversion rates.
In the case of Shutterfly Photos, it is still pretty early days but we will have a better read on that as we go into next year.
<UNK>, this is <UNK>.
With regards to 2017, I totally appreciate the question.
We're going to provide guidance on 2017 at the end of January as is our tradition.
As you know, the fourth quarter is a big quarter for us so we will provide EBITDA and free cash flow growth and the traditional metrics that we do at the end of the January timeframe for 2017.
With regard to the second part of your question on the balance sheet, I think as you heard in our prepared remarks, the Company has used a substantive amount of its cash over the last several years buying back stock.
I think we highlighted that we bought back 8.9 million shares of stock over the last three or four years and have returned value to shareholders through that mechanism more than offsetting the shares that have been issued.
With regard to whether the Company can have more leverage on the balance sheet, I think a couple of things to remember on that is that we have an ongoing $100 million plus still available under our share repurchase program.
We evaluate it each and every quarter and I will remind you that we do have $300 million worth of leverage on the balance sheet today in our convertible.
Thanks for that question.
It is still really early days for us with Shutterfly Photos.
We just integrated the ThisLife platform earlier this year and it is only toward the end of the third quarter that we completed our goal of migrating our most active customers.
As I think you will know in these kinds of situations, you need to be able to follow cohorts of customers through the pipeline over an extended period of time to get any kind of statistically significant read on that.
So I would say the early signs of engagement with the different kinds of features of the Shutterfly Photos platform ranging from the organizational tools like tagging and albums, facial recognition, favoriting, all the way through to purchase where we are surfacing products, pre-created products for customers, we see positive signs of engagement.
But it is really early to say more than directionally what we are seeing.
I think we are really proud of what we one for Shutterfly Photos.
I think objectively if you go compare feature for feature it is clearly one of the very best cloud photo management solutions in the market.
It has been live on Shutterfly.com for only a couple of months and it is only very recently we have had a lot of users there.
And so our clear hypothesis here is that by providing this service to our customers we will see more of their photos, they will upload more their photos to us and we will see them more often with greater engagement.
And seeing more of their photos and seeing the customers more frequently combined with our machine learning capabilities to surface pre-created, contextually relevant personalized products will give us many more opportunities to sell products to customers which is our core business.
Possibly there are interesting directions that could take us longer-term but we feel like those investments will be fully justified in what it can generate for us in sales through that higher engagement and through seeing more customer's digital photos.
Sure.
So let's take the flat sales and marketing, the last couple of quarters on a non-GAAP basis.
We continue to look at trying to balance our sales and marketing across what we do both on the web and what we do on mobile and across all of our channels in sales and marketing.
Relatively speaking, the import of what we spend in sales and marketing for the first three quarters is to drive customers within the quarter but it is also to keep customers engaged so that they come back for the fourth quarter.
So as we look to the fourth quarter, we monitor that on a week-to-week, month-to-month basis depending on where we see the demand.
And I would expect that our guidance overall for the fourth quarter reflects a healthy spend in that area.
I will just add I mean I talked briefly in the prepared remarks about our plans for Q4.
As in every Q4 but perhaps more so than ever, we are entering Q4 with a really rich robust and varied set of channels and marketing messages to go out there.
So we have got campaigns that are going to span mobile, online, direct mail, television and our free CRM channels and others.
And we also complement that with partnerships with other retailers who help us promote our products through specific promotions at that retailer.
And even through the long-standing philanthropic partnership we have with the Ellen DeGeneres Show.
So we are always looking at that mix and trying to tweak the mix for efficiency and effectiveness and also strike a balance between what we are driving on a transactional level in quarter and what marketing investments are going to pay off longer-term.
No, I think what we do on an ongoing basis not only every quarter but ultimately every month, is we look at how every channel is performing, what the marginal efficiencies look like.
As you'll know, some channels you can measure very, very detailed very quickly, other channels like direct marketing or television spend, you can measure but the error of ours are larger and you need longer periods of time.
So I think we are constantly looking what the marginal return is in every channel and adjusting our spend.
I wouldn't say there is one channel that we have shut off or dialed down significantly but we are constantly reallocating.
I did mention earlier that we are excited about what we are seeing with our spend to acquire customers to mobile.
We think that is giving us a great return and so directionally I think you should expect to see us spending more there.
But we will offset that by moving money away from channels where we see lower marginal efficiency.
This is <UNK> <UNK>.
I just wanted to leave you with a couple of key takeaways.
I will remind you as we have talked about that we are seeing a significant improvement in our financial performance over time, that we are ready and excited for our fourth quarter, that we are continuing to see strong performance in the flagship Shutterfly brand while we continue to be pleased with the progress we are making in SBS.
And that we are continuing to build on the key areas of strength we see within the Company which are the Shutterfly brand, our loyal customer base, the talented team we have here, our manufacturing scale and the manufacturing capabilities and the differentiated customer facing capabilities that we have built over the last 17 years.
Thanks very much.
| 2016_SFLY |
2016 | SEIC | SEIC
#About $3.5 million.
I think some of the largest firms, that is certainly the direction they want to head.
And I think we are seeing on the outsourcing side, we are seeing larger firms than historically we have sold to.
So I think Regions is an example of a larger firm.
A couple of years ago we moved SunTrust from ASP to BSP.
So we see in that what we call large or regional space a real powerful business model with outsourcing.
But the very, very largest wealth managers I think both here in the US and globally are looking to really run the operations themselves.
And so we think there is a pretty big market there.
We think there is opportunity to go to new segments within the wealth management space with that model and we are actively talking to both current clients and prospects in that space.
Not that much from a lower sales perspective.
It is really mostly any expense increase is really mostly tied to really two things, continued development as well as some of this infrastructure build for these two very large and important clients.
So the one time I think as we certainly sell more clients one time will increase and so we still have a ways to go to install Wells and there is one time associated with again large conversions particularly in the ASP space where we work on data conversion as well as integration to other systems inside the bank.
And again as we would announce additional large clients, I think there is an opportunity for that one time to continue to grow.
Dependent on how much we can sign in the coming quarters.
But yes, it is an increasingly important part of our revenue because there is a lot of work to be done and then an opportunity for us to drive revenue there.
Again, we have a decent amount of activity associated with the current pipeline, the current backlog and then it will depend as we sign bigger deals.
You know, it is hard to predict that.
We are spending a lot of time with our clients, we are talking to them about the future and the wealth platform.
I think that there are some smaller firms that may not necessarily have a growth strategy when it comes to wealth management and so we are seeing some of our competitors come in at fairly substantial price discounts.
But honestly where there is a growth agenda and a strategy to build out wealth management, I think we are in pretty good shape.
I think we have evolved our pricing model.
When we first started talking about the platform, we talked about a bundled model.
We have evolved that I think over time that there is pricing for sort of core functionality and then more a la carte pricing as clients would take advantage of some of particularly the front end.
We have also seen opportunities in the space around disaster recovery and data security where some of the larger banks want to significantly upgrade that.
So the pricing model has evolved but it remains still largely assets under administration based which I think is a win-win for everybody and I think our clients generally prefer that over the account-based model.
Our next segment is investment advisors.
<UNK> <UNK> will cover this segment.
<UNK>.
Thanks, <UNK>.
During the third quarter, we posted good growth in our traditional business.
At the same time, we continued significant progress toward the transformation of our business, one supported by the SEI wealth platform and the growth opportunities it holds for us in the future.
Assets under management were $55.1 billion at September 30, a 2.7% increase from June 30.
During the quarter, we had $690 million of positive net cash flow.
Revenues for the quarter were $85.3 million.
This compares to $81.9 million for the second quarter, a 4.2% increase.
Contributing to this increase were net positive cash flow, positive market returns, improved yields on money market funds and a shift from lower revenue liquidity products to higher revenue equity products.
Expenses for this quarter were up roughly 1% compared to the second quarter.
We experienced increases in the SEI wealth platform build and migration expenses but aggressively managed expenses in other areas to dampen the overall expense increase.
We will continue these efforts but it is becoming increasingly hard.
On the new business front, we signed 132 new advisors.
This is a slight increase from the second quarter.
Our pipeline of prospects remains strong.
Moving on to the status of the SEI wealth platform, we completed our largest migration at the end of September and now have $15.6 billion on the platform.
Significantly, we now convert about one-half of our new clients directly onto the wealth platform as opposed to Trust 3000 and expect to convert the vast majority of the new clients directly onto the platform by the start of next year.
Putting new clients directly onto the platform in combination with a migration of our existing book will now enable us to make significant progress in the migration of our entire business onto the SEI wealth platform.
During the third quarter, we also made big strides in enhancing both the advisor and end client experience on the SEI wealth platform.
For end clients, we have begun the rollout of our new end client website.
Initial feedback is very positive.
As for advisors, we continue to enhance their online straight through experience and now support functions like e-signatures, automated account maintenance and trade approvals.
Items like trade and cash management approvals are supported both through the desktop and tablet technologies.
In summary, we continue to recruit new advisors and gather net positive cash flow during the quarter.
Our third-quarter client migration onto the SEI wealth platform was a success and we are now converting new clients directly onto the platform.
In addition, our vision of a robust automated straight through experience is now taking shape.
I remain optimistic about our future prospects.
I now welcome any questions you have.
There is really two questions in your single question so I guess you really have three questions.
I want to answer the second question first but I will take this one.
There has been kind of the global fee pressure question which is sort of consumed within your DOL question, it is consumed in that.
But insofar as DOL is concerned I think the initial reaction to the DOL rule was a lot of people were reading it or saying that really this means lowest fee.
And the reality of it is it does not mean lowest fee.
And when you look at what the commentators have said and what a lot of the experts have said, it doesn't mean lower fee, it means level fee.
However, it does bring into the spotlight the fact that you have to show value for the fee you charge.
So it is not that you have to be reduced from 100 to 75 but you have to show the value that you give for 100 in the example you posited.
So if I look at fee pressure I would say it is not primarily driven by the DOL it is just overall fee pressure in the industry and I don't see the DOL being a major driver independent of this global trend of lower fees of being a separate driver.
I think we are migrating over to that as we speak and I think you will start to see some revenue from that next year.
And I think it is really going to gain momentum probably in 2018.
(technical difficulty) really begin somewhere around the second quarter next year but it is not going to make a material difference.
It certainly it hasn't hurt our recruiting efforts.
I think it has however taken up advisors' time because they are very concerned about this and they need to spend some time on what I would call more of an infrastructure issue as opposed to a growth issue.
So that does hurt us more with kind of the existing buyers than going out there and getting some slice of their time if you will to talk about our value add.
But I think that is the major.
Overall, the DOL since we are in the fee-based business is a good thing for us not the sea change we thought it was going to be but it certainly is more positive than negative.
We have not.
I mean to the extent you are talking about broker-dealers as opposed to people in our business, it probably impacts them differently because they are figuring out what to do with these giant books of advisors.
Some of the industry [guys] will tell you that those books of advisors that may not be viable in the new model.
Well, we have started that process.
I think the two gating factors are the degree, the volume of new clients we have in the wealth platform because it only applies to the wealth platforms and then the degree to which we want to go whole hog in turning out these.
We are converting advisors over and we are trying to transition them over to a new pricing model.
So that takes some time.
We did not charge for this in the past so this is not like everybody is saying ---+ wow, I am excited to pay more fees.
By and large, the majority, the clients we recruit are shifting over to us as a new provider and send us all their new business.
It is not that they take their existing book and shift it over to us wholesale from the get-go.
So part of the strategy is we tried to get them to shift us new business, we try to prove ourselves in terms of the value that we can add to the practice, then we try to look at their existing business and look at pockets of that existing business that make sense for us to say look, this would be better for your clients, it would be better for you if you can move over that pocket of business.
But it comes in chunks, not all of once if that makes sense.
Thank you, <UNK>.
Our next segment is the institutional investors segment.
I'm going to turn it over to <UNK> <UNK> to discuss this segment.
Thanks, <UNK>.
Good afternoon everyone.
I'm going to discuss the financial results for the third quarter of 2016.
Third-quarter revenues of $76.2 million increased 2% compared to the second quarter of 2016.
Capital markets performance and net client fundings of $550 million positively impacted revenue for the third quarter 2016 compared to the second quarter 2016.
Currency translations negatively impacted third-quarter profits and client losses due to acquisitions negatively impacted third-quarter net fundings.
Quarter end asset balances of $81.4 billion reflect a $2.8 billion increase compared to the second quarter.
The unfunded client backlog at quarter end was $1 billion.
Third-quarter 2016 operating profits of $39.3 million increased 3% compared to the second quarter of 2016.
Third-quarter 2016 margins were 51.5%.
Client signings for the third quarter 2016 were $1.2 billion including a new large market UK fiduciary management client.
We anticipate making continued investments in executing our strategy to grow our defined contribution and foundation and endowment businesses and expand our global footprint into new markets that will embrace fiduciary management, OCIO, or standalone investment strategies.
Thank you very much and I would be happy to entertain any of your questions.
Yes, that is correct, <UNK>.
We have always had that reality as we go up market, when we have a fiduciary management fee or OCIO fee.
The client is going to have more leverage with us than they would with our competitor.
So that has been in existence for some time.
I think what is different in the institutional market now with OCIO firms is fee transparency.
So us segregating our fee and then us also showing what the cost of the implementation would be.
So that has some possibility for margin erosion but it has just been minimal to date.
What the benefit is for us is with the leverage that we have, $80 billion of assets under management, the cost of our delivery for the independent managers usually is far lower than what our competitors can bring.
So therefore when we add up a total cost, it is really a compelling story A versus status quo; and B versus the competitive framework that we are operating in.
So transparency is certainly a reality across all of our market segments but in this case it has actually been helpful in being able to showcase the difference vis-a-vis status quo and also versus competitors.
So the size of our DC business is $8 billion of the $80 billion so roughly 10% of our assets under management.
Our increase is larger than that for this year's contributions, probably closer to 20% of our contribution.
Probably the biggest hurdle is when you sell DC you have to sell to the sponsor and the sponsor has to sell to the participants.
So in a DV, an endowment, a foundation, a healthcare you are just selling to the investment committee.
Here you have to have two sales where we have to sell a sponsor they have to sell to the participant.
So consequently the decision tree will just go on longer and the conversion cycle may take a little bit longer.
But the real positive is this segregation of record-keeping from asset management and the fact that people are looking to simplify the menu, they are looking to go to custom target date and they are looking to move away from brand.
And that really speaks volumes for firms like SEI who have a heritage of building these diversified portfolios and combining our unique asset allocation to come up with custom target dates for the QDIA.
So I hope that answers your question.
So the decision around a customized target date would be whether or not they provide a defined benefit plan and whether that is open or active, closed or frozen and whether we need to incorporate those benefits that a retiree would be getting or a participant would be getting in conjunction with the DC.
And whether or not there is some specifics with regard to their demographics as far as risk tolerance and risk appetite that would warrant custom.
And then the last thing would be size.
If they are sizable enough to go custom, custom will usually result in lower overall fees.
So those are really kind of the decision trees there that a sponsor would go through in making that evaluation.
Nobody wants to talk about DB anymore.
But we still think that is healthy.
But I realized it was on DC.
Thank you.
Our final segment today is investment managers and I'm going to turn it over to <UNK> <UNK> to discuss this segment.
Thanks, <UNK>.
Good afternoon, everyone.
For the third quarter of 2016, revenues for this segment totaled $75.7 million which was $4.7 million or 6.7% higher as compared to our revenue for the second quarter of 2016.
This quarter-over-quarter increase in revenue was primarily due to new client fundings and market appreciation.
Our quarterly profit for this segment of $27.1 million was approximately $3.1 million or 13% higher than the second quarter of 2016.
This increase in profit quarter-over-quarter was driven by the increase in our revenues offset by an expense increase of $1.6 million largely due to implementation costs and incremental personnel expense needed to support our new client wins.
As you will recall last quarter we pointed out that our expenses would uptick over the next several quarters as we increased our expenses in support of our new revenue implementations.
While this quarter's expenses were up modestly, this was less than expected mainly due to timing.
Looking forward, we do expect that our expenses will uptick again in the next few quarters as we continue to implement previously sold business and bring on additional new business.
This increase in timing will be in line with the range that <UNK> provided in his comments.
Third-party asset balances at the end of the third quarter of 2016 were $451.2 billion which was $32.1 billion or 7.7% higher as compared to asset balances at the end of the second quarter of 2016.
The increase in assets was primarily due to net new client fundings of $27.5 billion combined with market appreciation of $4.6 billion.
Turning to market activity, during the third quarter of 2016, we had another strong sales quarter.
Net new business sales events totaled $9.3 million in annualized revenue.
These sales were comprised of new name business and expansion of existing business with current clients across all our segments.
These events include a competitive win of a large, middle and back office outsourcing mandate by a large traditional manager as well as several new competitive wins in the private equity outsourcing market.
Additionally, we continue to see strong demand for our comprehensive outsourcing platform and the market is telling us that it is differentiated.
We are further encouraged by the opportunity we are seeing with our new solutions that we are investing in such as our compliance and regulatory platform.
So in summary, we are in the midst of implementing new clients and revenue, expanding our solutions and platforms for continued growth and investing in our future.
Our pipeline remain strong and we remain optimistic in regards to our future opportunity.
I will now turn it over for any questions you may have.
Do I have to.
You don't disappoint me, Rob.
No, our backlog, if you remember back to Q2 I said it was around $46 million, it remains around $46 million.
We did fund some.
We are still funding some that are in implementation phase and conversion phase.
But obviously with the new wins in the quarter, we filled it back up.
So the good news is we are seeing the fundings.
I think this quarter spoke for that and we still are winning new deals to put more into the backlog.
I think that is still going slower.
I think it is just really a result of the market.
It is just slower outside the US right now.
With that said, we are seeing an increased activity ---+ and when I see the activity kind of from an RFP client fall spike up, it is something I would expect that results would follow.
Thank you, <UNK>.
Now I would like <UNK> <UNK> to give you a few Company-wide statistics.
<UNK>.
Thanks, <UNK>.
Ladies and gentlemen, we feel that we are making significant progress throughout the Company.
Our sales activities and backlog are strong even though the new business we have garnered with larger clients require investment ahead of revenues.
Now looking ahead, we will keep our focus on sound execution across the Company while we work to increase our rate of growth.
That concludes today's session and thank you very much for joining us.
Have a good evening.
| 2016_SEIC |
2015 | XRX | XRX
#Thanks, <UNK>.
I would say, as you and others have got good visibility to, we've moved to this new industry go-to-market and global capability model, and I would say that early indications are very positive on both elements of that.
So we are finding the pipeline data doesn't look great quarter to quarter, but we found that from January, February, March we had an improved pipeline.
As we put new resources in place, we bolstered up the sales team that we think will drive to improvements in our second-half results.
In the global capability model, if you think back to our margin improvement track, we think we are going to get very good yield out of that.
So, overall, I would say that we've got positive signs relative to the model in general and the customer feedback has largely been favorable.
So this is <UNK>.
Overall, if you look at our activity year-over-year, I would describe us as having more activity this year than last year.
Now, activity doesn't always immediately translate into getting things done, but that activity has been more focused on I think what I described on our last call as chunkier-sized deals.
So we are looking to not just do the deal size of the one deal that we did this quarter, but looking at things that are a little larger, which can make more of a difference for us.
We are targeting specific areas.
When you look across our portfolio we've got a great business in commercial healthcare.
There are places we would like to continue to build out that business.
Transportation is an area of target for us.
We've talked about the continued move into workflow within our document outsourcing group, so that's an area.
Then as we look to continue to expand internationally, we do need a bigger footprint and acquisitions can help us in that space as well.
So they are, as you can imagine, tough to call.
It's tough to call in which quarter are we actually going to land things, but we are certainly generating more activity and looking to do larger deals.
And then, in the second part of your question, so what about share repurchases.
We are committed to doing about $1 billion of share repurchases this year.
We know M&A timing is hard to call.
It is important for us as we continue to look at evolving our portfolio, and so if we don't spend the $900 million, we will roll it over into next year.
If you look at the situation in California which triggered the adjustment that we took this quarter, we had made a decision with the state of California to do this in a staged implementation rather than a single cutover.
And that caused us to have to basically kind of re-stage and re-work our project plan.
As we got into the further details of what that was going to cost, the cost for the overall implementation went up and that triggered us to have to take an adjustment this quarter.
So we scrubbed much further what that project plan was going to look like.
It's the right answer for the client and for us to do a staged implementation.
It reduces the risk of execution, but at the end of the day we now understand that it's going to cost more.
And this is a contract was signed years ago and in advance of our standard platform being completed.
If I contrast that then, because you asked about New York, New York is very different because New York we actually bid a standard contract.
And in addition to bidding a standard contract, we were awarded this contract last May.
We started standing up resources toward the end of the third quarter in order to really get us on a right track with New York, so we are very excited about New York.
It's a different situation than I would say the legacy implementations that we had pre-New York.
I would just add on New York; I think the dominant difference is that we were able to bid an already-working system, which, as opposed to what we did in the other states, we hadn't already completed the core software asset.
And as <UNK> mentioned, we have been in front of the contract being finalized.
We have been investing to ensure a very rapid start, which on the other implementations we didn't start until after the contract was signed.
So we are very optimistic that we are well positioned to deliver well, both for New York and for our shareholders, with that opportunity.
We are focused on making sure that California for sure, but New York very specifically in this conversation, starts well.
And we ---+ before we had revenue ---+ knowing that we were investing before we had revenue, we took that risk because it's really important.
The long-game here is very important to keep an eye on.
So we took a hit in the quarter for New York as well because we didn't get it signed in the quarter, but it's the right thing to do.
But we got it signed obviously after the quarter.
Florida it is getting closer.
It is not yet complete, but it is getting closer.
And on the ITO transaction with Atos, the feedback has been very positive.
The consent process, both for the pure IT outsourcing clients and for the large volume of clients that we have BPO relationships with that then Atos will become a subsidiary provider, has also gone very well.
So we are pleased with that.
We're not going to do all the guidance thing here before the November conference.
But my view is clearly the long term goal is still our target.
We're disappointed with our operating performance and we have shared that.
But I do not have a view that's not attainable long-term margin perspective for us with this set of actions that we are taking relative to portfolio management, go-to-market by industry, global capabilities so I don't expect us to change our view on that.
<UNK>, if I may, I will just add we're not talking ---+ we're talking long-term in my lifetime and I mean that really clearly.
We definitely take a step to the side today and this year, but getting to 10% to 12% is something that we can do in the foreseeable future.
In the near term, not in the long term.
So as much as I don't like to talk about accounting on these calls, I am happy to take a little bit of a diversion to do that.
You know, I mentioned we took an adjustment for California so when we are implementing the platform we are using percent of completion accounting.
In that case, as we got in and did the more detailed planning for the now-phased implementation and costed out that more detailed plan, that is what triggered us to take the adjustment in the quarter.
That adjustment in the quarter is not all cash that kind of lands in the quarter.
That is a software platform that we will be delivering over the course of this year and next through these stages.
So I would call that a pretty isolated adjustment, not the kind of adjustment that we would expect we would be taking on an ongoing basis.
It's part of the reason earlier I talked about the fact that this area gets less risky for us as we complete more and more of these implementations with the states where we signed contracts three-plus years ago.
Once we get beyond the implementation, then the economics move to I will call it the regular Medicaid transaction processing.
And in addition to that, we typically ---+ and even in the couple of clients that we have already cut over with the new platform, we typically have the opportunity to then do add-on things and get additional revenue from those clients, which we have been successfully doing and will continue to do.
Just on the other part of your question, so New York and Florida are contemplated then within the guidance that we have shared.
The first part of the question is important for you to ask and for us to get out on this call and just lay a foundation.
Government healthcare is something that, I think that <UNK> said it earlier, we have been in it for more than 40 years.
And it is a business that will be around and growing with a lot of focus because of the aging population, regulation changes in the United States, all of the foundational elements.
We make, in this business, above-average margins.
This is an above-average Services margins in this business.
It's important to know that and that we are very successful and liked by our clients.
We do business in many, many states.
We service millions of recipients of benefit from those states and it's a very profitable business for us.
Once we get past laying down the platform, which is really complicated ---+ and what we did for good, for bad, or for ugly, but the facts are that we actually implemented a brand-new platform in these five states that readies us for this future of aging and new regulation, etc.
It's been more challenging than even I would like for it to be, but it is one that with many ---+ with continuous review we keep coming down on the fact that this is a business and a business that could be profitable for sure.
It is already in the historic counts and we just have to make it that way in the new accounts.
I have one quick add and I will get your question with regard staging on the health enterprise accounts.
Overall, when we talk about investments in Services outside of our government healthcare group, we are investing in things like sales leadership, training, tools, new offerings, this shift to our new industry business group vertical approach and adding leadership in there.
So when we talk about investments, it's clearly outside of the government healthcare solution business as well.
With regard to the staging, so clearly the first quarter we took a big adjustment in California.
As I described, that's a pretty isolated instance.
If I look over 2015 for the pattern of what we are expecting in the health enterprise accounts, I would describe this as first-half sort of heavy on incremental costs and expecting in the second half that we are actually going to get a reasonable amount of pickup.
Now it's still going to be a drag on a full-year basis, so if you look at the adjustment that we made overall to our margins, originally when we gave guidance back in November we said we thought we were going to get 25 to 50 basis points largely, candidly, from these health enterprise accounts improving.
I would describe that now on a full-year basis embedded in our guidance as taking into consideration we might actually see a little bit of dilution overall on our margins for the year.
So we think as we've revised our guidance that we have really taken into consideration that some of these things are tough to call.
They are pretty complicated projects and we need to make sure that we have room if there's any changes, and we've taken that into account.
I think <UNK> said in her notes that without the health accounts in the first quarter we would've been up 10 basis points in margin.
And this year, as <UNK> said, we expected 25 to 50 basis points of improvement so our margin expansion to come from health enterprises, as she said ---+ again, I'm just repeating it ---+ so we can actually get it clear, that will not happen.
That 25 to 50 basis points will not happen.
It will probably be a little bit of a headwind for us in 2015, not a tailwind.
And so the margin adjustment that we have taken for the full company and for Services comprehends that pressure that we are not going to make the progress that we wanted to make in government health from a financial perspective.
Operationally ---+ the great news about this operationally is that we are doing fairly well I think across all of the accounts.
There is some struggles in maybe one, but we're doing fairly well operationally across these accounts.
Thanks, <UNK>.
They are weak for a couple of reasons.
Not getting the bigger deals is the primary cause.
You look on a trailing 12-month basis, and having ---+ it's not just not having New York or Florida in the compare, but not having anything that is really substantially large deal certainly hurts those trailing 12-month compares.
Going forward, obviously we expect both of those ---+ New York being finalized and Florida ---+ that will help our dynamics through the second quarter.
And I think in the second half of the year the changes that we have made relative to the industry go-to-market model, we have been beefing up the salesforce.
We're 90% of the key sales positions now filled; that's up from where we were at the time of the investor conference.
We expect to get the improvement in the second half coming from the industry go-to-market model, the investments that we have made in leadership positions, and the investments that we have made in increasing our sales capacity.
I would say that if you look at having two deals of that size in your overall signings portfolio that is not an atypical level of concentration.
Again, I think the weakness over a trailing 12-month is not having anything big in that set of signings.
When we move and both grow the smaller deal component and have those in what has been signed, that would be to me a more typical kind of mix of signings.
So I don't think ---+ obviously when you add big clients then that individual client is kind of a bigger share of your revenue stream.
But from an overall signings mix, no, I don't think a portfolio for the year that would include Florida, New York, and then the rest of our book of business would be more concentrated than 2012, 2013, what our historical rate has been.
And I would just add on to that, <UNK>, if you put those two aside and we just looked at the composition of our signings up until this point in time, I would describe our book of signings as very diversified across our industry verticals.
So the addition of these two contracts doesn't really sort of sway things really materially.
They are both diversified across our industry verticals and across our offerings, so this is not ---+ may be wrongly, but this is not a big worry for us at this point in terms of concentration risk of where our signings come from.
Overall, in terms of the $0.05, I would characterize most of it as coming from the additional costs that we are seeing in the health enterprise accounts.
With regard to FX, if I look at how rates changed, where we are today versus the last time we were on this call in January, the biggest change that we saw was in the euro, which has weakened by about 4%.
It was partially offset by the yen weakening, which helps us a little, and so net-net I would say that is a negative, but it's not materially a negative.
And then I would say very modestly a little bit lighter on investment ---+ I'm sorry, on productivity relative to investment, so how that ramps over the course of the year for us is a little bit lighter.
But the overwhelming majority of the $0.05 move is for the additional costs we are anticipating in the health enterprise platform implementation.
Sure.
We have one that is cutting over later this year.
We're pretty close on it and so we are pretty close to the finish line on that one.
And the closer you get to the finish line basically the less risk you have.
We talked about California and we made a big adjustment for California.
Last year we actually made an adjustment for the one other state that hasn't been cut over yet, so we had sort of resized what we thought our cost expectations were going to be.
So I would characterize as we're ---+ we have already taken a hit on California.
We have adjusted the other state that hasn't yet been implemented and we are close on the one that we are going to cut over this year.
And New York doesn't have the same type of risk, so we think that we have gotten most of the ordinary cost of the business contract rollout costs associated with the rollout comprehended.
This is <UNK>, so let me try to address that.
It is a shorter timeline than historic contracts; that's the reason we started investing more than six months in advance.
If you measure the timeline from date of finalization, it's shorter.
If you measure the timeline from date that we started pre-investing, it's aggressive but reasonable.
And we think that, again, it's a different situation, in our view, compared to the ones that we have previously done with the health enterprise platform, because we are starting from a working code base rather than starting from something that was still in design.
So while it is a more aggressive time period than you might look at some historical artifacts, the combination of both those two factors starting in advance and working off an existing software asset, we believe makes it a timeline that we will be able to achieve for the state.
I'm sorry, <UNK>, so really the previous contracts we have not yet completed the code base.
There has been a three-year-plus gap between the last one and now New York, so the book of business that we signed previously we had some of the code base solidified, but some of it still, if you will, in design mode.
And for New York it's not as though we don't have some level of customization to do.
It's not just taking a software asset and making no modifications or changes to it, but it is largely often existing proven code base that we are running in one of the other states.
What I would say is, as you look at that, our expectations as we head into the second quarter is that we will see a little bit better performance overall in high end.
That was weak in the first quarter.
It is a place of I'd say generally strength for us from a product offering perspective, and we also have other new products coming out in the second half in that area.
And we certainly expect, as I mentioned in my prepared remarks, that entry is going to continue to be weak.
We expect it will, I will call it modestly, improve with new products helping, but it is a big DMO-centric area and DMO markets just continue to be weak economically.
I think we have time for one last question, please.
<UNK>, I think you need to speak up.
It's very difficult to hear you.
<UNK>, it's a good question and I think a good last question as well.
We obviously spend ---+ the leadership team, the Board, we spend a lot of time looking at performance versus strategy to make sure that the loop is continually closed and that we are on the right stack of mail.
Separating operational challenges are we on the right stack of mail for 10% to 12% margins, revenue growth overall, and being valuable to our clients.
And the answer is, yes, we still believe that the fundamental strategy of a diversified Services portfolio globalized, which we're still working on doing, that is supported by a good level of acquisitions in the areas that we are in ---+ we are doing portfolio management and trimming out things that we are not great at and investing in areas that we are really good.
That strategy still holds.
Document Technology, as a good cash generator, a good base for us to grow Services from also that strategy still holds, so I think with ---+.
We look at it all the time.
We look at it against our financial goals and against our capabilities.
We can get to 10% to 12% margins for sure.
Government healthcare is a place that we have to continue to focus and continue to improve, and hopefully not talk about a lot as we go on.
We have to just get this stuff behind us.
New York, we think we have a good start.
We have these five contracts, etc.
, etc.
So government health is the place that we are spending a lot of time on this call and rightfully so, but the rest of the mix of the business that we have in the remainder of the strategy is one that absolutely still holds water and still works for us.
And so I think it will work for the shareholders over time and that is what we are focused on.
With that, I think I can actually transition to a close.
Let me just thank all of you for taking the time to ask questions and listen to the call.
We're working hard to advance our business objectives in 2015 and beyond.
Thanks, <UNK>.
That concludes our call for today.
If you have further questions, please contact me or any member of our investor relations team.
| 2015_XRX |
2015 | FAF | FAF
#It's difficult to say, <UNK>.
On the one hand, we have products that we sell that go into Information and Other like property reports and other types of things that are tied to mortgage originations.
So there's a big component that's tied to mortgage originations in the US.
As you know, they're default-related business, which has its own cycle.
We also have a lot of our international businesses in that Information and Other item, which has its own cycle.
And then, finally, we have our data and the Title plan business that's in there.
And we feel like that business is sort of on the early stages of a long-term growth trajectory.
So when you mix all those together, it's difficult to pinpoint what a growth rate is for the overall line item, because there's just so many different drivers.
I don't think it's driven by a size component.
It's actually driven by the necessary compliance to the TRID readiness ---+ it's the readiness of it all and to then have the comfort with the lenders.
So, I don't think it's driven by size.
I just think it's driven by the actual performance of the individual agent.
Our expectation now is through the end of the year.
And it ---+ which is consistent with what we've been saying really at the beginning year is, we booked 6.5 this quarter, we booked 6.5 in Q1 and Q2.
Based on everything we are seeing right now, we expect to book 6.5 in Q4, assuming claims come in in line with our expectations.
And then we'll reevaluate in Q1 of next year.
And I think as we sit here today, we would expect it to start drifting down back to a more normalized rate beginning early next year.
Yes, this quarter, I would say there's really nothing materially in the other OpEx line.
And personnel costs, we did true up our 401(k) with roughly about $5 million.
And that hit our personnel line item.
But we would just consider that sort of normal operating noise.
So there wasn't really anything extraordinary that we would point out.
Yes, pretax.
Well, we are seeing our paid claims fall.
That's happening.
In Q3, our paid claims were about $50 million in Title; Q3 of last year, they were $57 million.
So we are seeing them fall.
If you're looking at kind of a year-to-date basis, our paid claims are flat in Title mainly because we paid two of the largest claims we've ever paid in our history, happened in the first half of the year.
And that ---+ those two totaled $35 million.
So when you back that out, our year-over-year paid claims on a year-to-date basis have fallen significantly.
So we feel like they are going to continue to fall as we go into next year.
As we talked about at our Investor Day earlier this year, we feel like there's about a $50 million cash flow pickup on an annualized basis, just because of the fact that our paid claims are going to continue to fall until they get to that normalized rate.
Well, you characterize it as a mechanical question, so I'll give you the mechanical answer here.
(laughter) So we have a deferred comp plan for certain of our employees that's on our balance sheet.
And when the assets in that deferred comp plan rise, our investment income is going to rise.
And when they fall, our investment income is going to fall.
But there is a corresponding increase or decrease that's basically mirrored within our personnel costs.
So, if you look at Q2 versus Q3, our investment income was down $5 million but our personnel costs were down $5 million.
And there was virtually no change in pretax income.
So it's really just a pass-through.
When you're looking at ---+ if you're looking at year-over-year, our investment income was down $5 million, but our personnel costs were flat.
And that's because there was another thing that was happening where, in Q3 of last year, at Corporate, we had a ---+ roughly a $5 million pension benefit that we took.
And we've had a pension plan that's been frozen for some time.
There was a benefit that we took that we didn't get that benefit of this quarter.
And so that sort of explains the driver there.
Annually, in the ---+ in the Information and Other line item, it's roughly about $80 million a year of revenue on an annual basis.
Typically, there is title insurance involved in those type of transactions ---+ typically.
Well, I would say we definitely increased our incentive comp and our bonus expense this quarter, just because of the higher profits and revenues that we experienced this quarter.
But it's typically more seasonal.
So I don't think you'll see that same level heading into the fourth quarter.
It's starting to happen right now in Houston and North Dakota.
We think that that will continue to be ---+ continue to show weakness going into 2016.
But I should point out that is not a significant part of our commercial business.
Thank you.
| 2015_FAF |
2015 | LOGM | LOGM
#Thank you, <UNK>.
Good afternoon, and thank you for joining us today as we report LogMeIn's first-quarter 2015 results.
We are happy to report a great start to the year with strong Q1 financial performance.
Revenue and earnings per share both exceeded the high end of our guidance.
Total revenue for the quarter was $61.1 million.
And non-GAAP earnings per share were $0.33, which was $0.06 above the high end of our guidance.
We also generated $40 million in cash flow from operations, an extremely strong 66% of revenue.
We are also pleased to share early that significant progress on our key strategic initiatives, join.
me continues to be a great success story, and this year we will take steps designed to expand the ways join.
me supports simple and instant collaboration.
Our LogMeIn remote access products have long helped people to securely connect to the workplace from anywhere.
And this year we have an opportunity to deliver the security and productivity we believe are needed for an app- and cloud-centric world.
We see a highly favorable synergy emerging between our established service cloud business and the Internet of Things.
And this year, we will deliver offerings that can help companies connect, manage and engage with their customers in the Internet of Things era.
We believe these initiatives, combined with the continued strength and performance of our business, have put us in a favorable position to drive growth in Q2 and beyond.
In 2014, join.
me became a significant contributor to our fastest growing business, our collaboration cloud.
And as we noted on our Q4 call, the ongoing success of join.
me has positioned it to be LogMeIn's single biggest growth driver in 2015.
That was indeed the case in Q1.
Both join.
me and the overall collaboration cloud business had a great first quarter.
And we've got some exciting innovation on the horizon.
This week we started an open beta for join.
me video, a key milestone in our product evolution.
The hallmark of join.
me has been its instant and intuitive experience.
And with video, we want the experience to be as easy, instant and great as join.
me itself.
We also wanted to deliver video collaboration at a scale and in a way that delivers great performance at low cost.
That ultimately led to a build versus buy decision, and we decided to build our own proprietary video infrastructure into our Gravity platform.
We believe that this gives us three distinct advantages.
First, we are able to shape our video innovation to best match join.
me's instant and intuitive experience.
In other words, we can make video collaboration as easy and delightful as join.
Second, we believe it gives us a great cost advantage.
This not only creates competitive flexibility, but it also provides an opportunity to deliver favorable gross margins.
And third, it gives us the opportunity to rapidly bring video innovation to other products in our portfolio.
The join.
me video beta is now open, and we expect general availability soon.
Turning to our IT management business, as we noted at the start of the year, our goal for 2015 is to enhance our established offerings while delivering new innovation focused on the productivity and security needs of today's SMBs.
In January, we introduced three new versions of Central designed to better match value with specific customer needs.
We also delivered new innovation throughout the quarter, focused on security and productivity.
New multi-monitor display capabilities introduced in February have been very well received by IT professionals and mobile professionals alike.
And in late March and early April, we rolled out a variety of new security features to help businesses more easily enforce best practices for passwords and authentication.
A new central feature empowers IT managers to mandate the use of two-factor authentication for all remote access users, while a clever new mobile app, called the LogMeIn Authenticator, uses push notifications to make this two-factor process secure, yet simple for remote access users.
It's just the latest of what we believe is an opportunity to make security stronger, yet easier, in a cloud- and app-centric world.
Turning to our service cloud business, which includes Rescue and BoldChat, we entered the year encouraged by two positive developments.
The first was the fact that in Q4 2014, service cloud sales growth had exceeded revenue growth.
And the second was what we believed to be a growing favorable synergy between this business and our IoT opportunity.
We are happy to report another good quarter in Q1 with solid revenue growth, and once again service cloud sales outpaced revenue growth during the quarter.
We also introduced a new innovation in Rescue that we believe could open up a new addressable market opportunity for supporting entirely new classes of products.
In late March, we introduced Rescue Lens.
Part of a new support of things initiative, Rescue Lens lets customer service teams troubleshoot product issues remotely by seeing what the customer sees.
End users, which could be customers or could be other service professionals, use a free app and a live video stream from their smartphone to show customer service agents an issue on virtually any kind of product.
Using Rescue, these customer service agents can guide users through troubleshooting and quickly capture key information.
And this video support experience is fully integrated into Rescue's best-in-class workflow and reporting, as well as popular ticketing solutions like salesforce.com service now, Zen Desk, and more.
Rescue has delivered many benefits to our customers, including faster resolution times, reduced service and support costs and higher customer satisfaction scores.
And we believe Rescue Lens will bring similar benefits to other types of businesses and many new use cases.
Rescue Lens has been well received by customers, press and the market at large.
And we have customers that are now starting to employ it in the field.
One example is Zero Motorcycles.
Zero makes popular electric motorcycles.
They are the Tesla of motorcycles, if you will.
They started using Rescue to assist with diagnostics and repairs by giving experts at Zero the ability to see and guide mechanics through the troubleshooting of potential issues.
It's a type of use case that one would not normally associate with remote support software like Rescue.
It's a use case that we believe illustrates the opportunity to leverage Rescue Lens to provide enormous value outside of computer and device support.
It's also worth pointing out that the video innovation delivered in Rescue Lens leverages the same video infrastructure as join.
me.
And this offers an initial example of how we believe we will continue to benefit from this new important part of investments in video.
We are also excited about the new IoT innovation that we are bringing to market with Xively, and how this could shape our broader IoT opportunity.
Our pioneering efforts in the IoT helped us attract many early IoT customers, companies that are often first movers in their markets.
And we believe that this early experience has given us rare insight to shape both our products and our vision of how to help companies transform into connected product businesses.
Last week we announced a new version of Xively that significantly improves the speed, scalability and security of the platform.
To make the transition to a connected products business, we believe companies must enable instant secure connectivity between products, applications, and the business, implement management systems that collect and organize information to drive insight and drive actions.
And transform the business through deeper customer, product and partner engagement.
The new version of Xively delivers great functionality specifically designed to address these need, while significantly bolstering the security, speed and scalability of the platform.
We added something we call Xively Blueprint.
Blueprint allows a company to map its business to our cloud service.
Blueprint lets a company manage the rules, permissions and relationships of all the people, products, partners and applications in its entire connected business.
Blueprint also helps support the secure provisioning of products and devices onto Xively, plus it allows us to deliver dynamic permission checking within our data services.
This increases security and enhances flexibility for our customers while reducing the total effort needed to roll out a successful IoT product.
We also enhanced our Gravity system to meet the complex needs of IoT in terms of scale and speed.
We believe this gives Xively unique capabilities to deliver high-speed communication between millions of devices while adhering to the highest security standards.
And we are committed to making Xively the best solution for companies wishing to introduce IoT products.
In summary, it was a great quarter and a strong start to the year.
We believe that the significant progress on our key strategic initiatives, combined with the strong Q1 financial performance, have positioned us favorably.
Our collaboration, IT management and service cloud businesses continued to perform well.
I will now turn the call over to our Chief Financial Officer, <UNK> <UNK>, for more details about our Q1 results, as well as our guidance for Q2 2015.
Thank you, <UNK>.
During my comments I will discuss our performance on a GAAP and non-GAAP basis.
Non-GAAP excludes stock-based compensation expense, litigation-related expense and acquisition-related costs and amortization.
Our non-GAAP results are more representative of how we internally measure the business and are reconciled in the tables attached to our press release.
With the exception of revenue metrics, all numbers in my remarks will be non-GAAP unless I specify otherwise.
I am pleased to report financial results for our first quarter, which exceeded the guidance we provided in February.
These results mark a strong start to our new fiscal year, despite challenging currency markets that continue to devalue the euro relative to the dollar.
Total revenue for the first quarter was $61.1 million, surpassing the high end of our guidance by $400,000.
Adjusted EBITDA was $12.6 million, or 21% of revenue, $500,000 greater than the high end of our guidance.
Net income for the first quarter was $8.5 million, $1.6 million greater than the high end of our guidance.
Net income per share for the first quarter was $0.33, $0.06 above the high end of our guidance.
$0.02 of the over-delivery was attributable to stronger revenue and margin performance and $0.04 was due to higher nonoperating income.
Net income excludes $4.9 million of stock-based compensation expense, $4.3 million of litigation-related expense, and $2.5 million of acquisition related costs and amortization.
Included in the litigation-related expense is a $3.6 million one-time expense to resolve a trademark-related dispute with Sensory Technologies.
GAAP operating cash flow was very strong at $40 million, or 65% of revenue.
GAAP net income for the first quarter was $372,000, or $0.01 per share.
Further reviewing our performance in the first quarter, revenue increased 25% over the first quarter of 2014 to $61.1 million.
We experienced continued strong performance across our entire portfolio, despite operating in a challenging FX environment.
On a constant currency basis, first quarter revenue grew 30% over the first quarter of 2014.
On a geographic basis, for the first quarter international revenue was 30% of total revenue versus 32% the previous quarter.
Similar to previous quarters, Latin America continued to be our fastest-growing international region.
On a product line basis, in the first quarter collaboration cloud revenue grew 52% year over year.
Collaboration cloud revenue was 31% of total revenue, up 1 percentage point from the prior quarter.
Growth in the collaboration cloud was driven by continued strong performance of join.
me.
In the first quarter, IT management cloud revenue grew 24% year over year and was 33% of total revenue, which is consistent with the prior quarter.
In the first quarter, service cloud revenue grew 7% year over year, and on a constant currency basis, service cloud revenue grew 12%.
Service cloud revenue was 35% of total revenue in the first quarter, down 1 percentage from the prior quarter.
Across all product lines, gross renewal rates were approximately 80% on an annualized dollar basis, consistent with prior quarters.
Net income in the first quarter was $8.5 million, or $0.33 per share, up $0.06 from the high end of our guidance.
$0.02 of the over-delivery was due to revenue and margin performance that exceeded our expectations.
$0.04 of the over-delivery was due to higher nonoperating income, primarily related to FX gains incurred by our various form subsidiaries related to non-euro denominated cash balances and settlements.
Gross margin in the first quarter was 90%.
Our first quarter operating margin was 17.4%.
Consistent with prior years, our first quarter operating margin is approximately 3 to 4 percentage points less than our Q4 operating margin.
The decrease was attributable to salary and benefit increases associated with our annual employee review process that took effect for 2015, the front-end hiring of new sales employees in the quarter and to expenses associated with our annual sales and marketing conference.
Our adjusted EBITDA margin was 20.5%, above the high end of our guidance provided last quarter.
The effective tax rate for the first quarter was 29.4%, consistent with our guidance.
With regard to operating expenses, sales and marketing expenses were $32 million, or 52% of revenue.
The increase in absolute dollars and as a percentage of revenue from the fourth quarter of 2014 was primarily due to an increase in headcount and personnel-related costs, costs related to our sales and marketing conference and increased marketing program costs.
Research and development expenses in the first quarter were $7.2 million, or 12% of revenue, consistent with last quarter.
G&A expenses were $4.9 million, or 8% of revenue in the first quarter.
Quarter-end headcount was 862, up 58 net new employees in the quarter.
The majority of our headcount increases were in sales and marketing, and research and development.
Turning to the balance sheet.
GAAP free cash flow for the first quarter was $35.1, million or 57% of revenue.
The significant cash flow was primarily due to strong sales and renewals of LogMeIn Pro during the quarter, plus the receipt of customer payments for many of our large orders booked in the fourth quarter.
We ended the quarter with cash, cash equivalents and marketable securities of $232.5 million, an increase of $31.3 million from the prior quarter.
During the quarter we spent $5.1 million to repurchase approximately 93,000 shares.
Total accounts receivable were $12.6 million as compared to $18.3 million in the prior quarter.
Accounts receivable day sales outstanding were 19 days versus 27 days last quarter.
Total deferred revenue in the first quarter was $128.6 million, an increase of $23.3 million over the fourth quarter, and represents 23% year-over-year growth.
Now I will finish with our outlook for the second quarter and full year 2015.
For the second quarter of 2015, we expect total revenue to be in the range of $63.7 million to $64.2 million.
Our guidance takes into account the continued shift in foreign exchange rates.
On a constant currency basis, we would expect 24% second quarter year-over-year revenue growth at the midpoint of our guidance.
We are expecting adjusted EBITDA for the second quarter in the range of $13.6 million to $13.9 million, representing an adjusted EBITDA margin of 21% to 22%.
Our net income per diluted share, which excludes stock-based compensation expense, litigation-related expense and acquisition-related costs and amortization, is expected to be in the range of $0.32 to $0.33.
GAAP net income per share is expected to be in a range of $0.10 to $0.11.
For the full FY15, we expect total revenue to be in the range of $262 million to $265 million, which represents 19% growth at the midpoint.
On a constant currency basis, we would expect 26% revenue growth for 2015 at the midpoint of our guidance.
We are expecting adjusted EBITDA for the full-year to be in the range of $58 million to $61 million, representing an adjusted EBITDA margin of 22% to 23%.
Our net income per diluted share, which excludes stock-based compensation expense, litigation-related expense and acquisition-related costs and amortization is expected to be in the range of $1.36 to $1.44.
GAAP net income per share is expected to be in the range of $0.36 to $0.46.
For both the second quarter and the full fiscal year, net income assumes an effective tax rate of approximately 30%, and GAAP net income assumes an effective tax rate of approximately 15%.
All per-share amounts are based on estimated 25.5 million average shares outstanding.
With that, I'll turn the call back to the operator to take your questions.
Sure.
This is <UNK> <UNK>, and thanks for the question.
So far, it's performed very strongly.
It's exceeded our expectations.
And I think it demonstrates that we continue to see value, and our customers see value in the LogMeIn product.
So very pleased with how it is going so far.
That's a great question, <UNK>.
This is <UNK>.
It was actually a software update.
We continually do refresh the hardware and expand the number of data centers we have.
And that sort of investment has been long baked into our CapEx structure that you've seen year in/year out.
So the comments were referring specifically to expanding capabilities of Gravity specifically for the unique needs of the IoT.
And that was essentially a software change.
Yes <UNK>.
So the video service that is part of Gravity itself will ultimately be available in Xively as well, and maybe other applications.
But it is certainly plan to be part of our Xively offering.
Thank you, <UNK>.
Thanks for the question, <UNK>.
This is <UNK>.
I think not only does it enhance the current value proposition of join.
me, so it brings a new video experience to it.
I also think it takes us down the ---+ it demonstrates that we're moving towards collaboration.
When you see video, and I encourage you to use the product in beta, you'll experience it.
And when you put that video experience, and we think it's done in a really delightful, simple way so it's consistent with the join.
me experience, we think it really actually starts to move the product beyond just online meetings and towards collaboration.
Both products are actually part of our IT management business that we talk about.
And on the AppGuru side, as we said before previously, what we really feel like is access is being redefined in terms of access used to be about remote access to a device.
And we now it's about not just remote access to a device but access to apps.
And that's really where both of those products come into play.
And in particular, we felt we needed the password management component of that, which was a piece that we acquired when we made the Meldium acquisition late last year.
That's actually now all being integrated into Meldium.
And that will be our password management solution that we continue to roll out.
And you'll see enhancements that will be made to that product here over the summer.
Sure, <UNK>.
Thanks for your question.
As you know, we had a really strong quarter with 23% increase in deferred revenue year over year.
For the balance of the year, we'd expect year-over-year growth in the low 20% range for each quarter of this year.
Year-over-year growth, low 20% for each quarter for the balance of the year.
Thanks, <UNK>.
They actually ---+ <UNK>, this is <UNK>.
They actually were a customer for Rescue, but they definitely are an early adopter of the Lens technology.
And we are really excited with what they are doing.
And I think Lens is an interesting example of what video can do for us, because it actually does expand the total addressable market for remote support for us.
And you can imagine with Lens, it's very useful for our core customers for doing things like printer support, but it's also useful for customers who are trying to engage with their end users, their customers, for things.
We've actually had discussions with people who are doing things like insurance adjusting and things like that, you can imagine.
I don't want to get too far ahead, but it's actually a very useful technology that fully integrated into companies that need to manage service, that they need to be able to audit this, they need to be able hand off incidents in real time.
So we feel like Lens has gotten a great reception.
And Rescue itself and our service cloud in general had a great Q4, very good Q1 as well.
And sort of an interesting thing with our service cloud, as reported it's 7% growth year over year.
But on a constant currency basis that would be 12% growth.
And we have said explicitly in our call, the last two calls, that our bookings growth has exceeded the revenue growth, meaning that its outperforming.
And we feel like Rescue Lens is an important part of that.
It's allowed us to engage with both new types of customers in terms of using Rescue.
But also to expand Rescue's footprint within the organizations we already serve.
So for Q1, we saw the dollar strengthen 14% over last year, which resulted in 5 points of headwind in the first quarter.
Q2, related to the midpoint of our guidance for Q2, we see 8% impact on foreign currency in the quarter as well.
And then for the full year finally, 7% impact to the full year.
And then regarding margins, the raise is a combination of seeing some benefit from the fact that we have significant expenses offshore and also attributable to our beat in the first quarter as well.
Thanks, <UNK>.
Sure.
This is <UNK>.
I think the majority of our join.
me today, we take a lot of share away from legacy providers because the ease-of-use of join.
me.
So we find as users (technical difficulties) adopted, even of their company has bought something else.
We will then normally go in and replace an existing provider.
As I mentioned earlier, in my earlier comment, the shift towards video and collaboration we think creates a lot more greenfield than just the online meeting market.
And we think that has an ability to expand where we can sell join.
We are very excited by that.
And yes, we do provide ---+ on a quarterly basis we break out percentage of revenue by each cloud, but we don't do it on the product level on each quarter.
We just did that just to give everyone a sense of where (technical difficulties) was.
Sure, <UNK>.
As a reminder to everyone, in January we introduced packages of Central to really simplify the way businesses could select and benefit from LogMeIn's remote access products.
And we were really pleased with how customers responded to this.
And we saw that play out in both strong dollar and account renewal rates.
And we also saw a positive impact to our new business.
But keep in mind, the Central packaging changes that we made have nowhere near the impact that the elimination of free did last year.
It's relatively small in comparison.
But new sales for both LogMeIn Pro and Central continue to perform well above our expectations.
So it's not just the renewals that we were pleased to see, but it's also the new business.
And finally I would just say, keep in mind that these are pretty low cost products.
And so what we're seeing is that they continue to deliver a durable value for relatively paltry sum.
Thanks for your question, <UNK>.
This is <UNK>.
We haven't announced yet formal pricing and packaging for video.
We just launched beta today, this morning.
We still have a little bit of time to finalize our pricing and packaging.
But we do think it will ultimately help customers be more comfortable, not just adopting our product, the free product, but also upgrading into the Pro and enterprise versions of our product.
Sure, <UNK>.
Essentially, we have the advantage of being very early into the IoT space.
And we have live customers who are running IoT products right now.
And what we have learned with them and from our own experience as an early SaaS company is connectivity is not enough in of itself.
There are sort feature and product enablement that people need to add to turn a regular product into maybe a greatly improved IoT era product.
But once you have connected products, you often and have a connected business, meaning that it's not simply enough to have an app interact with a physical product.
There is data management and analysis needs.
And then there is the ongoing business of interacting with your customers and engaging with those customers.
So for us, a connected business, the type of customers we serve are not just connected product companies, but they are connected businesses.
And what that means is there is an ongoing and enduring relationship between the company, the product and the customers.
And the value of having the company involved greatly improves ---+ or is greatly improved by the ongoing relationship.
Think of companies that have logistic needs, service delivery, replenishables, those type of companies really are much better the day they roll out a connected product.
And we are helping them solve the entire stack from engage, connect-managing-engage with their products and customers.
And so very quickly people realize that what we do in Rescue from really what were first IoT-type products of PCs, laptops, smartphones, tablets, servers, those are really the forerunners of a smart device that you might see in the IoT world, premium support engagement is a critical part of their business plan, a critical value driver.
And so things like Rescue Lens and Rescue support functionality are very much part of the Xively roadmap.
Thank you, <UNK>.
Thank you for your questions tonight.
LogMeIn had a great first quarter, and we believe we are in a favorable position to deliver continued growth in Q2 and throughout 2015.
Our goal remains to increase shareholder value by delivering growth and increasing our strategic positions in our collaboration, SMB IT and IoT markets while driving superior cash flow from our established businesses.
And we believe that we made significant progress on our key strategic initiatives in Q1, including expanding join.
me's collaboration opportunity, helping IT deliver the security and productivity needed in an app- and cloud-centric world, and delivering offerings that help companies connect, manage and engage with their customers in the Internet of things era.
We look forward to sharing our continued progress when we report our Q2 results in July.
Thank you again for your time this evening.
| 2015_LOGM |
2017 | INTC | INTC
#Thanks, <UNK>
The third quarter exceeded our expectations with revenue $16.1 billion, which is $400 million better than our outlook
Operating income of $5.6 billion was more than $700 million better than our outlook
Our data-centric businesses grew 15% year over year, reaching 45% of our revenue, proving that Intel is becoming a data-centric company
The fiscal discipline that Bob and I have talked about is delivering results even faster than we had forecasted while simultaneously allowing us to focus more on innovation in our key growth segments
Revenue grew 2% or 6% after adjusting for the McAfee transaction
Operating income grew 8% and earnings per share grew 26%, both reaching all-time records
Add it all together, and this was a remarkable quarter in what is shaping up to be a remarkable year
Our strategy is to be the driving force of the data revolution across technologies and industries
Our data-centric businesses are the company's growth engine
Individually, these businesses provide great value to our customers
Collectively, they're solving our customers' problems in a way that no individual business or product could
We've built a collection of capabilities that is unmatched
At the same time, our PC business remains central to our success
It's a source of great profit, cash flow, scale, and intellectual property
We've made great progress in both our data-centric and PC-centric businesses over the last few months, and I'll share a few important milestones that illustrate that progress
We're going to start with CCG [Client Computing Group], which produced exceptional results despite a declining PC TAM
PC market conditions continued to improve, and we achieved record Core i5 plus Core i7 client mix
Our focus on an annual beat rate of innovation and thoughtful segmentation combined with an investment strategy designed to produce results, even in a declining market, is paying off
We're especially excited about the launch of our latest 8th Generation Core processor, code named Coffee Lake
The Coffee Lake family includes our first six-core desktop CPU. And it's our best gaming processor to date, with up to 50% better performance than the competition on top game titles
We're on track to ship our first low-volume 10-nanometer part by the end of the year
That will be followed by the initial ramp in the first half of 2018, with both high volume and system availability in the second half of 2018. We shipped our first modem into the auto industry, and our modem revenue was up 37% in total over last year
Moving on to our data-centric businesses, DCG [Data Center Group] revenue grew 7% in Q3 and remains on track for high single-digit growth for the year
We saw strong cloud growth, outgrew the comm service provider end market and, while the enterprise decline moderated sequentially, we still see workloads moving to the cloud
Cloud and comm service provider revenue combined is nearly 60% of DCG revenue now
In less than three months, we've had more than 200 Xeon scalable OEM systems begin production shipments, and our customers across all of our segments are beginning deployments that will continue to ramp in Q4 and through 2018. In our Internet of Things business, revenue was up 23%, with strength across the retail, industrial, and video segments
We also continue to build momentum in the vehicle infotainment market, winning designs from our competitors at leading automakers
Early in the quarter, we closed the Mobileye transaction a full four months ahead of schedule
So far this year, Mobileye has won 14 ADAS [Advanced Driver Assistance Systems] designs across 14 automakers, a pace well ahead of the 12 wins they recorded all of last year
These designs provide for typical features like automated emergency braking, lane keeping, and adaptive cruise control
But several also include next-step functionality like highway autonomous driving
We're also winning marquee designs for Level 3 and higher levels of autonomy, including our strategic partnership with BMW and Fiat Chrysler
Most recently, we announced that Waymo's newest vehicles, the self-driving Chrysler Pacifica Hybrid minivans, feature Intel-based technologies for sensor processing, general compute, and connectivity
With 3 million miles of real-world driving, Waymo cars with Intel technology inside have already processed more self-driving car miles than any other autonomous fleet on the U.S
roads
Intel and Mobileye provide the auto industry with unmatched product breadth, the architectural flexibility to support open and closed implementations, and technology leadership
Our progress in just a few short months illustrates the benefits of our combination
And together, we can deliver the promise of autonomous driving in a safer, collision-free future
Let's move on now to memory and FPGAs
Our memory business grew 37% over last year and operating margin improved significantly, as Fab 68, our Dalian factory, continued to beat both its ramp rate and yield goal
Fab 68 accounted for more than half of our supply in a quarter where more than 70% of the total bits were 3D NAND
Our memory innovation and technology leadership is having an impact
We shipped the industry's first 64-layer data center SSDs and have a strong Optane design win pipeline
That leadership technology has also resulted in strong customer interest in long-term supply agreements, and we've already signed two such agreements
Bob will share more about our approach, but this is an important step that will mitigate the short-term cash flow impact of ramping our memory capacity
And finally, in our FPGA business, revenue was up 10% over last year, with growth in the data center, embedded, and automotive segments, where we're ramping designs like the Level 3 autonomous 2018 Audi A8 and DENSO's stereo vision system
Strength in these segments was partially offset by continued weakness in comms infrastructure
Our design win revenue value was up more than 10% in the third quarter, the highest level in more than three years
This business is central to our success in artificial intelligence
In Q3, Microsoft announced that it would use our 14-nanometer Stratix 10 FPGAs for its accelerated deep learning platform that's code named Project Brainwave
And as part of a broadening engagement between our companies, Alibaba is using Intel FPGAs to power the acceleration of the service of Alibaba Cloud
We've made tremendous progress in AI and advanced computing technologies over the last few months
In addition to our FPGAs and autonomous driving wins, we launched the Movidius Myriad X, the world's first vision processing unit with a dedicated neural compute engine to deliver artificial intelligence capabilities to the edge in a low-power, high-performance package
We also achieved new research milestones, as Intel scientists pursue exciting emerging forms of compute
We delivered a 17-qubit superconducting test chip for quantum computing to our research partner, QuTech
And we'll follow that up with a 49-qubit test chip by the end of the year
We also unveiled the Loihi, a self-learning test chip that mimics the brain's basic mechanics and makes machine learning faster and more efficient
Later this quarter, we'll ship the Nervana neural network processor, the industry's first commercially available processor of its kind
I also announced last week that Facebook is working in close collaboration with us, sharing their technical insights as we bring this new generation of AI hardware to market
Together, these accomplishments reinforce several things for me
First, Intel is the leader in AI inference from the core of the data center to autonomous vehicles out to the edge devices where low power is especially critical
Second, artificial intelligence takes many forms and will require computing solutions that are tailored for the workload, the environment, and the user, rather than a one-size-fits-all
And third, our investments and pipeline of innovation position us to lead for years to come
We had a quarter any CEO would be proud of
And I'd like to take a moment to remember our former CEO and my friend, Paul Otellini
Paul had an enormous impact on the industry and this company, and his Intel family will miss him
He would be proud of our growing momentum, and it's an important part of his legacy
Wrapping things up, I'm excited about both our progress and our prospects
And we're competing aggressively for our $260 billion TAM, the largest opportunity in our history, with lots of room to grow market segment share
In some of our segments, we're facing new or resurgent competitors
In other segments, we are the new competitor
But in all cases, competition brings out the very best in our company, as our third quarter results demonstrate
We're now well ahead of our commitments we made to you in January
Our transformation is accelerating
And we're raising our full-year expectations for revenue by $700 million and for operating profit by $900 million, our third consecutive increase this year
This puts us solidly on track to deliver the best year in the company's history for the second year in a row
And with that great news, I'd like to hand it over to Bob
Hi, <UNK>
So let's talk about this
We can kind of break this down
So, first, we are already seeing the benefits of AI in that
Remember, as I said, we lead in inference, which is the actual application of artificial intelligence, and we're continuing to really grow in that space
I think AI, if you take a look at it in general, machine learning, it's the smallest segment to a workload if you look at the data center, but the fastest growing
So you're going to see it continue to become a bigger and bigger portion of our business
You're seeing the effects in our numbers already around Xeon, Xeon Scalable, the FPGAs; we talked about the Microsoft Brainwave launch that's occurring
So those products you're going to see, I'll call those more of our traditional products
And also at the lower end, outside the data center, things like Movidius and now Mobileye, you're seeing those hit our P&Ls as well real-time now as we speak
The other products like Nervana, you'll start to see really more towards the back end probably of 2018 from a P&L perspective
If you take a look at Nervana, it actually – we get our first silicon out
It will be handed out as test silicon
We have a yearly cadence of products, and so I expect the first substantiations to be more people figuring out how to use it
It won't be a big impact
But as we go through next year and move on beyond that and get the second generation and beyond, that will grow, we believe, quite considerably
And then products like Loihi, which is our neuromorphic, are same things
The part we've put out so far is really a chip for people to begin to use and learn how to program with neuromorphic, which is a very different type of machine learning
It lets you learn at hundreds of times faster rates than traditional, I'll say, GPUs and CPUs, especially around visual learning
Those as well you'll start to see late next year and beyond as people really begin to learn how to program with these
So seeing it already and those newer products really think late 2018 and beyond before they really start to hit P&Ls
I'll start and Bob can jump in, <UNK>
First, because you've got a couple questions in there, what I would tell you is that the Purley ramp has just really started
It starts with the big cloud service providers
You saw Google talk about it a couple weeks ago
You saw Microsoft talk about it earlier this week
Those ramps are just beginning
I talked about the 200 design wins or design-ins at customers
Those are just starting to come out, so we're really early
These ramps, remember because we have to – it will go through the cloud service providers and the Tier 2 cloud service providers, then on into comms and eventually into enterprise as well
This is going to take a year or more
So I think it's early to make this judgment
The ramp is right within the range we predicted it to be from a ramp of that product The second part of your question, is 7% high single digits, I'll just make it simple and say look, if you look mathematically, I think it would meet a minima of high single digits, but it's certainly not necessarily where we're targeting to get to, but it's a high single digit number
I'm not going to – the math doesn't lie
<UNK>e, we don't separate out inference
So what we said is simply in the past publicly that AI is one of the smallest workloads and in fact one of the fastest growing
We haven't broken out – beyond just saying here's what cloud is growing at and here's what comms and here's what enterprise, we don't break out by workload
And there's a variety of reasons for that
Part of it, it's sometimes hard
The mixture of what – when somebody goes out and builds a rack, what is it going into? How much of its workload is really being used by AI? Anybody who tells you exactly what that number is, is just wrong, to be honest with you
So it's very hard for us to say with precision that X percent of our units went into AI workloads because it's rare that a rack is purely AI except for rare cases
But we know that it's small, just by the type of interactions we have, but also fast-growing and one of the biggest areas of interest
So you've captured it quite well
Let's just talk about this
We can talk about it from a unit standpoint and then we can talk about it from how has our business done
From a unit standpoint, the decline has certainly slowed down
If you go back a year or two ago, we were high single digits to low teens declines at times year over year from a unit basis, and that slowed into the low single digits that we're seeing today, but we still are seeing a decline on a unit level
And I always remind people, we've taken probably something like 25% of the annual units out of this business, yet grown in that timeframe the profitability of that business significantly
So, that I think just talks about both the great execution in products and segmentation strategy and just the leadership that that team, at first with Navin Shenoy and now with Greg Bryant, have really delivered to the company
So our view is, <UNK>, that if you take a long-term view, we see the pattern kind of stabilizing at about where it is
I think we'll come in here and there will be quarters when the units are up slightly, and there will be other quarters when the units are down a little more slightly
But when we look at it over the long haul, they're probably going to be down those low single digits
But we also see segments that are growing, that are very performance focused, which allow us opportunity
So you talked about them, gaming, 2-in-1 devices, thin and light, the Ultrabook as we like to think about it from the old, those products are continuing to see growth actually, and they are pushing that record Core i5, Core i7. They're pushing the desire for Core i9, which is a new product we introduced
Those are what's driving the segmentation, the ASP uplift, and the increased profitability
We think to some level that trend will continue
How long? I'm not going to be that good a prognosticator, but certainly for the near-term future, we don't see this trend shifting very much
<UNK> <UNK> <UNK> - Credit Suisse Securities (USA) LLC And then, <UNK>, just on the modem side, your prepared comments, I think you said it was up 37% year over year
What's the sustainability of that business and your ability to continue to grow that business through penetration?
I'm excited about the modem business
We, I think, really gotten a team together that is world-class
We believe we now are on a yearly cadence of world-class modems, which is really critical
That's a big hurdle to get that technology to where you can reliably put out on a yearly cadence a world-class modem
We believe we're there now
We continue to increase the profitability or the efficiency of that organization, which we've always talked about in the past, and that's continued
So we think we can continue to both drive the technology and continue to grow that business
<UNK> <UNK> <UNK> - Credit Suisse Securities (USA) LLC Thank you
<UNK>e
I think in our statements and in the release, we showed you that we actually lowered CapEx by about $500 million for this year
We've talked about CapEx and thinking about it as being in this range
I don't think we have anything else to say about – it's pretty close right now
We're just focused on the execution into Q4 and prepping for our view for 2018. So I don't want to have any other discussion on CapEx until we get to the January timeframe right now for 2018.
Yes, think of it – so first, absolutely you're right that we are going to move much more of our focus towards data center products coming first
It's not going to be the early part of 10-nanometer, though
You've got to look at the design cycles
And you make a decision like that, even if you make it last year, you'll start to see the effect at the back end of 10-nanometers and you'll really see it affect 7-nanometers, so not these early products on 10-nanometer, though
They were already in the hopper when we made that move
<UNK>e, that's a great question
So we mentioned that even out of those 14, many of those continue on up into Level 3, Level 4. The Level 5 work that you see out there is pretty far out there
And I'd tell you that's there's a lot of just experimental work going on there
If I take a look at the bigger picture, which is what you're asking, this whole picture that we've been putting together is – I said in the statement that individually these businesses are great
But when you put all these together into one package and you're able to walk into a customer with a complete solution, they're truly world-class and something nobody else can deliver
So you're right, when we go in and we talk to somebody about autonomous driving in general, whether it's Level 2 bots, Level 3, Level 4, or Level 5, we bring with us a suite of products, depending on what kind of architecture
And what we're seeing is different OEMs, different customers thinking about those architectures even differently across that spectrum
Some are thinking but by Level 5, I think my skills will be up
I want a closed system
I want to have much more control of the software
So we have a set of solutions we bring to them there
Some of them want to have more FPGAs for how they bring their software down onto the silicon earlier on
But what we're able to do is bring our modems
We shipped, and we mentioned it in the release, our first automotive modem
So we're able to bring automotive modems all the way through 5G
Most of these car companies are having to build data centers, and not just data centers, centralized data centers, but really a data center architecture that goes all the way out with data and compute at the edge
You're going to want to be able to manipulate and transfer mapping, high-precision mapping, to the cars and data back from the cars to change those maps' construction and things like that
So we're building that architecture, and we have the products and the talent to uniquely work with them all through that infrastructure
And then you get out to the car again and we can bring the FPGAs, the Mobileye for sensor fusion or compute
We can put Xeons in there
And each one of these discussions, they're all a bit different
They all have multiple phases as you go through 3, 4, and 5 on the levels
And what we're able to do is say you don't have to just take this one solution
This is not the only solution there is
What would you like to do? What best solves your problem in the most cost-effective, lowest power, efficient way? How much work do you want us to do in software and development versus how much work do you want to own and have IP within your company? And that's changing, as we said, over time
And that's part of also why we're building out that 100-car fleet
Amnon [Shashua] really has driven a vision that says it's one thing to bring foils to a meeting
It's another thing to bring a car and say now let's go out and drive and show you how all of these fit together
So all of that is – this package that we have is unique and it's resonating quite well as we walk in to the various car OEMs. And I'm out there with them in various modes almost every week, every other week
Amnon is out
We're all talking about a complete package
| 2017_INTC |
2017 | XOXO | XOXO
#<UNK> is filling in for Ivan, who is out on paternity leave.
Our warmest wishes to the whole Marmolejos family.
Thank you, <UNK>, and welcome, everyone, to our second quarter earnings call.
As always, it is a pleasure to speak with our fellow stockholders.
I will start with a quick recap of our Q2 performance.
Total revenue for the quarter was up 9% year-over-year, led by a double-digit increase in our local marketplace revenue and continued strong performance in transactions.
During the quarter, our local online revenue increased 14%, the highest growth rate since Q1 2016.
We ended the quarter with just over 26,000 vendors, also up 14% year-over-year.
The increase in revenue was driven by improved productivity in our sales force that began in the second half of 2016 and continues.
We also experienced a 75% retention rate in the quarter, our best result since 2015.
We continue to improve our marketplace and help our vendors close business.
In Q2, we enhanced our recommendations, closed-loop inbox and request for quote features.
Our continued product efforts, paired with growth in our sales team headcount, has put us in a position to continue to drive local revenue and build on the momentum we saw in Q2.
Turning now to transactions.
This continues to be our fastest-growing revenue line, up 27% in the quarter.
This is a direct reflection of the product enhancements we've made in the last year, and we look forward to ongoing growth in this business.
We were up low single digits in national online.
National advertising throughout the industry is challenged by macro trends, and our performance this quarter reflects that we're not immune to this.
Though there was downward market pressure on CPMs, this was offset by our continued growth in audience and user engagement.
I'm more optimistic than ever about our company's future, and I hope you will all join us at our Analyst Breakfast on Wednesday September 27.
I will now turn it over to <UNK> for the financial review.
Thanks, Mike.
In Q2, we made solid progress towards reaching our current target model of double-digit revenue growth and a 20% adjusted EBITDA margin.
Total revenue for Q2 was $42 million, up 9% year-over-year.
In our local online business, revenue increased 14% year-over-year.
As Mike mentioned, we ended the quarter with just over 26,000 vendors, up 14% as well.
On a trailing 12-month basis compared to the prior year, our vendor count reflects the productivity issues from last year and was down 1%.
We had a 7% increase in average revenue per vendor and a very strong retention rate at 75%.
In transactions, the increase in revenue of 27% was largely driven by an increase in registry and commerce revenue.
For national online, revenue was up 2% year-over-year, which was up against a 12% growth rate in the year-ago quarter.
This was primarily due to macro trends and our execution in that environment.
During the quarter, display ads revenue increased 16% even with an eCPM decline.
This was offset by declines in both custom and lead generation.
Publishing and other continued its managed declined and fell 13% in the quarter.
Our gross profit grew 10% year-over-year in the quarter, and we posted a gross margin of 93%, nicely within our target model of 90% to 95%.
Total operating expenses were up 21% in the quarter.
A 10% increase in product and content was driven by talent costs.
A 22% increase in sales and marketing expense was driven by the expanding local sales organization.
A 37% increase in G&A was driven by trends I will touch on shortly.
As for our adjusted EBITDA margin, that came in at 19% in the quarter, a solid climb back from the Q1 results and just a touch under our target model.
Our GAAP EPS, including the write-off of our investment in Jetaport, were $0.06, and our non-GAAP EPS were $0.11.
There is some noise in the quarterly results that I'd like to try to parse for you.
First, our G&A growth of 37% was largely driven by the ongoing cost of the implementation of the 606 revenue recognition standard and elevated compliance costs.
We estimate that of our $8 million in G&A, roughly $800,000 was elevated.
Excluding this cost, our G&A growth in the quarter would have been 23% and our total OpEx before G&A growth roughly 18% versus the 20% reported.
Secondly, we consistently review our product portfolio to ensure we are focusing on product with the highest <UNK>OI.
With respect to that, D&A was up 23% in the quarter due to roughly $500,000 of accelerated amortization on a couple of products we end of life-d.
Ex this, D&A would have been flat in the quarter on a year-to-year basis.
Lastly, our non-GAAP tax rate for the quarter was 30% and was impacted by the impairment of Jetaport, which reduced the rate in this quarter versus a more typical tax rate of 40%.
Putting all this together and using our expected long-term effective tax rate of approximately 40%, our EPS results would have been roughly $0.01 better per share, and our adjusted EBITDA would have been 1 point over our target of 20%.
We ended the quarter with $98 million in cash, down from $103 million at the end of Q1 and bought back $8 million of stock in the quarter.
Through the first 2 quarters of 2017, we have bought back $13 million of our stock.
Our 2017 guidance remains unchanged from last quarter.
That guidance calls for our business to continue its trending back towards our target model of double-digit revenue growth and an adjusted EBITDA margin of 20% but continues to have us falling shy of that model on a full year basis.
On a top line basis and consistent with our past guidance, this implies a continued healthy double-digit growth rate in local, a 20% growth rate in transactions, a single-digit growth rate in national online and print and other continuing to be in a state of managed decline.
Of these, we see the most risk in our Q4 national online revenue due to operating in the environment of macro trends Mike mentioned.
As for the second half of 2017, you should model a higher year-over-year revenue growth rate in Q3 versus in Q4, largely due to uncertainty in our national pipeline and getting to a more normalized double-digit year-over-year growth ---+ run rate in local online.
While we expect Q4 revenue to be up sequentially from Q3 in dollar terms, we do not today expect Q4 revenue growth to be at our double-digit target model.
We expect our overall OpEx growth rate to decelerate in the second half of the year to the high single digits, including our current expectations of elevated G&A.
To make that more crisp, I want to point out that we are today modeling $3 million of elevated G&A costs for the full year 2017, of which $2 million has already been spent in the first 2 quarters.
Additionally, we expect a double-digit decline in stock-based compensation in both of the quarters of the second half of 2017.
Our expectation is that our D&A growth will drop back down to single digits in the second half of the year.
This should put us in a good position to be at or close to our adjusted EBITDA margin target of 20% in the second half.
Finally, our tax rate has been fluctuating in 2017, and we believe it will continue to do so.
I would model a 40% tax rate in Q3 and a 45% tax rate in Q4 due to the timing of tax benefits and windfall benefits of the new stock-based comp rules we talked to you about in Q1.
In general, we expect our long-term effective tax rate to be approximately 40%.
Thank you for your continued interest and support of our company.
This concludes our prepared remarks, and I'll now open the call for your questions.
Sure, <UNK>, and thanks.
There are a handful of extraordinary items that [weren't] on the quarter that we should make sure you're clear on.
So let me hit those first, and then we'll hit your registry/transactions question second.
So on the numbers, there are really 2 ---+ 3 things you're going to be pulling out of the numbers to get to a normalized look at the business.
The Jetaport investment, there's about $200,000 in the G&A expense that will come out, and then you obviously have the investment line of about $1 million that you would pull out to get to a non-GAAP basis.
What we've also pointed out, because we want to make people understand the core of the business as well, is that in the G&A line, that 37% reported growth includes $200,000 from Jetaport as well as an $800,000 of ---+ roughly $800,000 of elevated expenses.
If you take all of that out, you end up at an adjusted EBITDA margin of roughly 21%, so nicely above our target model.
And we wanted to make sure people understood that.
If you taxed all that at about 40%, you would end up with another $0.01 in EPS.
At the tax rate we reported, it would actually give you another couple of pennies from there.
So that's just to kind of try to clarify the numbers, and we're happy to walk through those with you.
In terms of the transactions business, because of the timing of weddings in ---+ with 2 of the big months being June and also October, you tend to see higher total revenue in the transactions business in Q2 and in Q3.
The team had a pretty tough comp in Q1, and as we had said last quarter, we think this is about a 20% growth business.
So you are seeing the business transact towards that.
When you look at the set of businesses themselves, you saw really strong results in the registry business and really strong results in the commerce business.
Both increased their rate of growth sequentially.
So all the product work that, that team is doing is really paying off for us.
And as we said in our guidance, we continue to view it as a 20% growth business.
So we're trying to make sure we give you some color on how the business is working.
We are seeing our customers trend towards display this year, and we are growing that business even with eCPM declines.
But the national online business is a business that we have a conservative view on overall, and we ---+ the whole mix of the business is what you need to consider when you do your models.
Mike, do you have any add-on to that.
I would just reiterate something we've said previously, <UNK>, which is that the team has done a good job of getting more larger budgets into the national business.
It's contributed to the growth of that business over the last couple of years.
The downside of that is any $0.5 million or $1 million move in a quarter, you just ---+ you feel that a lot in the numbers.
So as you think about our national advertising business, just think ---+ understand that it is a chunkier business now than our local business or our registry business, our transactions business.
I'll cover the first, and I'll ask Mike to give a little color on the national business.
With regards to the G&A, what we said is included in our numbers is about $3 million of expense in G&A that we don't think would be repeated next year.
We do think that 606 implementation will roll into next year, and so there could be some costs in there, but I don't think it will be enough that we would want to point out and make sure you understand that elevation going into '18.
So I think that's how that will roll out.
As we said on the call, about $2 million of that has already been spent, and I would put a little bit more of it into Q3 than in Q4 as you model out the rest of the year.
But importantly, our guidance for the coming quarters includes that elevated expense.
So we think the business should trend really nicely relative to our target models even inclusive of that expense.
So that's the G&A.
Maybe I'll have Mike give you a little bit of color on the national business.
Yes.
<UNK>, we compare the national business to other more mature online publishers in the space.
We are seeing on average low single-digit percentage growth numbers.
We've been able to outperform that the last few years as we put together a good team here and they have been picking away at the low-hanging fruit of undersold inventory and accounts that we hadn't exploited in the past.
I think we're now reaching a point where I would expect us to grow in those single digits in the national advertising business.
And while there are macro-level trends that are affecting online advertising, some of which we've talked about here before, pressures from programmatic advertising, for example, pressures from Facebook and some of the larger players in the space, at the same time, we have 2 things that are working to our advantage.
One, we continue to improve our products, which continues to grow our audience and our audience engagement, and that just creates more inventory that we can sell.
Secondly, we have what continues to be a very hard to reach audience, young millennials and particularly young millennial women engaged in big spending events.
So we continue to see those 2 factors working in our favor.
We've articulated to our fellow shareholders here it is going to be local and transactions that are going to continue to drive growth on the top line for our business.
But we are confident that national can continue to be a positive contributor to the overall enterprise.
Yes.
<UNK>, it's a good question.
I'd encourage you, in the context of this question, to think of 3 factors that are impacting our growth rate.
The first one is by us investing in and improving our sales force and the size of our sales force, it puts us in a position to very simply make more phone calls, reach more potential customers and get more new business into the top of the funnel.
The next 2 things to consider are the things that drive retention.
The first is the improvements in our products that continue to bring more couples to The Knot and connect more of those couples to our vendors.
So we are just seeing a lot more users, couples connecting with a lot more vendors through our platform, which creates more value for both sides, both parties and makes it more likely that a vendor is going to want to stay with you.
The second is we've made a bunch of investments in features that better connect our users and our vendors.
So not only do we have more brides and grooms coming into that ecosystem, not only do we have more brides and grooms connecting with more vendors, more venues, more DJs, more photographers, but once we make the connection between the 2, we're doing a better job of helping them communicate, share information and get closer to an actual purchase.
Those things make that lead, if you would, make that traffic more valuable to our vendors and increases the likelihood that those vendors stay with us.
So to sum that up, a larger and more productive sales organization can bring in more new business, high-performing products at the middle and bottom of the funnel both ensure that the connections that we're making are valuable and that those new accounts that we're bringing onboard will want to stay with us.
And <UNK>, just from ---+ I don't know how far into the call you joined, but from a KPIs perspective, we grew the ending quarter vendor count 14%.
The increase in average revenue per vendor was 7%, and we had a very strong retention rate of 75%.
All contributed to that growth rate.
Is there anything in particular.
There's ---+ if you're going through the site today and you're using it as a couple, you'll find that versus a year or 2 ago, we're doing a lot more to collect information about our couples and help to guide their journey.
We are recommending vendors now.
So we're not just leaving it to our couples to find a particular ---+ to go hunting around and finding a vendor through our marketplace.
We're actually using what we've learned about our couples to better connect them to the vendors that we believe are the right ones.
And then you remember, early last year, we replatformed the entire site so that our users and our vendors could communicate with each other through our products, rather than going offline to e-mail.
That opens up the opportunity for us to use that communications platform to better inform both sides, tell the vendor more about the couple, the couple more about the vendor, and keep that communication flywheel moving.
Sure.
So in general, 4Q comes up over Q3, and what I would do is model a higher rate of revenue growth in Q3 than in Q4 given the outlook we see, particularly in the national business.
So just to kind of give you a little more color on that, we're feeling very good about Q3.
We think you should model it at or above our target model in terms of double-digit revenue growth, a 90% to 95% gross margin and the 20% adjusted EBITDA margin target.
And then in Q4, we're feeling very good about the adjusted EBITDA margin target.
On the revenue growth, we would have you keep that number coming down, largely due to the national pipeline caution that we have.
Sure, <UNK>.
Thanks for the question.
To oversimplify it, think of our transaction business as predominantly driven by our registry business.
And think of the primary drivers of our registry business us capturing couples early in the wedding planning cycle, having them create a wedding website with us, create a registry through us or attach a registry that they've created with one of our retail partners to their wedding website, and then share it with the guests coming to their wedding.
Over the last few years, one of the most important improvements you've probably noted in our website, especially following the relaunch of our website 2 years ago, was the improvement in the wedding website product.
We are the leading ---+ we are now the leading provider of wedding websites in this space.
The features that you've seen us shift in the last quarter or so that we are more encouraged by are our new guest list manager, which allows the couple who's created a wedding website to manage the guests that have been invited to the wedding and manage <UNK>SVPs in particular.
The second feature that we think is pretty interesting is The Knot's cash registry product.
We're providing ---+ the increasing percentage of couples who want money or experiences rather than gifts, we've provided them an option to request that from their guests right through our website.
And then, I think I neglected to give you some KPIs on transactions in my prepared remarks.
But the way to think about it is that the growth in the business was primarily driven by user traffic and conversion rates, and our take rates were stable.
| 2017_XOXO |
2016 | MDR | MDR
#If you look at our supplemental deck that we posted on our website, we've included a page there that has all of our new credit metrics and how we are performing against them.
For an example, if we were to look at our senior debt to EBITDA, the maximum that we are allowed is 2X.
At the end of Q1 we were just under 1X.
That's a similar trend to all of our metrics.
I think we're performing very well against them, and I think we have substantial our significant headroom within these new covenants.
Sure, <UNK>.
As we've gone through the quarter, we've re-examined and we looked at some of that headcount reductions that we were forced to make in this environment, and we been able to I think save more around those headcount reductions.
Additionally we've also looked at some additional operational type savings around some of our supply chain initiatives.
We are seeing some excess supply in our supply chain and so we're pushing harder to make some more savings there.
I think as we look at the balance of 2016, our supply chain is going to continue to be a significant focus area for us.
We are under significant pressure from our customers to pass-through supply chain deflation and are looking to structure new agreements, new ways of working with our supply chain to access as many savings as we can and pass savings to our customers, but also trend try and generate some savings for the company.
I think firstly to address the operational performance, I think today our operational performance in the region is excellent.
One of the challenges in the Middle East is firstly the volatility around the project awards.
And what we have from <UNK> is obviously sequencing and timing of when we are executing some of these projects, which is a result on some of the sequencing.
Which also has a positive because being there and being local, being close to the customer means that we can provide the customer lots of flexibility and also versatility.
Longer-term, I obviously don't want to give guidance, but certainly we see this part of that world for us being an area where we should see good results as we continue to perform, good results as our reputation gets stronger and obviously in area where we see customers investing in capital.
And also that's predominantly in the brownfield as customers look to replace and replenish existing infrastructure.
We are obviously very excited and obviously very happy in a position that we have ourselves today the Middle East.
<UNK>, this is <UNK>.
As we sit here today, we are looking at a non-cash impairment of $32 million.
Thank you.
<UNK>, that's broadly correct.
There's obviously a different balance per contract.
And as we take on new contracts, we are very careful to try and reduce our exposure to supply chain or commodity price fluctuations.
A lot of orders are placed at the front of the contract.
As we're going through contracts, depending on the mix of third-party services or products that we have to use, we are working with our supply chain to capture as much deflation as we can.
Additionally we are fundamentally transforming the way that we engage with our supply chain.
We're looking at how we work closer with them, how we collaborate with them, how we work on a global basis as opposed to a project basis, and in that way we are trying to find win/wins for our supply chain for McDermott and also for our customer.
That number $4.7 billion does include the two award ---+ the contract awards that we announced with this press release, yes.
Very good.
Thank you.
Thank you again for participating today.
Operator, this concludes our call.
| 2016_MDR |
2016 | ORN | ORN
#Thank you, <UNK>, and welcome, everyone, to our call this morning.
I'd like to begin by thanking our 2,400 co-workers for all their hard work and dedication.
It's through the combined efforts of our entire team that we will achieve our goals as we move ahead.
Looking at the second quarter, we experienced slightly slower productivity as a result of adverse weather in Texas, along with timing and mix of jobs at our Heavy Civil Marine Construction segment.
During the second quarter, we also brought material closure to our troubled Tampa projects.
As I stated previously, the fundamentals of our business remained strong, and getting these projects behind us is a significant step in moving us forward to improved future financial results.
In this regard, as previously discussed, during the second quarter, we elected to reduce the scope on one of the remaining troubled Tampa projects in order to bring the project to completion.
By doing this, we incurred slightly lower margin during the second quarter.
However, we brought finality to a job that would have experienced further customer delays and significantly higher costs to complete in the future.
Also during the quarter, we made further improvements to the company's operating management structure, which resulted in one-time expenses during the quarter.
Our Commercial Concrete Construction segment continues to perform very well, with top-line gains in Dallas and continued solid market drivers with good bid opportunities across our market.
It's been one year now since we expanded into Commercial Concrete business, and I am very pleased with our acquisition and its performance to-date.
I remain encouraged by the future of this segment of our business and the growth opportunities it provides.
Excluding the productivity impacts due to adverse weather in Texas, operations in both Heavy Civil Marine Construction and Commercial Concrete Construction segments had solid performance during the second quarter.
Our overall results would have been in line with analyst expectations without these weather impacts and without one-time expenses related to improvements in our operating management structure.
I believe with troubled Tampa projects materially behind us, we're positioned for substantial bottom-line improvement in the remainder of 2016 and we're well positioned for solid results in 2017.
Overall, our business is performing well and we're seeing improved margins in our backlog.
Turning to our outlook, we continue to experience a high level of demand for all types of services we provide across both operating segments.
Our bid opportunities remain solid, and we're focused on opportunities that will create shareholder value.
Our Heavy Civil Marine Construction segment continues to see solid demand to help maintain and expand the infrastructure that facilitates the movement of goods and people on and over its waterways.
Specifically, we continue to see bid opportunities from both our private sector and public sector customers as they expand, refurbish, and repair their marine facilities.
In the private sector, although, we will continue to monitor developments in the energy patch, we continue to expect to see opportunities from this sector from terminal operators, petrochemical-related customers, energy exporters, and LNG facilities.
Additionally, we believe we will continue to see opportunities from our recreational customers as they improve and expand infrastructure.
Led by these drivers, the majority of our revenue in the first half of 2016 in our Heavy Civil Marine Construction business has come from the private sector.
The funding outlook for the public sector has shown improvement as well with the enactment of the FAST Act and progress on funding through RESTORE Act.
Additionally, we're seeing opportunities from the U.S. Army Corps of Engineers and the U.S. Navy.
We also continue to see strong market in the second half of 2016 for our Commercial Concrete Construction segment.
We continue to see solid bid opportunities in the Houston market for educational, medical, and retail facilities, and we continue to maintain peak backlog levels in the Dallas market.
We believe solid demand for our Commercial Concrete Construction segment will continue in our current operating market and support expansion plans for this business in the future.
We remain confident in our ability to create shareholder value in both our Heavy Civil Marine Construction business and our Commercial Concrete Construction business.
While the challenges of wrapping up the remaining troubled Tampa projects took longer than organically expected, we're focused on returning to profitable operations.
Our underlying Heavy Civil Marine Construction business fundamentals are sound, and the continued opportunities in our various end-markets remain robust.
Our Commercial Concrete Construction business has continued to perform very well, and we're confident in the long-term outlook in our current and potential market.
We're focused on and excited about achieving significant improvements in the second half of 2016 and remain determined in achieving our target of $70 million of EBITDA for 2017.
With that, I'll turn the call over to <UNK> to discuss our financial results in more detail.
<UNK>.
Thank you, <UNK>, and thanks for joining us.
For the second quarter 2016, we reported a net loss of approximately $800,000 or a $0.03 loss per diluted share.
These results compare with a net loss of $1.8 million or a $0.07 loss per diluted share in the prior year period.
Contract revenue for the second quarter was approximately $140 million, of which our Heavy Civil Marine Construction segment generated approximately $80 million and our Commercial Concrete Construction segment generated approximately $60 million.
Within the Heavy Civil Marine Construction segment, approximately 43% of revenue was generated from federal, state, and local government agencies, while 57% was generated from the private sector.
This compares to 63% being generated from federal, state, and local government agencies, and 37% from the private sector in the prior year period.
For our Commercial Concrete segment, nearly 90% of revenue was generated from the private sector.
EBITDA for the second quarter was $8.9 million, which compares to pro forma EBITDA of $7 million in the prior year period.
For the second quarter, we bid on approximately $760 million worth of opportunities and were successful on approximately $123 million.
This resulted in a 16% win rate for the quarter and a book-to-bill ratio of 0.88 times.
Overall, we are pleased with the level of opportunities we have, and we remain optimistic given the level of bid opportunities we see for the second half of 2016.
As of June 30, 2016, we had total backlog of work under contract of $367 million, of which $166 million was attributable to the Heavy Civil Marine Construction segment, while $201 million was attributable to the Commercial Concrete Construction segment.
Additionally, we currently have approximately $725 million worth of total bids outstanding, of which $246 million is related to the Heavy Civil Marine Construction segment and $479 million is related to the Commercial Concrete Construction segment.
Currently, we are the apparent low bidder or have been awarded subsequent to the end of the quarter an additional $101 million worth of opportunities.
Of that, the Heavy Civil Marine Construction segment is currently the apparent low bidder on approximately $55 million, and the Commercial Concrete Construction segment has received awards subsequent to the end of the quarter on approximately $46 million worth of jobs.
SG&A expense for the second quarter 2016 was $16.9 million, an increase of $8.1 million as compared to the prior year period.
This increase is primarily a result of the addition of TAS.
Second quarter 2016 SG&A expense also included approximately $800,000 of one-time cost associated with the management structure changes <UNK> mentioned earlier.
With this in mind, we continue to expect full year SG&A expense for 2016 to be approximately 10% of revenues.
Now, turning to the balance sheet, as of June 30, 2016, we had approximately $1.5 million of cash on hand and access to approximately $37 million under our revolving line of credit.
Subsequent to the end of the quarter, we drew $10 million on our revolving line of credit to fund working capital needs.
During the quarter, we also paid an additional $5.6 million down on our credit facility beyond the normally scheduled payment.
As a result, we ended the quarter with approximately $110 million of total debt outstanding.
As we go forward, we'll continue to focus on paying down debt with excess free cash flows.
Additionally, we continue to maintain an excellent relationship with our lenders and appreciate their continued support.
I'm confident that our liquidity position is adequate for general business requirements and for servicing our debt going forward.
As a reminder, we amended our credit facility during the first quarter of 2016 to allow for incremental flexibility.
We were comfortably below the 3.75 times leverage ratio required at the end of the second quarter.
Additionally, our bonding program remains solid and is more than adequate to support our bid activity.
With the material conclusion of the troubled Tampa job, we expect to see improved results throughout the rest of this year, and we believe the fundamental business drivers remain intact for continued long-term growth in both operating segments.
As a company, excluding the troubled Tampa projects, our employees delivered solid results despite some challenges in the first half of the year.
The Company has the right people and systems in place for profitable and structured growth going forward.
Looking ahead, we expect the third quarter of 2016 to be a much improved period for the company.
We continue to focus on improving our margins not only by addressing the cost side of our business and delivering solid projects, but also working to reduce our leverage over time.
As <UNK> said, we are focused on achieving significant improvements in the back half of the year.
With the troubled Tampa projects materially behind us, we can move forward with growing the business profitably and returning value to shareholders.
With that, I will turn the call back over to Brian to begin the Q&A portion of the call.
Brian.
Generally speaking, I would say two things.
One is not only the revenue run rate but more importantly it's the profitability going forward.
Keep in mind that the ---+ as we ran through the first half of the year, you still had the jobs from the third quarter of last year, troubled Tampa jobs that were moving forward, where costs equal revenue; so it was pressuring margins overall.
So, naturally, as those are material behind as we move in to the back end of the year, we replace those with work where you're seeing margin improvement, which will help on the bottom-line performance.
Well, we feel very positive as we've said.
I mean, again, keep in mind that there is some seasonality in Q1 as normal and we build as we go through the years and things like that in better weather months and whatnot.
But, yes, I mean we're focused on, as <UNK> said, getting these troubled Tampa projects in the drag they kind of had on the financials in the first half of the year, you know, we've gotten behind us.
So, yes, we're focused on ramping up in the back half of the year with the work that we have.
We like the opportunities we see going forward.
As we talked about in the remarks, we're low bid or been awarded $101 million subsequent to the end of the quarter.
So we like what we see in both segments and we're focused on achieving our goals in 2017 of getting to that $70 million EBITDA level.
Well, it's possible.
In the Dallas market, we've seen that.
In the Houston market, we haven't seen as we've shifted from the types of projects that are out there and then we're going after.
It's been not conducive to moving margins, but I think margins have held fairly steady and we're very ---+ we're pleased with where we are in Houston and Dallas.
As well in Dallas, we've actually been able to see some uptick in bid margin; so we're very pleased with that.
But overall, very, very pleased with the performance of the Commercial Concrete segment.
The guys are doing a super job.
We're very excited about what we see ahead and the opportunities we see for that segment.
Well, hurricane season is a fact of life for us every year.
So, we always take a look when we're bidding work in the season for ---+ as we look at our cost structure, bidding the work, and what type of [continued] season, what not, we need to have in there.
So, what I would say is nothing really different from what we normally do.
So far this year, it's been fairly quite.
Obviously, we're heading into the next six eight weeks here is sort of the peak of the season, but it's been relatively quite.
But, again, we always look at this aspect this time of year as we're bidding work.
It was ---+ we didn't give a specific on the top line.
In fact, it's really just a movement of ---+ and especially with the weather, it's timing right.
So you're going to have some decrease in the revenue in the second quarter.
But then we should be able to make that up in the third and fourth quarters as we go forward.
It's just a shift.
Well, from a year ago, it's wholesale timing.
We've made significant ---+ obviously, we talked about earlier in the year about the changes we've made in Tampa.
We essentially have an entirely new team leading our efforts in Tampa, which we're very ---+ we have high degree of confidence in the team that we have in place there.
Obviously, a lot of attention that the new team has had to focus their efforts on is ramping up these troubled projects.
So, again, as I've said in my remarks, that's a significant step to get that behind us now.
And, again, we're focused on rebuilding profitable operations over there.
We've made some other changes operationally, though, that we thought were needed to strengthen the overall organization, operational organization, on the Marine Construction side.
And that did result in some one-time charges related to severance.
So, we're very pleased with the team we have place.
I think in most of the changes that we've made has been in Tampa.
But we also felt like there were some other changes that we needed to make that were made and again resulted in some severance payments that obviously impacted the quarter as <UNK> discussed.
So, very confident in the team we have moving forward to help us achieve our objectives.
Well, obviously, as I said in my remarks and this is really geared towards on the Heavy Civil side but does impact Houston a little bit is we're continuing to monitor developments in the energy patch, and that does have an impact.
And I kind of go back to what we've been over the past year with the ---+ as we've expanded into the Commercial Concrete business is where we have a high degree of confidence in the Texas market, which is one of the things we liked about the, among a lot of other things that we liked about, the expansion of the Commercial Concrete business with the TAS acquisition.
Again, the Texas market as a whole and the Houston market in particular, it's a lot different than it was 30 years ago.
Energy is still obviously very important, but there is a lot of other things going on in the Houston market.
With the port expansions, the medical, there has been a lot of diversification in Houston and Texas in the last 30 years or so.
So we're very, very confident in the long-term picture of our opportunities in the Commercial Concrete segment.
And then on the Marine side, too, as well, we're continuing to see opportunities as we see expansion of facilities related to just the ---+ despite what the daily, weekly, monthly changes in the energy price are, the fact is that there is a lot more energy being produced in the U.S. than there was previously, and that has a lot of impact on the supply chain structure.
And we see that continuing.
And there has been a shift in from imports to exports and things like that, and then there's all this domestic production that's coming down at the Gulf Coast refineries.
So we expect that to continue.
Clearly, we're going to continue to monitor that.
But we feel pretty good particularly about the ---+ specifically to your question, nothing that we're seeing changes our thoughts on the back half of '16.
And right now, based on what we're seeing in both projects we're picking up that we have in backlog that we will go into 2017 and then the indicators that we see about opportunities for us to bid on, that will generate backlog and work for 2017 or additional backlog and work in 2017.
We feel very good about where we are with those opportunities.
Yes, I mean we could ---+ I don't have that number directly in front of me.
We can follow up with you after the call.
But I think it's safe to say that we believe that without the weather impact and with the ---+
One-time expenses.
---+ one-time expenses that we would be in line with expectations.
No, it's not all related to Tampa.
Some of it is and some of it is related to other changes we made like ---+ that was an answer to prior question.
We made ---+ we felt the need to make some other changes to strengthen the organization.
And, again, it is primarily related to severance, but not all of it in Tampa.
Some of it with some other changes we felt that were necessary to just strike in the organization.
Well, I think, again, as we see the markets out there, we see the backlog that we have carrying over, we see the opportunities that we have to bid on upcoming that we expect to again maintain historical levels of win rates to generate additional backlog for 2017.
And, again, where we think we are with getting the troubled Tampa projects behind us, doing other things necessary, again, goes back to what we were just talking about and strengthening some management areas on an operational side, that ---+ again, we target that range, that 10% to 12% on a consolidated basis EBITDA margin with revenue expectation.
That's how we get there.
So, again, we ---+ barring any kind of major macro thing, obviously, that's always out there for us and all companies out there, but just with what we see coming out there, what we have in-hand, what we've been able to be successful on and the changes we've made structurally and operationally to our teams here this year, we think it's a very achievable goal for us for 2017.
Sure, sure.
Well, it always varies, what we do always as we look at what are the opportunities that we have to bid on be they ---+ and we're sort of agnostic as to whether it's public or private.
But as you know, <UNK>, the types of jobs or the types of services are more ---+ drive the margin profile versus whether it's public or private.
So, we take a look at all of the [step] whether we see it in the Navy, the Corps, the private sector, whatever.
We look at those opportunities as we just go through our normal selection process, what provides us with best opportunity for success to achieve our objectives.
And as you know, historically, we run in a kind of a 40 to 60 range on the Marine Construction side being private/public, and we kind of range back and forth depending sort of what we go after and then what we're successful in getting.
So what we kind of focus on is, is there a healthy amount of opportunities in both coming from all different types of our customers and the sectors and the drivers.
And that's kind of what I was speaking to earlier.
So, we do ---+ we are seeing some Corps work come out.
We announced the project, I think, July that we were successful on with the Corps of Engineers.
We're bidding on Navy work.
We're seeing other port work and stuff that we've been bidding on in the public sector.
In the private sector, we've continued to see work for the recreational customers and in the energy sector, again, related to all this domestically produced energy that's kind of really been a big shift in the supply chain structure for the energy patch.
And as a reminder, our types of projects are mostly downstream, some midstream, but mostly downstream.
So, as we look to '17, to answer your question, as we look to '17 and what we see out there, is right now, we're seeing good indicators in both the public and private sector for the Marine Construction segment.
And so that gives us confidence that there is enough work out there regardless of how much we get from each that we will be able to achieve our objectives.
And as I said, for first half of this year, the majority of our revenues has been driven by the private sector.
It's predominantly.
We do ---+ there is the educational space, and then that's been very nice for us and that's actually been an area where we've seen an uptick in opportunities particularly in Houston.
So, we're very pleased with that.
But that's generally the public space exposure that we have in the Commercial Concrete business and the vast majority of it is in the private sector.
I think that's a fair question at this point.
Yes, the interest will come down with the ---+ assuming interest rates don't skyrocket ---+
---+ that [could] come down.
Do keep in mind the D&A, the amortization of some of the intangibles are to drop off next year.
From the purchase accounting.
Well, we don't think it will be a drag.
I mean there is ---+ the reason why we said material, there were some costly stuff that went into Q3 a little bit, there's some [D modes] that went into Q3.
Most of those are already done or being done, but a little bit of minor stuff, which is why we said materially complete.
But we don't believe it will be a drag on Q3.
| 2016_ORN |
2017 | PRA | PRA
#Good morning, <UNK>.
