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2015 | INT | INT
#Thank you, Scott.
Good evening, everyone, and welcome to the World Fuel Services second-quarter earnings conference call.
I am <UNK> <UNK>, World Fuel's Assistant Treasurer, and I will be doing the introductions on this evening's call alongside our live slide presentation.
This call is also available via webcast.
To access this webcast or future webcasts, please visit our website, www.wfscorp.com, and click on the webcast icon.
With us on the call today are <UNK> <UNK>, Chairman and Chief Executive Officer, and <UNK> <UNK>, Executive Vice President and Chief Financial Officer.
By now, you should have all received a copy of our earnings release.
If not, you can access the release on our website.
Before we get started, I would like to review World Fuel's Safe Harbor statement.
Certain statements made today, including comments about World Fuel's expectations regarding future plans and performance, are forward-looking statements that are subject to a range of uncertainties and risks that could cause World Fuel's actual results to materially differ from the forward-looking information.
A description of the risk factors that could cause results to materially differ from these projections can be found in World Fuel's Form 10-K for the year ended December 31, 2014, and other reports filed with the Securities and Exchange Commission.
World Fuel assumes no obligation to revise or publicly release results of any revisions to these forward-looking statements in light of new information or future events.
This presentation also includes certain non-GAAP financial measures as defined in Regulation G.
A reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures is included in World Fuel's press release and can be found on its website.
We will begin with several minutes of prepared remarks, which will then be followed by a question-and-answer period.
And at this time, I would like to introduce our Chairman and Chief Executive Officer, <UNK> <UNK>.
Thank you, <UNK>, and good afternoon, everyone.
Today we announced second-quarter earnings of $29.9 million or $0.42 per diluted share.
Although results were significantly impacted this quarter by seasonality in Watson Fuels and low prices, coupled with reduced volatility in marine, our core business remains strong and we expect results to materially improve in the third and fourth quarters of this year.
We are well positioned financially with continued cash flow generation and our strong and liquid balance sheet.
Many on the call today who have been following the marine industry already know how poor the conditions remain overall in the marine marketplace, most specifically in the offshore, dry bulk, and container markets.
On the fuel side, the market remains oversupplied with inventory levels at historical highs and demand essentially weak.
Although we witnessed a slight increase in prices this quarter, fuel prices remained low and volatility dropped significantly.
The combination of these factors negatively impacted our price risk management sales activity and offshore specialty business, which was the principal driver of the lower profitability in the marine segment during the second quarter.
We did, however, produce record volume with healthy returns in our core business and our current annual run rate is 33.6 million metric tons.
I believe that our team did an outstanding job to again gain market share, which should serve us well when the market improves.
As we also discussed on last quarter's call, we expected that our land business would be materially affected by the seasonal decline in the Watson Fuels business, which had an outstanding result in the first quarter.
Watson generates practically all of their profits during the winter months, so we do not expect that the business will be a major contributor to the segment's overall profitability again until the fourth quarter.
Excluding the Watson seasonality factor, our land team continues to profitably grow the business domestically, as well as in the UK.
This segment is now at an annual volume run rate of 4.8 billion gallons and we continue our integration and consolidation efforts in order to scale this segment and achieve greater operating efficiencies.
As you have heard me say over the past few years, I am very excited about the abundance of opportunities that we have in the land segment.
We continue to grow our diverse US dealer, wholesale, and C&I businesses.
We now have a solid foundation in the United Kingdom and our prospects in the natural gas and power business and transaction management and payment processing spaces continues to grow.
In our aviation segment, our commercial business and general aviation businesses performed well as we witnessed the expected volume increases coming off of the seasonally weak first quarter.
The early results of this season's tender process are also positive.
As we enter into the peak season for our aviation business, our global footprint and expanding service offering will allow us to continue to capture market share and drive growth.
Results from our government-related activities continued to perform well and our industrial and government contracting logistics team continues to explore new opportunities in new regions around the globe.
Our diversified business model has traditionally insulated us from individual negative business cycles, but this quarter's significant seasonality and low volatility negatively impacted our results.
However, once again, I believe that we will rebound in the third and fourth quarter.
Our organic business development remains strong, and <UNK> and I are in the process of further building out our M&A team in order to put us in an even stronger position to capitalize on a very active acquisition pipeline.
As always, we appreciate the continued support from our shareholders, customers, and suppliers and we continue to be very enthusiastic about the opportunities to build out our global capabilities and sustainably grow our business over the long term.
And now, I will turn over the call to <UNK> for a financial review of the results.
Thank you, Mike, and good afternoon, everybody.
Consolidated revenue for the second quarter was $8.5 billion, up 16% sequentially, but down 25% compared to the second quarter of 2014.
Our aviation segment generated revenues of $3.2 billion.
That's up 10% sequentially, but down 28% year over year.
Our marine segment revenues were $2.8 billion, up 21% sequentially, but down 21% year over year.
And finally, our land segment generated revenues of $2.5 billion, up 18% sequentially, but down 26% year over year.
All of these year-over-year declines were due to lower oil prices, offset in part by increased volumes across all three of our business segments.
Our aviation segment volume was a record 1.6 billion gallons in the second quarter, up 120 million gallons or 8% sequentially and 170 million gallons or 12% year over year.
Volume in our marine segment for the second quarter was a record of 8.4 million metric tons, up more than 700,000 metric tons or 10% compared to last quarter and approximately 2.3 million metric tons or 39% year over year.
The increase in marine volume this quarter resulted from increases in our core resale business, where, despite broader profitability issues, our team continues to do a nice job growing market share, as well as increases in our brokered business, which now represents approximately 13% of total marine volume.
Our land segment sold record volume of 1.2 billion gallons during the second quarter, up 56 million gallons or 5% sequentially and 114 million gallons or 11% from the second quarter of 2014.
Total consolidated volume was a record of nearly 5 billion gallons, up 8% sequentially and 22% year over year.
Consolidated gross profit for the second quarter was $190 million.
That's a decrease of $25 million or 12% sequentially and $1 million or 1% compared to the second quarter of last year.
For the six months ending June 30, gross profit was $406 million, up $26 million or 7% compared to the first half of last year.
Our aviation segment contributed $85 million of gross profit in the second quarter.
That's an increase of $2 million or 3% sequentially and $3 million or 4% compared to the second quarter of 2014.
And for the first half of the year, aviation gross profit was $168 million, up $17 million or 11% from the first half of last year.
Sequentially, we experienced some improvement in our government business, while year over year our North American core commercial business was a leading contributor to growth.
While inventory average costing benefited us slightly in the first quarter, we experienced a negative impact of somewhere around $3 million in the second quarter.
Our [self] supply model's jet fuel inventory position was approximately 148 million gallons or $266 million at the end of the second quarter, compared to 138 million gallons or $230 million at the end of the first quarter, with our inventory investment down from $365 million at the end of the second quarter of last year.
Looking to the third quarter, which is traditionally our strongest seasonal quarter for aviation, we expect meaningful sequential improvement in results.
The marine segment generated gross profit of $42 million, a decrease of $12 million or 23% sequentially and $7 million or 14% year over year.
And for the first half of the year, marine gross profit was $96 million, down 1% or $1 million from the first half of 2014.
While we are obviously disappointed with our marine results this quarter, we are pleased with our continued ability to grow volume and market share.
Unfortunately, a sharp drop in market volatility resulted in a steep decline in our price risk management sales activity, and also a sustained low price environment contributed to a further reduction in higher-margin offshore activities.
Both of these factors were the principal contributors to our sequential and year-over-year declines in marine gross profit.
While the marine market remained sluggish, we have witnessed some modest increases in volatility in the early part of the third quarter, which could lead to improved results this quarter.
Our land segment delivered gross profit of $64 million in the second quarter.
That's a decrease of $15 million or 19% sequentially, but an increase of $3 million or 5% year over year.
And for the first half, land generated gross profit of $142 million, up $10 million or 8% compared to the first half of last year.
Consistent with guidance provided on last quarter's call, the sequential decline in gross profit was principally related to the seasonality of the Watson Fuels business, which generates a much higher level of gross profit during the cold winter season.
We also experienced some seasonal weakness in our domestic natural gas and propane businesses.
We don't expect the profit contribution from Watson, natural gas, or propane to increase meaningfully until the fourth quarter.
However, we do expect some improvement in our domestic core fuels business in the third quarter, which should translate to overall improvement in land results, with much sharper improvement in the fourth quarter driven again by seasonality.
Nonfuel-related gross profit associated with multiservice was $12 million in the second quarter, which was flat with the first quarter of the year.
Operating expenses in the second quarter, excluding our provision for bad debt, were $147 million.
That's up $4 million or 3% sequentially and $16 million or 12% year over year.
The year-over-year increase in operating expenses was principally related to expenses of acquired businesses and the impact of annual compensation increases and costs associated with strategic hires over the past 12 months, critical to the success of our growth strategies going forward.
As we look to the third quarter, I would assume overall operating expenses, excluding bad debt expense, will remain generally the same, in the range of approximately $146 million to $149 million.
Our total Accounts Receivable balance was $2.3 billion at the end of the second quarter, up approximately $150 million or 7% sequentially, principally related to increased volume across all three of our business segments, as well as somewhat higher average prices during the second quarter.
Our bad debt expense in the second quarter was $2.3 million.
That's up approximately $1.1 million from both the first quarter and the second quarter of last year.
The sequential increase was in part related to the 7% sequential increase in Accounts Receivable during the quarter.
Income from operations for the second quarter was $42 million.
That's down $30 million sequentially and $18 million year over year.
For the quarter, income from operations in our aviation segment was $26 million, a $2 million decrease sequentially and a $11 million decrease compared to the second quarter of last year.
Income from operations in the marine segment was $14 million in the second quarter, a decrease of $12 million sequentially and $7 million year over year.
And finally, our land segment had income from operations of $17 million, a decrease of $15 million sequentially, but an increase of $2 million year over year.
EBITDA for the second quarter was $57 million, down 34% sequentially and 27% compared to the second quarter of 2014.
Nonoperating expenses for the second quarter were $8 million.
That's an increase of $1 million sequentially and $4.8 million compared to the second quarter of 2014.
The year-over-year increase in nonoperating expenses is principally related to higher average borrowings during this past quarter, as well as the elimination of equity earnings related to our crude oil joint venture sold in the fourth quarter, which had contributed to second-quarter 2014 operating results.
Excluding any impacts from foreign exchange, I would assume nonoperating expenses to be approximately $6 million to $8 million for the third quarter.