<UNK>, I will let <UNK> answer that question specifically for healthcare, but I would just remind everybody that the uncertainty in the healthcare arena continues.
If anything, it has increased in recent months.
Frankly, my guess is choppiness will be the order of the day but, <UNK>.
I would very much agree.
Choppy, I think, is a good word.
While the submissions are up and we were very pleased and I think pleased not only with the rate of submissions, but also with the ability that we had to respond to them and the pricing and underwriting that we were able to do, there is a wide variety.
And in any given quarter, certainly over the course of the year, I think we will see many submissions that we either pass on that we are not successful when writing because of our underwriting or terms and conditions.
Particularly with the larger accounts, as I mentioned earlier, I think you're going to see a fair amount of variation.
On our existing or legacy book of business that we have been very consistent in terms of being able to retain that business, both in terms of retention rate and pricing, and the flow of new business in that portion of our business is more predictable.
Yes, there is.
There are quite a few opportunities that come along.
I guess I would remind you that it has been a long time that we have been talking about this unit, which we are very optimistic about and pleased with, and they looked at many opportunities before this one was actually put on the books.
Again because of the nature of the business, the competition that is out there, and just some of the transactions that were reviewed that either didn't make sense for because of the pricing and terms that we put on them, they went elsewhere.
There is also a lot of uncertainty from the nature of these transactions, because sometimes the underlying transaction itself, as in this case, the sale of a hospital, may be proposed but not go through, so we might be all lined up to do something and still not get it.
I think there is always some noise in it.
A year ago, mass torts was a little bit of noise; this year it wasn't so much.
Sometimes we have, on the current accident year loss ratio, the effect of changes in our death, disability and retirement reserves or the internal claims handling costs of ULAE, but I think on the basic loss and allocated loss adjustment expenses that we established, I'd say that we're pretty stable.
We have been, and I don't expect that to change anytime soon or anything dramatically.
It is a direct reflection of the rate environment in that we see through our rate analysis things being pretty stable in the marketplace as well generally what we are seeing in the overall frequency and severity environment.
It all is somewhat circular and related and right now we just don't see many significant changes out there.
Thanks, <UNK>.
Thank you.
It would vary for both healthcare and workers comp, but <UNK> can start with the healthcare.
I'm happy to.
On the healthcare side, I think there's several things.
Sometimes other companies have reported charges and looking back at it, many of those companies were relatively the price competitors in the marketplace so if the initial reserving was based on the same assumptions as the pricing and the pricing analysis was not sufficient, I think that often is the driver of some of the charges that you see.
The loss environment never has been easy on healthcare.
We're always subject to volatility, both in terms of verdicts on cases that are tried and how those drive settlements, as well as potentially changes in frequency.
In our business, we have not seen the changes in frequency and I think we have done a really good job in terms of, in our claims area, in controlling the verdicts but that potential is always there.
When that does happen, particularly for companies that retain a significant amount on a net basis, either with very limited reinsurance or no reinsurance, it can create a lot of volatility for their results.
<UNK>, what would you say.
As we look across our workers compensation operating platform, first of all, it has been stable on the regulatory side of the equation.
We have been able to control our medical inflation with our excellent claims closing patterns.
Claims frequency continues to decrease.
We had about a 9.5% claims frequency decrease this year and that has occurred in the industry really over the last 16, 17 years.
You end up ---+ at the end of the day you end up with was fairly stable severity trends, medical inflation seems to be under control overall and the frequency continues to come down, putting rate pressure on the book of business.
That is kind of where we are at as an environment.
It does vary state by state.
I would just say the 2016 to 2017 core operating states that we are in today, we are really pleased with our overall results and they have been good states to deploy our capital.
<UNK>, nobody has any idea how it's going to play out.
I go to a variety of meetings in a variety of environments and a variety of settings and the common theme is great uncertainty.
I think it is just too soon for us to know.
Given that uncertainty, we are going to be very cautious about making any changes that we think would be at risk because of the uncertainty.
Now, having said that, I think it remains clear that the provision of more and more healthcare by larger and larger organizations will continue to accelerate and I think it is clear that more and more healthcare will be delivered at lower and lower provider levels.
Those two things have been sort of the foundation of the strategy that we have employed for now well over seven years and I don't see anything that will change that.
The system is not going back the way it used to be.
In terms of what legislation may ultimately be enacted by Congress, I think it would be utter folly to make any big bets on what that would ultimately look like.
We will continue the strategy we have in place, we will continue to be attentive and responsive to a variety of different customers from the very, very large healthcare systems to the still-remaining solo practitioners.
The uncertainty that is faced by the system has probably never been greater.
I read constantly about the blurring of lines between, for example, providers and payers and I think that is going to continue and probably accelerate.
We think we have ---+ whatever the ultimate answer is, we think we have a vital role to play in the market, but we are not going to get ahead of ourselves.
I will let <UNK> delve into the specifics of it with you, but it is not that we set a capital management strategy and put it in concrete.
It is a very fluid strategy and it depends upon the environment in which we are living.
The Board discusses strategy, capital management strategy, at every meeting.
Our first desire is to put the capital to work in our businesses.
If we can't do that, our second desire would be to buy our shares back at an attractive price.
If we can't do that, our third goal would be to pay the special or regular dividends.
Acquisitions remain very much in our target, but we no longer have to do the acquisitions and we are not going to do them at what we regard as unreasonable and irrational prices.
We are in a very fortunate position.
We do not have to do them.
But I don't think our Board will ever say, this is going to be the capital management strategy we will follow forever and ever.
I think they will continue to look at it at every meeting, and I think that will continue to assess the opportunities that are in front of us and the best use of our capital to the benefit of our shareholders and our customers.
<UNK>.
I don't think I have anything to add, <UNK>.
Thanks, though.
Thank you, <UNK>.
Hey, <UNK>.
First, everyone of these is a little different and the reinsurance program that we have can optionally support it, but it is not required to.
Just as a bit of background, this transaction in particular sort of came with its own reinsurance in that we are ---+ as I mentioned, we are actually becoming or have become the carrier of the original policies through this novation, so we are the insurer and the reinsurers that were in place over the hospital captives are still in place over our novated policy, the policies that we have issued.
In this particular situation, we did not have to utilize our existing reinsurance program.
In other transactions, there may be some that have limits or features that are large enough for us to be interested in doing so on a net basis, to limit our net exposure, and then we always have the option to go out and arrange for facultative or individual reinsurance on any transaction.
I think Alabama finished the year very strongly.
When we go off-line, I'm going to send you Coach Saban's cell phone and you can call and ask him.
<UNK>, that is a really good observation.
We are seeing competitive pressure from both the regional and the national stock carriers that write multi lines, and it's being viewed, as the industry combined ratios come down in the last five, six years from kind of a [115% to a 95%], it's been viewed as a more attractive line of business and I think strategically as a growth line of business for the multi-line carriers.
We really see, at the end of the day, we see ---+ and it is regional, the competition is different on a regional basis, but we really see competition in three areas, the multi-line carriers that I just described, on the small business side we see the technology players play hard in that marketplace and then we see the regional specialty workers' comp carriers.
Those are kind of our three ---+ the three types of competitors that are out there in the marketplace and it is a competitive space right now.
<UNK>, consistent with prior cycles, correct.
Absolutely.
Thank you, Chad and thanks to everybody who joined us.
We will speak to you again in May when we report first-quarter results.
| 2017_PRA |
2018 | SWM | SWM
#Welcome to SWM's First Quarter 2018 Earnings Conference Call.
Hosting the call today from SWM is Dr.
Jeff <UNK>, Chief Executive Officer.
He is joined by <UNK> <UNK>, Chief Financial Officer; and <UNK> <UNK>, Director of Investor Relations.
Today's call is being recorded and will be available for replay later this afternoon.
(Operator Instructions) It is now my pleasure to turn the floor over to Mr.
<UNK>.
Sir, you may begin.
Thank you, Ezra.
Good morning.
I'm <UNK> <UNK>, Director of Investor Relations at SWM.
Thank you for joining us to discuss SWM's first quarter 2018 earnings results.
Before we begin, I'd like to remind you that the comments included in today's conference call include forward-looking statements.
Actual results may differ materially from the results suggested by these comments for a number of reasons, which are discussed in more detail in our Securities and Exchange Commission filings, including our quarterly reports on Form 10-Q and our annual report on Form 10-K.
Some financial measures discussed during this call are non-GAAP financial measures.
Reconciliations of these measures to the closest GAAP measures are included in the appendix of this presentation and the earnings release.
Unless stated otherwise, financial and operational metric comparisons are to the prior year period and relate to continuing operations.
This presentation and the earnings release are available on the Investor Relations section of our website, www.swmintl.com.
I'll now turn the call over to Jeff.
Thank you, <UNK>, and good morning, everyone.
Yesterday, we reported first quarter results with sales up 12% to more than $260 million, and adjusted EPS up 24% to $0.82 a share.
It was a good start to the year with consolidated sales, operating profit, EBITDA, free cash flow and EPS all up versus last year.
As we've discussed, our 2018 operating plan was based on relative stability in our paper business and improved organic sales growth in AMS, and we delivered on both fronts.
For the quarter, the key takeaways are strong manufacturing performance and favorable currency driving top and bottom line growth in EP, and accelerated organic sales growth in AMS, offset by short-term margin pressures, which we expect to improve throughout the year.
Cash flow was up significantly versus last year, albeit in our seasonally lowest quarter.
And as we indicated on our last call, we project free cash flow to exceed $100 million in 2018.
AMS delivered 7% organic sales growth with solid gains across most of our portfolio.
Transportation, filtration, industrial and medical all showed strong increases, while infrastructure and construction lagged.
Going into more detail, our transportation business delivered strong results in the heels of a soft fourth quarter.
Recall that after a high growth in mid-2017, our customers paired back inventories significantly impacting Q4 results.
We indicated that this was expected to be a short-term issue and, in fact, these sales bounced back and resumed their growth trend to start the year.
While the quarterly comparisons may be lumpy, our healthy order backlog for these specialty films supports a positive outlook.
In our filtration business, we are pleased to see a rebound in water filtration sales as the general market lull over the past 18 to 24 months had consistently hindered AMS growth.
As anticipated, we see the beginnings of a 2018 upturn as the filter replenishment cycle returns and customers plan for new capacity coming online in the Middle East.
We also saw a continued growth in process filtration, driven mainly by gains in semiconductor manufacturing where our products filter the liquid solvents used in chip reduction.
In our infrastructure and construction business, we were affected by extended and severe winter conditions across most of the northern parts of the country during the first quarter.
While we don't like to use weather as an excuse, this market is highly sensitive to poor conditions as it impacts construction crews' ability to complete projects.
Simply put, many of the end users of our erosion control blankets and sediment control socks have been unable to perform installations at their sites.
We believe a portion of these delayed sales will be recovered throughout the remainder of the year.
Unfortunately, we did not experience the entire flowthrough of higher organic sales to the bottom line.
As anticipated, our Austin site incurred elevated costs as we get closer to a final exit later this year.
We flushed through high-cost inventory, incurred accelerated depreciation on several assets, and endured the typical inefficiencies related to closing a plant resulting in P&L impacts.
The higher costs associated with this site accounted for the majority of the adjusted segment margin decline.
However, we expect to offset these costs later this year when we realize the synergy from closing this facility, which annualize to a majority of our $10 million run rate target.
The second issue is higher resin costs, particularly polypropylene which is up versus last year and is forecasted to remain elevated in 2018.
In response, we recently implemented price increases to our customers.
The increases are intended to mitigate higher resin prices, and we have seen many resin users announce similar actions.
The price increase will benefit the coming quarters, and we anticipate it will offset a large portion of the cost pressure.
All told, we are encouraged by the sales momentum despite the margin impact of these short-term issues, and are confident our actions will result in better profitability for the year.
Finally, our key strategic projects are progressing well, as the new facility in China is up and running, and we are hitting internal milestones for our new European film line startup later this year.
Switching to Engineered Papers.
First quarter results were solid.
Segment volume was up 2%, largely due to growth in non-tobacco papers as total tobacco volume was stable.
Currency, particularly the euro drove the majority of the 10% sales increase in the quarter.
Regarding segment margins, we reported healthy growth versus last year.
Note, however, that first quarter 2017 results were suppressed due to production issues related to several line restarts.
Favorable comparisons aside, we performed well in the quarter from a manufacturing perspective, with productivity gains offsetting higher pulp costs.
In response to this inflationary pressure, we have also selectively raised prices and will continue to monitor the pulp market and evaluate further actions.
Regarding our strategic priorities, Heat-not-Burn sales were up significantly over last year.
At that time, we had just begun to generate commercial sales as our initial major customer ramped up production and built inventories.
We expect continued growth in 2018, and have begun shipping initial commercial quantities to a second major customer who is preparing to launch their product.
We acknowledge that there has been some volatility on The Street regarding category growth reflected in earnings reports of key industry players.
We have been consistent in stating that Heat-not-Burn is an attractive long-term play but is still in the early phases of rollout, and will experience some fits and starts as it gains acceptance.
We remain optimistic on the long-term outlook for this innovative product line, and see this more as an offset to secular declines in demand for our other tobacco-related products rather than a game changer in the near-term.
I'd also like to highlight a positive legal result in our LIP business resulting in a onetime settlement of $1.2 million from our competitor.
While relatively small, it signals the strength and defensibility of our patent portfolio.
We note this is not our primary infringement case, where we received a favorable ruling in late 2017.
As stated previously with regard to that case, we are assessing potential positive outcomes, but there is no update to provide now.
I will now turn the call over to Andy.
Thank you, Jeff.
I'll now review our financial results, starting with segment performance.
In the first quarter, AMS net sales increased 15% to $115 million, with pro forma organic sales growth of 7%.
As Conwed was acquired mid-January 2017, the 2018 first quarter had 3 additional weeks of Conwed contribution.
Adjusted operating profit was $16.2 million or 14.1% of sales, down 310 basis points.
The margin contraction was primarily driven by the inefficiencies of our Austin plant, as Jeff detailed earlier, which is scheduled for closure later this year.
As part of this process, we are incurring accelerated depreciation expenses and realizing the lower margins of inefficiently manufactured product that are flown through the P&L.
These anticipated expenses account for more than 2/3 of the 310 basis point margin decline.
The second primary driver was higher resin costs, which impacted margins by more than 100 basis points.
In addition, recent investment in our new Chinese facility and the acquired Conwed operations resulted in higher depreciation equating to another 50 basis points.
Looking forward, however, we believe the price increases to customers beginning in the second quarter will provide an offset to higher resin costs.
And annualized synergies from the Austin site closure in the second half of the year will exceed these short-term pressures.
The Engineered Papers segment net sales were up 10% on a 2% increase in volume.
Foreign currency movement provided an 8% benefit to the top line.
Assuming current exchange rates hold, the favorable comparisons would be more muted in the second half of the year.
The adjusted operating margin was 23.1%, up 180 basis points, due primarily to stronger manufacturing performance in the soft year-ago quarter, which offset higher pulp costs.
Of note, while currency did provide a boost to operating profit, it had no impact on the operating margin expansion.
Adjusted corporate unallocated expenses increased by 6%.
But as a percent of total SWM sales, it declined approximately 30 basis points to 3.6%.
On a consolidated basis, net sales increased 12%, or were up 9% pro forma for Conwed, and up 4% pro forma for Conwed and excluding currency.
Adjusted operating profit was $40.6 million, up 11%, and adjusted EBITDA was $50.7 million, up 13%.
The increase in accelerated depreciation and depreciation on new assets contributed to EBITDA growth exceeding operating profit growth.
Shifting to consolidated earnings.
First quarter 2018 GAAP EPS was $0.68, up from $0.45 in the prior year.
Adjusted EPS was $0.82, up from $0.66, representing 24% growth.
While EPS growth was supported by growth in operating profits, we also benefited from a lower tax rate.
Our first quarter tax rate was 25.6%, down from 34.3% last year when we had higher discrete tax items.
The primary driver of the lower tax rate was changes to the U.S. tax code.
We caution that while this current rate is very favorable compared to 2017, there could be variability in our quarterly rate as we continue to assess and interpret the new tax laws.
Currency translation was a positive $0.03 impact to first quarter EPS.
I'd like to take a moment to discuss an accounting change and its impact on our financials.
Due to new accounting guidelines, a portion of pension-related expenses, we previously recognized as operations, have now moved below the operating line into other income and expenses.
The change does not have ---+ does not affect net income or earnings per share measures.
We estimate the total reclass for 2018 to be about $3 million, with the vast majority relating to our Paper segment.
The results in our release reflect this change to the current and prior periods, and the updated investor presentation on our website reflects those changes on a quarterly basis for 2016 and 2017.
In addition, we've modified our calculation of adjusted EBITDA to exclude our JVs and other income and expenses, which fall below operating income.
The result essentially equates to operating profit plus D&A, conforming to the methodology, we believe, investors typically calculate when assessing our business.
Moving to cash flow and liquidity.
First quarter 2018 free cash flow was $16 million.
This was a substantial improvement from prior year, driven by higher income and lower CapEx.
CapEx was about $6 million in the quarter, which annualizes well below our $40 million guidance, but we anticipate spending will pick up toward the anticipated range as the year progresses.
From a leverage perspective, for the terms of our credit facility, we were at 2.9x net debt-to-adjusted EBITDA at the end of the first quarter, down slightly from year-end 2017.
As we previously noted, absent acquisitions, we expect that our leverage ratio will move lower as we generate free cash flow and deliver expected EBITDA growth in 2018.
Now back to Jeff.
Thanks, Andy.
To wrap up, first quarter was positive overall.
Sales grew in both segments, with particular strength in some key AMS markets.
Margins were good in Paper.
We claimed a small success in LIP litigation and currency impacts were both favorable versus last year.
Clearly, we like to see more of the AMS sales growth drop to the bottom line, but we expect significant profitability improvement in the coming quarters, given the actions we've taken on price and projected synergy delivery from the site closure.
As we've consistently said, we are focusing on executing our 2018 synergy plan and supporting several growth initiatives across growth businesses.
We also remain active in assessing additional M&A opportunities.
While nontobacco sales at 50% was an important milestone, it is not our destination, and we will continue pursuing additional strategic actions to support long-term growth.
We appreciate your continued interest and support.
And that concludes our remarks.
Ezra, please open the line for questions.
(Operator Instructions) And our first question comes from the line of Dan <UNK> from Sidoti & Company.
So a couple questions.
First, on the AMS segment.
Encouraged to see that the water filtration business picked up.
I'm just curious, how long ---+ if I want to call this a bullish cycle, how long do you expect this to last.
Is this something that you foresee could be a few quarters.
Or we're now at an inflection point based on industry history and so forth that this could last several years.
Yes.
So as you recall, our reverse osmosis water business is following the megatrends of the need for increased freshwater.
So we're generally positive and bullish on the segment overall.
And growth is driven by 2 primary methods: One is replenishment of equipment that is typically installed and it\xe2\x80\x99s typically a 5-year cycle; and then the installation and development of new large-scale reverse osmosis plants.
We have been discussing over the last several quarters that the replenishment cycle had been expanded longer than we had thought it would be, and that was really of a trade-off between efficiency and energy costs.
And with the suppressed energy costs over the last recent years, a lot of these installed plants have been able to extend their replenishment cycle.
What we're starting to see, and we've been hoping to see over the last couple of quarters, is that replenishment cycles seems to be picking up.
It's like maintenance in any industrial plants, you can probably delay it for a little while, but you can't delay it forever.
And so we're starting to see the early signs of that replenishment cycle and we're encouraged by that.
We're also starting to see the announcement of new reverse osmosis plants.
I know people are signing deals in the Middle East, and I think there are things happening in Asia as well.
That's a longer cycle.
It takes a couple of years to build those from signing, but we're encouraged by that.
So long-term, we think this is a positive trend.
We think the replenishment cycle seems to be picking up.
It's just the first quarter of that, so I want to be a little bit cautious, but our team is encouraged by what they're seeing.
All right.
Good.
That helps.
On the medical, I think, you noted some strength there.
Can you detail that a little further.
What sort of products and maybe buckets in medical are you seeing the most upside.
Yes.
A lot of that growth came in our finger bandage division.
We're the market leader in supplying materials to that.
There were a couple of new products that were introduced, and we saw just some general strength along the category.
The rest of the marketplace was up as well.
It's a smaller category for us, but one that is profitable, and we're encouraged by what we see there as well.
Okay.
Last one and then I'll get back on the queue.
Resin cost, still inflationary.
Is there any industry chatter about what they may look like next year.
I know you don't have a crystal ball, but you mentioned in your commentary ---+ no, you mentioned in your commentary, '18 headwind continues, but is there any line of sight on '19.
Yes.
So as you can imagine, we're spending a lot of time trying to understand what things are happening because the forecast for polypropylene has changed a couple of times over the last quarter or 2.
We had originally expected polypropylene prices to peak this first quarter and start their downward trend.
We're still seeing, we're expecting some, but we're not expecting it to fall greatly.
I believe there will be some capacity coming on in the future towards the end of '19 that might impact the supply/demand balance.
But we try to be a little bit cautious in trying to forecast that marketplace.
And so we're really concentrated on '18, which means we think polypropylene prices will remain elevated.
But we've also taken pricing actions to account for that.
Interesting.
Is that resin capacity expected to ---+ is that going to be in the North America market or somewhere else.
You are probably speaking to the wrong person to give you the details on polypropylene.
I would rather you go to the closer experts.
And our next question comes from the line of <UNK> <UNK> from D.
A.
Davidson.
Just starting off I wanted to sort of return to the water filtration.
So it sounds to me like you're seeing the benefits of the replacement cycle now.
And then you're also maybe a bit more confident about new installations benefiting the out-years.
Is that sort of the correct way to think about it.
Yes.
I think that's how you would characterize my comments.
Again, I just want to be cautious.
We've thought we'd see the pick up earlier.
And so we'd like to see a couple more quarters go through the replenishment cycle to make sure it really is an uptick.
But again, as you can imagine, it's a very important segment for us and our team is spending a lot of time with our customers, and they are giving us information that says they see the replenishment cycle picking up, and they're seeing new increase in order or potential orders with new desalinization plants, and so we find that to be encouraging.
Okay, great.
And then can you talk about which products on the paper side are sort of subject to the price increases with the pulp inflation we've seen.
Yes.
It would be any of our paper-related products or cigarette papers, even our non-cigarette paper materials.
It's pretty across the board.
We originally expected elevated pulp prices during the year, and we had forecasted for that.
What we're seeing though is pulp pricing is going up higher even than we had originally expected.
I think we're not the only ones experiencing that.
It's across the industry, and it might be related to some actions that occurred in China and so we're continuing to look at that.
We have selectively raised prices, and we're continuing to monitor that to situation.
The good news is, we have a very extensive operational excellence program.
It was ---+ we had good manufacturing performance and that helped us also offset some of the cost pressures we were seeing.
Okay, yes.
I mean, you definitely aren't the only one.
No.
I can see that.
And then can you talk a bit about the initial feedback on some of the AMS price increases.
As I understand it, you really operate in some small markets where you control sort of significant shares.
So how do you think about sort of balancing that with the ability to raise prices and protect margins.
Yes, two things.
One is, I think it's globally recognized that polypropylene pricing is elevated, and I think that helps in the discussions.
It doesn't look like we're trying to do something that's untoward.
We also have very long relationships with a lot of our customers.
And we are a value-added play, so we're not a commodity player.
So it's the same thing for our customers.
When no one likes a price increase, it isn't the most material cost impact to them.
And so in general, we've seen acceptance of the price increases based on, again, good relationships and the importance of understanding where things stand.
Okay.
And should that sort of phase in over the next several quarters.
Or is it more immediate to where we'd start to see things really pick back up on the margin side in the second quarter.
Yes, we should start seeing it flow through in the second quarter.
We announced the price increase in the first quarter, and it's usually delayed to get through the whole thing, but we're seeing that, and you should see it in our second quarter results.
Okay.
And then can you talk about sort of the quarter and the results relative to your own expectations and sort of guidance for the year.
Are there some puts and takes with, perhaps, the strong sales growth but margin pressures at the same time.
Yes, actually, I think, the quarter unfolded fairly closely to what we expected with the caveat about resin costs on both side of the house.
And so the actions that we're taking on AMS and the margin compression that we're seeing there didn't surprise us.
I mean, we knew the actions that we're taking and the way we put our operating plan together.
We know when the closure flows through and those synergies start to develop.
On the paper side, volumes were about where we expected them to be.
The operating performance was about where we expect it to be.
It was really the pulp costs, the continued rise in the first quarter which were the surprise.
So we're pretty much on plan for the first quarter as we see it.
Okay.
And then two more quick ones.
Can you maybe quantify some of the costs that hit the quarter associated with the Texas facility transition.
Sure.
So when you think about the AMS margin compression when we went down 310 basis points, about 200 basis points of that is related to the Austin move.
So some of that was, as Jeff talked about in his statement, going through yet higher-cost inventory running through the system and then running through the P&L.
So that was about 200 basis points of it.
And then as we talked about, we do expect that, that facility could close later this year.
And so we're looking forward to those synergies running through our system.
Okay, helpful.
And then lastly, can you talk a bit about how you're feeling about the balance sheet here, sort of under 3x levered.
And any update from M&A pipeline.
Sure.
So balance sheet first.
I would say with regards to leverage, you did see us tick down from 3x on a net debt-to-adjusted basis to be down to 2.9x here this quarter.
I think absent any M&A activity this year with the expectation of our free cash flow forecast for the year and, obviously, our dividends, we would expect to delever them throughout the year.
With regard to M&A activity, I would say, we always continuously are looking at things, but our priority for the last year, in particular, has really been on integration making sure that the Conwed business is integrated, and we're getting all the efficiencies that we can and that ---+ and Austin is obviously a key part of that as we think about this.
But we are continuing to always evaluate new opportunities, but it's always a balance between making sure it's the right technology and the right end market and the right value.
So I would say we're active.
And speakers, I'm not showing any questions at this time.
I would like to turn the call back over to management for any remarks.
Thank you.
| 2018_SWM |
2015 | TGI | TGI
#Yes a lot of moving parts, <UNK>.
Yes, we're still coming down on 747-8 and we expect to get down by the end of the year to the rate of one month which is what we're assuming we work through the end of our contract at.
As I just mentioned, we're pretty much at the bottom on A330 with some opportunity to see some improvement as we get close to the end of the year depending on what Airbus does there.
I would say the Gulfstream programs, we've seen year-over-year reductions there.
I would expect a level of flatness from where we are in the first quarter there.
And I think there's still some opportunity, we'll see some growth on the new Gulfstream programs specifically G650 as we progress through the year.
Keep in mind as we recover work scope that's being done by Gulfstream on those programs, our revenue increases.
So as we come up the curve and get Gulfstream out of the business of supporting that Wing program, our revenue will increase.
So as I look out through the balance of the year, I think the second half is a little bit lower than the first half, but not much from a revenue standpoint.
Our projections second half of 2017 we start getting recurring revenue.
We start getting recurring revenue on Global before E-Jets.
We also start getting some recurring revenue on the new Gulfstream programs.
And I alluded to it in my comments, we're also seeing a lot of nice new capture at a tier 2, tier 3 level within our fabrication and structures business.
That gets muted sometimes with the tier 1 stuff, but it has a nice cumulative affect as we look out in the out years.
Yes, Rick answered the question I think well.
We're going to continue to drive cost reduction with a lot of focus in Aerostructures.
And depending on the level of success of us getting cost out of that business, will drive a lot of what we think we can achieve from a run rate standpoint.
So a lot will depend on our successes this year.
A lot will then be dependent on the strategic actions we take within that business and what can we do from a consolidation footprint reduction organization structure, cost structure across Aerostructures.
Yes I definitely expect year-over-year margin expansion in Aerospace Systems.
And we talk a lot about focusing on Aerostructures but we're also focusing broadly across the Company as we look at cost structure.
So some of that ultimately occurs in Aerospace Systems.
And we also look for continued higher rate of capture from an aftermarket standpoint.
Much of that comes as we continue to see improvements in the GE acquisition that we completed last year and we get that fully up to where we think it should be.
So there's definitely margin expansion there as we look year-over-year 2015 to 2016.
And here again a lot will be dependent on our successes with both our tactical and strategic actions that we're taking.
I think that in the short term he's made some very good moves in the beginning.
When you look at that issue on a long-term basis, we're expecting a significant savings in the supply chain, but very difficult to project.
I think that some of it will happen in this year, but primarily over time, it'll hit probably FY17 more than it hits this year.
But we've seen significant savings in certain areas that he's already worked on.
And in addition to that, I think that we'll have a number of corporate initiatives that will lower our corporate costs, which is also necessary.
They're not really in the guidance at this point in time.
We feel confident about the savings that we'll get this year because some of the things that we've done corporately or in the supply chain area will contribute to the guidance that we've given and that's baked in.
But longer term it should be much greater than that in the supply chain area.
Well, you'd really have to ask the question of the Search Firm, but in my estimation, we are where we are and we've got to do what we've got to do for the betterment of the Company.
What the new person does when that person comes up, he's going to have what he has or she has and they can go forward from there.
We will keep candidates that are interviewed abreast of what we're doing and choose that candidate based upon what the Company is and what we feel has to be done.
If in fact that person disagrees with it, they may not want to make a transition and become CEO.
But I don't think that we have the luxury of ---+ or I don't have the luxury of being a placeholder and waiting until somebody else comes in.
We've got to make a lot of moves now rather than waiting to see what somebody else has to do, wants to do.
Well, I think first and foremost we're looking at companies or locations that are not performing up to speed to either take cost out vis-a-vis integration within the Company or divestiture.
I think that basically we're facing ---+ we're looking at an issue of performance.
We're not really ---+ we don't have any prejudice on who we might divest.
If they're not performing, we'll look at that.
If we can't find a fix internally, we have not focused on looking at whether they're proprietary products or nonproprietary.
It's a matter of performance and we've got to make some changes whether it be people wise or whether it be operationally or whether it be integration or divestiture.
We're going to look at all those without prejudiced as to what those companies are.
It's a performance issue plain and simple.
No, as I said before on the strategic end of the analysis, everything is really on the table when we look at how we can accomplish something that refurbishes the Company and makes us more successful.
If that means we spinoff a large company or a large group and that might be the way we have to go.
And that's obviously as you mentioned a little more transformational than the other things that we're talking about.
But what it means is at the end of the day, our Company is going to be more successful and have the ability to grow and be more successful for our shareholders.
That's the way we're looking at it.
Yes, <UNK>, when we recorded the forward loss in the third quarter, we incorporated all of the pricing bands that we have on 747 based on the assumptions of our rate would go to.
So the answer is, yes.
But it's already been incorporated as we think through the forward loss that we took in the third quarter of FY15.
No, since we incorporated in that forward loss calculation, as long as everything plays out in line with that, you wouldn't see either cum catches or positive or negative.
Obviously we're still working to figure out how we can drive improvement in that program and if we can get cost out and drive some margin, that would allow us to claw back some of that loss.
Well, obviously that's a mixed bag within our Company in the Aerospace Systems business.
As you know, those aftermarket sales are reported in the Aerospace Systems Group not to be Aftermarket Services Group.
And they've been relatively consistent over time.
I can't answer the question in every specific company within the Aerospace Systems Group.
But as you can see by their revenues and their margins, they've been relatively consistent and positive in nature.
Yes.
If you think of the big cash claimants, I generally would look at capital being relatively flat year-over-year.
We will continue to see a decline in spend on the development programs as we transition out of 2016 into 2017.
There's still some spend in 2017, but I think you see a similar dynamic where it's reducing year-over-year.
Pension obligation, we've talked of a $40 million contribution this year.
We've assumed that being flat.
It's always a hard one to predict depending on what happens with interest rates and other things within the calculation of funding status and pension.
And then I think the biggest driver is going to be the cost reduction initiatives and how much value we can get or cost we can get out of the business that you should have a full run rate of in FY17 versus a partial year in FY16.
So a lot will depend on the launching pad we create going into 2017.
Yes, we are seeing some nice improvement revenue wise on 67.
We were very pleased to see the FedEx order and we think 67 for us is one of those programs that has the potential to grow as we look in the out years.
<UNK>, nothing's prevented us from buying back shares in the first quarter.
It's really is our continued strategy of deploying capital judiciously and managing within targeted leverage ratios and debt to capital ratios.
Obviously we'll continue to be tactical as we execute against our share repurchase authorization.
But haven't laid out a specific amount or tactic as to how we'll approach it.
Well, what we're looking at is some changes in regards internally and how we go to market in regards to business development and program development and where we should be going after business.
Now a lot of this might not be real big programs because, as you know, there aren't any C-17s coming down the pike and there aren't any 747s being built.
So we have to go after, and Jeff mentioned it before, we've been very successful on a number of tier 2 and tier 3 wins which are smaller.
But on the ---+ what I'm referring to is that we have a couple of individuals corporately who are developing program analysis and programs that we should be on.
And we will also expand potentially our customer facing sales efforts.
We'll augment that with a leader in that area potentially to augment the people that we already have that are generally doing a very good job both in Europe and in the US.
So yes we are looking at that.
Talking about specific programs we're going to go after, we've identified some but I'd rather not talk about that.
But it's a good question.
| 2015_TGI |
2016 | ADBE | ADBE
#Thanks, <UNK>.
I'm not saying you should be more muted.
I'm saying just don't get a little carried away based on what we are delivering in a second half of this year.
We gave you guys a three-year model a year ago that shows some pretty significant margin expansion over the next several years.
And we are ahead of that pace in the back half of this year, as I said, because when we don't have some short-term investment needs we can deliver that to you in the form of upside to EPS and deliver that to shareholders.
You're right, 83% recurring revenue model, particularly on the creative side, you're going to over time have less cost of acquisition.
You can drive more margin.
On the Digital <UNK>eting side, as we've discussed, that business is a very different business.
You've got a lot of variable cost that comes with that business in the form of hosted infrastructure.
It is going to be a very different margin profile.
So we've got two different businesses with two different margin profiles, both growing very fast right now.
But nothing has changed from our perspective about our ability to continue to drive more margin in the out years.
<UNK>, maybe the one thing I will add is we're clearly seeing the benefits of the stacking effect when you look at the result for just Q3.
I think Digital Media grew approximately 29%, the creative grew approximately 39%, and certainly the core creative is growing even faster than that.
So very pleased with both new customer acquisition as well as seeing the benefits of stacking effect in the core subscription revenue stream.
I think we continue to see strength across all geographies <UNK>.
I think in terms of trying to give some color, Japan and Germany had a good quarter.
Was very interesting as Australia where, as you know, we started the entire process for the Creative Cloud, they had a great new unit growth in run rate.
And so new customer acquisition is also clearly powering the business.
And hopefully those three data points give you ---+ and rest of world is growing.
It is just we are seeing nice growth across all of the geographies in the run rate business.
Clearly there's more untapped opportunity in terms of international markets than they are in the US, no question, because in the US we have seen tremendous progress.
But I don't want to give anybody the impression that in the US we are not both growing new customers as well as migrating existing customers.
Thanks.
Hey, <UNK>.
Yes, without a doubt.
The 500 people we added roughly this quarter is the most we've added in a quarter in my recent memory.
And it is all being driven by what we've been saying for quite a while, which is our need to drive sales capacity for both Digital Media, Digital <UNK>eting, drive more marketing and R&D, as well for that matter.
So I would expect that to continue.
And that's why I made the comment I did about our investment for the next couple of years, we're going to need to make sure we've got the right available funds to invest in that and drive the growth that we are trying to dive in these businesses.
We are driving 20% revenue growth on the Digital Media side of the business and 30% bookings growth on the Digital <UNK>eting side.
Those are pretty significant growth numbers and you've got to have the investment to drive that growth.
<UNK>, I think in terms of how we as a product company continue to innovate for our customers, there's no question that Creative Cloud has been as successful as it is because not only is it best-of-breed individual products for specific users, but the integration across all of those is unparalleled in the industry in terms of how colors or types of fonts work.
Our vision for the <UNK>eting Cloud is exactly the same, which is we are building a data platform that enables all of our products to work seamlessly together.
We've made a lot of progress in that space.
And the benefit for customers is certainly as they think about a campaign, as they think about customer segments it naturally flows from the analytics product to the target product to the campaign product.
And in the enterprise space we certainly see that our <UNK>eting Cloud, while it is a leader, we have aspirations for that not to be an island unto itself but really to be the hub that interconnects all of the enterprise software.
And so investing, as you point out, in these core data platforms to enable our customers to derive value and for us to continue to build a technology [mote] that will serve us well for many years is very much part of the strategy.
Last but not least, customer expectations right now across the globe are that content flows seamlessly from our Creative Cloud into our <UNK>eting Cloud, and so we do that.
The one other comment I will make, you are right, there's a lot of conversation right now about machine learning and AI.
It's something that we've invested in for years.
We won't be building the magic that we built in Creative Cloud or Creative Suite without very deep technology in terms of machine learning.
And the reality is what when we think about <UNK>eting Cloud, it is not about data collection, it is all about how we are driving insight and predictive, which is another form of machine learning.
And that's what's really fueled our <UNK>eting Cloud business.
Continue to invest in deep technology across the Company.
<UNK>, I think when after Q2 we said as we looked at the pipeline for the second half of the year, it was a healthy pipeline.
And we look at it and we have our internal expectations of what's going to close in Q3 and what's going to close in Q4.
As you know, enterprise software Q4 is the traditionally strong quarter, which again to the question that <UNK> also asked earlier, gives us confidence the strength of the pipeline for the numbers that we said.
But I think we executed well against it.
And I think it also reflects the importance of our solutions for the customers that we are serving.
If you are trying to move your business online, if you are trying to create a more personalized relationship with your customer, sure, you can defer the decision.
You're only deferring the inevitable in terms of having to invest in technology that helps you automate that process.
So I would say part of it is the offering that we have, part of it is the execution that we have.
And we have to just continue to be focused on it.
Operator, we're coming up ---+ (multiple speakers).
Sorry, <UNK>.
Go ahead.
I think, <UNK>, for years we've been talking about our platform unique advantage being the combination of data and content.
As we are enabling our customers to have these <UNK>eting Clouds deliver more personalized experience, I think table stakes a few years ago was being able to actually just collect that data, do the core web analytics.
Our business is being fueled by not just collecting the data.
Our business is certainly being fueled by across campaign and across target, how we providing a unique insight into our customers.
We have been doing this for years.
And I think to your point, there a lot of people talking about it.
It is going to become something that becomes the industry buzz.
We've quietly been executing against that for quite a while now.
Operator, we are coming up on the top of the hour.
Why don't we take one more question.
I will start and then <UNK> can add on.
As it relates to that, I think we've discussed this with you, I know we've discussed this with you in the past.
But we want to more closely align revenue to bookings.
And as a result of that our focus has shifted more towards annual subscription value.
So the field, our sales force, is now compensated more towards annual subscription value.
We continue to believe that we are going to hit our 30% ASP bookings growth for the year.
And by doing so that puts revenue more closely aligned to bookings.
<UNK>, as to your question, you are absolutely right.
The single point of interaction in a digital world for most customers used to be the website with AEM, as you point out.
What's becoming table stakes increasingly is having that same kind of personalized experience across all digital channels, whether you are in airlines, and that's the experience in a kiosk or a terminal, whether it is in retail and that's the particular experience when you walk into a retail store, whether it is included food hospitality, whether you are coming to a drive-in.
So what fueling our business is the ability to actually deliver as an experience across each of those different channels.
And more specifically what that means is as people are creating new mobile applications and using our AEM mobile solutions, or as people are corresponding more with people and addressing our campaign solutions.
And it is certainly our goal to provide that single-stop shop for all communication and all experience across all different channels.
It is very definitely driving it.
The one product that I'll again single out is Audience Manager, really just continues to do extremely well in the enterprise.
I think the reason for that is all enterprises are starting off with this question of, who are my customers.
What are the demographics.
And how do I set that up.
Audience Manager is so much more than just a DMP.
It actually allows enterprise to start off at a business strategy and say, let me get a real clear understanding of my customers and what I'm trying to deliver to them across all different touchpoints.
Our vision of the <UNK>eting Cloud and continuing to be the one-stop shop, I think it is paying off.
And you are seeing that in the results.
Big picture, since that was the last question.
I think we continue to focus on the large opportunities ahead of us as a Company.
And we are helping create the world's content, we are helping enterprises use technology to deliver better customer value.
I know <UNK> and I are pleased with our Q3 results.
Our Q4 targets reflect the continued momentum in the business.
It is good to be able to enlist macro environment, continued to reiterate our financial targets, and as you saw, increase our EPS target for the year.
And so we think we are in great shape.
We remain focused on driving innovation for our customers.
I again want to thank customers, partners worldwide for their commitment.
And to our employers ---+ employees for continuing to drive innovation in this industry.
We look forward to seeing you all at MAX.
There is going to be some exciting announcements.
And we will have an update for you.
But thank you for joining us today.
This concludes our call.
Thank you.
| 2016_ADBE |
2016 | HST | HST
#Yes, I'd say we still expect where Houston is one of the markets that we think is going to be challenged in 2016.
And I think it's a tossup as to whether RevPAR there is slightly negative or flat.
I agree with that.
I mean look the one interesting thing about Houston not that it's a big group market but the group booking pace in Houston in 2016 is actually quite strong.
I would say in the long run that our goal is to distribute our taxable income and so from operations but of course also from sales.
And as we work our way through this year and see both how operating results materialize as well as what's the level of sales that we complete, we will continue to assess whether we should be doing increasing the regular dividend or handling things through a special dividend.
Some of that decision will be tied into our outlook for 2017, too, as we try to confront that question.
We ultimately are certainly interested in being able to increase the dividend when operations, when the operating results of the Company support it because we'd love to return capital to shareholders in any way that we can.
I'd be happy to do that <UNK>.
Let me just look at one stat here.
You know the wildcard in group over the years has tended to be what I think you are directing your question at which is what's happening on the corporate side.
And what we saw this past year was fairly good ---+ we saw some improvement on the in terms of Association but as I mentioned in my prepared comments we saw some really good corporate rate improvement as well as some improvement in corporate demand in the fourth quarter.
I think what we're looking at in terms of why we've seen an improvement in group pace this year is a combination of probably a slightly better convention calendar which will reflect itself in a slight increase in Association business across all of our hotels.
But more importantly more activity coming out of the corporate side and companies recognizing that they are going to have events and they are now of a mind that they are convinced enough that they are going to have them that they are making the decision to book those events in advance and not wait until the last minute because what they realize is that if they wait to the last minute they are not going to end up with the time or the hotel that they want.
So I suspect as we work our way through this year while it's fair to assume that there will be some pickup in Association business I'm hopeful that we're going to see good strong corporate growth.
That also tends to tie in with the fact that it could reflect itself in terms of better SMB growth too.
So I think ultimately because corporate, the corporate group is the part that ebbs and flows the most based upon the overall economy the fact that we're seeing this strong growth is likely primarily due to strong corporate growth.
I'm sure that the oil industry, to your point about different businesses, I'm sure that the oil industry with all the challenges that they have is not necessarily booking as many group events as they might have in the past.
So it is sort of interesting to see as <UNK> just referenced how strong our group booking pace is in Houston.
I suspect that has more to do with a smaller overall group profile for those hotels.
But I don't know that we've heard of any other industry besides the energy industry that's cutting back at this point.
If anything our numbers which again as we suggested they are not only strong for 2016 they are strong for 2017.
That suggests that there's a meaningful level of confidence and companies are making commitments.
That would certainly be one of the assets in New York that we would be open to selling, yes.
That would be an asset that we would be interested in selling.
I would say that that's not on the market at the moment.
But that is another asset in New York that we would certainly be open to selling.
The opportunity in New York in order to get the sort of pricing that tends to make the headlines is to take advantage of assets where there's either an opportunity for a brand change or there's an opportunity for redevelopment.
That's where it seems you can best take advantage of the property that you own and so those are the sorts of our fraternities that we're trying to explore.
It's certainly in that $800 million of assets that we're currently marking that does include a New York asset.
And completing a sale in New York continues to be a very high priority for the Company provided we can attract pricing that we think is appropriate.
There is flexibility on that asset with respect to management and branding.
Great, well thank you for joining us on the call today.
We appreciate the opportunity to discuss our year-end results and outlook with you and we look forward to talking with you in the spring to discuss our first-quarter results and provide you more insight into how 2016 is playing out.
Thank you.
| 2016_HST |
2016 | RCL | RCL
#Hi, <UNK>.
No, those goals, which again were stated back in 2014, we don't ---+ as we look forward, don't contemplate share buybacks in those equations.
Hi, <UNK>, it's <UNK>.
You know, I think we've said before, we look at that independently.
If it's the right thing to do, we would consider it.
We did one starting at the end of last year and we're basically finished with that.
So I think we would look at it opportunistically and depending on the cash flows, but we don't project it and we don't publish an expectation on that, partially because that's the sort of thing the Board will look at on a case by case basis.
Yes, sure, no problem.
Recently, <UNK>, the SEC has been ---+ has published Q&As on non-GAAP disclosures, and as we talk about Double-Double pretty frequently, we felt it fell in the definition of a non-GAAP disclosure and to just ensure that we met the spirit of what the SEC's looking for, we decided to add that in as a definition.
I would not read anything more into the fact that we're just improving our disclosure.
<UNK>, two things if I may.
First, I think we should wish <UNK> <UNK> a happy birthday because this is his birthday.
And secondly, on the Double-Double, I think one of the things that maybe we should emphasize is when we established it and we established both a goal for EPS and for ROIC, we felt those were reasonable targets for us to shoot for.
I think as we're getting closer to 2017 and start to get insight into 2017, bookings, et cetera, we continue to feel comfortable with that.
I think what may be a bit of confusion is some people would assume that requires heroic performance in 2017, and I think part of what we tried to convey this morning is, no, heroic performance would result in really outstanding 2017.
But to get to the Double-Double, all we need are moderate capacity growth, which is locked in, nothing's really going to change that now, good cost control, which we think we have in good shape, and really quite modest yield improvement.
And we think that all that is realistic and continues to be and I think I feel ---+ obviously the closer you get to it, the more information you have, the more you eliminate those kinds of variations.
So I think it is important to understand.
To get to that, we'd like to have heroic yield improvements, but we don't need heroic yield improvements.
Sure.
So for this year it's about a point in terms of the yield improvement it gives.
So that's why we raised our guidance from a midpoint of 3.25% to a midpoint of 4.25%.
When you look at the cadence of yields and ---+ so for Q2, for example, it's worth approximately 200 basis points.
In Q3 ---+ sorry, in Q4 it's worth approximately 300 basis points and it's about the same, about 300 basis points per quarter in Q1, and in Q2 of 2017, and it's worth about 1.5 points to the full year in 2017.
To give you some color on the cost side, it's worth about 20 to 25 basis points per quarter over the next 12 months.
Sorry, Q3, it's third quarter, sorry.
Q3 is the 200 basis points, right, approximately.
Right.
So the earnings from Pullmantur you now will take into account ---+ will be recorded below the line.
It will be the same as how TUI Cruises and SkySeas is recorded.
It will be in our other income and expense.
Thank you.
It's of course everything that you mentioned, but I think perhaps maybe more important is the importance of Celebrity of being in this key market year-round.
Celebrity wasn't here in the summertime.
Its customers wanted it.
We have the edge project coming out relatively soon.
And so I would consider this the very normal kind of tweak to our itineraries that we do every year.
Yes, that's right.
On a trend perspective we have seen ---+ we've even said this on the last call that we've seen really strong demand trends from the European consumer for European cruises.
I think it's important to point out that typically the European consumer spends a little bit less than the North American consumer on their holiday or their cruise holiday in Europe.
I think it's interesting.
We are sometimes surprised by these things.
After the Brexit vote, I think we expected, for example, if nothing else the distraction of all the dialogue about it to impact bookings and we saw nothing.
And so a lot of what we're doing isn't so much hypothesizing why things are happening; because we rely so much on forward bookings, we really observe what is happening.
Whether we can explain it or not is another question.
But we tend to focus on what the numbers are and they simply lead us in a certain direction.
I don't know.
I frankly just expected that it was such an interesting thing, it was all on the news that everybody was focused on that, and as I said, we would have expected if only from the distraction to have an impact bookings and we saw literally nothing.
We're not complaining.
Thanks.
<UNK>, let me just ---+ it's <UNK>.
Let me just respond to the question with regards to China yields.
I think the way you described it is spot on.
That's exactly how we do see it, that this is crooned of a digestion challenge and as it relates to capacity and growth of this market, which has been quite extraordinary.
We had planned for yield declines in 2016.
If you may recall, we were expecting to see some decline and that has been the case.
When you look at capacity, certainly in the Shanghai region, when we think of China we think of its as one market.
But of course it's really three distinct markets, the north Shenzehn, the south in Hong Kong and south China, and of course the east which is Shanghai, the main market.
And most of the capacity is in Shanghai.
It's about 65% of the total China business.
This year, Shanghai was up around 100%.
So I think your comments were spot on.
So we did expect to see those yield declines and we are dealing with the distribution opportunity.
I think as we look into 2017 in relation to capacity, the good news that we see at the moment in terms of 2017 and Shanghai is that the growth rates are a lot more moderate and some are in the region of 15% to 20% as opposed to 100% this year.
And I think maybe <UNK> could talk to you a little bit about the other markets.
Thanks, <UNK>.
So just kind of putting into perspective around the major products, we do expect Caribbean yields to be up around 4% next year for the industry.
I'm sorry, capacity, around 4% next year and Europe to be about down 5% for the industry.
And then as <UNK> pointed out, we expect China to be up about 50%, a little bit less than 50% for the entire market going into 2017.
I'm not going to give a range.
We thought that China yields would be down for the year as we talked about for the past several quarters, and I would say we're a little bit worse than that.
Yes, sure, <UNK>.
Yes, so as we ramp up our management services, as well as the leases, those revenues will hit our other on board and other revenue line item.
Keep in mind, we still have the depreciation of the ships, so depreciation really doesn't change.
And then the earnings of Pullmantur, we will get 49% of, and that will take place with our other joint ventures below the line.
They were much lower than the fleet average.
Thanks, <UNK>.
I think as it relates to giving a specific number, it's not something that we're going to give by product.
But I think that as we started off in the beginning of the year, we expected China yields to be down.
We expect them to be down more.
And Europe really Northern Europe and Western Med, that combination is accretive.
It's really challenged yields in the Eastern Mediterranean that is driving that product to be ---+ the overall Europe product to be down for the year.
Hey, <UNK>, it's <UNK>.
One of the things that I think <UNK> had commented on earlier is the journey of this market.
Certainly we're optimistic about the overall future in terms of the market potential.
And we've been very actively engaged in the broadening and the opening of channels in the marketplace.
So I think the comment that I think <UNK> had made earlier with regard to digestion problems, I think we're working quite actively in terms of opening up distribution.
There is no issue with demand.
The demand's there and the market's there.
It's the building of the distribution quickly enough to handle the capacity.
So at the moment we're still working through what we think 2017 would look like and I'm sure we'll be able to talk more about that later on.
Yes, and <UNK>, I'd just like to add.
I think it's hard for me to imagine and industry where you in one year suddenly double capacity and you have ---+ you fill all that new capacity and only have to make a relatively small reduction in your pricing to do it.
Again, I simply look at that and say wow, that shows how strong the situation is.
And I think to extrapolate that and to say well, if you had any weakness in the face of a doubling of capacity, even though the capacity growth is half as much next year and in the future, you'd still expect to see the same result.
I just don't think is a logical inference.
Happens to me all the time, <UNK>.
No way.
Excuse me for interrupting you.
But the itineraries are ---+ first of all if we're looking at 2017, the itineraries are largely fixed.
It's very unlikely you will see substantial change in the capacity in the different regions.
And we are a long-term industry.
This is an industry where our horizon is long-term.
We plan long-term.
We see a very powerful market.
And I don't see any real change in that.
So the idea that because of relatively modest discounting in one year, and in the face of as <UNK> earlier said a more profitable environment, even with that discounting, that we would suddenly change the way we've operated forever in the industry, just doesn't seem to me to, again, be realistic.
So I think what I'm saying, <UNK>, is you're 0 for 3.
Yes, <UNK>, hi, it's <UNK>.
This really is something that we're seeing in Shanghai, as I said earlier.
We think of China really in three different distinct markets and we're seeing it more in Shanghai.
We're seeing it in Shanghai, rather.
And that's we think pretty much related to the significant 100% plus capacity increase that's come into the marketplace.
What we've seen is it's been challenging maintaining the really peak pricing as we're moving through this period and of course we'd expected to see some drop-off in terms of the pricing.
We're obviously working with our partners in terms of developing promotional strategies and what have you to stimulate the demand at the right price.
What we are seeing is that load factor percentages are exceeding our expectations.
<UNK>, it's <UNK> again.
In terms of the North American source market for the European product, we reach a point around June, actually, June into July, where the North America demand starts to naturally drop off for European products.
The latest issues have had not such profound impact on the North Americans.
Because we see the drop-off coming.
It's a decline over time.
With the European market, I think <UNK> had mentioned it or <UNK> had mentioned it earlier, particularly after Brexit, we've seen no drop-off at all in the demand.
Certainly from the European markets, we've been pleased with the demand that we've seen and the European market seems to be particularly resilient.
Normally after we see an incident, an event, a terrorist event, you gets this drop-off of bookings from both European and American markets.
What we're beginning to see is the recovery is a lot more rapid in both markets, certainly in the European market.
You're welcome.
Well, I think first as it relates to the narrowing of the range, as we move towards the back half of the year, we typically narrow the range.
Also, as I commented in my opening remarks, we're over 93% booked for the year, and so we are in a very good book position and especially when you focus on North America, which is very heavy in Q4.
We're in a very strong position.
So I think when you look at Q4 and you say, well, what's going to have yields drive to a high level, the first component you have to consider is about 300 basis points of that is Pullmantur's deconsolidation.
The other thing which I think is important is our commentary about strength in North American products, strengths in a mix of products that is very similar to what we had in Q1, which we saw very strong yield improvement for.
And also I think the comments we've had around Harmony and the attraction to Harmony, as well as a lot of strength for Ovation out of Australia, which is where she'll be in the wintertime.
Those are the ---+ I would say are the underlying currents that support sizable yield growth in the fourth quarter.
<UNK>, it's <UNK>.
I think it's a good question.
Obviously I don't think we mentioned it previously, but with the softness that we've seen, still China continues to generate above average yields and it's accretive to our business.
That's how we view the China market and I think that's what we'll see in 2017.
And just to add in terms of it being accretive to earnings and to returns, first off, it's already high returning market.
Having another half a year of Ovation is a strong tailwind to returns for 2017.
<UNK>, I know this question has come up.
I'll build on it, as well as in the way I responded to <UNK> earlier.
I'm aware that there are some concerns that if China doesn't develop all that capacity will turn left and head towards the Caribbean and saturate the Caribbean.
And it would require an enormous change in the fundamentals of China to even begin to contemplate that.
I will just tell you within our Company, the subject has just literally never arisen in any deployment discussion that I'm aware of.
And we're so far from it that we just think that would require a level of change that none of us think is likely or even remotely likely.
So I understand the sensitivity on this, but we just aren't seeing those kinds of shifts.
And again, I emphasize, we think long term.
And so we're looking at a market that continues to grow and grow nicely.
Thanks, <UNK>.
We have time for one more question.
Sure.
So at this point there's nothing else I think planned as it relates to new additions or deletions from our fleet going into 2017.
Just to clarify, was your question for capacity just for us or were your capacity more for the industry.
Yes, so ---+ but you were asking what's our year-over-year capacity change for Q3 and Q4 this year.
Okay.
So Q3 our capacity change is about 3% and in Q4 it's flat.
You mean in terms of for adjusted earnings.
Those had more to do with our structural changes that we were doing as relates mainly to Pullmantur, so closing down offices for example in Brazil is really what most of those costs relate to.
Thanks.
Okay.
Thank you for your assistance, Nicole, with the call today and we thank you all for your participation and interest in the Company.
Carol will be available for any follow-up questions you might have and I wish you all a great day.
Thank you.
| 2016_RCL |
2016 | ACM | ACM
#Thank you, operator.
Before reviewing our results I would like to direct you to the Safe Harbor statement on page 2 of today's presentation.
Today's discussion contains forward-looking statements about growth and profitability as well as risks and uncertainties.
Actual results may differ significantly from those projected in today's forward-looking statements.
Please refer to our press release, page 2 of our earnings presentation and our reports filed with the SEC for more information on our risk factors.
Except as required by law we take no obligation to update our forward-looking statements.
We are using certain non-GAAP financial measures in our presentation.
The appropriate GAAP financial reconciliations are incorporated into our press release which is posted on our website.
Please also note that all percentages refer to year-over-year progress except where otherwise noted.
Our discussion of financial results excludes the impact of acquisition and integration related expenses, financing charges, the amortization of intangible assets and financial impacts associated with expected and actual dispositions of non-core businesses and assets unless otherwise noted.
Today's discussion of organic growth represents the year-on-year change for the entire Company on a constant currency basis.
Please turn to slide 3.
Beginning today's presentation is <UNK> <UNK>, AECOM's Chairman and Chief Executive Officer.
<UNK>.
Thank you, <UNK>.
Welcome everyone.
Joining me today is <UNK> <UNK>, our President, and <UNK> <UNK>, our Chief Financial Officer.
I will begin with an overview of AECOM\
Thanks, <UNK>.
Please turn to slide 13.
We are pleased with the progress of our business, particularly the swing to organic growth in the Americas DCS business with strong margin improvement in overall DCS and in MS and the enhanced pipeline of opportunities across our diverse end markets.
These positives are enough to offset the weakness in oil and gas and the short-term negative impact of the Fort McMurray fires.
As a result, we are reiterating our fiscal 2016 guidance of $3 to $3.40.
Our confidence in the range remains high and is supported by the underlying improvements across our end markets.
We anticipate our third-quarter EPS will be similar to the first quarter due mostly to the ongoing weakness in the oil and gas market and our anticipated AECOM Capital realization in the fourth quarter.
Finally, we are progressing well and capturing synergies and on track to achieve $325 million in run rate synergies during 2017 and to exit 2016 at a run rate of $275 million.
Now I will turn the call over to Q&A.
Operator, we are now ready for questions.
Thanks, <UNK>.
Oil and gas is definitely a headwind.
We were predicting that it would be off about 30% for the year.
Through the first half we're down about 50% on the top side.
So we're just fighting a very difficult market but I think we're holding our own.
We haven't cut to the bone and we think that once the prices rebound a bit we're well-positioned both in Canada and the heavy oil sands and the US to recover.
And we're actually making some investments in that arena and quite frankly our downturn has not been quite as bad as some of our competitors that we're seeing.
So I think that it's still something that we view as upside that's just a challenge in the future.
And we're fortunate enough to have been managing the rest of the business to offset what we view ---+ what we know is going to be a hole for us for the full year relative to our original guidance.
So for the second half we're forecasting relative to our overall guidance to be in the $0.15 to $0.20 headwind from that which we've been able to make up to still get back within our guidance range, actually well within our guidance range because our confidence is still quite high.
The Fort McMurray fires are really just a temporary thing, <UNK>.
Our folks have moved out but they will move back in and they will be part of the recovery and the rebuild of what's gone up there.
They haven't lost too much in terms of oil output.
But there will be repairs and maintenance that we will help with and in the long term hopefully will be a tailwind for us.
I think that from a contribution standpoint it's probably still true from relative to where we thought it was going to be.
We thought it would swing to a profit in the year.
It was breakeven last year if you recall.
So it's a headwind relative to what we thought it was going to do but on a contribution margin line is not going to be a negative.
<UNK>, it's <UNK>.
Listen, we had been talking about this since the beginning of the year that we felt fairly confident that organic growth would come back to the business in the latter half of the year based on what we're seeing in the market, based on wins, based on backlog.
And for this quarter it came back to a positive growth in the quarter even though we weren't expecting that to come until the second half of the year.
But the bottom line is we do feel that the second half of the year is going to be much stronger on the organic line.
I'm not prepared to predict organic growth exactly by quarter but everything that we were predicting in the first half of the year is starting to pan out.
We're seeing a robust market.
We're seeing robust wins and your question about whether the organic growth, whether it will match the backlog growth inevitably it does over time.
But trying to predict which quarter that happens in is a little difficult.
But we feel really good about the US business.
It's taken a while to get us through the integration efforts.
We're through that now.
We're focused on growth again.
The market has given us a little tailwind and we should expect to see that both in the second half of the year organic growth numbers as well as even more so in 2017.
The market is very strong.
I think you've heard us talk about the pipeline moving from $35 billion to $40 billion of projects in the pipeline that we're pursuing.
The bids under evaluation, which are bids that we're not just pursuing but we've actually submitted our bids, were in client evaluation, jumped from $5 billion last quarter to $12 billion this quarter.
So real needle moving numbers there.
And I think when you look at this business, the size of the contracts are so significant that you can't look at just backlog on a quarter-to-quarter basis because of the size of the numbers.
So it's helpful to look at what we're pursuing, what we're qualified to pursue.
Because of the capabilities that we brought together from URS and AECOM legacy government services, we have more capabilities to pursue more projects.
We have the size and scale that allows us to pursue bigger projects that we historically may have partnered with someone on.
So the dynamics for us in the marketplace have changed quite a bit and we're very confident you're going to see that as these bids that are in evaluation get decided upon in the coming year.
Okay so let me take the first part of the question and I will let <UNK> take the second part of the question.
The pipeline as well as the business that are in evaluation are a combination of recompetes and new business.
So I can tell you just off the top of my head I know two of those projects are comprised of $8 billion is two projects.
Of that $8 billion, $5 billion of it is a recompete and $3 billion of it is new business.
But the important differentiator, which is a great segue from the comment I made earlier, is the $5 billion that is a recompete, <UNK>, is a business where we were a sub previously and we're going at this one as a prime.
Because of new capabilities and size and scale of our organization we can compete as a prime instead of going at it for a sub.
So of just $8 billion of those $12 billion under evaluation, $8 billion of the $12 billion, $5 billion of the $8 billion is a recompete.
But we're going as a prime instead of as a sub and $3 billion is entirely new business.
Listen, it's a competitive market and it has been for a while.
But our win rates in that market are as good as they've ever been.
We think our capabilities given our new size and scale are differentiated in the market and there is a high barrier to entry in the markets that we're talking about here.
This isn't old-style log cap work where just about anybody can do it.
We're talking about work that is very highly qualified work with technical capabilities for intelligence community or defense that has enormous barriers to entry.
So you're not going to see people moving over from the low level price competitive work to move into our space if they are not already there.
On the guidance, <UNK> I think it's a good question.
Obviously the $0.14 was not, well, there was a piece of it probably that we would've collected during the year but that $0.14 would've come over a long period of time which we're now going to accelerate into FY16 and FY17.
And then we've got the headwind from oil and gas and if you just do the math you kind of get something, if you're starting from the midpoint of the range, something higher than the midpoint of the range.
But when you're trying to land a company of this size at the end of this year, having some contingency in there for other unexpected items, some of which are known to us now, some of which are not known is prudent from our perspective.
Hi <UNK>, this is <UNK> <UNK>.
I guess first of all we're right on track with where we expected to be in the first half of the year.
If you look historically the business produces about 20% of its cash flow in the first half of the year and 80% in the back half of the year.
Just as a couple of data points, in the first half of the year we spend a little more than $100 million on variable comp and some tax related to our equity programs that we don't have in the second half of the year.
So that's sort of the most significant item that influences the timing of the cash flow beyond what we see in just the normal run rate and earnings in our business.
Our business does ramp up in the second half of the year and that also influences cash flow.
So where we sit today we have great confidence in our ability to hit that full-year guidance number.
Our CapEx in the second half is ramped up a little bit because of our real estate consolidation.
If you recall we're still going through the program of consolidating real estate related to the acquisition.
So we do see that ramping up a little bit in the second half of the year.
Yes, that $0.14 item not only affects the bottom line but it also affects the revenue and the MS business.
So it comes through both elements of the P&L.
The second quarter, again on the bottom line it's about $45 million of revenue at the top line.
I think there's a number of contributors there.
First of all, the overall power business in the United States is fairly strong and we know there's a whole host of conversions that are being considered across the country.
But I think the biggest influencer here is that the business that we acquired from URS has been in the power business, the Washington Group, Morrison-Knudsen has a legacy of some of the most iconic power projects here in the United States and around the world.
So it's an incredibly strong franchise.
But under the URS leadership they were underinvested and they weren't focused on growth.
When we acquired that company we quickly identified the talent that exists in that group that has really put together some great projects over the years.
And we invested in them to grow that business and they went out and really took charge of the market, added $1 billion of backlog to that business in the quarter alone.
In Q3 they will have a 3X book-to-burn ratio in Q3 alone.
So it's a combination of a strong market.
It's a combination of bringing together a great franchise with great expertise and a great team and investing in them to grow that's producing this.
So we feel pretty good about our capabilities in the market coming together and continued growth in that end market.
Absolutely.
That's been part of our strategy.
We over the years we acquire companies that have a great expertise and great resume weight and we take them onto our platform and mesh them together with our political contacts, our market contacts in various cities around the world.
And as I mentioned earlier in my prepared remarks when we thought Tishman Construction it was a New York focused business.
90% of its business was in New York and now that has dramatically changed.
And we're taking that expertise.
We've taken it into the London market.
You've heard us talk about our new two high-rise wins in London.
We're proposing another billion dollars of projects that are in evaluation in London alone in the high-rise market.
We have nine building construction projects in the state of California alone when we had zero two years ago, just taking that expertise and capability and meshing it together with our presence in these other markets.
So that has been a part of our strategy for the past few years.
It's working well.
Our leadership, our Construction Services leadership team in the past year has set up a presence in Hong Kong, Singapore and Australia.
We're growing that business with our capabilities and our resume weight from the US business also.
So it's part of our strategy.
We're doing it in building construction, we're doing it in energy and power as I just talked about.
We're doing it in Management Services where we're taking those capabilities that we have performed for the US government and bringing it to the UK government, to the Australian government, the Middle East and Singapore and India right now.
There's a whole host of markets that are very active right now.
We're tracking at least a dozen ballot measures this fall.
A few of them that I'm really familiar with.
The biggest one is right here in our hometown in Los Angeles, Measure R2.
You'll remember that Measure R1 produced a $40 billion fund entirely dedicated to transportation infrastructure.
Measure R2 that will be on the ballot in fall of this year will produce $120 billion program, will be the largest public works program in the United States.
And right now the initial polling that I've seen is showing that that will pass.
So what we're seeing is many states and cities from Seattle to Denver to San Francisco where you've got the taxpayers in those cities are very comfortable with increasing tax measures if they are wholly dedicated to transportation.
There is not a lot of people voting for tax increases when they are going into a general fund that they think will be misspent.
But when they are coming into wholly dedicated transportation infrastructure funds overwhelmingly the taxpayers are voting for it.
And we think that will be a big boom for our business coupled with the $305 billion FAST Act that was passed in December.
And then you add on top of that the private sector money that's coming into the market in public-private partnerships.
We're seeing it with Penn Station in New York.
We're seeing it with the $5 billion LAX airport modernization program.
So you couple all of it together with private money, with federal money and with state and local ballot measures gives us a lot of optimism for civil infrastructure markets.
Great question, <UNK>.
First of all, we keep reading the same press that you're reading that New York is going to slow down at some point.
But last quarter we had the 1 Vanderbilt project we won in New York, a $1.4 billion project in New York, so every time we hear news that it may start to slow down we win another project.
So we had 25% organic growth in that building construction end market this past quarter.
But your question if it slows, because listen we know real estate moves in cycles, but one of the things that we have seen is we have a backlog in building construction that we can see out a few years.
And we have built up such a robust backlog in that space it will carry us through the next few years.
So you don't see buildings, especially the kind of buildings that we're building, they don't stop halfway through construction and shut them down.
That doesn't happen here in the US in any major market.
So we don't see that having an impact on our EPS.
Even if there were a slowdown in building construction it wouldn't happen for years and we could look back to the last few cycles.
This isn't our first cycle we been through.
We've seen it before and we've got a lot of visibility out for the next three years in that cycle.
<UNK>, this is <UNK>.
I'll take that question.
First of all, when we evaluate the goodwill we don't have a concern at this point.
That testing if you remember is based on the long-term view.
And what we think we're experiencing now in Q2 and in Q3 is really the short-term impact of lower oil and gas price.
With respect to our covenants there is no impact on our covenants if there ever was to be a goodwill impairment.
So you know, we're tracking numerous milestones.
But the increase in backlog that we've been experiencing and the pipeline of projects that we have underway we continue to monitor that when we have every expectation the backlog will continue to grow based on the pipeline of activity we have now.
But we feel very good about the other milestone on cash flow and debt paydown.
As <UNK> mentioned we feel very confident on that throughout the year.
So we feel like we're on track for everything, all the milestones that we've set out for us returning to organic growth in the Americas, continuing that growth in the second half of the year would be a great milestone, hitting our cash flow numbers which we expect to do will be a great milestone, continuing to add to the backlog, continuing to diversify our business.
We're through our synergy program for the most part.
We're 90%-plus executed on that and we've exceeded all expectations on that and our margins continue to improve as we said they would.
And we expect that to continue to be a milestone that we watch also.
So there's a wide variety of milestones we're watching every day and they all look pretty darn good.
That would be an organic growth number, yes.
<UNK>, what I believe I said was that we thought it would be breakeven from a contribution standpoint or contribute on the margin.
But the headwind is really against what we expected oil and gas to do for us for the full year.
So listen, that piece of business now is fairly inconsequential to our earnings.
In fact, it's pretty much adjusted out of our forecast for the year.
So we don't have a lot of exposure on it.
And I would feel confident in saying that we don't believe that the size of that business and the overhead associated with it is significant enough to be a headwind where it would create a loss for us.
Let me take part of that and I will hand it over to <UNK> and <UNK> for the other part of it.
I think the important point is that our overall backlog is up 8% in Americas DCS.
Transportation backlog where we're the most significant player in that space is up 9%.
So we're seeing all of the results of what we have been talking about.
In the first quarter we talked about what we were seeing in terms of activity in the marketplace where clients were starting to think about spending significant amounts of money.
So that's the first clue that we gave to you about what we were seeing.
Then we started realizing it in terms of an increase in backlog.
Then we started seeing in the quarter we had a big Colorado Department of Transportation win I-470, which is a big joint venture design build win for us with our partner.
So we're seeing the results of what we expected.
Then by the way, we returned to positive organic growth in the quarter.
So you start walking this down the path, we talked about the opportunities we were seeing and we started winning it and we showed you that and then we showed you the positive organic growth.
So it's moving exactly in the direction that we had expected.
From a margin standpoint our margins are continue to be strong in DCS.
They are probably getting better in CS because of the headwind from oil and gas kind of alleviating as time goes on.
MS we have very significant margins in that sector but our second half will probably exceed our expectations relative to what we had thought about MS in the second half because we viewed their margins over the long term returning to the 8% to 10% range.
And we think we'll exceed that.
So we're in a competitive market.
Price is very important.
But we're getting better continuously on execution to drive the project margins.
And you can tell from the bottom-line margins that we're bringing those synergies through the P&L which helps us be more competitive but also is falling to our bottom line as predicted.
From a pure cost standpoint in terms of driving those synergies, there's still more to come.
We exited the quarter at 230 of run rate synergies.
The year will be $275 million and FY17 will be at least $325 million.
What <UNK> mentioned, so there's still more synergies to come, what <UNK> mentioned in terms of being mostly done is the emotional and kind of inward facing restructuring from an organizational standpoint which we're basically done.
We'll always be tweaking our teams and our leadership teams but the actual integration is over from that perspective.
So we've got execution to do on the real estate and we have a track record of executing quite well.
We've taken out 205 locations and consolidated them to get our people together.
We've removed 3 million square feet of space and brought our people together.
And ultimately the run rate for real estate alone will be almost $85 million in savings.
So there's more of that to come.
There's some big, big consolidations.
We just did a big one in Denver which is one of our largest offices that are now operating about 1,400 people in one location.
But to us that's not so much integration related to an acquisition because we were, if you recall, before the acquisition we were taking out about $40 million of real estate, so we had a pretty good program in place anyway.
But from our leadership team, and I think it really trickles down to our folks, is the integration with URS is over.
And we're turning our attention towards the external markets.
So as we've said all along that we expect this to be a big part of our business but not a big part of our balance sheet.
The first $200 million that we deployed to this was entirely off our balance sheet and our next two funds that we're focused on raising will be a combination of our capital and outside capital but almost entirely outside capital.
A very small amount of our capital dedicated to it because to produce the size and scale of the projects we want to get involved in we don't think that's going to entirely come off of our balance sheet.
So we're in the process right now.
We've got a number of discussions with outside funders that will contribute to those the second and third funds.
I don't think we're prepared to start giving guidance on 2017 at this point.
But we certainly we talked about how we feel about the end markets that we're in and how bullish we are on all those end markets around the world.
But we're not prepared to start giving guidance on 2017 just yet.
We absolutely see it picking up and we have been saying that for a while and now we're starting to see that momentum.
We're seeing it in our pipeline of activity.
Now we're seeing it in the backlog, now we're seeing it in organic growth.
And I mentioned earlier there is a dozen programs that we are tracking that are very significant.
Toronto has got a $50 billion program they are pursuing.
Florida has got a $9 billion program that's very, very focused on transportation.
$120 billion in Los Angeles, there's a big numbers from Atlanta to Seattle, Denver, Phoenix, New York City, San Francisco, one after another where the country is finally turning their attention to closing this enormous deficit that we have in infrastructure spending over the past 20 years.
So when I bring together the significant broad-based grassroots support at the municipality level for tax increases, the federal transportation bill the first time in 10 years that we've had a long-term bill and then the private sector that is very anxiously looking to deploy more money into the P3 market, you bring all those together I think we're about to move into a period of prosperity for civil infrastructure.
And I don't think there's a firm in the United States or in the world that's better positioned than us to take advantage of that updraft in the market.
So the biggest growth is in the intelligence community, frankly, and it's the area that has the highest barriers to entry and so it's a market that we feel very good about.
DoD is still a big market for us.
We have a number of very significant bids in proposal at DoD.
They are all in the continental United States which is different than where we were four years ago, five years ago where most of our business was OCONUS or outside the continental US and we know that that market deteriorated quickly.
So what we feel good about is the markets that we're pursuing have high barriers to entry.
They are in the continental United States, so not as much driven by the war theater.
But we're also seeing that MS business expanding significantly outside the US.
We've taken our capabilities that we've delivered historically for the US government and as I mentioned earlier, we now have a very significant presence in the UK doing work for the nuclear end markets there, doing it for the Defense Department there.
We've won our first project for the Qatari Navy.
We have significant projects now in Australia.
The large naval port on the eastern seaboard of India.
So we're seeing the governments outside the US being very receptive to the capabilities that we have in the US.
Everybody looks to the US for expertise in global defense.
And so it gives us a real leg up in those markets.
Sure.
We spend a lot of time thinking about new technology disruptors to traditional infrastructure.
And just last week I moderated a panel at the Milken Global Conference where we brought together ---+ we had the mayor of Los Angeles who is thinking about how these new disruptive technologies affect his city.
But we also had on the panel representatives from Uber, from Hyperloop Technologies, from WeWorks talking about how do we embed the thinking into the infrastructure of cities as it's influenced by the shared economy or new technologies like Hyperloop which is a client of ours, we're designing their test track right now to move passengers and freight at 800 miles an hour at a magnetic levitation vacuum tube.
We're in discussions with them on how to do that both here in the US as well as in other parts of the world like the Middle East.
Relative to smart cities we're working with the US Commerce Department to bring smart cities to other parts of the world.
We were awarded two projects in India.
As you know Prime Minister Modi has a plan to design 50 smart cities across India.
We won the master planning work for the city of Dholera which is Prime Minister Modi's home state as well as for the new smart city of Vizag which is the short name, I can't say the long name for it.
But some really exciting stuff around the world and we're participating in all of that bringing together new technologies and traditional infrastructure.
I think it's a real competitive advantage that we have.
That's right.
No, I don't think so other than AECOM Capital.
We do think that MS is probably a little bit better than we had anticipated but they've been exceeding our expectations every quarter for the last two years.
And Q3 is really just impacted by some of the short-term slowness in oil and gas and some of the impact that we have because of the recent, the natural disaster.
When you say the problems historically, there's a couple of problems historically.
One has been where people bought greenfield I'm sorry bought brownfield existing assets and overpaid for them.
So put that aside because those projects are people overpaid in the market.
We're not involved with those.
We're involved with only greenfield development.
The second piece of the puzzle is the ones that haven't been successful have been revenue-based structures.
So toll roads that were entirely based on revenue whereas the kind of P3s that we're generally dealing with here are non-revenue based.
They are a fixed stream of what we call availability payments.
So if you look at the automatic people mover system at LAX that's going to be put in place it's a approximately $2 billion program where somebody will design, build, finance and operate it for a period of 30 years in exchange for a revenue stream or the equivalent of a lease payment from the LAX ---+ the LA World Airports Authority.
So they are very comfortable once they understand the details of how it will be operated and what the performance requirements are going to be, they don't have to worry about the revenue side of it, it's just a fixed payment.
So those are the types of projects in the P3 market that we think will be most popular going forward and the type of projects we're pursuing now.
So those two are not hydro.
They are gas-fired, combined cycle plants and they are in the process of finalizing the EPC contract right now.
So let me answer a couple of your questions.
The harvesting of gains will be an ongoing process over the next three years let's say.
Some of those projects are completed now.
One is set to be completed later this year.
Some are breaking ground right now so you've got a three-year cycle yet in front of us.
So it's over the next I'd say, I said three years, I probably should say more like three to four years but we'll have continuous harvesting over that period of time.
With regard to the size of the next two funds, I don't have a predetermined size yet.
We're in various discussions but I can easily see three different funds that we've talked about.
One is the continued real estate development that we have underway.
The second is what I will call private infrastructure that is like the investment we already talked about that we made in the Ohio River hydroelectric project, the more energy focused projects.
And we could see a few hundred million dollars fund there easily.
Then the third fund would be for private P3 type projects like LAX that we're bidding on right now that would be we're partnered with someone else on that on the capital side.
But I could see easily three funds totaling over $1 billion in aggregate.
We would participate in that through providing design and construction services.
We would participate in that through management fees under a traditional private equity P3 model and we would participate in the carry interest by sharing in the profitability of those projects over a certain threshold return.
Yes, we will give you updates as we evolve.
We've just started our discussions with investors that want to participate in that based on the success of our first fund.
We have a number of people that are very interested in participating in future funds with us.
Great, thank you, operator.
I hope that what you heard today was a sense of increased confidence in what the future holds for AECOM.
And hopefully it's quite evident to you that we have turned the corner and we are participating in some markets that are very interesting to us.
We had significant wins in the power business.
You're starting to see momentum in the DCS Americas.
Our UK business is stronger than ever and I'd say we've never been as confident about our ability now to grow as a business, to generate cash and drive shareholder value and execute against our vision of bringing together a fully integrated firm that has the ability to design, build, finance and operate infrastructure assets around the world.
So thank you for listening today.
Thank you for your confidence in AECOM and we look forward to talking to you on our future calls about our progress and our continued success.
Thank you.
| 2016_ACM |
2015 | CMG | CMG
#I don't think, <UNK>, it will turn negative.
But when we compare against the third quarter, that's going to be our toughest comparison.
And it's going to be low single digits.
So I don't think it will turn negative.
I hope that we see a balance like from things like creating greater awareness with a campaign that <UNK> talked about and just a general increase in awareness that we from time to time get with Chipotle.
It's amazing to me that some people still have never visited Chipotle.
I just met one over the weekend.
I just can't believe it, that somebody has never been to Chipotle.
And so, the third quarter will be the toughest test but I would say right now I don't expect it to turn negative.
Yes, <UNK>, it's very hard to predict quarter by quarter.
I look at this as a very substantial three-year trend where we now have 1,800 restaurants, we're now $2.5 million, a fact that we have added $500,000 in volume while adding the 600 restaurants to talk about over the last three years at think is pretty substantial.
If you go back to the three years before that, that was a three-year trend as well that had a start and stop and it was pretty clean.
2010, 2011, and 2012.
During that three-year period.
And you can see where it started, you can see where it ended, and that was about a 27% or 28% or 29% increase.
And so we seem to have these waves.
And if you go back even as we are a private company, these waves where people figure out that Chipotle exist, they like it, they come back more often.
And so we have this kind of surge and then we have a leveling off and we have a surge and a leveling off.
Very tough to predict.
Will we have another surge, when will we have it, what will the magnitude of that surge be.
But we continue to believe that there's a great appreciation and a growing appreciation for what we do at Chipotle.
We do think millennials, in particular, are very appreciative of what we do.
We think this campaign that's designed to reinforce the idea that not only do we source sustainably raised ingredients but we do real cooking with real whole ingredients and we largely don't use things like preservatives and stabilizers and things like that.
And so we believe that that is not something that is short-lived, that's over.
We think that will probably benefit from that.
But in terms of them breaking it down into exactly what that's going to do for the next two or three quarters, it's tougher to predict and the comparisons are tough, but over the longer term, we're optimistic about where we can go from here.
Well, the write-off for the pork is offset by a re-class.
And so I would look at those is largely a wash.
So I would think of it, <UNK>, as we're going to see pressure in the next two quarters from avocados and so I think that only not pressure ---+ hopefully that pressure will be relieved in the fourth quarter.
So I would say, generally, we will probably be up a little bit from this first quarter but hopefully not too significant.
I would expect it to be below the 35%, yes.
Do I see the what transaction.
Oh yes.
Yes, in fact, I would like to see us actually improve on that over the next two quarters.
That's a nice result, especially during the first quarter which, from a transactional standpoint, is one of our slowest two quarters.
And over the second and third quarter, we usually see a significant pickup in our business seasonally.
And it's during those seasons that we really, really make sure to emphasize with all of our teams the importance of having those four pillars in place.
And in fact, at this time, we've just started a national throughput contest just to make it top of mind with our restaurant teams, have some fun with it, and bring awareness to those who are doing the best job with it, just like we did with the reporting it nationwide from team director to team director.
But this time we are actually having a little bit of a contest for bragging rights.
And we will see if we can keep pushing the needle.
But I think it's going to get stronger over the next two quarters in terms of throughput.
Now of course our ability to put through more people depends on having more people come to our doors as well.
So throughput will not in of itself drive transactions.
It's just that when you have transactions come in, if you don't have good throughput, you are stifling your ability to allow those additional transactions to come in the door.
So ---+ but yes, we are excited about hopefully continuing to improve on our execution of the four pillars, and on our execution of throughput.
Yes well ---+ you know, our suppliers are some of the largest suppliers in the country.
Our supplies are also very small independent family farms that are sometimes part of larger cooperatives.
But we buy from some of the very, very biggest suppliers.
With the bigger suppliers, we encourage them to adopt our protocols and some of them have.
And some have chose not to do so.
But we know in order to continue to ensure supply of our top-quality ingredients that are more sustainably raised, we're going to have to use all different sizes of farmers and ranchers out there.
And we have been doing that for years.
If trends don't change, we are likely going to increase prices.
If something happened in the economy, or something happened with our trends, we might defer it.
We would probably get it done by the end of the third quarter.
So if we saw something unusual happen, we might defer it just so that we don't exasperate the challenge, but if the trends stay as they are, we are underpriced on steak right now.
We're just not charging the going rate.
We actually lose money anytime somebody comes in thinking about getting chicken and instead gets steak, for example.
So we would like to fix that.
But if we decided ---+ if there were some trends that we were a little concerned about, we might decide to fix that a quarter or two later.
But right now, unless things change, I think we're going to get this done by the third quarter.
I will take the comp piece first.
When I look at the first quarter, you are right that in 2013 there was ---+ we lost a day, so that 1%, is really like a 2% comp, so you can make that adjustment.
There's also an adjustment to be made and I'm suggesting it's 100, 200 basis points in the first quarter and that's an estimate ---+ it's our best estimate right now.
And so the three-year comp, if you make those adjustments, you're talking about something in the 26%, 27% or so range.
And if you do that and if you look out at the rest of the year and listen, we do things like we adjust for trading day and things like that, I think the third-quarter in the fourth quarter will be tough comparisons.
I don't think the traffic will turn negative, but it will get close.
So the margin for error is very, very small.
But right now I wouldn't expect it to be a negative comp.
But it's going to be close so we are hoping for the best.
Yes, it was like 6.1% was menu price.
Most of the rest of the transaction, there was a small piece, <UNK>, that wasn't transaction.
But even that was greater group size than catering which even now is our light transactions because you are serving more people.
There wasn't anything in terms of people buying different items on the menu that caused the check to go up.
So it was ---+ menu price is the biggest piece, 6.1.
Most of the rest was transaction and a small piece related to group size and catering.
| 2015_CMG |
2016 | XRAY | XRAY
#Thank you and good morning, everyone.
Welcome to our first-quarter 2016 conference call.
I would like to remind you that an earnings slide deck presentation relating to this call is available on our website at www.DentsplySirona.com.
Before we begin, please take a moment to read the forward-looking statements on slides 2 and 3 of our earnings slide presentation.
During today's conference call, we'll make certain predictive statements that reflect our current views about our future performance and financial results.
We base these statements on certain assumptions and expectations of future events that are subject to risks and uncertainties.
Our most recent Form 10-K lists some of our most important risk factors that could cause actual results to differ from our predictions.
With that, I'll now turn the program over to <UNK>rey <UNK>, Chief Executive Officer of DENTSPLY SIRONA.
Thanks, Josh.
It is my pleasure to welcome all of you to our first-quarter and first-ever conference call as DENTSPLY SIRONA.
Also joining us on the call today: <UNK> <UNK>, Executive Vice President and Chief Financial Officer; <UNK> <UNK>, President and Chief Operating Officer of our Technologies business; and Derek Leckow, Vice President of Investor Relations.
I'm delighted to report that our first-quarter was a very successful one.
We seamlessly completed our merger and began working on the great opportunities ahead of us.
Rather than being distracted by the merger, the team came together and was energized to perform.
In our first 67 days together, DENTSPLY SIRONA team has much to be proud of.
We've rebranded our Company, announced our leadership team, and created an operating model to help optimize our growth.
As you can see on the earnings presentation, we have organized ourself into two segments: Dental and Healthcare Consumables, and Technologies.
Our Dental and Healthcare Consumables business is comprised of our endodontics, preventive, prosthetics, restorative, and instruments division along with WELLSPECT, our healthcare business.
Our Technologies business is comprised of our implant, CAD/CAM, imaging, treatment center, and orthodontic businesses.
We've organized these segments to maximize efficiency and product development and cross-selling opportunities.
In addition to developing new standalone products, our segments will introduce integrated solutions to improve workflow and advance patient care.
Within Technologies, our loyal installed base of CAD/CAM and imaging has been expanding to incorporate more specialty procedures.
For decades we have a proven track record of using technology to allow the dentist to advance patient care both in terms of outcome and treatment times.
Now we are moving toward integrated solutions, using technology combined with clinical products to provide dentists with end-to-end solutions and advance their own service capabilities.
This was first evident in restorative, but is now moving rapidly into implant, orthodontics, and endodontics.
These capabilities, further facilitated with DENTSPLY SIRONA's world-class clinical education platform, creates a powerful basis for advanced learnings in clinical settings.
Along the same lines, specialists are demanding more high-tech equipment, like 3D imaging and digital impressions.
Our relationships with these practitioners will help drive adoption of our technologies.
From a product development standpoint, combining the experience and knowledge of our strategic business units will enable the development of integrated technologies.
Furthermore, by collaborating, innovation should come faster and offer more to practitioners than ever before.
In Consumables, the majority of our revenues are operatory related and often used in conjunction with one another.
We are focusing on offering practitioners end-to-end solutions based on particular procedures.
All root canal procedures require multiple tools and are completed with the restoration.
DENTSPLY SIRONA is the only manufacturer with restorondontics strategy, offering all the necessary instruments, equipment, and consumables to diagnose and complete a root canal from start to finish.
As you can see, the goal of organizing into these segments was to accelerate adoption of all of our products, which will translate into top-line growth.
By driving growth and increasing productivity of our sales and service infrastructure, we will leverage our sales to deliver strong bottom-line growth as well.
With so many opportunities ahead, we have created an integration management office to work hand-in-hand with senior management to oversee the seamless merging of both Companies and cultures.
In order to capture our synergies, we have formed multiple teams to actively manage our cost and revenue initiatives.
Feedback from these teams have been overwhelmingly positive.
Ideas are being shared across organizations, and plans are being implemented to ensure these synergies come to fruition.
We are confident that we can deliver on our promise of $125 million in synergies by year three of our merger.
Capital allocation will also be an important part of our go-forward strategy.
Our Company generates a significant amount of free cash flow, and we have a large and flexible balance sheet.
As always, our priority is to invest in growth drivers for our business.
We will also use our cash flow to make acquisitions, repurchase our stock, and support our dividend.
During the quarter, we executed on the $500 million share repurchase, consistent with the announcement we made at the time of the merger.
We continue to have 3.6 million shares authorized for repurchase.
We have flexibility to pursue multiple avenues of capital deployment, all of which will drive value for our shareholders.
The opportunity ahead of us is more significant than anything either DENTSPLY or Sirona ever had on a standalone basis.
We have never been in a better position to grow and deliver shareholder value.
Turning to the first quarter, <UNK> will explain some of the technicalities on the reported revenue growth.
I will focus my comments here on the underlying growth of our two combined businesses.
Although the merger closed on February 29, I think it is more meaningful to discuss the performance of our business during the full quarter.
We achieved strong results, with our combined businesses growing 6.5% constant currency.
Excluding acquisitions, divestitures, and discontinued products, internal sales growth was 5.5%.
Geographically, we had solid growth across all regions.
Rest of world led our growth, delivering 8.4% constant currency, driven by internal sales growth of 7.5%.
There continue to be a number of challenging environments around the globe, but we are much better positioned after the merger in these areas.
We expect our rest of world region to be the fastest-growing region this year.
The US grew 8.8% constant currency, driven by internal growth of 5.7%, led by the Technologies segment.
Europe grew 3.1% constant currency, with internal sales growth of 4%, driven by solid growth in both our Technologies and Consumables segment.
On a segment basis, Technology business led our growth with 9.6% constant currency growth.
Internally generated sales grew 6.8%, led by a strong growth in our high-tech products.
CAD/CAM was particularly strong ahead of our new zirconia product launch.
In Q1, Dental and Healthcare Consumables generated internal sales growth of 4.5%.
Growth was driven by operatory-focused consumables.
First-quarter adjusted EPS was $0.69, representing 17% growth.
We achieved strong financial results while investing in R&D and in our sales and service infrastructure.
We will continue to ramp these investments in Q2 to better position our accelerating growth.
Innovation and best-in-class customer service will be two key pillars of our new organization.
Overall, we reported a very solid first quarter.
I'll now turn the call over to <UNK>, who will review our first-quarter financials.
Thanks, <UNK>, and good morning, everyone.
This morning I will discuss our GAAP results as well as our non-GAAP results, including the sales performance of our combined businesses for the complete three-month period of the first-quarter 2016 as if the businesses had been consolidated on January 1, 2015.
I'll walk through the earnings performance; I will also point out any impacts of merger accounting on earnings.
In the first quarter, our reported revenues increased $116.3 million to $772.6 million, up 17.7% reported.
The consolidation of one month of Sirona contributed sales of $128.9 million, which were reduced by $8.8 million to $120.1 million as a result of purchase accounting.
This reduction from our normal revenue recognition practices results from a one-time treatment of deferred income on service contracts, where any deferred income at the time of the merger is removed from future revenues and income.
This one-time treatment reduced revenue by $8.8 million this quarter and will reduce future revenue by about $8 million in the aggregate over the next six quarters.
As of March 1, any new contracts are again being treated as they have been historically.
For non-GAAP reporting, we will treat all the contracts existing at the time of the merger under the ongoing policy as if incurred in normal course of business.
For the full three-month period ended March 31, 2016, adjusted sales of our combined businesses, excluding precious metals, grew 6.5% on a constant currency basis.
Internal growth was 5.5%, excluding 1.7% favorable impact from net acquisition and 70 basis points unfavorable impact from discontinued products.
Foreign exchange movements were a headwind to revenue of 2.6%.
<UNK> already addressed revenue growth by geography and segment.
We have provided reconciliation tables for every segment and region that will help you understand how the GAAP reported revenue and internal growth for the complete quarter come together.
US GAAP gross profit was $418.9 million, up $45.5 million from $373.4 million in 2015.
Gross profit as a percentage of net sales, excluding precious metal content, decreased by 360 basis points to 55.5% from 59.1% in the prior year.
As you can see on the non-GAAP reconciliation tables, the gross profit margin was negatively impacted by about 500 basis points due to the rolloff of merger-related fair value adjustments.
The Company generated benefits from its global efficiency program which were largely offset by negative foreign currency impacts.
Reported SG&A expenses, which include R&D, were $342.1 million, up $71.8 million versus last year.
SG&A expenses as a percentage of sales, excluding precious metals, increased 250 basis points compared to prior year.
Merger-related expenses negatively impacted the rate by about 500 basis points, partially offset by savings from the global efficiency program and the consolidation of Sirona.
SG&A expenses were favorably impacted by foreign currency translation of approximately 100 basis points.
Restructuring expenses were $4.1 million, down $1.3 million from last year.
In total, GAAP operating income was $72.7 million, representing 9.6% of sales, excluding precious metals.
Excluding the non-GAAP items set forth in our non-GAAP financial measures, the adjusted operating margin was 22.2%, which compares to 18.7% last year.
Margins benefited from the positive impacts of the global efficiency program and the consolidation of Sirona.
Due to the strong performance in March, the benefit from the consolidation is more pronounced.
Had we consolidated Sirona for the complete three-month period, our adjusted operating margin would have been approximately 150 basis points lower.
We believe this is more representative of the current performance level of our business.
Net interest expense for the first quarter was $8.7 million, $1.3 million lower than prior year, largely driven by lower average debt levels.
Other income in the first quarter was $3.4 million, with the biggest impact coming from a small business divestiture which was removed from adjusted income.
For the three months ended March 31, 2016, income taxes were a net benefit of $57.9 million versus an expense of $18.9 million last year.
As part of the merger, we will be able to generate an early synergy by recovering previously reserved tax assets of $76.1 million.
This is the single biggest driver of the favorable development and will be recovered in cash in future periods.
We have removed this benefit from our non-GAAP results.
As a result, Q1 US GAAP net income attributable to DENTSPLY SIRONA was $125 million, up 95.3% from the prior year.
First-quarter 2016 diluted GAAP EPS was $0.70 compared to $0.45 in the prior year.
Adjusted non-GAAP earnings per share was $0.69, up 16.9% from last year.
For a reconciliation of GAAP EPS to non-GAAP adjusted EPS, please see our earnings press release.
Cash flow from operating activities during the three-month period ended March 31, 2016, was $0.7 million compared to $65.6 million during the three-month period ended March 31, 2015.
The year-over-year decrease was primarily related to a $56.9 million larger increase in accounts receivable due to stronger revenues in the month of March, and payments of approximately $40 million of merger-related transaction fees and integration costs.
Cash provided by investing activities was $504 million favorable, which reflects the assumed cash in the merger with Sirona of $522.3 million.
These funds were largely used to execute the $500 million share repurchase, which in exchange is the major driver behind the $472.8 million cash used in financing activities.
The Company's cash and cash equivalents increased by $38.5 million to $323.1 million during the three months ended March 31, 2016.
Now turning to guidance.
For fiscal 2016, we expect adjusted non-GAAP EPS in the range of $2.70 to $2.80.
Our guidance includes the following assumptions.
Constant currency sales growth to range from 4% to 6% excluding precious metals; this includes a 1% benefit from acquisitions, divestitures, and discontinued products, and internal growth in the range of 3% to 5%.
At current exchange rates, this translates to reported revenues, excluding precious metals, of $3.73 billion to $3.81 billion.
Please keep in mind that growth comps get more difficult in Q2 and Q3 related to last year's record international dental show and strong performance in our consumables business.
At the current exchange rates, we would expect adjusted operating income margins in the range of 21% to 22%.
We anticipate our adjusted tax rate to be approximately 23%.
Our EPS range implies a full-year share count of 220 million to 225 million fully diluted shares.
Our share count will increase to 238 million as we move into Q2.
I will now turn the call back to <UNK>.
Thanks, <UNK>.
We are in the very early days of our journey as DENTSPLY SIRONA, but we have a lot to be excited about.
The key driving force behind our merger was growth.
By accelerating the adoption of our products, we can bring about the full impact of digital dentistry in the dental practice.
We can integrate equipment and consumables to meet the growing need for more efficient workflows.
We will set new standards of care while meeting the growing demand for end-to-end solutions.
At DENTSPLY SIRONA, we are the only company that can further drive these trends and are best positioned to benefit from them.
Our installed base of equipment is the largest in the world.
Our customers are loyal and supportive.
They understand that our products are built to help them become more successful, which is driving our growth.
Every day around 600,000 dental professional use DENTSPLY SIRONA product.
Our reach is unparalleled, and our brands are the most well known in the industry.
DENTSPLY SIRONA is associated with quality and innovation.
We have the broadest clinical education platform in dentistry.
Each year we trained more than 300,000 dental professionals on our products.
Training builds loyalty to our Company and our products, especially when they make procedures easier or more efficient.
We also are able to deliver all of our offerings around the globe, with the largest sales and service infrastructure in the industry.
We are supported by 4,000 sales professionals and around 5,000 distributors around the globe.
We also have heard combining all of our capabilities creates synergy opportunities.
From a cost perspective, coming together will create opportunities to leverage our supply chain and cost structure.
Building off the legacy DENTSPLY efficiency program, we already have a platform to evaluate opportunities and a team to execute on them.
We are evaluating ways to improve our processes and manufacture more efficiently.
We have begun cutting redundant corporate expenses and consolidating some of our countries.
All of these actions will generate tangible cost savings, and create a more leverageable cost structure.
We expect to achieve these savings while continuing to invest in R&D and our sales and service infrastructure.
With more innovations and farther reach, we can cross-sell to our mutual customers or create bundles that specifically cater to each customer.
We have been working closely with our distributors to develop plans that create growth opportunities for ourselves and our partners.
Some of these successes involve salespeople coming together to move the combined business forward.
We already have a number of stories from the field of reps introducing customers to our expanded portfolio.
We have a large sales organization around the globe, and they've been meeting to find more ways to collaborate and accelerate growth, while working with and respecting a wide range of distributor relationships that we have in place.
These are win-win scenarios for DENTSPLY SIRONA and our distribution partners.
The more significant opportunities will require investment in both R&D and infrastructure.
While these take time and will mean that some of our revenue synergies are back-end-loaded to our third year, we are extremely confident that we can deliver them and they will be significant.
While these integrated solutions are in development, our R&D engine is continuing to introduce innovation to drive penetration of our products.
We have recently introduced a number of new, meaningful products to the market.
Our SUREFIL SDR+ builds on our revolutionary market-leading bulk fill composite platform.
The product has enhanced radiopacity and interproximal wear.
In our healthcare business, the new Navina bowel management system provides a novel approach to irrigation in a rapidly expanding market.
Early feedback has been overwhelmingly positive.
During the quarter, we launched our CEREC zirconia package, which was well received by the market.
The zirconia package includes the new CEREC SpeedFire, our unique high-speed sintering furnace.
In combination with the CEREC chairside CAD/CAM system, it allows for single-visit dentistry of zirconia crowns and small bridges.
In the past, using conventional furnaces, zirconia needed about two hours for sintering; therefore, zirconia was exquisitely processed in the dental lab.
CEREC SpeedFire brings sintering time down to about 15 minutes and opens up the possibility of processing zirconia chairside.
Zirconia is the most popular ceramic material for crowns in the US.
Having this material available for CEREC will substantially expand the addressable market for CEREC.
In conjunction with our launch we also introduced CEREC chairside zirconia blocks and our new CALIBRA ceramic cement, the first DENTSPLY SIRONA cement to address CAD/CAM restorations.
As part of our launch, we also provided a materials and accessories starter kit for all new users of zirconia packages.
Combining these new products with our CELTRA Duo blocks means that we can now offer dentists the tools and materials for all of our chairside restorations.
To complement this we have the outstanding relationships with our material partners that we continue to build on.
We will continue to invest in new CEREC consumables specialist salesforce to work hand-in-hand with our equipment specialists to deliver a full value proposition to dental professionals.
They now can source all of their CAD/CAM needs from DENTSPLY SIRONA.
Our efforts are already paying off.
Our CELTRA and zirconia lines are growing rapidly.
This is the first example of DENTSPLY SIRONA's leadership in both equipment and consumables coming together to drive growth globally.
We will continue to launch over 30 new products every year.
Our new product pipeline is robust.
We provide best-in-class equipment and consumables.
We can accelerate the adoption of technology and drive sales of our entire product portfolio.
We have a number of additional opportunities to quickly integrate our technology and consumable offerings.
Orthodontists are rapidly adopting 3D imaging and digital impressioning systems.
We have the most open orthodontic camera on the market, and we can benefit from our seamless integration with our own MTM ClearAligner brands.
Coupled with our brackets and wires, orthodontists can now treat a patient from diagnosis to treatment.
From the initial x-ray to impression and then to treatment, orthodontists can choose from an array of DENTSPLY SIRONA products to effectively treat patients.
Where CEREC meets 3D, we offer the safest and easiest chairside implant planning.
As I mentioned, our implant salesforce is already generating leads for imaging and CAD/CAM and planning joint clinical education events to train doctors on the DENTSPLY SIRONA implants line.
An important part of our clinical education strategy is partnering with dental schools around the globe.
In the US, DENTSPLY SIRONA products are in virtually all dental and dental hygiene schools.
Our endo business currently partners with 100% of US endo residency programs.
Today, DENTSPLY SIRONA is training the next generation of dentists on products and introducing them to best-in-class solutions.
Once they graduate and enter the workforce, they will demand technology and integrated solutions.
DENTSPLY SIRONA is the only manufacturer that can meet this growing trend, and we will.
To deliver all of our solutions to the market, we will continue to invest in our sales and service infrastructure.
This quarter, we built out our infrastructure in Mexico and continued expanding our presence in China and India.
While we will leverage our infrastructure to sell more efficiently, we remain focused on accelerating long-term top-line growth.
Overall, I am excited to see the DENTSPLY SIRONA team unite and deliver a strong first quarter.
As The Dental Solutions Company, DENSPLY SIRONA will transform the dental market.
I'd like to thank our customers for their loyal support, trust, and enthusiasm for DENTSPLY SIRONA.
We are pleased to recognize our distribution partners for helping us achieve our very successful quarter.
I'd also like to extend a special thanks to our 15,000 employees who work hard each and every day to improve the lives of dentists and their patients.
Together, we will change dentistry for the better.
We will now address your questions.
Operator, please proceed.
New Company, same old questions, right.
Look, I think ---+ first of all, it is early days; and I have to tell you I'm thrilled with what the team's been able to do together.
Frankly, one of the nice surprises is to see how talented we are across the globe in sales, marketing, R&D, and certainly our functional areas, HR, and finance.
It's a big deal when two of the largest companies come together to make sure that you have the right cultural fit.
But one thing's for sure that we aligned on is really on our mission, <UNK>, which is to empower dental professionals to deliver better, safer, faster dental care.
This idea of end-to-end solutions is where we feel the market is going.
A key fundamental to the merger was growth, so we expect to grow faster in the future; and the reason for that is we're better together to be able to accelerate the adoption of technologies and digital dentistry.
Frankly, when we look at what is possible on the synergy side, as you look at our specialty areas as well as our technology, there's a lot of things that we see early days that are just going to continue to play for us.
Of course, single-visit dentistry is just getting stronger.
It's difficult to say if we're at a tipping point yet, but we feel better about that.
And our ability to work with CAD/CAM and implant and ortho certainly gives us a strong feel for our ability to mobilize our synergy opportunities.
So there's a lot of genuine excitement here, and I think it's truly great for the dental industry and our distributor partners, because we're going to do a lot of great things together.
I think, <UNK>, the best way to think about it or to bridge it for you is if we start with DENTSPLY's standalone EPS last year of $2.62, right.
And we take the midpoint of our guidance this year, $2.75; so this would be a $0.13 increase, or a 5%, which you probably refer to as low single digits, right.
Then I told you that we expect FX headwinds of about $0.10, which would add another 4%.
As you know, we've issued DENTSPLY shares in exchange for Sirona shares; and with the multiple difference, we issued ---+ it depends on if you look at it trailing or forward-looking ---+ but somewhere in the neighborhood of 15 million, 16 million more shares for the same earnings than had we issued the shares at the same multiple.
So this gives you a dilutive impact for the full year of somewhere in the neighborhood of $0.15 to $0.17; say $0.16 for argument's sake.
So that's another 6%.
And if you add this up, you look at EPS growth, excluding FX and excluding the difference of the multiple on the issuance, of about 15%.
If you use this I think you can back into our earnings growth from there.
Does that answer your question.
Sure.
I think we were across-the-board strong.
No question about it.
Rest of world led the way for us.
Of course, in the Rest of World ---+ let's start there.
A number of those areas are challenged.
Japan, of course, is a very important market for us, but it has its challenges.
But we continued to perform well.
You'll start to hear a theme here, <UNK>.
China also had some challenges.
But very pleased with what the team was able to accomplish there.
and even Brazil, which certainly has its challenges, we were able to do particularly well in the consumables area, which is pleasing for us.
We expect the rest of world to be a growth driver for us for the rest of the year.
In Europe, we did well.
We haven't seen anything really change over the last six months.
Frankly, Russia still has some challenges, but I was pleased with how the team was able to perform, especially looking at our pipeline ahead.
We have a number of projects there.
Southern Europe seems to be picking up for us, albeit it's a low base.
Germany performed, but did not lead Europe.
And then we saw strong growth in both Technologies and Consumables in Europe.
But I would caution that our second quarter will be a difficult comp because of IDS last year.
Keep in mind that IDS was a record for us.
In the US, again, very strong growth led by Technologies and also operatory Consumables.
We feel good about what we were able to accomplish.
We also see that the US market is improving, and the underlying demand for our products are strong.
Well, specifically, we're not going to get into that.
But we say we're not backing off of our being accretive over the first 12 months, absolutely.
We see such a positive ability to grow together.
Of course, we've had a little headwind that <UNK> has talked about.
But by and large, everything is on track or doing better.
Again, 67 days into this; pleased about how the team has mobilized together.
We've certainly got some FX headwinds.
And as <UNK> I think did a very nice job earlier, talked about the share count headwind as well.
But from a standpoint of growth in this market, 4% to 6% we think is leading the way, and we feel good about our prospects for the rest of 2016.
And we started our year with a very solid quarter.
So I think we're in a good place, Bob.
Well, I mean certainly technology led the way at 6.5% for the quarter, and certainly was leading the way in the US as well.
That was led by CAD/CAM.
So the proposition has not changed with regard to us believing, along with Patterson, that CEREC will become a standard of care and we're on the appropriate trajectory for that.
Do you know ---+ keep in mind also that we launched the new zirconia blocks.
But more critical to that was our SpeedFire.
There was a lot of interest ahead of that, and I think that it's a situation where we've got a lot of opportunities for CEREC in North America and will continue to.
<UNK>, do you want to comment (multiple speakers).
No, I think you mentioned it with the launch of the SpeedFire.
I think people geared up to be ready to deliver, right.
And we had a really good growth in CAD/CAM.
It was nothing to be ashamed of, right.
Very solid growth.
Well, we'll certainly give you color for how they performed and certainly talk about new products.
The idea is, we've spent a lot of time thinking about how best to structure our organization.
How could it be most meaningful for our organization to grow, to create value, to be able to untap both cost and revenue synergies.
So that structure also means that when you look at our overall business that there isn't any business that is really more than 15% ---+ so going down to our smallest, which is instruments.
We're trying to get people focused on Technology and Consumable, but certainly we'll deal with the strategic business units within it.
You had mentioned imaging.
Imaging had a solid quarter and grew above the Technology average.
It was across all regions; so it was pretty strong growth.
Let's start with that because I think that is absolutely an on-point comment.
We think implant is a strategic fulcrum for us.
We see how it relates to both our CAD/CAM and imaging business.
We believe we are well positioned with our product offerings there.
We think this is a category that will continue to grow.
We have certainly a strong product offering there.
When you couple that with CEREC, ATLANTIS, SIMPLANT, and ISUS, it's a robust offering.
Rest of world did better for us there; we were pleased to see the volume come up, pick up a bit for us there.
We saw some challenges in Europe.
And certainly a market that we're very excited about that we think we can do a lot more in is in the US.
<UNK>, do you want to make a few more comments.
Yes, absolutely.
Thanks, <UNK>.
I mean I think I agree to all those comments.
I think this is one where both parties came with very significant and meaningful assets to come together.
You think about again, the implant is going digital.
Obviously we have the CEREC.
We have all the imaging coming from the Sirona side.
We've got the ATLANTIS, SIMPLANT, ISUS coming from the DENTSPLY side.
I would say I'm very pleased with how these teams have come together, both from the standpoint of longer term or middle term, if you will, as well, product synergies.
But in addition to that, some nearer-term opportunities in terms of lead-sharing, KOL sharing, etc.
, that ---+ again there's a lot excitement, a lot of movement, and a lot of energy.
Again, as <UNK> mentioned, we've got expectations here that this really does accelerate implant growth rate and also, frankly, helps imaging and CAD/CAM over time as well.
Yes, I mean when you just think about the clinical education, the engagement of our KOLs, the possibility of what we're able to do together with our Technologies and in implant are pretty substantial.
Well, let me start and then I'll hand it over to <UNK> on that.
But you need to understand that product mix and regional mix can have a significant impact in any quarter.
But now that we talk about our businesses ---+ no business being greater than 15%, coming all the way down to 3% ---+ it should take some of that lumpiness out of it.
But nevertheless, in a quarter it can have the impact of more than 75 basis points, over 100, depending on the mix.
So mix does play a role, no question about it.
But the way to start to think about that is how we talk about how the Consumables or the Technology businesses grew in the quarter.
That's the first thing you need to think about.
But we're trying to also get you focused on our operating income, which we think is a better lever to understand our businesses.
But go ahead.
Yes, I think as you look at our margins in Q1, we provided you with the rec tables.
I talked a little bit on the prepared remarks on the GAAP versus non-GAAP items.
So I think what you see on the rec table is a margin a little bit over 60% reported for the first quarter after these adjustments.
I did mention the fact that Sirona had a very strong margin.
We only consolidated one month of Sirona, pronounced a little bit the benefit of the merger; so that also helped the gross profit margins.
They were probably a tad higher in this reporting than they would have been on the complete month.
I also said this on the remarks to operating margins.
And the other thing to think about is the exchange rates.
We are now at $1.14.
The first quarter was a little bit lower, so that will hurt our gross profit margins, especially on the Technology segment: literally almost all of our manufacturing is euros, Swiss franc, or Swedish krona based, right.
So for the full year I would expect them to be quite a bit lower than the 60% we saw in Q1.
Again, due to FX and due to the fact that we will not always only have the best month of the quarter in the numbers.
I think the way to think about it is the markets continue to hold up.
We continue to see that our early wins on our revenue synergies accelerate faster than we had expected.
We certainly have some tough comps ahead of us in Q2, in Q3.
So how we are able to execute in those quarters will have a lot to do with the ability to go beyond.
But of course, as we were just talking about, the impact from sales and margin mix will play a big role in that.
Right; okay.
First of all, let me tell you one of the truly gems of DENTSPLY SIRONA is our business development team.
We have exceptionally capable people there that can process and digest a lot.
The fact that we've been working at the global efficiency and now have a formalized integration office to deal with this puts us in better stead.
We know which countries are the most stable, and ones that might be a little bit longer away to contemplate an M&A position there.
But by and large, I will tell you that our strategic plan is all about continuing to do acquisitions.
It's day 67, and I can tell you we are right up to speed on what the possibilities are to go out there.
Of course, when you're in the midst of this type of transformational merger, you do take into consideration your ability to integrate and how quickly we'd be able to do it.
So that's all part and parcel for that.
But from the standpoint of myself, the management team, and the Board, we believe we've got a lot of room that can grow through acquisition.
Yes, I think we told you that our guidance is based on a share count range of 220 million to 225 million.
As we leave Q1, and if our share price doesn't change anymore ---+ because you know this has an impact of the dilutive part of the options ---+ we would end up the year about in the middle of what we told you, around 223 million.
We gave you the range because we still have an authorization left.
We have about 3.6 million left on our buyback authorization.
We do intend to execute on this.
Timing depends on the availability of our cash flow and our other plans.
So it does include the possibility that we buy back a bit more in the course of the year.
Yes.
I would say that we've already started on some of the costs.
Cost is easier to identify, and you can go at it a little bit quicker.
Certain corporate costs we've evaluated and come after: insurance, audit fees.
The other thing is when you're doing country consolidations, there are overlaps with regard to software and duplication in functionality and functions.
And certainly also from a sourcing perspective.
You know we're at that; there are some quick wins that we've been able to talk about.
But equally, I think we've spent a lot of time with our team.
In a moment I'm going to have <UNK> talk to you a little bit about that because he's been leading the way with revenue synergies, and we're really pleased to see how well the teams have come together to collaborate.
Again, keep in mind, it's day 67.
But the type of wins that we're talking about that make sense for the dental practitioner, for our distribution partners, for DENTSPLY SIRONA are really coming up.
From a perspective of the three-year, the $125 million, again we're not backing away from that.
We're very confident about it.
But to give more color at this time about what will map in as far as year two and year three, I don't think we're ---+ well, I know we're not going to talk about that today, <UNK>.
But we tried in my prepared remarks to really give you a lot of things that we're working on that will have a big impact.
<UNK>.
Yes.
I guess, <UNK>, I would characterize it as follows.
As I mentioned on the implants discussion that there's a lot of energy here, and that's through true, frankly, for all of the different work streams that we have going.
And these are numerous.
You should think about the work streams really being both within the two segments and then across the two segments as well.
You should think about them being focused on product synergies; again being probably more ---+ think of that a little bit more innovation-based or R&D-based.
There are some that are probably intermediate-term, some longer-term.
But again those are probably going to be on the tail end, if you will or at least the back half of the three-year period.
Some may be a little bit before then.
And a lot of energy going there.
Again when we get our scientists together, when we get our marketers together and really think about the possibilities in terms of combined solutions.
On the other hand then, in the nearer term, on the commercial synergies think about again our sales and marketers getting together and talking about programmatically what can we do to drive more value with our customers together.
Again you can think about that in terms of promotions, in terms of how we present ourselves to our customers, in terms of, as I mentioned earlier, KOLs, clinical education, etc.
.
Again, digital dentistry, clinical education ---+ if you just, <UNK>, you think about how many trainings and educations we do where we never had any of our products also in the room, when you're doing a training on ortho, implant, endo, where that can play in.
And it works both ways.
Certainly nobody has done better than DENTSPLY SIRONA in clinical education, and that is valued highly by the dental professional.
Yes, I mean, look, certainly from a standpoint of the bigger picture, what we look at, we are, first and foremost, an innovator, right.
So technology matters.
So we're out there; we're looking at businesses that maybe need a larger company infrastructure.
They've got something that they're either just finished with or they need more resources to finish.
That's something that's very important, something both companies have done extremely well.
And then we take a look at ---+ what can we add to our SBUs.
What would be an additional add-on that would help growth or the adoption of the technology, or sell more of the Consumables certainly.
And let's not forget the regional play, which is why I said we have to look at each country and the stability level there.
Certainly, again, we look for the acquisition to be accretive.
If it's not going to be accretive, we've got to be able to explain to you very quickly why this will get there in a fast enough form that is necessary.
ROIC has always been something that is significant to us, and hasn't changed.
I think we have a very robust process internally that we go through.
Frankly, I wanted to highlight it earlier, because I think the team's truly extraordinary.
That was something that I can tell you from a standpoint at Sirona, we were good; DENTSPLY is great.
So coming together on that makes a big difference.
Also, we've been able to have discussions with our Board about that.
We recognize that capital allocation is a critical component.
And we think that we're one of the few companies that can be a true consolidator in this industry, and so there is a lot of room for that to take place over the years to come.
As you know, like anything, you have to be ready to seize the opportunity when it becomes available.
I think that's the point that we want to stress.
Yes, we have to integrate.
Yes, we understand that's priority.
And our 15,000 know our first and foremost is to them and to our shareholders and stakeholders to make sure our nucleus is strong.
But after that we just see plenty of opportunities.
Now, we're going to stay disciplined.
That doesn't change.
But that's part of our roadmap, and I want to be crystal clear about that.
Hi, <UNK>; nice to hear from you.
Yes, I mean, look, we did give color that CAD/CAM led Technology, grew faster than the overall Technology.
And that's because single-visits dentistry is here to stay.
You're hearing it more and more.
In ortho, it's growing the fastest I would say around the globe.
You won't hear from the dental community or distribution a disagreement about chairside becoming the standard of care.
We've heard more about digital impression only; but that's typically in ortho.
And of course, our zirconia is really a game-changer.
When you think about this material and the strength of it, and also the aesthetics and how it compares to others, typically zirconia has been something that you would only do through the lab.
Of course, our Cercon ht is a product that we're excited about that we'll deliver through the lab as well.
But from a chairside perspective, you never considered it because it took two hours to sinter.
Now with the SpeedFire it's 15 minutes.
Why is this so significant.
Because zirconia is a terrific material for molars and certain bridges, and actually very popular amongst dentists.
So to be able to have this type of ceramic be available chairside just truly opens up our addressable market.
And by addressable market, we're not talking about adding 2,000, 3,000 more dentists who are interested.
We're talking about tens of thousands of dentists that will now take a look at this opportunity, where they wouldn't have before.
So we believe that's just another reason why CEREC makes sense.
But the other thing, frankly, is the fact that now everybody is talking about not just restorative but we're talking about what you can do with CEREC on an implant and ortho side.
I have to say that we were at the AAO, and in a second I'm going to ask <UNK> to tell you about that flavor, but you just see the appetite for digital impression and what the possibilities are for all types of applications.
I think that was a bit of the story at the AAO.
Absolutely, <UNK>.
There's no doubt that a lot of energy regarding digital at the orthodontics show.
Obviously we're there and well positioned with the Omnicam, and again I think that as we look at the synergies of these companies coming together there's no doubt that, similar to implants, ortho is really one of the key fulcrums and one of the key opportunities.
So we're excited about that.
I think that we're well positioned for where this market is headed.
And again I think that really, as we move forward, I would expect that to be one of the key synergies.
I mean it's a beautiful thing that, the ortho to be the most open and also to have a ClearAligner in our MTM for the anterior, which is exciting for us.
Thank you very much for joining us on our first-ever first-quarter conference call as DENTSPLY SIRONA.
Very excited what we have ahead of us.
Our 15,000 strong are ready to go and have another strong quarter in Q2.
So I look forward to joining you in August to discuss our second-quarter results.
Thank you and have a great weekend.
| 2016_XRAY |
2016 | MATW | MATW
#Thank you, Justin.
Good morning, I\
Thank you, <UNK>, good morning.
We are very pleased with our results for the quarter.
Despite challenging market environments in several of our businesses, our synergy capture and good cost containment allowed us to exceed market expectations for the quarter.
Continued higher volume in our Cemetery Products group and good synergy achievement in our Aurora acquisition all contributed to offset lower death rates.
Similarly, with regard to our brand business, softness in the North American and European markets and significant currency headwinds were offset by execution, which captured the expected synergies.
Good cost management and strong performance in our merchandising, UK and Asia operations, all benefited as well.
Meanwhile, our Automation Group, which is contending with a difficult year-over-year comparable still continues to deliver good results and is expected to have yet another strong year.
All in all, we are headed in the right direction, and we are excited about the many things happening throughout our business.
With regard to the two significant integration efforts that we have underway, we remain on track to deliver our targeted cost synergies and maybe more.
As we have communicated in the past, we began the most significant part of our ERP launch on April 1st for our SGK brand segment, and I'm happy to report it is going very well.
A special thanks goes out to the team across the world who have dedicated a lot of time and effort to make this a successful launch.
Assuming the continued success of the ERP implementation, we remain very confident in our ability to deliver our projected synergies of $45 million, which is at the high end of the range, which was previously communicated.
With regard to Aurora, our plans are finalized, and the integration has begun in earnest.
We are very confident that we will deliver all of the projected benefits of this acquisition and perhaps more as well.
As I've stated before, we must and will continue to provide seamless service to our valued customers so our detailed integration plans to include significant investment to assure exceptional service levels.
Even with these investments, however, we still expect to add over $40 million of incremental EBITDA from this transaction over the 24-month period after acquisition.
As we have previously stated, expected synergies ---+ dissynergies, excuse me, have impacted the immediate benefits of this acquisition.
But during the quarter, we began to see the benefit of early synergy capture.
During the quarter, we have chosen to rename our Industrial segment to better reflect the true nature of the underlining business.
Many of you may recall this segment to have been our Marketing Products division, the historical roots of our business.
Today, given the evolution of this business and the scope of its current and future product lines, there is no better descriptor that encompasses the core of this business other than Industrial Technologies.
With that, our Industrial Technologies segment continues to see great performance despite high R&D spending, which totaled $1.4 million during the quarter.
Expanded products, creative solutions, and great people who focus on innovation every day will allow us to continue to grow this business well beyond its current size.
From a financial standpoint, we generated over $40 million of operating cash flow for the quarter, and we are very confident in our full-year target of approximately $100 million of free cash flow, which includes a substantial investment in both our integration efforts.
With regard to those integrations, we believe that we have peaked in our integration costs, and the amounts are expected to decline significantly during the next six months.
Thus, we expect free cash flow on a forward basis to approach $140 million beginning next year, which will push our free cash flow yield at the current stock price to over 8%.
We also expect to generate around $245 million of adjusted EBITDA for this fiscal year, all while keeping our capital expenditures in check at around $40 million to $45 million.
With this strong cash generation, we have, and we will continue to focus on reducing our outstanding debt.
To that end, we are proud to announce that we have made over $100 million of debt repayment since closing on SGK in late 2014.
Keep in mind, that we made those debt repayments despite having incurred significant integration costs, and those costs are waning.
To that end, we are targeting additional repayments of up to $40 million for the balance of 2016.
Clearly, the addition of SGK and Aurora and continued strong performance from our historical businesses has allowed us to materially change the financial picture of the Company.
As we look to the balance of 2016, we remain confident of our ability to achieve our operating objectives that have been communicated including the amount of synergies that we expect to achieve.
We have exceeded market expectations for the first two quarters and feel very comfortable with our target of $3.25 per share adjusted and possibly more.
We remain cautious of the economies in which we operate but optimistic about our own ability to manage through those difficulties as we have demonstrated this quarter.
We will remain proactive in taking actions to mitigate the potential effects of these and other challenges as we move throughout the balance of the year.
Also, as we have communicated in the past, we have recently made permanent, through a term loan, a portion of our bank revolver debt adding further stability to our balance sheet and affording us the opportunity to lock in favorable interest rates for years to come.
For all these reasons, we are proud of our results for the quarter and optimistic about our internal opportunities and those opportunities that are created by our proven ability to integrate acquisitions.
With that, let's open it up for questions.
For those of you who will be asking questions, we request that you limit them to one question and a follow-up question until all those who wish to participate in the Q&A session have had an opportunity to do so.
Justin.
Well, let's talk about SGK first.
SGK, we have communicated a range of $35 million to $45 million.
Today we have confirmed for you that we're at the high end of that range and maybe a little bit more beyond that.
The run rate at this point in the fiscal year, we're running at about a little more than half that.
We expect that by the end of the year we should be pushing $30 million of that $45 million at a run rate.
So we've communicated historically that's going to take 24 to 36 months to get through.
We're still right on track with respect to SGK.
On the Aurora side, we're pleased to report we're slightly ahead, but, I mean, and it is modest because, frankly, right now, the dissynergies are still outweighing the synergies that we are achieving.
Having said that, we've only recognized several million dollars' worth of the cost synergies we expect.
There's still a lot more to come.
We think we've stabilized the dissynergy portion of it, and it should be upside from here.
$30 million by the end of the year.
The fact of the matter is we can't tell how much that is, but we can't deny that a milder winter is going to make placements a little better.
But we also know some other things.
As you all ---+ for many of you who have been the shareholders for a while, we had a challenging ERP implementation in that segment of the business a few years back.
As we suggested at that time, we lost some of our more regional accounts, and that team right now has done a wonderful job of going back after those accounts.
And we are picking up market share that we had lost during that time period.
Along the same line, the team on our stone side of the business is doing great work.
We're seeing double-digit increases that we think are going to continue for a while.
We've always proposed that we think we can be a significant player in the stone business, which is a good adjunct to what we have on the bronze side, and we're seeing that come to fruition as we speak.
So great performance, I mean, that challenging ERP implementation is paying its benefits now.
Service levels are beyond anything we've had in the last 100 years from a delivery standpoint.
So we're pretty proud of what we've done on that side of the business, and that team has done a great job for us.
We think Europe is turning, as we speak.
We've had some information from customers and clients over there that suggested that we should see some upside tick in volumes as marketing dollars are being freed up a little bit more.
In North America, frankly, our historical customers remain very, very stable but at lower run rates.
But we did see the beginnings of what we think are what the Food Modernization and Labeling Act ---+ a tongue-twister there ---+ that, as we look at Vermont.
Vermont has pushed several of our large consumer product companies on the food side to do GMO labeling, as many of you may be aware, and we've seen good volume coming through as a result of that.
So, it's early, but we think that there's some pent-up demand associated with that regulation, and we'll see that come through in the next 12 to 24 months.
Actually, the revenue side is just starting to turn, <UNK>, as we speak.
Much of the dissynergies occurred prior to our closing on that acquisition in the time period where the Federal Trade Commission doesn't allow us to speak neither to customers nor know too much about the inside of the business.
We've stabilized that, and I would tell you, <UNK>, that today we fully expect to be the most cost-effective manufacturer of caskets in the United States, and we don't think that, long term, that this will be a challenge for us to be able to maintain that revenue, going forward.
Consumables are below what our expectations were but still at a higher rate than historically it has been.
As we've said in the past, the marking portion of our ---+ of what we are calling our Industrial Technologies business, is really the bellwether for us in economic conditions around the word.
Consumables are the part of that that really tells us, pretty early on, what the economy is doing.
And as you've read in the papers, <UNK>, they're reporting a slow first quarter.
We felt that slowness in our Consumables but, at the same time, this team has demonstrated, year over year over year for the last 10 years that they find ways to create new solutions.
We have great promise in that division, and I think good people doing it.
So I think it's a blip in the quarter and, frankly, it wasn't a bad quarter.
All right, well, we'd like to thank everyone for participating in our call this morning, and we look forward to our third quarter earnings release and conference call in July.
Thank you and have a great day.
| 2016_MATW |
2017 | EXPO | EXPO
#Thank you.
Thank you for joining us today for our discussion of Exponent's second quarter 2017 financial results.
Exponent's second quarter results exceeded our prior outlook, and we are raising our guidance for the year.
As you've seen in our press release, we achieved double-digit revenue growth in the quarter.
Our strong results were due in part to the continuation of a large human factors assessment project for a client in the consumer products industry as well as strengthen our biomedical, construction consulting, electrical engineering and polymer science practices.
For the quarter, net revenues were $84.1 million, an increase of 15% as compared to the second quarter last year.
Net income in the second quarter of 2017 was $13.8 million or $0.51 per share compared with $10.5 million or $0.38 per diluted share in the same period last year.
Comparative growth rates for the quarter were aided by the unusually soft results in the year-ago period.
While we are still experiencing softness in the oil and gas and the industrial chemical industries, we are encouraged by positive trends that we are seeing across the business.
Regarding the large project in the consumer products industry, we had previously expected this project to decelerate during the second quarter.
The project, however, continued at the same level, and as a result, this project represented approximately 5% of our net revenue for both the first and second quarters.
We now anticipate this project will continue with about 3% to 4% of net revenues in the third quarter.
We expect to return to a more normal project portfolio in the fourth quarter with no projects exceeding 2% to 3% of net revenues.
Net revenues in our engineering and other scientific segment represented approximately 79% of net revenues in the second quarter.
Net revenues in this segment grew 16% in the second quarter and 10% year-to-date as compared to last year.
Year-to-date, we have had significant growth from our proactive design and regulatory consulting services.
Specifically related to ongoing projects with clients in the consumer products industry.
Demand from the medical device industry continue to grow during the quarter, as clients called upon our multidisciplinary teams for supporting product development and litigation matters.
We continue to expand our international construction dispute work with ongoing mining, gas terminal and power plant projects.
We believe we have gained a competitive advantage through our integrated team of experts by delivering solutions to complex capital projects.
Additionally, after several quarters of flat revenue from the automotive industry, revenue grew in the second quarter, as we were called upon to evaluate safety and human performance issues for new transportation technologies.
The balance or 21% of Exponent's second quarter net revenue is from our environmental and health segment.
After several quarters of decline, we are pleased that this segment returned to year-over-year growth in the second quarter.
Net revenues grew approximately 11% in the second quarter and 2% year-to-date.
Exponent's food and chemicals and environmental sciences practice areas also benefited from our increased global presence.
During the first half of the year, our food and chemicals practice continue to expand, as it assisted clients with regulatory issues around the world.
Revenues from oil and gas and industrial chemical industries remain flat, as clients continued to adjust to the price of oil.
As our second quarter results indicate, Exponent continues to be retained by a diversified portfolio of high profile clients, expanding a wide range of practice areas.
In the first half of the year, we paid $10.8 million in dividends, repurchased $7 million worth of common stock and ended the quarter with $162 million in cash equivalents.
Today, we announced another quarterly dividend payment of $0.21 per share and reiterated our intent to continue to pay dividends going forward.
We believe that our second quarter results demonstrate the resilience of our business model and our regular quarterly dividend payments.
And stock repurchase program demonstrates our commitment to deliver shareholder value.
Now I will turn the call over to Rich, for a more detailed review of our financial performance and business outlook.
Thanks, <UNK>.
For the second quarter of 2017, revenues before reimbursements or net revenues, as I will refer to them from here on, were $84.1 million, up 15% from $73.3 million in the same period last year.
Total revenues for the quarter were $87.8 million, up 14% from $77.3 million 1 year ago.
As <UNK> mentioned, our strong second quarter results were driven by the large project combined with sustained demand in international construction disputes and product development and litigation matters in the medical device industry.
Net income for the second quarter increased 32% to $13.8 million or $0.51 per diluted share, as compared to $10.5 million or $0.38 per diluted share in the same period last year.
EBITDA for the quarter was $23.7 million, up 32% from the $18 million in the year-ago period.
For the first half of 2017, net revenues increased 8% to $164.6 million and a total revenues increased 7% to $172 million.
Net income was $30.4 million or $1.13 per diluted share in the first half of 2017, as compared to $25.8 million or $0.95 per diluted share in the same period a year ago.
In the first quarter of 2016, Exponent early adopted a new accounting standard for the classification of tax adjustments associated with share-based awards.
The tax benefit realized in the first half of 2017 was $6.1 million or $0.22 per share as compared to $4.8 million or $0.18 per diluted share in the first half of 2016.
For the first half of 2017, EBITDA increased 15% to $42.5 million.
For the quarter, billable hours increased 13.5% to 310,000 as compared to the same quarter a year ago.
For the first half of the year, billable hours increased 6.6% to 605,000 as compared to the same period last year.
Utilization in the quarter increased to 77%, up from 69% in the same quarter last year and exceeded our previous expectations.
For the first half of the year, utilization was 75.6%, up from 71% 1 year ago.
Utilization benefited from the large project and strong demand in many parts of our business.
While we expect utilization in the third quarter to be better than it was in the same period last year, it will be down sequentially from the second quarter by approximately 4 to 5 percentage points due to an additional holiday and vacations in the third quarter, which will reduce UT by 2.5 to 3 percentage points.
And the lower level of activity on the large human factors project, which will result in an additional 2-percentage-point reduction in UT.
For the fourth quarter, utilization typically steps down 4 to 5 percentage points from the third quarter based on additional holidays and vacations.
As a result, we expect full year utilization to be 72% to 73%.
Technical full-time equivalent employees in the quarter were 774, which is an increase of approximately 1%, as compared to both the first quarter of 2017 and the second quarter 1 year ago.
We expect FTEs to grow 1% sequentially in each of the next 2 quarters.
In the second quarter, the realized bill rate increase was approximately 1% year-over-year, but was partially offset by 0.3% from translating foreign currencies for consolidated financial statement.
The reason for the lower bill rate increase is the increased utilization of junior staff as the firm gets busier.
For the remainder of 2017, we expect to realize rate increase of approximately 1% to 2%.
EBITDA margin for the quarter was 28.2% of net revenue as compared to 24.6% in the same period last year.
For the first half, EBITDA margin was 25.8%, as compared to 24.3% in the same period 1 year ago.
For the quarter, compensation expense after adjusting for gains and losses and deferred compensation increased 10%.
Included in total compensation expense is a gain in deferred compensation of $1.1 million, as compared to a gain of $940,000 in the same quarter 1 year ago.
As a reminder, gains and losses and deferred compensation are offset in miscellaneous income and have no impact on the bottom line.
2017 salary increases were effective April 1.
The rise in salaries will be similar to the bill rates.
Stock-based compensation expense increased 30% to $3.5 million in the quarter, which is attributable to the increase in the bonus pool, which is in line with the growth in profitability.
We expect stock-based compensation to be approximately $3 million in each of the remaining 2 quarters.
Other operating expenses increased 1% to $7.3 million in the second quarter.
Included in other operating expense is depreciation expense of $1.6 million.
For the remainder of the year, we expect other operating expenses to be approximately $7.4 million to $7.6 million per quarter.
G&A expenses were $5 million in the quarter, up 20% due primarily to our managers meeting and marketing materials that leverage our 50th anniversary.
These expenses were realized in the first and second quarters.
For the remainder of 2017, G&A expenses are expected to be $4.2 million to $4.5 million per quarter.
Our tax rate for the quarter was 38.3% as compared to 37.3% in the second quarter last year.
Our tax rate for the first half of the year was 23.6%, down slightly from 25% in the same period last year.
The year-to-date tax rate was impacted significantly by the adoption of the new accounting standard, which was primarily a first quarter event for Exponent.
We expect a tax rate of approximately 39% during the remainder of the year.
For the quarter, operating cash flows were $18.8 million and capital expenditures were $1.2 million.
We repurchased $5.7 million in common stock in the second quarter.
Year-to-date, we have repurchased $7 million of common stock for a total of 118,000 shares at an average price of $59.57.
We still have $50 million authorized and available for repurchases under the current repurchase program.
We distributed $5.4 million to shareholders through dividend payments in the second quarter and $10.8 million so far this year.
Today, we also announced another quarterly dividend payment of $0.21 for the third quarter and reiterated our intent to continue to pay quarterly dividends.
After repurchases and dividends, we ended the quarter with $162 million of cash and short-term investments.
We are increasing our fiscal year 2017 expectations to reflect our strong performance in the first half of the year, and our expectations for near-term market trend.
We expect 2017 revenues before reimbursements to grow in the mid- to high-single digits and EBITDA margin to grow between 40 and 80 basis points as compared to 2016.
I will now turn the call back to <UNK> for closing remarks.
Thank you, Rich.
Exponent's market position in international capital project disputes, consumer product recalls and product liability claims continues to generate brand awareness on an international scale.
Our global presence continues to trade additional opportunities for proactive engagements, specifically in design and regulatory consulting.
Our first half results demonstrate the growing demand for our diverse expertise to address complex business issues.
We are pleased with our ability to expand our business in both reactive and proactive services, as demonstrated in construction disputes and human factors assessments.
We believe we are well positioned for long-term growth, as we provide our clients with solutions to address technological complexity, safety, human health and the environment.
Operator, we are now ready for questions.
So Tim, a significant part of that change is the fact that we have been able to leverage some of the staff in that area of the business on to some of the projects that ---+ some of the international projects that we have that would not necessarily be pegged as being overly focused in our traditional environmental and health space.
So I think the global footprint that we're getting with more and more international projects has allowed us to increase the utilization in that area.
So that's sort of the first item.
The second item really is the more traditional one, which is, as you recall, the part of that business that has been growing nicely is our food safety and chemical regulation practice that is largely based in, in Europe and also in the U.S. And that business continue to perform very well in this quarter.
Yes, so I think it would be fair to say that an individual project of the scale of the, sort of, 5% per quarter, we've had in the first 2 quarters.
In this particular area of business, it is likely to be very rare.
Having said that, I would say, we have a number of projects in this area that are quite large, not large enough to be singled out, but quite large.
And the number of projects we have in this area is definitely being growing fairly rapidly over the last couple of years.
So we believe this area of, sort of, human factors assessments is on, sort of, product development type projects is very much kind of a growing business for us.
It is something where we feel we have a pretty strong competitive advantage in this area.
There aren't really many other firms that are even in this area.
And I think that we see this is something that's going to continue to grow.
Whether ---+ when this project ends, we'll be able to completely offset those revenues immediately by other projects in the space is not clear.
But certainly, we'll be offsetting a significant portion of the large project with other projects at the time that this ---+ we believe at the time that this project comes to an end.
Gosh, yes, yes.
I mean, 10% overall.
Yes, probably 10% of that.
Yes, I don't think it's even at that number.
Yes, it's probably about that number.
Yes, it's really sort of maybe a high single-digit percentage of our business to 10%, somewhere around there at this point in time.
Yes, 774.
We definitely, I mean, last year in the third quarter, we did see revenues a little bit stronger than we had seen in the second quarter.
We normally see our utilization step down, as I mentioned in my comments, from the second to third quarter.
But last year, actually utilization was up 1% going from the second to third quarter.
So that was unusual to see that step up in utilization, obviously off of a lower base in the second quarter last year, where we are disappointed.
In the fourth quarter, definitely had an even stronger utilization relative there, it had 68%, but considering the amount of holidays and vacations in the fourth quarter, that's a high utilization for the fourth quarter.
So I think it is a more challenging comparison in the fourth quarter than the third.
But it wouldn't ---+ it wasn't that last year's third quarter was necessarily sort of low.
We haven't seen a material difference in the mix.
I mean, as we mentioned 2 of the growing areas for us are these human factors assessments, which are proactive in nature.
And then the other area that we called out, in particular, was our work in the large capital project disputes, and that area is entirely reactive.
So we are seeing growth in both areas as we move forward.
I think that it will ---+ we think it will decrease as we are going ---+ even going through the third quarter.
And we would expect that, at least at this point in time, we would expect that it will be at a lower level as we ---+ lower level or be completely out.
We think there will be some more, but there isn't any commitment at this time into the fourth quarter.
But we do, based on where it is in the product life cycle, we would expect that it would ---+ that it would begin to tail off in the third quarter.
So I'd like to think that it had an impact already.
We feel like we had a very successful meeting.
And I ---+ just to kind of recap a little bit, organizationally we've tended to organize around disciplines.
Our practices are largely organized around disciplines.
It follows a little bit of sort of a ---+ the university sort of department model a little bit, just so you got like minds in different areas.
But as we kind of go-to-market more and more, it's really focused around industries.
And I think those who have listened to our calls over the years will definitely have noticed a gradual shift where we talk more and more about industries.
And I think that's because of our sort of expansion largely, in many cases in the proactive area, where an industry approach to marketing is just more important.
There can also be approaches to marketing on things that aren't proactive, I mean, we had a very focused marketing activity around developing international capital project work of those capital disputes and that was certainly extremely successful.
We believe that we're not done in the gradual move toward a much more focused strategy around industries.
We do think that the kinds of projects that we're talking about in this case.
I'm not going to give full credit to our managers meeting for this project, we've obviously started before them.
But clearly our focus around industries is giving us more lead streams into the proactive business.
So we do think that we're on the right track there and we intend to continue to focus more on that.
Well, there are a number of regulatory processes that sort of require the step through the different years.
So for example, REACH just as an example, they have a deadline, which may seem like pretty far away in 2018.
But the reality is that there is so many applications that have to get in for that time period.
That now is kind of on people's doorstep.
But also in the pesticide area, there are continual challenges in Europe in terms of addressing their regulatory environment.
So I think that we are very well known in that business and we're kind of the go-to folks.
And I ---+ it just continues to be a very strong business for us.
So I don't think there's has been, what I'll say, a dramatic shift.
It's not like there was, from new European administration that sort of drove things in a different direction.
But this is consistent with our overall view of the world, which is that safety, health and the environment are things that are going to continue to get more focus on, and the result of that, is that pesticide as an example, are going to continue to have to go under a lot of regulatory scrutiny and a huge portion of what is done in our food safety and chemical regulation practice is around pesticides.
Yes, so I think one of the things that's a little bit newer is, if you think of all of the more technology-orientated companies that are entering into the automotive marketplace.
We have got very strong relationships, as we have reported on over time, with most of the major automotive manufacturers, not just the U.S. ones, but the Japanese ones, the Korean ones, the European ones and so forth.
And more traditional work we've done around recall work, around accident work and so forth.
What's happening with the new technologies that are coming in, is there are obviously lots of issues with batteries ---+ with lithium-ion battery issues.
There are also issues with the new ---+ with all the new technologies that are coming together to ultimately lead to fully autonomous vehicles.
And those ---+ so with those, you're getting a ---+ sort of an influx of what we see as sort of mostly may be more proactive work coming in that vein.
We do think that will also will, as those technologies get in place, there will necessarily be reactive work that flows out of that as well.
But what we're seeing that's exciting for us, I think, is the opportunity to get to work with more and more of the new ---+ more technology-orientated companies that are trying to enter the or are entering the automotive space.
| 2017_EXPO |
2015 | LABL | LABL
#I think we didn't expect the rundown to be as quick as it has been.
We certainly expected to lose the $20 million worth of business, but probably at a slower rate than it's going to happen at now.
So yes, it's a little bit more of a drag than we expected it to be for Q2.
Certainly, if you look at our wine business in Europe, we saw ---+ we always see a weak August because everybody is on holiday, and it was particularly weak this year, so we would expect to have a stronger Q3 now with a stronger mix of European wine and spirit business.
And that's typically our busier quarter for them with more of that type of business in our mix overall, we should see some rebound there.
I think in North America in general, it has still been softer than we would've expected, generally speaking, and we continue to see that softness in October in North America.
I don't think either of us particularly focus on the food and beverage market in North America.
However, we have had some legacy business there and that's what we have chosen to shed and that's the most impactful on our growth rate is that couple of percent drag in volume terms.
And the other second most impactful item is key customer contract renewals, which are generally positive for us but initially carry some price downside.
Yes.
We see that, from Q3, that we are investing a lot more in our internal audit process and this year will be a combination of internal resources and some external resources and going forward more internal.
And so that will have a 0.5% type of impact on our SG&A going forward.
I think just the increase in the compliance environment.
What past audit three years ago, some of those things doesn't pass audit today.
The compliance hurdles are higher and we want to be a gold standard in that regard, but we never had any issues at all, but we are to make sure there are no issues, we are increasing our activities in that area and our resources in that area.
Sure.
Our target range is the low 3's% and we were in the low 3's%.
We basically have a very hard stop in, as you know, at 4%, and we are comfortable in the 3's%.
And we do leverage up from time to time into the high 3's% for an acquisition, and then use our cash flow, our strong cash flow, to deliver very quickly.
The good thing is that that $100 million or so of smaller acquisitions in aggregate revenue terms is basically self-funding these days in terms of the free cash flow we generate plus the free cash flow the comes from those acquisition earnings.
It doesn't knock our leverage around much at all.
So we can certainly do that each and every year with minimal effect.
And then if we are able to add medium-sized acquisitions every second or third year, we can do that and still keep our leverage under our consistent 4% ceiling.
Yes, it is because it is virgin territory for us.
It's not so much about what the GDP growth rate is in those markets.
We have $50 million worth of business in Asia, which is a $10 billion, $12 billion market for us.
So it's really about us taking share, and taking share with our customers holding our hand and encouraging us and supporting us when we have the footprint.
And we've seen that consistently, as we've created a new footprint, that we have been rewarded by our global customers supporting us as well as growing with the local market.
So even though GDP growth rates might be slowing, they're still better than developed markets, and our customers are saying to us they want us in developing markets, because they want the same solutions packages they get from us in developed markets.
So yes, we will continue to do that.
Obviously, we will continue to do it at a measured rate.
The constraint, again, is going to be how well and quickly we can integrate rather than opportunities to do deals.
Plus the strength of the US dollar, it doesn't hurt in terms of timing of acquisitions in most parts of the world at this point either.
There are a number of what we would consider very large deals, $0.25 billion in revenues and up.
And they would test our ceiling, but we could do those deals, if we chose to, using some equity.
When we look at those deals vis-a-vis the medium and smaller deals, the most impactful thing is the multiple and the second most impactful thing is the synergies.
And we see those larger deals go with a larger multiple.
So whilst they can be immediately accretive and, hopefully, we can continue to get some more out of them, they are less accretive pound for pound than the smaller or medium-size deals, and there's probably less opportunity because they are more professionally run to get synergies and improvement as there is with smaller to medium-size businesses.
So yes, they are possibilities for us, but at this point in time, they are probably less attractive than a continuation of a combination of smaller deals and from time to time a medium-size deal.
Yes, the large deals are not one plant.
The large deals may still be 20 small plants, so you still have 20 times the work as you would do if you were buying 20 small businesses.
So you don't get less work on the larger deals.
You have the same amount of work to do but you have it probably in a more condensed time frame.
So the risk is, if anything, I think higher.
It's a good question.
I think that if we take, say, something that is used broadly across our space, EBITDA, we are at 18% EBITDA, more or less, and I think 20% is achievable and sustainable if you're in the right segments, and you've got the right mix and you do the work correctly.
So we think we know how to do the work correctly.
Our mix is slowly but surely changing, and the mix is heading towards higher growth, higher margin segments.
And with that mix change over time and with continual improvement in our existing book of business, there are some underperforming plants, particularly the ones we haven't owned for so long.
We believe that it's important for us to continue to challenge ourselves to get from 18% to 20% EBITDA, and that is something that is doable and sustainable in our space.
Acquisition costs are very dependent on the acquisition itself.
And last one we did in Southeast Asia was acquiring a publicly listed company that was listed on the Malaysian Stock Exchange, and that was, if you like, unusually high in terms of costs.
And so normally they're not at that run rate and likewise the French business also just having a French laws and so many different plants, that was a little bit higher than its typical batting average.
So it's always dependent on the acquisition, but if they are acquisitions that are not publicly listed and not terribly complex, I might expect them to be more in line with what we've experienced in the past, which is typically a couple of hundred thousand dollars per acquisition and not circa $2 million for a handful.
I think that, overall, for us, we still have the same view that we've put forward, and that's we can still expect to see double-digit core EPS growth in fiscal 2016, and still target $4.00 for fiscal 2017, as we previously stated.
Our Q3 is typically a bit weaker than the other three quarters, so to the extent to which we can get the same in H2 as we got an H1 is a bit more challenging for us given the Q3 being softer.
Having said that, we do expect a stronger Q3 than usual with the change in mix, particularly in more European businesses that have a busy quarter at that time of the year leading into <UNK>tmas.
So overall, we are happy to say that we would still expect double-digit core EPS growth for fiscal 2016 and we are still targeting $4.00 fiscal 2017 for EPS.
It was a little heavier, but we've got a longer period of time.
So three of our top 10 very key customers for us, we are delighted to have renewed those and in one case for four years, and in others for two to three years, so very positive overall.
And certainly we will be positive over that period of time.
But it's not unusual for us to have a lag and take a hit for a quarter or two on the price side before the extra volume starts to come through, and we expect that to be the case this time.
And the price discount has been a little heavier than usual.
We are done.
Obviously, you have to fight for business all the time, but in terms of electing to exit specifically decent portions of low margin business, we are done once we are through this $20 million that's moving out this fiscal year.
I do.
And when I said working capital for us, it was more accruals than payables that was the mover and shaker so to speak.
And our inventory and debtors are impacted by acquisitions.
So when you look at the ---+ and FX, of course.
So when you look at those movements, and the Q will be filed today, so that information is out there.
In terms of the Greensboro, North Carolina plant.
We do.
Yes, we do.
We do.
We took a non-cash charge this quarter, but we do have some severance and relocation costs that will be coming in Q3, and that I think is circa $1 million.
I think, for the foreseeable future, unfortunately, yes.
Future acquisitions may help dilute that somewhat, but I think it's fair to say that we expect to be a higher rate on an ongoing basis.
Yes.
I think instead of being in the 8% range, it is going to be in 8.5% to 9% range.
Annualized.
For fiscal year, yes.
Annual revenues for this fiscal year, $75 million.
$75 million, yes, out of an average annual target of $100 million in terms of aggregates.
Our tax has been offset by FX in the first half of the year, and we expect the FX to sort of dial down in Q4 and then hopefully be gone in terms of a meaningful impact.
But over the course of the year, second half of the year, tax will be a net plus vis-a-vis FX, but not significantly so, so we will need to see improvement in earnings as well and that's what we are expecting.
Thank you very much for your time this morning.
We are certainly continuing to be focused on the rest of the fiscal year and then in fiscal 2017.
And there are still certainly significant opportunities for us, both on the acquisition front and in terms of improving our current book of business.
We are very keen to make sure that we try and do both each year rather than have years as in the past five years where we have done a good job of one but not the other, and then they have ultimated.
So we're adding resources to try and do more faster in both those areas, and we are excited about working on that in the time ahead.
So thank you for your time this morning.
| 2015_LABL |
2017 | PJC | PJC
#Good morning.
We are off to a strong start in 2017, driven by the ongoing momentum in our advisory business, which began the year with our second highest quarter ever.
Healthier equity capital markets plus our relatively strong results in fixed income brokerage both helped to kick off the year on a very positive note.
Let me provide some more color on the markets and our performance, then I will turn the call over to Deb to discuss our financial results in greater detail.
Advisory markets remain constructive, and we continued to outperform the market with record first quarter advisory revenues, while the pace of deal activity in the U.<UNK> slowed compared to the prior year and sequential quarters.
Contributions from our industry groups essentially tracked the market as we were led by the energy team followed by healthcare and consumer teams.
Our expansion into the energy sector last year through the acquisition of Simmons continues to generate good returns.
The combination of a talented team of bankers, relatively stable market conditions, our broader product suite resulted in the energy team registering another strong quarter.
While we have enjoyed steady gains in the advisory business, we recognize that results can be lumpy depending on the timing of deals closing.
However, we believe that the combination of high confidence levels expressed by CEOs and small business owners, economic stability and relatively available capital will result in conditions continuing to be constructive for the business.
Our equity capital raising results improved significantly both sequentially and year-over-year.
The year-over-year rebound has been dramatic, coming off a trough in the market cycle in Q1 of 2016.
We continue to experience steady improvements in capital raising.
And while we achieved a dramatic improvement in results year-over-year, on a sequential basis, our performance was in line with the markets in which we compete.
If the current economic outlook remains in place, we would expect relatively conducive conditions for steady capital raising throughout the year.
As anticipated, debt capital raising, consistent largely of our public finance business, saw a decline in Q1 from the record fourth quarter.
There are a number of factors which impacted the markets.
With significantly higher interest rates since last summer, refunding activity is off and uncertainty regarding tax reform is putting a damper on the markets.
Finally, there is some element of seasonality since Q1 is traditionally the slowest period of activity for the market.
While we were down sequentially, we were flat versus a year ago compared to markets that were 11% lower.
We are pleased with the gain in market share, and while we would expect our results to improve throughout the year, we believe overall issuance in the market maybe down 10% to 15% from last year's record level.
Moving over to our brokerage activities.
Equity trading volumes remain challenging.
Market wide, average daily trading volumes were down 3% sequentially and 20% year-over-year, while our revenues were down 20% sequentially and up 2% year-over-year.
We are also seeing the shift to passive investing adversely impacting this business.
Low interest rates, slow but steady economic growth and historically low market volatility combined to favor passive investing.
Our client base of active managers and hedge funds have found it challenging to attract investment dollars and thus have less cash to deploy into the market.
Perhaps the most significant factor is the lack of volatility.
In Q4, the postelection period triggered considerable volatility and market activity which was reflected in our results, which were over 20% higher than in Q1.
The addition of energy and FIG sectors into our coverage universe kept us flat year-over-year against markets that declined but at a cost.
We remain vigilant to the challenging conditions in this business and are managing our costs prudently to maintain a margin in the business.
In fixed income, we produced strong results that were up meaningfully both sequentially and year-over-year on the strength of our risk management and trading capabilities.
Our long-standing expertise in municipals enabled us to effectively navigate the volatility in the markets and generate trading profits.
Overall, flow activity remained constrained during the quarter.
Customers sat on the sidelines due to uncertainties arising from the potential impacts of future tax policies, interest rate direction and economic growth.
We expect customer flows to remain light until there is more visibility into some of these factors.
Finally, our Asset Management business, which has been buffeted from the same impacts of passive versus active investing, stabilized somewhat.
Performance in most of our key products improved during the quarter, led by our small-cap growth strategy.
MLPs, our largest product group, gave back a little performance during the quarter after a strong outperformance in 2016.
Total AUM for the quarter was flat as net outflows of 2% were slightly offset by market appreciation.
During the quarter, we continued to make progress in our strategy of adding new investment teams and products to our platform.
The global team that joined us at the end of 2016 attracted about $250 million in new assets late in the quarter.
We expect additional assets will flow into the products throughout the year.
Now I will turn it over to Deb to discuss our financial results.
Thanks, <UNK>.
My remarks will be addressing our adjusted financial results.
We reported adjusted net revenue of almost $197 million for the quarter, down 10% sequentially and up about 30% year-over-year.
Last year's first quarter did not include meaningful contribution from Simmons, but excluding Simmons, revenue would still have increased year-over-year.
Our business mix while still weighted toward advisory, was much more balanced during the quarter compared to a year ago.
Overall, it's been our strategy to weight our business mix more toward advisory, public finance and asset management and these areas represented over 62% of our revenue for the quarter.
As <UNK> reviewed in his comments, advisory put up a strong quarter.
Capital raising was up in equity and also in public finance.
Equity brokerage was weaker and fixed income brokerage stronger.
It should be noted that we continue to manage our fixed income business with less capital.
Market conditions in Asset Management remain challenging.
Our strategy for this business is to manage costs carefully and reorient our product mix to those strategies that can be scaled and will generate higher margins over time.
Overall, we produced an operating margin of 16% for the quarter, which improved significantly compared to 10.6% in the first quarter of 2016.
A much more balanced business mix and increased revenue in this quarter drove a 200 basis point improvement in the comp ratio.
An operating leverage on noncompensation expenses from the incremental scale in the business produced 340 basis points of improvement.
The comp ratio for the quarter was a little over 64%, this is slightly over our target range and reflects both revenue mix and ongoing investments in the business.
We believe that the trade-offs between an elevated comp ratio and investing for growth favors growth at this point as we continue to gain significant operating leverage at higher revenue levels.
And this can be seen in our noncomp ratio, which again was sub-20% for the quarter.
We managed costs carefully throughout the quarter to keep overall noncomps at the low end of our $38 million to $40 million range.
For the quarter, we repurchased $19.8 million or 248,000 shares of our common stock.
This more than offset the dilution arising from restricted stock issued to employees as a part of their 2016 compensation.
I will finish my comments by addressing the tax line, which as you can see reflected a very low tax rate.
This is the result of new accounting guidance which was effective in 2017.
The new rules require us to recognize that income tax effects of stock-based compensation awards in the income statement win the awards vest.
If the stock vests at values greater than the grant price, it results in a benefit to income taxes due to the incremental tax deduction.
When stock awards vest at less than the grant price, it results in additional income tax expense.
Prior accounting rules required the tax benefits or deficits to be recorded within additional paid in capital.
Our first quarter 2017 results included $7 million tax benefit related to restricted stock vesting at values greater than the grant price.
Excluding the impact of the tax benefit, earnings per diluted common share would be $0.86 on a U.<UNK> GAAP basis and $1.32 on a non-GAAP basis.
We would expect the impact of this rule will be most pronounced in Q1 of each year.
I will now turn the call back to <UNK>.
Operator, we will now open up the call for questions.
Thank you, operator.
Thank you all for joining us today.
Have a good day.
| 2017_PJC |
2016 | UMPQ | UMPQ
#Excellent.
Thank you, <UNK>.
Hey, it's Cort.
There is a little bit of seasonality in the third quarter, July and August.
But really, it's pretty minimal.
You bet, thanks.
Okay, thanks, Sarah.
And thank you all for your interest in Umpqua Holdings, and your attendance on the call today.
This will conclude the call.
Good-bye.
| 2016_UMPQ |
2016 | GIII | GIII
#Thank you.
<UNK>, it's too early for us to do that.
We've been on sale for parts of the year.
We haven't decided not to size that just yet.
That's an excellent point, <UNK>.
We have done some of that.
We've exited some of the smaller businesses that are space intensive, people intensive, and, really, at the level that we're at and the sights that we've set for ourselves don't rationalize in our business any longer.
There have probably been a half a dozen of those that have been eliminated, things like Sean <UNK> and Jones New York, to a major degree, Nine West, the dress business at Andrew Marc.
There are a lot of elements that make up the portfolio of brands and businesses within G-III and we've exited them.
We're under review with several other pieces of business, some that are mildly profitable and some that contribute to the reduction of our corporate overhead, and some that don't will go away.
I'm not aggressive on opening new stores.
Currently we're committed to several leases for this year.
For Wilsons we have five new stores opening this year whereas last year we had about 15.
So we've tempered the growth until we figure out what the consumer is all about.
We're a little confused.
We don't know if there's long-term instability on outlet centers such as Orlando, Las Vegas, Woodbury Commons, Sawgrass.
These are premium centers for us, premium in the sense that they provide the biggest share of our revenue.
And as I said earlier the traffic is down dramatically.
When you're down in your top stores, it's very hard to redeem it in your local centers.
So we're reviewing what we do with retail.
We have three different models.
They all have different dynamics.
We're finding some wonderful opportunities in Vilebrequin.
We just opened three new locations in Germany.
Those locations weren't available to us in the past.
The locations of Vilebrequin are very small.
The CapEx in these locations is very small, as well.
And they fit into the long-term plan of the business.
We have an unblemished brand that's careful on how we open stores and we will continue to open those.
We flipped a little bit.
Two years ago the strategy was to open more American stores and less European stores.
Today, we flipped it.
Europe is doing better than the states and we have opportunities that we never had in stores.
The third model is the Bass model and that's a little interesting.
I encourage you to walk into a Bass today.
If you were in a Bass store a year ago you'd see a dramatic difference in how the product is presented, the quality of the product, the promotions that are being run throughout the store.
And I will tell you that we're opening an outlet store in Manchester, Vermont and another one, a refit, in Woodbury Commons in late April.
The Woodbury Commons will show you what the future of Bass might look like.
The store's a little bit smaller.
It will be much more intensive on the footwear side of the business.
And we believe that we have a gem in our hands that just needs a little bit more love before it gives us the earnings stream that we think is still attainable.
You're welcome.
Thank you for your question.
What I'm referring to is the full year going forward and the order book really is soft at this point relative to where we've been in the past.
And I think that's retailers really also still trying to figure out and adjust to what their formal plans will be for outerwear next year.
We're generally around 50% complete for the year in total, all categories.
And we're slightly below where we were last year.
No, it's too early to do that math, I think, <UNK>.
We're still anticipating lots of orders to come in on both categories.
So we're not anticipating any future degradation to that book.
We're not seeing it yet.
We are really still experiencing unseasonable weather and actively promoting to move goods where that makes sense.
What gives us confidence at this point is that we really think that this is a very unusual weather pattern that we experienced for this past year.
If you look at the previous few years of Wilson's performance, the performances was much better and we don't see anything fundamentally wrong with our box and our model of what's going on at Wilsons.
We think that in terms of bounce back, we think we will get a bounce back on weather.
In terms of tourism, not sure that, that bounces back quite as quickly or as robustly.
<UNK>, in a follow-up to <UNK>'s answer on our order book, when you have elements of our business that are bought, they're not seasonal, there are multiple buys.
As we build a dress business that delivers many times a year, as we build a sportswear business that delivers many times a year, as we build a footwear business, those orders come in by collection versus the coat business where your orders are in early.
There's an element that you can refer to that includes just the coat business.
But what we've just done is we've put online Tommy Hilfiger, we've put online Karl Lagerfeld, we have Bass sportswear.
All these orders are not in.
They're not in early.
They're bought relative to a collection.
So the anticipation is that relative to our plan, the percentage of our order book would be less.
That's the rationale.
Thank you, operator.
Thank you for joining us this morning.
And hopefully we have results that are more appealing for our next earnings release.
Thank you for staying with us and have a good morning.
| 2016_GIII |
2016 | LFUS | LFUS
#I would say at this point it's not substantially different right now.
I would ---+ I'd kind of keep the margins the same for the business.
As we continue to work through things, if that changes, we'll let you know.
Hut I think of it as even right now.
You know, from where we sit today, I would say there's probably ---+ we talked about this a little bit ---+ there's going to be a little bit of a gap, I would say, in the back-half of the year.
We've had revenue pull in more in the first quarter.
We expect it to stabilize a little bit in the second quarter.
And then that revenue that came in, we'll probably see a lower growth rate in the back-half of the year, as new design wins start to take off later in the year and into 2017.
So, on the first part of your question, yes, I would say Q2 is ---+ I would think of Q2 as the low point as we expect it to be accretive ex-amortization in the second-half.
I think give us a little time on 2017.
I think it's a couple of issues.
I'd say one it's ---+ we really have to figure out what the amortization expense is going to be.
We are still four weeks, six weeks into the close.
We are in the early stages of what I call the purchase accounting, to figure out what the amortization expense is going to look like.
We've been estimating about $0.50 for the year.
I don't know what that's going to look like, so it's hard to tell you where we are going to hit that rate with amortization expense right now.
Sure.
We ---+ so I'd say maybe a couple things.
One is, we had talked about using, for the purchase, about half ---+ half of the purchase is going to be funded with offshore cash; half with debt, which is generally where we ended up on that.
If the question is really, hey, your Q1 interest expense looks high, because we put the new credit facility in place, we had some fees related to the old facility that we had to amortize.
And so that impacted the Q1 interest expense.
Yes, I think that's pretty good.
Thank you.
Oh, the vast majority, probably more than 80%, I would say is the resettable fuse technology that's really been there.
Their core technology, and while they've got some other products around it, that's what we're really talking about when we are talking about particularly the battery protection and the automotive protection.
I think we are still in the early days of really trying to evaluate that.
We've only had a few weeks of owning the business and really being able to talk to customers and talk to distribution channels.
I think we are pretty comfortable saying it's sort of in the ---+ at the moment that it's in the 40s' per quarter, sort of the 160's that <UNK> mentioned.
And we think we are going to take most of this correction in the second quarter.
From a topline perspective overall.
I mean you know, our guess is in the $5 million to $10 million, maybe a little closer to the $10 million range this year.
Yes, I think the few big pieces that we had talked about ---+ so as you mentioned, the reed switch transfer, moving the production to the Philippines, so that's in process.
It's on track.
We'll start to see some of the benefits here in the second quarter, but definitely the back-half of the year.
So that's still assumed for our forecast, and we are expecting that to come through.
We had talked about between that.
And I think the other one that you were referring to the ---+ in the Industrial segment, this manufacturing transfer related to our relay business, that one we did complete.
We started up production in our existing facility.
And that's one we've had just the manufacturing efficiencies with the startup process.
So, I'd say look for the benefits on that really also starting in the back-half of the year.
Between those two, it's been about $6.5 million.
So ---+ go ahead.
Yes.
You know what.
Let me ---+ I just don't have it at my fingertips.
Let me come back to you on depreciation.
But I would say with SG&A, just keep in mind with the Q2, as we talked about, there's a little bit of a hiccup in the run rate in there.
We've got an extra $2 million coming through in the second quarter relating to the stock compensation expense.
So that's, as you are looking at a Q1 or Q2 run rate, I believe Q2 ex that is a good run rate for the rest of the year.
Yes.
So we've been looking at the pieces.
It's a little choppy, honestly, which is why we've tried to bifurcate the two.
Because with PolySwitch, as we talked about, when we are exiting the transition service agreements, we've got to build up our expense infrastructure first to take on all the back office work.
And at the same time, we are still paying for the transition service agreements, which we'll start exiting.
So we've been looking at it separately, and we don't really have what I would call a run rate at this point on the PolySwitch business on expenses.
I think it will be 2017 before we get into what I would consider more a normalized run rate.
Thank you for joining us on today's call.
2016 is off to a very good start.
And while we did not perform up to our expectations in a few areas, as many of you know, we have a solid track record of improving performance and achieving operational excellence.
We are addressing the issues in these areas, and we look forward to updating you on the progress next quarter.
Have a good day.
Thank you.
| 2016_LFUS |
2017 | WING | WING
#Can you hi <UNK> can you clarify your comment on slower unit growth.
I think we always ---+ when we start the year, we did this as well last year and in prior years tried to establish what we think is the appropriate range of outcomes for the year as it relates to the development pipeline.
So I would guide you towards the 13% to 15% range as being consistent with what our pace and pattern have been.
On a percentage basis that might be lower, but then the base of restaurants has grown by 18% last year.
And as we noted we've eclipsed 1000 restaurants, so the pace of development remains consistent and that's both US and International currently.
But as we've also noted the pipeline is strong, with pretty much the same number of restaurants in the pipeline at the end of the year that we started the year with.
So we are replenishing it well and replenishing it more so with existing franchisees than with net new franchisees.
So we are very pleased and proud of that, and I think there's nothing other than making sure that we reinforce our long-term guidance that at the pace of growth that we are experiencing today, we'll be able to achieve the profit levels that we've guided to the long-term as well.
Neither of those have been areas that have been of any concern to us.
Our restaurant cost has been fairly consistent since for a number of years now and we don't expect that to change much at all.
The access to real estate remains quite strong.
We don't have a challenge because we are not always looking in the same markets that a lot of the other companies that you may speak with are accessing.
So we're in the urban core markets, looking for those as we talked about before, kind of B and C sites in the centers.
And we're not fighting for the same real estate so it still is plentiful for us.
You're welcome
Yes, I think the only thing that holds us back at the end of the day has been the idea of product quality and making sure that our guests who have been historically very comfortable taking the product with them, and certainly that drives great unit economics and great value, is maintained.
I did see the article about the tests.
We hand-cut our potatoes in our restaurants every single day to make our fresh-cut seasoned fries, and so we want to be very diligent about who controls that product.
And not every delivery company ---+ third-party delivery company allows for such control.
So that's been, if you will, our stubbornness.
We do know that in certain markets our guests look for that.
We know that as we move into the upper Midwest and the Northeast it's going to be a stronger demand.
And so we understand the market, but I think step one for us is let's make sure we can stand behind the product, ensure the same kind of experience that the Wingstop consumer is used to, and then from there make our decisions about how we would if we would and how we would implement that into the business.
Yes, I think the pace is relative.
We have just under 300 franchisees in our system.
I think what's most important is to partner with the right group of franchisees and markets where we are developing new restaurants, which we do every day.
I don't know that it will materially accelerate the number of new franchisees but it certainly will make ---+ we will make sure to bring on high-quality franchisees that are well-capitalized, that are experienced developers, that can develop the brand very quickly.
So I just want to call that little nuance, but certainly that's our goal and objective is to do that.
Yes, last week, if you consider full weeks for us, was positive.
This week to date is also positive so far.
That is momentum and improving, and we align it with two key factors, the tax refunds coming through and our third week of national advertising.
As awareness builds, which we expected it to do very quickly, that awareness is translated into much-improved performance.
Not a lot.
I don't think I'd cite any one specific geography that was substantially different than the others.
If anything, maybe the upper Midwest was an area where we saw some impact, but aside from that, I think the rest of the markets were fairly consistent.
One market might be Texas, did come below the system average during that time frame, but again I think I'd reinforce that all markets are working their way back over the last ---+ in the momentum we just talked about over the last couple of weeks.
I think we had two things impacting the wings.
One the chicken itself was rather large during this time frame in the fourth quarter in particular, and I think you may have heard that from other brands.
I believe one other brand noted desiring to reduce the size of even chicken breasts.
So chickens got bigger and also the price was high.
As Mike noted, since the peak on pricing on wings over the past few weeks wings have come down as much as 18 since a pound.
So that has a significant impact on the P&L.
And then from a wage inflation perspective, I think a lot of those are factored into some of the price discussion that we have talked about in the past, where we've tried to get ahead of those.
And I think is coming into play now for our franchisees in certain markets where they are seeing the wage inflate.
But then there's more obviously coming in the future.
So I think we hope to see the wings relax a little bit more.
That would be a benefit to the business.
At least follow what is a more normal seasonal pattern, which we did not see in the third and fourth quarter of last year, and then that would help stabilize the P&L if there's any stress there.
Yes, I don't think it's a question of the return, because we're just shifting dollars from franchisees and co-ops to the national fund.
And so it's not like there's a significant incremental spend.
We would still spend the same amount of money it's just being spend more wisely from our standpoint.
So I really don't look at it from that standpoint.
I think it's growing brand awareness, particularly in these newer markets where branded awareness is relatively low while sustaining momentum in our core markets.
That's the way we would look at success.
I don't think we would show an improvement in the Company store margin particularly since we are starting up the year with wings, which is the main driver of movement, outside of the two new stores you mentioned.
The main driver of moving in the market is going to be really what happens with the size and the price per pound of wings.
And so as you guys know there's a bit of volatility on food cost for us that comes from year to year and quarter to quarter.
And that's going to be the main driver what happens with margins at Company stores and franchise stores.
I think obviously made the investments in the back half of the year that we talked about.
And those investments have continued so we'll have a little headwind at the first part of the year, but we are at a steady run right now
Yes.
No, <UNK>, I don't think that's a major driver of what's going on with comps.
We looked at it.
We've got a lot of stores in LA and that was one of the areas that got the least amount of impact actually as we looked at the rainfall.
So that's not something that we would call out specifically as a driver.
Nothing that's material.
At this point in time we don't have any in the pipeline.
I think we brought the new countries on board.
Each of those countries should produce at least a restaurant in the first year.
That's pretty typical of a new deal.
But then the rest would be just run rate from our existing markets and continuing to grow those at a similar pace to what we've seen before.
As these new markets come on board and start to ramp up, then they'll gain momentum in usually their second and third year of operation overall.
Is typically a three-week on, two-week off cadence, something like that throughout the year.
It's been scheduled that way, so there's not a big heavy push for eight weeks and then off for four or five, so it's fairly consistent throughout the year.
Very welcome.
I think it's a great question.
And the answer is I don't think it has any impact at this point whatsoever.
If you think about going from 10% to 1%, keep in mind that over the last five years, our aggregate comp growth during that time is almost 45%.
So what's fueled our growth and will continue to fuel our growth is our exceptional unit economic model.
It still has a three to one sales investment ratio and second year cash on cash returns between 35% and 40%.
And our franchisees value that.
That's why they continue to help replenish the pipeline and continue to grow.
So even in choppy waters temporarily, that's not going to cause them to change their overall perspective on the business as well.
So I really don't see that being a driver of change.
And I think the 13% to 15%, I think you said it well.
Look, we're at the beginning of the year.
We established that pipeline.
We have great momentum.
We carried excellent momentum into Q4.
Q4 did not pull any new restaurants forward out of the pipeline.
It was part of our normal cadence of openings and so we've always expected that the percentage might drop as we get bigger, and opening 153 net new restaurants is the size of some small chains in one year.
So we are very proud of that in think that that's really the key driver of our growth in the long-term.
Yes, we continuously increase our rate by about a point a quarter sequentially, and we've done that for three consecutive years.
This natural evolution is nice in that we don't have to provide an incentive to continue to see the kind of growth that were getting.
The risk of putting incentives in place is that you start to erode the value proposition a little bit, and that might take some margin away, to give something away to get it to grow.
So we like the approach we're taking.
You do see that our International advertising and you'll see it more in our national advertising.
And our hope is that through national advertising, bringing awareness to that channel, and continuing to drive it is going to be the benefit to the Company.
We did say previously that before we had our point-of-sale system rolled out we were a little more hesitant to advertise aggressively, so you can expect that our ads in the future will be much more pointed towards online advertising as a way to drive the business.
I think there's a reasonable chance it's going to be below that in 2017.
The factors that go into forecasting that are unpredictable, which is why we didn't build it in.
It basically has to predict when people exercise stock options and what prices they exercise at.
And that GAAP particularly since we do have a lot of options and money, a gap between the strike and the exercise price will create a tax reduction.
We currently get that on our tax returns, so this is not really an economic benefit.
It's just a presentation.
It used to go through equity on the balance sheet, and now it's just going to run through the tax expense on the P&L.
So it's not really going to provide economic benefit to the Company, so we thought it best to just start with our normalized rate and report back when we report our quarters on what the difference is.
You're welcome.
No closing comments.
I think we are fine.
I know we have a number people that we will chat with this evening, so we appreciate everybody's time for joining the call today thank you.
| 2017_WING |
2015 | MRCY | MRCY
#Yes.
Yes.
So the short answer is it was all driven by a handful of discrete items, the R&D credit being probably the most significant of them.
That remains a possibility, of course.
Every year it comes up, and every year they appear to be willing to reinstitute it.
But of course, you always have to play wait-and-see.
And then sometimes, if it's delayed, it's going to accumulate, and then pop at a certain point.
Apart from that, I don't think that we see large items in terms of the discretes that could pop through.
There's always a chance of something.
But again, we don't have what I'd call the traditional things like overseas tax planning issues and things like that that we can use to ---+ or, for that matter, that revenue balance can change rates on for us and so on.
So again, we plan what I said.
And I think that's where we are for now.
We do have one.
It's, as I said, probably going to be a little lower ---+ I'm sorry, a little bit higher than the low rate that we saw in fiscal 2015.
But again, I don't think we'll go above ---+ into the double digits.
Yes.
So we haven't necessarily talked about the capacity utilization of the facility.
It is beginning to [ramp], however, particularly as we've got more programs in the EW domain that are moving in production.
Couple of key programs that we think about going to be important in EW next year are programs such as SEWIP, Buzzard, and the DEWS program, which is BAE's Digital Electronic Warfare Suite.
However, we do think that we've got a substantial opportunity, potentially acquiring companies and integrating their manufacturing assets, if they have them, into that facility, which will obviously continue to improve the efficiency and the overhead absorption.
So we're pretty excited about the AMC.
I think it's a critical part of our long-term growth strategy.
It clearly differentiates us versus other players in the industry.
And it's going to be an asset that I think, when you look back in time, will be important in terms of supporting the Company's growth.
I think the model is the model until we change it.
If you look at our results for fiscal 2015, <UNK>, we ended up at 19% adjusted EBITDA.
That's kind of in the midpoint of our current model.
Obviously in Q4, with higher revenues and a stronger program mix, we're towards the high end of that range.
But we were extremely pleased with the performance year over year, and the model stands as it is for now.
Thanks.
Sure.
So it was slightly above where we thought we were going to come in, at a quarterly level.
I think as we said somewhat consistently throughout the year ---+ that bookings are lumpy and that we did expect it to kind of normalize.
Our book-to-bill ratio for fiscal 2014 in total was 1.14.
So it was slightly ahead of what we thought, but not too much.
If you look at the ---+ sorry, fiscal 2015, I apologize.
If you look at the major programs that drove the bookings in Q4, Aegis was obviously an extremely strong program.
We did close to or slightly over $14.5 million of bookings.
We had another really strong quarter for Patriot that was associated with Korea, some spares; as well as ongoing business for the US Army.
We had strength in Buzzard, the Filthy Buzzard program in Mercury Defense Systems, which is beginning to ramp and will be an important driver of growth in that business.
And we also saw some strength in the P8 business, where we're providing some of the radar processing.
So we hired a number of really important programs that we were pleased to deliver some great numbers.
I don't think we typically break down our backlog by program, Mike.
As I mentioned, for fiscal 2016, we anticipate our top revenue programs to be SEWIP, Aegis, Patriot, Filthy Buzzard, Reaper, as well as the F-35.
And we're also expecting some growth next year on DEWS, which I mentioned; P8, and maybe Triton.
So we've got a broader mix of programs heading into fiscal 2016 that will drive some of the growth in the business.
I don't think we'll forecast it.
But as I said, CapEx is going to be relatively contained.
It's not a capital-intensive business.
2015 was probably just slightly light.
Even at the increase at 50%, you're still only hovering around $10 million.
So not too significant an offset there.
And that's probably where I'll leave it.
Thank you.
So during the quarter, we did do a small restructuring.
It was around about $700,000.
It was a few handfuls of people.
It was more related to the ongoing efficiencies that we've identified in terms of liening out the engineering and the manufacturing operations.
The benefits associated with that are baked into our guidance for fiscal 2016.
Welcome.
Okay.
Well, we'd like to thank you for your interest in Mercury, and we look forward to speaking to you again next quarter.
Thank you.
| 2015_MRCY |
2016 | AKS | AKS
#On the auto inventories, they are currently I think sitting ---+ light vehicles are sitting at around 66 days.
So they are up a little bit from last month or the prior quarter but not too concerned there.
The biggest demand has been on the trucks, light trucks, which has increased quite a bit for their share of the market.
I think they are looking close to 60% of the market now.
So our platforms we're on we feel pretty good about.
There are two products that are affected by it, so to remind you.
One is on a carbon side, which really is more driven by what platforms the other one.
The other is auto exhaust.
We are a major player in the auto exhaust system so whichever vehicles are selling well.
There is a couple of small vehicle platforms that are not selling as well.
That is all factored into our forecast.
But as <UNK> said, the trucks and SUVs are performing very well, and we have a good share on those vehicles.
As for Ashland, it's same thing we have talked about in the past, which is its sustained profitability that we are going to be looking for and trying to understand market conditions, pricing, hot band pricing, import levels, demand, pricing of raw materials; all of those will be factors that will be included in our analysis.
While it has improved from where it was when we made the decision to idle it, it has not changed materially enough to have made our decision to start that facility.
We will continue to evaluate that as we move forward.
I will comment on the last one first on the carbon business.
Really what is driving it there is the idling of Ashland.
We idled that at the end of last year, and we did had some inventory that carried over into the first half of the year so that inventory moving out
Mostly in the first quarter.
Right, mostly in the first quarter, but also some planned outages that we had.
We had higher planned outages here in the second quarter.
So that is what I would say on the hot rolled and cold rolled, and our focus is on the automotive side, and we have seen very strong demands on the automotive side which has tightened up what our ---+ what we have available to sell into that market.
So that has caused those products to decline.
Yes, and I would say on the stainless market, we have seen some improvement.
The nickel price has gone up a bit and improved that as well as the trade cases you described before.
So we have seen, I'd call it, some general strengthening their.
And as for ferritic, that again as nickel tins up, that drives that some.
But the majority of our ferritic business is really just based on the automotive exhaust, so it trends up with automotive build rates is the main driver there for us.
And we are seeing the decline in service center inventories with the stainless side, too.
They are down to about 2.8 months.
It is going to depend on the market conditions and how the converts are trading.
It is definitely an option as are the other things that we laid out.
It is really just going to depend on market conditions.
The secured debt capacity is very minimal at this point.
The comment I'd give on our capital structure as you have seen what we accomplished here, and <UNK> leading the efforts of our team, in the second quarter we will be very flexible.
And we will be ready to move to market when things make sense.
Our goal is to improve our balance sheet, deleverage it, and lower our interest expense.
That has been one of our key factors, and we will take a very balanced approach to it and very systematic approach to what we do as we move forward in the market.
And we have moved our debt maturities out.
We have no near term debt maturities of any size, so that is very manageable now with this refinancing we completed.
That is really our focus, and really the market conditions will drive the direction we go in the future.
Good morning.
It is a quarter-by-quarter assessment.
It is largely driven by LIFO.
Yes, it was in comparison to the just completed second quarter.
On behalf of the entire AK Steel management team, I would like to thank you for joining us on today's call.
As I indicated on our investor conference call earlier this year, our management team is ultimately measured on our performance.
We accept this, and we remain committed on improving our performance in all areas that we can control.
We are focused on the long-term, and our goal remains simple, add value to our company.
We look forward to providing you an update on our continued progress in October.
Thank you.
| 2016_AKS |
2018 | ORI | ORI
#Thank you.
And to everyone, good morning or good afternoon or good evening, wherever you may be, and thank you for joining us.
For this visit, we've got several of our key executives.
ORI's President, <UNK> <UNK>, he'll cover the General Insurance group portion of the business.
He'll do that in Craig Smiddy's absence from the office; <UNK> <UNK>, our Title business CEO, will go over that segment; and our CFO, <UNK> <UNK>, will comment about the more important elements of our financial picture, as he usually does.
So as we discussed in this morning's release, we're assuming that, first of all, everybody has gone over it or otherwise has access to it on the Internet.
And as in past conference calls, we'll also be referring to some additional statistical information that we include in the financial supplement that we post on the Old Republic website.
So to begin, let me just say that the latest quarter's results were affected by quite a bit of noise, as we like to say.
And all of that noise makes it stand out from the norm.
The noise specific to Old Republic relates primarily to the additional incentive costs and an adjustment of cost assumptions applicable to small life and health business we have.
But the other noise pertains to all of American industry, and I suspect that everyone on the call is familiar with this.
And I'm referring, of course, to the changes in federal income tax rates, which took effect on January 1 of this year.
And like everybody else, we've had to reflect in our fourth quarter and year-end results the impact of those rate changes on the accumulated deferred income tax balances that rest on our balance sheet or rested on our balance sheet before this event.
And those are the deferred income taxes amounts that usually run through our periodic income statements and shareholders' equity insofar as unrealized gains and losses are concerned.
So the combination of these factors, as well as the effect on all of 2017's results of the very sizable litigation costs that we booked in last year's third quarter, has made the year-over-year comparisons relatively unclear.
So it's for these reasons that in the news release we put out this morning, we expanded it by 3 pages, namely pages 2, 3 and 4, to show the impact of these factors on our results for both the last quarter of 2017 and the entire year as a whole.
So if you are willing and able to sift through those 3 pages, we think that you will see the effect of each of these factors on the earnings report, both the net operating earnings as well as net income for both the fourth quarter and the full year.
<UNK> in his discussion will cover all of that or at least the key points relative to those factors, so I won't bother spending much time initially in guiding you through them.
So now, why don't we just go ahead and turn the meeting to you, <UNK>, and let's have a discussion of our General Insurance business, okay.
Okay.
Well, as the release indicates, the General Insurance group reflected year-over-year increases of 7.2% net premiums earned in the fourth quarter.
For all of 2017, the increase came to 5.9% when compared to 2016.
We experienced greater writings for most insurance coverages, especially in commercial auto, where rate increases over the past 2 years or so continue to earn through.
Workers' compensation writings were down slightly for the fourth quarter and were down 2.5% for the year as a whole.
As to workers' compensation, competitive forces are still driving pricing lower in most regards.
Our business retention ratios continue steady on renewal business.
We're writing new business pretty much across the General Insurance group and most notably in our newest underwriting operation, which we started in early 2015, as well as in our trucking, large account risk management and home and auto warranty businesses.
Our various markets remain very competitive.
While top line growth is always an objective of our operations, our focus remains on risk selection and rate adequacy.
We won't forsake the bottom line expectations for top line growth at what we deem to be unreasonably low rate levels.
The General Insurance group's overall composite ratio improved materially in fourth quarter.
Year-to-date, the composite ratio was down 0.5 point compared to last year at 97.3% versus 97.8%.
Last year's hurricane costs turned out to have been a nonevent for us.
At this stage, we think we are progressing in the right direction, and we believe improving results are sustainable.
The group's expense ratio of 26.8% for the fourth quarter was up a bit, contrasted to the same quarter of 2016, due in part to the additional charges registered for incentive awards.
We might note that expense ratios going forward are expected to be in line with the past 10 years' average, which is in line with our long-term expectations for the existing mix of business.
As shown in the financial supplement on the ORI website, the commercial automobile trucking claim ratio was 63.4% this quarter compared to 76.8% last year.
In a similar vein, the ratio for the year-to-date came in at 76.8% this year compared to 79.4% last year.
The liability component of that ratio was down 6 points year-to-date, again, a good trend that we think is sustainable, given the greater strength of our claims reserves.
We also believe that the rate increases we've obtained in the commercial auto coverages will further offset the loss cost trends we've experienced in more recent years.
Our objective is to maintain claims ratios at historically experienced levels in the low to mid-70s.
2017's fourth quarter workers' compensation claim ratio improved to 73.5%.
This is down from 80.4% in the same quarter last year and down from third quarter of 74%.
Year-to-date, it landed at 75.5% compared to 76.1% at year-end 2016.
We're also aiming for this ratio to range between 70% and 75% over time.
Our general liability writings are much less than workers' compensation or commercial auto, and as such, we can experience greater volatility in this ---+ in its underwriting results.
As we've also shown in the financial supplement, our results in the latest quarter reflect a claim ratio of 88.5% compared to 79.5% in the fourth quarter last year.
Year-to-date results reflect a lower claim ratio of 73.1% compared to 77.5% in 2016.
Other than the lower than originally anticipated hurricane-related impacts on our aviation and guaranteed asset protection books, the remaining coverages performed within expectations.
As we have reported on prior occasions, all of the claim ratios we post are inclusive of any favorable or unfavorable claim developments.
Unlike 2016, we experienced small favorable developments in 2017.
We believe that the reserving judgments of recent years should restore greater long-term stability to our claim reserve base.
In summary, operations within the General Insurance group remain focused on underwriting discipline, and we believe our current mix of business can produce a 95% composite ratio over 5- to 10-year cycles, and we believe our results are trending in that direction.
So that's the extent of the comments we wanted to make on this particular group.
We'll answer any questions anyone may have during the Q&A period.
And on that note, I'll turn the discussion over to <UNK> <UNK>, who leads our Title group.
Great.
Thank you, <UNK>.
Once again, I'm pleased to report on the Title group success exclusive of the previously announced charges discussed in the release this morning.
Group came in with a 2017 result that surpassed the all-time record of 2016.
According to the Mortgage Bankers Association, mortgage originations in the fourth quarter are predicted to be about ---+ off by about 12%.
And all of that reduction likely came from refinance transactions, which were down about 36%.
By contrast, purchase transactions were up nearly 13%.
And in spite of these market fluctuations, our operating revenues of $626 million were off only 0.5% from the $629 million that were posted in the final quarter of 2016.
Net of the aforementioned charges of $21.2 million, as discussed this morning in the release, fourth quarter 2017 Title group pretax operating income totaled $64.2 million.
For the full year, records were once again set for total premium and fees of almost $2.3 billion.
That was an increase of 3.6% over 2016; and for pretax operating income of $237.1 million, an increase of 12.8% over 2016.
As pointed out in the release, our claims from the prior year policies continue to develop favorably.
Certainly, there is no guarantee that this trend is going to continue indefinitely, but we're optimistic for the near term.
The hurricanes and fires that affected transactions late in the third quarter were not much of a factor by the end of 2017.
For 2017, agency and direct premiums were up 3.6%, and commercial business was up 4.9%.
National market share hovered around 15% all year, and the final numbers are not yet available for 2017.
We expect to see a slight market share increase over 2016.
So in summary, 2017 was a record-setting year in many ways and, most importantly, in revenues and profits.
We're approaching 2018 with cautious optimism.
Real estate market by most accounts will hold steady on the purchase side of the equation while refinances will continue to decline relative to the total origination market.
While projections for the commercial market are flat, we believe we'll continue to gain market share based on our expertise and an expanding customer base.
In all, we remain optimistic about the near term and the future success of Old Republic's Title business.
Much like <UNK> had mentioned, we'll be happy to answer any questions anyone has during the question-and-answer period.
And with that, I'm going to turn it back over to Al <UNK>.
Okay.
So let me just say a few words about the RFIG run-off business.
As the release shows, the mortgage insurance portion of this segment continues in what we think is a very stable mode now that we have gotten rid of whatever lingering litigation applied to that business, and it's running along the run-off model that we've had since 2011 when the business was first placed in run-off operating mode, as they say.
In planning the ---+ for the future now, the decks are cleared for this business.
We're anticipating a fairly decent housing and mortgage banking market, just as <UNK> noted in his discussion just now of the Title segment.
We very much believe that the business will most likely run off positively until the policies that are currently in force normally drop out of the inventory.
And we think that, that probably takes place by 2022, 2023 or thereabouts.
In the meantime, we're working and thinking about what to do with this business, and we're certain that we'll figure out an appropriate way for arranging the most beneficial long-term outcome for all the key stakeholders in what we consider to be a most valuable and very viable franchise in the mortgage guaranty field.
As to the consumer credit indemnity or the CCI portion of the run-off, as we refer to it, this book also is beginning to perform as we had anticipated, and this is particularly so since the event in the third quarter of last year when we resolved substantially any and all litigation worth anything that had been lingering in that business for almost a decade since the beginning or near the beginning of The Great Recession.
The business is much smaller in terms of its footprint relative to MI, so we do expect a little bit more volatility in it.
But all in all, we think that the business now has been stabilized and should perform without being exposed to any significant litigation costs certainly and, therefore, should not be a cause of adversity of any significance in the overall scheme of things for Old Republic's business.
So RFIG is going to mosey along, and we are going to be able to fairly soon or certainly in the foreseeable future come up with a resolution that favorably affects all the stakeholders of that business.
So let me now turn it to you, <UNK>, and ---+ for your additional comments.
Okay.
Thank you.
As usual, I will address a few of the key elements of Old Republic's financial condition.
And then as Al mentioned earlier, I plan to comment briefly on the new schedules included on Pages 2 through 4 of this morning's news release, which describe the effect of both tax reform as well as previously announced charges on reported results for 2017.
I would say, overall, the makeup and strength of Old Republic's balance sheet remains substantially unchanged at year-end in relationship to both year-end 2016 as well as earlier 2017 periods.
Total investments grew to $13.3 billion at the end of 2017, up a little more than 4% from the prior year-end.
The growth resulted from the investment of positive consolidated operating cash flows, which totaled $453 million for the year, along with further increases in the portfolio's unrealized market appreciation.
That market ---+ our unrealized market appreciation grew to $754 million by the end of 2017, which further increases Old Republic's ending book value per share.
The composition of the portfolio remains relatively consistent with earlier periods of 2017.
The fixed maturity and short-term investments make up approximately 75% of total investments.
The fixed maturity portfolio retains its overall A credit quality rating with an average maturity of slightly in excess of 4 years.
Equity securities make up the remaining 25% of the total portfolio.
On a year-to-date basis, net investment income grew by almost 6%, due primarily to higher investment balances in a relatively flat yield environment.
Consolidated claim reserves continue the trend of favorable development during the final quarter of 2017 and on a full year basis.
This morning's release, along with the financial supplement shown on Pages 4 and 5, disclosed the effect of prior year favorable or unfavorable claim reserve development on the reported claims ratios for the past several periods.
Each of our 3 principal operating segments, and as <UNK> and <UNK> have already mentioned relative to General and Title, along with our RFIG run-off business, all 3 reported favorable claim reserve development for the fourth quarter of the year.
For the full year, the General Insurance group did experience modest unfavorable claims development, and that was largely concentrated in the workers' comp and general liability coverages, while Title and RFIG reported favorable development resulting from the continuation of positive loss development trends that we've been experiencing in recent periods.
Old Republic's book value per share increased for the year to $17.72 or by 3.3% since the prior year ended.
This does take into consideration a special cash dividend of $1 per share declared by the Board of Directors this past December and payable at the end of this month.
2017's total return on book value amounted to 13.6%, and by comparison, the total market return for the year totaled 16.6%.
The main elements of the growth in book value per share are shown on Page 10 of the release as usual.
The lower debt capitalization ratio at the end of 2017 shown in the table on Page 10 is reflective of the $79 million of notes that converted into 5.1 million common shares through year-end.
We continue to see modest amounts of conversion activity in the early part of 2018 and have every expectation that the majority of these notes will convert to common equity prior to the upcoming March 15 maturity date.
So now as mentioned at the outset, I'd like to spend a couple of minutes discussing the new tables included on Pages 2 through 4 of the release.
The objective of Pages 3 and 4 is really to provide a detailed analysis of, one, the effect of previously announced charges on segmented pretax operating income; and two, the effect of revaluing deferred tax assets and liabilities to reflect the lower 21% U.S. federal income tax rate that became effective the first of this year under the tax reform act that was signed into law on December 22 of last year.
The revaluation of deferred tax asset is split into its separate operating and unrealized gain on investment securities components in the schedule that are shown on Pages 3 and 4.
The dollar effect of the revaluation on operating results is shown on line D1 of the schedules.
So for example, the General Insurance group recorded a $70.5 million additional tax charge; RFIG, a $51.1 million tax benefit; and on a consolidated basis, a $41.8 million additional tax charge.
The effects of the charges on operating income per share can be seen on line D2 of both schedules.
The revaluation of deferred taxes on unrealized gains shown on line F4 reflects $104.9 million tax benefit or $0.35 per share.
In total, the full effect of deferred tax revaluation resulted in a $63.1 million tax benefit, which added $0.22 to net income per share for both the fourth quarter and full year period.
The tables on Page 2 summarize information from the tables on Pages 3 and 4 to simply eliminate the effect of deferred tax revaluation and present segmented operating income and consolidated net income, along with corresponding per share amounts on a consistent basis with the 2016 presentation.
And on this basis, we believe the 2017 results compare, on balance, favorably with those of 2016.
A lot to cover, but at this point, that concludes my remarks.
And I'll turn things back to Al.
Okay.
So when we put everything together, we feel very, very good about Old Republic's situation today.
System-wide, our focus on the core underwriting and related services disciplines of our business, all of that remains unchanged.
And as Page 8 of the release shows, the consolidated composite ratio of claims and expenses to premiums and fees of 96.7% for the entire book of business: Title, mortgage guaranty, General Insurance, et cetera.
That ratio is close to our 95% long-term bogey for Old Republic's long-tailed business mix.
And if on top of that we eliminate the $150 million hit to claim costs in the third quarter of last year, which represented mostly costs associated with terminated litigation, the ratio of 96.7% drops to 94%, so again, within that 95% bogey range.
So we think that this is reasonably good in the context of the underwriting and overall economic cycles in which all of our business is and most likely will continue to be operating for the foreseeable future.
For our part, we continue to believe that the North American economy in which we're focused exclusively is likely to remain in a very moderate growth mode for the foreseeable future.
We're guessing that GDP growth will range within 2.5% to 3% or so average configuration, again, for the foreseeable future.
And we think that in that context, that our services in some of the more important industry sectors that we service throughout the Old Republic system should enable us to grow the consolidated business at a faster clip than the economy at large.
And we think we can do this on the strength of the ---+ of very high-quality intellectual talent.
And we think that we can do this on the strength of a very strong balance sheet, which enables us to consistently compete on a level playing field with all comers in our areas of chosen underwriting and related services.
So with all of that, we believe we're in great shape to drive our business to greater success, particularly in light of the fact that we are no longer, by any means, inhibited by the remnants of The Great Recession and its aftermath.
So on this note, we'll turn it to the planned question-and-answer period for this visit.
It's early, Greg.
<UNK>, do you want to take that.
Sure.
Our growth in general, Greg, I would say, in general, as most coverages, with respect to the operations that we have, new business actually makes up the lion's share; to a lesser degree, rate increases and organic growth within the existing customer book.
However, as to the commercial auto liability coverage line, I would attribute the greatest share of that growth demonstrated to rate increases.
Well, in 2018, I think it's reasonable to assume that what we would plan to do is continue to get rate increases as necessary.
As you know, we have specialty underwriting operations.
We not only underwrite them as to the specific industry they serve, but also on an account-by-account basis for the most part.
And I would anticipate that there will still be rate increases within the commercial auto line to follow, and those might be mid-single digits.
At this point in time, as you know, we've been ---+ in our trucking operations, we've been operating on the basis that we're getting rate increases for the last 3 years, smaller rate increases, not necessarily double-digit, but low to mid-single-digit increases in the trucking business.
I would anticipate that would continue.
As to our general liability book, we'd like to get low single digits there as well; and workers' compensation, flat to low single digits to mid-single digits there as well.
I mean, costs continue to go up.
And so that's basically where I think the outlook might be, Greg.
Any other specific questions you might have.
No.
That's very much where we expect to be in that business.
Really, we're looking to hopefully get our expense ratio down to a 23%, 24% range as the business blossoms from a top line standpoint.
But loss ratio-wise, I think the high 60s, 68%, 69%; and up to the 72%, 73% area for the current mix of business is very achievable, we think.
And that's particularly so since as reflected in the periodic reserve, unfavorable reserve developments we've had, that once those ---+ once we're over the hump with respect to those, and I think we are.
I think it was <UNK> that mentioned that in this latest quarter, both <UNK> and <UNK> mentioned that we had very low unfavorable to speak of.
That's going to help drive that loss ratio to those levels.
It kind of changed all year.
So you started off with a little bit heavier percentage of refinance relative to the entire mortgage origination market.
But ---+ and it's tough to say, okay, you got to ---+ you started with a 60-40 and you ended with a 30-70 refinance to purchase money ratio.
But then you got to throw in what was going on in the cash portion of the market.
There's alternative ways of financing properties, so it's difficult to put a number on refinances and what's really going on in the marketplace out there.
More cash transactions, of course, affects the total origination market, so ---+ but overall, when you look at it, I mean, interest rates were up a little bit over the year when you look at the trend.
And so there's just not as much refinance activity because a lot of people have refinanced.
As we get more and more equity and properties, people will refinance cash out for home improvements.
People aren't moving around as much.
Prices of homes are up.
People are settling in.
And so the market kind of changes, but it's very, very steady.
And the purchase market is really a whole lot better for our business, as you can see by the results that are generated by the title company.
Well, as a general commentary, Greg, the rate is going to come down.
To some degree, it's going to be affected by the amount of underwriting and service income we get which, as you know, is taxed at full rates.
So to the extent that, that improves, more of our tax number is going to be driven by the 21% rate.
To counter that, though, a lot is happening with respect to our investments and where they get directed.
We're having to reconfigure or rethink, I should say, our investments, for example, in tax exempts, okay.
Because the field is changing there.
We're having to rethink, therefore, also our investments in corporates and our investments in dividend-paying stocks, and that's also going to have an impact.
But I would say that the biggest driver, which would tend to drive our tax rate down, will be the amount of underwriting income we get throughout the system.
And speaking of that, we ---+ from that standpoint, we are well positioned at Old Republic.
Given our mix of business, we ---+ where title delivers typically more underwriting service income than it does investment income.
And in General Insurance, to the extent we succeed, as I believe we will, to have greater stability in the loss ratio and not have it be affected by any significant amount of unfavorable development, that also will help drive the tax rate down.
As to our capitalization, as <UNK> mentioned before, we're in very good shape.
We think that the remaining non-converted notes will convert by ---+ certainly by March 15.
But there, if they do not, for some ungodly reason, we've got the money in place to honor that obligation.
But we think it will convert.
And when it does convert, the leverage on our balance sheet will obviously go down because some $550 million, if all of it converts, will be diverted towards the shareholders' equity account and be eliminated, obviously, from the debt account.
So we'll have a lot more balance sheet flexibility if we should need it.
At this point in time, we don't think we need it.
We think we've got enough capital to meet our obligations and to keep some powder dry in the event that it is needed for whatever reason.
One of those reasons may not be a cash acquisition.
We don't believe in doing that.
But other acquisitions for small amounts of cash, we might consider.
So I think we're in good shape on all of our metrics in terms of how we manage our balance sheet in very good shape, in the greatest shape, I would say, that they've been in years.
And that, again, gives us a lot of firepower to grow our business.
So from the standpoint of capitalization, cash flow, ability to upstream dividend, ability to pay dividends to our shareholders, ability to honor our obligations, we're in very good shape at Old Republic.
Better numbers from the standpoint of what, (inaudible).
<UNK>, you've got a better handle on that than I do.
Well, the basic view that we\
Well, we're not prepared to let the cat out of the bag as to what we're thinking of doing with respect to that operation.
We've got several options.
They're all very good options.
And as I tried to say before, we're going to do our level best in directing that business to achieve the greater value for all of the key stakeholders in it.
And as you know, those stakeholders are the shareholders, the employees who provide the intellectual talent, the regulators and the existing ---+ most importantly, the existing policyholders whose policies are still in force and are still being serviced by our people to their best advantage.
I beg your pardon.
Yes.
Yes.
This is <UNK>.
And there certainly are a lot of technology initiatives we're heavily involved through a number of our subsidiaries in the Title business.
One of the most exciting to me is a company called Pavaso, which is deeply involved in the digital closing market and has signed a number of contracts with large national lenders to provide digital services and some other things we're working on that go beyond that.
And there's a lot of talk about where block chains and cryptocurrencies fit into the mortgage origination markets.
As much as it almost looks like [Flash Gordon's] in charge, those things aren't that far down the road.
And I think we're really well prepared.
I think that units like Pavaso put us certainly at the head of the pack to service those customers' needs.
No, we have none.
And again, we appreciate very much everybody's participation and the opportunity to have this discussion about our great company.
And now we look forward to our next visit, which will, according to schedule, take place in July of this year, following the midyear earnings release.
So on that note, we bid you farewell.
You all have a good day.
| 2018_ORI |
2015 | DLTR | DLTR
#Interest rate for the fourth quarter, as in our guidance, is projected at $98.4 million if you look at the table.
I believe it's the last table in the Schedules to the press release.
It details out the expected interest expense so that number is what we would expect without any rate increases on an overall standpoint.
As far as operating income, we have said, generally speaking, our belief is that we can over time, get Family Dollar back to historical operating margins which, I think we're ---+ if you look at the last 10-year period, they were basically 7% to 8% for a vast majority of that timeframe.
There is no belief that we can't do that.
I think that's really the way we're focused on it as opposed to a specific number of $500 million or whatever.
It's really more about continual improvement.
It's the way we think about the Dollar Tree business and we're thinking about the Family Dollar business the same way; continual improvement.
How do we continue to make the merchandise more relevant.
How do we run in the stores better.
How do we control our costs and how do we bring it to the bottom line at the end of the day so there's difference there.
But there is nothing structurally or competitive-wise that would preclude us from, over time, getting back to that 7% to 8% range.
Well, basically what we did, <UNK>t, is with it ---+ what we've done here is taken our reported income before income taxes and really adjusted for items that we had not previously given the Street.
The Street had been given detailed information via our second quarter call as well as an 8-K that we subsequently filed in regards to really the three biggest items being: inventory step-up amortization as well as the depreciation for the harmonization of the policies as well as the favorable lease right amortization.
We've given you all those information so we assume that would be in our number because we've given it to you.
What we've done here is basically reconcile the things you didn't know so the inventory step-up was actually $38.4 million as opposed to the $26.9 million we had given you.
So we've adjusted for that $11.5 million difference.
We took an additional $13 million of markdowns for our red tag clearance sales so we've adjusted for that and then acquisition fees and the integration of divestiture-related costs, which on the Street, could not have predicted or we did not give any numbers around.
So that's the way we thought about it.
It's really trying to reconcile our number based upon information that is not been previously given.
We have looked at the cannibalization.
There is some degree of cannibalization this year from the 200 stores that we're rebannering.
There will be some cannibalization next year from the additional rebanner stores as well as the rebannering of the Deals stores to Dollar Tree and some of them to Family Dollar.
So there will be continue to be some cannibalization.
There always is when we look at these stores to rebanner as well as when we look at new stores.
We look at the sales projections for the particular stores.
We also look at the ---+ any cannibalization that's going to occur in the market so we look at surrounding stores and we define what we think the cannibalizations are going to be.
We then look at the market returns when we're opening up the new stores.
We're going to continue to do that.
We've done it with the rebanner stores for Family Dollar.
We're doing it with the Deals stores going to Dollar Tree.
We'll do it with our Family stores.
Cannibalization is just part of it after you open up the first store, you get the second store and there's cannibalization in the market.
So ---+ but I will tell you we've done our homework on it.
We are pleased with the results that we are getting also from the ones we've already rebannered.
The Deals stores that we're going to rebanner we built that on model of ---+ a real estate model for Dollar Tree so that is one of the reasons that most of those are turning into Dollar Tree stores because they will serve our interest better than with higher returns as Dollar Trees, than if you were going to Family Dollar.
So cannibalization is part of it.
We will talk about it.
We'll point it out but it's really the growth in the market and the growth in the business for the Company that's most important.
We will it include in our guidance and I think that's the best way we can share it with you is that as we give guidance, we've included all the things that we know including cannibalization, including anything that would come in there.
Thank you.
Well, <UNK>, I want to say couple words and I'll pass it to <UNK> because he is living and breathing this every day.
But obviously, we intend to be competitively priced on our national brand products, where we intend to offer a selection of private label, name brand equivalent products that is a value to the customer at lower retails than the national brand but equivalent quality.
We think there's a big opportunity for our customer.
I think they will appreciate the value of being able to buy a name brand equivalent product that costs 30% less, for example, or 20% less or less than the name brand.
So the combination of name brands compared with the price name brand equivalent products at a nice discount to the name brand price as well as some special opportunities in all the things that we can do with our size to take advantage of opportunities that exist throughout the year.
<UNK>, would you like to add anything.
<UNK>, let me maybe start with your first comment on the $135 million.
Keep in mind, that was the retail value before we started the markdowns.
So we start with a cadence that was already discounted in stores somewhere between 10%, 15%, 20% off and then we start the markdown cadence of 50%, 75%, 90%.
When you think about the units that we cleared out, the actual retail sales that we were receiving from that pile of goods was fairly static over that time.
I think the good news on the clearance was when folks came in for that event, they tend to buy something else in-store at our regular retails.
And so I think the energy and just getting our stores cleaned up a bit, getting our end caps reclaimed, organizing a clearance event which is no small task to make it look like something, all served us pretty well.
Maybe just to tag on to <UNK>'s comments, there is an art and science to pricing and the science piece is we do want to be grounded against our strategy on competition.
You always have an eye on them.
But what we're really focused on at Family Dollar is what's meaningful to our customers.
What is it that they need for first of the month.
What is the basket set they are looking to buy on a weekly and monthly basis and so our strategy is one that talks to what is on promotion and what is on shelves.
The addition for Family Dollar of a private-label program that could be polished up and really enhanced, opening price points and some of the assortment gaps we have is a great one, not to mention the addition of ---+ we have a great import program but that can also drive additional value into the store.
So we really see all those arrows in our quiver as we get rooted in what do we need to be competitive.
But really stay focused on what our Family Dollar customer needs to drive value and into her basket on a weekly and monthly basis so that's the approach we're taking as we go through our category reviews and looking into 2016.
<UNK>, I think the customer, especially our customer are middle income, low middle income to lower income customers are still under pressure and they are concerned.
They have seen the lower gasoline prices and that's helpful.
But at the same time, it's not enough to gear that lower income customer.
It's not enough to make a change in your shopping habits.
And at the same time, they've seen lower gasoline prices.
They've seen higher food prices.
They've seen higher rent prices.
They've seen higher healthcare costs.
They've seen higher taxes.
So they are still concerned; they're still under pressure.
The concept of Dollar Tree and at Family Dollar of serving those people is serving us well.
At Dollar Tree, we've said that we are right for all times.
We have great products that people need everyday.
Consumer products, things you've got to buy to live, things you have to have every day and the price is only $1.
Alongside things that may be discretionary that you would like to have but everything is $1.
Through good times and difficult times, we've tended to do very well, usually better than the market at Dollar Tree.
At Family Dollar, with that low income customer, the more we focus on what that lower income customer needs, offering the great value, improving our in stock and giving the better shopping experience, exceeding their expectations when they go into our stores, the better served we're going to be especially during difficult times because the ---+ that lower income customer really needs us at Family Dollar and Dollar Tree in order to make ends meet throughout the month.
So to answer your question, I think they're grateful that gasoline prices are lower but not much else is in their world.
And they've got to come a long way really to get their head back above water, many of them.
In closing, I'd just like to make one comment in regard to that last question.
I will close with this but as a combined organization, both banners, our focus is on growing our earnings power for years to come.