Our effective tax rate in the second quarter was 15.5%, flat compared to last quarter, but down 18.1% compared to the second quarter of 2014.
The year-over-year decline in our tax rate was principally driven by a reduction in our US-based profitability.
We estimate that our effective tax rate for the full year of 2015 should be between 16% and 19%.
Our net income for the second quarter was $30 million, a decrease of $26 million from the first quarter and $18 million year over year.
Diluted earnings per share in the second quarter was $0.42, a decrease of 46% sequentially and 38% year over year.
Non-GAAP net income, which excludes intangible amortization and stock-based compensation and an executive nonrenewal charge in the second quarter of last year, was $38 million in the second quarter.
That's a decrease of $27 million sequentially and $20 million year over year.
And finally, non-GAAP diluted earnings per share was $0.53 in the second quarter, down 42% sequentially and 35% year over year.
We did generate $71 million of cash flow from operations in the second quarter, marking the 12th consecutive quarter of positive operating cash flow, totaling nearly $800 million over this three-year period.
We had nearly $500 million of cash at quarter-end, and sequentially we reduced our net debt by approximately $30 million to $280 million.
Net debt to EBITDA declined to 0.8 times, providing us with significant capacity to fund organic growth and future strategic investment opportunities, while continuing to maintain a strong and unleveraged balance sheet.
During the second quarter, we repurchased $30 million of our common stock in the open market, and on June 1 we announced that our Board of Directors had renewed our share repurchase program, authorizing the purchase of up to $100 million in common stock, which remains fully available for additional share repurchases.
As stated in the past, the principal objective of our share repurchase program is to offset the dilutive impact of employee stock awards, although we may also repurchase shares when we feel such shares are significantly undervalued.
As we previously announced, on June 8 we agreed to a settlement of all claims arising out of the tragic train derailment that occurred in Lac-Megantic, Quebec, in July 2013.
Under the settlement agreement, we will contribute $110 million to a compensation fund for victims of the derailment and we will receive the benefit of releases and injunctions contained in the US and Canadian bankruptcy plans in the MMA bankruptcy that will operate to bar all current and future claims against us relating to the derailment.
As stated in our press release announcing the settlement, we expect the $110 million payment to be fully covered by insurance.
The settlement payment and corresponding insurance reimbursement are reflected on our balance sheet in other current liabilities and other current assets, respectively.
As discussed in detail in our 10-Q, the settlement is conditioned upon final approval of bankruptcy plans in both the US and Canadian courts.
So in closing, despite disappointing results this past quarter, we generated record volumes in all three of our business segments and we expect a significant rebound in results in the second half of the year.
We again generated strong operating cash flow and our cash balance is now nearly $500 million, defining a very strong and liquid balance sheet.
This will continue to serve us well as we pursue additional organic growth opportunities, as well as strategic investments in what remains a market ripe with opportunities.
I would now like to turn the call over to Scott, our Operator, to open the Q&A session.
Thank you.
Thanks, <UNK>.
So the low price environment is interesting phenomena.
Obviously, has an enormous impact in the energy space, which has been headline news in terms of all the projects that had been impacted.
Our business model is asset light, but we are not completely immune to the impact of pricing.
So on the credit side, a lot was made out of OW, and with that unexpected drop in pricing, that certainly freed up a hell of a lot of credit capacity around the marketplace.
So a combination of low pricing and a reduction in the pressure on those credit lines, and there is certainly no lack of competition within the bunkering space from a lot of small, independent companies.
We, of course, feel that we have got one of the better platforms, if not the best, so it impacted margin, without question.
We are very conservative in terms of our credit disposition.
We have got a pretty tight net trade cycle.
A drop in volatility meant that we weren't selling risk management products.
A number of companies hedged, price dropped.
Obviously, that put them on the sidelines.
The sentiment is pretty bearish right now.
Market is significantly oversupplied, so that's started to come back now.
We are seeing an increase in that activity in July, so we're pretty optimistic about some improvement in margin and some increase in activity within the derivative side.
In terms of the market-share gains, we feel pretty good about it.
We have got an incredibly committed organization.
All the people in our Company, the senior people, have pretty much dedicated their lives to this Company.
This Company has got an incredible spirit and a determination to succeed.
So our platform, we think, is solid.
We continue to evolve our value proposition, so we feel good about those margin gains and we're pretty determined to grow market share.
Obviously, we're not going to be ignoring margin, but we feel positively disposed to that.
So, great observation, and <UNK> and I talked about this.
The beauty of our business model is that we had the variable-cost model, so it was self-regulating, and we still have that.
I must admit it's not as variable as it used to be.
But I think the other dimension is within some of our specialty marketing areas we got a significant amount of gross profit that is not associated to a significant amount of reduction in cost.
So, that has really impacted this drop in profitability without an associated drop in compensation expense.
So, you live and learn, and you design all sorts of different ways to orient the organization, and we have ---+ it is something that we reflect on.
We have been doing this for a long time, and we have been hitting singles and doubles and I think doing a pretty good job.
We have never bet the farm, not that we are intending to, but the Company is maturing and evolving.
We are handling acquisitions on a global basis.
Our integration practice is, I think, maturing significantly, but there is a lot of dislocation in the marketplace today with all of the geopolitical activity.
So, there are more and more opportunities.
We do have a significantly full pipeline in all of our business areas.
We are handling multiple acquisitions.
The discussion that <UNK> and I have been having is really trying to raise that focus not only to increase our bandwidth, but also to be looking at more sizable acquisitions, which means that you need to have a level of depth and maturity to make sure that you are not making mistakes on those more sizable acquisitions.
So, what that means is that you need additional horsepower.
We have been, I think, conservative in terms of acquiring companies that were in our wheelhouse and even if we made a mistake on them, which I don't think we have, nothing terrible would happen.
So, if we're going to start to play a larger game, we need to have a more senior M&A team to enable us to do that the right way.
So I think we have been clear in terms of the reasons for it.
Certainly the offshore activity, everyone knows that has been hit.
It is as bad as it's been in, I think, 30 years, so that area, which is a highly specialist logistics area, is an area that was a meaningful component of our activity.
We got a blip within this quarter where hedging basically just completely dried up.
It is a significant part of our activity.
We have been in that business since 1988.
Anybody who is in the oil industry understands risk management and that business basically disappeared because of the bearish sentiment and just complete lack of volatility.
It just basically fell off the screen.
As it relates to OW, frankly I think it was reasonably overblown.
A lot of those folks went into physical supply capabilities.
We do a little bit of physical supply, but it's really not our core competency, so those individuals are working in other companies and handling their business in those locations, and the price dropping has made it a lot easier for the marketplace to extend credit and that is some part of our value prop.
So some of that expected windfall really didn't materialize.
So, really it is business as usual for us and we are growing our market share.
We are confident that we are on the right path in terms of providing significant value-add to our clientele.
We feel good about the third quarter and the fourth quarter and this was an aberration.
Not really.
Rig mobilizations basically are ---+ have just fallen off the map and that's essentially what our focus was.
So, that business is significantly reduced.
So (multiple speakers)
<UNK>, it is very easy, very simple.
We have got a significant increase in volume and I think that this quarter's results in terms of risk management is an aberration.
So volatility is already up.
We are seeing our derivatives activity pick up already in July, so I'm not worried about it.
We're going to recover.
This is not any indication on what the rest of this year is going to be.
We have got a fantastic marine organization.
We have had a significant change in market dynamics, and if you look at how our Company has performed over years, the diversity of our business model has kept shareholders, investors completely satisfied through all sorts of different turns in the marketplace, but I guess we were going to have a quarter where things were going to get out of sync.
Coincidentally, tomorrow is a blue moon, so these things, I guess, were bound to happen.
We had turbulence this quarter, but we're pretty confident that we will finish the year and have a good third and fourth quarter.
Listen, I think that it is a good question.
What that means is that you have got to cut costs because you either ---+ it is [rate] volume, right, so I think the chances of serenity breaking out for any long period of time are not great, so we are already seeing a return of that, and we have gone to market share.
Listen, this is a balance of are you going for volume.
Are you going for margin.
We have picked up some additional volume.
Volatility has completely dropped off the chart.
This is just a simple fact, and what we are doing in our Company is looking to insulate it from commodity swings.
We are driving a diversified business model.
Our whole Company is a diversified business model in terms of different industries that we are focused on, different products.
We are adding more services to the equation, more value add, with the intention of getting a larger volume of business activity from our clientele.
So, I think that we're on the right path.
I know that we are on the right path.
But this quarter, various different pieces just conspired against us and I don't expect this to happen.
Certainly, we are working to bulletproof the Company such that we have got so many different drivers that are all synergistic with each other, both in the energy spaces, transportation spaces, commercial and industrial and governmental spaces, such that these types of events really are nonexistent.
Listen, I think that is an excellent question and I think the chance of that happening ---+ and listen, it could happen and we've got the ability to reduce costs.
So, that is always there.
We don't have an enormous amount of fixed assets, so our ability to scale back is pretty significant.
But you have got ---+ let's just look at what we have today, okay.
Look at aviation, okay.
Aviation ---+ and you got to look at how these businesses work.
Aviation is a contract business, so today you have got the low environment.
It is not really as susceptible to volatility or even low price.
We have got an extraordinary value prop.
We are continuing to grow our market share.
We are continue to add value.
We have grown in the business aviation space.
The Colt team is adding tremendous value to our organization.
You look at your land model, again, a lot of long-term contracts.
A lot of C&I.
We are in the logistics space.
Multiservice is starting to build up a significant pipeline in transaction processing.
That is an annuity, extremely stable income stream, so the only part of our business is the supply and trading side of it.
Our marine business is a spot business, and it is a good hedge because when you have got volatility, you are not really going to be able to capture that in the aviation space.
You are going to be able to capture that in the marine space because you are in the spot market.
So, this is the way the chips fell.
They fell pretty hard this quarter, but I think we got a fantastic business model.
I don't think it's a black box at all.
I think that we are in ---+ providing fuel to the transportation industries, commercial and industrial.
Our US Energy business on natural gas, this global energy management service, is a fantastic business.
We're going to take that global.
You are seeing natural gas; we're in the power space.
So we're into three different energy sources, the only three that have any amount of growth into the future, and that's natural gas, power, and diesel.
You look at the long-term forecast on aviation, you have got significant growth in air travel.
We are a dominant player in jet fuel supply.