There's a lot of things that we're doing right now that are in regard to getting us positioned and for the future.
Our decisions are always with our eyes on the horizon but managing in real-time so what you're going to see from us is our decisions are going to be made for the longer-term.
Now I'm not telling you it's going to take forever to make the ---+ to bring value.
I'm just saying our decisions are based on building this large entity, combining two great banners, for the long term.
But we are dedicated to managing the business in real time and that means every month, every day, every quarter, it means every expense line on the P&L.
It means looking at our customer in the eye and trying to deliver the product that they need from us and identifying the position that we hold in the market, using our size and our leverage to offer the greatest values for that customer.
So we're going to do both.
And I think, I'd like to tell you that my expectations as we're going to continue to improve quarter over quarter.
This is the first full quarter that we've had the combined company.
I think we had one month in the last earnings release but it's the first full quarter that we've had and we've shown improvement.
And some slight improvement, mind you, but improvement and I think I would tell you that I expect that to continue quarter over quarter.
We will show improvement.
We're going to share with you all the information that we know that is pertinent to where we're going with this thing.
We're not going to surprise anybody with it.
But we're not going to give you information until we can absolutely get our arms around it and share with you how that looks going forward.
Thank you for your time and before I turn it back to <UNK>, I just want to say thank you for your support and hope everybody has a great Thanksgiving.
Our next quarterly earnings call is currently scheduled for Tuesday, March 1, 2016.
Thank you and have a good day.
| 2015_DLTR |
2016 | KLIC | KLIC
#As you know, we're seeing the average utilization rate is about 81% in the past one or two months, and was up compared to 78% a few weeks ago.
From a utilization perspective, yes, when we are seeing that is looking pretty good and I think you also asked a question about the OSATs.
We basically had about 66% in terms of OSAT compared to IDM, so volume has actually not what we consider as high.
So when the volumes are lower, you tend to see the OSAT percentage come down and the IDM pick up.
So I think we're seeing that in terms of this current quarter as well until basically the ---+ hopefully by, before Chinese New Year or after Chinese New Year we will get to see more volume.
But I think we did mention in the past there is some shift in terms of demand before Chinese New Year in the past two years, so perhaps this upcoming Chinese New Year we may see that again.
At this moment it's still normal packaging.
We see the demand increasing capacity of NAND at this moment.
I'm sorry, NAND and the 3D NAND But they do not use a change in technology of packaging at this moment.
We are seeing memory demands very strong, but I think it's a very difficult to predict the percentage change from here.
At this moment majority is not LED.
And we are quite actively looking into LED space.
I think it's ---+ we have been actually lower than that, but if you look at the last year or even 18 months we've been basically rounding out about the 20% level and we continue to see that.
We certainly would try to book most of our revenue as much as we can in a low tax jurisdiction like Singapore, but we are ---+ because of the various different product that we sell in the US or Japan, those markets have actually higher tax rates.
So this is what we're looking at this point in time.
I think at this point in time we are constantly assessing what kind of cash we have onshore.
We are in the tail end of our three-year $100 million stock repurchase plan, and if we actually do make that proposal to continue on with that after we finish that program, then we will have to bring more cash back.
And we will do so.
We certainly would need that to bring cash back to support our new program.
Thank you for the questions.
So <UNK> if I understand your question right, you are asking how is my view on our product portfolio in terms of IP.
Okay.
So let me put it this way.
I think we all know K&S we have core business in the ball bonder and the wedge bonder.
And last year I think this largely account for our maybe a little bit more than 90% of our total revenue.
And our advanced packaging is a little bit less than 10%.
So what our target 2017 is 15% to 20% of advanced packaging.
And advanced packaging we have two products in the market.
One is we call APAMA, this is with more accuracy and with a thermo-compression capability.
And the other product, I think you know that, and we call hybrid system.
And with these two system together, actually we can address all high growth in our market.
You know that we enter AP a little bit late, but I am confident, I think our target is going to be 15% to 20% revenue for 2017.
And I see we have a good product and not of course, we don't address everything with leadership at this moment, but I'm confident I think we will continue to increase our throughput and we will make a meaningful improvement in 2017, and hopefully 2018 we'll get even more market shares.
So I don't know if I answered your questions.
The high market growth area we define as SiP, I think is a very important technology, and also fan-out as well as the high accuracy flip chip and also our C2S, C2W with a thermo-compression products.
Okay.
I'll answer that.
I think in terms of the cash, we reported $547 million and substantially that's mostly offshore.
I think with the ---+ obviously with the new administration coming in, the President-elect, it sounds like we have to wait and see, it sounds like things could actually positive, if they put through some of the things that he basically made from a promise perspective during the campaign.
So we certainly are anxious to see if any of these tax reforms actually go through.
Clearly the 10% repatriation rate will be fantastic, but we're always not sitting on our laurels.
We basically are always planning on ways to actually bring back cash with minimum cash leakage and we are continuing to improve our efficiency, how we operate our international business as we go which we actually mentioned earlier.
So I think given time, in terms of if we have more efficient ways to bring back cash, we certainly have a lot of use for that and that could include all things that you mentioned, including stock repurchase.
Thank you.
| 2016_KLIC |
2016 | SF | SF
#You just answered your own question, <UNK>.
You want to come over here and tell me what to do based upon, I mean I'm all ears.
I think that we consistently, as I have said, looking backwards, we have felt that the investments that we have made in the investment portfolio and security-based loans and some of the investments that we have made have provided very attractive risk-adjusted returns and ROEs that are accretive.
And because we're always allocating capital to whatever we do, we take proper interest rate hedges and so everything we do is with a mind toward risk adjusted returns and doing things appropriately.
As I sit here today, I don't know really how ---+ I know we have a lot of opportunities.
I believe that we have shied away from the credit market in terms of loans.
I believe that we are seeing credit spreads and terms and covenants and things like that that are making that more attractive on a relative basis.
But the only way I can answer it is the way I always answer it, is that I believe as long as we can deploy capital at an acceptable ROE, whether that be in bonds or loans, then adjust it for risk; that is what we will do.
The risk adjusted density, I can't answer, but not because I don't want to, because I just don't know.
You kind of know it when you see it.
The amount of interest that we have received from what I would characterize it as many of these high net worth teams from many large firms has exponentially grown.
It is a direct result of the perception that what our platform is and our ability to service clients, which I always felt was reality, but the perception that we could retain and hire the Barclays people has helped.
So we have seen a lot of capabilities.
I was thinking some, I want to make this comment a little bit and it goes to a lot of what's going on in the marketplace on those big deals.
I get a lot of people who say, oh there were, when we got around to it, there were 150 advisors at Barclays and 50 of them left or 60 of them left and what happened.
And I always say it in reverse, I say: you know, from my perspective, they didn't even know who Stifel was.
I had a shot at about 10 of them and recruited 100 of them.
And I think that that's kind of what's happening now.
When I first walked in there, I always remembered, as I'm sure some of them are listening on this call and smiling.
They looked at me and said, see you.
And then we were able to recruit them.
And because of that and the investments that they brought us and some of the capabilities that they brought us in terms of how they view the marketplace, there are many platforms that we've built into our technology ---+ and simply word-of-mouth.
We have a number of people say, well wait a minute.
If you can do that, then I need to talk to you.
Those phone calls are up, forget the percentage.
Because when you go from a low number to a percentage, it's huge.
And we are seeing it.
If we have any concern today, you are dealing with market multiples.
You are dealing with production that may be elevated and deals and so it is always hard in down markets.
But I will tell you, that our place in the marketplace, as a relates to options for people looking for a home, was significantly enhanced by both the Barclays transaction in perception and in capabilities on what we added.
So look, we are seeing a lot.
These are interesting teams to recruit.
Maybe I will end with that.
Are you talking about new recruits.
Maybe I'll characterize it this way.
We get a lot of interest.
We have not changed our pencil and our back of the envelope, the way we do things.
We are going to be a lot more successful, but as I have said, the street deals that pay some of the multiples that you read about, my pencil breaks when I start writing those down.
It just does not work.
And so what we are seeing is ---+ we certainly have raised our level because we're talking to a lot of different people.
But we're nowhere, we're really nowhere near what's [SAR], so still some of the shareholder destroying type stuff that goes on, I do not understand it and we're not going to do that.
So to the extent that ---+ I just believe the people who are looking for a place where they want to work, we are here and we are getting the right people.
So we are not the highest [deal] on the street, never have and not going to be.
If you work at a bank, you'd find some of these things interesting.
I think our loan duration is down.
I think we've seen real opportunity in the loan portfolio.
That's why we've added to the loan portfolio.
We look at everything based upon allocated capital, so if you have zero risk weighting, that doesn't mean you need zero capital.
You need 7%, 7.5%, 8%.
I'm just picking the number.
You need tier 1 capital because you need capital and so you have to allocate that.
If you have a C&I loan, you have to look at the fact that you need risk-based, it's risk-based capital of 100%.
How do those returns work.
How does that risk work.
All versus capital and risk.
And so what I have seen, we have always felt security-based loans relative to the floating-rate nature of their duration, the fact that we understand the collateral and the capital allocated, is a great asset class.
The yields are not as high necessarily on an absolute basis of say a C&I loan, but on a risk-adjusted basis, we like that asset class.
As I've said, we are beginning to see risk-adjusted spread and covenants.
You've got to remember, you can't just lose sight of the fact of terms.
But we're beginning to see things that can make that asset class, what I would generally define as C&I, as maybe being attractive.
Again, what I would say to you and what I want to say to the shareholders, is if we were simply looking to drive pretax earnings, we would just level the balance sheet tomorrow.
There is net interest spread in almost anything, but we do not look at it that way.
We leverage the balance sheet risk-adjusted and allocated capital to every position we put out.
That's how we look at it.
Sometimes we are transfer pricing to do certain things, but at the end of the day, that is what we do.
And I would say the environment in the last quarter was very attractive to adding to our investment portfolio risk-adjusted.
Again, we're going to grow the bank prudently.
We had a lot of pent-up demand and the Barclays transaction, which took us from $9 billion to $13 billion.
In any credit and interest rate cycle, fast growth is almost not a good risk adjusted return because you're making a bet in that cycle, whether it be interest rate deal curves, steepness or credit spreads.
So we want to grow the bank prudently.
What I would say to you, as I think I've said a lot of times, the relative size to our bank, relative to our wealth management business and relative to our institutional business and relative to our immunity finance business and relative to everything we do, we have plenty of opportunities to grow the bank.
Our need ---+ and we have a lot of deposit funding.
Our need is to continue to be disciplined in the bank's growth and hopefully, knock on wood, you look at our bank performance and our NPLs and non-performing assets and the credit statistics, up to this point, I think we've done what we've said.
Hi, <UNK>.
Obviously, coming from my perspective, I don't know what I can ever say about this, but I certainly have proven by the number of shares we bought back at levels higher than where we are today, I think that that is an attractive use of capital.
We do capital projections and capital planning and we look at share repurchases.
We look at capital deployment.
We are probably, in terms of deployment, I would say we are a little more cautious than normal.
Normally your best opportunities for deals come in environments like this.
You tend to overpay in good environments and you tend to do good deals in bad environments, but that said, there is a lot of angst on the streets, I would say.
We're maybe a little more cautious on that front.
We're going to drive our returns, our return on equity, our margins, our pretax margins, and our EPS all our levers that drive shareholder value and we are going to do all of them, as the individual largest shareholder in this place would do himself, and that's me.
So I'm going to do it and do it appropriately.
So all of those levers are available.
None of them are excluded and, really, I don't know that any one of them is necessarily favored, although I would admit our stock price in this slump at levels that seems, I will leave it there, seem sun burnt.
I think as I said, <UNK>, I said I think that the personnel and the capabilities is front loaded.
I think I've already said that, as we look at our overhead as a percentage of net revenues, we measure it, not only as a segment, but by area and so we have a historical perspective.
And in general, our overhead structure relative to the revenue of the firm is elevated, but that is what we set out to do.
As I've said, we spent an additional $15 million in IA and compliance and all our risk systems and in technology and I have given all those numbers.
A lot of those expenses are front loaded.
We did have a lot of one-time, what I would call non-comp OpEx, consulting and all of that that does go away.
That was to help us get to where we wanted to be.
But I believe that a lot of expenses that we put in place was done, as I've said to all of the shareholders, with the express intent of being able to prudently, from a regulatory and risk management and just overall evaluation perspective, prudently grow this Company beyond ---+ personally $10 billion is a line in the sand, but certainly much larger than that.
We have put in a lot of infrastructure and now we need to build the firm into that to a certain extent.
I do not see additional personnel hires needed, certainly, at this level of revenue at all.
And again, that just goes to how we look at the business.
Well, of course I do.
We have that and of course I do.
It's always ironic to talk about how good it is for a company to need to restructure but in that business, that's true, and so we don't have <UNK> Buckfire for the logo.
I mean we do, I guess, but we want to participate in the restructuring space.
We've done some very noteworthy transactions, as I've said.
And I can't disclose what we might be working on, but as you know, we got [deals] award for being the advisor to the city of Detroit.
This comes to mind for me as what was a very significant, not only noteworthy in the marketplace on the largest, but also indicative of our intellectual capital that resides within <UNK> Buckfire.
Of course, I would like to participate in that increase.
I always just feel a little uncomfortable pitching that business.
We merged with them at a trough level.
Right.
And their peak level, which was I guess, 9, 10, 11 ---+ I do not think is relevant.
But might be, but I don't ---+ I guess that I hear you in terms of that, but when we merged with them, we were at a trough and where and I think there's more opportunity today.
I can ask Victor to give historical run, but I think most of the restructuring firms would show revenues back in peak levels that even they don't think they're going to get to today.
At least I hope they don't get to in 9 and 10.
So obviously, I don't disclose restructuring advisory revenues.
I guess I will consider whether we should do that.
We do not disclose revenues by the product type either.
At this point, I really can't answer your question.
You got it.
<UNK>.
It's all right.
No one can pronounce it.
So to our shareholders, I believe that these are interesting times, certainly interesting times for me.
I will leave you like I always do, the reality sometimes of what's going on versus the market's perception are completely different.
This is one of those times.
See you.
| 2016_SF |
2016 | NTRI | NTRI
#Matt, it's in addition to.
And that's up from last year where we had a small percent taking the shakes.
Correct.
In terms of the media spend.
We expect it to end the year around 34.4%.
So we were a little bit below that in Q1.
Typically we're a little bit higher, it tends just to be a little bit timing.
So I would plan on it being a little bit higher in the fourth quarter on the back half of the year.
Thank you.
We'll provide color around what South Beach is driving and Shake360 next year.
But we're really just highlighting it this year because it's more of an investment year.
So you can see with the normal Nutrisystem business is doing excluding those initiatives.
Yes, that's all behind us.
We are benefiting from the new packaging and the dry ice issue is not an issue.
Okay, this is <UNK>.
So we are doing a test in mid-May in around 400 Walmart stores in the Northeast.
So it's a test into the freezer aisle which we are very excited about.
What we're doing is we're taking our kit concept which has been phenomenally successful in Walmart, our five-day kit concept.
And we're making in a one-day kit in the freezer, so you'll get breakfast, lunch, dinner snack, a one-day kit at a $12 to $13 price point for the day.
And we'll have four SKUs available for the test.
We are nationally distributed in Walmart as we speak today.
So any stores as this test progresses and its distribution is increased, it would be in stores ---+ we're pretty much in all stores for Walmart right now.
So it will be in a different place right now in the pharmacy aisle for Walmart, which is where our competitors are as well, but this would give us space in the freezer aisle, so another section in the store.
But more to come on that, it's just a test right now.
Thank you, everyone, for your time this afternoon and we look forward to meeting with many of you at upcoming investor events.
Have a great day.
| 2016_NTRI |
2017 | RMD | RMD
#Thanks, <UNK>, and thank you to all of our shareholders, as we summarize our results for the second quarter of fiscal year 2017. We achieved solid double-digit global revenue growth this quarter, led by sales from Brightree and continued strong growth in our device platforms
We also saw the start of a steady ramp our latest mask technologies
For the call today, I will review top level financial results, outline some regional highlights and discuss key announcements this quarter
Then, I will hand the call over to <UNK> who will walk you through our financial results in further detail
We achieved strong device sales due to our leadership in digital health and connected care
The number of patients managed on the AirSolutions platform and the number of daily uses of our Brightree platform continue to grow rapidly
This quarter, we announced that we have reached a milestone with more than 1 billion nights of sleep data in our cloud-based physician and provider solution called AirView
We have well over 2 million, 100% cloud connected medical devices
We are liberating data and unlocking value for physicians, providers and patients like never before
Midway through the quarter, we commenced the launch of our new AirFit range of mask, the AirFit N20 nasal mask and the AirFit F20 full face mask
Both of the products leverage new step change technology called Infinity Seal that provide significant advances in fit and comfort to the patients
Earlier this month, at the JPMorgan healthcare I announced that we had received FDA clearance for the ResMed AirMini, our world leading, travel friendly, sleep app technology
I will talk more about that a little later
At the bottom line, in terms of non-GAAP net operating profit, we grew at 13% on a year-over-year basis in Q2. Including financing costs, our diluted earnings per share or EPS was $0.73 on a non-GAAP basis
We continue to balance revenue growth and gross margin improvements as well as ensuring an appropriate investment in both R&D and SG&A, so that we can maximize the success of multiple product launches across our global markets
Now for some regional highlights
The Americas region produced double-digit revenue growth
These results were fueled by Software-as-a-Service revenue from Brightree and 13% growth in devices
Device growth was particularly remarkable given that we were up against a 24% year-over-year comparable
The mask and accessories category in the Americas grew 4% in the quarter
This is up sequentially and reflects the fact that our sales team that received products around Thanksgiving timeframe has started showing the new technology to physicians and providers
There is clearly a long way to go in the ramp of these products in Q3, Q4 and into fiscal year 2018. Growth in devices was driven by the continued support for the AirSense 10 systems by our customers
These are powered by the cloud-based AirSolutions software platform, including the myAir patient engagement app that has over 1,000 new patients signup every day
We achieved good growth in our respiratory care device platforms in the Americas, particularly our cloud-connected life support ventilation platform called Astral
We earned strong growth in our combined EMEA and APAC regions this quarter, primarily driven by Flow Generator sales, with some outstanding performance from our combined Curative and ResMed China businesses
We have now completed the earn out and the integration is going very well
As we enter the Chinese New Year, we have truly formed one ResMed China team with one vision, one mission, two brands and many and varied customer channels, the thing is really coming together well
Mask, accessory and other sales in the combined EMEA and APAC regions were down year-over-year due to a couple of factors, one we had some international licensing revenue from the comparable quarter a year ago in the region and two, the N20 and F20 were only released in a few countries, and as we know uptake of new masks is a lot slower in EMEA and APAC then the U.S
We expect this mask category to return to public growth in EMEA and APAC as we continue to launch the N20 and F20. Feedback from patients, physicians and homecare providers on the fit range and comfort of the N20 and F20 are very positive
This is a great indicator for stronger mask growth in Q3, Q4 and into FY 2018. Looking at our Software-as-a-Service revenue Brightree continues to grow strongly and in line with our acquisition model in the low-to-mid teens
We are on track with our work to integrate Brightree software functionality into the AirSolutions portfolio
We are truly creating end-to-end software solutions for our customers and Brightree is achieving strong double-digit growth, with high levels of customer's satisfaction and customer workflow efficiencies gains
Let me now take a few minutes to update you on the progress against each of the three horizons in our 2020 growth strategy and then I’ll hand the call over to <UNK>
In the first horizon of growth which focuses on our core sleep apnea business, we are making significant advances with the smallest, quietest, and most comfortable products, catalyzed by digital health and connected care solutions
We launched our new AirFit F20 full size masks and our new AirFit N20 nasal masks in the second quarter
The Infinity Seal technology is a step change in comfort for patients and fit ranges of 97% to 99% of patient populations approving a winning value proposition with respiratory clinicians
We are seeing exceptionally strong demand for the N20 and F20 products and for some of the masks SKUs demand is in fact outpacing supply as we ramp up our production capabilities for these new technologies
We will continue to ramp up our supply and expect to be out pacing demand as we go through Q3 and into Q4. At the JP Morgan Healthcare Conference in San Francisco earlier this month, we announced the FDA clearance of the world's most CPAP called the ResMed AirMini, it's a tiny portable travel PAP with all of ResMed's best in class comfort features
AirMini is intended to be a secondary device for travel, and it truly compliments our world leading AirSense 10 platform
AirMini is an amazing technology and we expect to launch this product commercially before the end of the fiscal year
I have personally been using a prototype of the ResMed AirMini for over 12 months
It has traveled with me to Asia, all over Europe and throughout the Americas
For those listening to this call, who may also be CPAP patients feel free to go to airmini
com and signup
We’ll make sure that you’re amongst the first to know when the product is fully launched through our Homecare Channel Partners
We continue to lead in the field of connecting care, one of the key foundations of our growth strategy
We have reached as I said earlier 1 billion nights of sleep data and are focusing on algorithms to convert big data into actionable information
The ultimate goal is to unlock even more value for physicians, providers, payers and most importantly for patients
This quarter, we announced results from a European study published by PricewaterhouseCoopers analyzing data from more than 23,000 patients in Germany and the UK
The study shows that myAir patients when compared to controls, used their CPAP devices for longer durations and have significantly higher adherence rates
This adherence study was executed in our core sleep apnea vertical, we are extending this cloud based coaching algorithms to our ventilation and oxygen technologies, watch this space
This is a great transition for the second horizon of the ResMed 2020 growth strategy
We know that COPD is the number three cause of death and the number two cause of re-hospitalization in the western world
The spectrum of cloud connected respiratory care products across our ResMed portfolio will play a big role in reducing costs for providers and improving outcomes for patients with this debilitating disease
Connected Care in ventilation can reduce costs and improve patient outcomes in COPD and beyond
We continue to see portable oxygen concentrators or POCs as an important addition to our spectrum of respiratory care products
Our integration of the Inova acquisition has focused on quality improvements to the current Activox POC platform
We are gradually ramping the launch of this technology to our global sales team as we continue to improve quality and functionality of the product
We will ultimately add cloud connectivity to our POC platform which will help drive adherence for patients, fleet management for providers and activity tracking for physicians
Our third horizon of growth encompasses a portfolio of long term opportunities including sleep help and wellness as well as clinical adjacencies, such as atrial fibrillation and heart failure with preserved ejection fraction
Another key area of horizon three growth is our work in chronic disease management algorithms, including population health models, health care analytics, care co-ordination and Software-as-a-Service models for home health, home nursing and hospice
In the area of sleep help and wellness we are making good progress with our new joint venture called Sleep Score Labs with capital investments from ResMed, Pegasus Capital and Dr
Mehmet Oz
We started the partnership last quarter with an entire Dr
Oz show dedicated to the field of sleep wellness
Michael Bruce and Dr
Oz leveraged the S+ by ResMed the world's first non-wearable sleep device and Smartphone app designed to help people track, better understand and improve their sleep
The sleep awareness campaigning encompassed anonymous sleep data from a database with over one million nights of sleep
Sleep Score Labs calculated America's overall sleep score and Dr
Oz announced the results at the Consumer Electronics Show or CES in Las Vegas earlier this month
Dr
Oz reported that people are not sleeping as well as they should, we're getting less than what the National Sleep Foundation recommends which is seven to eight hours plus of sleep
We are about one hour behind the minimum with around six hours of sleep
People say they're tired and people say they want to understand their sleep better
Sleep Score Labs will do just that, they will truly quantify sleep and help people objectively determine which sleep solutions are best for them
For ResMed this is about driving the importance of sleep awareness and sleep health
We will be helping people realize that they need to go see their doctor if they have any risky breathing at night or any shortness of breath day or night
These and other signs and symptoms of sleep apnea and COPD impact overall health
We will continue to drive sleep health and sleep awareness and our ResMed brand as a leader in the field
Let me close with this, we are incredibly excited about the ongoing launch of our N20 and F20 mask technologies and our pipeline of products in 2017 including the new ResMed AirMini
We continue to lead in connected care with enhanced solutions that lower cost for providers and improve outcomes for patients
We are leading the industry, driving consumer awareness of sleep, so that undiagnosed consumers go to see their doctors and healthcare providers
We continue to bring out strategy into action for the benefit of physicians, providers, payers and most importantly to improve the lives of tens of millions of sleep apnea and COPD patients around the world
With that I will turn the call over to <UNK> for his remarks and then we will go to Q&A
Over to you <UNK>
Thanks for the question <UNK>
Look the patients and provide and clinician acceptance in the mask has been great
The Infinity Seal technology particularly and its ability to reach 97% to 99% of the patients that coming to a sleep lab or through a clinic
And so these acceptance has been great and certainly exceeding what we had thought it may be
And so what we’re finding with the new production technology that we’re using for this infinity sale is that, as we ramp across the different stock keeping units, that in some of those SKUs, we are not keeping up with very high demand, but as we look forward over Q3 and Q4 we will start to catch up and we will expect by certainly, the end of Q4, that we’ll be well ahead of the demand for the product
Rob, do you want to add something on that?
Thanks, <UNK>
Well both the N20, which is mask, and F20, which is the full face mask are doing very well
They both have the Infinity Seal technology this year, single-layer technology that provides excellent fit and moment for patients, I personally wear a CPAP mask and the N20 is particularly comfortable for me, but those products are going very well and doing well in the U.S
market and that’s what got us to the sequential uptick in the U.S
mask growth and we expect to, as we go through Q3 and Q4 and pick our production up to continue to grow quite strongly there and to turn back to a positive growth in EMEA and APAC
Yes, certainly as the DME or HME home care providers, as we call them in Europe start to see this product, that fit range, fitting 97% to 99% of the patients that walk through the clinic has just been a real winning value proposition for the respiratory technicians
The N20 is the go to mask for nasal now for them
And the F20, we believe is a go to mask for them on full-face, and its early days in the rollout, the U.S
team got this at the weak of Thanksgiving, they’ve really only had half a quarter and one with the bunches of Thanksgiving and Christmas holidays, but we do expect as we look for Q3 and looks to Q4 and start to ramp the production up, that’ll be a slow steady gradual increase in both the U.S
and in other regions through Q3, Q4 and of course beyond FY2018. These technologies have a lot of legs
Correct
[Multiple Speakers]
<UNK>, you want to take that?
Thanks for the question <UNK>, it's <UNK> here
So we did have very strong growth in devices in the Americas, it's 13% on a constant currency basis
We think that was primarily fueled by AirSolutions, the portfolio of AirView and myAir capabilities to lower the labor costs for setting up a CPAP by 50%, 60% for a home care provider
Also the ability for engagement apps like myAir to drive adherence from previous industry standards of 50%, 60% up to 80%, 87% in some of the data that we have talked about publically
So we think all that comes together to drive good sustainable growth and that does of course include some of the growth in the respiratory care line, our Astral ventilation, our life support ventilation line
Look we talk in terms of the industry growing in the mid to high single digits
Clearly, we were taking some share in devices in this quarter and you know as we look forward we'd expect to see you know good mid to high single digit growth of the industry and we'd like to lead or beat that and clearly we beat that this quarter
Okay, I'll hand it to Rob to talk about international devices and licensee
The only thing I'd add to that, Rob, which I think is really good is that ASV turned from the post survey check where it was a headwind into a tailwind again
And so we're starting to see growth in ASV, not just in complex sleep apnea and central sleep apnea, but the pain management and in the U.S
in the PTSD category
So all that together, <UNK>, is sort of what's one of the tailwinds driving those strong device numbers
Yes, got you loud and clear <UNK>
I'll hand that question to Dave <UNK>, our Global General Counsel, Dave
Yes, <UNK> I think it was really about good execution
The value proposition of AirSolutions has shown itself to be very sustainable
It's a sustainable compelling value proposition for customers
When you're reducing the costs of therapy setup by 50% or 60%, it's just embedded ---+ becomes embedded into the work flow and just how our home care provider partners like to work, they like to work with the cloud-based system
They like to work with one that's lower costs and drives adherence
And so as Rob said there was some sort of good acceleration in China and some good sales of our China team running through the tape
But then globally we're seeing the AirSolutions platform have a really good impact and Astral as it comes into play and is now part of the cloud-based or cloud connected system, is getting some good traction as well
And then the third factor is ASV, the Adaptive-Servo Ventilation technology coming to a tailwind
So all that together has provided strong flow generator growth and we expect strong growth to continue
And obviously the rates will be what they'll be, but mid-single digits ---+ mid to high single-digits is what we see the market going at and again we'd like to meet or beat that
Thanks <UNK>, I think I'll hand that question over to <UNK> <UNK>, who runs the Americas
I'll just start off with, yes the low to mid-teens growth from Brightree is strong, again it's a compelling value proposition for our home care providers, and they like it incorporated into their work flows
<UNK>, any further color with regard to ongoing resupply sales associated with Brightree?
<UNK>, we don't talk about future pipelines to a great extent
We did open up a little bit on this call about the ResMed AirMini, the world's smallest travel seat CPAP that we got FDA clearance on, that was a public FDA clearance, but we won't be talking about the pipeline of future masks
But thank you for the question
<UNK>, I think you're referring to something maybe 18 plus months ago, where they were some changes around competitive bidding round two
So 18 almost, 24 months ago [Multiple Speakers] when there were some resets
<UNK>iam <UNK> I'm referring to the latest round of competitive bidding
So, okay
Well if it’s related to that they know that what we’ve being saying, which is the reality around the competitive bidding round three and round three national expansions, and the rebids going on now is that it’s pretty steady pricing picture, in fact no step change at all
Industry normal price changes year-on-year in a steady pricing environment
Obviously, we’re seeing a lot of competition amongst the innovation
Innovation in the masks and innovation in the cloud connectivity and connected care side
So intend complication for us and our competitors in masks and digital offerings
But in terms of price it’s been a very steady environment last four, eight, plus quarters
And then could you just talk to demand for the AirSense in Europe please?
Rob, do you want to address?
Thanks for the questions <UNK>
Thanks for the question <UNK>
The current travel PAP is a very small niche segment and what our goal at ResMed as the global leader in sleep apnea therapy is to bring the world’s smallest, the world's most comfortable, the world’s quietest and most engaging travel CPAP to the market
And so we think we will actually expand on what is currently a very small travel CPAP niche and create a sizable segment of travel CPAP users that are willing to pay retail cash and work with our home care provides who access those products and really make it as part of their care so that you can have the same experience when you’re traveling around the country, around the world as you do at home
So that’s the goal of the ResMed AirMini and as we launch that between now and June 30, you'll see us talk about how we're going to drive awareness, create that niche and make sure that patients the world over have the opportunity to have ResMed therapy with them wherever they are
Thanks, Michael
I’ll hand that over to <UNK> any thoughts on AirStart?
Thanks for the questions <UNK>
I’ll take the second one first and then I’ll hand to <UNK> maybe to talk a little bit about AirMini and we're looking at segmenting the cash-pay market and working with our provider, customers
But the second part first, Tom Price was a Congressmen from Georgia who spoke at the Mid Trade Conference in Atlanta last fall
And I don’t think anyone in the room knew or thought that he might become HHS Secretary, but when he got off on the floor and made a very passionate speech about the importance of home care, importance of keeping patient's out of hospital, taken well care of in the home
He's an Orthopedic surgeon, I think he understand the economics of the broken sort of sick care system where patients are frequent fliers in the ICU and CCU with COPD and we believe also sleep apnea is a big impact on that
I think he will be a big supporter
And if he puts in place some of the policies that he was advocating for in behalf of the homecare industry as HHS Secretary, we think it could be beneficial for our industry
But look you know as Dave said earlier, there is a lot of things going on in Washington right now, a lot of change and we're going to wait and be ready to hopefully see some more homecare friendly policies out of Washington, but we'll wait till we see them and then we'll act on them
But that sort of the early take on Tom Price, I’d say it's a positive for our industry
<UNK>, on the AirMini, thoughts?
Right, <UNK>, well look, the underlying device rate, we don’t split up sleep versus respiratory care and then respiratory care down to ventilation and oxygen
But as you saw in the Americas, a really strong 13% constant currency growth in devices and in EMEA and APAC, very strong 21% with the global 17% growth
We think that growth is strong and sustainable, but there are elements, as we've said earlier with regard to China where there were some things that where sort of onetime and there were other more sustainable parts such as the AirSolutions platform and its ability to continue to drive AirSense 10 and AirCurve 10 sales along those lines
But with regard to margins and as we look forward, I think other than the foreign exchange impact, it was pretty reasonably good quarter in terms of margins
Any color there Rob, you'd like to add?
Right, thanks <UNK>, I think somehow you managed to get four questions in there, but we don’t quantify the breakdown there
Rob was talking qualitatively to the curative ResMed China combination and its impact on the quarter, so we're not going to break all that out
Dave do you have any comments with regard to 21st Century Cures and impacts for ResMed?
Thanks <UNK>, well yes clearly the market acceptance has been ahead of our expectations and Rob you want to go into some detail with regard to the manufacturing?
Hey <UNK>, excluding Brightree
I’ll take that
Matt, I’d say we’re pretty much on schedule for that sort of 18 months, I'd get it to, where we think ResMed's quality and functionality should be
Look the Activox product is a great POC
It’s light and very portable
But it can improve in some areas and we’re really working on the improvement of those areas in terms of oxygen delivery and sustainability of that over the many months that they’re out there helping patients get freedom back
And so I’d say, I don’t track and we’re looking forward to gradually ramping that Inova product out there
And as we said in the prepared remarks earlier adding communication capability onto that and pulling it as part of the whole AirSolutions portfolio, we think we’ll allow home care providers to do better fleet management of all these POCs that are out there, but really engage the patients in terms of inherence for the product as well
So the conclusion is, I think we're just pretty much right on track with the versus the timeline that you talk about
Thanks <UNK>
So I mean, I’m sure, you heard the prepared remarks what we talked about
There are two factors behind EMEA and APAC on the masks
Number one, we had a big comparable, what was about around 8% constant currency growth in the quarter a year ago in EMEA and APAC
So we had some licensing revenue in there and some really good sales to particular customers
And we just launched the N20 and F20 at the ERS
And so it’s the first quarter out there and as you know, you’ve been following our stock for a long time, mask launches in EMEA and APAC, you're talking hundreds of countries and you go country-by-country and thy see the masks, they don’t immediately buy the masks
It can even slowdown the purchases of current masks, because they see the next generation technology and they put it through their systems, they have it as their frontline setup and they work out how to put it into the protocols and starts to get launch through
So as we said earlier, we expect to gradual improvement of masks growth not only in the Americas, but also in EMEA and APAC
Certainly the positive in that region and then through Q3 and Q4, we really think the impact N20 and F20 are going to be there and sustainable throughout fiscal 2018.
We’re seeing pricing as I said earlier in the pretty steady state these last six to eight quarters
Back to industry standards on year-on-year in terms of price
So the competition is fierce, but it’s around innovation
Who's got the best fit, the best comfort, the quietest device and now best informatic solution to really improve quality of care with patients and provide us to improve their world flow efficiency
Thanks for your questions <UNK>
Yeah, thanks
In closing, I want to thank the 5,000 strong ResMed team from around the world for their commitment to changing tens of millions of lives
We remain laser focused on our long term goal of improving 20 million lives by 2020, and we look forward to executing on everything we talked about this last 60 minutes and driving this innovation, great products throughout 2017. Thanks for your time today
And we’ll talk to you again in about 90 days
| 2017_RMD |
2017 | HSII | HSII
#Good afternoon everyone and thank you for participating in Heidrick & Struggles fourth quarter and 2016 conference call.
Joining me on today's call is our CEO, <UNK> <UNK>, and our Chief Financial Officer, Rich <UNK>.
During the call today we will be referring to supporting slides that are available on the IR home page of our website at Heidrick.com.
We encourage you to follow along or print them.
Today were going to be using several non-GAAP financial measures that we believe better explain some of our results.
A reconciliation between adjusted EBITDA and adjusted EBITDA margin is found on slides 12 and 27 in our supporting slides.
Throughout the course of our remarks will be making forward-looking statements.
As you please refer to the safe harbor language contained in our news release and on side one of our presentation.
The slide numbers that we're going to be referring to our shown in the bottom right-hand corner of each slide.
Now <UNK>, I'll turn the call over to you.
Thank you, <UNK>, and good afternoon, everyone.
Today we reported fourth quarter and 2016 results that reflect continued solid progress on our strategic initiatives and a return on the investments we made over the last year in growing our business.
Let me begin with a few remarks about the fourth quarter.
We saw positive momentum of our third-quarter continue, net revenue increased almost 11% year over year and grew 11% sequentially compared to the third quarter.
Executive Search delivered good growth up 6% year over year.
Leadership Consulting has become a more meaningful part of our overall business just under 10% of net revenue in the fourth quarter with a 28% operating margin.
As such you've seen from our press release that we are now reporting all three business lines as separate segments namely Executive Search, Leadership Consulting, and Culture Shaping.
The growth in consolidated net revenue helped drive [45%] year-over-year growth on operating income and a 31% increase in adjusted EBITDA in the fourth quarter.
Looking back at what we achieved for the full year of 2016, I'm pleased with many of our accomplishments.
A few that I would highlight include number one, net revenue grew 10% or $51 million in 2016, 12% in constant currency, and more than half of the revenue growth was organic.
Separately we acquired three companies, two that bolstered our Leadership Consulting capabilities and one in Search that improved our brand and positioning in Europe and specifically in the UK.
We also made significant progress on our strategy to develop a diversified portfolio of leadership advisory and culture solutions that permit us to partner more significantly with boards and senior executives to improve individual, team and organizational performance.
In fact, half of our top 10 clients utilize both our Search and Leadership Consulting services in 2016.
Two other comments, the strategic investments in people that we made over the last year through hiring and acquisitions have helped us build a larger, more stable, higher quality base of consultants which positions us for growth and profitability in our business going forward.
And lastly, operating income improved 3% and adjusted EBITDA grew 10% both good improvements given the investments this year.
With those quick highlights of the fourth-quarter in 2016 I'll now call over to Rich to go into more detail and then I'll come back in a few moments and give you additional and specific thoughts on where we want to go in 2017.
Thanks, <UNK>, and good afternoon, everyone.
I will begin with some additional details from the fourth-quarter results beginning on slides 3 and 4.
Fourth-quarter net revenue of $159.8 million was up 11% compared to last year's fourth quarter or 14% in constant currency.
It increased 11% sequentially compared to the third quarter.
Executive Search grew 6% year over year, all three regions contributed to the growth and every industry practice of group, except gold technology and services, achieved growth as well.
Leadership Consulting grew 117% driven mostly by the inclusion of three acquisitions we made over the last year, but also good organic growth as well.
Culture Shaping declined 10% year over year but increased 11% sequentially compared to the third quarter.
Referring to slide 5, we ended the quarter with 335 Executive Search partner and principal consultants, 22 Leadership Consulting partners and 17 Culture Shaping partner and principal consultants.
Looking at slide 6, salaries and employee benefits expense in the fourth quarter increased $7.6 million or 7%.
Fixed compensation expense increased $7 million and reflects compensation related to four acquisitions as well as the investments we made in new and existing talent for all of the businesses.
In periods of high investment the fixed portion of our compensation expense will tend to be higher due to the incentives and guarantees that are part of the consultant hiring process.
As a result of higher fixed compensation expense and an increase in the use of third-party consultants and contractors, whose costs are included in our general and administrative expenses, variable compensation increased slightly in the quarter.
Salaries and employee benefits expense was 70.1% of net revenue for the quarter compared to 72.3% in the 2015 fourth quarter.
Turning to Slide 7, general and administrative expenses increased 15% or $5.3 million to $40.1 million.
More than half of this increase or $3.6 million reflects G&A from acquisitions of Co Company, DSI, JCA Group and Philosophy IB, including the use of third-party consultants and contractors.
Excluding the G&A of these acquisitions our G&A expense increased 5% in the fourth quarter.
Now looking at slides 8 and 9, operating income increased 45% or $2.4 million.
The operating margin was 4.8% in the quarter.
From a segment perspective, Leadership Consulting's 28% operating margin was the main driver of the improvement in consolidated operating income.
Now I'll turn to the annual results which start on slide 18.
<UNK> hit on most of the 2016 highlights at the beginning of the call but I'm going to walk through some additional details that are not covered in the release.
2016 net revenue increased about 10% or $51.2 million to $582.4 million.
Salaries and employee benefits expense as shown on slide 20 increased 8% or $30.7 million.
Mostly attributable to the increase in fixed compensation expense.
Again, the increase in fixed compensation expense is related to the four recent acquisitions as well as new hires in the Search and Culture Shaping over the last year and a severance expense related to the repositioning of the Leadership Consulting business which we recorded in the first quarter.
Salaries and employee benefits expense was 68.7% of 2016 net revenue compared to 69.5% in 2015.
Turning to slide 21, general and administrative expenses increased 15% or $19.4 million in 2016.
$11.9 million or 61% of this increase reflects G&A expenses related to the four recent acquisitions including the use of third-party consultants for client work.
In addition, another $1.5 million related to the LC restructuring costs announced in the first quarter.
Our organic growth in G&A was just under 5% for the year driven mostly by higher technology related expenditures.
I want to take a moment to talk about our effective tax rate for both the quarter and the year with results reflected in slides 13 through 16 for the quarter and slides 28 through 31 for the year.
Our book effective tax rate is always been volatile due to the operating results and many of our foreign jurisdictions.
During the course of the year as results come in and we are often changing our tax credit accruals to reflect our best estimate of where our taxable income will ultimately end up.
We finished the year strong with most of the increase in regions where we have higher effective tax rates, in particular the US.
At the end of the third quarter we were estimating their effective tax rate for this year was going to be 48%.
However, as you've seen in our press release, our fourth-quarter book effective tax rate was 95% and for the year was 59%.
This was a result of several nonrecurring items.
One is that we took the opportunity to repatriate foreign dividends to the United States which increased our book tax expense.
We offset the majority of the tax liability from these dividends by utilizing foreign tax credits that were close to expiring.
We also had a couple of nonrecurring discrete tax items that took place in the quarter.
If adjusted for the impact of these items the adjusted book effective tax rate would've been 54% for the fourth quarter and 48% for 2016.
As we look ahead to 2017 we are currently estimated an effective tax rate of between 44% and 46% which would be more of the norm.
Now referring to slide 32, cash and cash equivalents at December 31, were $165 million compared to $190.5 million at December 31, 2015.
The primary drivers of the difference compared to 2015 reflect cash bonus ---+ higher cash bonus payments in early 2016 and approximately $30 million of acquisition payments made in 2016, and then retention and earn out payments made to Senn Delaney.
The Company's cash position builds throughout the year as we accrued bonuses which are paid early in the following year.
Earlier this month we paid approximately $12 million in variable compensation related to the portion of consultant bonuses that are deferred each year.
In March and April we will pay out an additional $128 million in variable compensation related to 2016 performance.
Now let me give you the guidance for the first quarter and <UNK> will talk more generally about the year.
Our Executive Search backlog is shown on slide 33 and monthly confirmation trends are shown on slide 34.
Other factors on which we base our forecast include: anticipated fees, the expectations for our Leadership Consulting, Culture Shaping assignments, the number of consultants and their productivity, the seasonality of the business, the current economic climate, and foreign currency exchange rates.
We are forecasting 2017 first quarter net revenue of between $140 million and $150 million.
Reported net revenue was $130.2 million in the first quarter of 2016.
With that, I'll turn the call back over to <UNK>.
Thanks, Rich.
By virtually every metric we further strengthen our business in 2016 building off our achievements in 2015.
I want to express my appreciation to all of my colleagues for the work they are doing to contribute to the success of Heidrick & Struggles.
First of all, we believe that market conditions are favorable for our business in 2017 as reflected in our first-quarter guidance.
The rapid pace of change and rising uncertainty has placed an even bigger premium on leadership.
Never before has talent, leadership, and culture meant so much to building and sustaining competitive advantage.
We still have much more to accomplish in helping our clients identify, attract, and develop talent and to provide their leaders with the analytics and insights to drive their organizations forward.
Internally, we still have work to do and driving more synergy among our three business lines and advancing our key account focus to bring the full power of Heidrick to our clients.
All that said, there will be two key components of our growth.
One is from our core Executive Search business, capitalizing on the investments we have made in consultant teams globally and the second is from Leadership Consulting and Culture Shaping.
There is good opportunity for Heidrick enabled by our brand to take a bigger share of the market for increasingly valuable advisory services.
Specifically, let me highlight the goals for each of our three businesses in the year forward.
First an Executive Search.
We intend to build on our momentum.
Key to our growth objectives is improving the productivity of the consultant hires we made in 2016 and a new class in 2017 consultant promotions.
Reflecting are well-established development and training program we promoted a record 28 people into the Search consultant ranks as principles effective January 1.
We also promoted six from principle to partner.
As with new hires, we will invest in developing the new principal consultants to assure they're highly successful with support throughout the organization at every level.
We want to continue to grow our market share of the Americas and in Europe.
In Europe in particular, we will continue to integrate the JCA acquisition and drive more focus and growth at the CO and Board level.
Our focus in Asia will be to maintain share and look for opportunities to drive improved profitability as we focus on higher value searches.
Globally, we will continue to hire selectively, targeting specific practice, functional, or geographical gaps but are not planning the same level of hiring that was accomplished in 2016.
And growing our key account base which was also an important part of our growth story in 2016, we will continue in 2017 with a further emphasis across service line collaboration.
For Leadership Consulting, our goal is to continue to scale the business to increase our impact with clients.
We made significant strides in 2016.
We developed a consulting platform which we call, Accelerating Performance.
It is designed to help clients move their businesses forward with both speed and agility in an increasingly unpredictable operating environment.
Our methodology behind Accelerating Performance based on more than four years of research was launched last month at a CEO panel in Davos at the World Economic Forum.
This year we look to further integrate our advisory presence globally, investing in consultant expertise, new service offerings, and scalable tools, and methodologies.
Expect to see an increase in revenue and profitability as we progress the integration of the three acquisitions and continue to grow the business.
Overall, we believe we are building an LC business that has higher growth characteristics in Search and upon achieving scale will have returns that are no less.
Third, Culture Shaping.
Our Culture Shaping business fits prominently into our growth strategy.
Both as an important source of revenue and earnings growth but also with a fundamental part of our client offering that is critical to maximizing our client impact.
2016 was a year of significant investment in Culture Shaping.
Specifically in new consultants who will help us capitalize on what we have today as well as drive incremental new growth going forward.
The scale of the investment made in Culture Shaping in 2016 when not recur in 2017.
We expect to see a much higher operating margin contribution from this business segment in the low to mid teens.
Assuming revenue growth accelerates, the mix of enterprise revenue and consulting revenue remains balanced and with investment in retention cost being less of a factor, by 2018 we expect the margin should exceed 20% returning to historical levels.
Overall, across our business we are making good progress.
We are delivering on our strategy to deepen and expand our presence of clients at the top and to offer more services as a trusted and valued advisor.
Balancing our investments in the growth of each of our businesses with shareholder returns will require our continued focus and outstanding operational execution.
Let me pause there and Rich and I will be delighted to take your questions.
Stephen I will take that and let <UNK> add to it.
It is not---+ in businesses like Leadership Consulting just like in Culture Shaping we might see some little bit of lumpiness, it won't necessarily always be a sustained run rate.
I don't think it is far off in terms of the size of the business that we are looking at going forward.
Certainly will be in incumbent upon our ability to continue to add consultants as well as support resources to fulfil client engagements.
We do like the progress of what we have seen in the fourth quarter as the Leadership Consulting business has come together and certainly it started to show the momentum of building the business that we have the looking to build for some time now.
What was the second part of the question.
That's a tough one because I would say a lot of it is driven by the fact of the newer businesses and the newer consultants that have come in through the course of both.
Remember Co Company wasn't a new acquisition this year, it came in late in 2015 much ---+ it drove a lot because, Colin came as part of Co Company, it drove a lot of the revenue.
Certainly there was a decent contribution from DSI and a small amount from PIV because that came in the latter part of the year.
I would add what you see happening in the fourth quarter is ---+ you clearly see the contributions coming from acquisitions that happened in 2016, DSI in the PIV.
But you also seeing the content that we built which I referenced around Accelerating Performance and you see that being flexed in the marketplace.
That Accelerating Performance is really new IP for us, it is based on market research along with what we look at as the best-performing companies across the Footsie 500.
You really saw all so all that coming together in the fourth quarter of 2016, it may be a bit on the high side but the direction is the right statement to take from it.
I think what we generally say, is if you follow the geopolitical headlines over the last couple of weeks or couple of months you could find reasons to pause in terms of what that impact might be in the economy.
We just don't see it in the economy.
We certainly don't see in the United States.
We don't see it.
If we see it anywhere we see it in, maybe a tad more in Asia but even there we had increased growth in the fourth quarter.
Europe, there's all sorts of reason to reflect or concern yourself with the noise, but it just hasn't shown up in the economy yet.
We certainly are seeking to achieve margin expansion and we certainly saw it more in the EBITDA side than the operating income side this year because of the acquisition accounting.
We were a bit more pleased with that but certainly---+ and we knew that this would be a year of investment largely driven by what we did in LC in terms of one of our more profitable business virtually turning that to into almost a breakeven business for the current year and expect that to turn around next year so we should see some margin expansion there.
I think from a standpoint the margin expansion will come if we can continue to hold or increase the size of the Search business because we are operating at a better level now for our expense base.
Second of all, it will also continue, it will be incumbent upon us to continue to grow the Leadership Consulting business as well as return LC back to profitability and the pace in which that happens will certainly be a big factor in driving margin growth.
I'll make to overall comments <UNK>, one is what you are seeing is the investment in the consultants we've had over the past 18 months start to generate that return.
That's why you see those numbers holding.
We feel good about having productivity in the $1.6 million range even with all the hiring that we have done.
You have a sense for---+ you don't always get that return without some time on the investment side and we are starting to see that return.
On the principal side we just have a strong amount of confidence in the principles in the firm as well as the principals to be that are being groomed in the firm and we want to balance our hiring between the experienced partner level and the principal side for a whole bunch of reasons.
We see---+ you saw it at the margin a little bit more investment by us in 2016 at that principal reason because of the confidence we have.
Sure, I think overall and I will have Rich pick this up but overall the reason to segment is frankly just transparency.
Transparency to you but frankly, also transparency within Heidrick.
We want people who are managing the business to feel accountable for it, to feel connected very directly with it, but also aware of how the other businesses are doing.
I'd say transparency and accountability were the main drivers certainly for investors but also frankly, within Heidrick.
<UNK>, what I would add to that too is we pretty much at this point in time have almost three relatively distinct business models now that we are managing with clear management teams within the business that have now come up to a different level of scale.
It became the right time to pull LC out of the Search business and give that transparency the [traits] refer to as well as more directly coincide with how we are managing the business.
I will take a moment also to go back to your first question just to make sure because you mentioned about the flattish headcount.
We are up in headcount relative to both total employees and consultants.
Part of one of the challenges and opportunities we have, that relates even back to the first question on margin expansion, is that we have to balance that continued investment in people to support the growth of the business and talent is still at a premium in our industry.
Try and drive that leverage across the business while we are supporting a higher amount of headcount.
In part it is due to the fact we use different leverage models in each of the businesses as well because in LC we are much more of a consultative partner with a lot of operating leverage underneath.
In Culture Shaping that is a slightly different leverage model as well and then Search is a little bit more of what we have been used to in the past which is a little bit more of a one-to-one-to-one ratio across our business.
Three very distinct businesses, lots of dynamics going on relative to the headcount, trying to shrink the overall G&A operating base as we continue to grow these businesses and at the same time take some of those savings and reinvest them back into technology to try and hopefully grow the productivity of the business.
The trade-off that we hope to happen over time there is that if we can continue to build the support ranks of the LC business we're going to need those types of people to actually fulfill the jobs ---+ the assignments we have from our clients.
The opportunity for margin expansion there is to get a better return because the cost of labor will be cheaper if we bring it in-house over time.
We are paying a premium to use outside consultants.
While we are comfortable doing it as we grow the business and as we deploy the IT we have in LC and Leadership Consulting, we are (inaudible) and our increasing the ranks at the principal and more general levels in LC for exactly that reason that you are asking.
And <UNK>, I have one other thing that the $11.9 million also includes general ongoing G&A, it's not all just third-party contractors and consultants.
We are not going to be able to give you a specific number on that not because we do want to but you understand we're not going to be able to do that.
I would say in general and this goes back to the earlier question as well about why we breaking out these business, we're breaking them out because we have confidence in our ability to break them out.
We have confidence in the growth in LC, it is an area of the firm that we are looking to grow for the reasons we described in terms of margin opportunity, as well as what it does to add value to our client.
I think the way you can view it is we are looking to grow all these businesses and we invested in all three of them in 2016 in a meaningful way.
Just the math, just the numbers means you are going to see more growth at the Leadership Consulting and Consulting level on a percentage basis.
We're going to want to grow those businesses meaningfully, is the way I would say.
We are going to want to continue to achieve scale for all the complementary margin reasons as well as just footprint and impact we can have on the Search business into acquiring talent.
What you see happening at Heidrick is we want to help companies both acquire the talent but then as that talent comes in-house how can we improve their performance, how can we improve it to our Leadership Consulting IP and platform and how can we do it with respect to Culture Shaping.
Okay.
Operator, thank you very much.
All of our business participants, thank you as well and we will leave it there.
Have a good rest of the day.
| 2017_HSII |
2015 | NSP | NSP
#Yes, that was the principal stated goal of the committee, but we will be continuing to work, as I mentioned in my script, on both the topline and bottom-line optimization, so we have had an emphasis on, as you can see from our results, on both growing the topline and really gaining some operating leverage, very much so demonstrated in these very good results from the second quarter.
But we want to continue that and we intend to work continuously with the Board on making sure we optimize that structure as we continue to accelerate our unit growth.
Yes, no question we have quite a cash machine here and operating in a nice way.
And historically, we have generated a lot of cash and we have, as you can see from the recent work in sales ---+ not sales, but share repurchases, we used our capital to continue to increase the dividend and buy shares back.
And as far as debt is concerned, we have a debt facility that is not drawn on today, but as we see reasons to do that going forward, we are certainly capable of doing that and wouldn't be reluctant to do that as long as we're adding value to our shareholders.
That's what it's about.
This is <UNK>.
What we experienced this quarter is what we have been planning to see.
Our markup component of our service fee has continued to match the kind of business that we are bringing on.
We have got certainly a mix in customers.
In addition to that, our allocations for all of our direct costs have been in line and better than what we expected.
What you are seeing is a little bit of a dampening effect on the revenue side because we are seeing continued migration of participants into lower-cost plans, and so that automatically reduces our revenue component.
But on the other side of the coin, we also have lower costs, so it's all working just like we planned it to be for 2015.
No, I think what we are intending to do to have clear communication of the things that are most important for investors to focus on, we're going to continue to guide toward our unit growth number and then adjusted EBITDA, because, obviously, there is moving parts going up and down in the direct cost and then also aggressive operating expense management initiatives, and what's important is to drive that adjusted EBITDA growth.
And so, we are planning to continue to give you a flavor of what's going on in those areas, but not focus on specific numbers of any one of those metrics that help to make that up.
Yes, that was actually the core market up 32% and Mid<UNK>et was also up significantly, but it is that mix in both products and services that we are providing and size client that continues to be a part of our going-forward strategy.
And although that has, like <UNK> just mentioned, an effect on average markup and et cetera, but it also has a corresponding effect on cost.
The other thing that's affecting the gross profit for the balance of this year is what Doug mentioned.
Our growth is actually expected to be faster for the balance of the last half of the year than we had expected a quarter ago, and in our model, since there is the double taxation that occurs in payroll tax when you add new accounts as any other time other than January 1, you have a dampening effect to the gross profit that is caused by the growth, which, of course, is good for next year as you get larger as you go into the next period.
And as Doug mentioned, that phenomenon in our business that has been there for 29 years, we have successfully passed that piece of legislation last fall that is scheduled to eliminate that double taxation into next year.
That's correct.
Well, that is the ---+ we look at that portfolio contributing at that gross profit line and it was a 19% increase.
Yes, well, after the first quarter, I think at our May Board meeting, was when the committee first weighed in on capital allocation.
And as you saw, at that time we increased both the dividend and I believe increased the share authorization, and then executed on that throughout the second quarter and into the third.
So their role is to continue to monitor and make recommendations in that regard through the end of the year and into the first quarter of next year.
It's a lot of specific initiatives in sales, service.
There is all kinds of ---+ our SBUs.
It's truly a deep dive into specific initiatives and it is pretty widespread across different areas.
Yes, absolutely.
You know, <UNK>, as you can see from our results, you don't grow the business 12% in one year with a reduction in operating expense without a pretty intense focus across the Company on operating cost, and so that's going to continue on, and those initiatives and more that have been identified are going to be implemented, very specific, down to specific line items that are affected by initiatives we intend to have in place.
Yes, remember that's ---+ the strategy is that as we have other offerings that have a lower price per customer, so we can retain more customers and add new customers, then we would have an offset at the gross profit line as the contribution from our other business performance solutions contribute at that line.
And that's really what has been happening, what's been working, and we expect that will continue.
No, it was actually ---+ costs were just a little bit higher because we had some large loss claims in the quarter that were a little bit higher than what we were expecting, so it really didn't ---+ it didn't help like it has in some of the previous quarters.
But as usual, you have ups and downs in the gross profit area or the ---+ sorry, in the direct cost area, and in total, things have been very stable for us for quite a period now and it is tightly managed by <UNK>'s group and going well in that area.
We barely have a 1% trend in healthcare costs year over year.
No, what I said is when you look at our annual trend right now, year over year it is up about 1%.
And I don't think there is a lot of companies that can say that.
(multiple speakers) remember, that's driven by the ---+ we had the strong reduction in the number of people on COBRA that occurred over the last year because of health reform and that certainly has had a significant help on cost, and then we've continued to have migration onto lower cost plans, and all those things add up to a well-managed and stable program.
Yes, <UNK>.
I think, again, we are guiding more to the EBITDA, which is a combination of the gross profit and managing the operating expenses, so I think as we discussed in some previous calls, with the new model we have and the contributions from the SBUs and the PEOs and the different offerings within the Mid<UNK>et space, we are focusing more on those metrics going forward with our analysts and our shareholders.
I think on the gross profit per employee number ---+ relative to what comparison were you asking.
I can talk about some of the factors that go into it.
Q3, if you look at us historically, has been fairly level with Q2, but in Q4 it typically goes down as deductibles have been met by our worksite employees, those under the benefit plans.
And we're picking up more of the medical costs in that area on Q4, so I think if you look at 2014, you're going to see a fairly similar pattern along those lines.
So I think that can help you out if you look at what happened last year, maybe some previous years, on the seasonality of that metric.
Sure, really didn't have a regional effect so much as ---+ which is good, in my view.
It is more the selling system really kicking in, the tenure of the sales team.
Obviously, we had a successful fall selling campaign last year and that feeds into a higher confidence level.
Then you couple that with boosting activity, lead generation activity, et cetera, it's a momentum and traction story that is across the board.
And then, the game plan is as the core business sales have these kind of results, then your Mid<UNK>et effort can be icing on the cake and build in a permanent premium to our growth rate, which we would believe ultimately translates into higher valuation.
So, it's a good plan and it is working and we are excited about where we are going from here.
It has actually been nominal, but in our world as long as it is a tailwind instead of a headwind, obviously we are a lot better off.
But our growth is being driven much more so by exceeding our sales forecast and historically high retention levels.
And I think what we are trying to communicate is that typical hiring in the base has been very, very modest and less, really, than what we would have expected.
And every year, there is a little bit of summer help comes on in May and June and goes away in August and September, but that's all factored in, and basically the net change in the customer base has not been as significant as we were hoping it would be, but it at least has not been a headwind.
We're really looking forward to finding out what it is like in that world, and we don't have the experience of it, but our expectation is that it should certainly even out the sales process.
And also, I think it does have the benefit of, I think, adding to the growth rate simply because anytime you have to sell something and then delay the start for a number of months, you can lose the wind in the sail when you do that, and we're expecting that with that going away, the whole throughput of that process should improve and should add to the picture.
So we are excited about figuring out what that means, but there's a lot of things that are driving our confidence right now in our growth plan and there is just tremendous upside.
I always like to let people realize our business, when you grow the worksite employees, you're also growing the risk.
You're growing the worksite employees unit of revenue, unit of profitability, and unit of risk, and it is so important to grow those units while you are managing the associated risk.
And so, yes, we want to continue to accelerate growth, but we also know it's a service business.
You can grow at a rate that is too fast to provide the service levels you need to provide, so there are other factors.
But we're excited about being back into the teams and the growth rate of worksite employees.
This model just is beautiful when you get into that level, and we expect ---+ the main goal is to be able to do that over and over, year after year after year, and really unlock value for shareholders by doing so.
Yes, that's what I really mean by evening things out some.
I think ---+ there will still be an emphasis, because it is just a matter of people want to do first of the year doing something different, start fresh, you know.
Some of the filing issues around being an employer, if you can avoid it for the full year, that's a benefit.
So there is administrative reasons, but I believe this new law is going to help us really even things out.
Once again, we want to thank everyone for participating today, and we look forward to continuing to work and improve on both topline and bottom-line results and we will be looking forward to discussions with you next quarter.
Thank you very much.
| 2015_NSP |
2018 | QNST | QNST
#On the gross profit, I mean, that was ---+ it looks like a 3x higher than last year, 30% revenue growth.
That's a really good result.
What drove ---+ were you guys expecting that degree of lift.
Or is that ---+ anything that's kind of not sustainable there.
Anything kind of onetime lift there.
Is that kind of a new go-forward run rate.
No.
It's nothing that's unsustainable, <UNK>.
That's kind of where we were expecting to be in the quarter at this revenue level, and I would expect that to continue.
Okay.
That's helpful.
And then on Katch, congrats on that deal.
When did that close.
Did you say early in the quarter.
It closed about mid-quarter, in November, was the close.
We had a couple of months of revenue from that in the quarter, <UNK>.
Okay.
And then I think you said $4 million or so in rev per quarter going forward.
Anything around seasonality there.
And also, if you can maybe help us with the margin profile, any kind of EBITDA contributions.
No real seasonality effect.
That's going to be pretty close to that as best we can estimate it.
There'd be some puts and takes on that business as we figure out what we're able to keep and grow and what we might need to take out.
But we think that's going to be pretty close to the average, more driven by those details of the business than by seasonality.
In terms of margin profile, very similar to our margin profile in terms of media margins.
Little lower than ours.
But once you put it into our mix, we pretty much lift it up to ours.
So it won't change margin profile.
It's still got of the ---+ we've said that incremental revenue tends to come in at about 30 points of margin and that is what we would expect with the Katch revenue as well.
Okay.
And then I might've missed this, but it sounds like you guys bought the assets of Katch.
Was it pieced out.
Were there pieces that were going elsewhere.
There were pieces that went elsewhere.
We only bought the auto, home, mortgage ---+ auto and home insurance and mortgage assets and then the technology platform assets.
There were health and life business assets that went elsewhere.
And I think they had some other pieces that I'm not as familiar with, but the 2 big chunks were the piece we bought, which were auto, home insurance and mortgage which we wanted.
And we wanted the tech platform out of the space basically.
And then the other piece we understand went to another company in the space.
We looked at all of it.
We got what we wanted, and we got it really at the price wanted to pay for.
Yes, it looks like you guys got it at a fantastic price.
We don't think any was pulled out of future quarters, Jim.
It would not be ---+ not something that we would expect at all.
I'm trying to think if there was anything that came through in that way, and I'm coming up with nothing.
So no, this was just a good, strong quarter in the quarter.
Yes.
I was not being overly precise with the mid-quarter thing.
It was in November, so I think it's ---+ I wouldn't read anything into that.
It's generally proportionate with the time we owned it in the quarter.
We're still not saying about 8% for the yearly EBITDA margin guidance.
That's correct.
We think that the general trend over the next couple of years should be that we'll add EBITDA margin ---+ that we'll grow EBITDA margin as we add revenue because we will grow fixed and semi-fixed costs significantly slower than we expect to add revenue.
And so that revenue and its approximately 30% of contribution it comes with before fixed and semi-fixed costs should drop disproportionately into EBITDA.
So we ---+ in terms of the actual number, other than that general model, I would say our intention is to continue to expand EBITDA margin to that top line leverage, but I don't have a specific number for you.
We aspire to get into the double digits again as soon as we can, and we aspire to keep pushing it from there.
This was absolutely opportunistic.
We are ---+ we look at potential acquisitions almost continuously, but there are none that I would say right now we are particularly excited about.
That being said, if and ---+ we're a pretty good platform for adding companies in our space if they fit our criteria, so we'll continue to review that.
I don't expect that, that's going to be a big part of our growth story or our strategy going forward.
That said, we will continue to be responsive and engaged and certainly opportunistic.
I just wanted to follow up on the insurance spend.
I know that you guys see that have somewhat of a whipsaw times, and just in relation to the hurricane activity.
Are you guys seeing any change in spend.
Or is there any change in mood or behavior.
We are not.
That said, a lot of the carriers still haven't come back to the market strongly after last year's loss ratio issues.
They haven't gotten their ---+ they haven't completely gotten their product where they want it in order to go out and spend aggressively in marketing.
But we are not hearing from the carriers that are spending with us anything about loss ratio effects from the hurricane season and from the losses associated with that.
Okay.
And then last one for me.
On Education, you guys show like you're kind of bottoming out there.
Is it just plus or ---+ give or take 5% growth here and there.
Any kind of thoughts there.
The general trends continue to look better as we've said.
It's hard for us to call the bottom because it's been such a difficult period in Education, and you still have a lot of companies who are not fully adapted to the new model.
But as you've heard me say before, we've ---+ most of the companies that were the most exposed in a negative way to the new regulations are either gone or have dramatically downsized.
Most of the companies that are left have ---+ are at least a few years into their ---+ into adapting to the new operating environment.
And as a proportion of our business, for-profit Education now only represents 12% of total revenue, so it can only hurt us so much.
So I think we kind of look at it like that.
I don't mean to make it sound like we're not engaged and hopeful for Education because we are.
I think if you were to twist my arm right now, I'd tell you that I think there may be more upside potential versus expectations in Education over the next few years than more downside.
And that's a pretty profound shift versus where we've been in that business vertical and that client vertical over the past 5 years or so.
Sure.
I lied.
I have one more.
As far as capital allocation, it doesn't sound like M&A is much of a use.
You don't have any debt to pay down.
What can we think about cash from here.
We're still going to focus on keeping that cash on the balance sheet for the most part.
Number one priority will be finding opportunities like Katch or like the AWL partnership to deploy the cash in a way that gives us strong leverage and strong return in terms of the business impact.
A distant second will be we have in the past and we will continue to review whether or not it makes sense to buy back stock.
And when we see a ---+ when we feel like we have an excess, if we ever had that of cash and there's a big difference between what we think we're worth and where the stock's trading, we'll continue, I'm sure, as a board to review and discuss that option.
And ---+ but I think the ---+ and first and foremost, we're going to keep a strong balance sheet to make sure we have plenty of flexibility and resilience as we continue to put in place the elements it takes to have a strong, growing business for a lot, lot of years to come.
Second would be, hey, are there Katch and AWL type opportunities out there.
And then third, as we've done over the past few years, we will periodically review whether or not it makes sense to maybe buy back stock.
That's something that we have had a plan in place for and we'll continue to have plans in place for, if and as it make sense and if and as the stock is trading at levels that we think are well out of line with the value that we think is ---+ that it actually has.
From a 606 standpoint, Wally, our initial assessment is it really ---+ it's more of a disclosure issue for us, the way our business operates.
So I don't expect it to have any real impact on the business.
From a tax perspective, given the fact that we are under full valuation allowance, more primarily domestic based, I don't expect that to have a big impact on us as we're not going to be a taxpayer for quite a while.
What it will do is it affects ---+ you'll gross down your deferred tax assets, but your NOLs won't change from that standpoint.
So I don't expect either of those to have a big impact on our business.
You're right, Wally.
The new regulations are not so new anymore.
And I was referring to those that were promulgated in the Obama administration.
You're also right that the new administration has proposed loosening a number of those regulations and perhaps even eliminating the gainful employment provision that hasn't been approved yet or promulgated yet.
But certainly the environment is better when it comes to regulations because the Department of Education is ---+ in this administration is at least less proactive in their efforts to control or regulate or otherwise affect for-profit Education than the previous one.
So I would say that ---+ but that all said, most of the companies in this space are assuming ---+ and I think this is prudent, are assuming that the new regulations won't go away and that even if the regulations are loosened in the current administration, there's not insignificant risk the next administration could be democratic again and it could be right back where we started.
So I think they are, for the most part, operating as if they're going to have to live with these relations forever.
| 2018_QNST |
2016 | MON | MON
#<UNK>, thanks for the question.
As you kind of hinted at, this is a trend that is increasing.
We breed towards that, so as we're looking at new varieties we're breeding for varieties that thrive in higher-density populations.
And then I think the developments with climate and digital agriculture allow us to vary that plant population across a field.
But, <UNK>, if you look right now this coming year or near term, how is it shaping up.
If you look at the year we just finished in 2016 and the year we're going into in 2017, you can clearly see the trend continuing across corn, particularly in North America where planting populations are increasing a bit.
And it's exactly what <UNK> was describing.
That's part of how you drive yield is increasing the plants in the field; you just have to have genetics that work in that environment.
That's starting to happen in South America, not to the extent that it has in North America.
My anticipation is tools like Climate are going to help dramatically in South America to help the farmer better understand the value of increasing seeding populations, because it's counterintuitive.
Sometimes when they are stressed on commodity price and profitability, they look at seed and they want to back off, but that's the worst thing that they can do.
Now I will tell you, some of the data we'll show you in soybeans that there may be opportunities; in some varieties they are being over planted.
Again, I think that's the beauty of the analytical tools that we're developing in Climate.
It isn't always to sell the farmer more; it's to optimize the decisions that they are making to increase the profitability on the farm and I think that sometimes is misunderstood.
It's all about helping them make a better decision.
Sure.
So when we're looking into 2017, we see definitely a return to growth in our Seed and Trait business.
And actually, just stepping back into 2016 ---+ and <UNK> partly covered that ---+ but when you look at 2016, if you just look at corn and soybeans, if you exclude the impact of currency, extremely challenging environment.
We've been able to grow gross profit in both segments, in corn and soybeans, if you exclude the currency.
So there is some really nice momentum that's been building and I think our corn business has shown some very nice resilience there.
If you assume entering into 2017 more stable currencies, we are confident this is a business that's going to be growing in 2017.
And two of the elements you mentioned related to the tailwinds are effectively going to help us continue to grow, but it's really the dynamics of our two blockbusters.
In soybeans, Xtend and Intacta, now that the bases have been set, and in corn, this is ---+ as <UNK> was mentioning, this ability to continue to have some level of germplasm mix lift and some level of share gains.
Now regarding the tailwinds, we see a fairly significant tailwinds in terms of cost of goods when it comes to Xtend, as you mentioned.
So we quoted about $150 million of headwinds this year and we said about two-thirds of those we will be able to recover next year, and this is still absolutely valid.
In terms of corn, we will see the tailwind associated with more production and that's as we mentioned.
However, in corn, we are also seeing some higher costs in Brazil related to commodity price, currency, and a couple of our elements, and we are also upgrading our seed treatments across the board on our corn cost of goods.
So we're not going to see as much tailwind as we were expecting definitely in the corn business, but in soybeans the Xtend-related costs are definitely going to show up.
We've not been looking at the details of our quarters in terms of our prepared remarks.
However, when you look at Q1, the way we are thinking about Q1 is that it should be similar to slightly better than what we saw last year.
<UNK>, thanks for the question.
We've obviously been involved in these discussions.
<UNK>, maybe just some headlines.
Good morning, <UNK>.
I think ---+ let's start with the seed law and then where we go from there.
I think you use the operative word: the draft language for the seed law that included the three years.
We continue to work with the coalition down there and that's a coalition made up of seed companies; trait and technology providers, both from Argentina and outside of Argentina; grain handlers; and interested farm groups to work with the government on the new seed laws.
We pushed back substantially on that.
They are looking for investment in agriculture and that just discourages investment in agriculture.
We've given that feedback and we think that's been well understood, but we'll continue to work with them on that draft language.
In the interim, there is a resolution in place that we can work with that we did this year.
We will continue to work with the government and the coalition to execute that resolution going into next year while we're in conjunction working on the new seed law.
And we will continue to look for better and better integrity in the system.
As it speaks specifically to Xtend, we will continue to hold back on our Xtend technology until we see a system that has a higher level of integrity than what we currently see today.
That can either be a new seed law that's negotiated to a better place or it can be improvements in the system that we already have operating that are satisfactory to the coalition.
So we'll keep working on them, but we're going to hold back Xtend until we are confident it's in a better place.
Good morning, <UNK>; this is <UNK>.
Happy to.
And, by coincidence, I was just in Brazil last week, so fresh on my mind and had the opportunity to talk with a number of folks down there.
So a couple of things.
One, I think first you mentioned Intacta.
We're still finishing out the agreement we had with farmers from a number of years ago when we made the transition, so we are priced the same as we were last year and the feedback from farmers is Intacta continues to deliver phenomenal value in the market.
Anticipation is strong for increased yield ---+ sales, as reflected in the significant pre-pay that we enjoyed this year based on Intacta.
In regards to corn, we took significant double-digit price increases across the corn portfolio.
I look at it as trying to get back some of that loss from currency that we've experienced in the last year or two.
And so far, so good; it's working.
The farmers understand.
We just have to be respectful of their situation and work with them and communicate and so far, so good.
We'll continue that approach as we start looking at safrinha, which will be on top of us right around the corner.
I think the only thing I'd add, Bob, is the impact Intacta has had on insecticide sales there, too.
Growers are seeing great results and they have been a lot more accurate and a lot more careful in their insecticide application, so we're seeing some nice substitution opportunities in the last two seasons.
So answering the second part of the question, yes, this is comparable.
These are comparable numbers.
I mean it's just the balancing between the segments that we tried to represent today in our prepared remarks.
The way we are thinking about those strategic deals is more in terms of important transfers of either IP or, in certain cases, assets, compared to ongoing licensing that we have on our lines and some of our traits.
So it's really ---+ those are more unique in nature and ---+ compared to what we see in our business.
So that's a distinction that we make in terms of the strategic licensing compared to the ongoing licensing that we have commonly.
<UNK>, you're right; you did ask <UNK> the easier of the two questions.
Thanks for that.
It's a $1.6 billion threshold.
The composition of that or the properties that will be sold versus retained hasn't been made public yet, so it's hard for me to comment on that.
But I would go back to my earlier point that compared to the Syngenta deal that never happened; the overlap in this deal is significantly less because there is much smaller overlap in the seed properties.
We'll see how this plays out, <UNK>, but I think as we look at the overlap, or the lack of overlap, I'm encouraged on how the two properties line up.
No, thank you.
<UNK>, thanks very much for the two questions.
I think ---+ taking the last piece first.
As you look at innovation, I think, number one, the need's never been greater.
Number two, I think there's the capacity to accelerate innovation, particularly in the area of digital agriculture and particularly in the area of precision agriculture where we're developing software and where we're using, literally, harvested data to improve decision quality on ---+ decision quality on farm.
So I don't ---+ there's a piece of this I don't think you wait 10 or 20 years; there's a piece of this I think you see very quickly and <UNK> used some of those examples in his prepared remarks.
So I think there will be evidence of that acceleration as you bring these platforms together.
And to <UNK>'s point, I don't think that's increasing cost for the grower; I think it increases efficiency.
It unlocks that extra bushel.
And then it's hard to say on the proxy, but our expectation would be by the end of October.
The merger agreement is already out there, the frequently asked Q&As are out there already, and then the proxy will contain the next tranche of information around the deal and the history on the lead up to the deal.
And I would expect we'll see that around the end of October.
I think what ---+ to your point earlier, time will be the proof of this.
But I think the more that you can bring up in that platform faster, the quicker you build insights for the grower.
If you think back, between Climate and Precision Ag, we're in our third season.
<UNK> talked about 95 million acres, so very, very fast growth.
But it's the quality of the data that you bring in the platform.
The machinery company is now up, all of US distribution now up, and I think when we bring the Bayer crop protection materials up, you just increase the density and the subsequent quality of decision-making.
We've always said that there would be space in that platform for all of our competitors as well, so I think that this will be a broadly-licensed platform.
And then the competitive element of this will be who delivers the best insights and I think Bayer will really help in that.
This is <UNK>.
When you're looking at the 20%-plus growth we are looking at in terms of the soybeans business, it's really ---+ I mean, three different things and all are significant and matter.
The first one is the continuation of Intacta, the growth of Intacta in South America where we are anticipating to be on 45 million to 55 million acres.
So this is a fairly large bucket of the growth we are looking into soybeans.
The second element is related to our Xtend launch in the US, where based on the launch we had or the limited launch we had in 2015 or 2016, we feel very confident that we'll be able to reach the 15 million acres.
And the feedback we get from the field, the demand there is really very strong, so we feel very good about also those 15 million acres.
Then the third element of the growth is what we discussed earlier, which is basically the absence of some of the costs we saw ---+ the launch costs we saw in 2016.
And we were talking about $100 million there.
So these are the three key drivers of the growth in soybeans and that's why we are very confident that we're going to see this 20%-plus growth in our GP in soybeans.
The way we've been thinking of the guidance in general, and as every year, when we enter the year we've got a range of assumptions and currency is definitely one of the assumptions and definitely this is a sensitivity.
The way we are looking at South America currencies right now are ---+ especially the Brazilian real ---+ is fairly favorable.
But this is part of our range of guidance, so definitely this is an element that we've been considering.
So thanks very much for your questions this morning.
Let me just briefly summarize as we try to respect your time.
A big year ahead for Monsanto.
Our plan to return to EPS growth in 2017 is on solid ground and we are now eager, as a team, to get started.
Simply, if you look at the year ahead, we've two priorities: delivering on the operations and the key milestones for the year to deliver that growth, as well as executing on the necessary steps to close the deal with Bayer.
As the year progresses we will look forward to updating you as the process unfolds.
Thanks again for joining us on the call this morning.
All the very best.
| 2016_MON |
2016 | AROC | AROC
#Good morning, <UNK>.
Sure.
This is <UNK>, <UNK>.
As we thought through it, when you get to the 50% reduction level, you have eliminated all of the IDR payments made to AROC and you have cut the LP distribution by 50%, obviously.
We feel like that was the right place to get to.
If for some reason there is ---+ the market conditions are worse than we even anticipated ---+ anticipate more than we worked with in coming up with the 50% reduction.
We think there are other mechanisms we can employ that would be more additive than another distribution reduction.
We feel pretty comfortable that this 50% reduction should see us through the downturn.
There is not.
No.
Our pricing [grid] remains the same.
Thank you.
Thanks, operator.
I want to thank everyone for participating in our first-quarter call.
As we discussed on last quarter's call, market trends in the first quarter followed those that we saw late in 2015 and we believe we have demonstrated Archrock's ability to quickly right size the business and maintain our margins.
We expect the next few quarters to be challenging but we've taken the measures that we discussed on this call to position Archrock to navigate this downturn and participate in the recovery.
We now believe we have a solid balance sheet, ample liquidity, strong coverage.
We will continue to maximize that performance that this relatively stable compression business delivers.
As we do so, we will remain focused on providing exceptional coverage and service to our customers, protecting our balance sheet and leverage positions and maximizing our free cash flow.
I look forward to updating you all on our second-quarter call later in the year.
Thanks again.
| 2016_AROC |
2015 | NOC | NOC
#Sure, thanks.
In terms of Joint STARS, first let me start off by saying we're delighted to be able to team with both General Dynamics and with L3 to put together an offering that we think will just do an outstanding job of meeting the requirements and doing so in a very affordable manner.
So we're delighted with that partnership and looking forward to the competition.
The other competitors that have announced so far my recollection of that is both Lockheed and Boeing have announced their interest in this competition.
So that'll make it a very good competition and we're looking forward to putting together a very competitive offering.
The current state of play on Joint STARS is all public information.
The Air Force has indicated that they're planning to award a development contract sometime in 2017.
I think right now they're talking about towards the latter part of 2017.
And then play it out from there in terms of getting to production or production representative aircraft.
And then roll that on into production over the course of the 2020s.
So we're focused on two things.
Obviously we have responsibility and accountability for maintaining and sustaining the current fleet of Joint STARS.
But we're of the belief that the new program can move along as quickly and should move along as quickly as the Air Force can support it from a funding perspective.
And in fact we think the nation would be served well by moving it along very quickly because the technology is ready and it's a matter of integrating and getting the aircraft flying.
On TX, that too continues to move forward.
There we're delighted to partner with BAE Systems, and I think as you may have read a little bit or seen some of the coverage in some of the industry trades, we're focused on a new development type aircraft.
And we're looking forward to having a bit more to say about that in the coming months.
But we believe we'll be able to put forward a very compelling offering there as well.
I will tell you that the Air Force has been indicating, continuing to indicate, that TX is an important priority for them and that they're going to continue to be supporting that in their overall budgeting approach.
So we're looking forward to being able to compete on that and provide I think a very compelling offering there as well.
Sure, <UNK>, no problem.
At AS, I would say the largest driver for the quarter was unmanned in terms of top line what drove the performance for the quarter.
And then your second question in terms of in-theater, the biggest in-theater impacts that we see are at IS and ES.
And we project about a $200 million reduction this year in in-theater sales to I think it's about $700 million for the year.
And actually last year, the bigger piece of that reduction was at IS, this year the biggest piece of that reduction probably two-thirds is ES.
Just as the different programmatic and programs that they have in-theater are ramping down.
So that's where we see it for this year and $700 million is the baseline for 2015, and beyond that we haven't yet I would say put pen to paper on what that would look like.
Yes I think it's very possible that a shift in the environment may cause a variety of additional opportunities to become present in the marketplace.
But for us the question would always be value.
And whether or not any particular thing that we're looking at stacks up well relative to our other alternatives.
As I've said in the past, and I feel that way today, when I look at our footprint here in the US, I really don't see a big burning hole in our portfolio in some way.
And that therefore puts us in a position where we feel really good about our portfolio.
Our decisions are really genuinely going to be value-based.
And we really have to see the business case for something to makes sense for us.
So the thrust of your question was whether there may be more opportunities coming into the marketplace and yes, there may very well be.
The question will be, how will they stack up relative to other alternatives.
Well, I think you have to look at all the alternatives.
Clearly we've talked about our interest and our history on share repurchase.
We also look at our dividend, but we also look at investing inside the Company where we have a lot better insight into what the possibility of return is and we have a lot more ability to affect that outcome.
So I would ---+ I didn't put all the words into the prior answer.
I would add the word risk-adjusted return.
We really do think about the risk part of the equation as well when we think about overall value.
But as we go forward, we'll continue to look at what our long-term view is of the Company's valuation.
The answer to your question is yes, clearly our share repurchase program has been a big part of our success in generating value for our shareholders.
But history has not yet ended.
We keep looking forward and are convinced that we have a lot of opportunity on a go-forward basis to continue to generate value and we take that longer term view when we think about share repurchase.
We're not just looking at the price as of today.
We take a longer term view.
And that's served us really well.
As I said we've been at this now over a decade and our average price of repurchase over that decade looks really, really attractive compared to where we're trading today.
And we think about our share repurchase program with that type of very long-term view.
I'll take the first part of the question and turn over to <UNK> for the second.
In terms of capital, we've talked about the amount of capital expenditure we expect to incur in 2015.
We've talked about a number of around $700 million we think that's ---+ at this point we think that's a reasonable number of where we are for the year.
And given what we've seen publicly about the timing of an LRS award, I don't think that impacts us significantly one way or the other.
I would say that we don't provide guidance beyond 2015, but one way or the other as <UNK> mentioned, we do expect to be strong generators of cash flow, whether that's cash from operations or free cash flow as we project out beyond 2015.
And <UNK>, on your question regarding whether an outcome on LRS would change our perspective on M&A, let me get to what I think is underlying some of the questions we're hearing in that regard.
And that goes to essentially to the question of scale or top line growth.
And I'll say what I've said so many times in the past, we do not manage our Company on the top line.
We manage the Company based on value creation.
In fact, over the last number of years we've taken a number of actions that have very intentionally reduced our top line because we saw those actions as accretive to value.
And that's the way we're thinking about our overall value proposition.
So the question of if we're not successful on one thing or another and perhaps that means our sales are not growing as quickly, do we try and make that up some way with M&A.
That's not the way we think about it.
What we do think about is look at each of the alternatives that we see that are available to us in one way or another.
Stack them up against our priorities, stack them up against risk-adjusted value creation opportunity and make our decisions on that basis.
And that's the way we're going to be doing it.
Great.
That concludes the call.
I apologize we didn't get through the queue.
I will be in my office for anybody who wants a follow-up call.
And with that, <UNK>, I'll turn it over to you for final comments.
Okay, thanks, <UNK>.
I'll just wrap up by saying what I said at the beginning of the call, our team across the Company is absolutely focused on performance.
And that focus and commitment is really serving our shareholders, our customers and our employees really, really well and I'm very, very proud of what our team is doing and how they're getting it done.
We certainly appreciate all of you joining us on our call today and we also appreciate your continuing interest in our Company.
Thanks for joining us, everyone.
| 2015_NOC |
2015 | COL | COL
#For this year we've assumed that they sustained rates for FY16 ---+ and by the way they would have to cut rates here within the next quarter probably to have any impact on our 2016 - so the real question is how many aircraft in our FY17, and we've got a little time before we're providing 2017 guidance on that.
I suspect we will have a better handle when we do put that guidance out.
Typically, this is an area where we do align pretty closely to what the OEM is saying.
We don't find much variability, so I'd listen to what Boeing says and assume that's going to flow-through to us.
By the way, the 777 is, the existing 777 is a pretty high BFE-content airplane for us, so it's not ---+ a rate cut will have some impact on us.
First of all, the predominance of the low double-digit decline was the Globals.
Then as we said we provided some additional ---+ what I will call general discount to the mid-to-light going into the year.
No, I haven't seen that necessarily consumed, but I'm also ---+ we are just starting and market conditions have been generally soft.
I will say that the announcements or the earnings calls since we put out guidance haven't indicated significant weakness in production rates, so hopefully I'm wrong and won't need the discount, but I think it is prudent given the history we have seen ---+ and utilization rates just have not been very strong and backlogs still are relatively weak ---+ we will have to see how that plays out.
What really drove in the quarter was mandate-related activity.
We've got a couple new FANS which are navigation system updates that we've got certified and will enter into the market.
We started to see a little bit of that.
But I would say the good quarter was, from a discretionary perspective, was predominantly the mandate-related activity.
That mandate activity is going ---+ is not going to grow in 2016, that will probably be a little bit of a headwind for us going forward into 2016.
I don't know.
I guess about mid-single digits.
I would agree.
I think we've reached a steady-state run rate on 787 sparing, so I agree with you, I don't think that's going to be headwind next year for us.
It was $16 million in total, <UNK>, split basically 50/50 between the two businesses, so $8 million each.
Sure.
No, we will treat it as ---+ the restructuring charge itself we'll treat as outside of Sigmund operating earnings ---+ that's what we typically do.
It is coming down about $40 million year-over-year.
I'm struggling to remember the chart you are talking about.
I suspect there is incremental spending largely on things like the C-Series and Globals.
Because both of those programs have been delayed.
I was thinking more like $140 million, but yes, but I do think the large ---+ the vast majority of the additional spend is related to those Bombardier programs.
That one is a very meaningful competition for us but not for 2016.
They are going to select multiple suppliers ---+ by the way the proposals have been submitted so they are in the source selection process right now.
They will select multiple suppliers.
Two or three is the indication that we have that somewhat is dependent on the compliance level of the proposals that go in.
But part of that program includes once you are selected, you provide prototype radios to the Army, and then they go through a test and evaluation program before they turn around and buy quantities of radios, so all the revenues will be outside of our FY16.
In terms of other big programs in Government Systems, we've got quite a few International C-130 update programs that should come to source selection here in the next six months, so that's a space to watch because we are anticipating some of that will drive growth for us in a second half.
And then we have just the significant quantity of smaller-level programs.
I will say it was nice to get both the R210 and the MIDS IDIQs in place so that we can get the annual buys bought against those.
And again those are ---+ R210s going to drive some growth for us as well as the datalink, the MIDS is a datalink.
That will drive some growth for us in 2016 as well.
We've got the base contract but we need to get the IDI ---+ or the annual buys done in place against those base contracts.
We are also seeing some uptick in GPS ---+ modernized GPS awards, and so that's another space to watch over the year because I'm anticipating some pretty good growth in that area as well.
We had good growth last year with some launch customers.
We're working a couple campaigns right now, nothing yet that I can announce but we are expecting to continue to also see growth in 2016 with that large-format display retrofit program.
No comment on the first program.
Obviously, the JTRS program which is ---+ we've got to bring pretty much a non-development item radio to the table so that's quite an investment.
And then we are continuing to always invest in next generation capability, particularly as we are bringing commercial flight decks into the military market.
So for example some of the rotary wing applications that I talked about, typically what we need to do is bring Fusion components but militarize those, and we will spend R&D doing that militarization work so that we can be competitive in bringing those commercial technologies into that military market.
Operator, we have time for one more question.
I would say X Bombardier we are talking about mid-single-digit growth for Commercial Systems on an organic basis.
As it relates to total Bombardier revenues, it is probably under 5% of the total ---+ our total revenue at this point.
Thank you, Sean.
We plan to file our form 10-K in about three weeks, so please review that document for additional disclosures.
Thank you for joining us today and participating on the conference call.
| 2015_COL |
2016 | HRC | HRC
#<UNK>, just to add to what <UNK> said and to frame it a little bit, even though they are relatively small regions, certainly compared to Western Europe and North America, the Middle East and Latin America cost us about 3 points of constant currency growth here in the first quarter.
So we came out of last year, as I'm sure you'll recall, with about a 7% constant currency growth throughout the year, we had 3% here in Q1.
Latin America and the Middle East, for all the reasons that everybody on this call are all too familiar with, cost us a little over 3 points in growth.
So, as <UNK> said, Europe's hanging in there, it's not blowing the doors off by any means.
But we are certainly in line with our expectation.
But those two regions, which as I said in my comments, are going to continue for the foreseeable future, have really dampened our constant currency growth momentum that we came into the year with out of FY15.
Thanks a lot.
Yes, I think given the relationships we have got with HealthTrust and some of the contracts we have got, it should be a net positive.
We have already got a pretty strong position with Tenet.
But net-net, yes, I think it will be beneficial to us.
I think if you look at our first quarter, 7% year-over-year constant currency growth from Welch Allyn pretty much answers that question.
As <UNK> mentioned, that was the strongest quarter of their year.
So we're going to see sequentially a drop-off here coming off their strong first quarter.
But we're confident we're going to accelerate the growth from what they had historically, which to remind everybody was about a 3% constant currency growth.
Our guidance for the full year is mid single-digit.
We are off to a great start here in the first quarter.
Thank you.
Hey, Matt, this is <UNK>.
I will start and <UNK> can add some color on this.
But the R&D tax credit to us is a big chunk of that.
That's worth probably $0.06.
The beat in the first quarter of about $0.03 gives you $0.09 right off the bat.
We're going to have ---+ you've seen that we've taken our guidance up on both Welch Allyn and our North American business.
That's offsetting ---+ more than offsetting international business declines.
You've seen that we've taken our guidance down there.
So all that said and as <UNK> mentioned, the medical device tax being largely reinvested, gets us into the range ---+ the new range that we are now guiding toward.
Yes, Matt.
I think that's a key point that <UNK> made.
Two things.
The mix impact of stronger revenues in North America offsetting weaker revenues in international are benefiting earnings.
Then the device tax ---+ we quantified that the total impact was about 12% ---+
$0.12.
$0.12, excuse me.
As I mentioned in my prepared comments, we are reinvesting the majority of that into areas where we're seeing some growth, which I think I addressed on an earlier question.
So it's a combination of all of that.
The stronger Q1, the R&D tax credit, and then the mix benefit of the strength of Welch Allyn and North America.
The offsets are really the reinvestment of the device tax.
Matt, just to add to that, this is <UNK>.
Gross margins, again, are up a couple hundred basis points here in Q2.
I think the one area that's probably higher than what we expected coming into the year and possibly higher than where the Street was, is our tax rate.
I think <UNK> commented on the negative impact of the geographic mix that we're dealing with this year with international having a pretty weak year.
That's not helping our tax rate.
I think it's pretty much in the first quarter all but offset the benefit of the R&D tax credit.
So the tax rate's definitely going to be higher than what the easy math would lead you to just by rolling in the full-year R&D tax credit.
But aside from that, I think we're pretty much in line with where we were.
Obviously, for the full year, higher operating margins and higher net earnings, operationally as well as resulting from the benefit of the R&D tax credit.
Yes, Matt, if you look at the first half, second half, first half EPS growth and second half EPS growth will both be in the ---+ in excess of 20%.
So, yes.
Yes.
Again, we are not going to give specific segment or even part of a segment revenue guidance on a quarterly basis.
But we had a strong Q1 with 11% growth.
The margins are up in North America.
I think we're delivering exactly what we said we would be delivering in the rental business here in North America, which was stronger growth and improving margins as we benefit from the volume gains that we achieved last year.
So we're feeling good about that business.
Thanks, Matt.
Yes.
I think you're probably addressing the large capital investment we made last year in the rental fleet.
That's pretty much behind us.
We're now in maintenance mode with that business.
So we're back to a normalized investment level.
I think, as my comments to Matt's question just indicated, the operating leverage that we are able to get and historically have gotten off of that business on the back of volume gains, we're driving the heck out of our cost structure to ensure that we continue to drive that operating leverage to stronger margins, which we saw here in Q1.
Okay.
Thank you everyone for joining our call today.
| 2016_HRC |
2016 | TFX | TFX
#So, as we look at the guidance that we have outlined, I would say there's a couple things going on ---+ first of all, strong operational performance.
As mentioned, we also have some FX benefit and we're doing two things with that.
One is flowing some of that through to the bottom line to increase guidance, and the other is funding investment behind some of the new product introductions.
As we've talked throughout the call, you've heard a number of areas of investment.
One was behind Vidacare.
Additional cadaver labs are seeing great returns on those investments.
In addition we've received very, very favorable feedback from the doctors who have been trialing the Percuvance product, and we want to make sure we are out there providing the support to help that product get up and through the hospital's value analysis committees.
And so there are a number of new products that are in the pipeline that we want to make sure there is adequate funding behind.
So if that's helpful.
<UNK>, do have any other.
No, I think the reason we are putting the additional investment behind Percuvance is because of the very positive feedback.
The fact that we are ready with this next generation of product, what we've seen is that the more institutions we can get into the funnel, our hit rate getting through the value analysis committee is very high.
So we want to make sure that we are getting more and more doctors introduced to the product, more and more surgeons using the product, and more and more surgeons willing to go to the value analysis committees and take their case to use this product.
And, <UNK>, this is <UNK>.
Just to address your first question on FX, there's really a lot of puts and takes in terms of the different currencies that swung during the course of the year versus our original expectations, many of which, from a profitability standpoint, don't have still that same impact.
So while the euro was a little bit favorable compared to probably our initial thoughts, there are other currencies like the pound, the Canadian dollar, and a variety of others that we operate in that kind of went in an opposite direction, still keeping that full-year FX rate headwind assumption to revenue at about that approximately 2% type level.
Good morning, <UNK>.
<UNK> here.
You are correct, not a big piece of it is Percuvance.
LMA protector is somewhat of a contributor in the second half.
The main contributors are the ones that I outlined earlier when I was talking about our growth for the quarter.
Our Chlorag+ard pre-loaded PICC is a big driver in the second half.
Within our surgical group we have the MiniLap EFx and ISI port, and our laryngoscope blades in our surgical business unit.
So again, what we expect to see in Q3 and Q4 is an incremental improvement and a sequential improvement in our new products.
And also, <UNK>, what you want to bear in mind is, in some instances, let me take the Chlorag+ard PICC, for example, there is some cannibalization within that number.
So what we see in the first half of the year is, even if the product is not in the marketplace, we're still selling the core PICC not pre-loaded to that customer, so you'll see it represented in volume rather than in new products.
So, normally you would expect to get ---+ first of all, we're not going to change our expectations for Percuvance, <UNK>.
We're going to maintain the $300 million to $400 million as the market opportunity until we get farther down the road here and get some traction on it.
So we will maintain that.
And it was based on a US number, you are correct.
But nonetheless, to be conservative, we should maintain that number.
What we are seeing within Europe is similar to what we're seeing in the US, and it's very, very strong acceptance of the product.
The one thing you want to get from a product, <UNK>, is it needs to be intuitive.
When you put it in the hands of the surgeons, they should get it immediately.
And with this product, they do.
They get it immediately.
Similar to the US, they're not called value analysis committees overseas, but there is a pricing board, similar methodology that you go through to get the product approved, and that's what we are working through at the moment.
In Europe alone, we have over 70 surgeon trials that we've completed with this product.
And again, overwhelming enthusiasm from the surgeons.
It's just a question of working it through the system in the individual countries, and it's different country by country.
So we haven't pulled back from our enthusiasm for the product, but by the same token, we're not updating that $300 million to $400 million market opportunity, <UNK>.
We did.
So we've increased that by 50 basis points on the lower and upper end to 24% to 24.5%.
Thanks.
Thanks, operator, and thanks, everyone, for joining us on the call today.
This concludes our second-quarter 2016 earnings conference call.
Have a good day.
| 2016_TFX |
2017 | SAFM | SAFM
#Thank you.
It does not include any bonus or ESOP accrual.
10%
10% of our business.
Yes.
You bet.
Good.
Thank you for joining us this morning and we'll look forward to reporting our results to you throughout the year.
Thank you very much.
| 2017_SAFM |
2015 | EXPO | EXPO
#Thank you, for joining us today for our discussion of Exponent's second quarter financial results.
For the quarter net revenues increased 4%, to $75.3 million, from the same period a year ago.
Net income for the quarter also increased 4% to $11.7 million, or $0.43 per share.
We are pleased with our results in the first half of the year, delivering revenue and profit growth along with improved margins and utilization.
Even as we increased headcount in order to drive long-term progress in both our proactive and reactive services.
Our underlying business continue to grow in the high single digits, but as expected, was partially offset by a decline in defense work.
We are pleased that during the quarter we continue to be retained to investigate the most significant accidents and failures and we continue to see strong demand for our proactive services in consumer electronics and medical devices.
We had notable performances from our materials, biomedical, polymer science, structural engineering, thermal sciences, biomechanics and construction consulting practices, as well as from our environmental group.
As we had previously indicated, we expected the last of our three major assignments, which has been approximately 4% to 5% of our revenues, the step-down in the second half of 2015 to approximately half that run rate.
However, as a result of a proposed resolution of this matter, our efforts going forward will be de minimis.
<UNK> will elaborate on the details of our forecast in a few minutes.
During the second quarter we continue to repurchase common stock in the open market and completed our two for one stock split.
We also paid shareholders a dividend and we'll continue the payment of a dividend of $0.15 per share in the coming period.
We are focused on ways to continue to deliver shareholder value.
Now <UNK> will provide a more detailed review of our financial performance and outlook.
Thanks, <UNK>.
For the second quarter of 2015, revenues before reimbursements, or net revenues as I will refer to them from here on, were $75.3 million, up 4% from $72.3 million in the same period of 2014.
Total revenues for the second quarter of 2015 were $79.9 million, up 4% over $76.61 million one year ago.
Net income for the second quarter increased 4% to $11.7 million or $0.43 per share, as compared to $11.3 million or $0.41 per share in the same quarter of 2014.
EBITDA margin or EBITDA for the second quarter increased 5% to $20.6 million versus $19.7 million last year.
For the first half of 2015, net revenues also increased 4% to $151.4 million and total revenues increased 5%, to $160.2 million.
Net income increased 8% to $22 million or $0.80 per share.
EBITDA increased 7% to $39 million over the same period of last year.
In the second quarter of 2015 net revenues from defense technology development were approximately $800,000, as compared to $3.7 million in the same quarter last year.
For the first half, net revenues from defense were $2 million, as compared to $6.9 million in the same period of 2014.
We continue to expect revenues from defense to be in the range of $500,000 to $1 million per quarter for the remainder of 2015.
For the second quarter, billable hours in the second quarter increased 4% to $287,000 as compared to $276,000 in the second quarter of 2014.
For the first half, billable hours increased 5%, to $579,000 from $550,000.
Utilization in the second quarter rose to 74% from 72% 1 year ago.
For the first half utilization was 75%, up from 72% in the same period one year ago.
As we look to the second half of 2015, and considering the step-down in revenue from the major project that <UNK> discussed, we expect utilization in the third and fourth quarters to be approximately down three to four percentage points as compared to the same period in 2014.
This will result in the full year's utilization being approximately 71% as compared to 72% in 2014.
In the second quarter the realized bill rate increase was approximately 1%, which is lower than normal as the increased billable hours were a result of better leverage of lower-level staff.
This rate increase was offset by 0.6% from translating foreign currency for consolidated financial statement.
For the second quarter, technical full-time equivalent employees were up 2%, to 750, as compared to the same quarter in 2014.
While we have a nice pipeline of new hires that will join over the next couple of quarters, but as we adjust to the impact of the sudden step-down in a major project, we are likely to see our headcount remain flat.
EBITDA margin was slightly up for the second quarter to 27.3% of net revenue as compared to the same period of 2014.
For the first half, EBITDA margin was 25.8% as compared to 25% in the same period one year ago.
For the second quarter of 2015 compensation expense, after adjusting for gains and losses in deferred compensation, increased 4%.
Included in the total compensation is a loss in deferred compensation of $72,000, as compared to a gain of $2 million in the same quarter of 2014.
Gains and losses in deferred compensation are offset in miscellaneous income and have no impact on the bottom line.
Stock-based compensation expense in the second quarter of 2015 was $2.7 million.
For the remainder of 2015, we expect stock-based compensation to be between $2.3 million and $2.6 million a quarter.
Other operating expenses in the second quarter increased 4%, to $6.7 million.
Included in other operating expenses is $1.3 million of depreciation.
For the remainder of 2015, other operating expenses are expected to be $7 million to $7.3 million per quarter.
G&A expenses in the second quarter increased 9% to $4.1 million.
For the remainder of 2015, G&A expenses are expected to be $4.2 million to $4.5 million per quarter.
Our income tax rate in the quarter was 39.4% as compared to 38.8% in the same period of 2014.
For the full year of 2015, we expect our tax rate to be approximately 39.5%.
For the second quarter operating cash flow was $13.1 million.
Year-to-date operating cash flow was $14.8 million.
In the first half of the year, we repurchased $7 million of common stock.
We still have $28.1 million authorized and available for repurchases.
Also during the first half, we distributed $8 million to shareholders through dividends.
We ended the quarter with $150 million of cash and short-term investments after repurchases and dividends.
Capital expenditures were $1.1 million in the second quarter and $1.7 million year-to-date.
Turning to our outlook for the remainder of 2015, as <UNK> discussed, and we have previously indicated, we expected a major project to step down in the second half of 2015 to approximately half its run rate, but as a result of a proposed resolution of this matter, our efforts going forward will be very little.
While our underlying growth remains in the high single digits, it will be partially offset by the significant decline in this major project as well as our defense work.
As a result, we expect full year 2015 growth in revenues before reimbursements to be in the low single digits and EBITDA margin to be down approximately 50 basis points from the 25% we achieved in 2014.
We remain optimistic about our business and our long-term prospects.
Now I will turn the call back to <UNK> for closing remarks.
Thank you, <UNK>.
For the remainder of 2015, we are focused on further expanding our unique market position and assessing the reliability, safety, human health, and environmental issues of increasingly complex technologies, products, and processes.
While we grow at a slower rate than we might like in 2015, our long-term financial goals remain the same, to produce strong organic revenue growth and improved profitability, which are expected to generate significant cash flow and allow us to continue to repurchase stock and pay dividends.
Operator, we are now ready for questions.
Yeah, <UNK>, thanks.
Well, I think it's a bit of both of those.
Look, if you look forward realistically, the level of utilization that we had in the environmental side of our business was certainly beyond what we normally would be sustaining but for the fact that we had a very large, large client, large matter to investigate and provide services for.
So, you know, I think from a steady state, when you have the right level of workflow and the right level of people, the utilization rate would come down some, anyway, just because of the effect of what I'll call a very large project.
I think over time we will tackle that from both sides.
There's no question that what we would look to do is to increase revenue from other projects.
I think there's some opportunity to do that already, just because there's so many demand on much of our staff that there are other opportunities that maybe we could push forward with a little faster.
We will clearly be looking to fill gaps with new work and new opportunities, some of which we're beginning to identify, some of which we haven't identified.
But inevitably there will probably be some impact on staff over time.
The reality is, when a group is as busy as it is, the turnover rate tends to be smaller than when the group isn't so busy.
So we would expect that there would be some, you know, some change in headcount over time as well.
As we've sign in other parts of the business where we've gone through some reasonably significant changes.
Yeah, so, I think from the standpoint of what I'll call defense work, we don't see necessarily a lot of change.
I mean, there are always some, you know, reasonable size, smaller reasonably sized projects that we're pursuing, investigating, whatever, that may come to fruition, but nothing of the magnitude that would put us back in the mode when we had combat troops in Iraq and Afghanistan.
If we look at what we did, <UNK>, in going from last year to this year, is, we knew we'd have a significant drop in defense revenues, but we also thought there was an opportunity to reposition part of that group.
We did have a fairly significant change in headcount throughout last year in that group, recognizing that these changes were coming.
I think the part of that group that is moving to what I'll call commercial technology development projects have had some success, and we've had some good projects, but probably not running at a level where we would say we've sort of completely settled that group into a, sort of a new diet of commercial technology development projects.
But we're still optimistic.
You know, the projects we've been involved in have been successful projects.
I think we're starting to get some recognition in that space.
But certainly that is not going to be of the size that it was during the time period when there were combat troops in Iraq and Afghanistan.
Yes, and, just to be clear, the numbers that I provided around defense were just the change in defense revenues.
It doesn't include any commercial work that may have come in that partially offset that.
That would be in the underlying growth numbers.
Yeah.
So, just as sort of a recap here, Joe, on some of the history, setting aside defense, which is a different thing, you know, we've talked for quite a few years now, actually, about three large assignments which, over time, got identified as being the activities regarding the oil spill in the Gulf, unintended acceleration with Toyota, and a large PG&E gas explosion.
And this is the last of those three to step down from what I would call an abnormal level to back into normal range.
So we've described in the past that each of these three projects have been, each one of them have been in the 4% to 5% of revenues of the entire firm, and that what we've also described is, normally our large projects, you know, that would last from a few quarters to a year or so, might be in the order of 2% to 3%, you know, 2.5% of revenue let's say and they would step down into something lower.
And so it was because these ones were above that let's call it 2.5%, up in the 4.5%, 5%, we felt it appropriate to share with shareholders the potential impact of a slowdown in those.
So we've previously indicated that two of those matters which have been identified as the unintended acceleration matter and the gas explosion matter, have indeed moved out of being what we'd call a major assignment, out of being beyond this, you know, 2%, 3% of, I beg your pardon, out of the 4%, 5% of revenue down to below 2% of revenue.
Now, those are a little different in the sense that it doesn't mean that revenue from those clients necessarily isn't still fairly significant.
We have, both of those are clients we've had for a long time and we do various other projects for them, but the projects related to those two events have fallen out of what we would call a major assignment into what we'd call our normal mix of business.
So the only one that was remaining was the matter that's been identified as being in the Gulf, and that's what we have sort of indicated was sort of this 4.5% of the company's revenues.
Now, that one, we had explained earlier in the year, based on when court deadlines were and so forth, based on the information we had, we had explained earlier in the year that we expected the second half of the year, that would drop at roughly in half.
Well, it turns out that, you know, a major settlement was announced.
Now, that has to be approved by the court and so forth and it's not completely over, but the result of that is that this project has dropped to, essentially ended, which it's actually abnormal for us.
Normally large projects step down over time, and they tend to have long tails.
You know, we've talked about that in the context of previous large projects like, you know, sort of the Exon Valdez or we've talked about where there were, you know, rollover issues with regards to SUVs that had a very long tail on them and so forth.
This one has ended more abruptly than we would have expected.
And, you know, there may be a few little things we're still working on to finish up, but they're truly little in comparison to the original size.
It's not like dropping in half, it's much more like just disappearing.
So in that sense, it's been more dramatic.
And therefore will take, you know, a little bit of time here in the back half of the year for us to adjust to that in terms of filling other work in and dealing with headcount and so forth, whereas normally we say these step downs occur in a more gradual way, and as a result, you know, just have an effect of being a headwind against our organic growth over time but don't really cause anything beyond that.
So if that answers your question, Joe, did not, you know, please follow up.
That's correct.
We don't have other projects that represent, you know, more than this sort of 2%, 2.5%, maybe 3% of revenue that we identify, and so that's not the mode that we're in.
We've obviously got, you know, large clients, we do a diversified portfolio of work for and things but we don't have anything that fits in this category that we have been talking about for some time in terms of either the three major assignments or the defense work.
Yeah, so, I mean, I'm going to give kind of a yes and no answer to that.
You know, if I was specifically put on sort of narrow blinders and I said, do we have other projects today that we think could grow to the 4% or 5% of revenue, the answer would be no on that.
But, you know, we do have new matters coming in, but we don't see that they're going to be of that size.
But if you ask the question in terms of more broadly, do we see a very strong flow of good activity out there, both in the reactive and proactive space, the answer is absolutely yes.
You know, we've talked for some time about how we've tried to be careful in describing this each quarter, about what's going on in the underlying business versus these three large projects and defense.
And we've always tried to separate that.
And we're still in that exact same mode, we've been in pretty much constantly over this time period, which is that the underlying growth separated from that is in the high single digits.
We had this bump from this coming in and it's gone.
It's gone away here.
So we still feel very good about the underlying flow.
The proactive part of the business is clearly growing from our standpoint.
We see that running at, you know, probably about 40% of the business today.
And the reactive side, I mean, you know, if you've listened to the news over sort of recent times, there's a variety of different, you know, fairly significant events that have made national news involving what I would call sort of engineering-related projects.
And, you know, there's a confidentiality, I can't kind of go into all of them.
But basically we still feel that, very much, if it's on the national news, we're retained.
And I think we feel, you know, as good about that today as we've ever felt about that.
Yes.
I think, look, our expectation, long-term, remains to be a high single to low double-digit organically grown firm.
We think, you know, history plays that out.
You can play out the last 10 years, the last five years, 20 years, whatever it may be, on average, we've been right around 10% as the growth.
What we are definitely seeing is that, you know, we see here over the next several years to maybe even much longer that the proactive work will be a double-digit grower.
We think we are making good progress, but we are still very early in our development there.
It is a huge market opportunity.
When you look across the different industries and services we have to offer from design consulting to regulatory consulting to risk management type of matters.
All of those play out across almost all of the, what I will call industrial businesses, people who make things and either you're processing or selling products, it fits across that spectrum.
So we are, have a long-term optimism here around our ability to be able to grow in that area.
The reactive business, for which we've been in for 50 years almost now, we think we've got a leading position there, but it's one that we're likely to be growing sort of middle, single digits, you know, with certain matters and things clearly we get the great visibility on, but that that's sort of a mid to high single-digit growth area for us.
Yeah, so, first of all, the work that we were doing was almost entirely done by our staff, the revenues are not, net revenues are not focused on other staff.
So it is our staff.
As I indicated, they were running at, you know, a much higher utilization than would be maybe normal for a group in that market slice.
And so some of that will just get taken care of from that standpoint.
Look, you know, I think with regard to staff, you know, usually for one reason or another when there's a significant change in the workflow, there does end up being some change in staff.
It's not that we're going to, you know, we're always looking for new opportunities.
We're not going to stop hiring in that area.
But needs change.
And so the people you hire in one subspecialty that you think is sort of important and maybe you've got too much staff in another specialty, and I think it's sort of offsetting all of those effects that, you know, <UNK> indicated that, you know, our staff outlook going forward might be overall more flat.
Yes, so let me sort of describe a few things that are going on there, and this runs a fairly broad range.
I mean, one aspect of it is that we've talked before about the challenges associated with growth in parts of, particularly in our design consulting area where our clients are very focused on confidentiality, it's very difficult to market to new clients in the sense because they don't know what your, you know, what you're doing because you've got to be confidential about the work you're doing.
Over time, I think that that tends to open up a little bit in part because people who have worked with you at one company move and go to another company and there just becomes more and more knowledge out that Exponent is a major player in certain areas.
And so we think that that is sort of accelerating, in a sense, some of the opportunities for growth and from that standpoint I think we're optimistic about that aspect of it.
I think we have gone through a time period, this kind of goes back to sort of the billing rates and the issue with regard to that sort of change in rate that <UNK> had talked about, the fact that our average billing rate has not gone up much, it's because in the proactive space, there is probably greater leverage, both proactive and large project reactive tend to have the most leverage in the business.
And as a result of that, you tend to get a higher proportion of more junior people working on the program so that while that's not a problem at all, obviously, from a profitability standpoint, but nevertheless when you look at it from the standpoint of growth in our bill rates, you kind of end up concluding, wait, the bill rates aren't going up much even though we're increasing them, you know, each year.
So I think there's an effect there.
And then the final area I think is just continuing to expand the breadth of what we do in the more proactive spaces.
You know, I think one of the things that makes us really valuable in that space is the range of technologies that are involved and, you know, whether it's in polymer science or whether it's in electrical engineering or, you know, battery technology or whatever, there's, we've got a very broad, broad range.
And, you know, part of that range we're continuing to work on, continuing to try to build upon.
You know, we see some opportunities in data analytics, we're just scratching the surface at the moment.
So the range of opportunity out there beyond just what we're in right now, this firm has always got part of its growth by expanding the range of what we do.
And we still see opportunities to do that, both in the health arena, for example, you know, pharmaceutical area, but also in the engineering space as it gets more into some of these sort of analytical areas that we can provide (inaudible) the clients on.
Yes.
That is just over $28 million.
Hi, <UNK>.
Yes, <UNK>, this is <UNK>.
So, you know, I think that we've certainly had certain areas of the firm that are growing faster that we expect more headcount growth in.
I would include that as being on the health side and the chemical regulation, food safety area.
There's a strong pipeline there.
I think if you look to the engineering side, the practices that tend to provide services to these more proactive growth areas we've talked about.
So, you know, that includes materials, it includes polymer science, it includes biomedical.
Those would be examples of some of the areas that would be growing as we feel it would be growing at a faster rate.
I'm sorry, I think there was a second part of that, <UNK>.
Yes.
I mean, I think the other aspect I would say, you know, about that, in addition to the comments that I've already made, I mean, I think that you're all aware that, you know, we're not a, what I call a traditional project engineering firm that hires and fires people for, you know, because they have, you know, certain projects.
We hire and develop staff over a long period of time.
We attract very qualified staff.
More than half our people have Ph.
D.
s.
And so, you know, one of the effects of that is that when there are significant changes in the marketplace, whether it be in what happened to defense or whether it might be what happened here recently with this project, there's going to be a little bit of time to digest that and make sort of what I'll call appropriate adjustments, considering where we want to go, you know, and where we've got strength in staff and so forth.
Having said that, you know, you can look back over time, whether you look at the challenges in 2009 or whether you look at how we've handled the situation in defense, you know, we do find a way to make the adjustments that need to be made and, again, we will do that here, but it's in the context, this broader context that I'm describing of having a very high end workforce.
Yeah, I mean, I think, really, three areas that we've talked about, you know, we've been, you know, conservative probably over the long term in all three, but, really look to, over the next four to five years, to be able to see that our cash balance is coming down into the $50 million to $70 million range, and we expect to get there, really, across our continual look for acquisition opportunities that would be a growth into one of these adjacent areas, as <UNK> has discussed earlier, where we continue to look at that.
It's clear that we haven't done anything since 2002.
That doesn't mean that we don't continue to look and evaluate things.
But, you know, we feel that, you know, it's a matter of identifying the right opportunity that we think is of good value to shareholders in that process.
So we'll continue with that, but outside of that, it is our intent to continue to grow the dividends at a rate that is, you know, a little faster than earnings growth here, at least in the near term, and to complement that with a repurchase program that takes advantage of stepbacks in the stock and over time we think that hopefully that will achieve the long-term goal of delivering a good return on equity to shareholders.
Right.
Yes.
The second quarter billable hours increased 4%, to $287,000, as compared to $276,000 in the circumstance of last year.
This brings the year-to-date billable hours up to $579,000 versus $550,000 last year.
Thanks.
| 2015_EXPO |
2017 | WRK | WRK
#Thanks, <UNK>
Good morning, everyone
Thank you for joining our call today
September marks the completion of WestRock's second full fiscal year
It's been a remarkable two years
Our team's made outstanding progress in building WestRock into the leading paper and packaging solutions company that we are today
WestRock's adjusted earnings per share were $0.87 in the quarter
This includes an adjusted tax rate of 28.4%
Full year adjusted earnings per share were $2.62. Our fiscal 2017 adjusted free cash flow exceeded our $1.2 billion target
We delivered $80 million of productivity in the September quarter, and we're delivering on our $1 billion synergy and performance improvement goal
In September, we reached a run rate of $840 million, $15 million more than our estimates going into the quarter
Our customers are seeing firsthand what our differentiated strategy means to them
Our comprehensive portfolio of paper and packaging solutions uniquely positions WestRock in the marketplace
We're combining the delivery of our products and services to address the business needs of our customers
As background, we developed an early focus on a group of 40 customers with a total of $4 billion in sales
It's remarkable that three quarters of these customers are buying significant amounts of paper and packaging from multiple business lines across both our consumer and Corrugated Packaging segments
The fact that so many of our customers by both consumer and corrugated packaging from us makes a lot of sense
Since virtually all of our consumer packaging customers buy boxes and many of our corrugated customers buy paperboard, folding cartons and displays
In 2017, this focus paid off with our closing an incremental annual run rate of more than $200 million in new business from these 40 accounts
Our success has set the stage for additional growth across our portfolio
MPS has brought a new set of solutions and is creating even more opportunities to grow our sales across WestRock
I'm confident in our ability to further broaden our relationships with many of our customers
The capabilities of our sales and design teams are key to our success in meeting the needs of our customers
I'm proud to say that two industry organizations recently recognized the outstanding performance of WestRock's sales and design teams
In September, WestRock's merchandising displays business received 18 Design of the Times Awards from the Path to Purchase Institute
In October, WestRock's folding carton businesses received 13 awards from the Paperboard Packaging Council
This recognition helps confirm my belief that WestRock is unique in our ability to design and deliver outstanding solutions across so many types of consumer and Corrugated Packaging
This capability differentiates WestRock as we help our customers succeed in their markets
We've improved our business through acquisitions
During fiscal 2017, we made five acquisitions for a total enterprise value of approximately $2.65 billion
We sold our dispensing business and received net proceeds of over $1 billion
This net investment of $1.65 billion will increase our future adjusted EBITDA by $300 million on a net basis after the full realization of synergies and after deducting the EBITDA of the sold dispensing business
This results in an effective EBITDA multiple for acquisitions during fiscal 2017 of 5.5 times
This has been a very successful transformation of our portfolio that has increased our focus on paper and packaging
Given the strength of our cash flows and the long-term outlook for our business, on Friday of last week, the WestRock Board of Directors approved a 7.5% increase in our annual dividend to $1.72 per share
WestRock pays an attractive and competitive dividend, and the board intends to increase our dividend over time as we increase our earnings and cash flow
I'm pleased with the substantial progress that we've made over the past three years and how our strategy has developed
Fiscal 2017 was an important year for us and sets us up for significant growth in sales, earnings and adjusted operating cash flows in fiscal 2018. We have attractive opportunities to grow by investing in our business and making acquisitions that improve our business
Our free cash flow and balance sheet provide us ample capacity to take advantage of these opportunities
Let's turn to the results for the quarter
Sales were over $4 billion, a 12% increase over the prior year quarter
Our sales increase was due to $495 million from acquisitions and $175 million in pricing gains, driven primarily by our containerboard price increases
This growth was partially offset by lower volume and the impact of the sale of the dispensing business
Total company adjusted EBITDA margins of 16.1% were stable year-over-year
This is impressive given the $162 million in inflation that we experienced in the quarter and the $27 million negative impact of the hurricanes
For the full year, total input cost and labor inflation was $548 million
Productivity was an important contributor to earnings, with $80 million realized in the quarter and $361 million for the full year
Our adjusted tax rate for the fourth quarter was well below our guidance, mainly due to the very favorable resolution of several items earlier than we thought heading into the quarter
Our balance sheet remains in great shape with ending leverage of 2.54 times
Our pension plans are fully funded
Turning to the Corrugated Packaging segment
WestRock team delivered strong results in the quarter even after considering the impacts of the hurricanes and high recovered fiber cost
The fundamentals of supply and demand within our North American Corrugated business are very strong
Global demand for virgin containerboard is growing, and export market pricing has been increasing
During the quarter, WestRock's North American Corrugated Packaging segment sales were $1.95 billion and adjusted EBITDA was $359 million
Our adjusted EBITDA margin was 19.2%
This is an increase of 100 basis points over the prior year quarter
Our fourth quarter North American daily box shipments increased 7.5% year-over-year due to gains in e-commerce, pizza, dairy, bakery and industrial markets, as well as the three acquisitions we made during the year
October daily box shipments have increased by 4.3% from the prior year period
We are improving our channel mix
Our integration rate for North American Corrugated Packaging business for the quarter was 75%
This represents an increase of 700 basis points from last year and represents substantial progress toward our target of being 80% integrated
With our strong domestic box demand, we sold 213,000 tons to export markets
This was 34% less than the prior year quarter
This was the lowest quarterly amount we've sold to export markets in over four years
While our export volume declined, our export pricing increased
Average pricing across all export containerboard markets increased by more than $100 per ton year-over-year and more than $30 per ton sequentially
Hurricanes Harvey, Irma and Maria resulted in a loss of 30,000 tons of mill production and a pretax reduction in income of $15 million
We incurred $7 million in incremental cost from the consolidation of two older box plants into a single state-of-the-art plant in Sioux City, Iowa, and the consolidation of our acquired Island Container plant into our Deer Park, New York plant
On a year-over-year basis, recycled fiber cost increased $60 per head per ton with a $66 million unfavorable impact to segment results
Total inflation across the corrugated segment was $116 million
As we prepare for our winter maintenance outages, we're building our inventory and expect containerboard inventory to increase by 106,000 tons sequentially and reach a peak in our first quarter
We expect our inventory to decline over the balance of the year, ending fiscal 2018 at approximately 60,000 tons higher than the end of fiscal 2017. We shipped 54,000 tons of virgin containerboard to the Grupo Gondi joint venture during the quarter, and we expect shipments to increase as Gondi grows its business
Gondi's new lightweight recycled linerboard mill, with a projected investment of $300 million, will be built in Monterrey, Mexico, and will bring its annual production to more than 1 million tons
In October, WestRock increased our investment in the attractive Mexican market with an additional $108 million equity investment
This brings our ownership in the joint venture to 32.3%
We performed well in Brazil with box line growth of almost 8%, ahead of market growth of 6%
We incurred $6 million of one-time pretax items in the quarter, adversely affecting adjusted EBITDA margins by 500 basis points
We currently operate an older box plant in the state of Sao Paulo, Brazil
This plant produces nearly 2 billion square feet of Corrugated Packaging
We've considered many alternatives and concluded that our best alternative is to replace our old box plant with a new, exceptionally well-equipped box plant at a new site also in the state of Sao Paulo
When fully operational, this new plant will produce over 4 billion square feet of Corrugated Packaging
This investment will provide multiple benefits to us
First, we'll improve our cost structure and improve our already attractive margins from operating a much more efficiency box line
Second, we build the capacity to serve the growing Brazilian market
Third, we'll integrate over 100,000 tons of our own high-quality virgin containerboard production from our trades Varkaus Mill
Lastly, we'll fund the project entirely from the cash flow we generate from our existing operations in Brazil
The net cost of the project will be approximately $125 million, and we expect that the plant will be operational by the end of fiscal year 2019. The WestRock Consumer Packaging team delivered improved sales and adjusted EBITDA in the quarter
<UNK>ets remain mixed would strength in liquid packaging, food service, health and beauty and the strength balance by weaker demand in tobacco and commercial print applications
Overall demand within food packaging and beverage end markets has been relatively stable, with some pockets of strong growth in the U.S
craft brew, Latin American and Asian Pacific beer and emerging brands in food
Backlogs across our systems are normal for this time of year
Our SBS and CNK system backlogs are about five weeks and CRV backlogs are over two weeks
Net sales were $1.87 billion
Adjusted EBITDA was $280 million, and adjusted EBITDA margins were 15%
Segment shipments, excluding pulp, increased 6% and were helped by the NPF and Hannapak acquisitions
Pricing and mix were favorable as we realized PPW published price increases, and we shifted pulp production to higher-value paperboard production
The impact of Hurricanes Harvey and Irma reduced our production by 22,000 tons and reduced our pretax income by $12 million
The consumer packaging team delivered $33 million in productivity for the quarter and $205 million for the year
This outstanding result has been due to the effort by the entire team and includes the impact of integrating our businesses, closing redundant facilities and operating more efficiently at our mills, our converting plants and across our SG&A categories
The Multi Packaging Solutions business performed very well in the quarter
Adjusted EBITDA of $65 million was more than MPS reported as a stand-alone company last year
The integration is well underway
We've announced the closure and restructuring of three plants that were made redundant as a result of the acquisition
As of the end of the quarter, we've achieved more than $20 million of run rate synergies and performance improvements, and we remain on track to achieve $85 million by the end of fiscal 2019. The Hannapak acquisition performed well in the quarter, and we're introducing our global customers to our new capabilities in the region
Overall, WestRock had a solid quarter
We're well positioned in executing our strategic plan
I'll turn the call over now to <UNK>
Thanks, <UNK>
I'm proud of the progress we made in our first two years as WestRock
We're partnering with our customers about differentiated solutions that help them win in their markets, and we're building our business in an industry with very attractive long-term fundamentals
Our strategy is working
We have a large pipeline of internal and external opportunities that will improve our business for the long-term
In fiscal 2018, we expect to significantly grow sales, EBITDA and cash flow
Using our capital allocation framework, we are reinvesting our cash flow to generate strong returns, improve our business, create long-term value for our customers, employees and investors
On December 8, we'll be holding our first Financial Analyst and Investor Day in New York City
For those of you who won't be able to attend in person, we'll be webcasting the event live
You can contact <UNK> for more information
<UNK>, I'll turn it over to you
Thanks, <UNK>
First, the $200 million increase in sales
I think with respect to defensibility, our business is one of blocking and tackling
I think our – we just need to block and tackle better than our competition
And we're doing a lot to integrate our product and solution offerings
I think – I mentioned the 40 accounts
I think we organized those teams over a year ago, and we include on those teams experts in each of the products and solutions that are relevant to the key account
I think we're doing very well with that
We've also organize dedicated teams to meet the needs of specific end markets
And I'm not going to go through all of the specific end markets, but a really good example of this is craft beer, where we have developed – <UNK>, you mentioned machinery, we have developed the custom machinery solution offering both corrugated and folding cartons
And we're spending a significant amount of resources to provide commercial and technical training across our sales force and support our ability to provide solutions to the customers
And I think we made acquisitions, MPS in particular, provides us great experience in integrating the sale of cartons, labels and inserts, providing great example to us as we build those capability across WestRock
Again, I'm very confident in our ability to do that and just very happy with the strategy
I think in – both the corrugated and consumer great capability
And I think, <UNK>, you saw it at Path Expo
So in fact, I'd like you have some direct experience with that
With respect to OCC
OCC is volatile
I think it's difficult to assess the direction it will take long term
I think we're balanced
Our fiber mix is about 60% virgin and 40% recycled
And I think we build into the way we operate our business being flexible to try to adapt to whatever market conditions and OCC prices affect us
So I think our strategy is rich in that regard
Debbie, I'm going to let Jim <UNK> respond to that
Bob
Yes, our overall integrations in consumer packaging are roughly 35%, and that varies significantly by substrate
So in SBS, roughly 20%, in CUK, roughly 70%, and in CRB, a little over 55%, and we haven't set a specific target for overall integrations within consumer
We continue to look at a number of opportunities that are attractive to grow the business in attractive end markets
And to the extent that, that also has integration benefits for us, that's a positive and certainly something that we would look at
Unidentified Analyst Okay
I will turn it over
Good luck in 2018.
Jim
I really have no insight in particular on that
We're aware of that investment, and it's an interesting transaction with what the strategy is
I really can't speak to, Chip
We look at a bunch of different alternatives as we look at how we can improve our business
I think we're – WestRock is a, I think, in a good position to be able to look at a number of different alternatives
I think those – pretty consistently our capital allocation strategy
So we're just trying to improve our business
I think we have the platform to be able to continue to do that
I'm comfortable with where we are with our supply through fiscal 2019.
I think, right now, we're very happy with where we are at the 32%
They've got a great management team, great partners
And we are very happy for with where we are
I'll start with the productivity and inflation assumptions
We – many of our inflation assumptions are tied to broad market trends
And I believe that it really reinforces the need for us to generate productivity in our business
If you look at – that's the single most important thing that we can control
If you look at the relationship in FY 2018 of our productivity and the internalization – successful internalization of the MPS tons, it's greater than the inflation that we're forecasting for the business
So broadly speaking, we're subject to fluctuations in commodities that all of our peers face, and the thing that we have the most control over is the execution of our productivity programs and the guidance that we provided for FY 2018, we're actually gaining ground and improving earnings by generating more productivity than the input cost inflation is for the fiscal year
And now I'll turn it over to Bob
Good morning, <UNK>
| 2017_WRK |
2017 | RE | RE
#It won't be there at all in 2018.
Is that a Lloyd's question or an overall insurance question.
Oh, okay.
I would expect that to drift down slightly in 2017 and then, frankly, level out maybe ---+ and slightly again in 2018 but then level out from there.
I don't believe that we will get back to our historical expense ratio.
You have to remember that we now have a different distribution model.
So, previously, we were primarily an MGA-focused insurance operation.
Today we are more of a direct brokerage operation, which by definition if we are getting even the commission element of it, just the general expense ratio element of it requires different types of resources and different systems.
So it will not get back to maybe what you would have seen historically from us.
Having said that, I think if you ---+ our expectation would be as we, even today, we have a much better expense ratio than the industry, we expect that gap to remain.
We are always surprised because, if I said we weren't surprised, we would have put out a higher number back in 2015.
Yes, it is a surprise.
And with reserves, you never know what an increased level of frequency or severity might, in fact, do to you.
But, as I mentioned, our other pieces of our portfolio that are active are, in fact, running at ---+ this past year, produced a redundancy.
So we are confident that those reserves are, frankly, in good order.
But, again, in the context of our overall balance sheet, our reserve position is quite strong.
And I think that applies to the various segments as well, even though I know I keep emphasizing the overall balance sheet, which is important and worth emphasizing, we do want to go through each of our segments to make sure that we have got positive reserve or a strong reserve position in each of those segments.
I will let <UNK> answer that.
Good morning.
This is <UNK>.
So, a couple of things.
The strategic relationship we entered as a reinsurance opportunity with the buyer of Heartland has a couple of advantages for us.
First of all, it runs, we believe, to a meaningful improvement in expenses.
And because of just economies of scale that we were unable to achieve on our own book given the size of the premium.
And then secondly, we also had struggled in our insurance book to develop a broad, diversified portfolio.
And so individual localized weather events were causing more problems for us and caused more volatility in the book as an insurance play.
What we're going to get is the benefit of a much, much larger book ---+ a share of that book on a reinsurance quota share basis.
So we think we're going to run to a better combined ratio meaningfully, and we think there's going to be less volatility in the results.
I don't know specifically what you're talking about and if you're talking about it as an insurance play or as a reinsurance play.
We would think as a reinsurance play, it's low 90s%.
I'm actually going to ask ---+ I'm going to make a few comments and then ask <UNK> to set the comment on it as well.
But also ---+ but keep in mind that, yes, it was a heightened year.
Many of the losses, though, were low on the attachment point.
A lot of the losses were assumed by primary, and what is consistent with what we've said is through all the last couple of years, given risk-adjusted pricing ---+ in order to maintain our level of risk-adjusted pricing, we have moved attachment point, gotten off of certain things that we didn't like the pricing on, and we believe that that has had an impact on our result relative to what the overall levels of tax were in the industry.
So I think that's just the general comment, and maybe <UNK> <UNK> might have some ---+ something to add to that.
Yes, <UNK>, I think a couple of things.
The reinsurance strategy, we continue to look to how we can improve the book and deploy and take cat risk better and deploy it and build a better and better portfolio.
And taking into account market conditions but also the buying habits of global companies, regional companies, and global clients.
So to the extent that we ---+ the global ---+ take the global clients.
To the extent that they are looking to do more across the board and across multiple lines of business and multiple territories with companies like Everest, we are deploying more cat capacity to them.
And that usually means given the retentions that they want to take in order to control the pricing of the reinsurance program, they typically are protecting against the real major losses.
Very big earthquakes, very big hurricanes, etc.
And so that wouldn't necessarily impact us as much in a year like this with the exception of Canadian wildfires and Hurricane Matthew.
And then we also ---+ as <UNK> said, we are trying to shift our book, and we have been moving not in every case, but generally, we have been moving up the tower.
That also means it takes larger losses to affect us.
But then I would also highlight the different hedges that we have in place, including Mt.
Logan, and Mt.
Logan continues to be a strategic platform for Everest, and we saw some benefits from that in 2016 with recoveries that we saw from both Matthew and Fort McMurray wildfire losses in Canada, as well as some other smaller losses around the group.
So we think that that helps mitigate some of the cat loss activity that Everest faces on its inward book of business through the various hedges that we have in place as well.
I'm going to answer that as really an overall question as opposed to specifically to insurance.
Overall, we still have about the same level of what we call excess excess capital, and so all of the metrics that we use to measure what our economic capital needs to be remain about the same.
So that capital growth basically is supporting all of the lines of business, both insurance and reinsurance.
Remembering that we're doing some different things on the reinsurance side that consume different levels of capital.
This is <UNK>.
We did not make much of a shift.
What we did do was shift it a little bit, as I mentioned, last quarter and within the alternative capital or alternative investment buckets.
But overall, the portfolio remains very stable, very high credit quality, investment-grade bonds, and it makes up the majority of the portfolio and then we have alternative investments.
The new money rate that you are suggesting is about the same ---+ about 2.8% compared to what the current yield is at 2.8% as well.
In return, the yield that you're referencing is essentially what happened in the fourth quarter ---+ it all depends on timing of the limited partnership and alternative investment income.
And that can get a little lumpy.
So we are pleased that, frankly, year-over-year investment income was flat.
We think that was a pretty terrific outcome.
We're going to expand a little bit.
Right now, we're running over.
But perhaps we got a little wordy in our opening remarks.
So we'll extend beyond our usual hour, and if there's one of two more questions that perhaps we can entertain.
I'm sure you won't mind.
Well, I still think the same factors are at play.
Scale, being one of the more relevant factors, continues to put pressure on many of our competitors to seek partners, and that's not necessarily a bad thing.
And I think that will continue to be the trend going forward: scale and efficiency.
For us, as you know, our strategy remains the same.
We are not a big fan of putting a ton of goodwill on the books, and frankly, acquisitions are difficult to ---+ in our view, others have ---+ certainly could have a different business model, but in our view, acquisitions are difficult to assimilate and with it comes perhaps elements of the portfolio that you don't wish to be engaged in, that requires some remediation, and we think it's a lot cleaner to get the talent that we think we can secure.
We have good talent and build out the portfolio in the matter and shape that we feel is most desirable.
So that is kind of our continued strategy.
If there are things that we don't think we can build out on our own successfully, meaning elements of the different lines of business, very focused areas, we continue to look at things, but I'm not giving it a high likelihood that would be ---+ we would see something in that regard.
But I wouldn't rule it out completely.
<UNK>, I think you said the Ogden rate table.
(multiple speakers) You broke up a little bit, yes.
So we write business all over the world.
We write a very little bit of motor business.
In the context of our overall over $4 billion of premium, it's not material to us.
So the short answer to your question is we watch that.
We look at the rates.
We are probably a little less ---+ we are probably a little more pessimistic on that over the last couple of years.
So we have not deployed that much capital in that respective area.
So we do not think it's material to us.
So we have ---+ it really applies to a lot of different things.
It applies to strategic relationships that we are trying to build with some of our core clients.
We have added some of those in 2016.
We have somewhere between a half a dozen and a dozen of these core strategic relationships.
We are looking to expand that and continue to deploy that where we really become a strategic partner to the clients and not just a large reinsurer to them, and that has worked out very well for us.
We continue to deploy and really holistically deploy capacity with the global clients, and we see that as a big opportunity for us in the future as they want to trade more with companies like Everest and less with others, either because of too much concentration with some of the big directs or they want to narrow their reinsurance panels.
We're spending more time really strategizing about how we ---+ as one of the very largest broker market reinsurers, how we can grow more with the brokers in the reinsurance area, and we think that's something that will be to the benefit of both of us, and we expect to continue to make headway on that in different products that they have, different initiatives and different strategies with that going forward.
And then, frankly, just a lot of these new alternative ---+ really building out what we call the nontraditional space, where there is a product ---+ new products, new distribution, new clients ---+ and we're making some good headway there both hiring people, developing resources internally, and have had recently some few nice wins in that space, and we look to continue to deploy that going forward.
Thank you, <UNK>, and thanks to all for participating in this morning's call.
Apologies for going a little longer, but we had questions in queue.
We obviously were pleased with our performance this past year, and we recognized as do you that it's a very challenging market.
But we're still quite confident that we can outperform on an absolute ---+ on a relative basis and an absolute basis.
My colleagues here this morning outlined some of the new things we are doing, and I have highlighted our balance sheet strength, reserve position which certainly bodes well for the future.
So we are very confident that we can continue to perform well, and that is not without taking an increased level of risk.
It is continuing to do what we do.
It is to underwrite through the different parts of the cycle and diversifying.
Diversifying into new products and new areas and continue to expand our franchise.
In particular, expand the insurance franchise, which we think is one of the ways forward, as well as product diversification on the reinsurance side.
So thank you very much for your interest and your participation this morning.
We look forward to seeing you probably over the next several weeks.
Thank you.
| 2017_RE |
2017 | DY | DY
#Well, clearly the new chair of the FCC spoke this morning in Spain, and highlighted why facilities-based competition is what he believes is the best way to facilitate the appointment of high-bandwidth technology.
It's always nice to hear a clear articulation of a facilities-based competition.
I think with respect to convergence, that is something we've been living with, had it through numerous different regulatory regimes in different administrations.
Because I think it's the way that technology and consumer preference are pushing our customers.
So I don't have a specific view on any combinations.
But just know that, as our customers have all gotten bigger, their spending has become more durable, it's longer lasting and of greater magnitude.
And that's over the last 25 years I've been doing this.
<UNK>, with respect to tax policy, who knows.
There's a number of proposals that are out there.
I guess the good thing is, what they all have in common is a lower federal tax rate.
And we're basically a full-basis taxpayer, with very small International revenue ---+ and don't really get any tax preferences, so we have nothing to give up.
So any lower rate will be helpful.
If you go beyond that and you talk about the expensing of capital expenditures, that's obviously helpful in a business where we're growing as rapidly as we are.
The flip side is what they do around the tax deductibility of interest.
It's a little bit hard to say.
What I would put out there is that we still find the debt markets attractive.
We have a new source of capital that we wanted to get into the facility.
We freed up revolver capacity.
And we have ---+ as we said, we've grown $500 million in the trailing 12 months, and we've got opportunities going forward to use capital.
So that's why we put it in place.
So we didn't have any legal expenses that were material to our numbers in the quarter, and don't expect to have any going forward.
All right.
Just before we go, <UNK> is going to round out our disclosure on our top-10 customers.
So go ahead, <UNK>.
Sure.
Customer number six was at 5% of revenue ---+ and this was for a customer who has requested that we not disclose their identity.
Charter Communications was number seven at 3.6% of revenue.
Crown Capital was number eight at 1.6% of revenue.
Frontier Communications was number nine at 1.6% of revenue.
And Questar Gas was number 10 at 0.5% of revenue.
And the split also.
And the split ---+ telco was at 68.1%, cable was at 24.4%, facility locating was at 4.9%, and electrical and other was at 2.6%.
Okay.
Well, we thank everybody for your time and attention, and we will talk you on our third-quarter call in May.
Thank you.
| 2017_DY |
2016 | CLI | CLI
#Thank you.
Good morning, everyone, and thank you for joining the Mack-Cali 2016 third-quarter earnings call.
This is Mike <UNK>, the president of Mack-Cali.
I'm joined today by my partners <UNK> <UNK>, CEO; <UNK> <UNK>, Chairman of Roseland; and <UNK> <UNK>, CFO.
On a legal note, I must remind everyone that certain information discussed in this call might constitute forward-looking statements within the meaning of the federal securities laws.
And though we believe the estimates reflected in these statements are based on reasonable assumptions, we cannot give assurances that the anticipated results will be achieved.
We refer you to our press release, annual and quarterly reports filed with the SEC, for risk factors that could impact the Company.
As always, we look forward today to an open and spirited dialogue about our results and plans going forward.
We again filed the expanded disclosure of our operations in two supplementals: one from Mack-Cali's office portfolio, and one for Roseland.
We will be referring to key pages in the supplementals during the call.
And, as always, we'll continue to provide the best disclosure on our operations, strategy, and results.
As we've done before, we're going to break our call down into the following sections.
<UNK> will recap the operating results for the quarter.
<UNK> will discuss the leasing results and our view of the markets.
And <UNK> will provide an overview of multifamily operations.
I will then provide an overview of our capital market activities, and comment on our views of guidance for the remainder of 2016 and guidance in 2017, as well as provide an update on our strategic plan before we take your questions.
As disclosed last night, our results indicate that we had another excellent quarter, showing continued positive results for the first nine months of this year.
Our strategy over the last 18 months as a new team is showing great results.
Our strategy, as we break it up, it is in four primary areas.
First, our operating plan is transformational and based on a number of activities, real estate, and capital markets, leasing, sales, acquisitions, equity rates, and development.
I would say we had another excellent quarter in transforming the Company.
We're hitting on all cylinders, and will be able to discuss that for you in the comments.
Two, the strengthening of our balance sheet is a core focus for us.
We've made great progress this quarter with our interest coverage ratio at 3.3 times; fixed charge coverage at 2.6 times.
We expect to further reduce our debt over the coming quarters as we begin to benefit from substantially improving cash flow, and we apply sales proceeds toward debt paydown.
We accessed the market this quarter, which <UNK> will get into, to get the lowest cost of capital in a number of transactions on our balance sheet and at advantageous long-term rates.
We're now in a financial [position] based on our operating results to lengthen our line and obtain a new term loan at very favorable terms, and that process has begun.
Three, the complexity of our story: it's the problem we've dealt with from day one.
We believe our story gets more transparent every day.
We started the process last year to simplify that process to get rid of the complexity, to realize our potential value.
We're well ahead of that schedule and increasing our pace.
The activity that <UNK> will go over in Roseland, our office dispositions, and acquisitions to date are making it far more transparent and easy to understand.
In another six months, we intend to be significantly more transparent, and we intend to be done by the end of 2017 with the transformation.
Four, people always worry about our dependence on New York, which we believe is waning.
The waterfront has been established as its own market and is rapidly changing as to tenant demand and the quality of tenants.
We're able to [detract].
We're no longer the only back-office ---+ we're not only no longer the only back-office to Wall Street.
Our current results and leasing activity, as well as general market activity, are exceeding our expectations with our cash flow and GAAP renewal spreads showing improvement for the fifth the quarter in a row.
Furthermore, we believe the upcoming quarters will produce similar positive results.
Our current activity, as <UNK> will outline in detail, is very strong.
We have outlined our progress in supplementals with other further detail in our prepared remarks.
We'll be turning over to key pages.
I'd now like to turn it over to <UNK> to go over our quarterly results.
Thanks, Mike.
With respect to earnings, core FFO for the quarter was $56.5 million or $0.56 per share as compared to $47.6 million or $0.48 per share for the quarter ended September 30, 2015.
For the current quarter compared to last year, the 16.7% growth in core FFO per share resulted primarily from increased base rents over the same quarter last year.
We reported a net loss for the quarter of $8.5 million or $0.10 per share as compared to a net loss of $126.9 million or $1.42 per share for the quarter ended September 30, 2015.
Included in net income for the quarter ended September 30, 2016, was $17 million of net losses from property sales and a charge of $19.3 million from the early repurchase of some of our 7.75% August 2019 bonds.
As shown on page 26, same-store NOI was up 5.5% on a GAAP basis and 2.9% on cash basis for the quarter.
And with year-to-date same-store coming in at 8.6% GAAP and 4.3% cash, we believe we are on target to get to our guidance range for the full year of 2016.
Total Company G&A for the quarter was $14 million or $11.7 million for the office public company and $2.3 million for our RRT subsidiary.
G&A included approximately $1.4 million true-up for additional bonus hurdles expected to be earned based on Company performance to date.
Reducing G&A expense remains a focus for us, and we expect to achieve additional savings as we streamline our portfolio.
Turning to financial statistics, as indicated on page 29, our total indebtedness at quarter-end was $2.5 billion with a weighted average interest rate of 4.48%, down from 4.79% at year-end.
And we expect to further reduce that as we move forward through 2016 and 2017.
Net debt to EBITDA, annualized for the quarter, was 7.7 times.
We have fixed charge coverage ratio of 2.6 times for the quarter and interest coverage ratio of 3.3 times.
Our $600 million unsecured credit facility had $95 million drawn at quarter end, and $135 million drawn as of today, leaving meaningful availability to support our business initiatives.
As Mike mentioned, we accessed the secured debt market this quarter.
We took a 10-year, $250 million, 3.19% interest-only mortgage on one of our office properties.
We also refinanced one of our multi-family assets, taking a seven-year, $59 million, interest-only loan with an effective interest rate of 3.56%.
And then also contributing to our reduced weighted average interest rate was the repurchase of $115 million of our 7.75% bonds due in August of 2019.
I will now turn the call over to <UNK>.
Thanks, <UNK>.
Our portfolio of commercial properties was 87.7% leased at September 30, up 100 basis points from last quarter, and up 190 basis points from the same period last year.
Third-quarter gains were the result of both positive absorption from leasing activity and the continued disposition of non-core assets.
During the quarter, we signed 62 deals for 664,000 square feet, and our rent roll-up for the quarter was 9.1% on a GAAP basis and 2.3% on a cash basis.
Year to date, we have signed 2.5 million square feet of transactions.
We are very pleased with the pace and level of demand for our space.
Outside of Jersey City, velocity was heaviest in our Parsippany, Monmouth County, and Princeton, New Jersey, submarkets.
We were also very active at our flex properties in Southern New Jersey, where we are now over 92% leased.
Significant transactions highlighted in our press release include 144,000 square feet of new leasing on the Jersey City waterfront.
Particularly noteworthy was the lease with TAMI tenant Omnicom, the world's second-largest advertising media company which chose Jersey City after a borough-wide New York City search.
Our waterfront portfolio is now 94.6% leased.
Additionally, we spotlight three leases totaling 120,000 square feet in Monmouth County and Princeton, two of our core, transit-based submarkets; as well as a renewal expansion in Parsippany which contributed to the reduction in our 2017 expirations.
We continue to enjoy the fruits of the leasing initiatives we implemented last year.
Transaction metrics such as lease term, average rent, tenant retention, and space leased are all up year-to-date over the same period last year.
Our remaining 2016 expirations are only 361,000 square feet, and we still anticipate finishing 2016 in the range of 89% to 91% leased.
The progress on our 2017 rollovers are updated on page 6 of the supplemental.
As you can see, almost 40% of the space expiring in 2017 doesn't roll until the fourth quarter.
We are well positioned to successfully manage the 2017 rollover.
In addition to the waterfront and Parsippany, other areas where our core properties are performing very well include Short Hills, Monmouth, and other transit-based areas such as Metropark, which are at lease rates of 95% or higher.
The flex portfolio produced great results this quarter as well, with 240,000 square feet of leasing activity generating GAAP rent roll-ups 12% and increasing space leased to 92.9%.
Taking a look at the broader markets, both Northern and Central New Jersey continued positive trends in the third quarter.
Northern New Jersey's transaction activity reached levels unseen since the beginning of 2008, and Central New Jersey has absorbed a historically high 2 million square feet.
Employment stats are encouraging, with job counts increasing in office using sectors such as a financial and business services.
Research from the major brokerage companies projects that demand will remain steady, vacancy will decrease, and Class A rents will tick higher.
Westchester County, New York, where our portfolio consists primarily of flex properties, and transit-oriented White Plains, unemployment is 100 basis points lower than the national average.
Our flex buildings in this market average more than 90% leased, with a tenant roster that is both varied and stable.
And our White Plains buildings are undergoing a capital improvement program to capitalize on the positive changes in this market.
It is now broadly accepted that selected suburbs are alive and well.
In fact, a recent released report from the Urban Land Institute coined the term surbans; stated that urban living will continue to grow in popularity, but mostly in the suburbs.
I'll now turn the call over to my partner, <UNK>.
Thanks, <UNK>.
Moving on to guidance, we increased our expected full-year 2016 core FFO to (technical difficulty) of approximately $2.14 to $2.16.
We're again raising the bottom and top of our range and moving the target guidance this time to $2.15, and expect fourth-quarter FFO to be approximately $0.55 to $0.57 per share.
We feel very comfortable with the new target of [$2.15] and believe that it's clearly achievable if we have continued success.
We're also providing initial FFO guidance for 2017 in the range of $2.25 to $2.40 per share.
Then beginning on page 21 of the supplemental, we provide commentary on some updates to our 2017 assumptions, including: we expect leasing percentage range to be between 90% to 92%.
Our leasing activity is strong.
The waterfront, as <UNK> mentioned, is 94.6% currently.
Metropark is 94.5%.
We also achieved, again for the second quarter, over 90% of our combined Waterfront, core and flex portfolio ---+ with third quarter of 2016.
Two, we continue to drive rents on our reshaped portfolio, and expect same-store NOI on a post-sale portfolio to be in the 6% to 8% range ---+ we may exceed that if we get lucky in leasing ---+ and 3% to 5% on cash.
Three, non-core asset sales are expected to be in a range of $500 million to $600 million, as I said earlier, as we finish the end of our transformational stage in 2017.
To date in 2016, we've closed on $465 million.
We have $265 million expected in the fourth quarter.
We have essentially closed a deal every couple weeks; all through the [early of 2017] as we carefully manage the last segment of our original group of assets.
Four, acquisitions: as we previously mentioned, we closed on 111 River in Hoboken, and 101 Wood in Metropark in 2016 for $317 million.
We project, next year, $350 million to $400 million of potential activity as we look to 2017.
Any future acquisitions, as we stated before, we'll continue to be highly selective and have to be accretive and meet our strategic needs.
Five, we are currently assuming that we raise at least $150 million of equity for Roseland.
We have reduced needs and we're pushing out a couple major projects in 2017 to 2018.
As <UNK> stated before, we can easily fund 2016 and 2017 starts from previously invested sums in the sales of such assets as Andover.
We will be choosing a partner in the next several weeks.
We will have this done hopefully ---+ we will have it done by the end of the year.
You should also take note of our sources and uses for 2016 and 2017 presented on page 24.
Lastly, two other matters.
You can expect us to continue to achieve the highest results in everything we pursue.
In the upcoming months, we'll be making significant changes the way we manage our assets.
We believe that we can deliver first-class services at substantially reduced cost.
One last matter.
As noted accurately in a note put out by Greenstreet recently, we made an error in calculating our AFFO in the first quarter.
It was purely a mathematical error of adding versus subtracting a number, as discussed with our audit committee.
We corrected the mistake in the second quarter and the six-month to date update.
In retrospect, we did not handle our disclosure correctly.
Given the current environment we operate in, we should have highlighted this error in a more transparent manner.
As we've always said, we learn from our mistakes.
It will not happen again.
With that brief overview, I'd like to turn it over for questions.
Operator, first question.
Well, two things, and I'll turn it over to <UNK> for the back part of it.
The first part is we're reshaping the portfolio, so we have a different collection of assets today than we had last year.
So we've been trimming the bottom, <UNK>, so it allows us to have more focus on assets that you could actually lease to tenants that want to be in.
And as we've noted before, I happen to know where you live; the Short Hills market is a perfect example.
You can rent in Short Hills, but you have other problems in Essex County for a variety of reasons.
For example, our properties on Eisenhower and Roseland never lease, but Short Hills does.
So we want to own more in the areas that people want to be in, and less in the areas that people have decided, for any number of reasons, not to be in.
So by adding assets to Metropark, we increased that quality of portfolio.
By trimming the bottom, we've been able to eliminate some of the weaker markets.
The reshaped portfolio has responded better to tenant demand.
The tenant demand today is coming from a higher-quality tenant who wants a more amenitized base.
I'll turn it over to <UNK> for further comments.
Hey, <UNK>.
If you look in the supplemental, you'll note that page where you'll see that in our core markets, we outperform ---+ our portfolio outperforms by almost 300 basis points.
And what we've been able to see in those markets is increased velocity, as you've seen as we've talked about the different markets reports.
And I didn't identify any particular brokerage firms, because in this instance, there was an absolute consensus about the uptick in velocity and where they see the year going.
And then it's a continuation of this trend, which has become accepted wisdom about what's happening with the older Millennials and their movement to selected suburbs.
And we've been well positioned to take advantage of it.
So if you looked when we took over, I would have said we were in the low 50s, maybe 51%, 52%.
Today if you ran the numbers ---+ and we did them last night ---+ we are 59%, 58%, in that range, depending on how you look at things.
We've been able to do that in really two functions, <UNK>.
One, we're growing revenue.
Two, we've held really, really tight expenses.
As a matter fact, they continue to go down, quarter to quarter.
Part of that is a complete, maniacal focus on staffing levels.
We've had a hiring freeze since the day we took over.
If you noticed in the disclosure, we updated it.
We're down 71, 70-some-odd spots on a company our size, which is relatively significant.
We think that it will be 100 by the end we get through which we reshape the portfolio.
Because as we have less assets but more valuable assets, you need less people to run them.
So, that burden gets basically affected in the margin.
So we're focused on operating expenses from an electricity point of view.
We're focused on staffing levels, services.
In the same line, we're actually investing a significant amount of money on the amenities.
So we'll be ---+ we'll have six or seven projects this year where we call it swinging hammers.
So we're out of the design phase, and actually into the construction phase that enables us to deliver that first-class product.
But I assume we get to a 6 handle on margins sometime by the end of 2017, maybe even better than that.
In the waterfront, for example ---+ just one last comment ---+ if you assumed we were mid-30s market when we took over, we're a mid-40s market.
So if you had $15 expenses, <UNK>, on 35, you still have the same $15 on 45.
And the margin obviously moved dramatically.
So we can expect that in a number of markets is what we're trying to achieve.
We do it in a benchmark, so we probably bought a little less than we thought we would have.
Let's go back from the beginning.
If you looked at where we thought we were in 2016, and where we are in ---+ sorry ---+ where we were in 2015 and where we are in 2016, I will tell you we've noted a number of differences.
One, we've sold more than we thought.
And <UNK> has been better at restructuring the joint ventures than we thought.
So we used to have the knock that we had too many subordinate interests, and that's got down dramatically, and will get down even further in the upcoming months.
Also, tangentially, we've done a very good job of exiting certain markets.
We've moved quicker than people thought we could on selling.
We're going to achieve the goal we laid out; maybe we'll exceed it.
We have a couple other portfolios we've teed up.
As we do that, we get a semblance on what works and doesn't work.
So we have to look at where tenant demand is and where people are going.
And I will tell you, the Waterfront is highly active, no better way to describe it; and rents have [persponded].
So if we could find an acquisition on the waterfront ---+ and there are some deals that may come up as people view themselves as the right time to sell ---+ we kind of set up some to look at that.
If there's also some things in the suburbs that is on what we call a covet list ---+ so we literally have a list.
It's not a very long list.
It maybe has 10 buildings on it that we would like to buy in the upcoming several quarters.
And it doesn't have 40 [mains]; it doesn't have 60 locations; it has really 10.
And that covet last, if it comes up, we'll transact on it if we can get it for the right price.
If you look back, we passed on 70 and 90 Hudson on the Waterfront because we felt it was not the right price at the time.
In retrospect, given where the market moved, maybe we made a mistake.
But I think we exercised good judgment at the time, given where we were in the transformation.
So, if you look, we'll probably be bigger on sales, less on acquisitions; more limited on development, as we moderate what we think we can do in the time frame we have.
And drive ourselves toward, at the end of 2017, having a portfolio that doesn't have as many moving parts, a lot less complex, and more easily understood.
Size doesn't matter to us.
We really don't believe in ---+ our predecessor was big on always using the biggest, and how many square feet.
I think we're making more money, if you think about it.
We're up about $50 million than people expected from the time we took over, with less assets.
So, if we can do that trade every day, Manny, we would do it twice on Sunday.
We'd run 15 buildings and have $4 a share of FFO.
So, we look more fundamentally the way we approach the new building we want to build at Harborside.
Of all the things we know and don't know, one of the things is not to ---+ how to build a $500 million building.
So we partnered up with the best guy in the business, really a master builder, who's going to put in an equity check.
And then it is us and him, and we have the ability to do financing and take in a third party.
So we'll look at that as a place where we know how much FFO we could create, and we have to balance by how much risk.
I look at joint ventures as adding complexity to our numbers, as opposed to removing them.
<UNK>, I always talk about it, right.
You want to own buildings that you can control.
Deals that we own, we can sell immediately.
Deals that you're in a JV, you have to have a conversation.
The difference between being married, I guess, and being single.
Let's put it that way.
This is Alfred Hitchcock.
We have a predecessor somewhere in the clouds; you've got to looks carefully.
It's kind of a combination of both.
Obviously, it's advertising.
So the first ad, for everyone's benefit, was our way of thanking the tenants and the leasing people that we work with in the industry for helping us achieve 95%; which is, given where we started, was a great accomplishment in the 18 months we've been together as a team.
The second ad was to say, listen, when you're this full, and you look at the tenants that roll out of New York City, they roll out this past year.
There's six of them that are over 0.25 million square feet kind of circling for space.
We don't have the space available, and we're the largest landowner on the waterfront.
We own a quarter of the market.
And we own the ---+ obviously much more of that, if you just look at downtown Jersey City where we have probably 65% market share.
So, our view was if you look at what is winning in New York City ---+ the genius of Steve Ross at the Hudson Yards, the genius of Larry Silverstein at World Financial Center ---+ is new is better than old.
People will pay for new.
They want the amenities.
They want the quality.
They want the ---+ be able to ---+ benching, the destination elevators, the enlarged bathrooms, the better HVAC.
I could go on and on.
We happen to have a site now.
We didn't buy the land.
We're not the same way as our colleagues, the SL Green, who are going long something.
We have a parking lot.
It makes a great deal of money as a parking lot.
But if a tenant comes to us and says, listen, I want to do a 500,000 square-foot use, and there's another guy that will do 200,000.
And would you build a 900,000 square-foot building, and go long a couple hundred thousand square feet of spec space.
Absolutely.
I pointed out on the Investor Day, if we did the trade at what we think are today's rent ---+ and we're assuming $50, and the market for existing space is $45.
So that spread is not a lot, Manny, for what we think a new building is worth.
We earn about $0.20 a share on our piece of the deal, assuming the land is zero.
If you don't assume the land is zero, you earn obviously about $0.10.
But assuming that the market has to give us credit for the land, it's an impactful thing for us.
So, 100% confident.
Yes, I think we're confident that this is a great place to do business.
We're investing a substantial amount of activity.
I will tell you, we're doing this call today for the first time at our new office space in Jersey City.
We're looking at lovely Midtown and downtown Manhattan from our conference room window.
It's a beautiful day in New Jersey, a lovely day in Jersey City.
100% confident.
Well, it's actually very funny.
They run both ways.
<UNK> and I have this debate.
We're in an old space.
We're in a fourth floor.
We have these big mushroom columns.
We have an exposed window ---+ sorry, exposed brick, <UNK>.
And people love our space, actually adore it.
And on the other hand, the elevators are antiquated.
They don't run exactly the way you'd want to.
The bathrooms aren't the right size.
So there's two kind of theories.
The old space has a certain attraction, but it has to have the right amenities.
And the new space for the big corporate tenants who are worried about green, security, benching, so on and so forth, it actually works.
So you need to play both sides of the market.
But to answer the question totally directly, we're going to re-skin the east-facing wall of Harborside, which is the one you can see from the city, with floor-to-ceiling glass.
It's an older installation.
We've hired a contractor.
We have somebody who is extremely competent to do it.
We'll do what's called a window wall system.
It's not curtain wall; it's attached outside.
It should look spectacular.
It should add up the views and enable us to get higher rents.
We're also going to redo the public common space, which we've been advancing.
If you come here week to week, we are constantly swinging hammers with the night crew, who is demoing space and reconfiguring it.
And we've gotten a tremendous amount of tenant demand for restaurants and other retail uses.
We're fine.
And we're very close with the Spear Street guys.
They are going to do a lobby renovation.
That's really about it.
Their capital is their lobby was built as a grandiose office lobby, and kind of iconic, what a Manhattan would've been 20 years ago.
And they want to make it softer.
Then they'll add in some seating and do a restaurant function.
We're well ahead of them, because we've been planning it 12 months earlier.
And obviously it's a much larger project.
And we welcome their addition.
because they're only going to make the market better.
We actually act in concert on a number of different things.
So, we won't change our assumptions.
If we do, we'll update you.
I would say that the demand has been steady.
It is predicated, as you well know, by people's alternative investment ability; so people view real estate as being a more preferred source of cash flow than you can get from bonds.
So you're getting a lot of family offices, a collection of investors, some opportunity funds who look at it as still advantageous.
As <UNK> pointed out, New Jersey is growing in occupancy and in lease rate, in some respects.
So people feel like they're buying into a market that has more legs than it does declining.
We've been able to transact ---+ and the guy who does it for us for, Ricardo Cardoso, has done an excellent job.
He basically does hand-to-hand combat every day to basically close these things.
I mean, closing a $5 million sale for some miscellaneous asset that we bought in a Gale transaction 10 years ago is just as complicated as buying a $250 million deal in Hoboken.
There's no difference in them.
But we've been able to do that, as has Gabe Shiff, who's <UNK>'s Chief Investment Officer, in exiting a number of joint ventures with Prudential and buying ---+ going back and forth, and getting us to a more transparent balance sheet.
If you want to be transformational, you actually have to have activity.
I don't know if I can give you that detailed an answer, <UNK>.
But we are looking at selling occupancy ---+ assets that are owners will occupy if we don't think we can actually increase over the short term and make a meaningful impact.
That has always enabled us to have better and better occupancy per quarter, because we're trimming the bottom.
We've also likely ---+ those assets, other than the few that we sold early on, don't have particularly high rental rates.
So the average rental rate increases as we go to a quality picture versus a more broad-based picture that we currently enjoy.
So you're going to get ---+ it won't affect your same-store NOI growth that much depending upon what leases roll.
But you'll see ---+ as we've added buildings in Metropark, for example, we are able to drive rents.
Same thing on the Waterfront.
So I think you'll see us get, hopefully by the end of 2017, have a clear picture of us having a quality portfolio that produces consistent rent growth over quarter by quarter; as opposed to the portfolio we have today, which has a lot of quality in it, driving.
And then we have some other numbers that are more average that temper down our numbers.
So we think, inside this Company, if you get rid of the bottom, say, 10%, 15%, you'll unlock the 85% which produce exemplary returns.
If you want, we'll get you a more detailed breakdown, but I don't think could explain it more differently on the phone.
Thank you very much for joining us.
We'll see you in a few months.
Have a great day.
Bye.
| 2016_CLI |
2016 | OFG | OFG
#Good morning.
Thank you for joining us this morning.
If you'd please turn to slide 3.
We had another strong quarterly performance as we continued to focus on building our franchise and constantly adapting to our economic environment.
We generated net income available to shareholders of $10.7 million; earnings-per-share were $0.25 fully diluted.
Our results were comparable to the first quarter, as we had expected.
Turning to Puerto Rico, the economy continues to fare reasonably well despite some headlines to the contrary.
PROMESA, as you know, was enacted into law.
In addition, PREPA continued to make progress toward final implementation of its restructuring support agreement by the end of 2016.
We view both of these developments as very encouraging.
Please turn to slide 4.
Here is our dashboard of key business trends.
New loan generation remained robust, up more than 5% from the first quarter, underscoring our growing retail franchise.
Originated loan balances continue to grow, up 2.7% from March 31, and average originated loan yields increased 9 basis points.
Deposits, excluding broker CDs, were up about 2%.
Banking and wealth management fee revenue increased close to 7%, with increases in all major operations, but primarily in Wealth Management.
And expenses are being well-contained, with the efficiency ratio improving to the best level in the last five quarters.
Now here is <UNK> <UNK> to review the quarter in a little more detail; after which I will make some closing remarks.
Thank you, <UNK>.
Good morning, everyone.
I'll start from slide 5.
This quarter, we closed $238 million in new loans.
While higher than the first quarter, production was generally in the range of the last five quarters.
Retail business teams had a stellar performance with commercial doing well too.
In terms of fee revenues, mortgage banking activities saw higher volumes, corresponding to the loan generation levels in the prior quarters.
Wealth Management also benefited from higher annuity sales and from cyclical insurance revenues.
Moving on to slide 6, this quarter's results were very similar to last quarter's, as we had mentioned it would be so in our last call.
Interest income from loans declined $1.5 million from the last quarter.
This was due to lower balances from acquired loans as they continue to run off and they were less [cost trajectories].
Interest and income from securities declined $2 million, and interest expense fell $1.7 million.
This was a result of previously disclosed first-quarter sales of mortgage-backed securities done in conjunction with a partial unwinding of [higher] rate funding in form of repurchase agreements.
NIM remained fairly level at 4.65%.
There was a slight increase in provision, mainly due to one acquired loan.
Total noninterest expenses were down more than $1 million with decreases in compensation and G&A, partially offset by increase in credit cost as compared to the first quarter.
In first-quarter, we had a gain on repo sales that explains partially the results.
FDIC lost share expense was down a little bit as well.
Moving on to slide 7, there are two things I would like to point out.
The second quarter was the first in a while in which the quarter end loan balances exceeded the prior quarter.
Loan growth was strong, as <UNK> pointed out, and outflows were normal.
The second thing is that the [cost trajectories] constituted only 6 basis points of the NIM this quarter versus 12 in the first quarter, and as much as 21 basis points in the year-ago quarter.
The NIM is close to our core NIM and we expect to continue so in the shorter run.
This slide, on slide 8, shows the continuing reduction of government-related exposure.
Balances fell approximately 1% from the end of the first quarter, primarily due to the PREPA payments being applied towards the principal as the credit is still on nonaccrual status.
Combined with the specific reserve, PREPA is at 65% of its face value.
Please turn to slide 9.
As you can see from our metrics, credit equality continued to improve over the last five quarters.
We are particularly pleased to see net charge-off rates continue to decline.
At 1.21%, it is 9 basis points down from the first quarter.
This was due to declines in auto, commercial, mortgage lending categories, partially offset by increase from consumer lending.
The nonperforming loan rate is also down, both with and without PREPA, and both the early and total bankruptcy rates are down.
This is the result of our prudent lending standards combined with proactive servicing programs we have put in place, consistent with the realities of the economic environment.
Starting in first-quarter, we adopted a different methodology to report the early delinquency for auto and consumer to be in line with rest of the retail categories and with the industry practice to facilitate comparisons.
Without this adjustment, early delinquency for auto was down $1.3 million and consumer down by $600,000 as well.
On slide 10, this is an update of our credit exposure 90 days or more delinquent.
Note that these are ledger balances, and as such, they exclude all allowances, purchase accounting and FDIC lost share amounts.
There are three key points ---+ one, our overall outflows have continued to exceed inflows while we have kept the charge-off levels under control.
Two, we have actively reduced the delinquent loan inflows; and three, we have acted specifically to reduce the OREO repo balances in the last two quarters.
From our balance sheet, you can see this was at $55 million compared to $61.1 million last quarter and $134.4 million last year.
Moving on to slide 11, you can see our capital ratios continue to exceed the requirements for a well-capitalized institution.
In addition, compared to 2012-end after our BBVA acquisition, leverage ratio, TC-ETA, and our capital ratio are all significantly up.
Why.
We have derisked the balance sheet to the extent possible.
On slide 12, we ended the quarter with tangible book value of 14.96 per quarter per-share, up from last quarter.
These metrics are up from the preceding quarters as well.
We expect further steady growth of capital levels in the coming quarters.
Please turn to slide 13.
To conclude my part of the presentation, the table on the slide shows some quantitative trends over the last five quarters.
The main points here is that even that in our core earnings capability, in 2015, there were some nonrecurring steps to ---+ we had taken to derisk our credit exposure.
Now I would like to turn the call back to <UNK>.
Thank you, <UNK>.
Please turn to slide 14.
We believe our first and second quarters this year demonstrate our plan is working, producing the expected results.
To be clear, the operating environment is still challenging, but we continue to successfully adapt to it.
Conditions are not favorable to aggressively build the balance sheet, but our retail marketing and our technology initiatives are enabling us to expand our customer base, increase deposits, and maintain loan production levels.
As we mentioned in our news release today, in the second quarter of 2016, we introduced the Oriental Biz mobile app, adding mobile check capture for small business customers.
We were the first to introduce this feature for retail customers in Puerto Rico in 2013.
Now, we're the first to introduce this feature to small commercial clients.
During the second quarter of 2016, we also introduced Cardless Cash, another first for Puerto Rico, for making ATM withdrawals quickly without using an ATM debit card.
In addition, cost control efforts focused on interest, noninterest, and credit costs, are enabling us to maintain good profitability levels and build capital.
With regards to the macro situation in Puerto Rico, our priority is to continue to closely monitor developments regarding PREPA.
As I mentioned earlier, we are encouraged by the additional progress we made, and look forward to executing on the new jointly-approved timetable.
While still very early, the business community is also encouraged PROMESA will create some certainty, lead to a government fiscal solution, and create a path toward economic growth ---+ something we'd all like to see.
So, please, with this, I end my formal presentation.
Operator, please open the call for questions.
So <UNK>, let me kind of repeat a little bit of what I've said in the last several calls.
The problem in Puerto Rico is not really the economy; it's the government.
It's the fiscal situation.
So, what's happened in the last several weeks is encouraging because it's ---+ for the first time in several years, there is at least a mechanism to address the fiscal situation in Puerto Rico, which is mostly the fiscal imbalances that we have.
So, I think it's too early to tell, but certainly the PROMESA law prevented ---+ first and foremost, prevented a government shutdown, because it allowed for a stay on lawsuits and it allowed also for Puerto Rico's government to put a moratorium, basically, on its debt.
So, from that perspective, kind of the government lives to another day.
From a business perspective, though, I think the business sector looks at PROMESA as a way to first bring stability.
It kind of has the ---+ we understand what the rules of the game will be, but there's still some paths that we need to follow, which are going to be executed within the next several months, which is naming the Board and stuff like that.
So, from a business perspective, I think it's too early to tell that the business sector is gung ho with everything that is going on, although they recognize that it's positive.
And it's certainly constructive for a solution on the fiscal side.
Also, <UNK>, we cannot definitely ignore the fact that over the last year and a half or so, the market has come down.
So, if you look at the loan generation for activity for all the banks over here in several retail sectors, it's down.
But we have, so far, sort of rallied the troops and responded to increase our market share.
And therefore, you see at least even performance levels, which would indicate a little bit of a market share growth on our part.
Correct.
December of 2016.
And again, we feel ---+ on our position with PREPA, we feel that not only have we taken the appropriate allowance, if you look at what happened with the PREPA bonds ---+ which is, let's say, a proxy to our loan ---+ that bond is trading around $0.66, $0.67 on the dollar.
We have it on the books ---+ the loan, which is going to amortize in less than six years and it won't have a haircut ---+ we have it on the books at around $0.65 on the dollar.
So, we feel very comfortable with the level of provisioning that we've taken and how we continue to reduce the exposure on PREPA.
And I ---+ if you look at it right now from a government credit perspective, probably PREPA is the best credit the government of Puerto Rico has today.
I'll let <UNK> go to that one.
Well, we do have (technical difficulty) technically speaking every quarter.
I think we have our assumptions in our model in terms of document default and probabilities.
I think we will continue valuating.
But conceptually speaking, I think one would at least assume that if things don't deteriorate ---+ or even improve ---+ the reserve could be released potentially with the principal payments that's coming in.
Because this loan, unlike the other bond, which has got the principal's holiday, it has a built-in amortization schedule for the principal.
Yes, you're welcome.
<UNK> mentioned earlier a retail, and we certainly are encouraged with the momentum we are having with retail on the retail lending side.
And that is something that we continue to focus on.
On the commercial side is ---+ I see it more steady.
It's more larger-ticket items.
And we ---+ from our perspective, we feel we need to see a little bit more clarity in terms of the economy going forward, to kind of be more aggressive.
But we're very encouraged with the retail performance and how we're generating good yields there too.
As you noticed on our numbers, our yields are up 9 basis points on the loan side.
And it's primarily because of the retail originations.
Well, the dollar basis is down because the portfolio is down a little bit in terms of the asset quality I'm talking about.
So, the reserve levels that you see is what we are planning to maintain in the short and for the next two, three quarters.
And I don't see any change in the general reserve levels.
From a coverage ratio perspective, it's ---+ you can see that on the table we reported.
And the dollar amounts ---+ obviously, as the new book goes up, it will grow as well.
No, Alex, it's just a ---+ we did not entirely ship what we had in the previous quarters, or we are retaining the Ginnie securitizations ---+ Ginnie Mae securitizations and creating the Fannie Mae.
And as the volumes go up, the activity goes up as well.
And that's what you see in this quarter.
Exactly.
So, if you want an average between the 4.4% and 4.6%, I would say 4.5% right now.
(laughter) But we hope to beat that thing.
And I'm not being fictitious over here about the margin, but I think it depends on the loan mix that we generate.
So, that's ---+ basically I would say it's a range between 4.5% to 4.6% is what you would see.
I think it will take ---+ first and foremost, you need to restructure the debt.
And that's going to take a while.
And first, you need to get the Board, then you get to get the team that reports to that Board, and then you've got to work on restructuring the debts.
And once that gets done, and once there is clarity there, then I think the business sector will feel more comfortable.
Because then the equilibrium is achieved between expenses and income, hopefully.
And then ---+ and certainly too ---+ as I said on the call earlier, it's about economic development.
It's about economic growth.
And if the Fiscal Board comes here just to reach a fiscal equilibrium without a focus on economic development, I don't think they are working for the long-term.
So, I'm encouraged to see that there's a Congressional Committee that has been appointed already, that has a deadline by December of this year to provide recommendations.
I hope that they take this very seriously.
Because for the long-term sustainability of the economy of Puerto Rico, and having a stable growth rate ---+ economic growth rate, we need to make sure that there is an economic development plan, at the same time that the fiscal situation gets resolved.
So, from my perspective, I think it's going to be sometime next year that the restructure will hopefully get significantly done.
I'm very encouraged to see that PREPA will get done before the end of this year and we can move forward.
And that's one of the largest, if not the largest, credits in the government operating right now.
It's ex-GO's and Gofina.
So, from what we are seeing ---+ all the trends and what we're seeing on all the momentum that has been built, I think I'm encouraged to see that we're moving in the right direction.
But again, as you guys do to us, a result is what matters.
And so we'll be very, very focused on how things turn out with the Fiscal Board.
So, from our perspective, capital is king, and ---+ because of what as I said in the past.
It's important for us to build our capital levels, continue to build them, because of the uncertainties that still remain.
But as the uncertainties start to recede, we will feel more comfortable and we will feel more confident.
And we will evaluate at that point in time.
But we can't predict the future at this time in terms of how everything is going to play out here in Puerto Rico.
There is still a few innings to go in terms of getting the fiscal house in order.
No, the only derisking remaining is PREPA, if you ask me.
The rest is just blocking and tackling.
We have done a very good job, as <UNK> mentioned, on reducing our repo lot on autos.
We've done a good job at reducing our OREOs.
And we've done a great job on reducing our nonperforming loans.
I mean, the charts are all moving in the right direction at the right speed.
So it's about blocking and tackling on that end.
And we need to deal with the remaining six months on how to finalize the PREPA deal.
So that's kind of our game plan while we watch the fiscal situation in Puerto Rico, and hopefully, the beginning of a discussion on economic development for the Island.
It's primary loan mix, <UNK>.
Yes.
As the retail and auto loans are higher in proportion than the commercial loan yields, the yields will go up ---+ [the commercial yield].
Thank you, <UNK>.
Thank you, operator.
Thank you also to all our stakeholders who have listened in today.
Looking ahead, we will be at the KBW Community Bank Conference on August 2nd in New York City.
In September, we plan to host Piper Jaffray as part of their investor visit to Puerto Rico.
And we preliminarily schedule our third-quarter conference call for October 21st.
Until then, thank you all.
And have a great day and a great weekend.
| 2016_OFG |
2015 | PGNX | PGNX
#You mentioned EMA, <UNK>, did I hear that right.
Yes.
So, yes, we first got the drug as we acquired Molecular Insight.
This trial had been underway, as you know, with Molecular Insight in the US, but they had stopped it.
So our initial focus was getting this back up and running in the US.
And the team did a great job with that.
We have great manufacturing in place.
And then, this amazing Breakthrough Therapy Designation.
One of only 90, I'm told, that have been given in the US, with over 300 rejected or not approved.
So I think it's a quite-significant accomplishment.
How do we take it forward in Europe and in Asia.
You know, I've spent time in Japan where [FEO] is an important focus in Japan.
So we're looking at different alternatives.
One would be to work with partners in each of those areas.
The manufacturing could be done centrally, through our manufacturing site in Ontario; or we could distribute the manufacturing throughout the world, working with radiopharmaceutical manufacturers.
There's so many good ones in Europe, and we see them emerging in Asia.
So, that's high on our to-do list, <UNK>, but I don't have more to report than that.
Yes, I don't think, <UNK>, that we have a lot of detail there.
We have the statements that Valiant made in their quarterly call as they talked generally about what was happening with their drugs.
And we have had discussions with the Relistor commercial team about what's happening with Relistor.
I think, broadly stated, what they say to us is that they feel this quarter's sales were impacted by the inventory runoff, if you will.
But despite that, we see $11.9 million in sales.
So that's coming back to the run rate that we'd seen at Salix before the Valiant transaction.
They feel that there will be continued impacts, although diminishing over time, basically for the remainder of this year.
So I think we don't have more specific details than that, <UNK>, but we see Relistor coming out from underneath this inventory problem.
I was pleased to see us get to almost $12 million in sales this quarter.
And we would hope that as the inventory continues to run off with other wholesalers, that that will have a positive impact on sales.
But that remains to be seen.
No, we find Valiant is still thinking through what is the best approach there.
I think a primary decision for them to make is, are they going to market it themselves using their existing capabilities in Europe, and perhaps enhancing them because of the potential for Relistor.
Or will they want to partner with a company or companies in Europe.
The Relistor submission needs to be changed from a FDA submission to a European submission.
That will take a matter of months in order to have that change made.
And then we would expect that to be submitted.
That's our understanding.
The EMA has never been concerned about the cardiovascular risk, which was a concern at the FDA and held us up for a period of time at the FDA.
Now I think we're past that with the FDA.
That was never a concern at the EMA level.
So I think we have a good package for the EMA.
But as I say, it needs to be converted into their format before it can be submitted.
Thank you, <UNK>.
Thank you, operator, and thanks to everyone joining us today.
I just wanted to make a quick announcement, to stay tuned for details on our upcoming R&D day, which is planned for October 1st in New York City.
We'll be featuring thought leaders in pheochromocytoma and prostate cancer imaging, and we'll be reviewing our internal pipeline programs.
We'll be providing additional details in the coming weeks, but we'll hope that you will be able to join us on October 1st in New York City.
Thanks for your attention today.
| 2015_PGNX |
2017 | RSG | RSG
#Thanks, Don
Second quarter revenue was approximately $2.5 billion, an increase of $176 million or 7.5% over the prior year This 7.5% increase in revenue includes internal growth of 7.2% and acquisitions of 30 basis points
The components of internal growth are as follows: First, average yield increased 2.5%
Average yield in the collection business was 3.1%, which included 4.2% yield in the small container business, 3% yield in the large container business and 1.9% yield in the residential business
Average yield in the post-collection business was 80 basis points, which included landfill MSW of 1.8%
A majority of our third-party landfill MSW business is with municipal customers that have contracts containing pricing restrictions
Total core price, which measures price increases less rollbacks, was 4.1%
Core price consisted of 5.3% in the open market and 2.2% in the restricted portion of our business
Pricing in the restricted portion of our business benefited from an improved inflationary environment and our focus on earning an appropriate return on our contracts as they renew
The second component of internal growth is total volume, which increased 1.9% over the prior year
Volumes in the collection business increased 40 basis points
This included a 1.9% increase in our large container business and a 50 basis point increase in our residential business, partially offset by a 90 basis point decrease in our small container business
Small container volumes included a 140 basis point impact from intentionally shedding certain work performed on behalf of brokers, which we view as non-regrettable
Excluding these losses, small container volumes would have increased 50 basis points
Within our large container business, temporary C&D hauls were up 1.7% and recurring hauls were up 1.9%
The post-collection business, made up of third-party landfill and transfer station volumes, increased 8.7%
Landfill volumes increased 8.4% which included C&D of 17.5%, special waste of 15% and MSW of 1.1%
The third component of internal growth is fuel recovery fees, which increased 60 basis points
The increase relates to a rise in the cost of fuel
The average price per gallon of diesel increased to $2.55 in the second quarter from $2.30 in the prior year, an increase of 11%
The current average diesel price is $2.51 per gallon
The next component, energy services revenue, increased 70 basis points
The growth in energy services revenue is primarily due to an increase in drilling activity in the Permian Basin where we are well positioned
And the final component of internal growth is commodity revenue, which increased 1.5%
The growth in commodity sales revenue primarily relates to increase in recycled commodity prices
Excluding glass and organics, average commodity prices increased 35% to $157 per ton in the second quarter from $116 per ton in the prior year
The average commodity price in June was approximately $160 per ton
Cost of goods sold for recycled commodities increased 49% primarily due to an increase in rebates
Now, I'll discuss changes in margin
Second quarter adjusted EBITDA margin was 28%, which compares to 28.3% in the prior year
The change includes a 40 basis point increase in landfill operating costs
As discussed in the first quarter, we continued to see higher costs associated with the change in operating requirements at one of our sites
We also saw an increase in leachate volumes at a handful of our sites
These costs are temporary in nature and we expect the higher landfill operating costs to abate over the next few quarters
Excluding the increase in landfill operating costs, we had 10 basis points of margin expansion from strong pricing and volume growth, demonstrating the operating leverage in our business
I want to remind you that we provide a detailed schedule of cost of operations and SG&A expenses in our 8-K filing
Second quarter 2017 interest was $90 million, which included $11 million of non-cash amortization
Our adjusted effective tax rate was 39.1%
We expect an effective tax rate of approximately 39.5% for the remainder of the year
Year-to-date adjusted free cash flow was $358 million, which represents 6% growth over the prior year
We remain comfortable with our full year adjusted free cash flow guidance of $875 million to $900 million, which represents double-digit growth over the prior year, after adjusting for the change in cash taxes
Now I'll turn the call back to Don
So, so far we spent about 53% of our CapEx first half of the year
As we look at over the rest of the year, obviously we had very strong volume growth first half of the year and therefore because of that we may need to increase our capital spending to fund that growth
And that's why we haven't changed our free cash flow guidance
Yeah
It was obviously accretive to the margins, but keep in mind that when you're talking about the COGS that 20% of the tons that we handled are brokered by us
So, if you actually exclude those volumes and those brokered volumes, then our sale of materials and our COGS went up by a similar rate of approximately 30%
Thank you
So obviously, we posted a very strong revenue first half of the year, so that's where that EPS guidance increase is coming from and then that's been partially offset and what I talked about earlier about the temporary increase that we're seeing in our landfill operating costs, so it's the net of those two
Yeah, we say over the next few quarters, most of that's going to take place this year
Hey, <UNK>
Yeah
So when we look at the back half of the year, obviously we're expecting expansion in the margins and that's really coming from the strong revenue
At the same time, as I had talked about before though, these landfill costs are going to slowly abate
So, we're going to have that headwind associated with also
So as we're looking at the margin, it's kind of longer term
We're thinking that we're going to be flat for the year
But if you take out the landfill operating costs, then that would get us right back to the 30 or 40 basis points of expansion that we had anticipated
Yeah
So, in terms of the incentive comp, keep in mind that we had an adjustment last year to incentive compensation that didn't repeat this year
And so obviously, our incentive is currently at levels that are consistent with our guidance for the rest of the year
Thanks, <UNK> (sic) [<UNK>]
I think you should just drop the mic at that point and we'll walk away
Hey <UNK>
So what happened is that we actually saw some of that acceleration in Q2 and that's why we're able to post a restricted price of 2.2%
So those resets have already started to happen
In addition to that, as I had mentioned before, we were able to actually renegotiate some of our contracts on favorable terms, those restricted contracts
So we've got that coming through under restricted price also
So as we look out for the rest of the year, we think that that restricted price and yield in general is going to be pretty much flat to where it was in Q2.
So there is one less work day and obviously that work day is included in our guidance
And what we had talked, obviously the revenue growth has been very, very strong and commodities has been strong also
If you were to pull there – as I said, if you were to pull out these one-time landfill costs we'd have achieved kind of the high end of our guidance range in terms of our EBITDA margin growth year-over-year
As we look out into the future as these costs abate, there is still nothing structural that we see that'll keep us from getting back to 30% EBITDA margins that we had talked about, so that still demonstrates the leverage that we expect from this business
The other thing I would say also <UNK> is that it's not just the EBITDA that we're focusing on, it's also the cash flow
And I had a very wise man telling me one time that you can't spend EBITDA and we are focusing on the cash
And keep in mind that the cash flow guidance that we gave this year is double-digit when you adjust for cash taxes
So that's a very key metric for us also
<UNK> <UNK> - Macquarie Capital (USA), Inc
Right
That's helpful
That makes sense
Just a clarification question on, did you guys have CNG tax credits that went away or was that impactful at all or not material?
Those credits went away this year, so we did not have those credits this year
<UNK> <UNK> - Macquarie Capital (USA), Inc
No, there's really no cost that we have that are impacting those landfill operating costs that Don had talked about
So, obviously there is leverage there that we had talked about
We expect that we're going to continue to be able grow that top line like we have
You've got the work day in Q3 which is a benefit for us also
So, it's a combination of all those factors
On that one – we are?
Like I said, <UNK>, it could go up a little bit because of the volume growth
Little bit could go up by $5 million, $10 million, maybe in that range
Yeah, somewhere in that range
There is <UNK>, and it goes back to what we had said before, is that if you pull out, just pull out the landfill operating costs, you've got 10 basis points of margin expansion during the quarter
And if you do that for the entire year, you've got 30 to 40 basis points of margin expansion
That's right on top of the guidance that we had given
So, yeah, the leverage is there
Yeah, 30 to 40, right
So, again, we talk about several times on the call, right, mix matters, right
And we are confident that the margins are expanding within the business, we got some of these highlights like recycling and fuel and some of the things that just net things out, but business is strong, the growth is good, pricing is good, operating team's doing a great job
We've got a couple of sort of near-term temporary and unusual things to take care of and then we should really I think end the year strong and move nicely into 2018.
Well, you remember, you have seasonality
And those are seasonal for sure
| 2017_RSG |
2015 | UNP | UNP
#<UNK>, you probably could write my answer here and what I'm going to say.
Without giving precise guidance, because in terms of what we're going to buy back because we don't do that.
We certainly value and understand the value of a continued buyback program, and we have walked our talk there.
And as we've always said, we will be opportunistic in the marketplace based on factors like the price of the stock.
So all those are factors in terms of how it will look as we play out into the next several quarters.
We're going to continue to take the same mindset, if you will, in terms of how we approach the opportunity and approach how many shares we actually do buyback.
<UNK>, this is <UNK>.
It varies.
I would say the vast majority of the decline is in some way or the other attributable to natural gas prices.
As you know, there are different ISO regions that we operate in, and the impact of natural gas is different in those regions.
But I would say the vast majority is attributable at the end of the day to the competitiveness of coal with natural gas with one other factor.
And that is being our export coal market just the worldwide export coal prices, that's also a factor.
<UNK>, as I mentioned earlier, one of the other factors that is a factor is the current level of coal inventories that at the end of the third quarter, they're 30 days higher than where they were last year.
And 20 days higher than average a five-year average.
I would say it's a fair expectation to assume utilities would work those down.
Not only maybe even to the averages, or below the averages if they are trying to be in an inventory management mode.
That's an excellent question, <UNK>.
One that we're constantly working on.
Our primary focus, first and foremost, is a robust, reliable, excellent service product.
And in that context, it's making that service product better than the alternatives.
That puts us in a position to be able to secure a price premium.
And that represents the value of that service product.
So long as we're in that position, then we can handle the rest of the pressure points appropriately.
When it comes to regulation, our best defense in a regulatory environment is happy customers, and customers that are getting an excellent service product.
That won't stop the conflict around the pricing discussions that we have.
It won't stop regulators from wanting to find ways to regulate us.
But it will stop some of the pressure, and that's our biggest defense.
It's the one we focus on most.
We are keenly focused on making sure we generate a really attractive return on our invested capital.
Embedded in that is trying to make sure we continue to improve our margins.
I think we've outlined today that there are ample opportunities to continue to make that happen.
One of them is price, but it's only one of the mechanisms.
And that's what we are focused on.
We've actually only mentioned it this quarter, and a little bit last quarter.
It really depends on the consumer.
Consumer confidence does appear to be strong.
There does appear to be a trend where consumers are paying down debt and spending on non-product things like data, internet, healthcare services, et cetera.
I do think if you talk to a lot of the BCO's and the retailers, they do have an expectation that with consumer confidence remaining strong, there should be a pickup during the holiday season of sales.
But time will determine whether or not that happens.
<UNK>, this is <UNK>.
Yes, we make good progress on that.
And remember that marker that I was sharing with you in the first and second quarter was against the previous year.
And we feel very good about, as Cam walked through, we feel very good about the third-quarter progress we made in better aligning our resources.
Having said that, we're not done.
Last year was not the end of the game.
So we still see opportunities for us to continue to squeeze out productivity initiatives on multiple fronts, and we're going to continue to do that.
But in answer to your direct question of compared to what I showed you last quarter on the year over year.
We made very good progress in taking out those inefficiencies that we showed you in the second quarter.
<UNK>, I think it's a great question.
Certainly, as you mentioned, the SAR's rate is at barn-burner rate.
The amount of debt associated with auto loans is at a, I think a historic high rate.
I think the auto manufacturers would still be pretty bullish because of the features that they think they're providing to the consumer and the average age of automobiles out there.
But the sales rate is at a high number, and so that by definition, would indicate a little caution and concern.
We don't have too much concern about model changeovers.
There is always model changeovers.
We see that year in, year out.
We have the benefit of a very broad, diverse autos franchise, and somewhere, there's always that happening.
So we don't see that as too big an issue, but certainly the sales rate, the amount of debt associated with sales, you could say is something to watch out for.
<UNK>, regardless of what SAR is, what we really are pleased with is the UP automotive franchise.
It's outstanding, it gives us great access to Mexico with products produced in Mexico.
It gives us great access to the ports of products produced overseas and imported.
And we have an excellent distribution system for finished vehicles in the Western United States.
We're in a very good place when it comes to the automotive franchise.
This probably won't shock you, but we look at it every day, and feel very comfortable that what we have done to date works for us.
And we're not changing our approach or how we look at it, but I understand the point of your question.
But rest assured, we look at what's the right way to deal with this, and we're confident that we're doing the right thing.
<UNK>, this is <UNK>.
I don't see any ---+ I'm not calling out that there would be any change in terms of the direction we've been.
We have not changed our approach.
So I don't anticipate there being any big swing in that.
<UNK>, this is <UNK>.
We look at that in depth continuously as part of our strategic and tactical analysis of our markets.
I would say that at a high level, coal continues to represent on going forward probably a necessary minimum third of electrical generation in the US.
Short of some new technology, I'll call it Star Trek technology, just for shorthand purposes.
Coal of necessity is going to be a part of the electrical generation of this country for the foreseeable future.
And so I think you could perhaps see coal get to a minimum of, call it, a 30% market share.
But short of some really new generational technology, I think it will right now for the foreseeable future that's probably the minimum that it will be.
<UNK>, this is <UNK>.
So I want to provide a little editorial comment as well.
I think the United States is blessed with the coal reserves that we are, and our ability to generate electricity with coal relatively cleanly.
And it's never been as clean as it is today.
It would be a mistake from the US economy perspective, our competitiveness globally, to continue to regulate that out artificially.
I think we have to work on continuous improvement with the emissions from coal-fueled generation, but it would be a mistake to artificially retard that too much.
<UNK>, the numbers that you see in Autos and Intermodal from an arc yield standpoint is really hindered by the fuel [first] surcharge reduction.
That's more than 100% of that impact.
And her second question was Mexico versus international on Intermodal.
<UNK>, this is <UNK>.
Let me take that first question.
I would caution you not to just use a straight line numbers on there.
Because I think the piece to answer your question, what are you missing, I think what you're missing in that analysis is mix.
Mix has an impact within each of the commodity groups in terms of what ends up being reported as average revenue per car.
On top of each of their individual impacts from the fuel surcharge.
So I would just caution you that there are differences within each commodity group.
And as you know, we're not going to give guidance in terms of pricing in the future.
We do think that the domestic Intermodal market should continue to have strong pricing opportunities in two thousand ---+ as we go into the future.
There's a lot of input, a lot of ins and outs that happen.
There are a lot of dynamics, as you know, going on in the international Intermodal market.
That are dynamically driven by other countries and steamship liner carriers.
We feel good about our value proposition.
We feel very good about our domestic Intermodal franchise, and our ability to get price in that.
<UNK>, we have historically said and I don't think it's changed much, to maintain what we've currently got is about a $2 billion plus/minus number.
And after that, it's things like technology, PTC, capacity additions, commercial facilities, new equipment, et cetera.
As we're making our capital plans next year, we're constantly evaluating both capital productivity in terms of dollar per unit that we put in the ground or buy, and where exactly we're putting it.
So I won't make any commentary on exactly what those plans look like.
You're exactly right, <UNK>.
That the levers as you've heard us talk and as you fully understand, the levers that drove us from were we once were to where we are today are productivity, which is driven by the service.
That service also enables us to get the right price in the marketplace, and volume is always our friend in that calculus.
We're going to control those that we can best control.
So I would say, frankly, the biggest risk I see at this point is that which we have less control on and that is the economy.
And what that then gives us in terms of volume to play with.
But as I've said many times, and you've heard us say, we're not going to use the lack thereof of volume to slow us down on our initiatives to continue to make progress on that which we can control.
But that's what we're going to continue to do, as we have over the last decade.
I think as we've been saying throughout the call, there is uncertainty about the going-forward outlook in all of those.
And I'm not sure our prediction ---+ ability to predict is any better than anyone else.
Certainly, the strong dollar is impacting our metals steel business, our domestic metal steel business.
Oil prices will be a direct factor in terms of the amount of drilling, the amount of crude-by-rail, and the natural gas will be a direct driver in terms of the amount of coal.
So at those points, an ability to predict those items, I'm not sure I have any better ability than anybody else in the marketplace to do that.
<UNK>, this is <UNK>.
I don't think we said we're not going after fixed cost.
We focused the commentary on some of the variable costs.
But where we have opportunity to, for instance, reduce our CapEx, or for instance reduce the physical footprint of shops that maintain locomotives or other areas like that, we're going to take advantage of those as well.
I think what we were trying to impart is that our coal network is not isolated and independent from our overall network.
And so it would be very hard to tease out individual physical assets, hard assets, that are completely dedicated to coal and isolated on their own.
<UNK>.
<UNK>, you may have stumped me in terms of the actual numbers that you just worked through, because I frankly was not following you.
But I would say that mix is clearly a factor in that.
So be careful in your analysis to factor that in.
And again, all I would say about the pricing is we're going to continue to focus on driving value to our customers, continue to drive productivity, and continue to drive price where we can in the marketplace.
We know that the underlying value of our service product to our customers is a key component of that, and it all hangs together there.
So we're going to continue to focus on driving as much as we can on it.
So even with the best service available, are you going to be able to go to customers whose volumes are down in the high single-digit, low double-digit range, and ask for and receive better than 3% pricing.
<UNK>, this is <UNK>.
There is never a conversation that our commercial team enters into with a customer on price, that is easy.
It doesn't matter if their volume is up or their volume is down.
Clearly, <UNK> and his team and in the environment that we're in right now have secured what in the third quarter a 3.5% core price.
And in the previous quarters, as much as 4% core price.
None of that came easy or was a lay up, and I expect them to continue that good hard work into next year, securing an appropriate price for the value that we represent to our customers.
Thank you very much, <UNK>, and thank you all for your questions and interest in Union Pacific this morning.
We look forward to talking with you again in January.
| 2015_UNP |
2018 | SBSI | SBSI
#Thank you, <UNK>.
Good morning, everyone.
Welcome to Southside Bancshares' 2017 fourth quarter and year-end earnings call.
We had a solid fourth quarter with net income of $10.3 million after the impact of both the Diboll State Bancshares acquisition expense and the write-down of our net deferred tax asset to the reduced corporate rate of 21% from 35%, both occurring in the fourth quarter.
For the year ended December 31, 2017, we reported net income of $54.3 million, an increase of $5 million or 10.1% compared to $49.3 million for the same period in 2016.
Our diluted earnings per share for the fourth quarter ended December 31, 2017 were $0.33 per share, a decrease of $0.09 or 21.4% compared to $0.42 per share for the same period in 2016.
For the year ended December 31, '17, diluted earnings per share were $1.81, the same as for the year ended 2016.
When combined, both the impact of the acquisition expense, net of tax and the write-down of the net deferred tax asset directly to income tax expense negatively impacted our earnings per share $0.16 and $0.19 per fully diluted share for the fourth quarter and year of 2017, respectively.
For the year ended December 31, 2017, total loans, excluding acquired loans increased $116.5 million or 4.6%, when compared to December 31, 2016.
The organic growth occurred in the commercial real estate, construction and municipal loan portfolios, while the loans acquired in the Diboll acquisition increased all categories.
Our indirect portfolio continued to roll off, decreasing $3.5 million during the fourth quarter and $23 million during 2017, leaving a remaining balance of approximately $12.9 million at the end of December.
At December 31, 2017, our loans with oil and gas industry exposure were 1.5% of our total loan portfolio.
We recorded loan loss provision expense during the fourth quarter of $1.3 million, an increase of $311,000 from the third quarter.
During the year ended December 31, 2017, the allowance for loan losses increased $2.9 million or 16% to $20.8 million or 0.63% of total loans, when compared to 0.7% at December 31, 2016.
Nonperforming assets decreased during the year ended December 31, 2017 by $4.6 million or 30.7%, down to $10.5 million or 0.16% of total assets compared to $15.1 million or 0.27% of total assets at December 31, 2016.
This decrease was primarily due to the payoff of several nonaccrual commercial loans during the first half of the year.
Next, I will give a brief update on our securities portfolio.
Excluding securities acquired in the acquisition, our securities portfolio increased $11.9 million for the fourth quarter and decreased $203.3 million for the year.
We also recorded an impairment charge of $234,000 during the fourth quarter, related to $109 million of U.S. agency debentures we sold during January of '18.
The duration of the securities portfolio at December 31, 2017 was approximately 4.8 years, a decrease from 5 years at September 30, 2017 and 5.1 years at December 31, 2016.
At December 31, 2017, we had a net unrealized loss in the securities portfolio of $8.3 million.
As loan growth occurred during the year, we gradually reduced the size of the securities portfolio.
These changes combined with the Diboll acquisition resulted in a shift in the mix of our loans and securities to 57% loans, 43% securities at the end of the fourth quarter compared to 51% loans, 49% securities at December 31, 2016, moving toward our longer range goal of a 70-30 mix.
We expect to continue with the barbell approach for future security purchases using U.S. agency CMOs for the short end and treasury notes, agency and commercial mortgage-backed securities for the longer end.
During the fourth quarter, our net interest margin increased 10 basis points to 3.12%, and our net interest spread increased 9 basis points to 2.91% on a linked-quarter basis.
The increase in both the net interest margin and spread were a direct result of an increase in the average yield on our average earning assets.
During the fourth quarter of 2017, we incurred additional merger expense of approximately $3.5 million in connection with the closing of the Diboll transaction on November 30, 2017.
Approximately half of this expense was in connection with contract terminations.
Additionally, in connection with the merger, we incurred additional amortization expense associated with an increase in our intangible assets in connection with the acquisition.
While our noninterest expense increased during the 3 months ended December 31, 2017, on a linked-quarter basis, we continue to see an improvement in our efficiency ratio down to 49.42% for the fourth quarter of '17 from 49.99% last year.
For the year ended December 31, 2017, our efficiency ratio decreased to 50.3% from 54.08% for the year ended 2016.
As a result of the Tax Cuts and Jobs Act passed in December, we are currently estimating our effective tax rate for 2018 will be approximately 12.4%.
Thank you, and I will now turn the call over to <UNK>.
Thank you, <UNK>.
We enjoyed another excellent quarter, highlighted by the completion of the Diboll State Bancshares acquisition.
After 2 full months of combined operations, the merger is proceeding smoother than we originally projected.
Customer transition has gone extremely well due to advanced planning and the similarity of our two cultures.
The expanded contiguous markets we now serve in East Texas, the addition of Diboll's outstanding talent, the overall low cost deposit franchise and the quality loan portfolio are some of the reasons why we are so excited about this strategic transaction.
Conversion and transition teams are meeting weekly to ensure continued smooth integration and to plan for the core conversion in late April.
The decrease in the securities portfolio during the third quarter of $121 million, mostly through the sales of longer duration securities combined with the subsequent sale of $109 million of U.S. agency debentures during January of this year provide us additional balance sheet flexibility in this currently higher interest rate environment.
Should the anticipated Fed interest rate increases occur, the Diboll acquired core deposit franchise should provide a more stable and profitable funding source.
We are not wavering on our credit underwriting standards, and our asset quality ratios remained strong as reflected by our nonperforming assets to total assets ratio of 0.16%.
Cost containment and process improvement efforts continue to be major areas of focus.
As <UNK> pointed out, our efficiency ratio during the fourth quarter declined to 49.4% and our efficiency ratio for the year declined to 50.3%, very close to the stated target of 50% for all of 2017.
The economic conditions in all 3 of the markets we serve: East Texas, the Dallas/Fort-Worth area and Austin, remain healthy.
The Austin and DFW markets fueled primarily by job growth and company relocations, continue to perform exceptionally well.
We're excited about our prospects for 2018, given the newly acquired balance sheet and market area; benefits associated with the reduced corporate tax rates, the dynamic growing markets we serve, our strong balance sheet, capital position, credit quality and foremost, our outstanding team members.
At this time, we will conclude our prepared remarks and open the lines for your questions.
Okay.
<UNK>, you want to talk about the loan accretion.
Yes.
The accretion that we reported during the third, excuse me, during the fourth quarter was roughly $438,000.
Approximately $185,000 of that was directly related to the Diboll acquisition, and the remainder was the Omni acquisition of purchased loans.
And as for the moving forward NIM and spread on a full ---+ on a fully taxable equivalent basis, we are anticipating that the non-GAAP measures associated with that will decrease the NIM and the spread about 12 basis points, due to the reduction in the tax rate from 35% down to 21%.
No, we are estimating closer to around 30.
29.9 roughly.
And that would be for the first quarter, then we'll have some gradual reduction in the second quarter.
And then, by the third quarter, we'll be able to provide better update as to what we think that's going to be probably at the ---+ at our first quarter earnings call.
Okay.
Yes, we ---+ basically payoffs exceeded our fundings in the fourth quarter slightly, so the organic loan growth was actually down, I think, about 1%, 1.5% during the fourth quarter.
For 2018, the pipeline looks good.
It's ---+ we do anticipate some additional payoffs that will come in.
But we're budgeting for 7% loan growth in 2018.
That is correct.
Yes, it does.
Basically, what we looked at is, I mean, one, we've done a budget.
And two, we looked at the run rate of about $30 million in December with $3.5 million of that being acquisition expense.
We don't expect acquisition ---+ ongoing acquisition expense to be that much.
And then the run rate moving ---+ we have 1 month of run rate of Diboll in the fourth quarter, and so we'll have 2 additional months of that.
So combined, it's going to be somewhere close to about $5 million.
That's correct.
Additional organizational expense.
We're projecting it to be 12.4%.
In the Trust department, that with the acquisition basically our Trust assets under management doubled.
So we are anticipating that Trust income will be up nicely this year, close to double, what it was in 2017.
Deposit services income, it looks like we're ---+ with the acquisition that's going to be up nicely.
And then, I would expect the gains on sale of loans to be about the same as well as the other items that you see there.
We are seeing some additional opportunities in C&I.
You know, the optimism comes from the reduced regulation and obviously, the tax cuts that were implemented effective January 1 of this year.
So we do anticipate additional C&I business, but also we'll have some commercial real estate.
We anticipate good continued muni loan growth.
And those probably would be the areas of focus.
<UNK>, I wanted to ask just about the securities book kind of plans to continue to reinvest there, given higher rates.
And any change in terms of how you may reinvest in terms of your municipal bond interest.
We're ---+ we've kind of sat on the sidelines now for about 4 months.
We've invested a little bit, but for the most part, we just continue to reduce our home loan bank advances and save the money for loans.
If rates reach certain levels, if the 10 year gets to 3 or something like that, we may invest some portion of the proceeds.
But I really don't look for the securities book to be a position of significant asset growth at this point in time.
I would expect it to remain fairly stable to down through most of the year as loan growth takes over the asset growth and the earning assets.
And just looking at the loan pipeline kind of as it stands now.
We've had several years of slower growth in the first half and kind of the pick up in the second half.
Do you ---+ just kind of how you see it today.
Do you envision that being the same trend this year.
Or are there things that contradict that.
Last year, we had our growth in the second and third quarters.
So it's really kind of hard to predict.
We do have some anticipated payoffs that are going to occur throughout the year.
And it really just depends ---+ some of these are projects that are potentially going to sell and it really just depends when those come to fruition, when those paydowns will occur.
Other than that, we're anticipating fairly stable fundings throughout the year.
It'll really be the impact of the paydowns that'll determine when the growth occurs in the various quarters.
One last one maybe, if I can just on capital.
Obviously, lower tax rate, higher capital formation.
Do you plan to maintain kind of the dividend payout ratio.
Or how are you thinking about capital priorities from here.
We've always had a fairly high dividend payout ratio.
We are anticipating keeping it close to the same, but maybe reducing it down closer to 45% to 50%.
We're not going to reduce the dividend.
But as earnings grow, maybe, gradually reducing the payouts.
I think the impact on the NIM will be positive after the adjustment for the FTE.
And going forward, the Diboll loan portfolio was a little bit shorter than ours, and then they have a really ---+ had a really strong core funding base.
So I think that's going to do nothing but improve the prospects for the NIM and the spread going forward.
All right.
Thank you for joining us today.
The anticipated benefits associated with the newly completed Diboll transaction, cost containment success, near pristine asset quality, dynamic growing markets ripe with quality loan growth potential, our success in replacing securities with higher-yielding loans combined with the tax reform that is effective December ---+ January 1, 2018, provide a foundation for an excellent start for this year.
Thank you for being on the call today, and we look forward to hosting our next earnings call in April.
| 2018_SBSI |
2015 | SPG | SPG
#Look, I think they are both very competent developers, re-developers, so at the end of the day my guess is it's not going to be all that crazily different.