So, this is certainly very unpleasant for everybody, but this is a pretty rare occurrence and you haven't seen this in a long, long time and I don't think you're going to see it ---+ as we get more and more of these business activities to mature.
We have added some additional folks to our management team.
We have brought on solid people in land, brought on a Chief Marketing Officer, head of strategy, an EVP of our land business.
We have built out our team in multiservice with finance, technology, sales, human resources.
So, we're making the investments to build our Company into the world-class services company, downstream diversified services company, that we are and to continue to flex.
If you look at Lac-Megantic, tragic event.
I think it speaks to the level of sophistication that is in this Company to be able to handle something as complex as that.
There is a significant overhang, and hopefully that will be accepted and that's behind us.
So, in any case, it is probably ---+ I don't know if that is answering your question.
I'm happy to tell you some more.
Yes, listen, we have done that before.
We know how to step on the brakes there.
Again, we don't ---+ we had made investments into different areas.
We think our global energy management business, our natural gas, and power is a great business.
We think our multiservice is a great business, and these are synergistic.
Going after global energy management, all of those companies are using diesel lubricants.
It is a perfect fit within our land C&I business.
Our multiservice transaction processing and payment system and financial technologies is a great business within the transportation side.
We haven't really invested enough in either one of those businesses and now we are doing that, so we have added some significant senior people there.
We will continue to acquire in those spaces.
On the derivatives side, we have been doing this for quite some time.
We have got, I think, a fantastic risk management organization.
We don't really break that out and I don't know if you want to break that out, <UNK>.
I could.
It's a little north of 15% of total gross profit in marine, on average over time.
The derivative ---+ profits from derivative activity, yes.
(multiple speakers).
Yes, go ahead.
Greg, it is <UNK>.
I could tell you, look, Q3 is early.
Today is July 30 and (multiple speakers) have data up to today, but based upon what we have seen so far in July, our performance has clearly improved on both the derivatives side and overall.
Is that sustainable.
We certainly hope so, but, again, it is still early.
But we have definitely seen some improvement.
Some volatility has returned to the marketplace, which has helped margins a bit overall.
So once again, based upon three weeks of activity we have reasons to be optimistic, but there's still a long way to go until September 30.
Nothing in particular, Greg.
I think overall the aviation team did a great job.
As you said, it is not the strongest seasonal quarter for us, but our North American business did pretty well.
We did very well ---+ I think Mike may have mentioned it earlier ---+ in the tender season, which is in the spring.
It is when we are normally renewing contracts for the following year, so our team did a nice job there.
We picked up some volumes.
In saying that, and also even the government business, which a lot of people thought was falling off the deep end, it actually improved a bit in the second quarter as well.
Looking to the third quarter, to add to that, that is generally the seasonally strongest quarter for aviation and we expect aviation to do even better than what you saw in Q2 and hopefully meaningfully better than what you saw in Q2, and we are already seeing some good, solid start to July in that segment as well.
Yes, there was a little bit ---+ it is a good question, but to be honest, it is probably somewhat marginal.
So the best way to answer that question is Watson Q2 to Watson Q2 of last year was a bit better, because the second quarter last year was probably one of the warmest periods historically.
So we did a little bit better, but nothing in comparison to what you see generally in the first quarter.
So the dropoff that we saw was pretty consistent with what we expected to occur when the quarter began.
Yes, I would say that it is absolutely certain that the results deteriorated over the course of the quarter.
We started out in pretty good shape and the derivative activity dropped off, I would say, most heavily in the second and third months of the quarter.
The offshore activity that Mike referred to was pretty weak most of the quarter, but the larger impact was derivatives, and that really got a whole lot worse as we entered into May and June than where we started out in April.
We did have a chat about it, but since we don't provide numerical guidance, we decided that wasn't necessarily the right thing to do and we have never done that before and weren't looking to set a precedent this quarter.
Hopefully, we don't have reasons to even talk about it ever again, but the decision was that, under our specific circumstances, was not something that was necessary.
Yes, I would say ---+ remember, I think it was 1998, the price in Fujairah didn't move for about six months, so obviously that is a bit challenging.
If everybody is trying to work off of the exact same price, it is a little bit difficult to get any type of spread.
So, listen, it is something that you always have to take into consideration.
That would be a little bit of an aberration in today's world.
Certainly you've got a heavily oversupplied marketplace, but I think that there are enough forces and there are enough geopolitics today that it is probably not likely to happen.
But like I said earlier, we have got the ability to dial back.
We have got an extremely flexible business model.
We choose not to because we are very oriented to building for long-term value, so we could get violent and try to make every quarter or we could be building for long-term value.
I don't think most of our investors are looking to make it every quarter, so we're using our judgment in order to drive long-term value.
Absolutely, <UNK>, and thank you for bringing that up.
We have said this time and again.
It is possible we are a little bit conservative.
It is a little bit tricky out there and we very much are oriented towards blue chip.
Our [net strate] cycle is very tight in marine and it is a little bit tricky out there.
So that's where we are hanging out, and, yes, that's not going to give you the fattest margins.
And just to add to that, <UNK>, if you look at it year over year, obviously we had a bit of a blip in the fourth quarter and the first quarter, but if you look at our margins in our core marine business in the second quarter versus the second quarter last year, they are virtually flat on a significant increase in volume.
So that would say we're basically ---+ and day to day, we are doing the same thing we were doing a year ago, but arguably doing it a bit better, but in this quarter was the factors that we've talked about several times already on this call that really had the most meaningful impact on profitability.
We appreciate the support of our shareholders and we look forward to speaking to you next quarter with better news.
| 2015_INT |
2017 | BKS | BKS
#Good morning, and thank you for joining us on our fiscal 2017 fourth quarter earnings call.
With us today are <UNK> <UNK>, <UNK> <UNK> and other members of our senior management team.
Before we begin, I'd like to remind you that this call is covered by the safe harbor disclaimer contained in our press release and public documents and is the property of Barnes & Noble.
It is not for rebroadcast or use by any other party without the prior written consent of Barnes & Noble.
During this call, we will issue forward-looking statements, which are predictions, projections or other statements about future events.
These statements are based on current expectations and assumptions that are subject to risks and uncertainties, including those contained in our press release.
The company disclaims any obligation to update any forward-looking statements that may be discussed during this call.
And now I'll turn the call over to <UNK>.
Thanks, <UNK>, and good morning, everyone.
Let me start by expressing how excited I am to be here today.
Today, I'll share some of my observations and insights since joining 6 months ago.
Over the past 6 months, I've spent a lot of time visiting stores and meeting with our booksellers and customers.
During those visits, I've heard a lot of valuable feedback on the things that we do well, along with some areas that we can do better.
Most importantly, I learned that customers love and trust the Barnes & Noble brand, it all begins with this premise which provides a solid foundation to build from.
We are well aware of the challenges that the company and the industry are facing.
We view these challenges as great opportunities.
There's no question retail is changing and customers are shopping differently.
We don't view this as a winning or losing proposition, it's just simply changing.
Barnes & Noble has a rich history of evolution beginning with the transition from small format mall stores to large superstores, to competing online and launching our own digital platform.
As a company, we have and continue to evolve, providing customers the ability to shop however they choose.
There's no doubt the customers have a love affair with their bookstores, and more specifically, with their local Barnes & Noble store.
They want their bookstore to be there for them.
We just need to continue to evolve the experience and make it better for them.
There are a lot of areas to examine within the store to stay current with today's market and today's shopping behaviors.
Today's consumer wants to shop their way, whether it's in a store, online or using their mobile device.
Our goal is to deliver a great shopping experience regardless of which experience they choose.
To accomplish this, we're examining every aspect of the business and our customer value proposition.
And value proposition for us does not just mean price, it includes our membership, convenience, the fact that we have physical stores, service and, at the heart of it all, our dedicated booksellers.
As we continue to pursue the next stage of growth, we're examining everything with an open-minded view.
Our new test stores are a good example of this.
We launched 3 test stores over the past year and continue to receive great feedback from our customers and booksellers.
These test stores are smaller than our average store and feature a more intuitive store layout.
They have better adjacencies and expanded food and hospitality offering and more omni-integration, including an app that can help guide customers to the location of a specific book, mobile checkout and advanced digital kiosk to help service customers.
We are learning a lot from the new test stores.
This will help inform us as we reimagine our store of the future.
We've already announced 2 more tests stores opening in Plano, Texas and Loudoun, Virginia, later this year.
We'll continue to test and learn from these new stores, and our goal is to develop new format that we can test, pilot and roll.
We'll use the learnings to modify and enhance our existing store base as well.
In addition to new store formats, we are focused on growing sales in existing stores through a series of sales initiatives.
Our team believes strongly in launching a series of tests that can help inform the future direction of the company.
Currently, we have multiple tests in flight, including changing layouts to reflect today's trends, rightsizing space allocated to underperforming businesses, including NOOK and Music & DVD, while expanding space dedicated to children's books.
We also see a big opportunity aligning our stores and digital offerings closer together.
Our goal is to provide customers with any book, anywhere, anytime and in any format they choose.
BN.com is an important component of our omnichannel offering to serve the customer.
In our experience, a multichannel customer is a more engaged customer that shops all channels and our goal is to continue to improve the BN.com experience, including the redesign of our desktop and mobile sites, which will be a phased rollout over the current fiscal year.
The goal of these redesigns is to create a better user experience, make discovery easier for our customers and increase conversion.
NOOK is also an important component of our omnichannel offering to offer any book in any format.
We worked hard to reduce NOOK losses by $47 million to $17 million in fiscal '17, and we remain committed to reducing them further in fiscal '18.
Fiscal '17 proved to be a very challenging year for the company.
Our comp store sales declined 6.3%, largely driven by weaker traffic to stores.
As we turn to fiscal 2018, we are examining every possible way to ignite sales, including greater efforts to increase conversion, new store layout, enhancements to our membership program and creative marketing offers.
In addition to looking for top line opportunities, we're doing everything we can to reduce costs throughout the organization through efficiencies and simplification.
As Al will discuss momentarily, the team managed expenses carefully in fiscal '17, which enables us to somewhat mitigate the impact of the sales decline on earnings.
In fiscal '18, we're taking a deep dive into all base expense lines, looking for opportunities to reduce cost within our supply chain, our labor model and COGS, to name a few.
Our goal for this year is to maintain our current level of profitability, while planting the seeds for future growth.
I look forward to updating you on our progress going forward.
Now I'll turn it over to Al for a review of the financials.
Thanks, <UNK>.
This morning, we released our fourth quarter and full year results for fiscal '17, which ended on April 29.