But so much of that is dependent upon the location and the local market.
But they are both competent developers.
I would probably venture to say it will be similar.
But if they are better than us, we intend to copy immediately, okay.
Well, look, I would just say generally there's obviously the whole movement toward value on one hand and luxury on the other continues.
The general ---+ the good news about that is we're positioned in both of those barbells extremely well.
But that's not to say where people lose sight of that ---+ that's not to say the middle American mall isn't doing well.
It's part of the community; it gets ignored from a media point of view; there's assumptions made about those assets.
There's extrapolation, because one mall went out of business, that all malls are going out of business.
But I would say to you that the solid middle malls throughout America continue to do well, serve their purpose.
But you clearly see a movement in a lot of retailers from either aspirational, higher-end goods or value.
There's no question about that.
The one comment I would make to you on the new retailers we are dealing with is that they are substantially more sophisticated than the crop of new retailers we dealt with say 10 years ago.
Better financed, much more focused on their niche.
And it's been much easier to deal with this new crop of entrepreneurs than might've been the case (technical difficulty) last [play].
And look, in today's world, we all have to be better.
We all have to be on our game better.
So that's just ---+ that comes with ---+ I don't care what industry it's in, I mean everybody.
The rapid changes in the world is putting pressure on every industry, every operator.
And that's why you've got to have strong people, strong assets, and a strong balance sheet to deal with it all.
You know, look, there are a couple of differences across the thing in our business.
The Great Lakes, southeast and Pacific are stronger; mountain and New England were a little weaker.
The better categories were home furniture, food, personal care, jewelry, and athletic shoes.
I mean I'd say, <UNK>, you're clearly ---+ the stronger dollar and the economic upheavals in growing markets but with wealthy people ---+ Brazil, what's going on with China, and their focus on obviously Europe with the stronger dollar ---+ I mean it has impacted sales in the high tourist centers.
And we've got them.
There's no question.
We've got them in South Florida.
We've got them in Orlando.
We don't have New York City; we have Woodbury, which has been relatively flat.
And that's usually a center that grows every year.
And I think that's more of all the stuff going on with the center than the tourism.
But the tourism centers have had a little softness.
You see it in the hotel industry, so we're not immune to that.
I'd say it's had no impact on leasing.
Well, I mentioned it briefly earlier which is ---+ look, we're doing the southwest corridor.
We're finalizing the permits there, which is more administrative.
So it is all shaping up to ---+ we start to dig down to support the foundation going up.
That's all moving.
The southwest corridor should start in the next month.
So we have certain failsafe.
The way the building is being constructed, we have failsafes.
For instance, we're going to do the southwest corridor first, which is because we've got to create a new entrance to create the way to build.
We've got to go down into the Turnpike, so we have to create the new entrance first.
That's happening.
That's been approved by us.
Then we go down into the Turnpike.
Then we go up to support the steel going up.
So we will be making that incremental decision; but once we do the southwest, we will do that.
Then building the podium is where it's really guts poker.
That's a year decision from now.
But all systems are go and we are cranking.
We don't see any reason to stop.
The nice thing about this is that we can stop, look, and listen to the market a year from now.
And yes, we would have an investment in it, but we'll always be able to go up.
I don't see any reason why we wouldn't go up.
But we're certainly going to go down and build our way up to create the platform to build the tower.
I would comment on Deliv that Macy's just recently announced that they are expanding the footprint of stores in which Deliv is going to be working with them.
So that is certainly a positive sign, and we continue to believe that there is a significant role for all of our properties to play in the fulfillment aspect of an omnichannel retail business, and it's moving apace.
I think it's just a function of getting the systems right, getting the retailers to the point where they're ready to fulfill from their store.
There's a big systems upgrade that's going on right now across the entire industry, and ultimately it is going to be a seamless, integrated experience for our consumers.
And certainly fulfilling from the store to their home is going to be part of that, and Deliv can be part of that solution.
Well, that would have to be a negotiated part of the deal.
But it seems to me they've got the balance sheet to be able to do that.
But I'm sure we could figure it out if they didn't.
Well, we're joint venture partners.
It's both.
It's approval on both sides.
I'd say we're taking the lead on coming up with the plans and the redevelopment and the different uses.
But they're riding copilot with us.
I would also say to you that we have significant ---+ another number of Sears stores that are not in our venture that are in Seritage.
And when we meet with Seritage we are actively working with them, as we have done in the past, to help them redeploy those spaces in a productive way.
An example of that is <UNK>ng of Prussia where Dick's now opened and Primark is opening this fall.
And between the two of them they will 100% occupy the former Sears store.
No.
Yes, they don't have the infrastructure to get stuff done like we do.
So I don't see the dynamics changing.
I don't know even how to interpret your question.
We spun off WPG well over a year ago.
They are a separate, independent company.
They are focused on the strip center and the B mall business.
You can hear that directly from them.
We do services for them that ultimately will go away mid next year.
And their growth opportunities are better discussed with them.
I think our focus, as you have seen over the years, is to buy the bigger assets or assets that we feel we can improve upon.
But the primary focus is on our redevelopment or finding different vehicles for growth, whether it's Europe, whether it's HBC, etc.
, and continuing to grow our business.
I don't ---+ I said to you, I'm out of the big deal business.
We're not going to buy B assets.
I think that's better for others to do, given what's on our plate.
But ---+ I'm not sure I answered the question, but I tried.
I think that business is better for others to do.
But that's ---+ I'm not ---+ that's not up to me to decide.
Well, we're always doing that.
We just do it; we don't do it ahead of that.
So we are ---+ we have a deal that's closing mid-August that was a lot of work, and we just didn't want to deal with it.
We're close on another deal.
So yes, we do that.
<UNK>, I know, if you looked at our history, we sold a bunch of stuff.
So yes, we'll always sell assets.
Always part of our ---+
Yes.
We market.
We've marketed ---+ the two that I am referring to were marketed, yes.
There could be a few deals here there.
But if you look at it year-over-year, year-to-date it's not all that different than 2014.
So it's lumpy.
Sure, it's lumpy, but I don't think it's going to be all that different, <UNK>, right.
From ---+
No, about the same as 2014.
Same as 2014.
That's a business that's lumpy in terms of quarter to quarter.
Quarter to quarter ---+ it's actually relatively consistent year-over-year.
Okay, thank you.
Have a wonderful last few weeks of summer.
Sorry to have ruined your Friday on a summer Friday.
Enjoy.
| 2015_SPG |
2016 | GRMN | GRMN
#Well, as we mentioned in the remarks, we are pursuing that kind of business as well.
We partnered with Cerner recently.
We also have partnerships with insurance companies like Manulife and others and we also do deals with individual corporations as well.
So it is an opportunity we are pursuing.
Yes.
In terms of the recent developments with the Apple Watch and GPS, as you pointed out, it is still early days.
But at this point we don't see any detectable impact.
I think we've said in the past that our products tend to appeal to a slightly different audience than the Apple Watch, although there is some overlap but generally that's true.
So that's the way we see things right now and of course, we will see how things develop.
In terms of new Fitbit launches, in terms of our market share, we feel like it's generally stable.
They've released new products of course and they have very strong share but our is ---+ also remained about where it was.
We think it's in the 10% range.
Yes, so I think we did see the softness earlier in the year and last quarter we updated our guidance to be slightly more down than what we had previously projected.
The weaknesses are primarily driven in Europe, where the market has gotten softer.
We think for the fourth quarter that there will be some opportunity to flatten that curve a little bit with promotional activity but it is somewhat of a wait-and-see situation.
So in terms of organic growth, there's multiple categories within fitness from the low-end trackers on up to high-end running watches.
But we've seen growth in those categories on a global basis, market growth, if you will, over the past year.
I think some markets are more mature than others, as I mentioned earlier, so the situation is probably different in Americas versus Europe versus APAC but generally, the market has been growing.
In terms of benefits, I think, again, depends on category.
But new product releases always generate excitement, for sure.
But at the same time, shelf space is vitally important so we are working hard to have both good shelf space presence in retailers as well as strong product offerings.
Well, I think that's somewhat of a challenge because if you look at our Fitness product line, we have one kind of product and the features and the style that is there versus Outdoor in our fenix line which has yet a different kind of style.
But generally, I would say that the kind of customer that overlaps with Garmin would be those that are probably more on the entry-level side to running and activity, and are looking at what kind of device they could use to enhance their performance in running and other kinds of sporting activity.
That's generally the customer profile that would be overlapping with us.
In terms of our long-term view, as highlighted by the announcement we made, where we are investing in the Aviation business; absolutely, we have a strong view for the future of that business.
And currently, we are running at near capacity in our current production facilities and so in order to meet the anticipated demands of the future, we felt like it was the right time to invest in our facilities.
In terms of opportunities to win business, I think there's many opportunities to win business.
Our G3000 and 5000 lines are very strong and we believe that those products should appeal to a broad range of business jet platforms that we are currently not present in.
Regarding the linearity of ADS-B, of course, we're seeing accelerating growth in that area as people become more aware of and interested in complying with the mandate and we would expect to see stronger growth in ADS-B as we move into 2017 and 2018.
So from auto OEM business, yes, excluding deferred, basically, we did see some improvement there on a cash basis year over year.
Yes.
We are improving.
Dollars.
Yes, so we will actually give guidance on 2017 in February.
So it's a little too early for that at this point in time (technical difficulty) process over the next few months.
| 2016_GRMN |
2017 | AEL | AEL
#Thank you, <UNK>.
Good morning, everyone, and thank you for joining us this morning.
Our core third quarter financial results remained strong, and they continued the solid trends we saw in the first half of the year.
Non-GAAP operating income for the quarter was $87.2 million or $0.96 per share.
And excluding the impact of the actuarial assumption reviews and the loss on extinguishment of debt, our operating income would have been $63.6 million or $0.70 per share.
So as a reminder, the 3 key areas that drive our financial performance are: growing invested assets and policyholder funds under management, generating a high level of operating earnings on the growing asset base through investment spread and then minimizing impairment losses in our investment portfolio.
For the third quarter of 2017, we delivered 1.5% sequential growth in policyholder funds under management.
That translates into a 7.1% increase on a trailing 12 months basis.
On a trailing 12 months basis, we generated a 12.3% non-GAAP operating return on average equity.
That excludes the impact of the actuarial assumption reviews and the losses on extinguishment of debt.
And our investment impairment losses after the effects of deferred acquisition costs and income taxes was ---+ were less than 0.01% of average equity.
The growth in policyholder funds under management for the quarter was driven by $915 million in gross sales.
Our product offerings have not been as competitive as they had been in prior periods.
However, since late June, we've captured higher new money yields on investments, which allowed us to enhance our product offerings in competitive positioning in September and October.
You'll hear more about those from Ron a bit later.
We had a modest sequential decrease in our investment spread in the third quarter, primarily reflecting a lower benefit from bond transactions and prepayment income.
The investment spread also benefited from the higher new money yields on investments.
And our low level of impairment losses, once again, reflects our continuing commitment to a high-quality investment portfolio.
I'll be back at the end of the call for some closing remarks.
But now I'd like to turn the call over to <UNK> <UNK> for additional comments on third quarter financial results.
Thank you, <UNK>.
As we reported yesterday afternoon, we had non-GAAP operating income of $87.2 million or $0.96 per share for the third quarter of 2017 compared to a non-GAAP operating loss of $4.7 million or $0.05 per share for the third quarter of 2016.
We had one discrete item in the third quarter of 2017 an $18.4 million pretax loss on extinguishment of our 6.625% Notes due in 2021, consisting of $13.3 million of redemption premium and the write-off of $5.1 billion of debt issuance cost.
The loss on extinguishment of debt reduced both net income and operating income by $10.8 million or $0.12 per share.
Third quarter 2017 operating income included a net benefit of $34.4 million or $0.38 per share from revisions to actuarial assumptions.
On a pretax basis, the revisions reduced amortization of deferred policy acquisition cost and deferred sales inducements by $75 million and increase the liability for future payments under lifetime income benefit riders by $21.6 million for a net pretax increase in operating income of $53.4 million.
Revisions to actuarial assumptions in the third quarter of 2016 increased amortization of deferred policy acquisition cost and deferred sales inducements and the liability for future payments under lifetime income benefit riders by $81.6 million and reduced operating income by $52.6 million or $0.60 per share.
The third quarter unlocking of deferred policy acquisition cost and deferred sales inducement assumptions was primarily driven by higher-than-modeled account values, which translates to increased projections of expected gross profits in future periods.
The increase in the liability for future payments under lifetime income benefit riders was driven by changes to our account value growth projections.
Although interest credits were well above expectations, the benefit from this was more than offset both by decreases in our assumptions for expected lapses as well as changes in our assumptions for future account value growth.
The revisions to our assumptions used to determine the liability for the lifetime income benefit rider under GAAP had no effect on our regulatory reserves, as actuarial guidelines for regulatory reserves mandate that reserves for fixed indexed annuities with lifetime income benefit riders be computed assuming that policyholders act with a 100% efficiency and elect payment streams that maximize the value of their policies on a net present value basis.
Investment spread for the third quarter was 270 basis points, down 2 basis points from the second quarter of 2017 as a result of a 2 basis point decrease in the average yield on invested assets.
Average yield on invested assets was 4.43% in the third quarter compared to 4.45% in the second quarter.
The decrease in the average yield in the quarter reflected a lower benefit from nontrendable investment income items, which added 5 basis points to the third quarter average yield on invested assets compared to 8 basis points from such items in the second quarter of 2017.
Nontrendable investment income in the third quarter of 2017 consisted entirely of fees from bond transactions and prepayment income.
The contribution from an acceleration of the rate of pay downs on residential mortgage-backed securities was di minimis in the quarter.
The average yield on fixed income securities purchased and commercial mortgage loans funded in the third quarter was 4.39% compared to 3.96% in the second quarter of 2017 and 4.13% in the first quarter of 2017.
The higher rate in third quarter reflects an increase in the amount of NAIC 2-rated structured assets purchased.
In October, we invested new money at 4.40%.
The aggregate cost of money for annuity liabilities was 173 basis points, flat with the second quarter.
The benefit from overhedging the obligations for index-linked interest was 6 basis points in both the third and second quarters of 2017.
We continue to have flexibility to reduce our crediting rates, if necessary, and could decrease our cost of money by approximately 47 basis points if we reduce current rates to guaranteed minimums.
This is up from 46 basis points at the end of the second quarter.
Interest expense on notes payable for the quarter was $7.6 million.
That's down from $8.7 million in the second quarter.
Interest expense decreased due to the refinancing of our 6.625% Notes due in 2021, with 5% Notes due in 2027.
The 6.625% Notes were redeemed on July 17, and we recognized $1.2 million of interest expense for the 16 days that 6.625% Notes were outstanding during the third quarter.
Other operating costs and expenses in the third quarter were $28.7 million, which was a $2.8 million increase on a sequential basis.
Half of this amount was related to the reduction in the liability for payments expected to be made pursuant to the retirement agreement with our former Executive Chairman that we recognized in the second quarter.
The remainder of the increase primarily reflects higher salaries and increases in incentive compensation accruals.
Our estimated risk-based capital ratio at September 30 is 375%, up from 366% at the end of this year's second quarter.
The increase in the RBC ratio included 4 points from a decline in required capital for production, and we estimate ---+ which we estimate using a 12-month sales.
The increase in our adjusted statutory capital and surplus exceeded the increase in required capital from growth in assets and reserves and accounted for the remainder of the third quarter increase in our RBC ratio.
Now I'll turn the call over to Ron to discuss sales, marketing and competition.
Thank you, <UNK>.
Good morning, everyone.
As we reported yesterday, gross sales for the third quarter of 2017 were $915 million.
This is down from sales of $1.5 billion in the third quarter of 2016 and $1.2 billion in this year's second quarter.
Third quarter 2016 sales included $226 million of noncore multiyear guaranteed annuity sales, of which 80% was co-insured.
Third quarter 2017 had just $16 million of sales from multiyear products.
Net sales for the quarter were $834 million compared to $1.1 billion a year earlier and $1.1 billion in the second quarter of this year.
As a reminder, beginning this year, we are retaining 50% of all Eagle Life fixed indexed annuity sales, up from 20% previously.
Recent reports from several of our competitors suggest that industry fixed indexed annuity sales were down on a sequential basis.
We believe low interest rates and the continuation of the equity bull market are the biggest headwinds for sales.
We're not sure how much, if at all, implementation of the Department of Labor's fiduciary rule on June 9 affected the sequential decline in sales.
Conversations surrounding the rule have been muted, particularly since the announcement of a potential further delay of certain aspects of the rule beyond January 1, 2018.
The market and each of our distribution channels remain competitive in the third quarter, although we saw several rate reductions in September.
And a significant competitor in the independent agent channel lowered participation rates on its accumulation products and payout rates on its guaranteed income products in early October.
Independent agents continue to shift their emphasis from guaranteed income to accumulation products focused on upside potential.
We addressed this shift by placing more emphasis in our marketing efforts on our Choice Series at American Equity Life.
The Choice Series accounted for 22% of American Equity Life sales in the third quarter versus 17% in the second quarter.
In September, it accounted for 25% of sales.
We made changes to our lifetime income benefit riders in early July to recognize lower valuation interest rates used to compute statutory reserves for policies issued in 2017.
We also discontinued our no-fee version of the rider, which was popular with our agents.
Many of our competitors did not make similar adjustments, which negatively affected our competitive position for guaranteed income, which was less than our significant competitors through much of the quarter.
Due to the higher investment yields we have been capturing, we made several product changes in September and October: For the accumulation products, we raised participation and cap rates on American Equity's Choice and Eagle Life Select products.
When coupled with the optional market value adjustment rider we introduced earlier this year, Choice 10 and Select 10 now offer some of the highest participation rates in the market among annual reset fixed indexed annuities.
We believe these offerings compare very well with the proprietary index multiyear term products, which have been quite popular in the market.
Rather than a proprietary index, our products contract value growth is based on the S&P 500, a transparent public index with 60 years of history that a policyholder can easily track.
We believe proprietary indices add another level of complexity to a safe money insurance product and do not offer a significant growth advantage.
Higher investment yields also led us to improvements in our guaranteed income products.
In September, we raised roll-up rates on our bonus products back to pre-July levels.
In October, we introduced a new lifetime income benefit rider for our Foundation Gold fixed indexed annuity.
Lifetime income on the Foundation Gold is very attractive, particularly in many important age deferral combinations where we expect it to offer higher guaranteed income than offered by our significant competitors.
Also, since we charge rider fees based on contract values rather than income account values, our fees are the lowest in the market, making Foundation Gold even more attractive on a net of fee basis.
We are emphasizing to our agents that fees matter and that this should be an important factor when comparing annuities with lifetime income guarantees for their clients.
In addition, we're, again, offering the no-fee lifetime income rider on the Foundation Gold.
We believe we are the best ---+ in the best competitive position, particularly at American Equity, than we have been since last year.
However, we will continue to work on new products and features to enhance our competitiveness even further.
Turning to current sales trends.
Pending business at American Equity Life averaged 2,196 applications during the third quarter and was 1,985 at the end of September compared to 2,206 applications when we reported second quarter 2017 earnings.
Pending hit a low of 1,907 on September 7, but now stands at 2,178 applications.
Pending at Eagle Life stands at 213 applications today, up from ---+ excuse me, 134 when we reported second quarter earnings.
As we noted in the past, sales momentum in the bank and broker-dealer channels tend to change much more quickly than in the independent channel.
Our distribution footprint at Eagle Life continues to grow in the third quarter.
We added 1 new wholesaler, 3 new selling agreements and 513 representatives.
In total, we have 9 wholesale and distribution partners, 58 selling agreements and 5,829 representatives.
And with that, I'll turn the call back over to <UNK>.
Thank you, <UNK> and Ron.
We are pleased with our third quarter results as spread and non-GAAP operating earnings, exclusive of the impact from revisions to actuarial assumptions and the loss on extinguishment of debt, remained stable despite continued headwinds from low interest rates.
Although sales were down sequentially in the third quarter, we are pleased with the momentum at Eagle Life, which has carried over into the first part of the fourth quarter.
Regaining momentum at American Equity Life may take longer, but our products are now more competitive, and we believe that the value proposition we've always offered independent agents transparent products, attractive renewal crediting history and unparalleled service remains as attractive as ever.
We are optimistic that the Department of Labor will finalize the delay of the implementation of its fiduciary rule to July 1, 2019, and hopeful that regulations unduly burdening distribution of annuities by independent agents will be substantially revised.
While the eventual outcome of the fiduciary rule remains uncertain, we remain prepared to respond and grow our business.
Our long-term outlook remains favorable due to the growing number of Americans who need attractive fixed indexed annuity products that offer principal protection with guaranteed lifetime income, and the fiduciary rule won't change this.
While we look to continue to expand our investment horizon, the credit quality of our investment portfolio will remain high and we will maintain our discipline of avoiding excessive credit risk.
As we stated many times in the past, we offer sleep insurance.
And that implies a promise to our agents and our policyholders that they can trust us to be there when they need their money, whether that be tomorrow or decades from now.
So on behalf of the entire American Equity team, thank you for your time and attention this morning.
I'll now turn the call back to the operator for questions.
This is Jeff.
I'm not going to get into details of the specific securities, but in general, what we're doing is realigning the portfolio.
We are looking more into structured asset segment of the market.
What we've done is a deep-dive analysis looking through longer-term patterns of default and loss recoveries in different asset classes.
And we're finding that certain structures within the structured assets and other segments of the market offer very attractive default and loss recovery profile, much better than what we might see on the corporate side, and is allowing us to shift into other asset classes where we can see some additional yield due to illiquidity or less liquidity.
And you know our portfolio, we have ample liquidity, we have a very public open portfolio.
And as a result, we felt we can take on several percent more of illiquidity and not have any impact to the portfolio.
We have seen spreads come in.
We still think there's opportunities there.
They do offer attractive value.
Still at this point in time, we have several other asset classes that we're pursuing that could continue to offer some enhancements to yield that would offset any spread compression that we're seeing in other sectors.
Eric, this is <UNK>.
One kind of follow-up to that too is, if yields do come in, because the space gets crowded, that's not going to just affect us.
It's going to affect others looking to be in the same space.
And I think consistent with our history, we would adjust product terms to reflect the investment yields we get, not just accept lower returns based upon potential declines in yields.
The product pricing that we're using reflects the target returns.
The 4.4% supports the crediting rates that we have on products today, crediting rates and lifetime income rider terms.
This is Ron.
As I reported, pending did dip lower than typical in September, but we're starting to see it rebound.
I think the rebound is due to us increasing our competitiveness by capturing that higher yield, raising some participation rates, increasing some income and some of our competitors backing off on some of their terms have helped us as well.
So we're really in a competitive position today, but I can't predict what the fourth quarter is going to look like for pending.
This is <UNK>.
I wouldn't necessarily consider fourth quarter seasonally ---+ seasonably up.
I mean, it's happened that way in the past, but that's not necessarily always the case.
Well, when we look at ---+ this is Ron.
When we look at accumulation-type products, that's our Choice 10, for example, we have perhaps the highest, if not ---+ close to the highest, if not the highest participation rate out there on our 10-year chassis.
It's a 52% participation rate on an annual reset.
So that's attracting some good attention.
So participation rate is very competitive.
When you look at our caps, we're certainty in the hunt, but we're not the highest on caps.
When you look at our income, we did make some great strides on improving our guaranteed income, particularly in October when we introduced a new version of the rider on our Foundation Gold.
When we look at our top competitors, and when I say top competitors, those that will stay in the top 10, we don't have the highest guaranteed income.
But when you look at our peer group or our fiercest competitors, for a lack of better word, we're right there even with them, and in a lot of cases, higher than them on guaranteed income.
So we really feel like we're in the best place we've been for some time.
Can I think we ---+ this is <UNK>.
I think we've said in the past, we have a very really ---+ a really good renewal rate history out there in the marketplace.
It is somewhat difficult sometimes to be able to see what competition has done with their renewal rates.
I don't think our constraint is necessarily around what competition has done.
It's purely more of a factor of us managing our spread and where we're at with that in regards to renewal rates.
And currently, where we're at with yield, we're optimistic that right now, we're okay with where we're at with renewal rates.
This is <UNK>.
And one follow-up on that, I know we've said on several occasions in the past that the competitive environment for new money is a very open and everybody sees what everybody else is doing.
But on renewal rates, that competitive history is not part of really the competitive environment.
We certainly trumpet to the field force, of very what we think is an attractive renewal rate crediting history.
But that's not an element of competition, I don't think, among the carriers or something the agents look very closely at.
Right now, that focus is on the new money side.
There's not been any realignment of the existing portfolio.
We're always ---+ <UNK>, we're always looking for opportunities to become more competitive.
There's things that we can do.
For example, on our guaranteed lifetime income, the longer you guarantee the roll-up period, the ---+ your income amount may be lower in those early years.
But if you shortened the roll-up period, say, from 20 years to 10 years, we're able to offer a higher guaranteed income during that 10-year.
So we could say, well, let's just do a 5-year guarantee and that could increase our income even more.
So we always have to look at the levers that we have available to move and what's the competition doing.
And so to answer your question, I wouldn't say we've maximized our opportunity.
We're always looking for ways to get better.
<UNK>, this is <UNK>.
With pricing on products, it always starts with the opportunities that are available to invest new money.
So it really ---+ that's where it starts and with the returns that we are targeting on our products.
And so certainly, the opportunities to make our products more competitive always starts with the opportunities to be able to invest that money and what yields we can invest at and always stay in price discipline and making sure that we're targeting the appropriate returns.
We feel that where we're at right now and the yield we're obtaining has allowed us to, as Ron has already said, position ourselves very, very competitively within the ---+ in the marketplace.
And we'll continue to look at opportunities or ways that we can structure products to continue to make ourselves competitive out there.
The marketplace is dynamic.
People make rate changes.
Where we're at right now, we're very competitive and will respond appropriately as we see competition make changes.
I would expect they're going to be ---+ continue that people will look at onshore companies that don't have the tax efficiencies of the offshore platform, will continue to look for opportunities like that.
Obviously, we've been utilizing that opportunity ourselves with our relationship with Athene through Eagle Life and able to allow us to have some profit-sharing or sharing in some of the efficiencies they have with their offshore platform.
So it wouldn't surprise me that you will see other companies out there outside of us and Lincoln look for those opportunities.
As we execute investing new money with a slightly different investment strategy, as we price products, we have to take that in consideration in regards to the capital ratios that we would be targeting.
So that is being taken into consideration.
I don't know if that's answering your question.
But the real answer is, there hasn't been that much shift in the required capital in terms of the investments we're buying.
And maybe we got a little bit more Class 2s than we have Class 1s.
But I think I looked and we went from 64 to ---+ there was a 1 percentage point change in ---+ between Class 1 and Class 2, 1 down and Class 2 up.
So we really haven't done much to alter the capital requirements in the business.
| 2017_AEL |
2017 | ARR | ARR
#Thank you.
(Multiple speakers) between 50 basis points to 100 basis points of credit support.
Initial credit support.
Initial credit support, yes.
And as prepayments increase, that credit support can grow, and that's why I believe a third of our portfolios already have rated securities now that were originally unrated securities.
It's going to be somewhere around that 80 basis points.
I think most of our securities have 100 basis points of credit support.
If you remember, some of the older securities had ---+ they weren't actual loss securities.
They had a formula for losses.
So they were a little different.
So it's not apples to apples.
Well, the underlying is usually 30-year securities.
Now, it depends on the prepays where the actual average lives are.
They're going to be six- to eight-year securities, most likely.
Some of them already have the window open where we've already started receiving principle payments on them, which is much earlier than expected, because the speeds are so fast.
However, that'll be driven a little bit by rate factors and the economy.
If you have a three and a quarter 10-year note you'll see those prepayments slow down.
I suspect the Federal Reserve wouldn't raise rates if they thought that we were going to have a housing disaster.
So we might actually benefit in both regards there, whilst the first loss pieces are still growing.
Right, but I would look at it at three to three and a half, because that's exactly the range we look at.
But let me say something a little more broad.
We don't look at how our position is levered for agency and non-agency, because you have to have a liquidity pool to support those different asset classes as the prices change on them.
So we look at our total liquidity and how it supports both asset classes.
And so, and we've had this discussion with analysts on a one-on-one basis as well as on these conference calls, we look at the total leverage of the portfolio.
We will do, as you suggested, an internal of how an asset class would respond to certain leverages, understanding, though, we have to keep a lot of liquidity around to support that.
We are a hybrid REIT.
Of our haircuts, 45% of the equity in haircuts is in non-agencies right now.
So that would definitely define us as a hybrid REIT.
If CRTs were still 450 or 500 off, we would find a way to own more of those and still operate within the rules that the SEC and the IRS have allotted us.
So we like that asset class.
There are other asset classes.
I know some of our peers have been buying more NPLS and RPLs, and we haven't seen them as attractive.
If you have concerns like we do about some potential spread widening down the road and about some opportunity for rates to go up, increasing vast exposure to the agency asset class right now would not be our goal.
All right.
Thank you very much.
Thank you very much, everybody, for calling in.
If you have any questions, please feel free to call <UNK>, <UNK>, <UNK> or myself.
We're at the office.
We hope to get back to you in the same day.
And with that have a very good afternoon.
| 2017_ARR |
2015 | NSIT | NSIT
#Hello, everyone.
Thank you for joining us today to discuss our third quarter 2015 operating results.
In the third quarter, our team delivered double-digit sales and gross profit growth in constant currency, and we controlled discretionary expenses, which resulted in strong earnings growth year-over-year in the quarter.
Consolidated net sales of $1.34 billion increased 8% year-over-year in U.S. dollars.
Excluding the effects of currency changes, net sales grew 13%.
Gross profit was $182 million in the third quarter, up 6% in U.S. dollars and up 11% in constant currency.
And gross margin in these sales declined 30 basis points year-to-year to 13.6%, due primarily to the lower margin in the hardware category in North America and EMEA.
Consolidated selling and administrative expenses were $149 million in the third quarter, an increase of 4% year-to-year in U.S. dollars.
And excluding the effects of currency changes, SG&A expenses increased 9% year-over-year, reflecting planned investments in sales, technical, and services headcount across the business.
Consolidated earnings from operations increased 19% year-over-year to $34.3 million, excluding severance expenses in both periods and a real estate charge in this year's third quarter.
On a GAAP basis, earnings from operations increased 15% to $32.6 million.
Below the line EFO, we recorded $600,000 in non-operating expenses, including interest expense and foreign currency gains, which was down from $2 million last year.
And our tax rate for the quarter was 35%.
All of this led to diluted earnings per share of $0.59 on a non-GAAP basis and $0.56 on a GAAP basis.
North America net sales increased 15% year-over-year with double-digit growth reported in each of the hardware, software, and services categories.
For the second time in the Company's history, North America quarterly net sales exceeded $1 billion.
Q3 is a seasonally strong quarter for our public sector business in North America, and this year was no exception as we saw strong fiscal year-end spending in the federal space, as well as strong growth with state and local government and K through 12 clients.
In addition, we continue to see elevated spending by our large enterprise clients.
Our strong top line results in North America so far this year have been fueled by significantly higher spending on notebook and device refresh, server upgrade, and network infrastructure projects, by large enterprise and public sector clients.
In the hardware and services category, we have benefited from growth in these existing accounts, as well as large accounts recently added to our portfolio.
And in the software category, our federal team has experienced significant growth with new client wins across selling---+and cross selling into existing clients.
As we head into the fourth quarter, we are seeing sales trends moderate in North America, due to completion of certain multi-quarter projects, and to a more challenging year-over-year comparison following nice growth in last year's Q4.
In EMEA, net sales increased 6% year-over-year in the third quarter, with hardware increasing 5%, software increasing 8%, and services sales up 12%, compared to the third quarter of last year, all in constant currency.
The increase in hardware sales was due to a higher volume with corporate clients, most notably in the client devices, storage, and networking categories.
The increases in software and services sales were driven by a higher volume of virtualization software and professional services to new and existing clients across the region.
In Asia Pacific, third quarter sales---+net sales decreased 7% year-over-year in constant currency, due to lower volume with existing clients, primarily in Hong Kong and China.
The market continues to be relatively soft and our execution has been mixed across the region, which has led to lower than expected financial results in our Asia Pacific business this year.
We continue to hold our top line share positions with key publishers in our largest markets, and we're working to expand our cloud and professional service capabilities, as well as select hardware relationships in the region.
We believe these actions will help diversify our revenue sources in the market in 2016 and beyond.
One more update before I hand the call over to <UNK>.
I am pleased to announce that effective October 1, we acquired BlueMetal, an interactive design and technology architecture firm based in the Boston area with offices also in Chicago and New York.
BlueMetal delivers strategic design, application development, and business intelligence solutions with expertise, serving financial services, healthcare, public sector, and retail clients in the U.S. We believe this acquisition strengthens our services capabilities in the areas of application design, mobility, and big data, and are excited to introduce the BlueMetal capabilities to our existing strong client base.
Over the last 12 months, BlueMetal generated approximately $25 million in net sales.
We expect the transaction to be largely neutral to our Q4 2015 and full year 2016 earnings performance.
I will now hand the call over to <UNK> who will discuss our year-to-date third quarter financial results in more detail.
<UNK>.
Thank you, <UNK>.
For the first nine months of 2015, we are pleased with our sales execution across the business.
Consolidated net sales of approximately $4 billion are up 3% year-over-year in U.S. dollars, and up 9% in constant currency terms.
In North America, net sales have increased 10% year-over-year in the first nine months of 2015, with particularly strong growth in large enterprise and public sector accounts, due to new client wins and penetration of existing accounts.
In EMEA, net sales year-to-date are up 4% year-over-year in constant currency, with solid top line performance in the U.K., Netherlands, Germany, and the Nordics.
And in Asia Pacific, net sales were down 5% in constant currency, due to lower volume with existing clients in Australia and China, as well as a higher mix of software maintenance sales, which are recorded net in our financial statement.
Consolidated gross profit for the first nine months of 2015 was $535 million, up 1% in U.S. dollars, and up 6% in constant currency.
Gross margin was 13.4%, a decrease of 30 basis points compared to the same period last year.
This decrease is primarily due to decreases in hardware margins in North America and EMEA, due to client and product mix transacted this year, partially offset by the effective 20%-plus increase in services sales in the first nine months of this year.
On the SG&A front, consolidated selling and administrative expenses were $438 million, up 1% year-to-date in U.S. dollars, and up 6% in constant currency.
This increase was driven by headcount investments, primarily in sales and services in North America and EMEA, and higher variable compensation on higher sales and gross profits this year.
As a percent of net revenue, however, SG&A expense, excluding the impairment charges, are down 10 basis points to 11%.
Moving down the P&L, as a result of continuous---+a continuous review of our organizational structure in North America and in EMEA, we recorded severance and restructuring expenses of $1.9 million in the nine months ended September 30, compared---+2015, compared to $1 million for the same period in 2014.
Consolidated non-GAAP earnings from operations were $99 million in the first three quarters of 2015, down 3% year-over-year in U.S. dollars, but up 1% in constant currency terms, excluding the non-cash impairment charges and severance expenses in both periods.
Unique to this year of pronounced exchange rate volatility, this 4% swing is having a notable adverse effect on our U.S. dollar EFO comparison year-over-year.
Our effective tax rate year-to-date through September 30 was 37.1%, down from 37.4% last year.
Moving on to cash flow performance, our operations generated $25 million of cash in the first nine months of 2015, compared to $48 million in the same period last year, due to increased working capital utilization to support higher growth.
We invested $11 million in capital expenditures in the first nine months of 2015, up from $8 million last year, and we spent $92 million to repurchase approximately 3.3 million shares of our common stock.
This is compared to $30 million of share repurchases in the first nine months of 2014.
All of this led to a cash balance of $148 million at the end of the quarter, of which $121 million was resident in our foreign subsidiaries and $85 million of debt outstanding on our debt facility.
This compares to $127 million of cash and $52 million of debt outstanding at the end of last year's third quarter.
And from a cash flow efficiency perspective, our cash conversion cycle was 27 days in the third quarter of 2015, a decrease of three days year-over-year, due to expanded use of our inventory financing facility.
I will now turn the call back to <UNK>.
Thank you, <UNK>.
Moving on to our outlook for 2015, for the full year 2015 we continue to expect top line growth in the low single-digits in U.S. dollar terms.
In the fourth quarter, we expect diluted earnings per share to be between $0.56 and $0.61.
And for the full year, diluted earnings per share is expected to be between $2.10 and $2.15.
This outlook includes the adverse effect in gross profit of previously announced partner program changes in the software category, which the companies expect to be approximately $8 million for the full year 2015 and an effective tax rate of 38% for the fourth quarter, and average common shares outstanding of approximately 38.3 million for the full year 2015.
This outlook excludes severance and restructuring expenses incurred during the year, and the non-cash real estate impairment charge recorded in the third quarter.
Thank you, again, for joining us today.
I want to thank our teammates, clients, and partners for their dedication to Insight.
That concludes my comments.
We will now open the line up for your questions.
Matt, I'll take that one.
I think ultimately when we look at the results, we had a better than expected Q3, specifically as it relates to the public sector and some of the business that we won around the public sector business in Q3, and also, as it relates to our large enterprise clients.
We had some initiatives that we've been driving through the years that related to both product and services that are kind of ramping up with some large clients in the third---+at the end of the third quarter.
And then, starting in probably September, we saw a little bit of a slowdown in terms of our bookings associated with hardware in particular going forward.
So the guidance that we are giving here for the fourth quarter is reflective of the mix that we're seeing and the shift that we're seeing between primarily the large enterprise clients in terms of our expectations for what's going to happen with them in the fourth quarter.
And probably---+I'm not sure if you're factoring in---+that's a North America statement.
I'm not sure if you're factoring in the currency effect on a year-over-year basis that also would impact Q4 with EMEA particularly.
---+That was North America.
Our trends in---+I'm sorry.
The trends in Europe on a constant currency basis are okay.
I mean, I think they're in the low single-digits.
4% or so.
But not on an actual dollar basis.
I think that---+as you think of it from a sequential basis, I think you should anticipate that SG&A is going to be relatively flat Q3 to Q4, ultimately.
We are controlling SG&A growth in other areas of the business to support the technical and sales investment in SG&A that we are making across the board.
But I think in general, you should anticipate between Q3 and Q4 that there is going to be a little bit of flat---+SG&A is going to be relatively flat between the two quarters.
Thank you.
| 2015_NSIT |
2017 | QNST | QNST
#Thank you, <UNK>.
Hello, everyone.
Thank you for joining us today.
Fiscal Q3 results were in line with our expectations and with the outlook we provided last quarter.
Revenue in all of our client verticals grew sequentially at double-digit rates.
Financial Services grew 23%, Education grew 18% and other, which includes home services and B2B technology grew 17%.
Profitability benefited from the increase in top line leverage and from the lower cost base that resulted from the restructuring we initiated in the December quarter.
As a result, we delivered on our commitment to rapidly expand EBITDA margin and operating cash flow.
Adjusted EBITDA margin was 7% and operating cash flow was $6.2 million.
We closed the quarter with $42 million in cash and equivalents and no debt.
Momentum in our Financial Services client vertical continues to be strong.
Revenue in auto insurance grew 45% sequentially, and revenue in all of our other Financial Services verticals grew at double- or triple-digit annual rates in the quarter.
Year-over-year revenue growth in total for our Financial Services client vertical was muted somewhat by a tough Q3 '16 comparable in auto insurance.
Last year's comp included a spike that was caused by our partner AWL's acquisition of Bankrate's insurance business.
As previously discussed, AWL subsequently aggressively rationalized and reduced revenue from the acquired business.
Without that effect, Financial Services client vertical revenue would have grown approximately 15% year-over-year in fiscal Q3.
Trends in the Education client vertical continued to improve in the quarter with year-over-year revenue decline getting less worse, and client engagement and interest increasing relative to what we have experienced the past few years.
The turnaround efforts in our B2B technology business continued to make good progress.
We are seeing signs and trends of stabilization there driven by those efforts.
Our long-term outlook for the opportunity in that business remains positive.
Looking ahead to fiscal Q4.
We expect revenue to grow in the low single-digit percentages both year-over-year and sequentially.
We expect the sequential growth is considerably better than our typical historic pattern of a seasonal decline in the Q4, indicating the continued positive momentum we are seeing in the business.
We expect adjusted EBITDA margin to be at least 7% for the quarter.
With that, I'll turn the call over to Greg for a more detailed review of the financial results.
Thanks, Doug.
Hello, and thanks to everyone for joining us today.
We are pleased to report a solid third quarter with financial results that better reflect the long-term potential of our business.
For the third quarter, total revenue was $79.2 million.
GAAP net income was $579,000, or $0.01 per share.
Adjusted net income was $2.6 million or $0.06 per share, and adjusted EBITDA was $5.2 million or 7% of revenue.
Revenue was in line with our expectation for the quarter as insurance carriers began to re-expand budgets as it recovered from last year's severe industry loss ratios.
On a sequential basis, all of our client verticals grew nicely, well outpacing what we typically see Q2 to Q3.
Moving to revenue by client vertical, our Financial Services client vertical represented 62% of Q3 revenue, growing 7% year-over-year and 23% sequentially to $48.8 million.
We had a strong quarter in Financial Services.
Our auto insurance business grew 45% sequentially.
Our other Financial Services businesses including life and health insurance, mortgage, credit cards, deposit accounts and personal loans all grew strongly at double- or triple-digit rates year-over-year as we continue the rollout of our enhanced products and technologies in these large and promising markets.
Our Education client vertical represented 24% of Q3 revenue, a decline of 15% year-over-year, but an increase of 18% sequentially to $19.2 million.
We believe that trends in Education are improving, as demonstrated by sequential growth that outpace what we typically see Q2 to Q3.
Our other client verticals represented the remaining 14% of Q3 revenue.
While these declined 14% year-over-year, they increased 17% sequentially to $11.2 million.
We again saw strong year-over-year growth in home services, while B2B technology continued to face challenges.
Our turnaround efforts in B2B are progressing well and we believe we are establishing a solid foundation to return us to year-over-year revenue growth over time.
Moving on to adjusted EBITDA.
We made significant progress in the quarter, delivering on our commitment to rapidly expand EBITDA margin.
For the quarter, we reported $5.2 million, which is our best quarter for adjusted EBITDA since Q3 of 2014.
EBITDA expansion was driven by the benefits of our corporate restructuring as well as increase in top line leverage.
Turning to the balance sheet.
It was also a good quarter.
We began the quarter with $37.5 million in cash, generated $6.2 million in operating cash flow, spent about $1 million on CapEx and repurchased $720,000 of common stock.
Net, we grew our cash balance by $4.2 million and closed the quarter with $41.7 million in cash and equivalents and no debt.
In summary, we executed well against our priorities in the quarter, continuing to grow our Financial Services and home services business, expanding margins, generating cash flow and continuing to strengthen our balance sheet.
We look forward to reporting our progress to you in the coming quarters and seeing many of you at the upcoming conferences where we will present.
Notably, Needham in May and both Cowen and Stephens in June.
With that, I'll turn the call over to the operator for Q&A.
Sure.
I think you hit on some key points.
We are ---+ we certainly lap a lot of things like the loss ratio issues in insurance, the AWL Bankrate rationalization, the big drop in B2B, the big drop in Education.
So it certainly sets up for some comps that would be helpful.
I guess, I'd also point out that about 70% of our revenue now is coming from Financial Services and home services.
Both of those businesses have been growing at strong double-digit rates now for quite some time, and we're seeing good sustained momentum there as we finish the year and get to work going into next year.
I'd also point out that we did do the restructuring and we began to ---+ from an EBITDA standpoint, we'll be getting the benefits of the restructuring into next year.
We do not expect ---+ we do expect to grow revenue but we haven't completed the plan and so we ---+ I can't give you any indications of what we think the rate of that growth will be.
But again, it sets up pretty nicely from a comparable standpoint and we do not expect to meaningfully grow expenses or costs.
So that should set us up pretty well for EBITDA margin and EBITDA margin expansion next year.
Yes.
Well on target and have added some other cost reductions to that recently and ongoing.
So we feel quite good about our ability to get that full effect plus some.
I think the InsuraMatch deal really got us out of the call center agency operating business, which is not something that really either differentiated us or was very lucrative for us.
InsuraMatch is much better at running those agent call centers than we are.
They'll still utilize our technologies and our products, which is core to our ---+ us and is something we are very good at and is highly differentiated for us.
I think ---+ so I think there's a very specific case there, but I think if you step back to the broader case, <UNK>, we continue in insurance to focus on our technology for both differentiating clients and for being able to be deeply integrated with clients so that we can best present and best match consumers to them in what other ---+ in whatever format they want to engage and whatever format consumers want to engage on a performance basis, whether it be policies through the rating platform, which of course is a big part of that, or clicks, which of course, is the biggest part of the business, or calls or leads or other formats.
But we want to continue to be able to best engage consumers and match them to the best client in the way that client wants to and the consumer wants to match.
So that is continuing to be the core focus of our business across the board and it's furthest along and you are seeing the results of that strategy being executed for the longest and best in insurance, but we're rolling that through all of our businesses.
The other piece is our partnerships.
There's a big emphasis on partnerships, which there kind of has always been at QuinStreet because we'd never ---+ although we went through a brief period where we had a little bit more owned and operated media, most of our media has always been with partners and ---+ where they have the audience or the high-intent consumers but they don't have our technology platform for best engaging, matching and monetizing those consumers and generating the media economics.
And so that continues to be the drumbeat of emphasis here across the board.
And we've had to remix that media quite a bit because of the Google algorithm changes, because of changes to the industry.
But our progress in that remix, again you're seeing it in the results both in the revenue, in particular again, in Financial Services where we're further still along, but also in the margin expansion.
You're seeing us able to bring that ---+ those businesses back with a remix that's very lucrative on the partnership side whether it be running, high-quality, high deliverability email campaigns for ourselves and for others and AWL for that matter, or being able to engage the AWL traffic with our click products so they get a lot more yield on that media as they also generate and match leads to their agent clients in particular, or running marketplaces Financial Services product marketplaces and others.
But mainly Financial Services marketplaces or folks who have large audiences that are engaged with Financial Services content, some of which we've named in the past but big, big Financial Services content in media companies.
Those businesses, all of what I just listed are growing at very strong double-digit rates for us and the margins on all of those businesses are expanding rapidly as we have put in place the new product ---+ the new generation of our product and technology to do the matching qualification and yielding that I've described in the past.
So I think it's an example of us either getting out of businesses that aren't consistent with what I've described and/or emphasizing the partnership aspects of our business where we can help others make a lot more money on their media mainly or clients get a lot better buying power in media, in the high intent but unbranded or high ---+ or research and compare consumer on media flows on the Internet.
So those will continue to be fanatically what we do.
Partnerships where we can make the media yield better or partnerships with our clients where we can get them better buying power in what has become the largest shopping channel on earth.
| 2017_QNST |
2016 | PNC | PNC
#Okay, well thank you all for participating on the conference call this morning and we look forward to working with you during the quarter.
Thank you.
Thanks, everybody.
| 2016_PNC |
2017 | ABT | ABT
#Okay.
Thanks, <UNK>.
Good morning.
Today we reported ongoing earnings per share of $0.48, exceeding our previous guidance range.
Sales increased 3% in the quarter, which is at the upper end of our expectations.
Our full year 2017 adjusted earnings per share guidance, $2.40 to $2.50 remains unchanged and reflects double-digit growth at the midpoint.
As you know, we completed several important strategic steps during the quarter to shape our company for sustainable long-term growth, including the acquisition of St.
Jude Medical, which establishes Abbott as a leader in the medical device arena.
The combination with St.
Jude positions Abbott with one of the strongest new product pipelines in the industry, including several recently launched products that are setting new treatment standards and contributing growth today.
The combined portfolio has the depth, breadth and innovation to help patients restore their health and deliver greater value to customers and payers.
In terms of the integration of St.
Jude into Abbott, the team has made tremendous progress over the first few months of the year and we're on track to meet our objectives.
The newly formed leadership team reflects a blend of Abbott and St.
Jude leaders, and importantly, the team has remained focused on achieving its new product milestones, synergy targets and financial objectives for the year.
Additionally, last week, Abbott and Alere announced that the companies have agreed to amend the existing terms of our agreement to acquire Alere.
Point of care testing remains an attractive growth segment within the in vitro diagnostics market, and the acquisition of Alere will significantly expand our diagnostics presence and leadership in that space.
I'll now summarize our first quarter results before turning the call over to <UNK>.
And I'll start with Diagnostics, where we achieved sales growth of nearly 5% in the quarter, in line with expectations.
Growth in the quarter was led by continued above-market performance in core laboratory and Point of Care Diagnostics.
During the quarter, we initiated the launch of our new Alinity systems in Europe with the ongoing rollout of 4 new instruments in the areas of immunoassay, clinical chemistry, blood screening and point of care.
Later this year, we plan to launch 2 additional Alinity instruments in Europe in the areas of hematology and molecular diagnostics, which will be followed by the initial rollout of the Alinity suite of instruments in the U.S. during 2018.
In Nutrition, sales declined 1% in the quarter.
As expected, challenging market conditions in China impacted the results of our international pediatric business.
As we'd previously discussed, we expect these market challenges to persist throughout the year, but continue to hold a favorable outlook on the Chinese infant formula market on a longer-term basis.
With the pending new regulations in China, we remain confident that our supply chain and product portfolio is well positioned to meet evolving customer preferences and purchasing channels.
In the U.S., we continue to achieve above-market performance in Pediatric Nutrition with the portfolio of innovative product offerings for infants and toddlers.
And in Adult Nutrition, where Abbott is the global leader, high single-digit international growth in the quarter was led by continued expansion of Abbott's market-leading brand, Ensure, across many international markets.
In Established Pharmaceuticals, or EPD, sales growth of roughly 6% was led by double-digit growth in key emerging markets, including above-market growth in Latin America, China and several markets in Southeast Asia.
Our continued focus on enhancing local capabilities and expanding our product portfolio within core therapeutic areas targeted specifically to address local market needs continues to strengthen Abbott's unique position in these markets.
And in Medical Devices, which comprises our new cardiovascular and neuromodulation business, along with our Diabetes Care business, sales grew 4.5% in the quarter.
Sales growth in cardiovascular and neuromodulation was led by double-digit growth in electrophysiology, structural heart and neuromodulation.
In electrophysiology, we initiated the U.S. launch of our EnSite Precision cardiac mapping system, which provides physicians with improved automation and 3-dimensional images to better treat irregular heartbeats.
Growth in structural heart was led by continued double-digit growth of MitraClip, our market-leading device for the repair of mitral regurgitation.
And in neuromodulation, growth was led by recently launched products, including Burst for the treatment of chronic pain, and deep brain stimulation for the treatment of movement disorders such as Parkinson's disease.
During the first part of the year, we also achieved several important new product milestones across the business, including U.S. FDA approval for our MRI-compatible pacemaker, the European launch of our confirmed implantable cardiac monitor and submission of our MRI-compatible ICD device for FDA review.
In Diabetes Care, international sales growth of 29% was driven by FreeStyle Libre, our innovative, sensor-based glucose monitoring system that eliminates the need for routine finger sticks.
Now available in more than 30 countries outside the U.S., we continue to see strong demand as consumers, health care professionals and payers recognize the cost, comfort and convenience advantages that Libre offers.
So in summary, our first quarter results reflect a strong start to the year.
The integration of St.
Jude is going well, and we're on track to achieve our projected synergy targets.
And as we continue to execute on our key business priorities, we expect to deliver on our double-digit ongoing EPS growth target for the full year.
I'll now turn the call over to <UNK> to discuss our results and our outlook for the year in more detail.
<UNK>.
Okay.
Thanks, <UNK>.
As <UNK> mentioned earlier, please note that all references to sales growth rates, unless otherwise noted, are on a comparable basis, which is consistent with the guidance we provided back in January.
Turning to our results.
Sales for the first quarter increased 3.2% on an operational basis.
Exchange had an unfavorable impact of 0.6% on sales, resulting in reported sales growth of 2.6% in the quarter.
Regarding other aspects of the P&L, the adjusted gross margin ratio was 59.2% of sales, adjusted R&D investment was 8% of sales, and adjusted SG&A expense was 32.5% of sales.
The over delivery in the first quarter EPS compared to our guidance was primarily due to timing of spending and certain nonoperating items.
I'd note that while exchange rates eased somewhat since our call in January, the follow-through impact on our first quarter results was fairly modest, taking into account our hedging program and the lag time that it takes for rate changes to work through our product costs.
Before I review our financial outlook, I'd note that our sales and adjusted EPS forecast do not include any contribution associated with the Alere acquisition, which is expected to close by the end of the third quarter 2017, subject to certain closing conditions.
We will provide an update regarding the expected financial impact of this transaction at a later date.
So turning to our outlook for the full year 2017.
We continue to forecast operational sales growth in the mid-single digits.
And based on current exchange rates, exchange would have a negative impact of around 1% on our full year reported sales.
We continue to forecast an adjusted gross margin ratio of around 60% of sales for the full year, which reflects the profitability mix of Abbott and St.
Jude as well as underlying gross margin improvement across our businesses.
We continue to forecast adjusted R&D investment of somewhat above 7.5% of sales and adjusted SG&A expense of approximately 30% of sales, which includes expense synergies associated with the addition of St.
Jude.
Turning to our outlook for the second quarter 2017.
We forecast an adjusted EPS of $0.59 to $0.61.
We forecast operational sales growth in the low to mid-single digits and at current rates, expect exchange would have a negative impact of around 1.5%.
We forecast an adjusted gross margin ratio around 60% of sales, adjusted R&D investment of around 7.5% of sales and adjusted SG&A expense of approximately 30.5% of sales.
Finally, we project specified items of $0.55 in the second quarter, primarily reflecting intangible amortization and expenses associated with acquisitions.
Before we open the call for questions, I'll now provide a quick overview of our second quarter comparable operational sales growth outlook by business.
For Established Pharmaceuticals, we forecast high single-digit sales growth.
In Nutrition, we now forecast low single-digit sales growth for both the second quarter and the full year.
In Diagnostics, we forecast sales to increase mid-single digits.
Turning to Medical Devices.
In Diabetes Care, we forecast double-digit sales growth.
And lastly, in our cardiovascular and neuromodulation business, we forecast relatively flat comparable sales growth for the second quarter, which includes a difficult comparison versus last year when sales were favorably impacted by the resolution of a third-party royalty agreement in our vascular business.
Excluding this third-party royalty comparison, underlying sales growth in the second quarter would be low single digits.
With that, we will now open the call for questions.
Well, I don't think I'm prepared today to give you a lot of detail on that, Mike, but I can say this.
Look, the companies had some challenges.
We all know that.
And it's a bit of a fixer-upper, and we know that.
I'd say we're pleased to have the resolution of this matter behind us.
We want to go forward and close this deal.
We want to close it in the next few months.
It's going to be a little unpredictable because they've still got to file their 10-K, and they need that in order to do a proxy statement to do a shareholder vote and so forth.
So there's some steps to get through here before we can close, and we've got to finish the divestiture of a couple of businesses that we'll have to divest because of the regulatory approvals or antitrust approvals.
And I ---+ what I would say is we're committed, all of us, to get all of that done in the next coming months here.
So I'm looking to close this hopefully ---+ and I'm ---+ and this is just a guesstimate, by end of summer, allowing for enough time for what Alere's got to do with shareholders and so forth.
But I'd say, look, it remains on strategy.
We really like the space.
We like this point of care space.
We like the expansion to our Diagnostics business.
We like the businesses.
We will divest a couple of pieces.
When we first announced the signing of the deal, that wasn't clear and wasn't known.
So and they had issues with a couple of pieces of businesses, as we know.
So I wouldn't say that the same sales will be there.
Obviously, the businesses that have had problems will either be gone or smaller, and the ones we divest won't be in the portfolio.
So the amount of sales and profits that we add to our models will change.
As far as earnings power and all that sort of stuff, I'm just not prepared to give at this point.
I'd tell you that I think that the resolution of the matter between us is fair, and it's behind us and we move forward.
And beyond that, I think we're going to have to wait until, first of all, we're in possession of the company.
And obviously, it's going to take us a bit to get our hands around that.
So I'd say, we're not going to really be in a good position to give a lot of detailed guidance until minimum fourth quarter and probably normal guidance time.
And I know you're going to ---+ all of our analysts and investors are going to want guidance before that at some level.
And I think we'll be able to give it at some level within ranges, but I can't do much detail today.
Well, I want to be careful not to make assumptions about things that the FDA gets to decide.
I would say this.
First, the warning letter, clearly a disappointment, but not unanticipated.
We've been aware of the circumstances here for some time, and we've been working with our St.
Jude colleagues for some time even before close on GMP matters at the site.
So we got a pretty good head start here on the issues and a fair amount of dialogue with the FDA about the issues.
So having said that and being clearly disappointed in the outcome, I'd say the impact will depend a lot on our response, how thorough, how effective that response is.
And I can tell you, we've got an excellent team of people on that.
We've basically taken everybody that is expert in the field in our company, and we have a lot of very good people in the area focused on and working on not only Somar, but we're doing a full evaluation across all the sites and make sure that we understand everything here in detail.
We've got a very strong track record ourselves in GMP performance, et cetera.
The FDA is aware of that.
So I'd say the effectiveness of our response, the thoroughness and so forth will determine a lot of this.
Now in the meantime, how fast to resolve, can't really predict.
But I'd say we've gotten a pretty good-sized head start on this.
It's not like we received the letter and said go.
We've had a pretty good visibility to all issues and matters at the site starting last year, and so I think we're well along here.
And with regard to the timing of approvals, the new products that we have under review with the FDA remain under review.
We know that they're continuing to review those submissions.
So that's a good thing, and so I don't think we can draw any conclusions from that, that are negative or positive.
I think that it's going to depend on the quality of our response here, and I'm very, very confident in our team.
So at this point, I'm not going to change our launch dates or our assumptions on approval dates and so forth because I don't see a reason to do that yet or a direction to do it in.
And so I think right now, I'm just going to leave it where it is.
And we know that there's some uncertainty around that.
We know that this will depend on our actions at the site.
And we'll see how that progresses, and then I'll have a stronger position or point of view about that probably later this year.
But right now, we're focused on what needs to be done in terms of corrective actions and improvements at our site, and that's where the focus ought to be.
And then was ---+ if that makes clear progress and shows clear effectiveness, then I'll ---+ I think it'll be time to try to figure out what impact it's going to have on launch dates of new products.
I think the quality of the portfolio today is clearly strong and improved and better.
I think that's an easy one.
Geez, did you tee that up on purpose.
If I look back 2 to 3 years ago at ---+ I'll just run through the portfolio.
I love the Nutrition business.
Yes, it has its ups and downs occasionally, but it is a strong, solid grower driven today, obviously, by emerging markets in a lot of cases, but it's been a great profit and cash flow generator, solid business, et cetera, challenges occasionally in China notwithstanding.
The pharma business, our branded generic business, I think is in a much stronger position than it was several years ago.
We're focused on the markets where high double-digit growth exists.
We're seeing it.
We're seeing the execution of that strategy being, I'd say, beautifully executed by our team.
The only headwind we've seen in that is exchange.
And when I can control exchange and predict it for you, we'll do even better.
But I think the EPD business has been a true gem among branded generic pharma companies, and it's proving it with its growth rates and its performance.
We just keep expanding the product lines, expanding our footprint in countries, and we keep growing it strong single or low double digits there.
I got nothing but good things to say about that business.
Diagnostics is in the process of launching the biggest range of new systems and new products that's ever been done in the entire space in history.
I used to run the R&D in that business years ago, and I know the challenges and the complexity of developing big mainframe systems for diagnostic laboratories, and this team has just launched 4 of them in the market at the same time.
These are new systems with full menus, and it'll be a rolling rollout.
But I think when you look at 2 more systems coming, 6 systems across the board, a complete redo of the entire product line, I think the strength of that to drive the growth of our Diagnostics business, gosh, for the next decade, is unprecedented, absolutely unprecedented.
And designed not only for their size, their efficiency, their cost.
I think there's nothing but good there, and nobody's done that.
So I'm extremely enthusiastic about that.
And then, Mike, you yourself have challenged us on the breadth of our Medical Device business for a number of years.
And I think that the addition of St.
Jude here is powerful.
I mean, arguably, we've got the best stent in the world, and it's challenging for everybody in this space to incrementally improve on the efficacy and quality of stents today.
We have a lead position in the stent business, and now we've broadened that across 6 other major cardiovascular categories.
And I look back at the last few years in the Medical Optics business, which, frankly, I think J&J has acquired at a particularly opportune time because it's taking share in the intraocular lens space at a pretty nice clip.
They've got leading technology, and that business had its own struggles when we first acquired it.
So if I look at Alere and St.
Jude or even parts of Abbott that need improvements or whatever, I think we've got a very strong track record of improving performance in businesses that need some improvement.
And I look at AMO, I mean, we're very proud of how AMO has performed over these last 6 years.
And I think that was proven in the sale and value and so forth that J&J saw in it, and I think they're very happy to have that business.
We're very proud of it.
We wish it well because we're pretty happy with how well it did.
So I look back 3, 4 years and I think we are much stronger today and have a much more robust and strong portfolio across the board.
You can say, now aren't there challenges to fix in the business.
I think any large company with diverse set of businesses is always going to have something to fix.
We're always going to have something that's not up to our standards or that we want to improve on.
And then there's always going to be currency or something going on somewhere in the world.
If you're in 130 countries, there's always going to be somewhere and something.
So I look at it, and I think yes, I'm very pleased with how we've done.
And I think that the growth prospects going forward are stronger than they've ever been.
And to be honest, we start every year with a target of double-digit earnings growth.
We ---+ I mean, I \xe2\x80\x93 there have been, actually in the last 10 or 11 years, maybe 2 years that were high-single digit.
But otherwise, we target double-digit earnings every year, almost without exception, and that's unusual in our space, and I think you know that.
So at some point, I'd say we're the same company but with a much better portfolio.
And we live to the investment identity that we've been and created, and that's our intent.
That's why we've made the moves we did with both St.
Jude and Alere.
And even though that we've got to put some time and investment into these businesses to help achieve the growth aspirations we have, you just look at the strength of the portfolios across the board.
I don't think we've ever had rich new product portfolios coming like we see across these businesses today.
So thanks for the question.
That was kind of an easy one.
Yes, no problem.
Look, I can say we're pretty excited about FreeStyle Libre.
It's doing very well, doing really well across Europe.
As I mentioned, I think, in my opening remarks, we're in about 30 countries now.
The expansion within those countries is going well.
I think we're at about 300,000 patients.
I mean, you can compare that to a like competitor, and I think that stacks up really favorably.
We're getting reimbursement across European countries.
That's unprecedented.
And even within Germany and other countries, the reimbursement is expanding.
That's helping.
In some cases where it's patient pay, we're still growing very well, patients accepting it.
So we've got both great patient acceptance, great value proposition.
And then as we said, payers, governments, sick funds and so forth, all giving a lot of support to the product because of the ---+ not only what it does, but the value proposition it represents relative to what patients can do today.
And it makes a heck of a difference in the care and treatment of diabetic patients and their care for themselves.
So I think we're pretty excited about this product and the pace at which it's growing and expanding, nothing but good.
As far as the U.S. goes, still working with the FDA to get approval in the U.S., and submitted, waiting, excited, anticipating, impatient.
Well, pacemaker launch is going fine.
We got about 75% of our accounts are contracted, about 25% to go.
And because it's a new product, new leads, there's a little bit of training and re-contracting involved because it's not the same old product.
So yes, I'd say that rollout is going well.
It's interesting, you always want it to be instantaneous, and it takes a little time to roll it in.
So I actually expect to see improving sequential quarters in terms of its growth or decline, where comparing to last year, when it ---+ as you know, it lost some share while it waited for approval.
So I expect to see that improve steadily through the year.
Obviously, it'll be helped when our high-voltage is approved.
But as I said earlier, I can't make predictions about that right now.
We're hopeful that we'll be able to resolve matters sufficiently or show enough progress with the FDA that we can stay on track with that.
But I can't predict that just yet, but I think that will make a difference as well.
But I'd say everything is going very well with low voltage.
Well, I don't know.
I don't want to speak for Alere because that's ---+ right now, they and their auditors are working on their 10-K and so forth.
I can tell you, they're just as anxious to get finished as we are.
So that aside, I think we just arbitrarily sort of say end of 3Q, or third quarter, but it's kind of an arbitrary date.
Do I think it'll take longer than that.
No.
And I would tell you that both companies will get there as soon as they can.
We got a couple of basic items.
I mean, obviously, we've got our divestitures to finish up, but they will not, I don't think, be the long pole in the tent here.
I think it'll be the shareholder vote, but I don't know that.
I just think that we both got actions to finish up here in parallel, and we're going as fast as I think we practically can.
Yes.
I'm thinking of how to characterize that because we're talking about one of the most dynamic markets of any market I've ever seen in the world.
We do have new management, like the management a lot, very impressed with the experience, the background, the understanding of the markets, the actions taken, et cetera.
I'm pleased with the actions that we've identified.
We're not completely in control of what happens in China, as you might guess.
So we know that there's a lot of inventory in that market.
We know there's a lot of channel shift happening in that market.
That takes time to play through.
We believe we've refocused on the appropriate channels.
The digital channel, in particular, has exploded and sucked a lot of the activity and energy out of traditional modern trade channels and so forth, and that's been a pretty big shift to us because we have historically been heavy modern trade.
But we have reacted to that, I think, now well.
I wish we'd been quicker, but we weren't.
So I think that the team there is making all the right adjustments in terms of where we promote, how we promote, where we ship, how we ship, product benefits and value propositions.
I mean, literally across the board, I think our Nutrition business has put a lot of attention on adjusting to what is, frankly, a fascinatingly dynamic, changing market.
We still like the long-term prospects of China.
We look at the growth rates and so forth, and there's not any big underlying detriments to how strong that market's been.
It's been a lot more the reaction of competitors and all of us to pending regulation, changes in what the government will allow in terms of number of SKUs, competitors in the market and so forth.
We're actually in a very strong position for that, given the number of different plants we have, different products and so forth.
But we're focused on only a few very strong products.
And we're focused on the, let's say, the differentiation that moms in China want in their product.
Some of them want European products.
Some of them want New Zealand products.
Some of them want American products.
Some of them want a local product, and we actually have that and all of that.
So I think it's an adjustment to a lot of channel, a lot of digital and a lot of product and then on top of that, a lot of government regulation.
And so in this particular case, there are so many competitors in China.
A lot of them have pushed a lot of inventory into that market in anticipation of a lot of that, and we have to see that play through.
So it's made this year hard to predict.
We think we're in a good position thus far.
I mean, I hate to be superstitious.
I'll knock on wood and say right now, China has not been a surprise or an issue for '17, but I felt that way last year at about this time, too.
So I want to see a lot more this year play out before I can predict how the year is going to finish or even how '18 will be.
But I think we feel pretty good about China for the long term.
But as the government transitions through these new regulations, I think that's going to be a little bumpy, and it has been.
Otherwise, I like the management team and the actions we're taking right now, and that's about all I can tell you.
Well, I may have to phone a friend for that last part, but let me address the first part.
You'll recall ---+ well, first of all, we set our target for the year at healthy double digits.
Now we've got St.
Jude in the mix there, so there's extra healthy double digits.
But even on top of just last year on a comparable basis, there's a double-digit earnings growth target here, which, again, I would point out, is not typical across our peer group or competitors, et cetera, or even the companies that our investors compare us to, many of which are not health care.
And so we start the year with healthy double-digit target and guidance, and then the gating of that guidance over the quarters.
As you may recall in the first quarter, the issue was, gee, it looks back-end loaded.
And our fourth quarter is always strong, and our first quarter is always the low quarter of the year.
And so when you look at that and you say, okay, the investor tends to think that last quarter, gosh, that looks like such a big hill.
So we have a strong first quarter, that tends to be the case.
We tend to have lower guidance then, and we tend to beat it each year.
It tends to be a pattern.
And then there's ---+ I look at each year a little superstitiously.
I guess if you've been around long enough, you get to see this.
But every year, exchange or something happens later in the year, where there's a change, there's a political change, there's an exchange adjustment of some kind or whatever.
So I'm reluctant to adjust guidance in the first quarter for almost anything and ---+ because I'd like to see the year play out a little more first because I don't like to whip around the shareholders, particularly when we're already looking at a double-digit growth target, which is annual for us.
And so I look at it and say, okay, we're off to a nice strong start.
We have had a bit of favorable exchange.
We do know there's some timing in there, and there's also some strength in there.
And I'd like to see that strength sustained, and I'd like to see the exchange sustained.
I'd like to see more than 3 months play out here.
So in the meantime, my view would be, let's take some of the gating off the back part of the year.
Let's re-gate this a little bit more gently, call it a little smoother, and let's wait to see another card played in the second quarter.
I just don't think it's prudent at this early point in the year to make adjustments to earnings that are already double-digit targets until we see more cards played.
I mean, that's basically my thought process, Rick.
I mean, you can second-guess me all you want, but that's how I thought about it.
<UNK>'s going to ---+ or <UNK> is going to help you with your second question on the quarter.
Yes.
The question going from Q1 to Q2, and we talked a little bit about this on our first call.
I mean, as <UNK> talked about China, while we anticipate pressures to be there through the year, we're expecting some relief as we move through the year, not a lot.
But obviously, that comp becomes a little bit easier for us as we move through the year.
That's one area in Nutrition.
One area, Rick, and we talked about this, we expected a lower branded generics sales in Q1, and some of that was around the anticipation around what they were going through with the process known as demonetization.
Established Pharma, and also, it was our last quarter of sales in Venezuela, it just so happens, and we talked a little bit about that, too.
This is their last quarter.
Established Pharma would have grown 11% to 12% this quarter had we adjusted for that comparable on Venezuela.
So we expect that to flow through in Q2.
You also saw it in Diagnostics, whereas Diagnostics came in the 4% range, they'd be closer to 6.5% but for Venezuela.
So we anticipated all these moves when we projected our Q2 earnings.
And also, I'd note, too, we expected a very modest contribution from St.
Jude in Q1.
You have the dilution from the shares, but it takes time to ramp the synergies.
And so as we move into Q2, you're going to start to see those synergies ramp in St.
Jude as we move through the year.
And that's really the bridge to take you from what you saw, the $0.48 to $0.60.
This is just a stab in the dark.
But I would tell you, I'd probably for right now forecast it at mid-single.
I think we're going to have to see some ---+ it's a big number.
I mean, first of all, China is a big market, so we're talking about growth on top of a big number.
And so you got the law of big numbers working against us there.
But I'd say mid-single for now is a safe assumption.
And beyond that, I think we're going to have to kind of see how it goes.
Yes, Larry, we see a path to the 3.5 for 2018 in closing Alere.
I think something to keep in mind and remember is we divested a couple businesses, and we received full and fair value there.
And so that gives us some optionality such that the debt we would take on under Alere is less than what you might have originally modeled in your deal model.
So at a later point in time, we'll come back and help you reconcile that.
And as you know, and we talked about this, cash flow has been a focus for us.
We projected very strong operating cash flow and free cash flow as a percent of net income for this year, and that remains on track.
I'd say, in the first quarter, let's wait until the Q comes out.
But we may even be a little bit ahead here in terms of our efforts here to make improvements on our working capital process and also to just further strengthen what was already a strong process around our capital expenditures.
So we feel good about that.
Our priority is to go back to strategic flexibility, and nothing changes about those commitments we made some time ago.
I think it's important to stress, though, hard to predict what distributors will do to manage inventories and so forth based on this, but they will at some level.
And so we could see some less predictable numbers in the second ---+ between the second and third quarter if the timing is what <UNK> said, but I don't think it's going to affect our overall business.
And it's going to affect all players in the market, all manufacturers or all retailers, et cetera.
And at the end of the day, I think it'll stabilize, but we're just going to go through a lumpy start.
And then I think it also depends on whether or not people recover this tax with price or other things, so we'll just have to see.
Okay.
Well, I don't have any comments about Plano.
I mean, I don't have any update for you there.
I would say, any time you get a warning letter or even observations ---+ 43 observations on GMP at any facility or any plant, it behooves us to go back and look not only at that plant, but all of our plants across the board so that the corrective actions we take, whatever they may be, are consistent.
And our systems and processes are consistent across all facilities.
So anytime you get an observation like this or any observation at a single facility, our practice is to go back and look at all facilities.
And I'm comfortable that we're not sitting here at risk in our other facilities.
But that said, we always go back proactively and preemptively and look at every facility to make sure that whatever we're correcting in one is something that we've looked at, checked out, assessed, evaluated, whatever you want to call it, in all of them.
So that's standard practice.
And frankly, I think that's one of the reasons we have the track record we have in GMP in our facilities and the reputation we have with the FD<UNK>
So I think that's a good thing.
So I don't ---+ I'm not sitting here with a lot of nervousness about other facilities.
We've had a chance to look at all of St.
Jude's facilities.
We've had a chance to assess that.
Right now, I don't see an indication of something like this elsewhere.
So but that said, we're all over everything in this ---+ with this warning letter everywhere.
I can't remember what I missed in the question because it was a long question.
It's a decent paraphrase over the coming year.
Once we bring this business under us, that's a fair assessment, <UNK>.
| 2017_ABT |
2015 | WSM | WSM
#From the shipping and fulfillment related cost side, it is where we thought it would be.
The part that's a little bit of a surprise is the higher franchise revenues, which is a great surprise to have.
Which, as I mentioned, is dilutive to the gross margin but it's accretive to the op margin.
So optically it looks quote/unquote worse but on the gross margin line but everything else was within our expectations.
I mean that's what our expectations are today.
Also in Q3, the new West Elm stores contributed to that delta between the comp and the revenue growth.
But obviously, we'd love to see that not be the case but given the size of Q4, it's likely that the outperformance on the international revenue side will not be as pronounced relative to the comp.
We haven't quantified the exact basis points of how much of the gross margin was associated with the higher franchise revenues.
I however, did list it first and so we do put things in order.
So you can tell it's very material.
Also, when you look at the SG&A, there has been occupancy and employment leverage and a leverage across the board.
Specifically, even in the retail channel, you see it materially from the other side of the franchise equation because basically, you have the hit to gross margin and you have essentially no SG&A.
So, the profit drops to the op margin.
Presumably, yes.
We're not disclosing the incremental shipping and fulfillment related costs except to say, similar to what I said to Matt, that it's one of the main drivers of our lower gross margins, the second thing I listed.
And we did indicate in our call last time that we'd expect this would continue into the back half of the year.
It did continue as we expected and we expect that it will continue into Q4.
It's important that ---+ where we're incurring these out of market shipping in multiple deliveries on a single order to ensure high customer service levels and especially throughout the holidays, we think it's important to continue to do that.
Longer-term, once we have completed the regionalization of our distribution centers and we have implemented the necessary technology, which includes inventory tools that will allow us to better forecast our inventory flow and space capacity requirements by DC, brand and channel, as well as future system enhancements that will give us better customer order visibility, we will see a reduction in our supply chain costs.
But even more importantly on this point, we believe further developing our supply chain today to be more agile and adaptable will enhance our sustainable competitive advantage.
So it's going to put an even greater distance between us and our competition and enable us to provide the best customer service experience in our industry.
And we're excited about the future.
I think it's important to think about the higher levels of inventory required to be sufficiently in stock regionally.
This is a competitive advantage as longer-term it not only obviously, minimizes being out of stock but it lowers our delivery costs and improves our delivery times to the customer.
Our primary objective has been to be in-stock to serve the customer and so we've been increasing inventory levels from a position that we thought was negatively impacting sales.
And we also want to get our merchandise, particularly our larger items, to our customers more quickly and so we're accomplishing this through regional distribution.
Over the immediate-term, this increases our inventory levels but longer-term, once we have implemented the necessary demand planning tools that I mentioned, we'll be more effective at inventory allocation between the distribution centers allowing our inventory levels to moderate over time.
Thanks.
Thank you for the question.
We have been really focused on our product pipeline and in the last call I mentioned that we're going to have a lot of new introductions in Q3 and we did and they are working.
And we have what I think is a very exciting holiday assortment combination of great entertaining and also gift giving ideas and across a wide range of categories where I think our customers have grown to love us for the nostalgic candies that we sell but also always want to see the new things that we have.
We've seen strength both in our proprietary product but also in our branded product and we've developed incredible relationships with a lot of these key brands and really are the place that people want to buy gifts in the holidays.
So we have equal optimism around branded as we do our around proprietary products for this holiday season.
I always think there's more room for improvement in everything.
We're very self-critical.
The assortments that we have coming, I think are gorgeous and really differentiated.
There's a lot of people watching what we do and getting into these business and that competition makes us better and makes us differentiate.
And also, there's not a lot of people that have our supply chain.
We're vertical so we can get better cost and our scale allows us to deliver better value cost quality relationship.
So as we look at next year, we see some clear opportunities.
Highly competitive, so I don't want to go through the details of such, but we see some clear opportunities quarter to quarter for PB Teen.
That's a great question.
Thank you for that.
Customer service is our primary objective and our goal is to build a capability that delivers the most convenient and damage free experience in the furniture industry.
And over the past three years, our Pottery Barn furniture sales have grown tremendously.
We are going to deliver a ton of furniture into our customers homes this year.
We've always done this better than most but we see opportunity to take our capability to the next level, much like we did in e-commerce five years ago.
So we've been investing as we talked about in advance our delivery platform beyond the current state-of-the-art.
Every customer piece of feedback that we get we not only fix with the customer but we root cause it and learn from it and make sure that we don't have a bigger opportunity.
The customers are very demanding and they are going to continue to expect more.
And that is why we are making this such a focus because we believe we have the opportunity to totally disrupt the furniture business with our world-class delivery.
It wasn't a factor at all.
It's not an issue from more free ship or lower shipping income levels.
It's 100% due to higher shipping costs from our decision to provide the best level of customer service by shipping out of market and having multiple deliveries on a single order.
Thank you.
Thank you all for joining us today and we really appreciate your time and your continued support and we look forward to speaking with you again in March.
Happy holidays everyone.
| 2015_WSM |
2016 | CHCT | CHCT
#Thank you.
Good morning, everyone, and thank you for joining us today for our second-quarter conference call.
With me on the call today as usual, is <UNK> <UNK>, our Executive Vice President and Chief Financial Officer.
Once again, we've had a very busy quarter.
And as we have previously announced, we acquired three properties during the quarter in three states with a total of approximately 153,400 square feet.
For a total purchase price of approximately $33.5 million.
These properties were approximately 93.7% leased, with lease expirations ranging out to 2031.
As disclosed in the 10-Q, we have four properties under definitive purchase agreements.
For an aggregate expected purchase price of approximately $13.4 million.
The expected return on these investments range from approximately 9.16% to 9.97%.
As it relates to our pipeline, our properties under review continues to go up.
We currently have several properties under signed term sheets.
And several more with term sheets being actively negotiated.
We continue to improve our relationships with key-provider clients and are encouraged by our efforts.
We continue to believe there are a lot of these types of properties.
And continue to believe that there's very little competition for them.
In addition to our acquisition activity in the second quarter, we were very active on a number of other fronts.
As was discussed last quarter, at the beginning of the second quarter, we completed our first [follow-on] equity offering.
The Company sold a total of 5.175 million shares which included the full exercise and the underwriters option, for net proceeds of approximately $86.8 million.
Also, as was previously announced, we declared our dividend for the second quarter and raised it to $0.3825 per common share.
This equates to an annualized dividend of $1.53 per share.
I continue to be proud to say, we have raised our dividend every quarter since our IPO.
Also, as we have previously indicated, we would, and as we announced in the release last night, we amended our revolving credit facility increasing the maximum borrowing capacity from $75 million to $150 million and reducing the interest rate downward by 25 basis points.
Also, certain financial covenants were adjusted or replaced and the maturity date was pushed out to August 2019.
I believe that takes care of most of the items I wanted to cover.
So I will hand things off to <UNK> to cover the numbers.
Thanks, Tim.
I am pleased to review the Company's financial performance for the second quarter ended June 30, 2016.
Total revenues for the second quarter of 2016 were $6.2 million.
Rental and mortgage interest revenues were $5.1 million.
The Company closed on the three properties during the quarter including the exercise of our option under our mortgage note.
The real estate portfolio was 93% leased.
And on a pro forma basis, if all of the 2016 second-quarter acquisitions had occurred on the first day of the second quarter, rental and mortgage interest revenues would have increased by an additional $151,000 to a pro forma total of approximately $5.2 million.
Total expenses for the second quarter of 2016 were approximately $5.5 million.
General and administrative expenses for the second quarter were $895,000.
And of this amount, transaction expenses totaled $204,000.
Depreciation and amortization expense was $3.3 million.
And on a pro forma basis, if all of the 2016 second quarter acquisitions occurred on the first day of the second quarter, depreciation and amortization expense would have increased by $269,000 to a pro forma total of just over $3.6 million.
The Company reported net income of $508,000 for the second quarter.
Funds from operations for the second quarter of 2016 consisted of net income plus $3.3 million in depreciation and amortization for a total of over $3.8 million or $0.32 per diluted common share.
Normalized FFO, which adds back acquisition expense and deferred compensation eliminates straight line rent increases the total to over $4 million or $0.34 per diluted common share.
Again, on a pro forma basis, adjusting for the data outstanding for the quarter, if all of the 2016 second-quarter acquisitions occurred on the first day of the second quarter normalized FFO would have increased by an additional $151,000 to a pro forma total of approximately $4.2 million and increasing normalized FFO by over $0.01 to $0.35 per share.
That's all I have from a numbers standpoint, operator.
I believe we are ready to start the Q&A.
Good morning, <UNK>.
Thanks for the questions.
To hit on most of those, the answer is we don't see changing what we have been doing.
What we have been doing has been working and has been making money.
And the way we view it as our cost of capital goes down, if we are continuing to invest in the cap rates that we are ranging at, then our margin just goes up.
And we make more money for the shareholders.
We feel very comfortable as I said from the beginning that we can do $120 million to $150 million a year in acquisitions.
We can push that a little bit with the people that we have.
We are anticipating as we add more properties over the next year or so, adding a person or two in that process.
But not specifically for underwriting or for the acquisition side.
Again, we want to maintain a steady-state.
In some quarters, we may do $25 million and in some quarters we may do $40 million.
But I doubt that you will see us very far from $120 million to $150 million for a year.
<UNK>, I will let you do that.
We did have one at the end of June.
I think we may have discussed before with the last call.
It was one that we were working actively to renew.
And the hospital company has its own issues and they have delayed renewing until they recruited some doctors to fill the space.
They are still interested in the space.
But just to put that in context, that's what [3,000 or 4,000] square foot lease.
We are continuing to have leasing activity and renewal activity with all of our existing tenants.
With the cash on hand, and the availability under the line, we're probably just under $150 million.
I would say $140 million as it stands right now.
We have talked about that before.
And what our plan is, <UNK>.
<UNK>, I'm sorry.
That's with our internal limit of 40% net to cap.
The credit facility actually would let us take that up higher.
What our game plan on that is, we are going to draw down on the line probably $100 million plus or minus.
Which we think will be probably first, second quarter of next year.
And then we're going to test the market from both insurance-company standpoint and bank standpoint.
Of doing a seven year plus or minus.
Six or eight year tenure type of permanent debt fees that would be the first permanent debt fees of capital that we've had on the balance sheet.
Pay down the bank line and then be in a position to draw it back up.
The other thing we're going to do, as you will see later this fall, and I have told this all the time to people so that when that happens they won't say what you are doing.
We will file a universal shelf filing later this year.
And it will say we can raise all kinds of money.
All kinds of securities and all kinds of ways with which we won't do.
But, basically that will set it up to where we will have a lot easier access to the equity capital markets on a going-forward basis.
And be able to do it in smaller bites and bites that makes sense from a capital-funding matching standpoint.
I have addressed this previously.
We never say never to anything.
But we like a simple capital structure.
We very much prefer sticking with common stock and with debt.
At the appropriate time and the appropriate ways, if it was priced appropriately.
And again I'd never say never, but it is not our intent do any preferred at this point in time.
I can't predict what the capital markets will be a year from now.
When we might start thinking about it.
We sent out three new leases Wednesday.
So the great thing about our vacancy it is [vault] vacancy.
We only pay for existing NOIs.
So when we buy a building with vacancy, we're not paying for it.
Anything is just bonus.
Go ahead <UNK>.
I think we've getting more traction on that.
I want to say that we didn't specifically focus on it.
But we've got much more of a focus on it now to do that.
We are working with several companies that are regional companies to look at different spaces that we have in our current portfolio.
So I think we will be able to take advantage of that.
Right now, it looks like that pipeline is pretty good too.
And from a practical standpoint, my experience shows me at is really hard to keep a portfolio much about 95% occupied.
So, we feel like we have a few hundred basis points that we may be able to (inaudible) and try to keep it there.
But as you have fluctuations in the portfolio like this, I mean you're going to have 93% to 96% is something that hopefully we will be able to keep.
And you will see it maintained over time.
Yes, probably.
I think it's because of a combination of vacations.
Some here, but some with attorneys, some with sellers.
It's kind of been hard to get some people to focus on getting stuff done.
We still hope to be able to close that.
But you are right, it will probably be tail-end weighted.
They made us an offer we couldn't refuse.
So we went ahead and did it.
[Laughter] It is still the same unused fill but there is different trip points for when it reduces.
Yes.
That is correct.
But you should anticipate sometime in the next couple of months the shelf being filed.
We're going to go ahead and file that.
And have it ready relatively soon.
We wanted to get the bank line down first, and then we were going to focus on getting the shelf filed.
Thank you, Alex.
It's probably pretty close.
I'm not sure, I hadn't focused on that particularly like that.
It's probably pretty close to what a going-forward type of thing is.
And with the way our compensation is, it's got the second year of the stock stuff layered in.
So that might be some of the difference.
We will build up, in essence, the non-cash G&A part of it.
As time goes by and we add the years in.
If you have any questions, we can follow up with that.
Thanks, <UNK>.
Thanks everybody for being on the call.
We appreciate you taking the time and showing the interest in us.
And hopefully we can continue having great quarters.
Thank you so much.
Bye.
| 2016_CHCT |
2018 | AAON | AAON
#Good afternoon, ladies and gentlemen.
Welcome to the AAON, Inc.
Fourth Quarter Full Year 2017 Sales and Earnings Call.
(Operator Instructions) This call will last approximately 45 minutes to an hour.
I would like to turn the meeting over to Mr.
<UNK> <UNK>.
Please go ahead, Mr.
<UNK>.
Good afternoon.
Thank you for joining us.
Today is February 27.
We're going to be doing the annual and fourth quarter coverage.
So I want to start with reading a forward-looking disclaimer.
To the extent any statement presented herein deals with information that is not historical, including the outlook for the remainder of the year, such statement is necessarily forward-looking and made pursuant to the safe harbor provisions of the Securities Litigation Reform Act of 1995.
As such, it is subject to the occurrence of many events outside AAON's control that could cause AAON's results to differ materially from those anticipated.
Please see the risk factors contained in our most recent SEC filings, including the annual report on Form 10-K and the quarterly report on Form 10-Q.
So now I'd like to introduce <UNK> <UNK>, CFO, to go over fourth quarter numbers.
Thank you, <UNK>.
Welcome to our conference call.
I'd like to begin by discussing the comparative results of the 3 months ended December 31, 2017, to December 31, 2016.
Net sales were up 13.6% to $104.2 million from $91.7 million.
The increase in net sales was the result of increases in our production, slightly offset by changes in our product mix.
Gross profit increased 17.2% to $31.1 million from $26.5 million.
As a percentage of sales, gross profit was 29.8% in the quarter just ended compared to 28.9% in 2016.
Selling, general and administrative expenses increased 58.9% to $13.7 million from $8.6 million in 2015.
As a percentage of sales, SG&A was 13.2% of total sales in the quarter just ended compared to 9.4% in 2016.
The increase in SG&A was due to increases in our warranty costs, along with smaller increases in our salaries and benefits compared to the same period in 2016.
Income from operations decreased 2.9% to $17.4 million or 16.7% of sales from $17.9 million or 19.5% of sales.
Our effective tax rate decreased to 9.6% from 36.3%.
The Tax Cuts and Jobs Act enacted on December 22, 2017, lowered the corporate income tax rate from 35% to 21% in 2018.
Due to this change, the company remeasured its deferred tax assets and liabilities on the enactment date, which resulted in a $4.4 million benefit to our income tax provision.
Net income increased 38.1% to $15.8 million or 15.1% of sales from $11.4 million or 12.5% of sales.
Diluted earnings per share increased by 39.4% to $0.30 per share from 21 ---+ $0.21 per share.
Diluted earnings per share were based on 52,932,000 shares versus 53,420,000 shares in the same quarter a year ago.
The results of the year ended December 31, 2017, versus December 31, 2016.
Net sales were up 5.5% to $405.2 million from $384 million.
The increase in net sales was primarily due to increased volume as compared to the prior year, offset by changes in product mix.
Gross profit increased $5.3 million to $123.4 million from $118.1 million.
As a percentage of sales, gross profit was 30.5% in the year just ended compared to 30.8% in 2016.
Selling, general and administrative expenses increased 27.9% to $49.2 million from $38.5 million in 2016.
As a percentage of sales, SG&A increased to 12.2% of total sales in the year just ended from 10.0% in 2016.
The increase in SG&A is primarily due to increases in warranty expenses.
Income from operations decreased 6.9% to $74.1 million or 18.3% of sales from $79.6 million or 20.7% of sales.
Our effective tax rate decreased to 26.8% from 33.3%.
As already mentioned, this decrease was the result of the changes from the Tax Cuts and Jobs Act.
Net income increased 2.1% to $54.5 million or 13.4% of sales from $53.4 million or 13.9% of sales.
Diluted earnings per share increased by 3% to $1.03 per share from $1 per share.
Diluted earnings per share were based on 53,079,000 shares versus 53,450,000 shares in the same period a year ago.
At this time, I will turn it over to our Treasurer and Chief Accounting Officer, <UNK> <UNK>.
Thank you, <UNK>.
Looking at the balance sheet, you'll see that we had working capital balance of $103.7 million versus $101.9 million at December 31, 2016.
Cash and investments totaled $30.4 million at December 31, 2017.
The investments of maturities ranging from less than 1 month to 5 months.
Our current ratio is approximately 3.1:1.
Our capital expenditures for the year were $41.7 million.
We expect capital expenditures for 2018 to be approximately $53.2 million.
The increase in capital expenditures is primarily due to construction projects related to our new research and development lab, water-source heat pump production line as well as other internal developmental projects.
Shareholder's equity per diluted share is $4.47 at December 31, 2017, compared to $3.85 at December 31, 2016.
I'd now like to turn the call back over to <UNK> <UNK>, our President.
Good afternoon.
So let's talk about the upcoming year 2018.
So in 2017, we had the retirement of significant management of manufacturing and the plant.
And it took pretty much the third quarter, things started accelerating for those young folks that took over.
Fourth quarter you obviously see the results that are published today.
And you see that they got on firm footing.
They got some profitability headed their direction.
They did quite a lot with getting the production back in line.
One of the key things is that we got a handle on our warranty expenses.
And this was due to, we cleared out ---+ in the first part of the year, we cleared out some old things that for whatever reason hadn't come to the surface.
And then we also had a couple of issues with vendors and a process that through the middle part of the year.
We cleaned all of that up, and our warranty is now trending back closer to historic values.
So I think in the upcoming quarters, you're going to see where we made the statement that we believe SG&A will get back on reasonable footing towards historic values, warranty being the biggest adversary to that having happened last year.
So we definitely got that taken care of trending in the right direction.
The next thing is, we went into 2018 with a very bloated backlog.
It was $81.2 million.
That backlog was caused by a couple of things.
One was, we had a price increase on November 15.
While those people didn't want delivery until 2018 and by our standard lead times, that was in line with it.
So the huge swell, a fair amount of it was because people got the orders in really a little earlier than they wanted to have them in.
So you'll see in the first quarter that we'll be building that backlog out and getting back in line with a reasonable backlog number.
The only reason that I have any concern about backlog is if it's too high, that tells me that we're not delivering in accordance with our customer's request.
And so right now, the vast majority of what we're delivering is on time.
We continue to have one of our manufacturing lines that runs a bit later than what they're requesting.
But I've got a little more story to tell on that here in a minute.
All right.
So water-source heat pumps.
We've discussed water-source heat pumps extensively for the last ---+ nearly 2 years now.
The water-source heat pumps that we're talking about are the models WH and WV.
That is the new product that we began building.
In 2017, we built about ---+ well, not about, we built exactly 2,128 units that we shipped.
We built another roughly 1,800, 2,000 units that we put in our inventory.
But we shipped 2,128 units.
The first quarter of 2018 we expect to ship almost the exact same number of units.
In other words, the first quarter of 2018 we're going to ship as many heat pumps as we've shipped in total, since the inception of the WH and WV.
So it is accelerating in the direction that we expected it to.
It came a little later than we expected, as we've discussed in previous calls.
But it is arriving now.
It is going in the right direction.
And I think 2018 is going to meet our expectations on that.
The other products that have done quite well tend to be our larger-sized units, midsize and larger.
And some of those were up as much as 22% over any historical peak in the past.
That is one of the reasons that our very largest units continue to run anywhere between 2 and 4 weeks behind when customers are requesting them.
We're working diligently to resolve that, and we've made a lot of headway with it.
We believe that around the first part of April, we'll have that on track to delivering exactly when they've asked for it.
The other update on water-source heat pumps is the first manufacturing line we put ---+ and put together, we called line 6A, like alpha.
And it really comprised about 1/3 of what our ultimate manufacturing footprint was going to look like.
While 6B, bravo, is nearing completion.
That will allow us to build up to 30-ton horizontal and vertical water-source heat pumps.
Our current ability is to build up to 5 ton on line 6<UNK>
So 6B enables us to build larger units and also to do some special prototyping and some rework on any units that didn't pass first try on the end-of-line test.
6C, like Charlie, is a high-volume, high-production line.
It very much looks like 6A, only quite a lot more manufacturing capability as far as production volumes.
And it's really arranged for the orders that ---+ and we've been getting some of these orders where you get a multitude of units that are identical.
We've had orders with as many as 380 identical units on it.
6C will run that at a much more efficient rate.
And that is due to come online August, possibly September.
So the water-source heat pumps, like I say, we've got everything going in our direction now.
The orders are coming in on a pretty steady basis, and we're able to produce the units to meet everyone's expectations.
The warranty incidents on these water-source heat pumps that we've started making on this line 6 has been nil.
We have had just very, very little trouble at all.
So that's been a great thing.
It was planned that way and the plans came together.
We ---+ in 2017, we had a couple of more rep agencies that were not performing to our expectations or weren't aligned for good long-term partnership and we replaced them.
These new reps, it usually takes between ---+ probably the most aggressive is 18 months and it probably averages more like 30, 36 months before they began to make any significant strides into positive territory.
However, this ---+ the most recent one that we replaced was only December 1, and he's already making an impact far beyond what the people are that we replaced.
So I've got hope for him that he'll break out of that mold and show me how to do this quicker than even 18 months.
We worked on redesigning some of our products, particularly 2 ends of our primary units, the RN series units.
The smallest units that we make in the RN series, we're in a significant redesign on them now in order to make them a benchmark-setting unit with regards to energy efficiency and capabilities.
The concept is complete.
The prototype is being configured right now.
And we're due to have all of that redesign completed in the third quarter of '18.
Also our largest of our RN series units, we've been concentrating on them for 2 regards.
We had more warranty incident with that series of units than we thought was tolerable.
And so we've resolved those issues.
But while we were resolving them, we found a way to be even more efficient in the process.
And so we've got 2 steps that we're taking, one immediately and one towards the end of third quarter, to make that unit even more robust and make it more efficient than it currently is.
The replacement market and the new construction market still maintain about a 50-50 equilibrium for us.
We have seen some indication that the Architectural Billings Index, the ABI.
The latest publication of it was, it was a very, very high number.
Do you remember the number, exactly, <UNK>.
57, I think.
I believe so.
I believe it was 57, which any mark above 50 is positive ground in that.
So in 2017, I believe there might have been 2 months that we're at or below 50.
But it's by and large been above 54 consecutively for quite a while.
That tells us that 9 to 12 months out it is when they published that, for instance, January, you wouldn't look for that activity to hit our order logs until 9 to 12 months from them.
So that gives us very strong feeling about 2018 remaining very strong.
So we've had growth in certain of our products that has been disproportionate to the others.
You see what the overall growth at the company was, and you can see how the backlogs up.
So you know we're going to continue to grow.
But our larger products have grown percentage-wise 2017 over 2016 more so than our smaller products grew.
The other thing that grew significantly, and I'll talk more about that in a minute, is air handling units.
These are traditionally indoor installations, not compressorized.
They have grown very nicely with a very limited offering that we have.
So with that, I'll go on to the market segments.
There's been really no change in our distribution: commercial and retail; office building; medical, health care; education; manufacturing; lodging and municipalities.
All remain in the same shares that they have been historically for the last 12 months.
But what we have seen is that there's an opportunity for air handling units, indoor air handling units primarily.
We built some outdoor air handling units, and we'll continue to do that.
But we look to how we exploit this growth and how we are planning for that growth.
So that being the case, water-source heat pumps coming up to production nicely.
The R&D lab, the first environmental sales will come online on May 1.
And then we'll be bringing on more environmental sales each month all the way through and October 1 is our date that we slated for a grand opening with all sales operational.
This is going to allow us to develop some additional products in a parallel format.
Right now, we're constrained by the environmental chambers that we have operational.
From a standpoint of the gross profit, we're going to do our very best to maintain that gross profit.
We believe that we have arrested the warranty incidents.
We don't think we have any unusual occurrences.
So 2018 looks to be pretty solid.
The one thing I will point out though is that the water-source heat pump will continue to be a little bit of a pressure on the gross profits because we're still in a startup mode, where we're going to have some volume in the water-source heat pump this year.
But I don't look forward to contributing much to the gross profit lines yet.
So the CapEx, <UNK> and <UNK> mentioned earlier, we've slated out at $53.2 million for this year.
And that includes finishing out the lab.
There was quite a lot of the lab expenditures that ended up getting over into 2018.
That's renovation of some equipment or replacement of some equipment.
And line 6B and line 6C for the water-source heat pump, those are the primary drivers.
We do have a very small sum of money in our CapEx set aside for exploring and developing a new air handling unit manufacturing facility.
We're currently involved in a site selection.
We've narrowed this down to 4 sites, 2 in Texas, 2 in Oklahoma.
We'll be making a decision in the next 30 to 45 days on what the site is, and we'll explain more about that at the time.
But what I wanted to say about that is we're currently, we have about $22 million to $24 million that we're doing in indoor air handling units right now.
And it's been accelerating for the last few years.
We've got a lot of strategic initiatives that will enhance our ability to expand that business at a rate much faster than the majority of all of our other products.
So in addition to the water-source heat pump that's going to ramp up at a rate that won't be in line with the other equipment percentage-wise.
The air handlers won't be too far behind that on what we have planned for that.
So with that, I believe, we are open to questions.
(Operator Instructions) And your first question comes from Jon <UNK>.
<UNK>, you characterized early on the backlog number being somewhat bloated, and it reflects the price increase in November.
Does it all ---+ do you sense any increase in the backlog because of general market conditions.
You see any evidence that there is some momentum building in the market, in general.
I do.
The backlog right now is at 21% over its historic numbers.
That's about $10 million.
And so it looks like that's going to be our new normal.
Because like I said we pretty much got everything back in line delivering on customer's expectations.
So the backlog is somewhat normalized at this moment.
Okay.
And I guess ---+ I guess, it probably doesn't take a genius to figure out that this ---+ the backlog at year-end implies a pretty healthy first quarter sales number.
That is true.
All right.
So first off, the AHRI certification, it's called enlisting.
They began to ---+ we sent the units to them on August 27, '17, their testing schedule was quite full and they began testing.
But they had not been able to complete.
They pulled 7 pieces of equipment to test.
They have completed 4 of those.
The fifth one is in right now.
So looking at their schedule, that's not real expeditious the way I see it.
But it's looking imminent that we should have all that testing completed very soon.
As far as its impact on sales, I think it would be naive to say otherwise.
It has had an impact because I spend entirely too much energy talking about the certification, which means that people have some reservation about moving forward until that occurs.
There's always customers that will move forward because they know and trust AAON.
And the fact that all of our other products are certified and the fact that this is kind of like the equivalent of patent pending.
The certification, we've submitted the units, they're there, they're being tested.
And so the vast majority of really understand it when there's an entity such as an energy provider that's providing rebates, well, you're not getting any rebates without certification.
So those projects that are driven by rebates are definitely out of our reach, in general, at this point.
Well, our goals are to reach 5% market share this year.
And then each year that goes after this to add an additional 5% market share.
It was in 2017, and that's why I'm more willing to term it in percent of market share because if the market goes up, then I hope to get more and if the market goes down, then I get a little less.
But our goals have been stated to be 5% market share, 10%, 15%, 20%, 25%.
<UNK>, just wanted to be clear on the warranty expense thing.
It caught us off guard, again, this quarter a bit.
So that should start to normalize here in the first quarter.
Is that the way to think about this.
Well, it should.
We currently believe we're on trend at the moment with first quarter of '17.
Hopefully, as the quarter progresses, it will come down even beyond that.
We don't know of any major problems that are outstanding that are needing to be resolved.
So our expectation is that over the course of the year, we should see it improve significantly over last year.
Got it.
Okay.
And then, I guess, just another question on the pump line.
Did you guys offer the sales-dollar impact for the fourth quarter.
No.
No.
We did not.
Okay.
It's not real hard to figure out.
It was 2,128 units and they average little over $1,200 a unit.
So it was around $2.6 million, $2.7 million was the total 2017 impact of the WH, WV.
Recognizing other facts, we make heat pumps ---+ water-source heat pumps in all of our other, we'll call them, legacy products, the rooftop products.
And those have been running around $16 million, $17 million a year.
So we're not talking about those in conjunction with this conversation.
All the conversations about the water-source heat pumps that we've had have all been about the new product, which is model WH and WV.
Those are the small indoor units.
Got it.
Okay.
That's helpful.
And then, <UNK>, just want to dig in a little bit more on the indoor handling units.
I think you said sort of $22 million to $24 million business per year.
Yes.
Can you just expand on what you guys are exactly evaluating.
And kind of where you think that business could go over the next few years.
Is it too early to put numbers around it.
Well, I'm not ready to put numbers around it per se.
Because it's ---+ we're in the planning stages right now.
We're planning what the product line would look like.
We're planning what the manufacturing process would be.
We're utilizing a lot of what we learned on this small water-source heat pump to cross that over into this air handling unit business.
There is a lot of things in that regard that ---+ we're just now in the infancy of building that plan out.
Fact is tomorrow is my first substantial committee meeting with the various stakeholders in the business that have influence on how that will occur.
So the bottom line is that last time I looked, air handlers were about a $2.2 billion annual market.
And we believe that there's room for us to grow and expand into more of that market.
Because currently, like I said we're about $22 million to $24 million in there.
There are manufacturers that have been bought by consolidators, and there are various things that their sales channel partners are nervous about.
So a lot of our sales channel already participates in this market.
One of the driving factors for getting into the water-source heat pump was our sales channel was already selling around $75 million, $80 million of that type product and the manufacturers that we're supplying them were leaving room for improvement.
And so they encouraged us to get into this business and said that when we got in and got in the way that they envisioned, that they would be onboard with us.
Well, we know that our same sales channel partners are extraordinarily involved in the air handling unit business, way beyond the $75 million, $78 million.
Fact is, my former company, Texas Air Systems does around close to $40 million in air handlers just themselves in the state of Texas.
So it's a significant opportunity for us.
It's one that I had in excess of 30 years of experience within the sales channel side.
And I very much understand that market, and it very much plays to the strengths of what we do here at AAON.
What we learned on the water-source heat pump as far as how to automate several of the manufacturing processes and how to automate going from the user interface all the way through to production control for scheduling.
That software that we developed, all of that will be utilized in this new expanded air handling unit business.
So yes, I'm very excited about the possibilities of it.
But it's very early to be talking about any kind of numbers.