Comparisons are to prior year periods unless otherwise noted.
Consolidated sales were $821 million for the quarter and $3.9 billion for the year.
Retail sales decreased 6.3% to $796 million for the quarter and 6.1% to $3.8 billion for the year.
Comps decreased 6.3% for both the quarter and the full year, primarily on lower traffic, the challenging retail environment and comparisons to the prior year coloring book phenomenon.
Whereas nonbook sales lifted overall comps in the prior year, they declined in the current year.
Online sales increased 2.9% for the quarter and 3.7% for the year, benefiting from site improvements and increased promotion.
NOOK sales decreased approximately 24% for both the quarter and the full year on lower content volume as well as lower device sales.
Both digital content and eCommerce sales benefited in the current year from the eBook settlement.
The consolidated gross margin rate decreased 80 basis points for both the quarter and the full year.
Retail margins decreased 50 basis points for the quarter, primarily on occupancy deleverage.
Retail margins decreased 90 basis points for the full year due to occupancy deleverage as well as higher markdowns to clear nonreturnable merchandise.
Turning to expenses.
The company reduced its SG&A cost by $53.2 million for the fourth quarter and $136.8 million for the full year.
Fourth quarter retail cost declined $39 million as the prior year included a $21 million pension settlement charge in conjunction with the plan's termination.
The balance of the fourth quarter decline was primarily due to lower eCommerce expenses.
For the full year, retail cost declined 60 basis points, driven by the prior year pension settlement charge, reduced advertising and lower eCommerce expenses.
NOOK expenses declined $14.2 million for the fourth quarter and $52.6 million for the full year on continued cost rationalization efforts and the lower sales volume.
Fourth quarter operating losses were $23.8 million, an improvement of $34.1 million over the prior year.
Full year operating profit of $54.3 million exceeded the prior year by $39.7 million.
Excluding previously disclosed nonrecurring items, consolidated EBITDA was $187.2 million in fiscal '17, in line with our recent guidance and slightly higher than last year's $185.7 million.
Despite the sales declines, the company has been able to sustain overall profit levels on cost reductions.
The company's full year effective tax rate was 52.9%.
The effective tax rate differed from the statutory rate due to changes in uncertain tax positions, adjustments to current and deferred taxes and recurring permanent items.
The consolidated fourth quarter net loss was $13.4 million or $0.19 a share compared to a loss of $30.6 million or $0.42 a share in the prior year.
Fiscal '17 consolidated net earnings from continuing operations were $22 million or $0.30 a share compared to net earnings from continuing operations of $14.7 million or $0.05 a share in the prior year.
Turning to our balance sheet.
The company ended the fiscal year with $64.9 million of debt under its $750 million credit facility.
During fiscal '17, the company returned $67 million in cash to its shareholders, including $44 million of dividends and $23 million through share repurchases.
Inventories remain well controlled despite the sales shortfall.
In fiscal '17, we opened 3 new stores while closing 10, ending the year with 633 retail stores.
Looking ahead to fiscal '18, we expect comparable store sales to decline in the low single digits as we cycle against last year's headwinds and also expect lifts from merchandising initiatives.
Plans are focused on increasing the number of value offerings, improving SKU productivity, testing changes to existing store layout and remerchandising select business units in our stores.
We believe there's an opportunity to increase conversion by improving navigation and discovery throughout the store.
The company continues to test programs to grow sales, increase membership, improve price perception and enhance its overall customer value proposition.
In terms of trajectory, we expect comps to remain soft earlier in the year and improve in the back half of the year.
Our fiscal '18 consolidated EBITDA forecast is $180 million as we expect to mitigate the sales decline through a continued cost reduction.
The company remains committed to rightsizing its cost structure and is focused on increasing store and supply chain productivity, streamlining operations and eliminating nonproductive spend.
Retail EBITDA is forecasted at $190 million, with NOOK losses reduced to approximately $10 million next year.
Turning to capital expenditures.
In fiscal '18, we expect to invest approximately $100 million in our business as compared to $96 million in fiscal '17.
This includes investments to support merchandising initiatives, new stores, system enhancements and existing store maintenance.
In fiscal '18, we expect to open and close approximately the same amount of stores as in the prior year.
With that, we will open the call for questions.
Operator, please provide the instructions for those interested in asking a question.
Operator, we're ready to begin the Q&A session.
Yes, I would love to share a little bit.
First, let me talk about our approach.
So the thing that the team that is excited about is the idea that we are getting a lot of tests in play right now.
So we are doing a number of things with store layouts, starting with space productivity.
Obviously, we have stores that are quite large and we have categories that are both in decline as well as some that are growing.
And so getting the puzzle right is an important part for us.
And the best way to do that is to actually go out and do some and then measure them for a while, and then choose the winners and hopefully roll those.
So that's sort of the basic approach of the space tests that we're doing.
With respect to product, we've got a great business in Toys & Games as well as Gift.
And in those areas, we're taking a hard look at the productivity there, the freshness, the relevance of the product.
And I'd say, the team is doing a real nice job at examining the types of items that we have both reached across the ---+ nationally across the chain as well as locally.
Too soon to tell on results honestly.
I mean, we're in early days.
But hopefully, at the next call, we can talk about both the winners and things that didn't work that we just kind of moved on from.
There's no new sort of breakthrough category that we're launching.
It's basically businesses that really reflect our customer base and really makes sense for the brand and the types of products that we're selling.
Hey, <UNK>, it's Al.
So as you know, we have a policy that the board's approved of dividends at an annual rate of $0.60 a share or $0.15 a quarter.
And they're declared on a quarterly basis by the board.
We expect to continue to pay the dividend under that program.
But ultimately, that's a board decision.
I think you've seen, over the last few years, that we've managed our balance sheet very well given the sales declines that we've had.
And we can expect to be able to continue to pay the dividend as long as the free cash flows would support it.
Great.
Thank you, all, for joining us on today's call and for your interest in Barnes & Noble.
Our next release is scheduled to be issued on or about September 7.
We hope everyone has a great day.
| 2017_BKS |
2018 | GCO | GCO
#So Pam, when you look at Journeys, Journeys was actually above the mall levels.
Journeys is positive with traffic; the mall levels were still for the first quarter negative.
Lids has been facing traffic challenges, so Lids was actually below the levels of mall traffic.
And Pam, you know our interpretation of that, obviously, is we've got Journeys very much on-trend.
And their traffic comparisons are against a period when they were less on-trend.
And then the opposite is true at Lids.
So there is the overall traffic trend in malls, which continues to be slightly negative.
But Journeys is outrunning [Macklin] and Lids is slipping a little bit behind at the moment.
Well, and the thing that we remind you of is that even with the traffic trends that we are seeing in malls these days, we are seeing higher conversion.
What the customer is doing this days is they are doing all of their window-shopping and using their digital devices to determine what they want to buy prior to coming into the store and prior to coming to the mall.
So we are actually seeing, particularly in Johnston & <UNK>, some very nice conversion increases, which along with the ticket size is what has been driving their very nice comp.
So in terms of the concentration, we continue to first of all assort the store to give the customer what they want.
We have seen with the retro athletic trend and with the fashion trend in athletic to be an opportunity to diversify beyond the concentration that we had in the last fashion cycle.
So we are feeling pretty okay about the concentration at the moment.
In terms of the fashion cycle, that's a big wildcard.
We feel like we are in a good spot for this year.
We see the brands coming in and refreshing the look that they are providing our customers in a way that reinforces newness inside of what the current overall trend is.
So we are feeling it is pretty good.
If you look at the history, we've had two-, three-, four-year runs with these fashion trends.
There have been concerns that social media shortens that.
Right now we feel like we are on a very good trend, and as I said, we feel pretty confident about the rest of this year.
So Jon, I will take the first one and then hand it over to <UNK> to answer your second question.
But in terms of the second quarter, so you will just have to think a little bit about our business.
First and second quarters are very low-volume quarters until we get into back-to-school.
And the third quarter and in holiday in the fourth quarter, we are at smaller sales levels and therefore it's difficult to leverage our fixed expense base.
And so we will take staffing down to one person in stores.
We have got the same rent in May that we have in December.
And so we are doing all we can to manage our expense base.
And so the headwinds specifically that I was referring to are that we still expect that Lids' comps will be negative in the second quarter.
And while we didn't initially anticipate that Schuh's comps would be negative, we now, just given the experience we had in the first quarter, have taken their comps and guided their comps to be negative in Q2.
We are very encouraged by what we are seeing in both Journeys and in Johnston & <UNK>.
But in such a low-volume quarter, the combination of those negative comps from those couple of businesses is what we would describe as a headwind.
I will just first add on to that one.
The other thing that we are experiencing in our business, which has been going on for years, is the expansion of our digital business and the negative comps in our stores, which we have repeatedly said is dilutive.
So over many years, what has happened is our operating margin is not what it used to be.
We want to see it start to climb back up.
But while we are at a lower operating margin, the quarters that take the real hit are the first and second quarters because we have very little flexibility on costs, given that those are ---+ the stores in particular are fixed cost machines for the first two quarters before we start ramping up our labor for back-to-school and Christmas.
On your question with regard to the improving comps at Lids ---+ at Journeys.
You are correct; last year, they improved meaningfully in every quarter.
And so when you look at our projections for this year, we are bringing the expectations for Journeys' comps down a little bit every quarter.
The best way to probably understand it, though, is I would encourage you to go back and look at a three-year stack.
Because when you look at some of the strong comps from last year, much of last year's strong comp was a rebound from the weak comp the year before that.
And so you really have to go back in history to understand the shape of the comp.
And I would encourage you to go back ---+ I won't go through all the numbers here, but go back and look at a three-year stack to get a feel for what we are doing with our expectations.
Yes, let me give you some general themes and then I ask <UNK> to give you more specifics.
The headwear business has gotten a little more difficult for us.
It's ---+ ballpark, we do two-thirds of our business in headwear and about a third in the Locker Room business.
And so the headwear business, because we are just searching for that next fashion trend, has been more challenged than it has been in a while.
The Locker Room business on a trend basis is actually getting a little better.
It's not as negative as it was.
Underneath that, there is a lot of stuff, which is just the nature of the licensed sports business.
So for example, last year we had the International World Series, in which we did a lot of business.
And so we missed that this year.
Cubs ---+ obviously the tail end of the Cubs was going on right now a year ago, the excitement of the new season after winning the championship.
Then we have some good things.
The Yankees doing as well as they are; that's our number one team.