What we can say is that it's a business we have extensive experience with.
We're already established in it.
And this is an expansion of how we do, what we do.
Yes.
We're not selling them lacking some profit.
But it's not as profitable as we expect it to be.
It's not as profitable as the benchmark for the whole company.
There he is.
We had ---+ in our sales department, we had leadership in there that was making little situations where somebody would make a warranty claim, he wouldn\
No.
So let me clarify this.
6B is actually going to come online in the next 30 to 45 days.
Yes.
6C ---+ 6C, Charlie, won't come online until about September.
So 6B, 6 bravo, will be coming online in the next 30, 45 days and that is to build some larger product up to 30 tons horizontal and vertical.
We are developing that product, but some of it we have to get the line finished in order to be able to build the product.
We don't have anywhere to build that large of a water-source heat pump.
So yes, it's going to take some time in 2018 to develop the product.
We have the engineering completed on some of these additional larger sizes, but until we build and prototype and run them through there then we can't really test them, vet them out and perfect them.
So it won't take as long as 6A because we have established procedures on a lot of the construction methods already.
For instance, we don't have to learn how to use the induction brazing equipment.
We already know how to use that, and we just extend it down to this line.
A lot of the other functions that occurred in the learning process of 6A, we don't have to relearn them.
We only have to extend them.
And one of the most key things, Norm talked about this extensively throughout the year, was the development of the software.
So we had to take multiple manufacturers with their own unique software language and integrate them into one common software language that we could operate as a system and have that all integrated.
And it has to be very well sequenced because when you punch the button to start a product through there, then everything has to happen in a very choreographed exact sequence.
Otherwise, you'll end up at a point on the line where you don't have a part that you need because they ---+ this is the true definition of just-in-time manufacturing.
When we start the product on the manufacturing line, there is nothing from a fabrication standpoint prebuilt.
Like we do in the rest of the plant.
The rest of the plant, we have sheet metal and self-assemblies in about a 3-day inventory, on average.
This we have 0 when you start it.
So we've streamlined that software a whole lot.
Every now and then we get a little hiccup in it, but it's an every now and then.
I mean, mostly this line runs very smooth now, and so we'll be able to take that same concept and just extend it on down to 6B.
So that learning curve has been accomplished and won't be a problem going forward.
Well, thank you very much.
We appreciate it.
And we will speak to you, again, in May for our first quarter results.
Have a nice day.
| 2018_AAON |
2016 | IIIN | IIIN
#Thank you, Kevin.
Good morning.
Thank you for your interest in Insteel, and welcome to our second-quarter 2016 earnings call which will be conducted by <UNK> <UNK>, our Vice President, CFO, and Treasurer; and me.
Before we begin, let me remind you that some of the comments made on today's call are considered to be forward-looking statements which are subject to various risks and uncertainties that could cause actual results to differ materially from those projected.
These risk factors are described in our periodic filings with the SEC.
All forward-looking statements are based on our current expectations and information that is currently available.
We do not assume any obligation to update these statements in the future to reflect the occurrence of anticipated or unanticipated events or new information.
I'll now turn it over to <UNK> to review our second-quarter financial results and the macro indicators for our markets.
Then I'll follow up to comment more on market conditions and our business outlook.
Thank you, <UNK>
As we reported earlier this morning, Insteel's net earnings for the second quarter of fiscal 2016 close to tripled from a year ago, rising to $7.2 million, or $0.38 a share, driven by higher shipments and spreads and lower conversion costs.
Shipments for the quarter rebounded strongly from the weaker-than-expected levels of Q1 benefiting from improved market conditions, the relatively mild winter weather, and the year-over-year differences in our fiscal calendar.
Net sales for the quarter were up 16.3% from the first quarter and 5.5% from last year, driven by a 23.1% sequential increase in shipments from Q1 and a 20.1% year-over-year increase which more than offset lower average selling prices.
About half of the sequential shipment increase and a third of the year-over-year increase were driven by our fiscal calendar and the extra week in Q4 of fiscal 2015 which extended the end dates for the first and second quarters by a week as compared to last year.
This had the effect of moving one of the seasonally slowest weeks of the year ---+ the week ended January 2 ---+ from the second to the first quarter, and adding the week ended April 2, which follows around the beginning of our busy season to the second quarter.
On a pro forma basis, adjusting both quarters to reflect the same periods as last year, the sequential shipment increase from Q1 to Q2 would have been 11.8%, instead of the 23.1% that was reported, which is still significantly higher than the seasonal change we typically experience between the periods.
And the year-over-year increase would have been 14.3% instead of 20.1%.
Although we're still early in the third quarter, our order book has remained strong, and shipments have continued to trend above expected levels as we move into our busy season.
Gross profit for the quarter rose to $18.6 million, with gross margin more than doubling to 17.3% from 8.5% a year ago due to higher spreads, the increase in shipments, and the lower conversion costs.
The year-over-year improvement in spreads was driven by a continued reduction in raw material costs that exceeded the decrease in selling prices for our products.
On a sequential basis, gross profit was up $2.2 million from Q1 on the increase in shipments and lower conversion costs, while gross margin declined slightly by 50 basis points due to narrower spreads relative to the first quarter.
Since we typically carry around three months of inventory valued on a FIFO basis, the raw material costs reflected in cost of sales for any given quarter are largely representative of purchases made in the previous quarter.
In a declining price environment, as we've experienced over most of the past year, this time lag has the effect of deferring the favorable impact of the reduction in raw material costs until the higher-cost inventory purchased in prior periods is sold.
At the end of the second quarter, our inventory position represented around 81 days or a little over 2 1/2 months of shipments on a forward-looking basis, calculated off of our Q3 forecast.
So as we move into our third quarter, our spreads and gross margins should continue to benefit from the consumption of lower-cost inventory purchased prior to the recent price increases for wire rod.
SG&A expense for the quarter rose $1.7 million from a year ago to $7.6 million, primarily due to higher accrued expense under our return on capital incentive compensation plan, driven by our improved results which was partially offset by a $0.3 million reduction in employee health insurance costs related to the high-dollar medical claims that were incurred last year.
On a sequential basis, SG&A expense was up $1.3 million from Q1, largely due to higher stock-based compensation expense associated with the options and RSUs that were granted during the quarter.
Equity awards under our plan are typically granted on a semiannual basis in our second and fourth fiscal quarters, which drives SG&A expense higher in these periods.
After funding the $18.6 million, or $1.00 a share, special dividend that was paid in January, our strong operating cash flow for the period left us with $36.4 million of cash as of the end of the quarter, and no borrowings outstanding on our $100 million credit facility, providing us with plenty of liquidity and the financial flexibility to pursue additional growth opportunities.
Looking ahead to the remainder of fiscal 2016, we expect continued strength in our nonresidential construction end markets as we [enter] our busy season.
In the most recent monthly construction spending report, total spending through the first two months of the year was up 11.2% from last year, with private nonresidential up 12.6%, public up 8.4%, and private residential up 11.6%.
Over half of the increase in public spending was driven by a sharp rise in highway and street construction, one of the largest consumers of our welded wire and PC strand products, which was up 24.1% from a year ago, benefiting from this year's milder winter weather.
As we move later into the year, we expect the federal highway funding provided for under the recently passed FAST Act will begin to have a favorable impact on infrastructure construction activity and demand for our products.
Construction employment, another indicator for end markets, was up 301,000 in March from a year ago, rising to its highest level since December 2008; while the construction unemployment rate was at 8.7%, a 10 year low for March.
The most recent reports for a couple of the leading indicators for nonresidential building construction were mixed.
Yesterday, the American Institute of Architects reported that the Architectural Billings Index rose to 51.9 in March from 50.3 the prior month, entering the traditionally busy spring season.
The index has remained above the 50 growth threshold for 10 of the previous 12 months, implying further improvement in nonresidential building construction based on the approximate 9- to 12-month lead time between architectural billings and construction spending.
Following three months of gains, the Dodge Momentum Index, another leading indicator for nonresidential building construction, fell 7.1% in March from the prior month but was essentially unchanged from last year.
Considering the volatility in the DMI over the past year, it's uncertain whether the drop-off for March was isolated or the beginning of a trend.
I will now turn the call back over to <UNK>
Thank you, <UNK>.
As reflected in our release and <UNK>'s comments, demand for our reinforcing products exceeded our expectations for Q2, driven by the ongoing cyclical recovery in construction markets and generally favorable weather conditions in most areas of the country.
As we look ahead to the remainder of fiscal 2016, most macro indicators remain positive.
And customer sentiment points to strong demand for reinforcing products through the balance of our fiscal year.
In our last few earnings calls, we commented on the potential for widening spreads driven by declining prices for steel scrap and our primary raw material, steel wire rod, together with stable or more slowly declining selling prices for our products resulting from the cyclical recovery in the construction sector.
Our Q3 2015 results reflected the initial impact of these favorable trends which became more pronounced during the fourth and first quarters and continued to benefit us during the second quarter of fiscal 2016.
During our Q1 conference call, we mentioned that the declining trends for steel scrap and wire rod pricing may have run their course, in view of the $30 per ton spike in January.
Since then, scrap prices have climbed an additional $70 per ton, driven by reduced collection of obsolete scrap and a rebound in exports.
The sudden move up, which totals approximately $100 per ton since January, appears to be a supply-side phenomenon since overall steel demand continues to be unimpressive, and steel mill capacity utilization remains stuck at around 70%, down from 71.5% last year.
Nevertheless, the sharp uptick in steel scrap prices has been reflected in the transaction prices for wire rod and other hot rolled products, and the market appears to have the momentum to support another increase in May.
We're seeking to recover these higher costs through a series of price increase announcements, driven off the market conditions and competitive dynamics for each of our product lines.
Strong demand and increasing backlogs should, in most cases, provide a favorable environment for recovering higher raw material costs.
We mentioned in the Q1 call that a PC strand competitor would begin their startup of a new South Carolina manufacturing plant during our second quarter, and that we expected minimal impact over time from the new capacity, provided market demand continued to grow.
Events have unfolded substantially as we expected, as we've experienced some pricing pressure as the ramp-up activities have commenced.
In addition to new domestic capacity, importers are more aggressively soliciting business at prices that are significantly lower than the prevailing domestic market level.
We are carefully monitoring this activity, and we plan to move quickly to address any tactics that are inconsistent with US trade laws.
We continue to believe that further growth in the PC strand market will be adequate to mitigate the impact on Insteel of new domestic capacity and more aggressive importers.
Turning to CapEx, despite the modest level of expenditures through our second quarter, we expect outlays to rise to approximately $20 million in 2016 which includes a $9 million investment in our Houston PC strand facility to upgrade equipment and install a new state-of-the-art wire rod cleaning process comparable to our Gallatin and Sanderson strand plants.
The addition of new cleaning capabilities at the Houston facility will eliminate a high-cost process that constrains the capacity of the plant and adversely affects its yield and productivity.
Coincident with the construction of the new cleaning operation, we have removed most of the antiquated equipment from the plant and are replacing it with modern equipment that was previously operating at the Newnan plant, thereby increasing the capacity of Houston by approximately 40%.
We expect this first phase of the project will be completed by the end of the first quarter of fiscal 2017 and generate approximately $5 million of annualized cost savings.
As we approach the completion of the first phase of the Houston project, we expect to add a third PC strand production line at the facility to align our capacity with the requirements of the Texas market.
The addition of the third line, which would likely fall within fiscal 2017, is expected to require a $4 million to $5 million investment over and above the outlays for the current improvements.
The economies of scale that are attainable through ramping up the volume of the facility are significant, and represent a considerable competitive advantages for Insteel relative to other domestic producers.
We've reported, in recent earnings calls, that we were commissioning a new high-volume standard welded wire reinforcement production line at our Hazleton facility to replace obsolete technology and allow us to increase production of certain SKUs for which we have routinely experienced capacity constraints.
The timeline for the ramp-up had been affected by vendor technical difficulties which adversely affected our customer service performance and operating cost during the third and fourth quarters of 2015.
I'm glad to report that most of these matters appear to have been resolved, and that we expect the line to meet our performance expectations going forward.
Importantly, the volume contributions from the new line, here in our first and second quarters, have positioned us to restore the service level our customers have become accustomed to prior to the unfortunate experience during the second half of last year.
To conclude our prepared remarks, we are pleased by the strength our markets are showing and by our Q2 financial performance.
And we believe we're well-positioned to deliver strong results over the course of the next two quarters, which represent the seasonally strongest period of the year.
Consistent with prior periods, we will continue our efforts to further improve the effectiveness of our manufacturing operations, identify additional opportunities to broaden our product offering, and grow through acquisition.
This concludes our prepared remarks, and we'll now take your questions.
Kevin, would you please explain the procedure for asking questions.
Well, let me start by saying that when finished up our first quarter, volume expectations had not been met.
We did not meet our forecast during the first fiscal quarter.
And it seemed that there was a dramatic change when we returned from the Christmas and New Year holidays, we began booking strongly in January and we were consistently above forecast throughout the second quarter.
So January did see that first spike in steel scrap prices.
But I think, at the time, there was not sufficient concern about that in the market to have generated any sort of hedged buying or pre-need buying that contemplated further scrap increases.
I really don't think anyone foresaw what would unfold over the course of the quarter in steel scrap prices.
So I guess I would summarize by saying from our perspective, from what we see, customers needed the material.
They purchased it and they used it.
We'll actually benefit for an interim period, just due to the usual timing issues associated with our inventory where we are carrying around three months ---+ as I mentioned, we are carrying around ---+ usually carrying around three months worth [on viapost].
So with that quarter lag, we should actually benefit on an interim basis as the price increases are matched against the lower-cost inventory.
And then as we had indicated, our future direction on pricing would just be a function on how the market evolves over the next few months.
That's a good question, <UNK>.
We operate in a competitive environment.
I think the magnitude of the steel scrap and wire rod increases actually works in our favor, as it would be unthinkable for any of our competitors to absorb those increases.
And I think it creates motivation to recover the cost increases in the marketplace.
But exactly how it unfolds, and whether there turns out to be any timing issue in recovering the cost, is just really hard to say right now.
But I would just comment that our markets are strong.
Our backlogs are far out enough as to be somewhat uncomfortable from a service level point of view.
And the market is strong, and I think it will support these increases.
So as these things go, the environment couldn't be more favorable for us.
I guess that's still unfolding.
In terms of its direct impact on our Houston area plants, we lost 32 hours of production at our PC strand plant, and we lost part of one shift at our welded wire reinforcing plant.
The impact on customers is harder to ascertain, at this point.
But I think over the course of Q3, you probably won't notice it that the orders that have been placed, produced, and shipped during the quarter ---+ I don't believe will be affected by the events of earlier this week.
Well, we took ---+ we go through an exercise that we refer to as an optimum mill exercise which quantifies the inbound and outbound freight impact of serving our customers from various plants.
And for us to align our customer service requirements with our supply and demand in the Texas market, the third line is justified.
So over time, this market has grown.
We believe it will continue to grow.
And one of the major thrusts of our Company over the last five years has been to put our capacity and our product capabilities in optimum geography, relative to our suppliers and our customers.
There are huge cost implications of doing so, and there are huge customer service implications of doing so.
And it's really just quite an important fundamental of our business.
Thank you, <UNK>.
We continue to be focused on our core markets, looking for opportunities in every geography and every product line.
So I believe that's really as specific as I would want to be.
Okay.
Thank you.
We appreciate your interest in Insteel, and encourage your follow-up if you have further questions.
| 2016_IIIN |
2018 | ITG | ITG
#Good morning, and thank you for joining us to discuss ITG's First Quarter 2018 Results.
My name is Case, and I will facilitate the call today.
(Operator Instructions) As a reminder, this session is being recorded.
I would now like to turn the conference over to J.
<UNK>
<UNK> of ITG.
Good morning, and thank you for joining us to discuss ITG's ---+ excuse me, thank you and good morning, Keith.
.
Thank you J.
<UNK>
Good morning, and thank you for joining us to review ITG's first quarter 2018 performance.
We are now 7 quarters into our 10-quarter Strategic Operating Plan.
I'll highlight the progress we've made and the opportunities ahead.
Steve will then take you through financial results.
Finally, we will take your questions.
We had a strong start to 2018, delivering adjusted earnings of $0.28 per share.
Results were driven by strength in international trading, growth in workflow technology and the impact of cost savings implemented over the past 7 quarters.
First quarter revenues were up 4% as compared to the prior quarter and up 9% compared to the first quarter of 2017.
Our adjusted global pretax margins rose to 9.9%, up sharply from 3.2% in the first quarter of 2017.
Both revenues and adjusted net income were at their highest level, since the second quarter of 2015, and we achieved the highest pretax margin since the first quarter of 2015.
In Europe, we delivered record revenues and profitability.
Value traded in the POSIT Alert block crossing system rose 55% as compared to the first quarter of 2017.
Overall, European revenues were up 22% year-over-year, outpacing a 13% increase in European daily market wide value traded.
As European market structure evolves under the MiFID II regulations, we continue to take the lead on guiding clients as they adapt to the changes.
At the Trade Tech conference in Paris last week, we presented on topics including the Algo Wheel, block trading and the new liquidity landscape.
We also hosted more than 120 clients for a discussion about artificial intelligence and how it is reshaping capital markets.
Asia Pacific posted another record quarter with revenues up 41% compared to the first quarter of 2017.
Value traded rose 70%, well ahead of the 50% increase in daily market wide turnover.
We also set a new record for POSIT Alert block value crossed, and last week, we launched POSIT Alert for New Zealand equities.
That marks the 12th market in Asia Pacific and the 38th market worldwide where we offer electronic block crossing.
In Canada, our average daily volume increased 11% as compared to the first quarter of 2017.
That's despite a 3% drop in market wide daily volume.
Our sell-side crossing network MATCH Now set another record for quarterly revenues.
ITG's positioning with clients in Canada is impressive.
Last month, we hosted nearly 200 clients at our second annual Trading Matters conference in Toronto, demonstrating thought leadership.
In the U.S., market share in the first quarter was 1.8%, down from 2.07% in the fourth quarter of 2017.
The quarter was marked by sharp spikes in volatility as well as a surge in ETF trading.
Both factors impacted market share.
We are not satisfied with this result.
Achieving U.S. profitability through intensified client engagement, technology infrastructure enhancement and innovative product delivery is our key focus.
Client engagement is the strongest I've seen since rejoining ITG in January of 2016.
Over the past month alone, our new head of market structure for the Americas, Doug Clark, held dozens of client meetings about the SEC's agenda for U.S. equity markets.
Our Head of European Products, Duncan Higgins, and Head of Global Commission Management, Jack Pollina, held events and client meetings across the U.S. about MiFID II's early impacts and the wave of unbundling it has sparked globally.
And we've held dozens of meetings to introduce clients to our new AI-based Algo.
As we worked to achieve profitability in U.S. execution services, we are maintaining cost discipline.
Overall, since the launch of the Strategic Operating Plan in July of 2016, we have reduced annual costs by more than $30 million with most of the savings in the U.S. Headcount reductions during the first quarter are expected to save $10 million annually with $8.5 million of the savings impacting the U.S. Global headcount at quarter end was 891, down from 934 at the end of 2017.
These savings have fully funded investments in core capabilities.
Now, I will update you on the 10-quarter Strategic Operating Plan.
The strategic plan called for investments of $40 million in people and technology through the end of 2018.
Approximately $27 million has been invested over the past 7 quarters, including more than $4 million in the first quarter of 2018.
We are making progress in globalizing the firm and actioning scale opportunities across the enterprise.
The goal is to deliver unmatched client service and best-in-class products in our 4 key offerings, liquidity, execution, workflow technology and analytics.
In liquidity, we developed a new POSIT Alert ticket, which provides streamlined access to global blocks, customized workflows and ability to use block crossing alongside Algo execution to complete orders.
Approximately 50 clients are now live using this new technology, and it will be rolled out globally in the next 2 quarters.
In execution, we're encouraged by the initial performance of our new implementation shortfall algorithm, IS AI, which leverages artificial intelligence to improve execution performance.
IS AI will be rolled out to the majority of our U.S. clients by the end of the second quarter.
In analytics, we are extending multi-asset coverage delivering tick-level transaction cost analysis for U.S. futures with coverage in other developed markets to be added later this year.
The new state-of-the-art client portal, data architecture and analytic services are on track for delivery in second half of 2018.
And in workflow technology, we are reinforcing Triton's position as the leading global multi-asset execution management system, adding market-leading analytics and additional foreign exchange functionality.
More than 30 clients are live on Algo Wheel, our broker neutral solution, which enables objective, repeatable, orderable measurement of algos through a randomized approach.
The growth of Algo Wheel is a key driver behind the increased profitability in our workflow technology operation.
Even as we reduced costs, we continue to invest in the team globally.
Recent additions include Fabien Melero, leading product management for Asia Pacific, based in Hong Kong; Vinayak Patade, leading our execution and workflow technology application development agenda based in New York; David Fellah, ITG's Global Head of Quantitative Execution Analytics based in London.
David previously worked at ITG from 1999 to 2004, as a trading strategist.
These additions complement our talented team, they highlight ITG's ability to attract top talent and also demonstrate our commitment to executing the Strategic Operating Plan.
As we've noted on prior calls, this plan targets accelerated revenue growth through the end of 2018.
First quarter revenues were at an annual run rate of $526 million, which is 9% ahead of full year 2017.
This was achieved despite the impact of the revenue deferral required by accounting rule changes, which Steve will discuss shortly.
International operations as a whole are performing well, while the U.S. is lagging.
Cost savings measures taken in the first quarter are a significant step toward regaining U.S. profitability.
Now, we are working intensely to deepen engagement with clients, communicate ITG's value and grow U.S. market share.
Our aim is to be recognized as the industry's most trusted, global technology enabled agency broker.
We are committed to achieving this through the execution of the Strategic Operating Plan.
The industry is in a period of transition for brokers with regulatory shifts, evolving competitive dynamics and changes in trading behaviors.
Our eyes are open to potential opportunities to add scale through acquisition, provided these opportunities are in line with our core focus on liquidity, execution, workflow technology and analytics.
We have a lot of work ahead, and feedback from clients is clear.
ITG's value proposition is resonating as we strive to help clients improve investment performance and increase operating efficiency.
Now, Steve will discuss first quarter financial results.
All yours, Steve.
Thank you, Frank, and good morning.
As Frank discussed, results improved significantly in the first quarter, with another quarter of a record revenues and profitability in both Europe and Asia Pacific, strong market share gains in Canada and continued cost discipline.
While activity for U.S. execution services remained weak, commission share revenues from workflow technology products were strong in the U.S. and Europe, pushing the pretax margin for that group above 20%.
In the first quarter, revenues were $131.5 million, and GAAP net income was $4.4 million or $0.13 per share.
This compares to revenues of $126.7 million and a GAAP net loss of $2.4 million or $0.07 per share in the fourth quarter of 2017.
First quarter 2017 revenues were $120.8 million and GAAP net income was $5.3 million or $0.16 per share.
On Slide 9, we detail nonoperating items that are in GAAP results for the first quarter of 2018 and the fourth quarter of 2017.
There were no non-GAAP adjustments in the first quarter of 2017.
In the first quarter of 2018, a restructuring charge of $7.2 million or $0.21 per share was incurred for the elimination of positions in the U.S. This chart was partially offset by an after-tax gain of $1.9 million or $0.06 per share related to a reduction in U.S. tax reserves from resolving a multi-year contingency.
Excluding these items, adjusted net income was $9.7 million or $0.28 per share for the quarter.
For this discussion going forward, all references to first quarter 2018 and fourth quarter 2017 results and costs are on an adjusted basis, excluding the items listed on Slide 9.
Slide 10 presents consolidated results, along with separate details of results from North America, Europe and Asia Pacific operations as well as corporate activities.
As a reminder, corporate activity includes investment income and other gains as well as cost not associated with operating ITG's regional and product based business lines.
Compared to the fourth quarter of 2017, consolidated revenues were up $4.8 million while consolidated expenses were down $600,000.
Consolidated pretax margin was 9.9%, up from 6.1% in the fourth quarter of 2017 and 3.2% in the first quarter of 2017.
These results were achieved even with the impact of the new revenue recognition accounting standard.
Under this required standard, $3.8 million of commissions attributable to bundled arrangements for analytics products were deferred, and we accelerated the recognition of $400,000 in software license revenue.
The net reduction to first quarter 2018 global revenues of $3.4 million reduced after-tax earnings by $0.09 per share.
U.S. revenues and earnings for the first quarter of 2018, were reduced by a net $1.6 million due to this new accounting standard.
We also implemented a change this quarter, to the measurement of profitability in regional segments.
As many of you have observed, our cost base in the U.S. historically was heavy, due in part to the inclusion of centralized global cost.
We believe that it was appropriate at this point to include these costs proportionally in all regional results, particularly given the continued emphasis we are putting on expanding the globalization of functional teams, to enhance the scale of our business.
For comparability purposes, previously reported segment results have been restated.
This reduced U.S. expenses in prior periods by $2.7 million and increased expenses in Canada, Europe and Asia Pacific by $700,000, $1.3 million and $700,000 respectively.
Regional results in this presentation and in our earnings release reflect these restatements.
For the first quarter of 2018, North American businesses posted net income of $0.03 per share on revenues of $66.6 million.
Combined European and Asia Pacific businesses, posted record net income of $0.43 per share in the first quarter on revenues of $64.4 million.
Corporate activity lowered net income by $5.9 million or $0.18 per share.
Slide 11 details exchange rate impacts on results of foreign subsidiaries.
Currency changes increased profitability by $600,000 when compared to rates in effect in the fourth quarter of 2017.
An increased profitability by $1.7 million when compared to rates in effect in the first quarter of 2017.
You can also see the larger impact on reported revenues and expenses.
On Slide 12, North America operations are broken out between the U.S. and Canada.
During the first quarter of 2018, U.S. revenues were $48.5 million with a pre-tax margin of negative 2.8%.
This compares to $53.4 million in revenues with a pre-tax margin of a negative 7.4% in the first quarter of 2017.
U.S. commission revenues declined 8% sequentially reflecting lower trading commissions, and the impact of accounting changes for bundled commissions.
These declines were partially offset by strong growth in commission share revenues from our workflow technology products.
The percentage of traded volume from sell-side accounts grew slightly from 53% to 54% quarter-over-quarter.
Average U.S. revenue per share was down 6% from the fourth quarter to 37 mills due in part to a lower mix of volume from alert and dark Algo products as well as the increase in mix from sell-side clients.
U.S. expenses were down 5% sequentially primarily reflecting lower costs for transaction processing, and occupancy and equipment as well as a seasonal decline in sales and marketing expenses, which are booked in other G&A.
Transaction processing cost declined even with the quarter-over-quarter increase in average daily volume due to a reduction in lower margin sell-side trading, and the spin-out of the derivatives business in February.
The decline in occupancy and equipment included the impact of the reduced office space in New York.
Expenses were down 13% compared to the first quarter of 2017, largely due to lower transaction processing, compensation, and occupancy and equipment costs.
Canadian revenues were up 14% sequentially in line with the increase in market wide trading.
As compared to the first quarter of 2017, Canadian revenues were up 9% versus a 3% decline in market-wide trading.
This reflected strong year-over-year growth in buy-side trading and another record quarter for revenues in MATCHNow.
Slide 13 is a breakdown of European and Asia pacific results.
European value traded in the first quarter was up 4% sequentially versus a 16% increase in daily market-wide trading.
This reflects the impact of increased volatility during the quarter as well as the implementation of the MiFID II volume caps in mid-March.
Despite that, Europe set new records for revenues and profitability in the first quarter, driven by strong growth in block trading in POSIT Alert.
Asia Pacific also set new revenue records as well as a new net income record on a restated basis.
Regional revenues were up 2% sequentially and up 41% year-over-year.
Slide 14 provides supplementary information on product group revenues and investment income, which we categorize as corporate.
Execution services revenues increased 4% versus the fourth quarter of 2017, and 9% year-over-year.
This was fueled by a stronger market-wide trading activity, another global record for POSIT Alert and stronger Canadian market share.
Workflow technology revenues rose 13% sequentially and 15% year-over-year due to higher commission share revenues.
Analytics revenues were down 14% versus the fourth quarter of 2017, and 10% year-over-year.
Slide 15 presents supplementary pretax income information for 3 product groups and for corporate activity.
Pre-tax margin for execution services was up sequentially and year-over-year driven by strong growth in POSIT Alert in Europe and Asia Pacific as well as higher global market activity.
Pre-tax margin for workflow technology more than doubled versus the first and fourth quarters of 2017, to 22.3%.
That's the highest achieved since we began breaking up quarterly product group margins in 2014.
These improved results were driven by strong growth in commission sharing for Algo trades with third-party brokers executed via Triton and the Algo Wheel.
In analytics, our pre-tax margin was down versus the fourth quarter of 2017.
This is due in part to timing delays related to the new revenue recognition standard.
There were also timing delays in the conversion of bundle trading to build cash arrangements in Europe, and in report deliveries.
Pre-tax loss from corporate activity was $6 million, down from $6.5 million in the fourth quarter of 2017 and $6.1 million in the prior year period.
As we have said on prior calls, corporate expenses, including legal costs, vary from quarter-to-quarter as we work through litigation, regulatory and other corporate matters.
Slide 16 presents U.S. volume and rate capture statistics.
Average daily executed volume was up 4% sequentially in the first quarter, and down 9% year-over-year.
Overall revenue capture rate per share was down 6% sequentially, but flat year-over-year.
We ended the quarter with approximately $230 million of cash, down from $288 million at the end of 2017.
This decrease was due to the payment of incentive compensation for 2017, net settlements of vested employee stock awards as well as increases in cash required for European settlement activities and our U.S. clearing deposit.
Excess cash at March 31 over and above what is needed for required regulatory capital and other compensation liabilities was approximately $70 million, down from $75 million at the end of the fourth quarter.
This decline was primarily attributable to working capital changes, which reflect, in part, an increase in billed receivables and the payment of annual expenses in the first quarter.
First quarter stock repurchases totaled 180,000 shares for approximately $3.6 million or an average cost of $19.80 per share.
We paid a quarterly cash dividend of $2.3 million or $0.07 per share.
For the balance of 2018, we intend to repurchase shares in an amount sufficient to offset all dilution from share issuances on the vesting of stock awards during the year.
Repurchases may vary from period to period depending on market conditions.
Looking forward, here are a few closing observations.
As Frank pointed out, we invested more than $4 million in the Strategic Operating Plan during the first quarter.
Approximately $27 million has been invested since the launch of the plan.
We expect to complete the balance of the $40 million investment over the course of 2018, with roughly half the total investment expense and half capitalized.
Restructuring charges of $7.2 million incurred in the first quarter of 2018, are expected to reduce annual expenses, primarily in compensation, by approximately $10 million starting in the second quarter.
Of those expense saves, approximately $8.5 million are in the U.S. with the balance impacting international operations, through a reduction to the new allocations.
We expect the change in accounting rules requiring revenue recognition, will reduce second quarter revenue by approximately $1.5 million.
This reduction and the reduction to first quarter revenue are expected to be offset by increases to third and fourth quarter revenues of approximately $1.5 million and $4 million respectively.
Looking at current business activity levels.
Preliminary U.S. average daily volume in April was approximately 117 million shares, with revenue per share in line with the first quarter of 2018.
Preliminary April combined average daily commissions in Canada, Europe and Asia Pacific were down approximately 12% in U.S. dollar terms compared to the first quarter of 2018, generally in line with the drop in market-wide trading activity in those regions.
On a blended international basis, there were approximately 20 trading days in April.
Now I'll turn the discussion back to Frank.
Thank you, Steve.
We are entering the final 3 quarters of the 10-quarter Strategic Operating Plan.
International operations are performing well.
In the U.S., we are not content with our performance.
We are encouraged by the way the team is engaging with clients and pressing forward.
With a passion for delivering world-class client service, disciplined investment and innovation and a commitment to excellence, I am optimistic about ITG's prospects.
Now, Steve and I will answer your questions.
(Operator Instructions) And the first question comes from <UNK> <UNK> with Sandler O'Neill.
I guess the first question is on U.S. profitability and trying to sort of identify what's being going forward.
So the next quarter, we should have a quarter's worth of the $8.5 million in employee comp, I guess.
On the investment side, I just wasn't sure how much more ---+ I thought you said Steve, there's $13 million to go, $6.5 million to be expense, like what could we expect on the investment side.
Are there any revenue offsets to the cost reductions in the U.S. as we think about U.S. profitability.
Yes, so on the Strategic Operating Plan, we've invested $27 million under the program.
Rich, I don't see a material change in the expensing throughout the rest of the year versus what you saw in the first quarter in impacting the U.S. profitability.
Great.
The only change would be a reduction of $8.5 million divided by 4 in the comp expense.
Sure, Rich.
I stated in the past, it may take us longer to achieve our financial goals of $600 million as the exit rate of 2018 revenues and 15% margins.
Achieving profitability in the U.S. is a top priority, and that is a big contributor to achieving those numbers.
Sure, Chris.
As I said before, achieving profitability in the U.S. is a top priority, and we're not satisfied with our financial performance.
Our path to profitability is going to come through market share growth and operational efficiency.
You're touching on the operational efficiency side, as we've gotten to know the organization better, I've been here now 2.25 years and we've been on boarding other personnel.
We saw opportunities to continue to drive operational efficiency, whether it was in headcount as we executed in the first quarter or in facilities reduction.
We'll continue to focus on operational efficiency as well as looking for opportunities to drive growth in market share.
No we're open to inorganic opportunities to maximize returns to our shareholders.
We continue to believe the SOP provides the best returns.
We do expect consolidation in the industry, and one of the objectives of the SOP is to set ourselves up to be a strong player, strong from the standpoint of technology infrastructure, strong from the standpoint of management team.
And provided there, we see opportunities out there at the right price, that drives scale and accelerate our core capabilities and liquidity, execution services, analytics, workflow technologies.
We will pursue them.
Sure, Ken.
When we look at it ---+ we're in the early days of MiFID II, just rolled out January 3rd, double volume caps kicked in, in mid-March.
We ---+ since the double volume caps kicked in, in mid-March, we've seen a dip in dark trading leading into January, it was about 9% of the market.
March and April, it's dipped to about 6%.
Our share of dark trading remains strong.
We believe we remained well positioned with our large-in-scale and our periodic auction capabilities.
We're also very strong player in Algo liquidity aggregation.
The market is getting more and more complex with respect to liquidity fragmentation, and that's an area that we've played in, strongly, across the globe whether it's fragmentation in the U.S. or now as it's landed on the shores of Europe.
We expect clients will continue to recognize the value we provide sourcing unique liquidity as well as delivering quantitative performance measurement.
You know, one area it's ---+ that's growing is derivatives, and we have a product, it's called RFQ-hub, it's getting more attention right.
So as there is more and more interest in pre-trade transparency and looking at best execution, that's a tool that we've been putting to work in structured products and other derivative asset classes.
Yes, sure.
So as I noted, we reduced U.S. expenses and allocated $2.7 million of ---+ in the first quarter, so that's a quarterly charge of $2.7 million out from the U.S., to the regions.
That $2.7 million is broken down between a reduction of U.S. compensation of $1.9 million and a reduction of occupancy and equipment cost of $800,000 in those ---+ and you have corresponding increases in those line items in the other 3 regions.
I'll give you a little color on the market and then Steve can follow up with some more specifics.
POSIT Alert is a very important product in our arsenal.
And if I look at Q3, Q4 of last year, Large-in-Scale trading was about 1.8% in Q3, Q4.
Large-in-Scale trading in February, March has been over 2% in the European market.
So that favors our POSIT Alert product in the Large-in-Scale category.
So very important product for us.
Yes, <UNK>, and just to clarify.
So on the notion of value we traded in Europe was up in the first quarter over both the fourth quarter and the first quarter of last year.
It wasn't up as much as overall market.
Why value was ---+ trade was up, but it was up.
And in terms of ---+ I think you're absolutely right, one of the big drivers that were able to grow revenues as much as we were, is the fact that our POSIT Alert block business continues to grow.
That is a higher rate business for us.
I'm not going to get too specific on the exact rates that we have there, but it is a premium product for us.
Yes, I'm not sure the exact breakdowns, but I can confirm that ---+ and we said it in our commentary that volume was up quarter-over-quarter and year-over-year slightly.
So that may be one of the dynamics, which I'll have to look a little deeper into that.
Yes, so specifically in the U.S. Chris.
Yes.
So commission sharing revenue went from trading in the Algo Wheel was up pretty significantly about 25% about $800,000 or so from the fourth quarter.
A lot of that was driven by our new broker neutral tool the Algo Wheel, which helps clients allocate trades to broker algorithms, so we've got as Frank said more than 30 clients on that product right now and we're seeing strong growth there and it's helping our revenue and bottom line numbers.
It will be combination of those 2 things, right.
Certainly, trade environment will impact that, but as we bring on more clients that should help that revenue line grow as well.
Thank you for your questions.
We look forward to discussing our continued progress on our second quarter call.
Thank you again for joining us this morning.
| 2018_ITG |
2017 | LPSN | LPSN
#Thanks very much.
Before we begin, please note that we will make forward-looking statements during today's call, which are predictions, projections or other statements about future results.
These statements are based on our current expectations and assumptions as of today and are subject to risks and uncertainties.
Actual results may differ materially due to various factors, including those described in today's earnings press release, in the comments made during this conference call and in 10-Ks, 10-Qs and other reports we file from time to time with the SEC.
We assume no obligation to update any forward-looking statements.
Also, during this call, we will discuss certain non-GAAP financial measures.
A reconciliation of GAAP to non-GAAP financial measures is included in today's earnings press release, which is available in the Investor Relations section of our website.
I will now turn the meeting over to <UNK> <UNK>, CEO and Founder of LivePerson.
Thank you for joining LivePerson's second quarter conference call.
We've been extremely active these past few months, executing on our goals to transform customer care and return to year-over-year growth.
In the second quarter, we built on our strong messaging momentum in the telco space and began to really open up financial services with messaging expansions at 2 Fortune 100 institutions.
We also brought the LiveEngage platform migration closer to the finish line, ending the second quarter with only 12% of revenue remaining on legacy.
We're executing our plan and on target to end the platform transition in the third quarter with less than 5% of revenue on our old platform.
It's been sandboxed to maximize profitability.
With continued solid execution, we were able to exceed our second quarter revenue guidance and we're raising revenue guidance for full-year 2017.
Dan will walk you through the details shortly.
LivePerson also continues to push the boundaries on how LiveEngage can transform the way that brands connect with consumers.
We are now seeing roadmaps where care, sales and marketing at large brands converge on LiveEngage.
Through messaging and AI, our conversational platform is getting embedded into the operational layer of leading enterprises, not just in contact centers, but also across the field and back office.
Entire business processes, such as payments, plan changes and lead gen, will be automated and rest on the LiveEngage foundation.
One of the key ways we are delivering on the vision is by providing all the front-end digital touch points a leading enterprise brand needs to engage with their consumers.
LiveEngage serves as the hub for all messaging conversations whether they originate on a branded app, SMS, within Google Search, within Facebook Messenger, the desktop or even mobile web.
And soon, Apple Business Chat will be part of the LiveEngage ecosystem.
On June 10, Apple joined the brand to consumer messaging movement by introducing Business Chat, a digital communication framework that will enable consumers to message with brand instead of call.
Apple Business Chat is also making messaging extremely discoverable by embedding connections via Safari, Spotlight Search, Siri and Maps.
With more than 700 million users and over 1 billion devices, we believe Apple will have a strong impact on the customer care industry, accelerating the speed at which brands around the world shift to messaging as a primary way to connect with consumers.
LiveEngage is pre-integrated with Apple Business Chat, so that leading brands can rapidly scale to handle millions of these interactions alongside the messages they're getting from all of their other channels.
We look forward to sharing updates on customer success stories once Apple Business Chat formally launches.
LivePerson is also pushing the customer care industry forward with IBM.
In June, we signed a major global partnership with IBM-Watson and Global Business Services divisions.
This partnership features a joint go-to-market strategy and deep integration between IBM's leading AI platform and our best-in-class enterprise messaging platform.
The unique combination enables leading brands across the globe to seamlessly power Watson bots and human-assisted messaging from a single platform at scale.
IBM Global Business Systems (sic) Global Business Services also teamed up with LivePerson to create a cognitive care Center of Excellence that will deliver the implementation and consulting services talent to unlocking the full potential of the LiveEngage and Watson solution.
LivePerson and IBM already have strong reference customers in Vodafone and RBS.
We're jointly pursuing additional pipeline opportunities.
You can hear more about this exciting partnership by listening to the remarks from IBM's CFO, Martin Schroeter on the IBM July 18 earnings call.
In the coming years, a majority of brands will layer AI on top of messaging to capture huge efficiencies and significantly improve customer satisfaction.
At our AI Summit at Carnegie Mellon University a few months ago, we saw firsthand the eye-opening moment for many business leaders when LivePerson's customers such as American Express; KDDI, which is one of the largest telcos in Japan; Kia Motors; RBS; and Vodafone described the benefits they are seeing from leveraging AI and messaging on the LiveEngage platform.
For example, one of our telco customers in Asia achieved a nearly 90% containment rate of conversation by tuning a bot for a specific use case.
A financial services firm in EMEA achieved up to 50% containment rate average across a wide variety of the use cases.
Clearly, AI can deliver powerful results in care, sales and marketing, but the key to success is optimizing AI performance through integration with an enterprise-grade conversational platform that aligns with the consumer's journey.
This approach also greatly reduces the risk of AI providing the same poor results as many of today's, in the past, what we called virtual agents and potentially causing a really bad customer experience and a decrease in brand loyalty.
This is why leading brands are working with LivePerson.
We built LiveEngage from the ground up as an open conversational platform to manage AI-powered messaging securely and at scale.
LiveEngage delivers the tools that enterprise brands require to successfully scale bot deployments, from bot readiness to KPIs, analytics, sentiment measurements, reporting and training.
Furthermore, with our Tango capabilities, brands can manage human and bot agents in tandem and seamlessly handing off conversations between the live agent and the machine.
Bots provide instantaneous intelligent responses to consumer queries and human agents supervise those exchanges.
We also have the expertise that comes from a 20-year history of deploying millions of agents under the most stringent requirements for the world's largest enterprises.
We've perfected the framework for deploying human agents and we're applying that same logic and framework to the deployment of bots.
One of the primary ways LivePerson showcases its unique ability to power conversational care, sales and marketing is through our preeminent executive-level customer summits.
Whether it was at our T-Mobile Bellingham event, Carnegie Mellon's Bot Summit in Pittsburgh or one of the many regional satellite events held across the globe, we've demonstrated how LivePerson customers are effectively deploying messaging and AI to capture digital efficiencies and align with consumer preference.
Demand for these customer events has repeatedly exceeded our expectations and has been responsible for the vast majority of our wins in 2017.
One of the wins that came from these events is a leading European broadband provider that signed with us in the first quarter.
This brand has quickly become a success story for LivePerson, fully aligned with our strategy to displace the 800 number.
In fact, within a few short months, the broadband provider has leveraged LiveEngage to take out 30% of the voice calls made to its contact center.
This is something that has really never been seen before, like we actually have proved that there's an alternative to voice, and we're going to take the 30% to much higher levels.
And this customer joins a number of other successful brands in the telecommunications industry, including Foxtel, KDDI, Singtel, TalkTalk, Telstra, T-Mobile and Vodafone.
They are all literally changing the face of customer care with LiveEngage.
Case in point is the 7-figure expansion we signed in the second quarter with a leading North American telco.
The upsell's further validation of the larger addressable market LivePerson is pursuing with LiveEngage, as this win marks the second 7-figure expansion with this customer since we began working with them a little over 2 years ago.
This upsell also shows how eager consumers are to adopt messaging once offered as an alternative to voice and how readily brands recognize it and are willing to pay for the value that LiveEngage delivers to their conversational business strategies.
Importantly, our traction with messaging and AI is spreading well beyond telecommunication.
In the second quarter, several of the world's leading financial companies also signed on to transform how they connect with their consumers.
One of these was a Fortune 100 financial institution that has increasingly been focused on building a digital connection with its customers.
After attending several of our customer events and aligning around the LiveEngage vision, this leading financial brand just signed a 3-year, high 6-figure annual expansion on LiveEngage.
The customer is already deploying web-based messaging, and it's followed a roadmap for the rollout of mobile messaging and AI in future quarters.
Within a short amount of time, this customer could become one of our top 5 brands on messaging.
Another exciting contract signing in the second quarter is the high 6-figure upsell at one of the top 20 global commercial banks.
This leading brand will launch both web-based and in-app messaging later this year and is in the planning stages for layering bots on top of messaging thereafter.
Other mid-to-high 6-figure messaging contracts signed in the quarter included one of Europe's leading online food delivery providers, a large North American credit union, one of the world's top global ridesharing apps and a large regional airline in the United States.
The power of LiveEngage continues to be reflected not only in the new wins we are generating, but in the stats we're seeing across the customer base.
Mobile usage is expanding rapidly on LiveEngage, an average of 35% interactions in the second quarter as compared to about 10% historically on legacy.
Same-customer interactions on LiveEngage continue to grow faster than 10% year-over-year.
The dollar retention rate remained greater than 100% over the trailing 12 months, a solid indicator of the future potential growth for LivePerson once our entire customer base is on LiveEngage.
This positive traction with LiveEngage, solid execution by the field and lower attrition as we wind down legacy enabled LivePerson to exceed second quarter revenue guidance and raise guidance for the full year.
The upside you're seeing in revenue also favorably positions LivePerson to incrementally invest in longer-term growth opportunities, such as our customer summits, our partnership with IBM and our upcoming work with Apple Business Chat.
We are on track to exceed the low end of previously issued guidance ranges for GAAP net income and adjusted EBITDA; expect to maintain, if not improve, margins in 2017; and to position LivePerson for margin improvement as we return to growth in 2018 and beyond.
LivePerson is in a unique position with an industry-leading platform, references from many of the world's highly regarded brands and expertise in deploying enterprise-scale, AI-powered messaging.
We're also building an ecosystem that includes some of the biggest powerhouses in technology industry today.
Facebook, Google, IBM and now, Apple have all chosen LivePerson to help transform customer care by bringing messaging to leading enterprises and taking down the 800 number.
With this backdrop, we have line of sight to support our view for returning to growth in 2018 and be well positioned to capture a portion of an enormous greenfield market opportunity.
I will now turn the call over to Dan, who will discuss our second quarter results and outlook in more detail.
Dan.
Thanks, Rob.
LivePerson continued its strong start in 2017 in the second quarter by once again executing on each of its 4 key priorities.
First, we are successfully transitioning back to a focus on selling from migration.
Revenue increased 6% in the second quarter over the first, and we are targeting continued sequential growth in 2017, which we expect will position LivePerson for a return to year-over-year growth in 2018.
Second, we added to our lead in mobile messaging by bringing Apple and IBM into our LiveEngage ecosystem and signing multiple new wins, including key expansions with 2 Fortune 100 financial institutions.
Third, we are successfully winding down our legacy offering.
As we have guided, we ended the second quarter with 12% of revenue on legacy.
That puts us on target to meet our goal of completing the transition to LiveEngage in the third quarter with less than 5% of revenue sandboxed on legacy.
Finally, we continue to realign our cost structure around LiveEngage.
We expect to maintain, if not improve, our profit margin in 2017 and to position LivePerson for margin improvements as we return to growth in the years ahead.
We feel good about the progress we've made to date, and we are raising our revenue guidance and low end of our GAAP and adjusted EBITDA guidance ranges for 2017.
I will detail updated guidance later in my discussion.
I will now review our second quarter operating results.
Total revenue of $54.1 million was above our guidance range and consisted of B2B revenue of $49.6 million and consumer revenue of $4.5 million.
We delivered $2.1 million of upside revenue versus the high end of our previously issued range of $51 million to $52 million.
Approximately $1 million of the upside stems from better-than-forecasted performance from recurring revenue, and the other $1 million was tied to a positive upside from non-recurring items.
Trailing 12-month average revenue for enterprise and mid-market customer was approximately $205,000 in the second quarter, in line with the trailing 12-month average in the second quarter of 2016.
We signed 91 deals in the second quarter of 2017 as compared to 117 in the second quarter of 2016.
The lower deal count reflects our LiveEngage growth strategy, which is to focus on a targeted list of leading global brands where we have the opportunity to drive transformation.
Our strategy is working as LivePerson's average selling price increased versus the second quarter of last year across both existing and new customers.
For the trailing 12 months ended June 30, 2017, the dollar retention rate for customers on LiveEngage exceeded 100%.
This measure takes into account the full impact of upsells, down-sells, renewals and cancellations from our existing customer base.
The B2B revenue breakdown by industry was retail at 25%; financial services, 20%; telco at 16%; auto at 14%; technology at 7%; and other at 18%.
International operations accounted for approximately 37% of total revenue in the second quarter of this year.
Second quarter GAAP net loss per share of $0.13 was below guidance of $0.12 to $0.10 loss per share.
In Q2, we took a onetime charge related to the shutdown of our legacy data centers.
We originally guided the shutdown for July, but we were able to accelerate the timing based on our execution around migrations.
Excluding this $0.03 per share timing impact, GAAP net loss was within our previously issued guidance range.
Adjusted net income per share of $0.01 and adjusted EBITDA per share of $0.07 were each within their respective guidance ranges.
These non-GAAP measures exclude total charges of $2.1 million tied to winding-down legacy operations and aligning our organization around LiveEngage as well as $1.5 million of non-recurring litigation costs.
Gross margin increased 290 basis points to 72% in the second quarter from 69.1% a year ago.
Excluding a non-recurring charge in the second quarter of 2016, the gross margin increased 280 basis points.
This improvement primarily reflects the diminishing costs of our legacy operation and lower production costs for LiveEngage as the platform matures at the enterprise level.
Excluding non-recurring and restructuring charges, total LivePerson operating expenses decreased $2.9 million year-over-year.
At the end of the second quarter, cash on hand, including restricted cash, was $58.1 million or $1.04 per share, approximately $6 million higher than the first quarter.
Deferred revenue increased nearly 25% in the second quarter to $36.6 million from $29.5 million a year ago.
LivePerson generated cash from operations of $8.5 million in the second quarter, and spent $4.3 million on capital expenditures.
The company also spent approximately $800,000 and repurchased 105,000 shares of its common stock in the second quarter.
An additional $18.4 million remains available under the share repurchase authorization.
Turning your attention to guidance.
We delivered solid financial results in the first half of 2017 and expect to build on that base as we complete the platform transition to LiveEngage and regain selling momentum.
As a result, we are raising our 2017 revenue guidance to a range of $213 million to $216 million from previously issued guidance of $204 million to $209 million, an additional ---+ an initial 2017 guidance of $201 million to $209 million.
We plan to exit 2017 at a run rate that positions LivePerson for renewed year-over-year growth in 2018.
We are also raising the low end of previously issued 2017 GAAP net income and adjusted EBITDA guidance ranges due to the company's successful wind-down of the legacy infrastructure and realignment on LiveEngage.
With the revenue upside, LivePerson is now in the favorable position where the company can deliver on its goal of maintaining, if not improving margins in 2017, while simultaneously and selectively reinvesting in longer-term growth opportunities.
Rob discussed earlier the higher-than-anticipated demand we have been seeing for our customer summits and how these are starting to build our sales pipeline and fuel new wins.
Given these positive outcomes, we're investing in the customer summits and expanding the cadence and scope of these events.
We are also putting more investments behind our Apple Business Chat offering as well as IBM and other potential long-term partners.
We think LivePerson has established a lead in the market and we want to expand that position.
We will continue to drive for margin improvements in the years ahead as we return to revenue growth.
Finally, with the wind-down of LivePerson's legacy data centers accelerated into the second quarter, we are updating guidance for the third quarter restructuring and severance charges to $200,000 to $400,000 from previous guidance of $2 million to $2.2 million.
We continue to expect $6 million to $6.5 million of non-recurring legal expenses tied to IP litigation for the full year of 2017.
I will now review our detailed financial expectations.
For the third quarter of 2017, we expect revenue of $54 million to $55 million; GAAP net loss per share of $0.03 to 0, breakeven; adjusted net income per share of $0.04 to $0.06; and adjusted EBITDA of $7.1 million to $8.4 million or $0.12 to $0.15 per share.
For the full year of 2017, our expectations are as follows: revenue of $213 million to $216 million.
Revenue guidance includes a negative foreign currency impact of $1 million.
GAAP net loss per share of $0.34 to $0.28, which includes $0.16 per share of non-recurring and restructuring items; adjusted net income per share of $0.07 to $0.11; adjusted EBITDA of $18 million to $21.3 million or $0.32 to $0.37 per share.
Furthermore, as a percent of revenue for the year, excluding non-recurring restructuring and litigation charges, we anticipate gross profit to be approximately 73%; sales and marketing at 41.5%; G&A of 15.5%; and R&D at 18%.
I also want to highlight that we have no major customer events planned for the third quarter due to the summer months while several events are currently scheduled for the fourth quarter.
As a result, we expect LivePerson's adjusted EBITDA margin to reach into the low to mid-teens in the third quarter and then return to the mid-single to low double digits in the fourth quarter.
Please refer to LivePerson's earnings release issued earlier today for additional details on our full-year 2017 assumptions.
We have also published a supplemental presentation that reviews key points from the earnings call on the Investor Relations section of the company's website.
As we move towards finalizing our transition, stability and predictability are returning to our business.
LiveEngage is now at the heart of our revenue streams and messaging and AI are the focal points of every new opportunity in our pipeline.
Our goal continues to be to return to year-over-year growth in 2018 and then steadily drive LivePerson back towards its historical growth rate.
The key factors that will influence our ability to achieve this goal are fueling adoption of messaging and AI in existing customers, increasing dollar retention as we complete the migration and capitalizing on the pipeline that is building from our customer events and partnerships.
Across LivePerson, our teams are aligned on these levers and we look forward to reporting on our progress in future quarters.
With that, I will open the call to questions.
Operator.
So Rich, I can't comment to all the specific numbers that you were going back and forth on, but generally, what happened in the second quarter was a couple of components.
From the migration of legacy to the LiveEngage platform, we were better in our attrition assumptions, so we had a better result from the attrition.
The second piece is, as I stated in my script, we had about $1 million of upside from recurring revenue in the second quarter, and we had about $1 million of upside onetime non-recurring revenue coming from our customer base.
So that's what's driving the upside versus our guide.
I hope that gives some color and insight into the question that you're asking, but like I said, I can't commit to all the numbers that you're talking about.
It's predominantly greenfield today.
And we're not ---+ we're doing the customer care side of messaging, just a little bit more than ---+ maybe a little different than consumer to, let's say, someone who's in a ridesharing, like in the car would be more to a customer care organization.
But we're pretty much greenfielding right now.
There's small competitors out there.
People say they have it in their product.
But the strength of the company is we've been out there now for a little over a year with referenceable customers, and we've got some very big brands that are being very successful right now.
And as I mentioned, one of these is one of the broadband providers in Europe.
And we were able to achieve, within 90 days, taking 30% of their calls out of the voice system and move those calls to messaging.
And we're about double the efficiency of voice.
So if you went back a year and the strategy is to get rid of voice, to get rid of analog voice, we're now seeing customers that are ---+ have flipped the needle.
And I think this customer, we can get much more than 30%, we're on track to really actually move voice out.
So there are so many exciting things happening right now in the space.
And then you've got all the companies like Facebook and the stuff we talked about, Apple.
There's a lot of front ends out there that we're going to be able to do a lot of cool things with than we do today.
So we've got some good leads right now, and we're just very focused on taking down as many deals as we can.
It really depends.
There's ---+ when you say ---+ when we look at digital heads in a company, there's usually digital leads.
That could be in marketing.
In some cases, the digital interface resides in care.
In some cases, it's in the sales group.
So ---+ but these are big, strategic things.
It's ---+ if you saw what Apple spoke about at WWD, and there's a presentation that I recommend people to look at, about a 40-minute presentation, they're going to bring messaging encrypted on the device level.
And they're putting it in Siri and all these things.
So right, the implications are pretty major for a company as a whole to run business processes on device.
And I think if you really looked at that presentation, you're right, it is a much bigger opportunity than just a care flow.
We're talking about sales, customer care, marketing.
All flows can go through that pipe into the device, so you are correct.
So it all depends.
Somebody sort of owns the digital strategy.
Our ---+ one of the things we do is start to bring it all together.
It's sort of a process we run, is to try to bring all the pieces together.
Instead of just maybe there's one person who owns it, we bring care in, we'll bring marketing, we'll bring sales.
And we put together a strategy that they can really execute on.
So on the bookings side of things, we're happy with the first half of the year.
As you know in the recurring revenue business, if you can get out of the year strong that helps you from a revenue perspective.
And that's part of the reason that we were able to increase our guidance for the year.
So happy with half-won bookings.
And as you talk about the pipeline, one of the things that we try to make clear in our remarks is we've got opportunities between IBM, Apple and then our customer events, where we're actually investing some of that upside revenue back into generating more of that pipeline.
Each one of our customer summits has been over-subscribed that we've done so far this year.
As a matter of fact, we had an unplanned one that we held in the second quarter in Brooklyn because our event in Pittsburgh was over-subscribed.
So we're pretty excited about these, and these are driving the pipeline and the quality of the pipeline along with our partners as well.
Yes.
I mean, it's ---+ when you think of those numbers and where we're headed, I think the deal size could be much more significant.
We're ---+ strangely enough, it's such a major impact and yet, we're at day 1.
We are doing some outbound.
So once you get somebody on a messaging connection, it can be proactive to them like a month later.
So it starts with an inbound query about something in support, care, and then they can go back out proactively in more of a sales environment.
So we're just sort of scratching the surface on what can be done here.
We're in both their iOS and Android apps doing SMS.
Facebook as well.
We're taking the traffic in.
It's all a unified experience.
So ---+ but I just want to point out, which ---+ this is the first time in history there is an alternative to voice, like there ---+ up to now, there's been real ---+ even chat, and this is what we saw, chat would get to about 10% of volume but it never had that impact.
And we can actually see voice one day going away.
And so that was our goal a year ago, and it's exciting for us as a company to actually see it happening.
And so every one of our enterprises ---+ every enterprise in the world ---+ like I said, if I go couple of years from now, let's say, 5 years from now, I don't believe voice will be a primary channel.
People will message their brand.
And so this is just one example that shows it can work.
And the customers love it and the brand loves it, so we're very excited about it.
Okay.
Thanks, Jeff.
So just on the sandboxing piece, so at the end of the first quarter, we said we would be at 12% by the end of the second quarter.
So check off the 12%.
And then in the third quarter, we'll be at 5%.
And we see a very good path there.
So with that last 5% of revenue, that's for a number of different reasons that those customers will be sandboxed.
But our expectation is to continue to, over time, to move them to the LiveEngage platform.
We know not 100% of them will make it, but our goal is to continue to push.
And as the product continues to evolve ---+ one of the things that helped us in the second quarter is our attrition was a little bit less from the migrations than we expected.
So that was also a positive impact.
And so in the last 5%, we're going to try to move them over to LiveEngage as quickly as we possibly can.
The ---+ as far as going towards '18, we haven't given guidance for '18.
We've been pretty transparent on our expectations as far as we want to get back to year-over-year growth.
And as we came into 2017, we wanted to continue a sequential growth from Q1 to Q2 to Q3 and into Q4, and our goal is to continue that trend as we go into 2018.
I can't give you specific guidance on what we expect to do it this point, but we have stated that we want to improve margins.
We see an opportunity in front of us in the back half of '17 with some of the revenue upsides and investing in our customer summits, which have been successful in building quality pipeline.
And then obviously, with our relationship with IBM, we see an opportunity there to invest in that partnership and other longer-term partnerships to help build our pipeline and our growth prospects from a revenue perspective.
Hopefully, that gives you a little bit of color, but I can't commit to specific amounts at this point in time.
There's some voice vendors on Apple's side, and so Genesys, Salesforce and one other, Nuance.
And then on IBM, IBM's got many strategic relationships with many partners.
I think the interesting thing with IBM is that we're very focused on the care space, and that's a very exclusive partnership with them to focus on that one area and bring our cognitive care offering to the market.
Traditionally, they've participated.
IBM was at our event in ---+ a cognitive event that we had at Carnegie Mellon University.
So we'll see.
We're putting events together now.
There'll be other partners there, too, but we haven't announced anything yet.
Yes.
We have real-scale [back up] points.
So at our conference that we did, this ---+ the AI conference at Carnegie Mellon, we had Vodafone showing what they're doing.
RBS showed what they do.
KBBI, a large telco in Japan, showed what they did.
So yes, we're ---+ so the stuff we're doing is not tire kicking.
We're actually doing it at scale.
The interesting thing is when the ---+ when you put AI on our platform, it looks like an agent, it looks like a ---+ it just looks like a human agent.
So we've got all these capabilities to manage it.
Normal deployments of bots and why they're kind of tire kicking them is you put them on a website or maybe they're back-ending a messenger front-end like Facebook, and you don't have a lot of control over them.
They run, and then you may get a report at the end of the day, and you're looking at it and trying to figure out.
In our system, the bots actually ---+ you look at them in real time, and what our customers are doing is putting a live agent to manage the bots.
And then the agents step in if the bots fails, they go back into the AI engine and will update question and answers so that the bots become better.
There are things with timing and tuning that we do on the platform.
So our platform, we built out some capabilities that enable a lot more control over the bot, so you don't have to kick the tire.
Most of the time, when they kick the tires, it's because there's no way to sort of really control it and better it on a day-by-day basis, it can ---+ than how we provide on the LiveEngage platform, so that's kind of the interesting part.
Yes, Mike, I won't give a specific number, but we're happy in the direction and the way things are going.
One of the questions that came up earlier was about bookings.
And as far as the expectations for the first half of the year, we're happy with where we are, gave us the opportunity to increase our guidance in the back half, not only bookings but obviously, successfully migrating customers over to the LiveEngage platform.
So we're happy with where the productivity is, and we're continuing to push the business and build out our pipeline.
We think there's a good opportunity in front of us as we move into '18.
No, from a mix of customers.
It's in ---+ from a mix of existing and new customers.
At these summits, we have a combination of customer types.
We have existing customers and new customers coming.
And one of the best-selling tools is to have them talk to each other about their opportunities, what they're going through, how to implement.
And the existing customers become some of our best reference customers.
No, it's an added amount of volume because if they were doing chat, it's pretty much web.
So we really expand the capabilities to the amount of interactions they possibly can take.
What's great is that although the migration ---+ as I've said, I probably don't want to go through a migration again in the company's history, but ---+ I can say that with certainty.
But we're on the other side of that, obviously.
But now, we got this new platform.
It's got a lot of capabilities in it.
We've got an installed base that's using the chat capabilities, and it's just ---+ it's a focused group of leads.
They have a relationship with us.
They are all seeing messaging and AI and bots and ---+ as something strategic, and we got them on this platform that with, like a flip of a switch, they can get it.
So now, it's just a question of educating them, getting them the opportunities ---+ what's the entry point.
Is it SMS.
Is it Facebook.
Is it in-app.
Is it web.
Wherever that entry point is.
Is it sales.
Is it service.
And so we just sort of keep working through that with each of these customers.
The base has a lot of capability to grow, though, because we have some of the largest brands.
And you're right, they're still on chat.
We just took ---+ the interesting one is we had a ---+ one of our large enterprise financial services company, they were on chat ---+ chat web and ---+ for many years, 3 or 4 years.
We migrated them a couple of weeks ago, no chat anymore.
They migrated 100% to web messaging start, asynchronous web, and then we're going in-app and we're going around.
So ---+ but they didn't migrate to chat.
They migrated straight to messaging and we shut all the chat down.
So that's the real interesting things that we see.
It's ---+ sometimes they start live to live, and then we look at the ---+ we look at what we can automate.
So every deployment, we'll have bots and AI, though.
It's just what's happening.
So even in this customer, we'll be putting bots in for different areas of interaction.
So ---+ but yes, every one of them will have a mix of it.
Every one of them.
Thank you, and we will see you on the next quarter.
Thanks, everyone.
Thanks, guys.
Bye.
| 2017_LPSN |
2016 | STX | STX
#Thanks very much.
Okay.
So just to wrap it up again, we'll again thank everyone and we look forward to speaking to you after the next quarter.
Thank you.
| 2016_STX |
2018 | IDCC | IDCC
#Good morning, everyone.
Thank you for joining us on the call today.
As you saw from the press release this morning, the company delivered yet another very strong quarter and equally strong year, driven by our broad base of licensees.
The strong results on our top line, combined with the continued efforts to control our costs, resulted in strong profitability and cash flow as well.
Rich will go into the numbers in more detail in his remarks.
I wanted to do a quick review of the year from a strategic perspective and then talk about our objectives for 2018.
As you all know by now, our strategy is very straightforward, focused on growing the value of our core terminal unit licensing business.
To do that, we continue to develop the critical wireless technologies that are so key to our customers.
We also seek to develop and acquire deep new competencies in other pervasive technologies that are also important to our handset customers.
Next, we need to bring these technologies to our customers in a manner that produces stickier, more valuable customer relationships, finally meaning to do all of this respecting our cost structure and operating leverage.
Let me start by talking about the status of our 5G activities.
The first release of the 5G standard was frozen in December 2017.
During this initial standards process, InterDigital made over 1,000 contributions, chaired and vice-chaired important working groups and filled other key roles in shepherding the process along.
The result was not only a fantastic start for the industry in 5G, but also a continuation of our leadership and innovation success.
We also made significant strides in 2017, expanding our technology footprint.
Internally, our video team continues to have great success in developing new technology solutions for adoption into next-generation standards.
We also continued our efforts on security technologies, WiFi and the like.
2017 also saw us complete the integration of our first significant acquisition, Hillcrest Labs.
Hillcrest is a pioneer of sensor fusion technology, with a rich portfolio of invention for a technology that will be pervasive in mobile devices.
During the year, we mined and matured their patent portfolio, identifying innovation relevant to smartphones that are shipping today.
This allowed us to very rapidly bring these innovations into the discussions with our customers.
Second, early this year, we fully integrated the Hillcrest research team into InterDigital Labs, providing the strength and stability of that broader research organization, and perhaps more importantly, providing the opportunity to cross-pollinate innovation across sensors, security and other key technologies being worked on at the company.
Third, we repositioned Hillcrest product effort away from commodity markets to areas where significant new innovation will be necessary.
These product areas are more aligned with developing innovation that can be used in our core business and also allows us to have informative customer engagements that can help guide the direction of our research.
2017 was also a year that saw us do better than ever in terms of bringing all the company has to offer to customers.
For example, our LG agreement included the involvement of our Hillcrest team, which has had a long and productive relationship with LG around smart TVs.
Other licensee conversations are also engaging groups from around the company.
The result was a different type of dialogue with our customers.
Going into 2018, we had matured a number of discussions around more comprehensive relationships and are working to close on those deals this year.
We did all this respecting our expense structure.
The incredible value of InterDigital's core business is in its operating leverage.
We create the greatest value when any added revenue comes with only nominal cost.
In that instance, a 10% increase on the revenue line can yield 2 or 3x that increase in our profit.
That is a remarkable value to shareholders.
We demonstrated that in 2017 as even with the Hillcrest acquisition as an example, our operating expense stayed relatively flat despite having new innovation, products and research to show to customers.
For 2018, our strategic objectives will be largely the same, continue to drive 5 research, deepen our technology position on selected area of innovation like sensors and explore through M&A other opportunities to bring deep and respected technology positions into the mix.
All of these assets will come together with the customer, where we expect to drive valuable and closer customer relationships.
As part of that effort in 2018, we will also have the opportunity to reshape the management team to have a broader set of technology skills and an even greater knowledge of our customer.
The opportunity comes as 3 of my most trusted colleagues, Larry Shay, Scott McQuilkin and B.
K.
Yi, have chosen to retire.
All 3 have had long and distinguished careers with the company and had driven incredible results.
For example, Larry was integral in many of our key negotiations, successfully concluding them and driving our revenue platform to new heights.
Scott reshaped our innovation engine, making it more nimble, more cost effective and more diverse in both the technologies we sought but also from where we secure them.
And B.
took our wireless research to a deeper level, driving fundamental innovation that has become critical to our strong performance in the 5G standard-setting process.
While their departures are hard, the company being as strong as it's ever been, can take the opportunity to broaden its talent base, consistent with our strategy to know our customers even better, deliver to them a wider range of technologies and do so creatively.
We have already announced the promotion of Tim Berghuis to lead the licensing team.
Tim has been at InterDigital for 16 years, and his time in the licensing team under Larry as well as his engineering and business background at Motorola, making the perfect fit for the role going forward.
And we look forward to announcing equally exciting talent joining the management team.
InterDigital remains an exciting and invigorating business with great opportunity.
For that reason, I expect 2018 to be another banner year for the company.
With that, let me turn it over to Rich.
Thanks, Bill.
Once again, we delivered a strong fourth quarter, capping off another strong year.
Our fourth quarter revenues topped $200 million, including $106 million of past sales.
A large portion of this past sales amount was expected in connection with the recognition of a nonrefundable prepayment balance upon the expiration of an agreement at the end of 2017.
The balance of the past sales were driven by our fourth quarter patent license agreement with LG.
2017 is the fourth year out of the last 5 that we've recognized over $100 million in past sales, a tremendous driver of value for the company that has contributed nearly $800 million over that period.
More importantly, our new agreement with LG drove our recurring revenue in the quarter to nearly $100 million, our highest level since the first quarter of 2016.
As we discussed previously, on January 1, we adopted ASC 606, the new accounting standard governing revenue recognition.
This morning, we announced that with the adoption of ASC 606, we expect first quarter revenue to be between $66 million and $71 million.
This translates to $90 million to $95 million on a pre-606 basis, which will be roughly in line with our recurring run rate in 2017.
That guidance reflects the stability in our business as our new agreement with LG has roughly offset the expiration of a few agreements at the end of 2017.
And of course, we hope to build on that stable base by adding new license agreements and renewals during 2018.
As previously discussed, we expect that any new fixed fee agreements we sign or renew are likely to qualify for overtime recognition under the new revenue recognition standard.
As a result, we have not changed our $500 million to $600 million target revenue platform for the business, even after accounting for the revenue recognition standard.
As a final note on the new accounting standard, I want to make everyone aware that in our 10-K, which we filed this morning, we have also previewed our detailed expectations for the impact of adopting ASC 606 on our opening balance sheet accounts, including deferred revenue and retained earnings.
Moving on to expenses.
We continue to manage our expense profile with nearly flat overall operating expenses.
As Bill mentioned and we have long discussed, we believe we can achieve our revenue goals without incurring significant additional expense.
This operating leverage has proven to be very beneficial to our shareholders as we have been able to generate substantial pretax profits and cash flows in recent years.
Given that, we are excited about the recent tax reform legislation, which I'd like to discuss.
We recorded a $43 million tax charge in Q4 to revalue our net deferred tax assets under the new statutory rate of 21%.
This charge is a necessary counterpart to the significant reduction in the go-forward effective tax rate we expect to enjoy.
In fact, there is a provision in the new law that taxes the foreign licensing of intellectual property at 13.1% through 2025, at which point the relevant rate increases to 16.4%.
While the detailed IRS regulations necessary to fully implement the new tax law have not yet been published, on a go-forward basis, we currently expect a significant portion of our income will qualify for this low rate.
We expect to communicate a specific estimated effective tax rate in connection with our first quarter results.
With that, I'll turn it back over to <UNK>.
Yes, <UNK>, that's right.
I think you nailed it.
And adding to that, we think it's a significant portion that's taxed at the lower rate.
Yes, that's correct.
And it's not even that we'd avoid it.
I think that the conditions or circumstances that led to us signing the static fixed-fee agreements in the past were somewhat unique, and in our view, not likely to repeat.
So we certainly expect that any new deals or even renewals would be signed on the dynamic terms.
So a couple of things, right.
In terms of the negotiations of licenses today, so that's part of the discussion since 5G is now real.
I mean, the first standard drop is done.
It's done.
While the ---+ I think a lot of the analysis around who's got what patent position will continue over the next months and years.
I think our showing has been pretty good and the people that have been observing the standards processes have seen InterDigital with another good round of contributions there.
In terms of how the economics of that would play out, right, so most ---+ for most of our agreements to date, they have ---+ many of them have not included 5G.
So when the renewal discussion comes up, that will now be included in the discussion.
I think, to some extent, it's what you said, there's obviously older technology that's going away and 5G is replacing that.
That said, 5G has got some pretty ---+ has got broader use cases, and so I think the TAM, to that extent, increases.
And as you also note, the selling price of 5G devices will go up as they have in prior versions.
So when you think about running royalties, even at the same royalty, you would get a higher return.
And then that said, we would still rule for a slightly higher royalty with respect to 5G, reflecting the fact that the company has had a strong position there as well as the underlying technologies.
So I think that, as I already said, 5G is really going to do 2 things for the company ultimately, right.
So it's going to sustain and grow the core business, which has been the licensing of handsets and terminals, but it's also going to enable some other markets, but in particular, the IoT market because it's really a necessary component for the proliferation of connected devices out there and that will be a new and larger revenue stream for the company.
So I think it's a very positive event for those discussions, right.
One, it employed another flexible structure by the company, which says that there's a variety of ways in which we can bring value to folks and also how we can get paid under a license.
It provides visibility for the unlicensed folks into what somebody else is paying and so that they can see what we are asking from them is no different than we've already secured from LG.
So ---+ and LG is another one of those groups that has a very well-respected IP group and so they obviously take these negotiations very seriously.
So having secured a license with them is also a strong indication of the value of the portfolio.
So it's certainly a very positive thing when we go out to the unlicensed folks to have LG now as, again, as a licensee for the company.
So in the K, you guys did disclose that Huawei expires at the end of this year.
So wondered if you could maybe give us a little bit of color on why we're expiring in '18.
It's a little bit shorter deal than some of the other deals that you've signed in the past couple of years.
And then maybe just your confidence level in renewing it, some of the factors that are going to be applied there.
And then I think there were ---+ there was a discussion of one of their $18.5 million deal or $18.5 million contributor in '17.
So similar question there in terms of confidence level and renewing that.
Then I've got a couple of follow-ups.
Sure.
So Huawei, if you recall, there was a process by which the agreement get put in place, and then there was an arbitration process and the resolution.
So actually, if you look at that entire stretch of time, that was actually consistent with our license agreements.
In terms of how the renewal discussions will go, there's a lot of positive things in play, right.
So one, you have the previously determined arbitration rate is still part of the record here with respect to those folks.
I think there's also a good relationship that's developed between the companies since the license agreement.
There's a lot of engagement at the standards bodies, only because it's typical with standards bodies that you need to create alliances and other things.
And so we've been working with them on a number of issues there.
And just as we work with others, I think that they respect what we do in that context.
There's also opportunities with other things that we've developed at the company that will add to the discussions with Huawei, including things that we've done around video.
The Hillcrest assets will be very useful in that discussion.
I think following up on <UNK>'s point before, the fact that we have LG done as well is also useful in that discussion because it's a ---+ that's a ---+ it's a recent benchmark that Huawei can use.
I also would say that Huawei itself has turned up its efforts around its patents, obviously, using them in China with respect to Samsung.
So their respect levels for patents, I think, has been reasonably good.
It continues to be good.
I think we can reflect that in our discussions as well.
So we've got a good amount of time this year to get that renewal in place.
I think we're well positioned to do that, and that's what we intend to do.
And Charlie, if I could just add one point to your comment.
Each of the agreements that you referenced, the Huawei and the second agreement, while they expire at the end of 2018, they both met the description of static agreements.
And therefore, when you look at our revenue guidance for the first quarter, neither of those agreements is included in that revenue guidance.
So while the agreements still run over the balance of the year, the rev rec is out, beginning with our first quarter guidance.
Yes.
No, that's a definite positive.
So just real quick, though, to follow up on the $18.5 million one.
I know you guys had talked previously about some M2M stuff that was rolling off.
Is that in that category.
Or is this a classic terminal licensee and same applies in terms of ability to renew that in terms of how you talked about Huawei.
Yes.
No, that falls into the latter category.
And I think that's also a situation where we have a very strong relationship, and I think most of Bill's comments apply there as well.
Okay, okay, excellent.
I wanted to ask about M&A.
Bill, you did mention in your comments about you still believe you want to develop and acquire some adjacent technology here that'll help you with your conversations.
Just kind of wonder where things stand as far as that's concerned.
How did the landscape look to you.
And then maybe a follow-on question to that for Rich in terms of just the capacity in terms of size of deal that you guys believe you can do.
How should I be looking about where you are in terms of your ratios right now, in terms of borrowing capacity and kind of roughly how much do you have.
So in terms of the opportunity and our feelings around M&A, I think the ---+ a couple of things, right.
The Hillcrest acquisition was very instructive for us.
It was instructive in terms of how licensees reacted to that type of thing and the reaction was very positive.
I think that was reflected in our LG discussions.
It was very instructive in terms of how we can take asset or companies like that and reposition them into the company in a very effective way.
There's nothing better than actually doing it to see how it all works out and how, as an example, as I said in my script, how the research teams can begin to blend, how the product positions can be put in place that will really drive new innovation.
So we were very encouraged by what we saw with respect to that opportunity.
I think that the scale of the company is one that makes it attractive for us to seek out things like that because, as I mentioned in the call, we're able to take on things and really do so with very little impact on our cost structure, which means when we go to a licensee, we're actually going to seek almost a lower royalty than they would be charged by a stand-alone company, who's got to cover all of their fixed cost and other cost with respect to that licensing opportunity.
So there's a benefit to consolidation in the industry and so some people see that.
I think that also having more capability at the organization in terms of research and other things is proving to be very valuable in license discussions.
I'll give you an example.
One of the things that's been very useful for us in license discussions is actually to offer up a component of our 5G research as a deliverable in license agreements, people really value that.
And to the extent we can do more than that research capability to other things, that's going to be really valuable.
So we're very encouraged by what we've seen from M&A.
We're very encouraged by the opportunities that are out there for us.
And we are firm believers in the value that, that M&A can drive because, ultimately, the deals that we would look at in terms of investment in the core business are really going to respect that operating leverage.
And the design at the end of the day will be, can we bring in deals, restructure that asset in our business in a way that the added revenue really does drop to the bottom line as close it can net of taxes.
We believe we can do that, and if we can, that is extraordinarily valuable.
And as to the second part of your question, Charlie, the constraint, or the criteria is the better word, is really creating value for the shareholders.
At the end of the year, we had over $1 billion of cash, almost $900 million of net cash.
So just with cash on the balance sheet, we have a significant amount of flexibility there.
Certainly, the amount of cash flow that we've historically generated suggest that we have ample financing capability.
Just in the last 2 years, it's something like $600 million of free cash flow.
So we think that we're well resourced to kind of if we see the right opportunity to go after it.
But at the end of the day, the real measuring stick is what, at the end of the day, do we believe that does for our shareholders.
It's really the full range of customers, right.
So that's going to be people that we're having discussions for the first time with because there's new entrants to the market.
It's people that we're in renewal discussions with.
And it's also folks that may currently be licensee because one of the things that we've been very adamant about in the organization is just because we signed a license agreement with somebody, doesn't mean you stop the conversation.
That conversation needs to keep going.
It can happen at different levels.
So our CTOs are engaged ---+ our CTO will engage with their CTO.
Standards groups will engage.
Product groups will engage.
And we'll kind of keep track of all those engagements so that when it comes time for renewal, we have a better sense of what that customer needs, not only in terms of the license, but also technology and other assets that we have that we can bring to bear.
So it's a very purposeful, committed effort by the company to really know its customers much better and to use that knowledge in a way that creates value for both parties.
I'd say it's more of the latter and that this has been an initiative by the company for a few years to more broadly touch our customers.
Certainly, having more assets makes that easier.
So as an example, with Hillcrest, we have now a relatively straightforward conversation with folks within Samsung around certain of their products because Hillcrest delivers hardware to Samsung.
And so I think there's, to some extent, a limit to what the company can do only because it's sort of limited by the asset it has.
We have great assets and so we can have great conversations around research.
We can have conversations around the Hillcrest solution.
We have that conversations with respect to the Chordant IoT solution.
But I'd love to have a few more things and those can come in a couple of ways.
They can come through M&A, of course, but not everything has to be an acquisition.
They can also come through partnerships.
So we can find companies that we could partner with and be a channel for their software in China, as an example, because we have greater strength and breadth than that company may have, and in fact, that was one of the things I was doing at CES this year, was spending a lot of time with smaller companies, chatting with them about partnering and some of that.
And again, our goal is to create a large fabric of solutions for our handset customers and allow us to really create individualized deals for each of them, with the emphasis on doing it while all along respecting our cost structure, which we understand the value of that.
Yes.
So the primary change there with respect to the guidance is on the per-unit side because now that ---+ where in the past our Q1 guidance, we'd be sitting here in late February providing guidance for the first quarter with the fourth quarter royalty reports in hand, and that becomes the basis under the old rules for the first quarter revenue.
Now we're basically projecting or estimating on the per-unit side where those royalties will come in, and that's how we guide.
And ultimately, at the end of the day, it's 14% of our revenue when you look at 2017, with 86% being fixed.
So it's actually a pretty small portion of our revenue these days.
That is of the per-unit nature.
You'll lose some of that fixed-fee revenue in 606, so that proportion maybe changes a little bit, but it's still not something that we're especially concerned about.
| 2018_IDCC |
2016 | CVX | CVX
#Yes, that's a real good question.
In fact, I think your point is spot on.
I think it's a terrible market to be trying to sell most assets out there, particularly obviously oil-related assets and that's why I've been pretty circumspect around asset sales.
We sold $11 billion over the last two years, but we're giving you a 5 to 10 for the next two years in the numbers that I've given you.
And from a strategic point of view, there are some opportunities out there that I think will be tough to execute, and if we can't execute them, we won't sell them.
If you look at the kinds of things we have sold, we've gotten very good value.
So for example, the last two years, there was a lot of strength in the infrastructure market selling pipelines, for example.
And on strategy grounds and on valuation grounds, we felt that we were going to limit our investments in the pipeline business to those that are critical to our upstream and downstream sector and we could sell those.
Things like Caltex Australia, we thought values were very strong and assets had ---+ we've been very well aligned with them, but they were heading off potentially in a growth direction and we felt that, from our strategic point of view, that it would be best to exit when we did.
So we've been very careful and I can tell you the assets going forward, we don't advertise them, but if you look at the ones where there's information in the public domain, I think you'll see that those are assets where there are potential buyers out there at good value.
So I think your admonition is a very good one and it's why we haven't put big numbers out there.
Yes, it's a good question.
Obviously, for any project we had in flight, we went back to all the project teams and created an expectation that they will look to try to capture cost reductions.
In some cases, where you have ---+ where you bid contracts and the terms and conditions are fixed, you are where you are.
But on anything where you have not taken FID, you have some flexibility to go back to the providers of those services.
And that's why we've delayed our costs.
Part of the recycle of projects is to see if there's a different development scheme and things like that.
For example, Rosebank has a different development scheme, but part of it is also to be sure you can capture the cost reductions that are available ---+ that might be available in the marketplace, and sometimes you have to just say we're not going do this if we don't get better costs and that tends to focus partners and others.
So we expect to see declining breakevens as a result of those initiatives both to reframe projects in some cases, or to try to drive costs out.
In terms of what we've got actually planned, most of the effort ---+ most of the things that we would call FIDs are really things like infield drilling.
So for example, the next phase of drilling at Agbami, the next stage of drilling at Jack/St.
Malo, which are utilizing existing rigs and drilling off of existing ---+ to support existing infrastructure.
In terms of big, new greenfield projects, it's relatively few.
There are some that could be in the budget, but it's going to depend on that price/cost balance I've been talking about, and that's why I say we have significant flexibility going forward as we complete things like Gorgon, Wheatstone, Mafumeira Sul, Angola LNG and others.
Yes, in general, the sales would be under contract.
In fact, you've probably seen recently, we have signed a couple of additional HOAs.
We've said all along that we thought that it's appropriate to have about 85% under long-term contract for Gorgon and Wheatstone and with those HOAs, assuming those turn into SPAs, we'll be over 80%.
So we feel pretty good about that and those are medium-term type contracts that we've put in place.
So we feel good about it.
But during the rampup, we've got contracts that are available for these volumes.
Now as far as the overall LNG market, it's lousy when you look at the spot ---+ at spot cargoes and prices.
And I expect we're going to go through a challenging ---+ as an industry ---+ we're going to go through a challenging period for any volumes that will be sold spot into the marketplace.
It's a fair question.
The short answer is there's some judgment that we're applying.
We have been on a pathway in the Permian of first assessing what we have.
So we've been drilling both vertical and horizontal wells.
Over the last year, we've really converted our entire program to horizontal wells and really getting ---+ an overused term ---+ but getting our factory model in place.
And we've done that.
And our costs are now very competitive with some of the best in the business.
So that is taking place.
We want to continue that effort.
Our view is not that prices are going to stay at the low range they are today, but part of living within your means is limiting just how many rigs you deploy.
We've got 6 operated rigs today.
We've got 14 NOJV rigs that are operating today and we think that's about the right balance.
We have flexibility to move up and what I've told our people, if they stay on the cost trajectory that they are, we're going to look to fund them.
The economics in some of the best areas at strip-type prices work.
They are not as good as we like at higher prices, but they work.
And so that obviously is guiding us, but I would hate to lose the momentum that we have in the Permian with some of the cost-reduction efforts we have underway.
We've told you we've got 3000 locations that we think meet economic threshold at $50, so obviously prices aren't $50 today, but it's indicative of the strength of the portfolio that we have.
Well, thank you for a silver-lining question.
We're looking for this internally too.
You are right; it is very tough times.
A couple thoughts that I will give you.
One, I think the cost reductions we're going after, most of them will be permanent.
For example, the efficiencies that we've gained in our drilling, those are permanent regardless of what happens to rig rates going forward, so whether it's the Deepwater that I talked about earlier or onshore, so that's number one.
Number two, I think the benefits that we're taking on in some of our organizations and some of our structures, I think a lot of that will be permanent.
And I think we've undervalued what simplicity in organizational structures can provide.
So obviously we're taking out some layers.
We've got rolling reorganizations that are being implemented around the world and I think that simplicity and clarity will be a positive for the business.
In terms of resource capture, there are better opportunities today than there might have been a year ago and the balance between what I will say the expectations and value of resources getting better aligned, so there are opportunities emerging.
Our priority is obviously the things I've been talking about this morning, but we are in a resource business and you do want to be attentive to the opportunities that are out there.
In general, the two are somewhat related.
Our base decline has been good because we've operated very reliably and we've actually gotten quite efficient in our business.
So we have been able to mitigate the declines.
We've also flagged though that with a lower level of spending on base business, infill drilling in places like Bakersfield and elsewhere, you are going to see declines slightly higher, so that's why we've suggested that and we do expect to see that across the industry.
The history has shown during downturns like this you can see an increase of a percent or two industrywide in that base decline.
So that is ---+ I think that's clear.
In terms of the resiliency that we've seen in production, it's partly related to that, but, to me, it's been ---+ if you look at 2015, the impact of projects that were in flight has probably been more than we, as an industry, anticipated.
So we're not the only ones with Jack/St.
Malos and Bibiyanas and other projects that are under construction that are coming up.
Secondly, of course, you've had the impact of hedges in the unconventional business and the brief uptick that took place in the middle of 2015 in prices did allow some additional hedges.
So you've still got a few hedges that are out there in the industry in 2016 that will allow some level of activity.
But increasingly all that is wearing off as all the projects come online, as base business declines start to take over and as hedges are no longer available.
So I think that's why you are seeing those volumes.
The other piece that I've consistently said has been underrepresented is the stress around the world, the stress on host governments, the stress on those government partners, national oil companies and others.
And you've seen announcements that have been made because while we tend to think of living within our means as a function of forward capital spend; for host governments, living within their means is social, the choice between social spending and reinvesting in the business.
And you've seen some of those choices play out in the guidance that's been given by host governments to national oil companies in certain countries.
So I think the cumulative weight of all this action will tend to bring things into balance.
You still have potential sources of supply out there.
Obviously, Iran is bringing volumes on, but I think the trend is inexorable.
Yes, that's a very good observation.
The range is widening and you've got multiple moving parts in the business.
Let me see if I can give you a little bit of color.
Just if you look at the difference between $30 and $60 per barrel, just on price effects, it can be over 100,000 barrels a day for that alone.
And so you are right; there is a range there and what happens in a place like Indonesia, for example, for a given level of spend, and you have cost barrel reimbursement, the lower the price, the more barrels you get.
And these curves aren't all linear in different locations around the world.
So there is a considerable variability from price alone.
If you think about rampup of production, I will give you an example on Gorgon.
Gorgon, the three trains at Gorgon, our share is a little over 200,000 barrels a day.
So if you think about each train as 65,000 to 70,000 barrels a day, and we've said that we expect production to commence within a few weeks.
There's an industry curve ---+ there are industry averages around a rampup schedule that takes place over a period of months.
To the extent you're at the high end of that range where you have a smooth startup, we have the well capacity.
So you could have a very rapid rampup.
Our people in Australia don't know what they don't know and so we have taken more of an average approach.
And to the extent you encounter something unusual, you can be on the downside of that.
Our people at Angola LNG at this point are pretty gun shy because we've had challenges, but that's 60,000 barrels a day and we've said that we expect to be introducing gas later this quarter and to have cargoes in the second quarter, but there's variability around that and the rampup.
And so all of those ---+ and by the way, there's a second train at Gorgon as well later this year.
So all of those can impact the pace of development.
And then there's just the outright spend that's a function of rigs and activity.
I think it's fair to say that if we keep seeing prices in the low $30s, we're going to drop rigs as the price moves on.
And then the last piece, and it's one that I won't provide much in the way of specifics, is really divestments.
Because we've indicated, for example, that our shallow water, our shelf activities that we have packages for sale out there and those have some volumes attached to them and then there are some another potential assets in the upstream that are under consideration.
But it really depends on getting value and the timing of those and so that is why you get a range.
And you are correct; the range can be broader than indicated there.
But I felt if I gave you any broader a range, you'd say this wasn't very helpful.
What leads me away from temptation.
I know you've heard me over the years, but if I just ---+ just to ground everyone that's on the phone ---+ we've said over many years that we're in the resource business, it's declining and we'll replace resource through a combination of exploration, discovered resource participation and acquisitions and Chevron has done that over time.
Our growth position has been pretty good and so M&A hasn't been a particular priority for us.
But we are mindful of the opportunities that are out there.
I wouldn't want you to think our focus is anything other than getting the projects we have under construction and completing the work we have and ramping up the assets that we have because I think we've got a pretty nice business profile going forward.
But we do need to look at what is out there and we're going to be value-driven, but there are opportunities that could present themselves in the current market, so we'll be mindful of that.
But remember, we're trying to grow the dividend and invest for the long term here and so we're not driven ---+ we're not particularly transaction-driven at any period of time.
I have time for one more question.
The increase, of the 44,000, about two-thirds of it was Permian/Wolfcamp and the rest of it was between Argentina and some of our Appalachia activity.
And in terms of what's forward-looking, I think I'm going to leave that to the security analyst meeting that we've got coming up in March where we'll give you a little deeper insight into our work in the Permian and kind of the range of rampup that we could see there.
And we've done that every year and we will update you this year based on both the cost improvements that we've seen and then the realities of the price market that we're in.
Okay.
Well, I will answer the second question first, no.
We're not able to do that so we don't.
I would just say that we've got our hands pretty well full.
We always look at opportunities when it's legal for us to do so around the world, but I don't have any particular insight into Iran.
You have seen the range of speculation around their ability to ramp up production.
Some have speculated that it's going to be a little harder than advertised, but I don't have any particular insight to offer you and perhaps others can help you with that.
Okay, I would like to thank all of you for being on the call today.
We appreciate your interest in our Company and your participation.
We look forward to seeing you at our March meeting in New York.
Thank you.
| 2016_CVX |
2017 | CABO | CABO
#Thank you, Chad.
Good morning, and welcome to Cable ONE's Third Quarter 2017 Earnings Call.
We're excited to have you with us this morning as we review our results.
Before we proceed, I would like to remind you that today's discussion may contain forward-looking statements relating to future events and expectations.
You can find factors that could cause Cable ONE's actual results to differ materially from these projections listed in today's press release and in our current SEC filings.
Cable ONE is under no obligation and, in fact, expressly disclaims any obligation to update its forward-looking statements whether as a result of new information, future events or otherwise.
Additionally, today's remarks will include a discussion of certain financial measures that are not presented in conformity with U.S. generally accepted accounting principles.
Reconciliations of non-GAAP financial measures discussed on this call to the most directly comparable GAAP measures can be found in our earnings release or on our website at ir.
cableone.
net.
Joining me on today's call is our President and CEO, Julie <UNK>.
And with that, let me turn the call over to Julie.
Thank you, <UNK>.
Good morning, and we appreciate you joining us for our third quarter 2017 earnings call.
You heard us mention before that our quarter-over-quarter comparisons have been complicated by the change in accounting estimate related to capitalized labor costs as well as incorporating NewWave results.
In addition to those factors, our results for this quarter were also impacted somewhat by Hurricane Harvey.
<UNK> will get into our detailed financial results to help us walk through that later in the call.
While Hurricane Harvey had a financial impact, it also had a human one.
We felt the effects as it hit our coastal Texas markets in August, and I want to take a moment to acknowledge our customers and our associates in these communities.
Our thoughts are with all of those who have been affected by and especially those who are still recovering from these disasters.
In true Cable ONE spirit, nearly 200 of our associates, some of whom living in the area, experienced personal impact and loss, worked diligently to care for our customers and restore their service as quickly as possible.
I want to thank all of our associates for their hard work and dedication throughout these recovery efforts.
I also want to thank our customers for their patience while we made repairs necessary to get their services back up and running.
We are also very grateful to our vendors, suppliers and associates who donated to our natural disaster fund, benefiting Cable ONE associates.
These donations provided financial assistance to our associates in making needed repairs to their damaged homes.
It's in times like these where we truly feel our local connection to and support of the communities where we live and work.
Regardless of the impact of Hurricane Harvey, integration activities, company-wide product rollouts or other events that may impact our business on a quarterly basis, we don't put too much weight on the results of any single quarter as our focus is on long-term profitability.
As part of that long-term view, high-speed Internet continues to be an area of strategic focus.
Today, we are proud to say that nearly 200 cities and towns across our legacy Cable ONE footprint can now lay claim to the title Gig city.
At the end of the third quarter, 95% of our legacy homes passed had access to our 1-gigabit service via GigaONE.
We announced the launch of our gig service 2 years ago this week, and our rollout has been unique compared to that of our competition and others in the industry.
In an effort to eliminate the digital divide in the communities we serve, we envision providing every customer in our footprint with access to gigabit service no matter where they live.
We are now close to achieving that goal in our legacy markets, and we have made substantial progress to transition NewWave, what we now call our Northeast Division, to 32-channel bonding, which will allow us to launch faster speeds, including GigaONE, throughout those new markets.
By the end of the year, approximately 3/4 of the Northeast Division footprint will have completed 32-channel bonding.
We believe that the process of making the Northeast Division more closely resemble Cable ONE in terms of services and product offers will establish a unified operational approach, benefiting our customers and associates while positioning us well for future growth.
In addition to 32-channel bonding, some other accomplishments include the recent completion of our human resources payroll and benefits conversion, and the migration of the Northeast Division's IVR to the legacy Cable ONE platform.
Northeast Division operations contributed more than $47 million of revenues in the quarter, and we expect to continue to realize cost synergies and expand Northeast Division adjusted EBITDA margin as the integration proceeds.
In the area of business services, we now offer 500-megabit elite business Internet to small- and medium-sized businesses across the majority of our markets.
Meanwhile, our deployment of Piranha Fiber, our mid-market business services product, continues with our most recent launch in Odessa, Texas; and our upcoming deployment in Boise, Idaho by year-end.
We are confident that our continued expansion of business products and services will provide beneficial alternatives to businesses in our markets while improving Cable ONE's bottom line.
Before I turn the call over to <UNK>, I want to take a moment to touch on an announcement we sent out earlier today regarding Tom Might's retirement as Executive Chairman.
I'll be giving Tom his proper due later in the call.
But for now, I want to recognize the more than 2 decades Tom spent within Cable ONE.
Tom's passion and vision have been instrumental in making Cable ONE the company that it is today.
And now, <UNK> will provide more details on our third quarter results.
Thanks, Julie.
Before getting into the details, I want to remind everyone that our third quarter results include 3 months of NewWave operations and also reflect the change in accounting estimate related to capitalized labor costs.
In addition, as Julie already mentioned, our third quarter results were negatively impacted by Hurricane Harvey with an estimated $1.6 million of revenue loss from waived service offering charges and $1.7 million of additional operating expenses associated with asset disposal, labor and cleanup cost.
Please keep in mind that this is a onetime event and should not affect our results going forward.
Billing was initially suppressed to approximately 19,000 customers.
As of quarter end, this number has been reduced to approximately 6,500 customers.
Again, this will affect the growth ---+ or sub-growth in the quarter.
Adjusted for Harvey, the results are very much in line with our expectations and prior results.
The good news is that we currently have a large majority of our customers back to full-time service.
We hope to recover some of these costs through insurance reimbursement, but we are not able to quantify specific amounts at this time.
Here are some of the highlights from the third quarter.
Adjusted EBITDA was $115.5 million, an increase of 32.5% year-over-year, and adjusted EBITDA margin was 45.5%.
The adjusted EBITDA results include a full quarter of NewWave operations and the favorable impact of a reduction in expense of $6.2 million due to a change in accounting estimate related to capitalized labor costs.
Without the contribution from NewWave operations, adjusted EBITDA would have been $98 million and adjusted EBITDA growth would have been 12.4% with a margin of 47.5% on legacy Cable ONE.
Excluding the negative impact of Hurricane Harvey, adjusted EBITDA would have been $99.7 million and adjusted EBITDA growth would have been 14.4% with a margin of 48% for legacy Cable ONE.
Excluding both NewWave operations and the change in estimate related to capitalized labor, adjusted EBITDA growth would have been 5.3%.
But further, without the impact of Hurricane Harvey, adjusted EBITDA growth would have been 7.3% year-over-year.
Adjusted EBITDA less capital expenditures was $63.1 million, an increase of 4%.
Residential data revenues increased $22.5 million or 26% to $109.3 million.
Residential data revenues growth would have been $6.5 million or 7.5%, excluding the $16 million contribution from NewWave operations.
Business service revenues increased $9.8 million or 38.4% to $35.2 million.
Business service revenues growth would have been $2.7 million or 10.6% growth, excluding the $7.1 million contribution from NewWave operations.
Now getting into the detailed results.
For the third quarter of 2017, compared to the third quarter of 2016, revenues increased $48.3 million or 23.5%, with a $47.5 million contribution from NewWave operations.
As I mentioned before, revenues were negatively impacted by an estimated $1.6 million loss associated with Hurricane Harvey.
For the third quarter of 2017, residential data revenues comprised 43.1% of our total revenues and business service revenues comprised 13.9% of total revenues.
So together, our growth businesses now comprise 40 ---+ 57% of our revenues.
Operating expenses were $91.9 million in the third quarter of 2017, and increased $16.3 million or 21.5% compared to the third quarter of 2016.
Most of this increase, in fact, all of this increase, additional operating expenses attributable to NewWave operations were 24.5 ---+ $24.2 million.
This increase was also partially offset by a $4.8 million decrease in labor costs associated with our change in accounting estimate for capitalized labor, a $0.9 million decrease in backbone and Internet connectivity costs, a $0.7 million increase (sic) [decrease] in programming costs due to fewer video subscribers and a $0.7 million decrease in contract labor.
Without the NewWave operations, operating expenses would have been $67.7 million, a decrease of $7.9 million or 10.5%.
Operating expenses as a percentage of revenues, without the NewWave operations, would have improved 400 basis points from 36.8% in the third quarter of 2016 to 32.8% in the third quarter of 2017.
Selling, general and administrative expenses increased $3.2 million or 6.5% to $52 million, with the NewWave operations contributing $5.9 million to the total increase.
Additionally, higher deferred compensation expenses of one point million ---+ $1.1 million and insurance costs of $1 million were offset by lower acquisition-related expenses of $2 million, a reduction of marketing costs of $1.3 million and a reduction of labor costs of $1.4 million.
The change was associated with our accounting estimated ---+ accounting estimate for capitalized labor.
Again, without NewWave operations, SG&A expenses would have decreased $2.7 million or 5.6% to $46.1 million.
SG&A expenses as a percentage of revenues, without NewWave, would have been 22.3% in the third quarter of 2017, with an improvement of 140 basis points from the third quarter of 2016.
Interest expense increased $6.5 million or 86% due to additional debt incurred to finance the NewWave acquisition.
Adjusted EBITDA was $115.5 million, a 32.5% increase from the prior year quarter and included the positive impact of the NewWave operations and the change in capitalized labor costs.
Without NewWave operations, adjusted EBITDA would have been $98 million and adjusted EBITDA growth would have been 12.4% for the third quarter of 2017.
Without both NewWave and the change in estimate for capitalized labor, adjusted EBITDA would have been $91.8 million and adjusted EBITDA growth would have been 5.3%.
As I mentioned before, we incurred additional operating expenses associated with Hurricane Harvey of $1.7 million during the third quarter, of which $1.3 million related to asset disposal loss due to storm damage.
Without NewWave operations, the change in estimate for capitalized labor and the Hurricane Harvey impact, adjusted EBITDA would have been $93.5 million and adjusted EBITDA growth would have been 7.3% for legacy Cable ONE.
Our margin for legacy Cable ONE increased over 500 basis points from 42.4% in the prior year quarter to 47.5%.
Further, NewWave margin improved sequentially 160 basis points to 36.8% in the third quarter compared to 35.2% in the second quarter.
We expect that synergies achieved through integration will produce NewWave margins that will look similar to legacy Cable ONE's in the next several years.
Capital expenditures totaled $52.4 million or 20.6% of revenues for the third quarter of 2017, and included a $6.2 million increase resulting from the change in accounting estimate for capitalized labor and $2.2 million of replacement capital expenditures associated with Hurricane Harvey.
Excluding the NewWave operations, capital expenditures would have been $38.4 million or approximately 18.6% of revenues.
This included capital also associated with Hurricane Harvey.
Without the capital for Hurricane Harvey, our capital as a percentage of revenues would have actually been 18%.
From a liquidity standpoint, we remain in excellent position as we had approximately $119 million of cash on hand.
As of September 30, our debt balance was $1.2 billion, which included a $750 million of term loan borrowings in connection with the NewWave acquisition.
We also had $197 million available for borrowing under our revolving credit facility as of September 30.
Overall, our debt-to-adjusted EBITDA was only 2.6x and net debt ---+ net adjusted for cash on hand to adjusted EBITDA is only about 2.3x, providing us with significant liquidity.
As Julie mentioned, we continue focusing on the integration of NewWave into our operations.
NewWave or our Northeast Division is performing ahead of our expectations, and we look forward to continued growth in the next year.
Regarding Hurricane Harvey, I also want to take a moment to thank our associates for all of their hard work to restore service in the region and for all of our customers for their support and understanding during the recovery process.
We are now ready for questions.
Chad.
Phil, <UNK>.
Some of the increase, again, keep in mind, as I mentioned in the narrative, was due to Harvey.
The 1% residential data PSUs that you see would have actually been 2%.
And on the data PSUs for business, it would have been higher also.
If you took the 2 of those together, we actually would have, after Harvey or recognizing the impact of Harvey, been a 2.6% data growth.
So I don't think it's been a significant deceleration from prior year.
Really, we have the effect of Harvey, which affected 4,300 data PSUs on the video and 500-or-so data PSUs on the business.
So I really have to take a look at Harvey and not the numbers without Harvey.
And <UNK>, to add to that, so I'm not sure what price increase you're referring to.
We haven't raised the rate on our HSD product in almost 7 years now.
Our last increase was in October of 2015.
Phil, I guess we'll ---+ yes.
As we've said in the past, we'll continue to look at it quarter-to-quarter.
We think we have an extremely well-priced service for 100 megs at $55.
We think that's very competitive.
There probably is some price elasticity.
We're very sensitive to our customers and don't want to abuse them.