And so the Yankees are terrific for the business.
So when the Yankees are doing well, MLB is doing well.
For more detail, <UNK>.
So <UNK>, just specifically around your question.
In the first quarter, Lids stores, just given the headwinds <UNK> described, their comps weren't that different than the Locker Room stores.
And as we said, we are very excited to be getting into baseball season because baseball is our number one league in the first quarter.
It's still our number one league in the second quarter; it becomes even bigger.
And then the impact of baseball starts to trail off in the third quarter with the start of football season.
So far, our Clubhouse business in particular has been on fire because the Yankees have been on fire.
And so that's been a very nice tailwind that has been driving the Clubhouse business and really the Lids business overall.
I will just make the one comment.
We don't give a quarterly guidance because of all the moving parts that I just finished describing, particularly in the Lids business.
This is just another example of moving parts.
And so with that said, let me hand it over to <UNK>.
Yes, I know that it's a tricky week and it's tricky in particular because it's such a big back-to-school week.
It might not be as impactful in other businesses.
So just on the basis of last year, <UNK>, if you look at the dollar amount of business that we would end up shifting from the third quarter to the second quarter, if you shift about $20 million, that should take care of the shift.
And then you can work whatever your flow-throughs are to be able to flow through the right amounts.
As I said, we feel like there is some positive opportunity for gross margin this year.
We saw gross margin up 30 basis points in the first quarter.
We also think that there is stronger opportunity in the back part of the year for that gross margin lift, only because we have more opportunity to do business than both with back-to-school and with holiday.
In general, we continue to deliver a double-digit gain.
We are pleased with that.
And it has sort of been in the ballpark of our expectations.
In terms of specific business units, <UNK>.
Yes, so you know, Pam, we are not breaking out specific business units anymore just because online comps are just so integrated with store comps these days.
But we were up 10% against really a phenomenal up.
I think we were up close to 30% last year in the first quarter.
So a little bit of the lower comps this first quarter I think is against a very strong compare from last year.
Journeys' business especially has been comping strongly on the direct side.
Journeys, some of our other businesses are more penetrated and so there has been lots of opportunity for Journeys to grow quickly because of some of the investments they have been making.
And Pam, this is going to get over time a little trickier for us to discuss and for you to analyze in the sense that the world is blurring in terms of what's an online sale.
If you have a person who comes online but is buying from you because they have the chance to pick it up in the store, you have to give credit in a way for both the digital and the existence of that store for having closed that sale.
So I think increasingly we and others in the retail space will be just talking about comps.
And then try to give some color about how much digital is helping comp, but it won't be strictly defined to what the digital sale was, which we have heretofore defined as a sale that is made on somebody else's device.
And I would just remind you that we run our e-commerce businesses to be profitable.
So we are happy to take e-commerce sales to the extent that the customer wants to make those sales.
But the other thing that we've been delighted about is the strength of the store business for both Journeys and Johnston & <UNK>.
Because the positive store comps and the cost reductions that we have implemented and a strong direct business, that makes for a good formula for profitability.
We did cover that on the call.
Just the main theme is there is a dearth of fashion excitement in the headwear space right now, which is hitting the category, hence Footlocker's comments.
And right now what we are doing is testing a lot of different things; working very closely with our vendors to create more excitement and explore possibilities for the next trend.
But we are not having great predictive ---+ we are not predicting when the next trend is going to appear.
Thank you, everybody, for joining us.
And we look forward to having a conversation with you at the end of the second quarter.
Have a good day.
| 2018_GCO |
2018 | SPSC | SPSC
#Thanks, <UNK>, and welcome, everyone.
We posted strong performance in the first quarter of 2018 as SPS Commerce continues to be a key strategic partner to a large network of retailers and suppliers.
For the first quarter, revenue grew 14% to $59.1 million, recurring revenue grew 14% and adjusted EBITDA grew 28% to $10.9 million.
Retailers are continually evolving their omnichannel strategies to adapt and anticipate the shopping habits and expectations of today's consumers, which have largely been influenced by retail giants like Amazon and Walmart.
In an annual survey from Retail Systems Research, hundreds of retailers, suppliers, distributors and logistics firms weigh in on the biggest factors impacting consumers' buying decisions.
For 5 years in a row, one theme endures year-over-year.
Consumers are setting expectations in retailing, and delivering on those high expectations requires accurate, efficient, streamlined and automated trading partner relationships.
We anticipate that this trend will continue and accelerate in the coming years, which underscores our belief in the multibillion TAM ahead of us and the tremendous opportunity it presents for SPS Commerce and our leading platform, which enables retailing across all channels.
SPS Commerce has managed community enablement campaigns for some of the world's largest and leading retailers.
Costco, for example, has been working with SPS Commerce for 15 years while expanding its retailing platform and onboarding thousands of vendors over the course of our partnership.
Over the years, Costco has partnered with SPS for vendor onboarding, achieving nearly 100% automation.
As a strategic partner of choice, SPS Commerce onboards new vendors to the Costco platform on a monthly basis, which in turn continually fuels the growth of our retail network.
As retailers invest in new technologies to improve supply chain execution, they turn to SPS Commerce to optimize their investments.
We have recently engaged with Wesco, a leading global supply chain solutions provider and distributor to help them create a world-class customer experience by transitioning to a new electronic order fulfillment system.
In a matter of months, SPS Commerce launched a community enablement program and onboarded a significant number of their vendors.
Costco and Wesco are only 2 examples of exceptional companies who recognize the benefits of supply chain efficiencies.
But there are many more who are in the process of making investments to optimize supplier integration and to offer the omnichannel retail experience that customers have come to expect.
Reports from the 2018 Shoptalk Retail & Ecommerce Conference, which took place in <UNK>h of this year, point to lagging e-commerce infrastructure, aging inventory and order management systems and the need for integration between retailers and suppliers to achieve some of the most basic yet imperative omnichannel capabilities such as drop-ship.
These trends validate the need for agile supply chain solutions to deploy an efficient omnichannel strategy and highlight the vast number of retailers out there who are at different stages in adapting the e-commerce.
Increasing collaboration among trading partners is a complex progression, and we believe that SPS Commerce, with the retail industry's largest network and a comprehensive portfolio of e-commerce solutions, is well positioned to connect retailers and suppliers on the industry's most broadly adopted retail cloud services platform.
With that, I'll turn it over to Kim to discuss our financial results.
Thanks, <UNK>.
We had a great first quarter of 2018.
Revenue was $59.1 million, a 14% increase over Q1 of last year and represented our 69th consecutive quarter of revenue growth.
Recurring revenue this quarter grew 14% year-over-year.
The total number of recurring revenue customers increased 4% year-over-year to approximately 25,900.
For Q1, wallet share increased 10% year-over-year to approximately $8,500.
For the quarter, adjusted EBITDA was $10.9 million compared to $8.5 million in Q1 of last year.
We ended the quarter with total cash and marketable securities of approximately $168 million.
We also repurchased $5.9 million of SPS shares in the quarter.
Now turning to guidance.
For the second quarter of 2018, we expect revenue to be in the range of $59.4 million to $60 million.
We expect adjusted EBITDA to be in the range of $10.2 million to $10.7 million.
We expect fully diluted earnings per share to be approximately $0.14 to $0.16 with fully diluted weighted shares outstanding of approximately 17.5 million shares.
We expect non-GAAP diluted earnings per share to be approximately $0.32 to $0.34 with stock-based compensation expense of approximately $3.3 million, depreciation expense of approximately $2.4 million and amortization expense of approximately $1.1 million.
For the full year, we expect revenue to be in the range of $242 million to $244 million, representing 10% to 11% growth over 2017.
We expect adjusted EBITDA to be in the range of $43.5 million to $45 million, representing 27% to 32% growth over 2017.
We expect fully diluted earnings per share to be in the range of $0.70 to $0.74.
We expect fully diluted weighted average shares outstanding of approximately 17.5 million shares.
And we expect non-GAAP diluted earnings per share to be in the range of $1.40 to $1.45 with stock-based compensation expense of approximately $12.7 million, depreciation expense of approximately $9.9 million and amortization expense for the year to be approximately $4.5 million.
For the remainder of the year, on a quarterly basis, investors should model a 30% effective tax rate calculated on GAAP pretax net earnings.
As a reminder, on our fourth quarter earnings conference call, we introduced the 2020 goal and an updated long-term target model.
Specific to the 2020 goal, factoring in current industry dynamics, we expect to reach adjusted EBITDA of at least $65 million and adjusted EBITDA margin percent at least in the low-20s.
We expect the revenue run rate comfortably in excess of $300 million exiting 2020.
Beyond 2020, we expect to see continued margin expansion with a long-term target model for adjusted EBITDA margin of 35%.
Given the progress we've made towards our adjusted EBITDA targets in the first quarter of the year, we are well on our way to achieving our 2020 goal and feel confident in our ability to grow our margin profile in the long term.
With that, I'd like to open the call to questions.
Yes.
Tom, it continues to be a retailer by retailer question.
And I would say, when you add up all the retailer by retailer status, I would say it's greatly unchanged from the past.
Obviously, there's some that are moving forward, some that are struggling, some that are in the process of transforming.
So it continues to be, I would say, consistent with what we've seen over the last 4-plus (inaudible)
No, I think ---+ Tom, thank you.
We laid out in the December board meeting our strategy for 2018, which we think is a good, strong strategy.
And to the extent we're executing on it, what we tend to do as a business is as we have a strategy at the beginning of the year, as long as we're executing on it, we tend to stay the course on the strategy.
So obviously, we're out talking to shareholders, but we think we have a strategy set out that we set out in December, and we plan on continuing to execute towards that plan.
Sure.
So as we mentioned on the last conference call, we were actually in a great position exiting 2017 that we felt like we have the appropriate sales resource and capacity for us to deliver on our expectations for 2018.
So that puts us in a different spot than we had been historically.
No change relative to our opinion that we have the appropriate sales capacity to hit our expectations in 2018.
Sure.
So as it relates to the quarter, our outperformance was primarily driven by really, the community enablement campaigns, the quantity as well as the timing associated with that.
That translated to outperformance on both recurring revenue as well as onetime revenue.
When we think about the full year, what we've done is we've increased the midpoint of our annual expectation by $0.5 million, which takes into account our results for Q1.
But it also takes into account the fact that there's still a lot of uncertainty in the retail space and the retail environment, and both of those were reflected into our full year expectations for revenue.
Sure.
So I'd say in the retail space, there's always some consolidations or bankruptcies that are occurring.
For the most part, we tend to have a pretty minimal impact to that.
What you're referring to that occurred back in sort of the latter part of '16, impacting us in '17 by about 1% was based on about a handful of retailers.
So in general, there are bankruptcies and consolidations that occur, but they tend to have somewhat limited impact in our overall results.
We ---+ our guidance reflects our expectations as we're thinking about the retail environments and retail in transition in 2018.
Sure.
I'd probably go back to the previous comment I made, which is specific in the quarter.
A part of our outperformance has to do with timing, some of the community enablement campaigns.
So that's been taken into account as it relates to the Q2 guidance as well as the full year guidance.
And also there's ---+ certainly, again, the retail space still has a lot of transition now that it's going through and both having been taken into account in both the Q2 as well as full year guidance.
Sure.
So as a business, we talk about total revenue and we talk about our recurring revenue.
We did give a data point last year on sort of an annual basis that we thought was helpful for investors last quarter for the full year.
And that information, just to remind, for 2017, analytics was about 17% of total recurring revenue and it was growing about 4%.
But that's a metric that we haven't provided on a quarterly basis.
We have not provided expectations by product.
We've provided expectations for total company revenue.
We did, however, on the last earnings call, mentioned that there is about 1% of revenue from a customer consolidation that we are impacted by, and that customer was an analytics customer.
Sure.
So what we had talked about ---+ the numbers are similar and consistent with last quarter, which was about 13% annual customer churn and about 7% dollar churn.
Sure.
So that revenue per recurring revenue customer continues to benefit from size of customer, so larger customers impact that as well as more and more revenue from our existing customers.
One thing that was interesting in this quarter as it related to the mix of community enablement campaigns that we had, we actually had a larger percentage of that mix of community enablement campaign ends up impacting us with existing customers versus newer customers.
And so that also has a positive impact on that revenue per customer.
Yes, I mean, we have a commitment to these interim targets, which we feel very confident of.
And as we look at M&A, we're obviously going to have a same lens.
I think what you would see us is, keep in mind of these commitments and probably be more aggressive on any costs in any acquisition to make sure that it does not move us in the wrong direction.
Sure, <UNK>.
So you're right.
In general, the quantity of community enablement campaigns is more correlated as it relates to the quantity of customer adds.
What was interesting in this quarter is the mix of the community enablement campaigns that occurred in the quarter, more of that ended up translating into an up-sell of an existing customer versus the quantity of new customer.
So it's just a slightly different dynamic that we saw in this quarter compared to last quarter as an example.
Yes.
I wouldn't expect a major change.
Obviously, we continue to be out landing new customers.
And from that standpoint, there's always the spot pricing pressures, and I think you should expect more of the same.
Sure.
So you're correct, a similar commentary we've provided the last 2 quarters and in Q4, you saw that reflected in actually higher customer net adds than you typically see in Q4.
In this quarter, you saw it reflected a little bit more in net revenue per customer.
But in either case, what drives the timing of the campaign, when we are at the beginning of a quarter and we're forecasting what the expectations are for that quarter, we certainly know where we've engaged in conversations with the retailers, and we have a pretty good view of what do we think that will translate to specific in that quarter.
And sometimes, however, that timing may be slightly different between quarters.
So when you engage in a conversation with a retailer to when you've completed the webcast and you completed the rolling out of the community enablement campaigns, some of those may happen at a faster time period than originally anticipated, and so that's what we saw in Q1.
So you can think of it as some that we had initially anticipated in Q2 just happened to occur earlier and therefore, the results you're seeing in Q1.
It's the latter.
Really, on the timing of community enablement campaigns, they're really solely driven by the timing and the pace that the retailer wants.
No, I would say it's relatively consistent.
Obviously, Jeff, it bounces from program to program and depending on the type of customers they have and whatnot.
But it's relatively consistent over the years.
When we put together our expectations for the year, when we take into account a lot of factors, we look at what we've seen historically.
We also look at what our expectations are for the year.
And all of that ends up into what is reflected in our guidance.
So hard for me to answer a particular number in there, because there's multiple factors that go in, but we feel comfortable with our ability to deliver on our expectations for revenues for the year in light of the environment of retailers in transition.
Yes, I would say there's 0 impact.
I mean, obviously, their business is normal.
At least I haven't seen any change in their behaviors as a business.
They are specific to drop-ship.
We compete with them on a retailer by retailer basis for the drop-ship component of an e-commerce provider, and that continues to be the same.
We kind of got asked the same question when they went public on the flip.
They went public and now they're going private, and that ---+ the financial capital structure of your competition doesn't have a major impact.
It's more ---+ what ---+ will it have an impact to us, what access to capital they have, what people they retain, everything else will have the biggest impact.
Usually, that doesn't happen over the first quarter or 2.
We'll take a wait-and-see attitude on that.
Yes.
From our standpoint and our product sign, it's relatively consistent over the last 4, 5, 6 quarters.
Again, it's somewhat on a retailer by retailer basis, so you got to be a little careful by generalization.
But there's ---+ we're seeing a lot of investment in technology.
Sometimes that's good for us in the timing, sometimes it's not good.
We sit behind difference initiatives, but more or less pretty consistent from our standpoint over the last 4 to 6 quarters.
Yes.
Our channel strategy has always been about making it easier and easier for us to do business with partners or partners to do business with us.
So that's always been on both the people, process and technology side of the equation, and then both add new partners, both large and small, and then deepen the relationship.
And I'd say, probably the biggest change over the last few years is going after more of the bigger global partners.
Look, the drop-ship is complicated for retailers, and it takes a lot of coordination between a retailer and their supply chain and their trading partners.
We continue to see it as a driver, a change management agent for retailers.
Again, to remind everybody, last studies, e-commerce is about 11% of total retail.
And in general, I would say that drop-ship tends to be between 10% to 20% of that 11%.
So it's still a very small set part of retail, but it's growing, I think, rapidly, and it's a driver of change, which is, we believe, a tailwind.
Yes.
Looking back, I think our sales leadership has a nice job really setting us up for the long term.
Obviously, they're into an environment that's somewhat challenging on the retail side, but I feel good there.
And I think we're focusing on ---+ continue to focus on just a lot of the basics of talking to the retailers, talking about the supply chain efficiencies and making sure our message is as crisp as we can and that our reps are well trained.
| 2018_SPSC |
2016 | CVX | CVX
#Well, I think on the capital side we've given you everything that we anticipate at this point in time.
Right now we're sitting at the midway part of the year, trending on a $25 billion sort of range.
We think that's where we could end; possibly a little bit lower than that.
We're actually trending on $24 billion at the six-month mark, $24 billion may be where we end the year.
So somewhere between $24 billion and $25 billion I think is the appropriate level for you to think about.
And then in terms of 2017 and 2018, we've given you the range there of the $17 billion to $22 billion; but obviously, we need to be market-responsive and so right now we're thinking it's towards the lower end of that range, and if in fact the market doesn't move prices anywhere off of where they are today we'll probably be lower than that or certainly at the very low end of that range.
So that's as much guidance as I can give you on capital at the moment.
We're rolling up the business plans, and we'll have more to say as we get towards the end of the year.
On operating expense, our target really ---+ we came down on operating expense $2 billion between 2014 and 2015, and our target is to come down another $2 billion between 2015 and 2016.
We have a number of organizational impacts that have occurred through the first half of this year, but there will be more that will come in the second half of this year.
We also continue to work through the supply chain.
We've got another set of targets internally for continued effort to reduce cost through the supply chain.
I think we are now fully competitive with these other players.
We may not be flashy, but we're steady.
We have taken all these learnings in.
We've been very methodical in our approach and very systematic.
Our goal, as I said before, is to be fully competitive on an operating basis so that when you add in the advantaged royalty position it gives us a clear incremental value proposition over competitors.
We'll continue to stay focused on this.
And as I said, we're ramping up the number of Company-operated rigs, but we're going to do so in a manner that allows us to maintain those efficiencies.
The one other thing I'd say is that our current view is that we're building infrastructure into some of these initial development projects.
As that infrastructure comes into play it provides a solid foundation for us to continue to incrementally improve economics as we move forward.
Yes, <UNK>, we have had the same financial priorities for a long period of time.
Dividend return to shareholders being first, and then re-investments in the business second, and then having a prudent financial structure being third.
I don't see those priorities changing going forward.
We're going to obviously work to balance those priorities under the circumstances that are presented to us.
I don't see that there is significant C&E increases coming for us.
I think we're going to increase our dividend when cash flow permits it; we're going to make the investment profile that we've talked about, where we're moving to shorter-cycle, higher-return projects and not as many of the long duration of return, lower-return projects.
FGP/WPMP is the only significant project that we have taken to FID.
We do see additional major capital projects in our future, but they are not going to come with the same pace that we have had most recently here.
We want to be much more ratable and predictable in our capital program.
And we are going to have to take some of the cash that we're generating in the future and use it to restore our balance sheet.
In the Partitioned Zone, this is really an issue between the Kingdom of Saudi Arabia and Kuwait.
They continue to engage to work this forward.
Our view is that we would like to see a return to production; that's what we advocate.
But in the meantime what we've done are two things.
We've tried to bring all the preservation work and maintain the field in a state of readiness so it can be restarted.
We've also done quite a bit of work to understand and use the opportunity with our technical people to model the entire field and look for efficiencies that we can build into this field when it restarts, and we've been quite successful in some of the planning that we have for the restart.
We've also been bringing our cost structures down, and there will be more of that to come if this continues forward.
In terms of Nigeria, this is an area where we've operated for a long time.
There are some issues there.
The government is working these issues.
Our priority is on protecting people and making sure that we protect our operations.
But I really won't say too much more about it, other than this is an issue that continues to be addressed by the government.
Right.
What I can say is that we are fully aware of the 28-year annual dividend payment increase.
We are also fully aware that an increase needs to occur in 2016 if we are to keep that pattern alive.
The Board fully understands the value of the dividend increase, and they understand the value of growing the dividend over time.
So the Board will be looking at cash generation and our ability, from a sustainable sense, to support a higher dividend going forward.
I guess I would just reiterate, we do see our cash flow circumstance improving over time.
We've got the confidence in our future growth in production.
We've got confidence in our future cash generation.
I'll take you back to the $2 per barrel margin increase that we showed at the Security Analyst Day on the portfolio.
Assuming flat commodity prices, that's the margin accretion that we get out of these LNG projects predominantly.
It raises the cash margin on the entire portfolio.