So we'll continue to look at it on a quarter-by-quarter basis as to when to take our next rate increase.
So I have <UNK> flipping through, looking at the numbers because I don't think that our ARPU has flattened for HSD.
Actually, I read the Indiana University on price elasticity, and I'm finding the exact opposite in our markets, that there's elasticity at the higher end versus the lower end.
That is to say that our higher level is more expensive levels of service, the 150, 200 in gig services are growing at a rapid rate, pushing our ARPU up.
Phil, as I look at that ARPU on HSD, we actually reported a year ago was at 62.49.
Now it's 65.74.
So that's a 5.9% increase in ARPU.
Maybe the confusion is our NewWave acquisition.
I mean, obviously, they are lower.
Their ARPU is at 48.51.
And the reason for that is they have a number of tiers, ranging from 10 megs up to 100 megs, and it's a composite rate for them.
Again, it would be our goal to make them look more like us over the next couple of years.
But maybe you're referring to a composite ARPU, including NewWave.
But for legacy Cable ONE, we definitely saw ARPU growth year-over-year.
Thanks, Cathy.
This is Julie.
I think all the things that you mentioned are part of driving that ARPU increase, and we don't break it down for outside parties.
For NewWave, we absolutely believe that bringing higher speeds and different pricing and packaging, which more closely mirrors Cable ONE, will drive their ARPU closer to ours over time.
I do not think broadband ARPU is done growing, as I mentioned earlier.
Cathy, as you know, we don't give future guidance.
The last quarter, I did give guidance that we expected our capital as a percentage of revenue would be in the upper teens.
What you're seeing for legacy CABO, we reported 18.6%.
And as I said, without the extra 2-point ---+ whatever, $2.2 million of capital associated with Hurricane Harvey, that would have been 18%.
Legacy ---+ NewWave, as we mentioned, there are additional capital associated with NewWave.
Julie already mentioned that.
We would have been ---+ we reported together, as a company, 20% for the quarter.
Without Harvey, that would have been 19.6%.
So again, most of the additional capital expenditures is associated with NewWave and bringing them to look much like Cable ONE.
We told the market that, that would be the case.
We're still running even through the 9 months probably in the 17% to 18% range.
So we are in the upper teens, and that's the guidance we gave a quarter ago.
<UNK>, it's Julie.
The HR system, I wouldn't be looking for large savings coming from the integration of that.
There will be, however, savings in the future because we are running duplicate systems for many types of provisioning for our products right now.
So synergies are to come from those.
In terms of competition, about 27% of our homes passed overlaps with a hardwire triple play overbuilder or a provider of significant speeds for HSD.
We've been competing against those providers in various systems over time now.
And I don't think there have been any dramatic changes in it that competition certainly are seeing what some of our broadband are seeing with AT&T being incredibly aggressive in terms of bundling or giveaways.
But our footprint overlap with their fiber-to-the-home builds, which is where they are primarily doing these offers, is incredibly small.
That being said, we are trying to be very thoughtful and responsive to competition wherever it exists without engaging in a price war.
I'm sorry.
That isn't something that I can comment on.
But do keep in mind, <UNK>, as I said to Phil earlier, the hurricane did impact our sub numbers for the quarter.
The good news is almost all of the subs are back now.
But there were 6,500 customers that were still in a suppressed billing status at the end of September.
So that does affect our growth.
But if you add back Harvey, we believe the growth is very much in line with what we've seen prior.
<UNK>, this is Julie.
In terms of video losses, given our strategy, there are folks that we actually welcome because they highlight what a robust high-speed data service can bring to these folks.
So I don't think video's suffering any more than what it's been doing for the past couple of quarters with us given our strategy.
What was your second question.
Absolutely.
Again, I don't want to say I'm surprised by the growth of our higher level tiers, but it is incredibly robust.
People taking higher-level services, whether it's multiple devices in their home, whether it's gaming, whether it's more over-the-top, people are electing to go into our 150-meg tier at very high rates.
I don't know that I can quantify that, <UNK>.
We do, do third-party research, independent research.
And so we gather market share and we look at where our customers are going, but we don't put a lot of resources towards video and ascertaining what's happening with the video customers.
Our focus really is on broadband and business services.
Thank you, Chad.
Now turning to something very close to all of us at Cable ONE.
Earlier today, we announced the retirement of Tom Might as Executive Chairman.
For nearly 25 years, Tom has guided Cable ONE with his strategic leadership, unquestionable integrity and unwavering commitment to our customers and associates.
Under his stewardship, Cable ONE has grown through strategic acquisitions, organic growth and a continued focus on new product innovation.
We want to express our sincere thanks and appreciation to Tom for his leadership of our board since 2015 and for his dedicated service to Cable ONE over the past 2-plus decades.
He's leaving behind a legacy of excellence that has our company well positioned for future success.
We are thrilled that Tom will continue to serve as a Director, following his retirement, providing his wisdom, insight and experience to our distinguished board.
We appreciate you for joining us for today's call, and we look forward to speaking with you again in 2018.
| 2017_CABO |
2015 | GTLS | GTLS
#Hi, Al.
It is.
And the areas where we have proprietary products and higher margins, less competitive intensity, are being more dramatically impacted by delays than some of our longer standing industrial products where there is more competition and hence more price pressure.
I would say that that's probably the most appropriate reference point, <UNK>.
I don't believe there is a lot of downside risk in pricing over the next six months to 12 months.
The margin degradation is going to be more related to just lower operating levels.
Well, restructuring reserves, and there was ---+ in addition, there was inventory reserves that are classified as part of restructuring.
So there's about $1.4 million of inventory reserves that were taken in Distribution & Storage, both in China and the US, lower cost of market reserves that we recorded in the quarter, that impacted the margin.
So that's above and beyond the $4.9 million of restructuring expenses that we incurred in the quarter.
Yes.
Yes, the majority of it is.
There's a small piece in BioMed, but nominal.
They have enough equity capital to ---+ and have committed to buy this equipment in order to give them the ability to get online faster.
You have to direct that question to them.
Our position hasn't changed.
It's a topic of regular discussion with the board.
We do have the ability to do that with our balance sheet and credit facility.
But markets are tough, and we'll continue to evaluate and do what's best for shareholders, keeping a balance between share buyback as a potential, an investments in the business.
Hi.
Yes, less than $10 million.
Yes.
Although, as <UNK> pointed out, they continue to give us new orders and they continue to take equipment from the backlog that we have.
We are seeing offers of companies or assets for sale that are in financial distress.
We evaluate all of them carefully.
However, with the discipline that we exercise and the constraints on market share, I don't expect an enormous amount of acquisitions in that area.
The blended rates, there is significant dispersion of the range of gross margins or pricing levels, but the blended rates would be comparable to that.
Well, I would guess that at this point something like 75% or 80% of our revenue and backlog is industrial gas related non-LNG.
That goes all over the map from the ---+ depending on the application and the level of equipment we're providing in addition to a tank.
But it could be anywhere from $0.25 million to $10 million or $15 million.
So it's a pretty wide dispersion.
Thank you.
Yes.
There are potential facility closures.
We continue to evaluate them.
The new facility in China, in Changzhou, will be operating ---+ only parts of it will be operating at relatively low levels in 2016.
It is a dynamic situation.
The customer consolidation that I talk about are in the home healthcare service provider space where you've seen a fairly regular stream of announcements of acquisitions and consolidation in that space.
It's a ---+ the market demand, the overall unit volume of respiratory concentrators is stable and growing at single-digit, mid-single-digit rates, but there is significant competitive pressure.
So it depends how successful we are in the marketplace and in providing superior products at the right pricing levels.
Pricing in that market is very sharp and competitive.
Thank you, Chanel.
With the economic and energy price issues we've talked about quite a bit now being more persistent and expect to be longer than previously expected, we're actively working to continue to adjust our cost structure to reflect these challenging conditions.
Chart provides excellent value to our customers, and we remain confident in the fundamental drivers of our business.
We remain steadfast in our pursuit of our strategic goal of delivering long-term growth.
Thank you everyone for listening today.
Good bye.
| 2015_GTLS |
2017 | KHC | KHC
#Good day.
My name is Karen, and I will be your operator today.
At this time, I would like to welcome everyone to the Kraft Heinz Company's First Quarter 2017 Earnings Conference Call.
I will now turn the call over to Chris <UNK>, Head of Global Investor Relations.
Mr.
<UNK>, you may begin.
Hello, everyone, and thanks for joining our business update for the first quarter of 2017.
With me today are <UNK> <UNK>, our CEO; <UNK> <UNK>, our CFO; and George Zoghbi, the Chief Operating Officer of our U.S. Commercial business.
During our remarks, we'll make some forward-looking statements that are based on how we see things today.
Actual results may differ due to risks and uncertainties, and these are discussed in our press release and our filings with the SEC.
We'll also discuss some non-GAAP financial measures during the call today.
These non-GAAP financial measures should not be considered a replacement for, and should be read together with, GAAP results.
And you can find the GAAP to non-GAAP reconciliations within our earnings release and at the back of the slide presentation available on our website.
Now let's turn to Slide 2, and I'll hand it over to <UNK>.
Thank you, Chris, and good afternoon, everyone.
From an overall perspective, I will start by repeating what I said in today's press release.
While our top line results reflect a slow start to the year, we remain on track with the key initiatives that can drive another year of sustainable organic growth for The Kraft Heinz Company.
There is no doubt that the U.S. consumption was softer than expected.
As you know, the shift in merchandising window, such as Easter, was expected.
However, other largely calendar-related factors caused the overall consumer takeaway to be weaker than anticipated.
George will discuss this in more detail.
In addition, results in Canada also held back organic growth in Q1.
This was driven by go-to-market agreements with key retailers being made much later this year than in past years.
And this was largely due to our choice to not sign into significant price-oriented requests that have come about in the Canadian retail market.
As a result, we lost frequency and depth of promotion activity during the quarter.
We also choose to delay several innovation launches from March to April.
In the end, however, we are confident that the sacrifice we made in sales will lead to a resumption of profitable growth for both Kraft Heinz and for our retailer partners.
Another area that makes me confident for organic growth in the year to go is the solid returns we're seeing from our Big Bets that are already in the marketplace and the fact that the rest of our 2017 pipeline is on track.
I'm not going to get into the specific initiatives that have not hit the market yet, but what we saw in Q1 was a very healthy contribution from both Year 2 Big Bets and the new-to-the-world initiatives.
This included accelerated consumption in Mac & Cheese and frozen meals from products like Cracker Barrel Mac & Cheese and Devour Frozen Meals that you have seen in the United States; further gains from Heinz Serious (sic) [Seriously] Good Mayonnaise across Europe, Brazil and Australia; the growth of Planters in China; the launch of Heinz Serious (sic) Seriously Good Sauces and no salt, no sugar added Heinz Beanz in the U.K., just to name a few.
Importantly, the investments being made are driving the solid organic growth trends we are now seeing in both Europe and the Rest of the World markets.
In short, our strategy of prioritizing fewer, bigger and bolder bets is paying off.
Underpinning all of this, we remain on track with our cost savings initiatives, and the pace of savings is coming in very much as expected so far this year.
Commodity savings from our integration program are approximately $1.3 billion.
And we continue to generate savings from ZBB and supply chain initiatives in all our zones outside of North America.
Lastly, but just as important, in March, we strengthened our vision for growing a better world by unveiling new goals for sustainable sourcing and animal welfare.
This includes a commitment to reduce greenhouse gas emissions, energy, water and waste across our manufacturing network by 15% over the next 5 years.
We also committed to purchase 100% palm oil in derivatives from suppliers certified by the Roundtable on Sustainable Palm Oil.
And we implemented a 0 tolerance policy among suppliers for willful acts of animal abuse or neglect.
Finally, our commitment to fighting global hunger is even more aggressive, and I'm proud to say that by the year 2021, Kraft Heinz will donate 1 billion meals to families in need.
That's the broad overview of where we stand after the first quarter of 2017.
Overall, a soft start to the year financially but on track for another year of profitable organic growth.
So let's turn to Slide 3 to review the details of our Q1 financial results.
As it relates to total company sales, there are 2 things to highlight.
First, we have solid price realization in our Rest of the World market, particularly in Latin America, to offset higher local input costs as well as in the United States.
These gains were partially offset by promotional timing, primarily in Canada and Europe.
Second, for the reasons I noted early, we saw volume/mix declines in North America, and these more than offset the solid and encouraging gains in the Rest of the World and Europe markets from condiments and sauces as well as the Big Bets highlighted.
At EBITDA, quite simple, our first quarter results were held back by a combination of the volume/mix declines in North America and the business investments to support our growth agenda in the Rest of the World market.
And these more than offset the benefit of ongoing cost savings initiatives in North America and Europe.
That said, we expect this to improve in the second half of the year.
At adjusted EPS, however, we continue to see strong growth, mainly driven by the refinancing of the preferred stock.
Going forward, we expect a combination of profitable top line growth and EBITDA to again become the main drivers of the EPS growth for the full year.
Now I will hand it over to George and <UNK> to highlight our performance in each reporting segment and what we expect in each area going forward.
George.
Thank you, <UNK>, and good afternoon, everyone.
Let's turn to Slide 4 and our performance in the United States.
There is no questioning the slow start to 2017 with greater-than-expected declines in January and February both for Kraft Heinz and the food industry in general.
However, we saw marked improvement as the quarter progressed, and we feel good about the early read of Easter trading and the balance of the year, especially the second half.
Let's start with the 2 areas that represented headwinds to us in Q1 versus prior year.
The first includes several calendar changes versus the prior year.
As we highlighted on our Q4 call, we faced a shift in our merchandising windows versus last year, driven by Easter timing and the impact on measured channel consumption as well as our market share, where we typically over-index during that period.
We also experienced 1 less day in the quarter due to comparisons with leap year in 2016 as well as a delay in tax returns from February last year to March this year.
That impacted families that claimed child tax credits.
Importantly, these families are a big, core component of the Kraft Heinz consumer base.
Together, these changes in the calendar versus last year drove more than half of the 3.6% decline in measured channels category growth and market share you can see in the chart on the right.
The second factor is distribution losses of certain less profitable products and measured channels, primarily club, that affected our consumption numbers in certain cheese and meat categories.
Beyond that, the combination of our nonmeasured channel performance and other trade-related impacts essentially offset one another.
On our last call, I also mentioned that we exited the year with some of our Q4 shipments needing to be worked off in January.
While this did, in fact, occur, it was partially offset by some shipments related to retailer demand for early Easter builds in certain categories like cream cheese.
Going forward, however, I do feel good about our chances of driving sequential improvement in organic growth from Q1 to Q2, and more importantly, from Q2 through the second half of the year.
As a start, we've already seen more favorable consumption trends in both March and April.
Also, our Big Bets that are now in the market are driving consumption gains, including double-digit growth in frozen entr\u0102\u0160es after years of decline behind the successful introductions of Devour and SMARTMADE brands.
We also had strong growth in our Mac & Cheese portfolio from renovation and innovation last year as well as ongoing innovation-lead growth in Lunchables.
And we have more to come, including new ways to enjoy Philly with the launch of Philadelphia Cheesecake Cups, along with bagel chips and cream cheese dips, which have had strong initial consumer response; the launch of Capri Sun Sport and Cracker Barrel Oven Baked Mac & Cheese; as well as the renovation of our Oscar Mayer hotdog line with simpler ingredients, no nitrites or nitrates, no artificial preservatives, no by-product and no change in the price.
Importantly, as we begin to complete key modernization projects within our footprint activity and remove a self-imposed restriction on introducing new products in our meat business, we will start to increase both innovation and renovation activities to improve our performance in challenged categories, particularly at the back half of the year.
And beginning in Q2, you're going to start to see us better leverage Kraft Heinz scale at retail.
This will come in the form of increased in-store activity with several scale events in Q2, including Easter, Memorial Day and Feed your Family, Feed the World scale event we launched just last week as part of our fight to end the global hunger that <UNK> mentioned earlier.
With that, I'll turn it over to <UNK>.
Ken, this is <UNK>.
Sorry, I don't remember we mentioning it during the call, but in terms of the gross margin, which is pretty much flat year-over-year, it's kind of encouraging to us given the commodity headwind that we had this quarter comparing to the prior year's quarter, first quarter, and also the geographic mix that we have this year with the decline of the higher-margin business in North America.
<UNK>, here's <UNK>.
Thanks for the question.
Look, I think like you said, we need to separate what's perception and what are facts, right.
And so if you think about our culture and what it's all about, it's actually quite simple and very consistent over decades.
It's all about ownership, meritocracy, high performance, [growth programs] and dreaming big.
It's all about those 5 things.
And I truly believe those 5 things are applicable in many companies, in many segments and so on.
So to this culture we have, and so I don't think it will be more difficult or easier to do any other transaction.
About the perception, and again, I think you pointed well, we ---+ it's a little different story, right.
Because when people think about cost-cutting and so on, we're much more in line to get efficient, to fuel and invest behind profitable growth.
That's what we're going to do, right.
Our selling expansion is going up.
Our working dollar is going up.
Exactly, our go-to-market capability is going up because those are things we believe, for the long run, can build profitable growth like we're here for.
So in that sense, you may be right, there is a perception problem or not.
That's not for us to judge.
I can say that the values we have, those 5 things I just mentioned, we truly believe can be applicable in many companies and many segments.
Rob, it's <UNK>.
In respect to Canada, I think it's a very hard question given our weak performance in the quarter, right.
Yes, we are satisfied with the agreements we reached.
We reached 5 agreements with our top clients.
That's about 80% of our sales in the beginning of March.
And so ---+ and the fact that took us a little longer to achieve those agreements will affect especially the inventory and activities we had in January and February that's reflected in the results we are all seeing, right.
Given what we're seeing now in April and May, we're already seeing the level of events and inventory coming back to normal and the planning, looking at second half, is a much stronger one.
So we truly believe you're going to see sequentially better results as we move in the country.
Before moving to the U.S., I think it's important to say that we didn't believe at that time in January we had agreements with what was a win-win situation with our partners, the retailers ---+ discussions about ---+ between consumption and shipment, the levels of profitability and price points in the market.
All of these make us pause and say, hey, it's better to delay a little bit the agreements but get the right spot to have a win-win situation, what we believe we have moving forward.
Again, what's not ---+ without paying like we're seeing the results, I just described it.
But we're confident that the performance will be improving from now on.
George, can you take the U.S., please.
<UNK>, yes.
Look, I strongly disagree with this statement.
And if you see it, actually, our model has been working for many, many, many years, decades and so.
And if you look at the facts and data, you're going to see we're growing organic rates pretty much in line with average with our peers, but with ---+ the profitability level we have today allows us to invest strongly behind our brands and product quality.
So with that in mind, our strategy really continues to be focusing on creating profitable growth within the company through really 4 things: first, Big Bet innovation, doing bolder and stronger product development; second, achieving a higher share of voice with more working media dollars behind our brands; third, investing behind our go-to-market capabilities, touching the shelves in a much more structured way; and fourth, achieving the operation efficiencies so we can support and invest behind growth.
Those are the 4 things we have been doing since the merger and the things we'll continue to build moving forward.
So I strongly disagree with this statement.
Sure.
If I think about ---+ just let me step back to give more color on the main impacts we had in the quarter.
So pretty much our North America EBITDA declined around $40 million, $45 million.
The main impact we had was driven by volume/mix.
And this impact offset the savings initiatives on the $100 million that we have, additional savings and the pricing we got in the quarter.
So pretty much we had the commodity headwinds we faced this quarter being really responsible of the size of EBITDA that declined.
Prior year, in the same quarter, we had a much bigger favorability in that, almost twice the size if you go back to Q1 '16.
A question on cash flow.
Your cash balance ended a lot lower than we thought this quarter.
It looks like a lot of working capital leakage.
Is this timing-oriented.
What exactly drove that.
No ---+ yes.
So you're right, the majority of the cash declines we had was pretty much driven by typical seasonal working capital.
Q1 is a quarter that, I think, normally lose a lot of working capital.
There's a singularity on that.
And on top of that, we had inventory increase to prepare because we're preparing to all the footprint activities we are going to execute during the year.
So the majority of this is just timing, and we expect recovering in the following quarters.
Okay, good to hear.
And then turning your attention outside of the U.S. Can you give us a sense of the magnitude of reinvestment in the Rest of the World.
Because, jeez, the EBITDA decline on ---+ prior year EBITDA declines for Rest of World and your combined, from a headline perspective, is discouraging to see.
I think when I see that ---+ just to restart, we are still seeing that.
And we said that before, that we would have ---+ had investments in the Rest of the World business.
The growth is coming, and we expect the growth even to ramp up going forward.
And I think to better answer the question, we are still seeing the margin there at around 20% being representative for the margin that we're going to see in this unit going forward.
And <UNK>, just to add, on the commercial side, like we said before, a lot of the growth are coming, really, from 2 venues, right.
One is whitespace.
And so penetrating new category that we established ourselves like cheese in the Middle East, cheese in Russia, Kraft sauces in Europe, Australia and New Zealand; the nuts business in China and U.K.; Mac & Cheese in Latin America and U.K. So you have the core.
And not only the whitespace, you have also the core that's pretty much the beans, soup in New Zealand and Australia and condiments and sauces almost everywhere.
It's still growing strongly on the Rest of the World.
So we will continue to see us investing behind and supporting this growth.
So looking at that, it's very in line what we have been saying we'll be doing in ---+ for the rest of the year.
Yes.
Chris, that's very much in line with what you said about the start plan to create the 3 global brands and platforms, right, behind Kraft, Heinz and Planters.
It's still early stage, but I think the most part of the countries we wanted to penetrate on '17, we already create the supply chain.
And that's exactly the whitespace I was talking about early on when we talked about we're growing or we're starting to penetrate on cheese, we're starting to grow on nuts, U.K., China and now going to continue to Continental Europe, Mac & Cheese in Brazil and U.K. and so on.
So those brands are growing in line with our expectations for the year, and we're starting to accelerate as much as we can.
That being said, given the size of the business and so on, the magnitude they have is still not significant to, for example, offset our performance we had in the United States and Canada.
<UNK>, this is <UNK>.
So to think about the way that we think about our M&A framework, which it hasn't changed since the beginning, and the framework is pretty much that we want to own brands that we will have all these brands for the long run, brands with strong equity, strong relative market share, brands that can travel.
But we also analyze a lot how the business operates, the go-to-market of the business and more important than that, how the business operates better ---+ how they would operate better, how they will grow fast being together, okay.
And of course, during this analysis, we take everything into consideration, including all the synergies that we have, all the options that we have in terms of getting a better performance.
And again, everything that you said is always to improve our portfolio, right, when we have this type of framework.
And more important and also very important, that we're always going to be very, very disciplined on price.
<UNK>, so it's <UNK> again.
So we when we enter the second year of the integration, it's much better to track for cumulative savings than trying to track a run rate given the structure of our savings that is net of inflation and net of investment.
So we ended prior year at $1.2 billion cumulative savings.
We are ending this first quarter at $1.3 billion level, and we said that we're still in the path to get to $1.7 billion.
So out of the $500 million that we expect to deliver this year, additional, we delivered $100 million in the first quarter.
And again, we still have $400 million to deliver going forward in the next 4 ---+ 3 quarters.
And again, you're right that we said that we expect additional savings ---+ the majority of the savings to be in the second half.
Jon, the answer to your first question is, quite frankly, no.
There were places we wanted to increase cost that will sell in the market and we did.
Sometimes we go after the sales on the things that have been working.
And George talked about like the renovation, the Mac & Cheese, the hotdog campaign we're starting now in the United States, the Philadelphia Cheesecake, the Heinz Serious (sic) [Seriously] Good in Europe, the Heinz Serious (sic) seriously Good Mayonnaise in Brazil and Australia, Planters in China, Planters in Russia.
If we should not have grown even more, that's something we ask.
But that being said, there was absolutely no efficiencies or something that took over the capacity of the company to generate the things I said before: To focus on Big Bets, to focus on go-to-market capability, to grow our share of voice behind our brands and so.
So it's a no.
On the second part of your question about why we believe we can accelerate the growth on the Rest of the World, because we're still underpenetrated in most parts of those markets, right, we see our size of the business in countries like China, Russia, Brazil, Eastern Europe, Middle East, Indonesia, even developed countries like Japan.
And so it is still ---+ we can be much bigger through our cohort categories that we already operate in whitespace that I mentioned.
So we are confident in our capacity through the global brands and the local [juries] we have to generate profitable growth.
<UNK>, this is <UNK>.
So on the first question, let me start from there.
So the first question was about the divestiture.
So according to the divestiture of the brand, today, we feel comfortable with the brands and the category that we operate.
We think we have scale and we operate well there.
Again, as soon as if we decide to divest any categories or any brand in any specific geography, we will communicate this properly to the market.
So related to the Unilever potential transaction, we really believe that, as I said in the M&A framework, it is kind of ---+ again, if you go back here in terms of only consumer brands, brands with a strong market share, brands that can travel, similar go-to-market, similar operation ---+ I think, at the end of the day, these 2 segments of the consumer product goods are very similar.
And that's the reason why we see also many companies operating brands for consumers, maybe sometimes food, sometimes personal care, sometimes health care.
| 2017_KHC |
2017 | LHCG | LHCG
#Thank you, Vince, and welcome, everyone, to LHC Group's Earnings Conference Call for the third quarter ended September 30, 2017.
Everyone should have received a copy of our earnings release.
If not, you may obtain a copy along with other key information about LHC Group and the industry on our website.
In a moment, we'll hear from <UNK> <UNK>, Chairman and Chief Executive Officer; Don <UNK>, President and Chief Operating Officer; and Josh <UNK>, Chief Financial Officer of LHC Group.
Before that, I would like to remind everyone that statements included in this conference call and in our press release may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act.
These statements include, but are not limited to, comments regarding our financial results for 2017 and beyond.
Actual results could differ materially from those projected in forward-looking statements because of a number of risk factors and uncertainties, which are discussed in our annual and quarterly SEC filings.
LHC Group shall have no obligation to update the information provided on this call to reflect subsequent events.
Now, I'm pleased to introduce the Chairman and CEO of LHC Group, <UNK> <UNK>.
Thank you, <UNK>, and good morning, everyone.
Thanks for being with us today.
As part of our CHRISTUS joint venture, we entered the San Antonio area.
With the tragic events yesterday in Sutherland Springs, Texas, certainly our thoughts and prayers are with the community as well as with our LHC Group family members and patients who are directly and indirectly affected.
We also continue to keep in mind our LHC Group family members and patients and all who are still dealing with the impact of hurricanes Harvey and Irma.
Now, turning to the business at hand.
I know that the recent announcement of CMS related to the proposed HHGM reimbursement system will be a hot topic this morning.
Before we cover that, I want to make sure as a team that we first spend some time on our third quarter performance, talk about our organic and joint venture growth strategies and set the table for how we're thinking about 2018.
After nearly 2 straight years of strong growth and momentum, we seem to set the bar higher each quarter.
I'm pleased that we've been able to maintain that growth pace through the combination of organic revenue growth and contributions from a very active acquisition strategy driven by our joint ventures.
This quarter clearly demonstrates how we have been able to create differentiation through the strength of our business model and company-wide commitment to delivering quality and patient satisfaction.
Our intense focus on quality patient care aligns with our culture, core mission and values to take care of our patients.
This focus also places us high on the list of hospitals, integrated health systems, managed-care organizations, ACOs and government health care programs that need home health and hospice partners who can deliver on the goals of value-based care to improve quality while reducing cost.
Our industry is well positioned to fill this need and LHC Group is in high demand due our relentless commitment to quality national scale throughout the post-acute continuum and a proven track record over the past 20-plus years of partnering with many of the leading hospitals and health systems in the country.
Based on our success to-date with 75 joint venture partners, we're confident in the strategic opportunity and our unique ability to drive growth in all segments of our business.
Turning to our most recent joint ventures, I'm happy to report that Baptist Memorial agencies are fully integrated and benefiting from the structure and sales capabilities of our operations team.
The third phase of our LifePoint joint venture is now complete, with 9 remaining locations having converted from managed to own locations this quarter.
We now have 28 home health and 13 hospice locations in the LifePoint joint venture and are actively pursuing de novo projects and acquisitions together.
The CHRISTUS joint venture with 21 locations in 4 states was finalized on September 1st, bringing us to 108 million of acquired revenues to-date in 2017, a new record for LHC Group.
We're pleased with the progress we've made together to begin migrating these agencies into our operation model.
This is a process we do well and we expect to fully integrate across all locations by year-end and fully expect that they will be contributing to earnings in the first quarter and throughout 2018.
As many of you saw last Wednesday, CMS issued its final rule for 2018, but did not finalize implementation of the Home Health Groupings Model, or HHGM.
We would like to thank CMS, OMB, the 49 Senators and 174 House Members who engaged through sign-on letters and the many other political leaders and thousands of concerned home health stakeholders who undertook a grassroots effort to help preserve access to home health care for millions of seniors, veterans, recovering patients and others who depend on these services every day.
Their actions will enable us to continue working to improve the quality of life for America's most needy and vulnerable population.
We appreciate CMS' willingness to take additional time to further engage with stakeholders to move towards a system that shifts the focus from volume of services to a more value-based patient-centered model and we look forward to participating in that process.
The final ruling on 2018 is largely consistent with the original proposal.
There are no surprises here, with an overall impact to the industry of a decrease in payment of $80 million or 4/10ths of a percent, as estimated by CMS.
And should the rural add-on ultimately be renewed, there would actually be a $20 million positive pickup overall for the industry.
There has never been a stronger commitment to home health whether it's from government health care programs, managed-care payers or hospitals and integrated health systems.
Our business model is based on driving organic growth through a relentless focus on quality and patient satisfaction and on meeting the growing demand from our health care partners to coordinated, focused acute care in home health, hospice and community-based settings with a provider like LHC Group who shares their mission and vision for delivering patient-centered care with a collaborative culture.
This model uniquely positions us to drive as the industry transitions to value-based reimbursement coordinated care and the ongoing consolidation in the sector.
We're in an exciting position today because of the quality of the team with whom I'm privileged to work at LHC Group.
They make a difference in the lives of our patients and families every day.
They are the face of LHC Group and the true representation of our brand.
Thank you for the outstanding job you do and for all your contribution to deliver our current and long-term success.
Now, here's Josh to provide some color on our financial results and increased guidance.
Josh.
Thank you, <UNK>, and good morning, everyone.
Thank you all for joining our call and for your continued interest in LHC Group.
Let me once again begin by saying thank you to all of our clinical professionals who continue to lead the industry with the high quality patient care and exceptional service you provide to the patients, families and communities of those patients that we're so blessed to care for and all of the LHC Group family members who provide support and service to them every day.
Because of all of you, LHC Group continues to be successful in fulfilling its mission to care for the elderly and at-risk population in our service area and we are able to report the results of another strong quarter.
With regard to our financial results, net service revenue increased 18.2% and net income increased 13.5% in the third quarter of 2017 as compared to the third quarter of 2016.
Net income attributable to LHC Group per diluted share was $0.61 for the third quarter.
Included in our EPS of $0.61 was negative $0.03, 2 of which is associated with expenses related to the CHRISTUS joint venture transaction which closed on September 1st and 1 of which is related to the one-time closure cost of an agency in Oklahoma.
Otherwise, our adjusted net income attributable to LHC Group per diluted share is $0.64 for the third quarter.
Home health same-store revenue grew 10.3% in the third quarter due to our growth in same-store admissions in home health of 6.2% and an approximate 4% increase in revenue per episode.
On a consolidated basis, our gross margin was 36.7% of revenue in the third quarter as compared to 39% of revenue in the third quarter last year.
The decrease in gross margin year-over-year is due to the lower margin contribution from acquisitions that closed in 2017 than the gross margin for our more mature agencies.
Excluding these recent acquisitions, our consolidated gross margin would be 38.6% for the third quarter.
Home Health gross margin was 38.1% for the third quarter compared to 40.3% for the same period last year.
Excluding recent acquisitions, Home Health gross margin would have been 40%.
Moving to Hospice, Hospice gross margin was 33.5% for the third quarter of 2017 compared to 39.9% for the same period in 2016.
Excluding recent acquisitions, our Hospice gross margin would have been 35.7%.
Hospice gross margins are also being pressured by the decline in same-store admissions we experienced during the third quarter that Don will touch on here in a moment.
Now, moving on to general and administrative expenses, our G&A expense was 27.7% of revenue in the third quarter as compared to 29% for the same period of 2016.
Our G&A expense is lower on a sequential basis, down from 28.4% we experienced in the second quarter of this year.
The improvement in G&A expense as a percent of revenue is due to our continuous cost control efforts while growing revenue and generating additional operating leverage.
Next, our bad debt expense represented 1.2% of revenue in the third quarter of this year as compared to 1.4% in last year's third quarter.
Our lower bad debt expense is the result of continuous improvements on home health commercial and managed-care collections, improvement in our overall accounts receivable agings and fewer write-offs.
For the 9 months ended September 30, the company has continued to see significant progress with respect to its cash collections on home health receivables.
As I mentioned each of the last 2 quarters, a key contributor to our more timely cash collections is the continued maturity of our back office and field operations related both to our point of care platform and to other technology advancements in our reporting and analytics.
Also, the key performance indicators that we monitor on home heath receivables indicate substantial improvement from year-ended December 31, 2016, such as cash collections have increased 82 basis points from 98.9% to 99.7% of revenue, write-offs have decreased by 18.8% from 1.6 to 1.3 and accounts receivable over 180 days have decreased by 10.9% from 23% to 20.5% of total AR.
We also continue to see progress with respect to our cash collections on hospice receivables.
We collected 101% of revenue for the third quarter of 2017 and accounts receivable in excess of 180 days has gone from 20% of total receivables to 15% since December 31st.
For the 9 months ended September 30, 2017, our operating income as a percent of revenue has increased 5.3%, up to 9%, which is up from 7.6% in the same period of last year.
As evidenced by our recent new joint ventures with CHRISTUS Health, Baptist Memorial Health Care and LifePoint, we continue to have great momentum rolling into 2018.
Between these recent JVs and a couple of our smaller transactions that came on board at various times throughout the year, we have accumulated approximately $180 million in acquired annual revenue that will be fully recognized in 2018, up from approximately $85 million from these transactions we expect to recognize this year.
Additionally, I cannot be more excited about our robust pipeline of potential joint ventures and freestanding opportunities, while we remain well positioned to fund these pipeline opportunities by still having $95 million available on our line of credit.
Turning now to our annual guidance for the year, we are raising our fiscal year 2017 guidance for net service revenue to now be in an expected range of $1.05 billion to $1.06 billion from the previous range of $1.03 billion to $1.045 and GAAP earnings per diluted share to be in an expected range of $2.35 to $2.40 from the previous range of $2.30 to $2.40.
Our guidance does include the expenses of approximately $0.03 per fully diluted share for the third quarter of 2017 related to the CHRISTUS joint venture transaction and our 1 agency closure in Oklahoma I spoke about earlier.
Our guidance ranges do not take into account, however, the impact the future reimbursement changes, if any; future acquisitions, if made; de novo locations, if opened; or future legal expenses, if necessary.
We do continue to estimate that the CHRISTUS JV will be slightly less dilutive in Q4 than it was in Q3, but will improve steadily and contribute to our earnings in 2018.
For the full year of 2017, we expect gross margin now to be in the range of 37.2% to 37.6%, general and administrative expense as a percent of revenue to now be in the range of 28% to 28.4%, bad debt as a percent of revenue to be in the range of 1.1% to 1.3%, and excluding the discrete tax item related to the stock based compensation that resulted in an excess tax benefit in Q1, our tax rate to be in the range of 41% to 41.5%.
That concludes my prepared remarks and I'm happy to further discuss during Q&A.
I'm now pleased to turn the call over to Don.
Thank you, Josh, and good morning, everyone.
You know overall growth is built on both organic and external growth such as acquisitions, joint ventures and de novo projects and we are committed to extending our track record of results in home health, hospice and community-based services.
Focusing on home health for a bit, our organic home health admissions were up 6.2% in the third quarter and 9.7% year-to-date and we continued to experience increased acuity among these admissions.
Same-store admissions to home health from our hospital partners increased 10.9% in the third quarter of 2017 compared with the same period a year ago, reinforcing the value proposition that we provide to hospitals and health systems through coordinated care.
The addition of 63 home health, hospice and community-based health locations in the first 9 months has led to a total increase in admissions of 17.7% for the quarter and we believe quality is the #1 factor behind the growth in both organic and non-organic admissions.
We continue to be proud of our leadership in the CMS Star ratings for home health quality and patient satisfaction, and with 96% of our locations having 4 stars or greater in the most recent release, we're very pleased; and furthermore, we are also proud that more than 70% of our home health locations have now earned home care elite rankings; lastly, and LHC Group remains the only national home health provider that is 100% accredited by the Joint Commission.
Quality of course drives our sales effectiveness, and along with our ability to provide a full and scaled continuum of post-acute care, that has made us an attractive joint venture partner to a growing number of hospitals and health systems.
These partners know we are a demonstrated leader in home health.
For the quality ratings, we recently produced a score of 4.51 for the October report, which is an improvement over 4.50 from the July report and a 4.30 in October of 2016's report.
The national average has been within a range of 3.24 to 3.26 for the last 5 quarters.
We also continue to lead the industry in patient satisfaction Star ratings, with our score of 3.9 compared to the industry average of 3.4.
It is of note that CMS has recently redefined the calculation for this release by changing what's called the cut points, which cause the ratings for all providers to decrease as compared to the previous release and therefore looking a little differently.
In our Hospice segment, margins were slightly compressed, as Josh mentioned, with organic admissions declining by roughly 3.5% from prior year.
We have experienced tremendous growth in our Hospice business over the last several years and our commitment to grow this segment has never been stronger.
To underscore and fulfill this commitment and maximize the potential of our Hospice portfolio, we have bifurcated the operations role by bringing in a second divisional Vice President of operations.
We now have the segment split into 2 regions run by highly experienced and motivated professionals.
And my last note here is we've also promoted one of our top sales managers and leaders to become division Vice President of Market Development for Hospice, candidly a move already proven beneficial Q4 to-date.
In closing, we are delivering on the true potential of LHC Group and are extremely pleased at where we are in executing our operational plans for 2017.
And while we realize the opportunity to always improve areas, we're very proud of the value being created and provided to our patients, payers, partners and shareholders.
And we look forward to a strong finish in this 2017 and an excellent start to the year ahead.
To our LHC Group team, of course thank you for all that you do to make that difference we so often talk about and, yes, for producing these strong results that we've been able to disclose this morning.
Operator, this concludes our prepared remarks and we are now ready to open the floor for questions.
It's a lot of questions, <UNK>.
I'm trying to write them all down.
If I miss anything, just \xe2\u20ac\u201c- I'll let you clean up at the end and come back to me.
So let's talk about what the agency ---+ so we are already in the process of scheduling a joint industry meeting with CMS in the coming weeks as the first meeting after the final rule is out to talk about a path forward.
And what we believe a path forward looks like is a more well thought through model that would not result in higher costs by driving patients upstream and into more costly settings.
That momentum is shifting now, where we see patients move into home health.
We don't want to reverse that.
And that was one of our central arguments that essentially this was a penny wise, pound foolish rule that wasn't well thought out.
The 30-day episodes are something that we don't particularly like, but with the right case mix, it could be something that the industry could live with.
We think it needs a lot more discussion.
One thing that really resonated with CMS was the industry consensus without dissent in support of value-based purchasing.
They had never seen that from the industry before and I think it had a great deal to do with their decision to pull the rule and allow us to come back to the table.
So that's where we are with that.
I think where we land is with a revised model that could be announced in July of '18 for implementation in 2020 or beyond.
That's just what I believe.
I mean we've talked about that.
They haven't agreed to it of course.
But we look forward to engaging with CMS along with our industry colleagues and working diligently toward that.
We've made a commitment to do so and we're definitely going to live up to that commitment.
With regard to the rural add-on, we feel good about the rural add-on.
I mean there's never been any lack of support for that.
I know that there's a Senate finance proposal that's out there and I view that as a starting point.
But we have other strategies that play in the House for support of the rural add-on, the 3% rural add-on.
One idea that's tossed out is a 2-year extension of the 3% rural add-on, which is something that we would support if that got us through this legislative year.
I personally don't think there's a lot of risk of the rural add-on (inaudible).
<UNK>, you're thinking about it spot on.
Yes, we're going to have a little bit more revenue for CHRISTUS in the fourth quarter.
But as I said in my prepared remarks, it was a drag both in one-time cost as well as operationally that we've experienced in Q3.
And we expect it to improve slightly in Q4, but still not really be contributing and be a little bit dilutive to the quarter.
And then heading into next year, it will be a real contributor for us.
I'll answer not from my perspective.
It really is the acquisitions that are pulling that down.
But, Don, I don't know if you've got anything operationally to add.
Going back to <UNK>'s last observation about the VPE going up, I think that is in direct correlation to my prepared comments about the acuity going up.
And honestly, <UNK>, I don't see that moving from where it is now because of the acquisition fall-ins.
I think that we were around 18.7 all-in on those visits per episode and I wouldn't go any higher than that.
I think you're going to vibrate right there.
So just 2 quick ---+ to clarify things on the opening statements, including comments about the hurricanes.
So was there any meaningful ---+ or impact from hurricanes that you could quantify.
And then second on the ---+ clarification on the ---+ those sort of one-time costs related to deal and closure.
It's about maybe $1 million pretax, so I assume it's mostly in G&A.
And any particular segment that was more impacted than the others or should we kind of think about it spreading equally among the segments.
I'll tell you what, if Josh will go and attack the second part of your question first on the cost side.
<UNK>, you're spot on as well on the roughly $1 million in the quarter.
The majority of that is in G&A.
On the closure side, we had some intangible costs that ran through G&A.
There were some severance and associated costs that would be in SWB, but not material.
And then on the CHRISTUS side of the house, almost all of that is in G&A.
So you're right there.
And then as far as the hurricane effect, Don, do you want to take that.
Yes, we did experience as a company ---+ relatively more so with our CHRISTUS, newly acquired CHRISTUS, assets, we did experience some interruptions from the hurricanes.
But in truth, overall it is immaterial and we didn't want to call that out because really there were other factors that helped us lift through that.
My only other footnote was even though hospice ---+ and I disclosed why that was, we did have some effect especially on the East Coast in our Halcyon operations in the Greater Atlanta area.
But overall, <UNK>, that was not really a contributory factor for us and that's why we didn't call it out.
And if I may, in terms of the Home Health margins, which declined slightly year-over-year ---+ so cost of services increased 40 basis points.
I guess you just mentioned about the increased acuity.
So is that how we should be thinking about it.
Because also I just want to make sure any comments there around just labor costs in terms of any pressure you're seeing, because we are seeing that some providers, not all, but in some regions seeing some pressure.
So I just want to clarify if there's anything on the labor cost side.
Don and I will tag team this one as well.
I'll answer your first part of your question, which is, no, I wouldn't add any incremental cost for the acuity of the patients going forward.
As Don mentioned in his prepared remarks, I think we're pretty stabilized there.
That would have caused a little bit of the uptick that you're seeing, but I wouldn't run that out anymore than it is today.
And then, Don, if you want to take the second part.
Yes, I'd probably tag on and say the same thing for wage pressures.
Of course by provider and region there are some more than other pressures and availability and supply and demand of certain clinicians certainly pop up more so than in the portfolio.
But I wouldn't bake anything for that.
As a matter of fact to be candid, our fill rate has never been better and our vacancy rate never been lower.
So we feel good about going into 2018 with where we are with our labor.
If I may just squeeze a more longer term type question in terms of the outlook and what do you see with Medicare Advantage Plans and any progress in negotiating contracts there in terms of increasing the rate there per visit or shifting those into episodic contracts.
So the progress continues with managed-care negotiations.
To put a number on it, the 5% increase ---+
Yes, increase in the margins.
---+ in margins is what we've seen year-to-date.
But it's ---+ we're dealing with so many managed-care companies, so one contract only moves the needle so much.
To maybe frame of how it works, we're trying to move more towards value-based models, where we achieve a better rate based on our performance.
And we're still very much in the ---+ I would still say in the piloting phase.
I mean the more successful contracts we have a history around that we can show other payers, then we have more acceptance to that model and are able to grow our business towards those value-based models and that's what increases our margins.
So I'm happy with the progress.
It's just you have to be very patient in this process, because the managed-care payers want to make sure that that they're going to see the value before they make the value-based payments to you.
And they're ---+ we don't want to take on a lot of risk at one time.
So proof of concept is really important.
I think you'll see that ramping up as we go into 2018, because we're getting very comfortable with the value-based models we have in place.
I think with the proposed rule, the calculations we were doing, we were in line with the industry average.
And then from a rural add-on perspective, the percent that we would add back for us ---+ the annual effect on us for that is around $6 million in revenue.
So I think that probably gets you to what you're looking for.
The short answer there is no.
When we saw our volumes go down ---+ well, let me then take you back.
With us now being at 92 locations, we knew internally as a management team that hospice was somewhat of an inflection point.
And when we saw volumes going down, the changes that we made during the quarter were already in queue to be made.
So that's one point.
Admittedly, we didn't know we would decay that far, but we did.
And then we had to decide do you then take your cost down like we normally do if we had census decay.
And because we're so confident in our growth, we didn't want to do that.
So that was some of the margin compression.
And it's simple as the volume went down and the cost base on EPS ---+ then census stayed the same.
But no, no cap, nothing else.
And just to add further color, I do believe in the last call I guided the overall growth to be in between 5% and 7% for the year in Hospice.
And in my prepared remarks I talked about our divisional leader making an impact already.
We're tracking at 4.87 as we sit today.
All told, I think what I'm trying to impress upon you with a question is that it was transient in the quarter and we feel good about where we are.
Well, I\
I don't like to use the term wide open, because we're not kind of wide open at anything.
I mean everything is pretty well planned.
We view home health as being the lead still in every community we go in.
So when LHC posts up in a community, we want to be there in home health ---+ with home health first.
And then we see hospice and personal care services as natural bolt-ons to home health, when you already have established yourself as a leading home health provider in a community.
And for us, when the opportunity presents itself to be in a post up in a community with those 3 service lines and be attached to a leading hospital or health system, that's just the perfect scenario, if you will.
So we're still marching down that path and that's our vision.
And there are always exceptions for that.
In a community where there's a highly respected hospice, for example, that has a huge following and is very well supported by the community, you naturally wouldn't put a hospice in that community because it wouldn't make sense.
And then there are states where reimbursement for personal care services make it just not feasible to support the operations there, so certainly we wouldn't do that.
So there are exceptions.
But generally speaking, if reimbursement was there ---+ and the perfect combination is to have those 3 service lines all in one building with 3 separate suites, where the staff shares common working area and works together as a team.
That's when the patients really win and we can provide the most value through efficiency for whoever the payers are.
<UNK>, that's a great question, and I would answer it like this.
We've got LifePoint, as you know, phased in in 3 components throughout the year: Phase 1 in January and then Phase 2 in April and Phase 3 in September.
We're already seeing improvements obviously in Phases 1 and 2, so those should really start helping heading into the first quarter of next year.
Baptist came on board in the second quarter and then you've got CHRISTUS that came on board September.
So they each take that kind of 12 to 18 months that we've mentioned in the past of really getting them up to our same-store.
So I think some of them will be at that level in Q1 of next year and others kind of into Q2, Q3.
But I think all in, that incremental $95 million of revenue that we're not even recognizing this year in those acquisitions will be very accretive to next year 2018.
Yes.
The answer is yes.
We have 40 providers ---+ I guess I want to look at <UNK> and make sure that we want to put a number to it.
But inside of that, we only had in same-store a select number 5 that didn't have the increase to the value-based purchasing uptick.
But our acquisitions is what drove that down.
So all in, it was just under 0.5% for us in apples to apples revenue comparison.
And candidly, acquisition role independent, we see that as the floor because those operations are all going to improve in quality as we go forward.
<UNK>, any color to that.
No, that's it.
So on a revenue standpoint, it's about $0.5 million for 2018.
It's the latter.
And our innovation teams and some of the quality things that we've done to attain those star ratings is really attributable to that.
It really is the epitome of opening up the patient base.
And <UNK> has talked about this I think for every earnings call.
We truly are seeing the shift from SNFs into home health.
And when you do that, obviously you're going to get that sicker and more acuity-wise patient.
And that's really, honestly effective execution on our part because that's exactly what we're targeting.
Okay, thank you, Operator.
And thank you everyone for dialing in this morning once again.
And as always, if you have any follow-up questions, please feel free to reach out to <UNK>.
And if you need to speak with anyone on the management team, we will always make ourselves available to you.
Thank you.
| 2017_LHCG |
2017 | MCY | MCY
#Thank you very much.
I would like to welcome everyone to Mercury's fourth-quarter conference call.
I'm Gabe <UNK>, President and CEO.
In the room with me is <UNK> <UNK>, Senior Vice President and CFO; <UNK> <UNK>, Vice President and Chief Investment Officer, and Robert Houlihan, Vice President and Chief Product Officer.
Before we take questions, we will make a few comments regarding the quarter.
Our fourth-quarter operating earnings were $0.58 per share compared to $0.52 per share in the fourth-quarter of 2015.
The improvement in operating earnings was primarily due to an improvement in the combined ratio from 100.2% in the fourth-quarter of 2015 to 99.2% in the fourth-quarter of 2016.
In California, we recorded an increase in personal auto severity in the mid single-digit range for the 2016 accident year and an increase in frequency in the low single-digits.
To help offset the increase in loss trends, we have been increasing rates in California.
Last year in our personal auto business in California, we implemented a 5% rate increase in late March 2016 for Mercury Insurance Company and a 6.9% rate increase in June 2016 for California Automobile Insurance Company.
In addition, a 6.9% rate increase is pending approval with the Department of Insurance for California Automobile Insurance Company.
Personal auto premiums in Mercury Insurance Company represents about half of our Companywide premiums earned and California Automobile Insurance Company represents about 15% of our Companywide premiums earned.
We have observed a significant number of our competitors also file for rate increases in California.
Outside of California, increasing loss cost trends have negatively impacted our results.
To address profitability outside of California, we have been increasing rates and tightening our underwriting.
The expense ratio in the quarter declined to 24.9% from 25.9% in the fourth quarter of 2015.
The decrease in the expense ratio was primarily due to lower profitability related accruals.
Net advertising expense in the quarter was $5.5 million compared to $5 million in the fourth quarter of 2015.
Premiums written grew 2.9% in the quarter, primarily due to higher average premiums for policy.
Companywide, [five] passenger auto new business applications submitted to the Company decreased approximately 8% in the fourth-quarter of 2016 as we focused on improving profitability in our five passenger auto line.
Companywide, homeowners applications increased about 7% in the fourth-quarter of 2016.
In California, we posted premiums-written growth of 5.4%.
Outside of California, premiums-written decreased by 8.1% in the quarter.
With that brief background, we will now take questions.
I think that we're getting close to filing that, I would say within the next probably 30 to 60 days we plan on making that filing and I anticipate that the class plan filing will come with about low single-digit rate increase.
Anywhere from ---+ up to 5%, let's say, is what we're expecting right now.
I think that's going to vary by company depending on how early they are in the cycle with respect to getting their rate approvals.
We started increasing rates, both inside and outside of California, quite some time ago so we feel that from a rate perspective 2017 is going to be much better year for us, depending on what the loss trends continue to do, so I think it's going to vary by company.
There's some companies that maybe were behind a little bit and may take a little longer for the rate to catch up to the loss cost trends.
So I do think it's going to be company specific, depending on where they're at in the cycle but there's no question that there's pressure, that severity trends are definitely up, really in bodily injury, severity, material damage, severity is up as well.
So there's no question that there's increased loss-cost pressure.
If that stabilizes though, I think that the rate action we've taken is really going to help profitability in 2017.
It's pretty comparable mid ---+ high mid single-digits on severity and low single-digits on frequency.
We just saw the latest Fast Track in California, pure premiums running close to 10%, frequency about 5%, severity about 5%, so I think we're a little under Fast Track industry, but it's still mid to upper single-digits for us.
And as for the 12-month period, I think---+
Annualized.
Ending in September because they are a quarter behind.
Yes, <UNK>.
We mark-to-market the entire portfolio, so we did ---+ what most of that is just market changes in the quarter, particularly with fixed income having sold off.
But there is a small ---+ of that we took about $12 million in losses that we realized against capital gains from prior periods, so there's that in there as well.
And that was part of tax planning, utilizing expiring capital gains.
Our portfolio is classified as trading, so everything that flows through the income statement has a realized gain or loss, changes in market value, as well.
Dating back to 2008.
It's generally for the year ---+ it's generally California and Florida personal auto and commercial auto and about half of it is from the 2015 accident year and the rest is kind of spread across the proceeding couple ---+ two/three years.
Yes, so we've taken substantial rate beginning in 2015 and into 2016, so our belief is that the rates that we're earning in at 2016 have out paced or at least equaled the loss trends.
I want to say the accident year combined ratio is at a 98% and we are, for 2016, it varies by state, but overall we are anticipating and have recorded higher severity.
In 2016 on an accident-year basis versus 2015, there's no question about that.
We really evaluate it on a year-to-date basis, so we prefer to comment on the year-to-date numbers more the intra-quarter numbers, as far as development goes.
Correct.
No, no there was not.
We think that the premiums to surplus in 2017 will be relatively flat to what it was depending on what happens with our dividends and ---+
We expect our operating earnings in 2017 to be quite a bit better than 2016 and we don't really anticipate 2017 to have a lot of top line growth.
So if those two things are achieved, I don't think you're going to see much movement in the premiums-to-surplus ratio in 2017.
That is certainly the objective.
Yes.
Well, I think El Nino has come a year late, in my opinion.
The forecasters have said that El Nino was coming last year and, in my opinion, they got it a year late because we've had a significant amount of rain.
It took me two and a half hours to get into the office this morning because of the rain.
So there's definitely a lot of rain, and it's going to impact our homeowners results in the first quarter as an example.
We received a lot of rain-related claims in the first quarter.
As far as the fourth quarter goes, <UNK>, do you have any comments on that.
It was a typical fourth quarter, a little bit elevated frequency, but pretty typical.
Well, one, yes, it is and I think 2017.
I don't think we're going to get there probably all the way down there in 2017, but I certainly would expect our objective to be there in 2018.
As far as the bonus accrual for 2017, we expect to pay a bonus.
What that will be is hard to say at this point, but it was zero ---+ bonus accrual was zero for 2016.
In 2017, the anticipation is that there will be some bonus accrual in 2017.
What was the second part of the question.
Advertising is going to be similar, about $40 million or so, 2016 and 2017, we anticipate the advertising spend to be similar.
I think it varies obviously by state and California and we have rain-related events and we follow ISO when they name a cat we follow that definition of a cat and historically ---+ it varies about over the last five years something in the neighborhood of about $24 million, $23 million, something in that neighborhood in cat losses.
This last year, in 2017, was a little higher.
I think it was $27 million in 2016, so we obviously price in for that amount of cat when we make our estimates.
But in California, you're looking at primarily rain-related events.
Outside of California, you have wind events in homeowners that are primarily your biggest exposure in Texas and in the northeast states you have hurricane exposure.
You have fire following earthquake as an exposure here in California.
Wildfires as an exposure here in California, so it does vary a little bit by state.
I don't know, does that answer your question.
Okay.
Well, I'd like to thank everyone for joining us this morning and we look forward to talking to you next quarter.
Thank you very much.
| 2017_MCY |
2016 | AEL | AEL
#Welcome to the American Equity Investment Life Holding Company's Second Quarter 2016 Conference Call.
At this time for opening remarks and introductions, I would like to turn the call over to <UNK> <UNK>, Director of Investor Relations.
Good morning, and welcome to American Equity Investment Life Holding Company's conference call to discuss second quarter 2016 earnings.
Our earnings release and financial supplement can be found on our website at www.american-equity.com.
Presenting on today's call are <UNK> <UNK>, Chief Executive Officer; <UNK> <UNK>, Chief Financial Officer; and <UNK> <UNK>, President of the American Equity Investment Life Insurance Company.
Some of the comments made during this call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act.
There are number of risks and uncertainties that could cause actual results to differ materially from those expressed or implied.
Factors that could cause the actual results to differ materially are discussed in detail on our most recent filings with the SEC.
An audio replay will be available on our website shortly after today's call.
It is now my pleasure to introduce <UNK> <UNK>.
Thank you, <UNK>.
Welcome and thank you for joining us on our second quarter earnings conference call.
Our second quarter financial results had a similar tone as the first quarter.
Sales were strong again at $2.1 billion, and that marks the third consecutive quarter that we exceeded the $2 billion sales threshold.
Our policy holders now entrust us with over $43 billion of their funds, a 2.6% increase from the prior quarter end.
We also enhanced our shareholders' wealth by generating solid profitability and high returns on equity.
Our operating income for the quarter was $50.1 million or $0.60 per diluted common share.
And on a trailing 12-month basis that would translate into a 10.1% operating return on average equity, and if we exclude the effects of DAC unlocking, the return on equity bumps up to 12.3%.
Furthermore, earlier this week we strengthened our capital position by physically settling our two equity forward sales agreements and that generated $135 million of additional capital at an attractive valuation.
Before I turn the call over to <UNK>, I'd also like to mention a change that should be visible to you all.
We are always looking to strengthen our team and earlier this week, Steven Schwartz joined us as Vice President, Investor Relations.
Many of you know, Steven from his prior role as Life Equity Research Analyst at Raymond James, where he covered American Equity for more than 12.5 years.
Needless to say he won't have much of a learning curve in his new position with us and we're delighted to have him at American Equity.
So now let me turn the call over to <UNK> for additional comments on second quarter financial results.
Thank you, <UNK> and <UNK>.
Despite the challenges we face from the low interest rate environment and the DOL fiduciary rule, we are a strong and resilient Company and are confident that we can adapt and thrive as our industry evolves.
The Brexit vote in late June has led to further decline in investment yields and added to the challenges we face from the low interest rates.
We are taking actions to manage our renewal rates, the effects of which will materialize over the next 12 to 15 months.
Changes to new money rates and product terms should also be announced in near future.
A hallmark of our Company is its disciplined investment approach, which seeks to minimize credit risk.
Despite the pressure from lower investment yields; we are not breaking our discipline in taking on excessive credit risks.
One of our key promises to agents and policyholders is that policyholders can trust us with prudent management of their funds, and that we'll be operating and financially healthy for decades to come when those policyholders need their money.
While the DOL rule creates some uncertainty as to our long-term growth rate and the pace of that growth, it has not jeopardized the substantial earnings power of our in-force business; while a favorable outcome to legal challenges to the rule would remove this uncertainty, as <UNK> just discussed, we are positioning ourselves for continued success, should the rule not be delayed or overturned through litigation.
And of course, we're not losing track of the fact that the rule does not apply to non-qualified sales of fixed-indexed annuities.
While our comments on last quarter's call were interpreted by some as American Equity abandoning the fixed-indexed annuity business, nothing could be further from the truth.
FIAs have gained in popularity for a reason, they are attractive products and offer principal protection and guaranteed lifetime income that meets the needs of Americans preparing for or enjoying their retirement.
We believe American Equity remains a viable and growing Company and we'll continue to do so for years to come.
So, thank you for your time and attention this morning.
I will now turn the call over to the operator for questions.
(Operator Instructions) <UNK> <UNK>, FBR.
Hi.
Good morning.
Thanks.
Just wanted to ask a question on RBC, and you mentioned kind of the impact from drift on the credit side, but I was wondering if you could size the impact in the first half from higher sales, and that strain on capital.
The RBC ratio is at 328, I think pro forma ---+ the equity pull down.
Just trying to get a sense of, how much strain there was in the first half on the RBC ratio.
Well, we started out the year at 336%.
Do you know what's in there for [C4].
Not sure.
They could come down enough to avoid a capital raise, but we still have that uncertainty, relative to next year.
If for some reason the DOL rule litigation is successful, we don't want to be sitting there with a shortage of capital when sales opportunities materialize again.
We think that ---+ obviously interest rates are low right now.
The opposite of investing at crappy rates, is that you can borrow it at rates that are in the same market conditions.
So yes, we would understand that there are attractive terms or opportunities out there.
Obviously, we're still a little less than a year away from being able to do anything with the $400 million on a cost-effective basis.
But we had always talked about ---+ we talked about back in our capital offering a year ago, about the alternatives of reinsurance and debt.
And anticipating that, we might need to do one or both of those, depending upon where the sales progression has been.
And even if sales back up this year, we're going to still be ahead of the sales ---+ back up in the second-half, we're still going to be ahead of where sales were estimated to be when we were looking at the ---+ the capital would come from the equity offering.
So, we kind of had in our mind that next phase might be next year, it's been pushed up to this year, and that's one of the possibilities.
And one comment on the reinsurance.
Part of the reason that we opted not to proceed was because we were looking to use some of the cash that we have to fund that, which meant that the potential reinsurance counterparties were going to have to invest that money in the current rate environment.
And that all ---+ the process started before those rates reset to those levels, so once it got into late June, early July, it became clear that the desire to use cash would be an impediment to completing a reinsurance transaction.
No.
I would characterize what's in motion right now is as a bit bigger than the most recent one, but this is the fourth one I think that we've done, it goes all the way back to 2011 now.
I think the highest rate earlier was 30 basis points and I'm gauging these off of the fixed interest rate strategies as the benchmark, so at 40 basis points we're a little bit higher than the previous high of 30 basis points.
I think the third rate adjustment was more in the line of 10 basis points on the fixed rate strategy, so this is a bit bigger.
But we also have perhaps more policies, have already hit minimum guarantees through the previous rate adjustments and relative to the 52 basis points; of course the dynamic is it changes every quarter because we have a totally different mix of liabilities.
So as rate reductions filter in to pull the 52 basis points down, the new business would be added that would incrementally add to it.
And then we obviously have all the other dynamics of policyholder activities as well.
What number did you say Ken.
50.
Well that rate effect will not kick in immediately.
We've mentioned that it ---+ rate adjustments happen on policy anniversaries.
So of that $16 billion to $17 billion, the impact is going to be spread over 12 months starting September 1st as those policies hit their anniversaries and the rate adjustment takes effect.
So you're not going to see any kind of substantial adjustment to the cost of money from rates in Q3.
And also obviously since it starts on September 1, it's only going to be 1/12 of the policy base and I can't tell you how the funds are distributed monthly or quarterly over that number, but obviously the third quarter effect is going to be rather small because it will only be in for one month of the 3 and we'll only pick up 1/12, theoretically 1/12 of the policies.
There is no specific timeframe yet that we would provide although, I would think within a few weeks we'll have a more detailed framework of that.
I think in my view, the declared rate products, I think we said this last time, it doesn't take albeit ---+ there's not a long lead time to getting those products filed.
So, realistically if those things were ready to go by the first of the year that's plenty of time to have new declared rate products in the marketplace.
Although we wouldn't anticipate that those would be sold until come April of 2017, if and when the rule went into effect.
I'm not sure we expressed an opinion that it would get invested in a short period of time.
And certainly that balance has been going up, so it's not going to disappear by the end of this quarter.
Realistically, it could be down by the end of the year.
And we'll continue to follow our process of looking for the appropriate yields, keeping in mind credit quality and the other investment constraints that we have.
Hi, <UNK>.
That's a good question.
I'm not sure, are you talking industry-wide, is that ---+
I don't know the answer to that.
I sometimes speculate it could be DOL paralysis, as people start to look at the rule and figure out as a distribution, a marketing company, a producer how it's going to affect them or as insurance companies we all get a little bit distracted over the DOL now.
So, that's kind of what I chalk it up to as DOL paralysis.
I have not noticed anything at this point yet, <UNK>.
Yes, the NMOs are the ones that were affected perhaps the most, because of the deal.
And they need to find ways to remain relevant and in the business and keep their businesses going.
So you have some NMOs that have already broker dealers or RIAs that they need to figure out how they can look at their overall business model, utilizing those other companies.
There are some NMOs that are looking to buy a broker dealer or an RIA.
There are some significant ones that have filed with the DOL to become a financial institution.
And I think there are some that are primarily insurance only that need to find a partner or look at another strategy.
But they're all very busy, just like we are, trying to figure out what their business is going to look like in the future.
Well, we have, as I mentioned the 6 anchor accounts and then I kind of referred to 2 brand new ones that are just coming online that we're very excited about, that have huge potential for us.
And it always takes time of course for ---+ from the time that they sell ---+ from the time they sign an agreement to the time the applications start coming in, but we are excited about the 2 new ones, plus we do have some that we've been diligently working on that we think have a good possibility of getting additional selling agreements before the end of the year, which are pretty sizable accounts.
So we're very excited about Eagle Life's prospects as our name continues to get out there and our reputation continues to get out there.
So the $135 million took us to 328%, and an additional $100 million is what we have capacity if we took the full capacity under ---+ keeping our adjusted debt-to-leverage ratio at 20% below.
A $100 million is probably about 10 to 11 points in RBC.
And when you think about how much capital is needed for products that we put on, you should estimate somewhere between 6% and 7% is the amount of capital needed.
And remember that the RBC estimates that we put out are based upon a rolling 12 months of production, so that RBC estimate that we quoted as of the end of the quarter includes the first half of this year of sales and then the last half of last year, so that's a pretty robust level of sales.
And so, going back to one of the prior questions is, if sales would retract and be lower in the second half of this year compared to where they were last year, that will be a pick-up in RBC, because it'll be a lower [C4] charge.
Well, kind of two different issues, if the re-pricing is on the in-force block of business, the re-pricing on the new money rates is going to affect production, which of course then is going to affect how much capital we do or don't need.
As we go into next year, obviously, if we have looked at taking on additional debt and maxed out our capacity there, that takes that alternative away.
And so, going forward we would need to manage production based upon what organic capital growth would support.
And then beyond that, if we had production that would go beyond that we would need to manage capital through reinsurance transactions ---+ low reinsurance transactions.
| 2016_AEL |
2017 | NWSA | NWSA
#Thank you, Mike
In the third quarter, we saw positive results in our ongoing mission to become increasingly global, digital and diversified to be resolutely cost conscious and to deliver enhanced results for our shareholders
There was robust growth in revenues and EBITDA, specifically a 5% rise in revenues to approximately $2 billion and total segment EBITDA of $215 million compared to a loss of a $122 million in the prior year, which included the News America Marketing settlement charge
Excluding that charge, total segment EBITDA in the quarter would have increased 36% compared to the prior year
We are pleased with the performance of many of our businesses, including at our digital real estate services segment, which continues to fly
We had indicated that the EBITDA contribution at Move would improve and that revenue growth would accelerate and I am pleased to report both goals have been achieved this quarter, though we will certainly not allow our compliance field smugness to be characteristics at realtor
com
While print advertising remains challenging, we saw some moderation and declines across mastheads this quarter
And notably the news and information services segment was a sort of growth this quarter, both in revenues and EBITDA, driven by the muscular performance of installed product revenues in News America Marketing, healthy circulation revenue gains at the Wall Street Journal and a thoughtful cost production program
Speaking of the Wall Street Journal, we continue to build on the momentum of digital styles, adding more than 300,000 subscribers year-over-year
Digital now accounts for 53% of total subscription, up from 44% last year and 38% two years ago
In fact we added even more subs this quarter than in the second quarter, suggesting that the appetite for premium news and thoughtful commentary is undiminished
This success also as a result of innovation with our payroll including the elimination of Google so called First Quick Free Scheme [ph], which is in need of serious scrutiny as it punishes premium news
But whiners are not winners, so I am pleased to report, we are making progress on our development of a new digital advertising platform, focused initially on the U.S
market using the data, content and audiences of our businesses to ensure brands have real rich and are not subject to guilt by association
This initiative follows our news connect offering in Australia and we will provide more information about the emerging platform in coming months
We have been among the strongest and most consistent voices in making clear that the digital duopoly has commoditized content and had created an ecosystem that is dysfunctional and defiled
The consequences of commodification include fake news, ramping piracy and brands just oppose we joined us on extremist websites
The current content configuration is detrimental to consumers, the businesses and to societies
We are in discussion with Facebook and Google about premium content and brand enhancing environment and hope that will assist in fashioning a healthier eco system that rewards created in content and not just the distributors, the parts and the perfidious
At this stage, it is fair to say, that Facebook is more responsive and responsible
That we will highlight these issues until there is meaningful movement
Let us turn to our businesses in more detail
At Move, home to realtor
com reported revenues increased by 15% in the quarter, accelerating from fiscal Q2 levels
Excluding the $4 million from TigerLead which we sold in November, growth was 20% and the company contributed segment EBITDA growth consistent with our expectations
Average monthly unique increased from $44 million in Q2 to $55 million for the quarter, including a monthly record of $58 million in March
And we saw improvements in pace penetration and audience engagement, both crucial for Lead volume which also improved in the quarter
Overall according to CUNY School in March realtor
com led by Zillow and Trulia an engagement by 30% based on minutes spend and has continue to gain share in this sector
The new advantage product launched in December is performing in line with expectations and we saw acceleration in growth in the connections for buyer's product, driven by higher lead volume and increased customer flow
We continue to fortify realtor
com, with products like Sciencenab, Streetpeak and enhanced 3D listings which will move from better to full release in the coming months
We added photography in local data to off market listings, which helps driving engagement and we focused on the speed and reliability of our products to ensure an optimum experience for users
Looking ahead, Move is expecting to make further developments in the software and services business an essential element of that crucial relationship with the community of Realtors, less central to real estate transactions
REA, which completed the sale with European businesses in December 2016, posted strong revenue and expanded EBITDA contribution in its core Australian business, driven by product mix and the adoption of premium product
REA achieved record business in March and materially outperformed the competition
The company provides a deeper content experience complementing our masters in Australia and has strengthened its premium product offerings, launching front page, allowing Windows to showcase properties on the home page based on a user's previous search behavior
At News and Information services, revenues grew almost 3% and segment EBITDA excluding the settlement charge at News America marketing in the prior year would have expanded more than 30%
As mentioned the decline in print advertising moderated while we implemented cost reduction programs such as the Wall Street Journal 2020 initiative, which is designed to reduce expenses plus imperatively drives a contemporary flow of content for readers and clients
We are clearly cost conscious but intend to bolster the quality of our unique content across our mastheads and the cross platforms around the world
At Dow Jones, ad revenue trends improved relative to prior quarter, meanwhile the risk in compliance business remains particularly healthy with revenue growth over 20% and prospect certainly appearing positive the real and compliance is essential
As mentioned there was robust digital subscriber growth at the Journal, with more than 30% increase versus the prior year and the momentum has continued
In fact, not only did we have the 300,000 year-over-year increase plus this also set a record in digital subscriber growth since the launch of our sales and subscriber reporting metric
Overall circulation revenues expanded at a mid-single-digit rate
The New York Post digital network continues to make headway and digital now accounts for more than 50% of its ad revenues
We are also pleased to report last month the [Indiscernible] TV has been adopted in a 185 markets covering 90% of the country in advance of its launch this fall
That fall is well for the program and the brand
In the UK at the time standard print circulation volumes grew high single-digits and market share improved once again
In digital the Times and the Sunday Times continue to grow subs and ARPU while in print, the Times had the largest year-on-year growth among pay for national papers in the quarter
At the Sun, the number of monthly unique visitor's version reaching 80 million globally in March, doubling over the past year and up 5 folds since the pay rule we removed in late 2015. The Sun has already surpassed the mirror as the second most reviewed website in the UK and is working closely with talkSPORT to drive incremental traffic and revenues
Times for the UK economy remain positive despite the fee among during the ahead of the Brexit vote and regardless of the inevitable uncertainty caused by the upcoming election
Conditions from our mastheads in Australia remain challenging although print ad declines moderated and circulation revenues were relatively stable
Thanks to a lift in digital subscribers and the price increases
Our team in Australia is focused on digital subscriptions, which general 27% growth year-over-year, including ARM to more than 330,000. Meanwhile news
com today retained its ranking as a preeminent news site in Australia
News American market saw marked growth in the in-store business which is benefiting from product enhancements and an increase in new CPG campaigns
The goods companies and the retail as they are increasingly recognizing NAMs, prowess at the point of purchase
Checkout 51 also grew in the quarter and now has $13.4 million U.S
and Canadian members more than double the total of last year
It is become a key part of NAMs integrated digital offering
In fact, Checkout 51 along with Storyful and realtor
com are working closely with NAM on joint sales pitches with major brands to better leverage data and drive incremental revenue
The News and Information Services segment also benefited from the acquisition of Wireless Group in UK and the Australian regional media business both of which contributed revenues in the quarter
Storyful and Unruly continue to expand their collaboration and are working more closely than ever with many of our businesses
Storyful recently announce the new partnership with Weber Shandwick, illustrating how it has expanded its work
There were six companies, the concerns are the brand safety and furnish vital intelligence on issues related to risk and compliance
In book publishing, there was solid revenue growth at HarperCollins, which saw improvement in digital and enduring success of Hillbilly Elegy and Hidden Figures
We also had the release of Veronica Roth's Carve the Mark
We are looking forward with much anticipation the release of new books by <UNK> Curtin [ph] and David Williams in May and note the continuing strength of HarperCollins Christian based industrial
We are confident that the international footprint we acquire through Harlequin combined with our Evangelical expertise should lead to increase business in Latin America where the Evangelical movement is particularly influential
At Fox Sports, advertising remain strong compared to a relatively substitute TV marketplace in Australia
Riding a 6% higher in March of the year, thanks impart that the successful launch of the Fox League channel, it's dedicated Rugby League offering
Fox Sports also launched the first overseas over the top partnership with IFO, the people around the world can watch the world's most captivating context sports
At our 50% earned Foxtel, the company continues to invest in top tier sports and local content
Further differentiating it's unique package from lower quality of players, Foxtel Play, will have an upgraded user interface and additional HD options, as Foxtel seeks to provide a compelling offering for customers
Having acquired the popular Sky News, we have added to our portfolio of cable networks in Australia and we'll be able to consolidated cost and share digital and video learning's across our platforms
We have just announced the transfer of Fox Sports News to Sky News which will allow us to maximize synergies and scale
Looking once again at the quarters a whole, we see the enduring value of that content
The power of our platform, the benefits of [indiscernible] cost of strange and the manifold ways our businesses are combining and complementing each other and crucially driving long-term value for all of our investors
Governmentally, we were pleased to announce the addition of former U.S
senator, Kelly Ayotte to our board
Following the departure of Elaine Chao, who became the U.S
secretary of transportation, in the new administration
We wish her well in her profound the important role
And I was finally like to say a word of thanks to the new CFO first CFO, the vulnerable Bedi Singh
He did much to assist in launching the company and I'm very proud and delighted to introduce our new CFO <UNK> <UNK>, a long-time colleague at news school
<UNK> brings to this important task a savvy strategic sensibility and a rigorous attention to both detail and the larger landscape
She has experience in both the UK and Australia, as well as insight in the importance of digital transformation of the news and property businesses
For these reasons and more I have great confidence not on in her but in the prospects for this business and its value for our shareholders
Thank you for your support and so please welcome <UNK>
Yeah thanks very much <UNK>
<UNK> I think what we are seeing, is what we hope to see which is a real complementarity in the offering of the two
You've seen talkSPORT drive way to the Sun and the Sun drive business to talkSPORT
We're also seeing portfolio at pitches with the Wireless Group, the Sun, Storyful, Unruly, generating new business and obviously it's the early stage of the new partnership in UK
But Rebekah Brooks and the team are doing an excellent job in ensuring that the teams are talking to each other, working with each other and generating returns to shareholders
<UNK>, we are standing in the middle of an interesting cycle, there is no doubt, a premium unpremium news and we are seeing that in the continuing growth in paid digital subs, the Wall Street Journal up 34% year-on-year
And for us there is an added benefit, which is we obviously see those news subscribers as a potential pool of our customers for an upsell to even more premium products, whether it be through to a high network individuals, semi-professional fund managers or those who are specialist like yourself in finance take commodities FX, whatever
So for us there is a double benefit, we are introducing a new generation of readers into the highest quality paid content and we are able to than bring them further into due diligence hold with our traditional professional information business products
Thanks <UNK> and thanks for passing on the question <UNK>
It's a very silent one, it's a situation we constantly has under review as you know, we have a semi-annual dividend in place, the big buybacks up to around $71 million of provision for buybacks of $500 million
But we've divided, look really into three areas, opportunistic acquisitions, internal investment and capital
And if you look at the three main investments we have made which is realtor
com via Move, Harlequin and Wireless Group, you would have to agree that they played a crucial role in transforming our business
There is no doubt that if you noted out the $600 million we invested in Realtor has fundamentally transform the company and as you can see given the increasing growth in both revenue and EBITDA that I will say digital businesses in general and the ability that Harlequin has given HarperCollins, to move from one language to 17 languages is quite profound and that has also increased our digital footprint
And you can see the early signs in UK of the value of the Wireless Group
So we will continue to be opportunistic that we will continue to have the situation under review
Ray the contribution to EBITDA growth was $22 million for the quarter, where we continue to expect EBITDA growth and revenue growth in Q4 without giving a detailed forecast
What we're seeing is that the traditional products like Co-Broke, which is up 34% year-on-year doing well, the newer products are also taking off, as well as our experience in advertising and in traditional media is enabling us to get better quality yields at Move
So there was a 33% growth in non-listing media revenues
So all-in-all that ability that we have to learn from our experience at REA, our ability to generate audience through marketed platforms, which gives us a marketing edge and our ability to create a site, that's not just a listing side for Realtor's and vendors but also a site that is holistic real estate experience with more news, more analysis than any other means that we certainly have a comparative advantage going forward
We don't speculate on speculation
All I would say on the subject of media reform, is that really we do need comprehensive holistic wholesale media reform in Australia
We have a set of loads that are more for the Goldenberg [ph] era than the Zuckerberg era and as long as there is wholesale reform, we'll be supported by them
I think, it's a very good question and it's one that was spending a lot of time and energy across our market looking at our ability to increase yields as we identify reader demographics and that's obviously at the very heart of the new advertising platform that we're building here in the US
We know that across the U.S
monthly we on our sites including Realtor, we have around 220 million visitors combined with our newspaper mastered audiences that is a valuable source of audience for advertisers and we're doing our very best to monetize it in a way that make sense to advertisers, increasingly find themselves on third-party networks unable to be sure the company that they're keeping
| 2017_NWSA |
2017 | AME | AME
#Yes, the procurement number was $[60] million for 2017.
So $[60] million out of the $100 million.
And in ---+
In 2016, the procurement was $60 million also.
No, I don't think that's necessarily true.
We talked about $[65] million of growth investments, and we feel it's important to properly fund our sales and marketing expenses, and our engineering, but we had a similar amount last year.
So I don't think there's a meaningful change in that area.
We're going to make sure that we invest for the future, but it's in line with the past.
That's a great question, <UNK>.
I mean, if you want to look at it at the overall level, I think there will be incrementally more spending in sales and marketing expenses, but the same amount of expenditures will be put back in each year.
I mean, we'll have healthy cost reductions offsetting the investments, but there's some opportunities in sales and marketing, and we're funding some of them this year, that we think are going to add great returns for AMETEK over the long term, start to benefit from them later this year.
That's a great question, <UNK>.
I mean, one of our investments that we're making this year is an expansion in southeast Asia.
So that's exactly what we're thinking.
We see some opportunities in our UPT business, our ultra precision technology business, our materials analysis division in southeast Asia, and one of the key investments that we're making is expansion in sales and marketing channels in that area.
Okay.
Thank you.
Yes, it's both.
I mean, there are adjacent product areas in the non-acute care facilities.
There are adjacent product areas in the existing customer base, and there are adjacent opportunities internationally.
So we feel really good about all the avenues of growth.
Yes, now Rauland has some of these products under development, and some of the other product areas are more driven by acquisitions than organic development.
Yes, we did the market work, and the existing SAM, the served addressable market was about $500 million.
And the TAM, the total addressable market was about $1 billion.
We didn't include a lot of the TAM in our discussion, but those are the kind of ---+ it's a niche market.
It's a $500 million served market.
They don't participate much internationally, and we feel good about the potential growth opportunities.
Great, thank you.
Thanks everyone for joining.
And as a reminder, a replay of the call will be available shortly at AMETEK.com and StreetEvents.com.
And certainly, I'm available if there's any further questions.
Thank you very much.
| 2017_AME |
2015 | HSII | HSII
#Good morning, everyone, and my apologies for the technical glitch at the beginning.
Thank you for your patience and for the slightly delayed start.
Thank you also for participating on our 2015 second-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're going to be referring to some supporting slides that are available on our website at Heidrick.com and we encourage you to follow along or print them.
As always, we advise you that the call may not be reproduced or retransmitted without our consent.
Today's call we're going to 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.
A reconciliation between GAAP and non-GAAP financial measures can be found on the last page of our press release and also on slide 20 in our supporting slides.
Throughout the course of our remarks we'll be making some forward-looking statements and ask that you please refer to our Safe Harbor language contained in our news release and on slide 1 of our presentation.
The slide numbers that we will be referring to are shown in the bottom right-hand corner of each slide.
<UNK> will be covering the first eight slides.
<UNK>, I'll turn the call over to you now.
Thanks, <UNK>, and good morning, everyone.
Let me take a few moments to comment on second-quarter results including the impact of currency fluctuations and, separately, on our consultant headcount.
To give you some context, consolidated net revenue in the second quarter of $133 million showed a reported decline of $3 million or 2% compared to last year's second quarter.
However, excluding the adverse impact of currency fluctuations, consolidated net revenue would have increased about 3% year over year or by approximately $3.8 million.
Currency exchange rates negatively affected our results in every region but particularly impacted reported results in Europe and Asia.
Our executive search and leadership consulting business in the Americas region had another solid quarter.
Reported revenue increased the most 8% year over year and 18% sequentially, and margins improved.
Trailing 12-month revenue has happened this time in the Americas since the first quarter of 2012.
Financial services, healthcare and life sciences, and industrial practices were the primary drivers of growth.
In the last year, we have increased headcount by 18 consultants in the Americas and many of these professionals are already contributing meaningfully to our results.
But the key driver of growth in the Americas was the productivity of our seasoned search consultants, a number of whom are having an exceptionally strong year.
In contrast, our results in Europe were disappointing.
Although second quarter net revenue improved 23% sequentially from the first quarter, net revenue declined by 23% year over year.
More than half of this decline was a result of currency exchange rates.
Executive search, leadership consulting confirmations, consultant productivity, and average fee per executive search were all lower than the same period a year ago.
As we work through our challenges in Europe, we have two priorities.
One is attracting new talent to the Firm in order to accelerate our presence in the region.
To that end, we have hired a number of very experienced consultants in last few months who are just beginning to make an impact in the market.
Second is the connectivity we are reinforcing between Europe and the rest of the Firm.
We are beginning to see success with specific and targeted clients.
Clearly, our results in Europe show that we have to deepen our execution on these two priorities.
In Asia-Pacific, net revenue grew almost $2 million or about 7% excluding the negative impact of the currency fluctuations.
Despite lower consultant headcount, the region confirmed more searches at higher fees and achieved increased productivity levels with the best results coming from the Healthcare & Life Sciences and Industrial Practices.
Our culture shaping segment Senn Delaney reported a decline in the revenue of $1 million in the second quarter but achieved the best quarter in its history for new customer signings.
It is important to note that increasing number of these wins are resulting from the introduction and collaboration with Heidrick's search consultants.
And finally let me comment on consultant headcount.
We continue to make progress in growing and upgrading our talent base.
In the executive search and leadership consulting segment, we ended the second quarter with 325 consultants, reflecting 13 new hires and 11 departures.
We continue to invest capital to strengthen a number of practices and geographies.
The healthcare and life sciences practice is one example where a targeted focus on hiring resulted in six new consultants in this year alone.
I'll turn it over to <UNK>, and I'll come back with a few more comments at the end.
Thanks, <UNK>, and good morning everyone.
I'll begin my comments on second quarter results with slide 9.
Executive search and leadership consulting revenue declined about 2% year over year or approximately $2 million.
Revenue from culture shaping declined 11% or $1 million.
On a constant currency basis, executive search and leadership consulting revenue increased almost 4% while culture shaping declined 10%.
I'll remind you that ---+ and we've commented on this often ---+ the quarter to quarter variability of the culture shaping segment results reflect its size, the timing of project initiation, and revenue recognition timing.
Looking at slides 10 through 11, the financial services and healthcare & life sciences practices were the drivers of year-over-year revenue growth globally, up 5% and 40%, respectively.
Billings in the healthcare & life sciences practice reached 10% of our total billings for the quarter, something we hope to maintain and continue to grow.
Referring to slides 12 to 14, the year-over-year increase in new hires, consultant productivity was down just slightly in the second quarter.
Specific to executive search, search confirmations in the second quarter were up 3% year over year and the average revenue per search was slightly lower, largely due to the impact of currency fluctuations.
Because of the quarter-to-quarter variability, we encourage you to look at the trailing 12-month trends for both productivity and average revenue per search.
Looking at slides 15 and 16, 2014 salaries and employee benefits expense declined $1.4 million for about 2% to $91 million and represented 68% of net revenue.
Variable compensation declined just over $2 million mostly as a result of the lower net revenue as well as the impact of foreign exchange rate fluctuations while fixed compensation expense increased less than $1 million.
Turning to slide 17, general and administrative expenses increased about 6%, or just under $2 million, to $33 million and represents 25% of net revenue.
The increase, as we signaled in the first quarter earnings call, mostly reflects the expenses associated with the partners' meeting that we held in all three regions during the quarter.
There were also higher professional services fees in the quarter primarily for legal fees related to employee and compensation matters.
These costs were partially offset by the impact of foreign exchange rate fluctuations.
In the third quarter we expect G&A to return to more normalized levels.
Now on slides 18 through 20, adjusted EBITDA in the second quarter decreased to $14 million compared to $19 million in the comparable quarter of last year and the adjusted EBITDA margin was 10.5% compared to 13.9%.
Operating income in the second quarter declined to $9 million and the operating margin was 6.9%.
The second quarter year-over-year declines in both adjusted EBITDA and operating income mostly reflect the lower net revenue and higher G&A expenses, which were partially offset by the decline in salary and employee benefits.
Turning to slides 23 and 24.
Net income in the second quarter of $5 million and diluted earnings per share of $0.27 reflect an effective tax rate of 45.6% in the quarter, and a full-year projected tax rate of approximately 45%.
Second-quarter and annual rates were based on the expected mix of net income for the year and are lower in 2015 due to the valuation allowances that were established in 2014.
In addition, we expect to utilize a portion of our net operating loss carryforwards which accounts for some of the improvement in our effective tax rate.
Now referring to slide 25, cash and cash equivalents at June 30 was $119.9 million compared to $123.4 million.
The year-over-year decrease primarily reflects the increase in capital expenditures related to new office buildouts.
Net of debt, cash and cash equivalents at June 30 increased to $93.4 million compared to $90.9 million at June 30, 2014.
On June 30, and reflected on our balance sheet for this quarter, we closed an amended credit agreement for a senior, unsecured revolving credit facility in aggregate amount of $100 million with an optional increase the credit facility of up to $150 million in aggregate principal amount.
Prior to this agreement, our revolving credit agreement was $75 million and we had a $26.5 million outstanding on a term loan facility used for the funding of the Senn Delaney acquisition.
The $6 million of short-term debt on our June 30 balance sheet reflects our intention to continue the payment schedule we've been following under the previous credit agreements.
We also added two new banks to the facility.
So the combination of this new facility along with our balance sheet and capital structure give us a great deal of financial flexibility to continue to grow and invest in our business.
Looking forward to the third quarter, our executive search backlog is shown on slide 26 and monthly confirmation trends are shown on slide 27.
Other factors on which we base our forecast includes the anticipated fees, the expectations of our culture shaping services, the number of consultants, and the current economic climate.
As we experienced in the last several quarters, we've been expecting and we continue to expect more volatility from foreign currency exchange rates, and this could lead to an adverse impact in year-over-year comparisons to revenue.
We are forecasting third-quarter net revenue of between $130 million and $140 million.
Reported net revenue was $125.8 million in last year's third-quarter.
Slide 31 shows that on a constant currency basis last year's third-quarter net revenue would be $120 million which we believe is a more relevant comparison to use against our guidance.
With that, I'll turn the call back to <UNK>.
Thanks, <UNK>.
So a few concluding thoughts.
First, our outlook for the third quarter is encouraging.
We're capable of the more balanced performance from our regions.
To be clear, it will require enhanced focus and attention on the part of our operating leadership.
Second, we have made important progress, which serves as a strong foundation moving forward.
The quality of talent hired over the last year, the new business we have won, and the integration with Senn Delaney are some of the key highlights.
Most importantly, the Firm has a clear understanding of our purpose, that is we help our clients change the world one leadership team at a time and the values that connect to that purpose.
But we still have work to do.
I gauge our progress in our initiatives through the lens of four priorities that all drive shareholder value, namely, our talent, our clients, our integrated or diversified offering, and our operations.
First, we have done a better job of retaining our talent while recruiting and hiring to increase and upgrade our global team of consultants and the speed in which we are integrating them into the Firm.
Second, I continue to see firsthand and equally struck by the quality of work that our clients ask us to perform and the expertise and thoughtfulness that we bring to every engagement.
I'm always impressed when I see the power of Heidrick's work with clients around the world.
Third, our brand permission with clients is increasingly leading to opportunities for Heidrick's diversified solutions.
We are bringing our clients top talent solutions that go beyond search to include culture shaping and leadership consulting to help our leaders succeed.
The distinctiveness of our solutions is being noticed in the market including by the Harvard business review which recently published an article featuring our proprietary assessment tool, specifically Leadership Signature.
And fourth, operationally we continue to diligently invest and refine our services and technology to assure an efficient and profitable platform that can be scaled to grow with us.
These four priorities, our talent, our clients, integrated solutions, and operations, will continue to focus our attention and energy.
Quite simply, by attracting and retaining the best professionals in the business and enhancing the overall client experience we will further strengthen our business around the world and provide greater return to our shareholders.
Let me pause there.
<UNK> and I are happy to answer any questions.
You know the involuntary ---+ the voluntary ---+ the terminations or the levers in the quarter were a combination, as always, of both voluntary resignations ---+ we had two retirements this quarter ---+ and some performance management.
So there's really no trend or uptick.
I mean year to date we're still under about a 4% turnover rate for the year.
So, we still feel great about that.
I would just echo on this that we feel good about the talent that we have taken on, both the quantity and, most importantly, the quality of talent that has been attracted to Heidrick.
And that gives us latitude with respect to talent internally where we think there is opportunity to improve the quality of the of the position.
And so you're seeing a balance here.
Yes, this is <UNK>.
Good morning, <UNK>, couple of things.
Number one, a couple of factors, again, that we take into account a holistic view of what's happening across the business.
We had a very strong June in our confirmations, as you can see on the information provided, and that gives us a very good backlog going into the quarter.
And I do believe that I think we're going to see the continued momentum particularly in the Americas region.
I think we've got opportunity to improve the run rate in Europe, albeit that it's seasonally our lowest quarter, usually in Q3.
Candidly, the timing of some of the activity in Europe has been a little bit lumpy this year.
And so we're hoping that we can make up some of the ground that we've lost in the first half of the year.
So I think a combination really of the market strength.
Some of the new people that we brought on board who are making an impact very quickly are all factored into that guidance number.
And that's why I think we ---+ <UNK> indicated that we are a little encouraged about where that is in the short term.
Sure, good morning, <UNK>.
A couple of things ---+ and we've said this many times in large part because of the scale of Senn Delaney.
$0.5 million or $1 million variance in timing of revenue can skew the percentages pretty big.
Overall, we feel very good about what's happening in that business.
As we indicated, that very strong quarter in customer signings.
And what drives the revenue recognition there, just from mechanical standpoint, it's very often that on a project assignment, we'll see about 15% to 20% come in the first couple of months, and then over the balance of the next 6 to 12 months we'll see a majority of the revenue come in and then it will trail off after about in 18-month period.
And then depending upon whether or not there's an enterprise agreement could lead to a different revenue cycle that is of even higher margin as you kind of get into the infrastructure, if you will, of the learnings systems within client companies.
So it can really vary by size, by type of engagement.
The encouraging thing that's been happening there is number one the team has done a great job.
So Senn Delaney has lived up to its billing.
We feel very good about the business.
We continue to have better integration with the core Heidrick search consulting business, search and leadership consulting business.
We are seeing more engagements now come from introductions and cooperative pitches and business development among all of our service lines.
And so, as a result, I think the momentum is very positive and I think we're continuing to invest to make sure that we can fuel the growth of that business because there's a tremendous interest in the topic of culture and the talent space right now, and we certainly have one of the best businesses in that space.
And I think <UNK> can give you a little more color.
Two overall comments, I'd just underscore.
There's two places where the culture shaping impact is happening.
One is clients that Senn Delaney basically brought to Heidrick when we acquired them.
Where the deepening of the joint interaction with those clients is paying off.
We are seeing a couple of situations in particular where Senn Delaney's work is only got deeper coupled with the relationship that Heidrick also had together with them.
The second just new clients.
As <UNK> referenced, there are any number of topics that we're seeing among senior management teams.
Culture is certainly a very strong one.
And the dialogue that we can now bring to our Heidrick clients where Senn Delaney had not been, we are seeing more and more interest there and that's where you're seeing a number of clients signings in the second quarter.
With respect to culture or more broadly.
Yes, this is part of the initiative behind Leadership Signature, the online assessment.
But I would say more broadly, we have asked Krishnan Rajagopalan, who runs our practices globally, to also take on the leadership for leadership consulting internally for exactly the reason behind your collection, which is we see the interest on the part of not only placing an executive but also working with the team around those executives as something that's increasing, and we want more linkage and more drive internally between the search business and the assessment and succession business.
And so that's one of the reasons why we have asked, in the second quarter, we've asked Krishna to take on that responsibility, added responsibility to drive further with our leadership consulting team the assessments and succession and talent development with regard to helping our clients.
And our clients are asking for it.
Well, if we're talking but the same one, clearly Heidrick and I think some of our competitors have benefited in terms of the talent opportunities that that company created for all of us.
We have certainly been very focused on that and a number of our new people come from that firm as well as others.
In general, we started this March in terms of this really high quality talent that we are bringing onto the Firm in the past year and everyone we get we feel both terrific about them individually but we also feel even better about taking on more.
So the war for talent out there is as competitive as it has ever been, so when we see an opportunity such as you're describing in the market we pounce on it but we're not the only ones out there jumping on it.
This is <UNK>, I'll take a shot at both questions and if I don't finish the answer I can let <UNK> add anything on the turnover.
Okay, so I'll do them in reverse order.
We did not see any material movement at the bonus time relative to our turnover this year at all.
As <UNK> indicated in her earlier comments, our overall turnover rate on an annualized basis has come down significantly, and between the voluntary and involuntary as well as retirements, we are very pleased to kind of what's happened in the overall retention ranks.
So I wouldn't say ---+ it certainly wasn't the pattern that Heidrick had experienced for a period of years and that's an encouraging sign.
Getting back to the upticks and the structure of our business, upticks have played a higher role in our revenue over the last couple of quarters.
I think it's reflective of a couple of things going on in the market.
Number one, I think as the war for talent among our clients has intensified, even as some of the retainers initial pricing of retained search has played out in the marketplace the reality of what the placements are has led to a higher uptick trend.
And so, this combined with the fact that we've had also a higher success rate in placements which has been a very encouraging sign.
Again, say the average of the last few years has also led to some positive trends in this area as well.
So we're hoping that that's a sustainable trend.
We always watch very carefully because it has different risk characteristics, obviously, and different revenue recognition.
But overall, as long as it's combined the fact that they talent market is up, the placements are up, etc.
, it's a very good thing for us.
Well, I'll repeat what I've said many times, <UNK>.
You know, we don't forecast beyond the next quarter revenue because the visibility in this business is about as good as a cloudy day at Willis Tower here in Chicago.
But there's a couple of things you got to remember about our business and how we think about it.
First of all, number one and I'll kind of go backwards here from your question.
At Senn Delaney, the structure of that business hasn't changed.
We have talked about the fact that it's been healthy about a 30% operating margin business.
We would trade, candidly, we will trade a little bit of margin as we continue to invest in growing that business, because we think the growth of that business on a global scale will really give us dividends both in terms of profitability, cash flow, and market presence.
So it's at a healthy enough margin that we can feel free to invest and expand that business, and we will do so.
So, we're very comfortable with the structure.
It's a very well-run company.
Tremendous pricing and service discipline.
They watch their costs very well on project basis.
So we're very pleased with the way that business is structured.
In search, the challenge in that business is always on the margin side for us is the fact that the price of talent as high.
As we always talk about, our salaries and benefits run up in the high 60%s, close to 70% of revenue on a combined Company basis.
So the key is that we have to grow revenue and the good news about what we've done over the past few years ---+ and it's been demonstrated ---+ is that we have a platform today that can accommodate a much greater scale of revenue and activity in support of our business and that marginal profitability of that growth will be higher.
We tend to be a high fixed cost business and as we continue to grow the base of revenue and assuming we hold to our pricing structures and our core competencies and how we execute, the marginal profitability of growth will be great.
If we can keep turnover down and can gradually continue to increase consultant headcount base and increase revenue, we will be in very good shape.
Look, the basic structural model is not changed dramatically.
What sometimes happens is that you have situations where ---+ either with sign-ons or guarantees or things that people are walking away from, can certainly impact in the bidding and securing of new top talent.
That being said, as we've examined where we thought we'd be in our fiscal plan for this year against where we are, we're right on the line.
We've had no big surprises.
We're actually getting good contribution.
And <UNK> said it best, the quality of what we've hired and the impact of what we have hired to date, in terms of our people and their integration into our culture as well as integration of clients the marketplace, has been very good.
And so we're very encouraged by that.
And we amortize some of those costs over period of years so the Company can handle that investment.
Okay, thank you for your questions and your support.
We will speak to you all soon.
Thank you.
| 2015_HSII |
2016 | HAFC | HAFC
#No.
It was a really simple uneventful quarter as far as noise is concerned.
I don't think so.
I don't think that is the case.
In terms of loan to deposit at about 94%, that's at or near the optimum level for us.
We actually have source some borrowings from Federal Home Loan Bank rather than to promote a depository product because the rate was so low.
So we are pretty much there in terms of optimizing the leverage of the balance sheet at this point.
Basically in the last three quarters of this year.
It's a combination of additional advances and hopefully more growth in the DDAs and also money markets.
I don't expect any meaningful growth in our CD portfolio, but based on the relationship banking formula that we have been practicing here, we expect that the deposits on the DDA and the money markets will continue to grow, and on an opportunistic basis, there's a way to take some money down from FHLB, we will do so.
Well, this is the same program that we've been on for the last year to year and a half.
And we purchased it from the same vendor, same profile.
Loan to value is around 50% to 55%.
Debt ratio is 40 or under, and we get about I think on a net basis around 4.2% to 4.5% net coupon on this.
And we've had absolutely no issues with it.
So we were actually hoping that this vendor would sell us more, but they were tapped out and we could only get $30 million this quarter.
But it's the same program that we've had every quarter.
Basically Southern California.
Yes.
Yes, in total commitments.
It's about 45%.
It's about the same.
Yes, from quarter to quarter, it ranges anywhere from 48% to 46%, so it's within that range.
Well, I would say that that's one of the reasons.
The other area is ---+ some of the resolutions of the TDRs and NPAs have to do with seasoning of the repayment programs that some of these borrowers have been under.
And some of them have qualified for upgrading, if you will, and some of them have paid off.
But first of all, we had very little going into the pipeline and the ones that are coming out of the pipeline are in a positive way via upgrade or payoffs.
Actually, I think we've got some more room for improvements there, as my credit people have told me.
I'm looking forward to a little bit more of an improvement in the second quarter as they continue to review all of these loans.
Like many loans that were in trouble at one time we were very good at downgrading but we were not as good in terms of looking for opportunities to upgrade.
And with the seasoned experienced credit people that we have, we are looking at those options, those options to upgrade.
One of the things that, as <UNK>
<UNK>
has mentioned, that is important to the NPLs are not that significant; it's virtually none.
One of the reasons is it's a part of loan portfolio management, and part of even the loan payoffs this quarter and then also prior quarters.
We look at the financial performances of these individual loans and we give our customer enough notices to take out the relationship and we have been actually fairly successful in doing that.
We might have some opportunity but it all depends on a quarter-by-quarter analysis of the entire portfolio.
And so we look at various different factors that's both quantitative and qualitative.
And depending on that type of analysis, if there's room to take another negative provision, we will.
If there isn't, we can't.
But it's hard to prognosticate as we sit and talk today because we're so far out from the end of the quarter.
They were all overnight.
Yes, it is.
That hasn't changed.
Thank you, <UNK>.
Well, in the first quarter, I believe they generated a little over $50 million, <UNK>, in new loans.
And their deposits are, on the DDA category, totaling roughly about $25 million.
Yes, I am.
We are ---+ Healthcare Lending Group is one of those new verticals for us or any of the Korean-American banks.
And I believe that, in order for us to continue to grow in the kind of environment we're in, we need additional verticals.
And so I am and <UNK>, we are both talking to some folks about joining the organization.
These are people that are not within the Korean-American banking sector but in mainstream banking to provide what I call additive components or additional verticals to the core Korean-American banking strategy.
No.
We are very disciplined on that front.
You know, at the risk of just reiterating and reemphasizing, this is a relationship focused organization and business model.
As part of that, the loan generation is very important, but just as important is the generation of low-cost deposits.
And as you have heard me say over the years, <UNK>, CDs don't count.
Rate sensitive deposits don't count.
So the focus has been and will continue to be the generation of the quality of loans as well as hopefully noninterest-bearing DDAs but certainly low-cost DDA.
So we are very focused on that point and we generally, unless it's for defensive purposes involving a very good customer, we don't generally like to compete for deposits on the basis of pricing.
Thank you for listening to Hanmi's Financial's first-quarter conference call.
We look forward to speaking to you next quarter.
| 2016_HAFC |
2016 | IFF | IFF
#Yes.
No.
Actually if you look at the two acquisitions ---+ quite a different approach.
On the active cosmetic ingredients we were looking at an adjacent business to our Fragrance business.
And we entered into this business because we believe that we have great top line synergies here in terms of the customer coverage.
And we are playing in the premium segment of that market, which gives us an extra profitability and certainly a good growth as well.
So that's important to understand.
That was the reason why we ventured into that business.
On the Flavors side, different approach because as we said and probably many of our competitors are telling you as well, is that you see some of the smaller, mid-size companies with higher growth rates.
And we needed kind of a differentiated service model for that kind of part of the market as well.
And that was the reason that we acquired Ottens to use as a platform in that segment because this way usually customers ---+ we were not reaching out at much as we would like to have it.
And now we have the platform, we're filling the platform and we are pretty happy with it.
<UNK>, it's actually more a matter of time because you really have to work through these ---+ the pipeline.
You have to figure out what are the ---+ what is the real value of these assets and do they make sense from a strategic point of view.
So we are certainly not, let's say, under pressure here to do it.
We're really taking our time to look at these assets and then make the call if the time is ready to do it.
I actually believe, in particular, in the emerging markets it's temporary because in the mid and long term you will see still, let's say, a very significant population growth and people are trending towards middle class, lower middle class.
And these are all potential customers for our products.
If you look at the numbers, for example Africa, Middle East is an area which is expanding double-digit for us.
And you will see a doubling of the population in Africa until 2050.
So it will happen.
We always see these kind of spikes or [lambadas] going forward.
And I'm actually very optimistic in the long range that these will stay good growth areas for us.
And the good thing within IFF is, as you might know, is that we have 50% of our business in the emerging markets and 50% in the mature markets.
And so that will help us when we see these markets returning to good growth.
Whether we will see like in China, again, double-digit growth over years, I doubt it.
But even if you see, let's say, 6% or 7% growth, I think it's still a pretty significant one.
<UNK>.
<UNK>, we don't have the specificity at this point.
This is <UNK>.
I can follow up with you offline.
It will be significantly higher because that's probably where the most concentrated effort would have been in terms of the differential in reporting differences with respect to pricing related to FX.
Thanks.
Thank you very much for all your questions and have a great day.
Thank you.
Bye-bye.
| 2016_IFF |
Subsets and Splits