We also believe that we can compete very successfully and sustainably over time here with a much lower capital program, because we've got assets, for example, like the Permian and other unconventionals.
So we feel very comfortable about what our future holds.
I can't really get into divulging our economics and our view of it, other than to say we have been very disciplined in our capital.
We're putting that capital where we believe it's going to give us a good return.
We look at a lot of things when we consider the performance of a project, and part of it is the risk we're taking on as well as the potential for additional upside to be gained.
I talked about those earlier.
Ultimately, the economic value of this project will be a function of the prices realized over the period of time between now and the end of the concession.
But we're taking a lot of steps to make sure that we're building as much value into this as we can.
We see it as an attractive project.
Well, the financing is really in place as an assist.
The entire project is not being funded by the financing.
We have a combination of co-lending, we have a bank facility, and we have the bond issuance.
So that combination, coupled with the cash generation of TCO, which is actually quite strong, should provide sufficient funding for the project as well as ongoing value to the shareholders.
Yes.
You can see the red line shows where we actually are relative to that view, and we're on plan with the initial growth there.
As we said, we saw about a ---+ over a 20% growth in the Permian relative to last year.
Now that's done even with less rigs.
We're running about the same number of rigs we expected on the Company side.
Our non-operated rigs are actually less; but we're actually accomplishing our objectives with fewer rigs.
We're going to be going from six rigs to 10 rigs by the end of this year, so we're staffing up and ramping up our activity level.
I would say the bias on this is upwards going forward.
I think of the projects in two categories.
We've got an existing set of deepwater projects that are already in operation in the Gulf of Mexico, and they are very profitable.
And more than that, they provide a good platform for additional investment, as we talked about earlier in the presentation.
Going forward, the key really is getting our development cost down and we're very focused on doing that in a couple of ways.
Our deepwater drilling has improved fairly substantially.
If you look at just in the last year or so, we've seen 30% faster drilling rates in the deepwater.
And with the cost of rigs, that has a big impact.
As we move forward, we expect to see our rig cost go down as well as the rates of drilling progress go up.
We're also looking at the facilities and getting them rightsized.
What I mean by that is rather than chasing for peak production, for example, we may go with smaller facilities, have a longer plateau of production, higher capital efficiencies.
So as we look at driving the cost per barrel, the development cost down, I think that's what's going to be required for new projects to be competitive with other opportunities in our portfolio.
Once these projects are on, they have relatively low operating cost.
We get good margins out of them.
It's just the time between the initial exploration program and development wells and ultimately the production that burdens these projects from an overall financial return standpoint.
In terms of the Tiber that you asked about, this project is still under assessment.
I really don't want to comment too much further, but we're evaluating it.
There may be some additional appraisal work to do, and then we'll be putting that against some of the other opportunities that we have.
We do think the deepwater represents a good resource base, and it is important for meeting global demand in the future.
So we think production from this area will continue.
But, as I said, our focus is on driving those development costs down so that these projects are competitive with other opportunities in the portfolio.
Yes, <UNK>.
I think one of the primary drivers in moving from the 2016 circumstance to 2017 and beyond is the trailing off of these projects under construction.
Just the LNG projects, Gorgon and Wheatstone, for example, is a significant reason behind the drop-off in the capital spending between the years.
But also going forward, as we've talked about the portfolio shift that we have, where we have a lot more of our future investment coming forward in the shorter-cycle, Permian-based activity as opposed to the long-cycle and large-duration major capital projects, that's really what drives the change in the absolute level of spending.
We've made a commitment as well.
There is an affordability component here.
We've made a commitment as well to get cash balanced in 2017.
And because of the opportunity that we've got both in the brownfield extensions as well as in the Permian unconventional-like activity, we believe we've got a very competitive capital program at a $17 billion range.
So I think of it as being a sustainable capital level under prices that we have today.
Yes, building on what <UNK> said, I think there's a lot of things that drive capital spending.
It can be everything from our current price environment to foreign exchange rates.
But what we've really focused on in the near term have been two things.
One is driving down the pricing from our vendors and contractors; that's probably more transitory.
But we've also been very focused on building efficiency in how we conduct our operations.
And we've talked about that in previous calls and at the SAM meeting.
That work continues across the business.
And as we drive more and more efficiency into our spend, we own that.
We'll be able to retain that going forward.
I think the other big area for us is improving the execution of projects.
It's partly doing things better internally, and I've talked about what those things are.
They are on that slide.
But it's also taking advantage of market conditions like we're in now, where we can get the best yards working on our projects.
We're not competing for yard resources and contractor capabilities.
We can get the A-team on these projects, and that really helps us execute better.
And that's sustainable through this period.
Yes, I mean there were multiple assets involved, but the largest single contributor here was Papa Terra in Brazil.
Yes.
Papa Terra is one where we've been disappointed in the performance of this asset.
We have gone ahead and seconded a number of our Chevron people into the operator's team.
We're working with the operator to determine not only what is happening with the reservoir but also where we go from here.
So we'll give you more update at some point in the future, but at this point in time, it's largely around Papa Terra and the performance.
Okay.
I think that wraps us up for the conference call here for the second quarter.
I appreciate everybody's interest in Chevron and appreciate your questions in particular.
Thanks very much.
| 2016_CVX |
2017 | BPFH | BPFH
#Thank you, Keith, and good morning.
This is <UNK> <UNK>, Director of Investor Relations of Boston Private Financial Holdings.
We welcome you to this conference call to discuss our first quarter 2017 earnings.
Our call this morning includes references to an earnings presentation, which can be found in the Investor Relations section of our website, bostonprivate.com.
Joining me this morning are Clay <UNK>, Chief Executive Officer; <UNK> <UNK>, Chief Financial and Administrative Officer; and <UNK> <UNK>, Chief Executive Officer of Boston Private Wealth.
This call contains forward-looking statements regarding strategic objectives and expectations for future results of operations and financial prospects.
They are based upon the current beliefs and expectations of Boston Private's management and are subject to certain risks and uncertainties.
Actual results may differ from those set forth in the forward-looking statements.
I refer you also to the forward-looking statements qualifier contained in our earnings release, which identified a number of factors that could cause material differences between actual and anticipated results or other expectations expressed.
Additional factors that could cause Boston Private's results to differ materially from those described in the forward-looking statements can be found in the company's filings submitted to the SE<UNK>
All subsequent written and oral forward-looking statements are attributable to Boston Private or any person acting on our behalf are expressly qualified by these cautionary statements.
Boston Private does not undertake any obligation to update any forward-looking statements to reflect circumstances or events that occur after the forward-looking statements are made.
With that, I will now turn it over to Clay <UNK>.
Morning.
Thank you all for joining our call this morning.
In the first quarter, our company generated net income of $15.7 million or $0.17 per share.
This compares with $0.19 per share last quarter and $0.21 per share of the first quarter of 2016.
Return on average tangible common equity was 11.4% for the quarter, and return on average common equity was 8.3%.
These return levels are below our targets.
I'd like to briefly touch on the factors influencing the quarter.
Starting on the positive side, our primary goal in early 2017 was to frontload the year with strong growth across all of our businesses.
To this end, in the quarter, we delivered strong growth in all of our key revenue-driving businesses, including mortgage loans, commercial loans, deposits and assets under management in all of our segments.
Second, we saw expansion of our core net interest margin due to our balance sheet positioning and our core deposit strength.
The combination of strong balance sheet growth and net interest margin expansion translated into 16% annualized growth in net interest income in the quarter.
And finally, Boston Private Wealth continues to demonstrate client appeal and stability while posting positive AUM flows, allowing us to now shift our management focus to improving profitability and growth.
At the same time, our quarterly profitability was below our long-term target and our shareholders' expectations.
We were short on revenues, primarily due to lower levels of swap fee income in the quarter.
At the same time, our operating expenses were elevated during the quarter due to seasonal compensation expenses and by investments we have made in our franchise to increase long-term earnings strength.
Specifically, we have added client-facing business development staff to increase the growth of our client base across our markets and we have begun spending on a 3-year technology infrastructure plan to deliver a better client experience, make our client-facing professionals more productive and realize cost efficiencies.
We expect that these expenditures will help our company improve its competitiveness and drive earnings growth.
Despite these expenditures in the quarter, we expect to deliver on our performance targets for the remainder of the year.
The Boston Private management team and I continue to be excited about opportunities to build growth and earnings strength as the year progresses.
With that, I'd like to turn the call over to Dave, and we'll walk through the details.
Dave.
Thanks, Clay.
Good morning, everyone.
My comments will begin with Slide 3, which provides a summary of our key performance metrics.
As Clay mentioned, our return on average common equity for the first quarter of 2017 was 8.3%, and that declined both on a linked quarter and year-over-year basis.
Our Tier 1 common equity ratio of 10% remains at the top end of our target range.
And notably, total AUM is up 4% linked quarter, driven by both positive net flows and investment performance.
It's also up 7% on a year-over-year basis.
Slide 4 shows consolidated revenue trends.
Our primary source of revenue, which is net interest income, increased 4% linked quarter and 8% year-over-year to $53.6 million.
Total core fees and income decreased 6% linked quarter and 4% year-over-year to $36.3 million.
The primary driver of the decreased core fees and income is lower swap fee income that Clay mentioned, and that declined 70% linked quarter and more than 80% year-over-year due to lower client demand.
Another factor contributing to lower core fees and income linked quarter is that we received $1.4 million of performance fees in the fourth quarter of 2016, and that didn't repeat in the first quarter.
Total other income declined, primarily due to the positive impact of $5.1 million of items during the fourth quarter of 2016 that included the net gain on sale and a market value adjustment of the derivatives.
The net gain on sale was attributable to the divestiture of 2 offices in Southern California that represented just over $100 million of deposits.
On Slide 5, we show a detailed breakout of our consolidated operating ---+ our consolidated expenses.
First quarter operating expenses decreased 4% linked quarter to $68.8 million and increased 3% year-over-year.
Our first quarter compensation expenses always include seasonal items such as FICA and 401(k), so year-over-year is a more relevant comparison.
On a year-over-year basis, our total operating expenses are up 3%, or if you exclude the restructuring charge in Q1 of '16, it was up 5%.
Compensation expense is the primary driver of increased expense levels during the quarter.
This quarter's elevated expenses also include staff additions due to strategic hires, and we incurred higher expense levels due to a change in our vacation policy, which is intended to reduce future expenses.
Occupancy and professional services expenses also increased, and that was the cause ---+ as a result of technology investment we're making in order to improve the client experience.
On Slide 6, we show the full consolidated income statement.
Total net income was $15.7 million, a decrease of 13% from the prior year.
However, our pretax preprovision income was up 1% year-over-year.
Slide 7 provides details on our asset quality.
You can see the top chart shows the relationship between our net charge-offs or recoveries and our provision for loan loss.
This quarter's $200,000 provision credit was driven by net recoveries and declining loss factors, partially offset by an increase in loan volume and an increase in criticized loans.
The chart below highlights the bank's asset quality for the quarter.
Criticized loans increased 14% linked quarter, but they remain 19% below last year.
We continue to maintain strong reserves with our ALLL to loans finishing the quarter at 125 basis points.
On Slide 8, we show the Private Banking segment which excludes the Wealth Management & Trust portion of our bank.
Here, net interest income increased 4% linked quarter due to loan and deposit growth, coupled with core NIM expansion.
Total other income decreased linked quarter due to the previously mentioned gain on office sale and other items.
Our total operating expenses here increased 12% both linked quarter and year-over-year to $35.1 million, and that was driven by the compensation expenses noted earlier.
Slide 9 shows the past 5 quarters of average loan balances and deposit balances by type.
Total average loans for the quarter increased 10% year-over-year.
The growth rates of the individual loan categories on the accompanying slide were affected by reclassifications we made at the end of last year.
This reclassification moved some tax-exempt loans that are primarily multifamily loans from CRE ---+ sorry, from C&I to CRE.
If we would have applied the reclassification to prior periods, CRE growth would have been approximately 3% linked quarter and 12% year-over-year, while C&I growth would have been approximately 4% linked quarter and 7% year-over-year.
Average total deposits for the quarter increased 7% year-over-year to $6.3 billion, and that was led by a growth in core funding.
Noninterest-bearing demand deposit accounts increased 14% year-over-year, and that was followed by the savings accounts and money markets at 5% and CDs at 2%.
As you may remember, we divested just over $100 million of deposits as part of the sale of the 2 offices in Southern California, and this is the first full quarter where the divested deposits do not show up in the average deposit figures.
Turning to Slide 10.
Core bank net interest income increased to $54.0 million, and net interest margin at the bank increased 7 basis points linked quarter to 2.98%.
Excluding interest recovered on previous nonaccrual loans, our core net interest margin increased 8 basis points to [2.97%].
NIM expansion was primarily driven by increased yield on loans, which expanded from [3 51] to [3 61] during the quarter.
The bank's all-in cost of funds increased just 2 basis points, that's partially due to some increased brokered CDs that we took to optimize borrowing costs.
With that, I'll turn it over to <UNK> <UNK>, CEO of Boston Private Wealth.
<UNK>.
Thanks, Dave.
Slide 11 contains financial information for the Wealth Management & Trust segment, which operates under the Boston Private Wealth brand.
Total revenue decreased 2% linked quarter to $10.9 million.
Overall, AUM increased from $7 billion to $7.3 billion for the quarter.
Due to a lag in how we bill AUM, higher AUM balances will impact the second quarter core revenues.
Adjusted expenses, excluding last quarter's goodwill impairment charge increased 3% linked quarter, primarily due to seasonal compensation expense.
When comparing the first quarter of 2016 to the first quarter of 2017, you will see that on an annualized run rate basis, we have already taken out nearly $4 million of operating expense.
As a result, year-over-year, adjusted expenses have decreased 6%.
Segment EBITDA, excluding adjustments, decreased $700,000 linked quarter, while it has increased $800,000 year-over-year.
Turning to Slide 12, we show both new business flows and net flows at Boston Private Wealth for the past 8 quarters.
New business flows moderated to $120 million.
Client attrition reached the lowest levels in the last 8 quarters resulting in positive net flows of $34 million.
We remain focused on demonstrating continued stability at Boston Private Wealth as we move towards positioning the company for profitability and growth.
I'll now hand it back to Clay.
Thanks, <UNK>.
Let me now touch on our other wealth businesses.
Slide 13 will show you AUM net flows by segment.
The Investment Management segment showed net flows of negative $30 million.
The Wealth Advisory segment showed net positive flows of $263 million.
On a consolidated basis all-in, the company's net flows were positive $267 million.
On Slide 14, we show that total revenue for the Investment Management segment decreased 13% linked quarter, while increasing 2% year-over-year.
Excluding fourth quarter 2016 performance fees, linked quarter revenue was down 1%.
Operating expenses decreased 7% linked quarter due to compensation expense from the fourth quarter.
The Investment Management segment first quarter 2017 segment EBITDA margin of 30% is right in line with our 30% corporate target.
Moving to Slide 15.
Our Wealth Advisors reported revenues of $12.9 million, up 2% linked quarter and 1% year-over-year.
The linked quarter operating expenses comparison was affected by the revaluation of a retirement liability in the fourth quarter.
On a year-over-year basis, operating expenses are down 3% year-over-year.
First quarter 2017 segment EBITDA margins are 29%, just below our corporate target of 30%.
That concludes our comments on the quarter.
We'll now open the line up for your questions.
Dave, I wanted to dig in on the NIM.
The asset sensitivity really, I thought surprised nicely this quarter.
Specifically, the loan yields, interesting enough like everything, but C&I went up.
So can you just give us some help on where the floating rate loans are on the loans side.
And then, the deposit betas have been excellent.
Are ---+ can you sustain that going forward.
And just some overall help on the NIM outlook.
Well first off, on the individual loan categories, you mentioned a declining C&I yield which looked odd.
And it was a ---+ that was partially influenced by that reclassification that I talked about.
So when we moved some of these industrial revenue bonds from the C&I to the CRE, those were fixed rate obligations and those were generally higher-yielding.
So that caused a ---+ the decline primarily in the yield for C&I.
We have floating rates in both the commercial and industrial and the commercial real estate, I would say, is our ---+ the bulk of the variable rate.
Our residential mortgages will adjust over time, but those are primarily [5 1], [7 1] (inaudible), and it will take time for those to reset.
On the deposit betas, yes, it has been great.
And I think that wasn't unexpected given where we're at in this point of the rate cycle.
I think most banks are really lagging and not showing much increase at this point.
That won't happen as ---+ if rates continue to rise, we would expect there will be more pressure on the deposit side.
But going forward, we could see further NIM expansion of 3 to 4 basis points throughout the rest of the year.
Okay, great.
That's helpful.
On switching to expenses, can you just quantify what the payroll tax impact was and then the vacation policy.
And I believe you are targeting 3% to 4% expense growth on the tech investments.
Is that still good for 2017.
Okay, great.
And just last one for <UNK> and Clay.
On the Wealth Management, obviously, you finally turned the corner on the flow front.
Is this a year that we hit ---+ we turn the corner on EBITDA margins turning positive.
So and I guess best way to answer that question, maybe go backwards a little bit.
With the departures in 2015, we lost about $12 million in revenue.
Since then, we've been balancing rightsizing the cost structure while investing for growth.
So we're building the business for the long-term and our goal is to be profitable this year, but we don't want to overreach and focus too much on costs.
Certainly got off to a good start in the first quarter though.
Short answer to those, yes.
We intend to generate positive margins this year.
And <UNK> and his team are very hard at work on that.
Because of the nature of balancing that out, we're not telegraphing an end of year run rate, but we are committed to positive margins this year in the business.
No.
Well, it continued to be a focus of our actively looking for opportunities like that.
We feel confident that we could achieve some of those this year.
There was none of that in this quarter.
Sure.
I mean that was kind of a point in time in terms of ring fencing certain group of individuals that had gone through, maybe a lot of turnover or had to had significant changes in their client service team.
We do think we're beyond that.
Having said that, we think we have to earn the business every day, so we're constantly monitoring all of our clients to make sure we're meeting our service level agreements.
Over the balance of the year.
No, that was immaterial impact.
No, I think we're looking for deposit growth to facilitate that, Chris.
Yes.
Yes, Chris, we'd like to keep a pretty similar liquidity profile to what we have baseline, year before.
Yes, Chris, that's always a tough one to predict.
We'll probably see some recoveries in the coming quarters.
But again, it would be hard for me to project beyond year-end and say, okay, it's going to continue into '18.
But I think in ---+ over the course of the second half or the remainder of 2017, yes, we'll see some recoveries.
No.
I think that when you looked at the early stage buckets, the [30] to [89] past due was up.
It was driven primarily ---+ there was one $9 million loan that was in negotiations and so they had stopped the payment, but it's subsequently paid off in early April.
And in the special mention categories, we had 2 loans probably totaling about $15 million, one on the East Coast, one on the West Coast, that were downgraded from past to special mention.
It was a result of upcoming lease renewals.
And I think in one case, there was a ---+ a tenant had left and they're negotiating with new tenants.
So just moved into the watch list.
We want to make sure we're out ahead of things and raising issues where we see that we need attention.
Just so I get it, Chris.
You're talking about in the affiliates or including the wealth business.
Or how would you like me to.
.
Yes.
It's really the 3 buckets of fees in the overall fiduciary piece in terms of just looking of those relative to AUM on an average basis, those percentages seemed to come down first quarter.
So I was curious if we go back to where they were or if there is a net improvement year-over-year.
Yes.
Hard to say.
I mean the only thing I have some confidence in, Chris.
The positive flows in the first quarter will help us a bit with second quarter revenue.
There is usually a following quarter effect because of the way we bill.
So there is a little bit of updraft most likely.
Our investment managers face pricing pressure in the platform business, yet the pricing drip down has been very measured of late.
So I would be hopeful we'd get some revenue expansion and investment management net.
And I don't see any weird thing coming on their expense side.
So hopefully, we'll get stable to improving margins there.
The 2 Wealth Advisors doing a really good job had positive flows in the first quarter.
Those businesses tend to have pretty stable economics.
They're enjoying fee stability.
And again, I don't see any unusual cost structure thing coming at us.
Their cost structure is driven almost totally by staffing.
And then <UNK> has already addressed his business.
We like where it sits today and we're working on client attraction, revenue build and margin improvement.
So I guess when I net it all out, I sure as heck don't foresee margin degradation.
And I think we'll go sideways to potentially improving.
Well, again, given our small size, I don't think it's a market limit.
We're serving really deep pools of attractive clients on both coasts.
So the mitigants are more self-imposed financial limits driven by maintaining liquidity.
So I think our ability to keep pace on deposit build while maintaining our target capital levels is how we get to, in effect, the resulting growth rate.
We like balance sheet expansion in this rate environment.
And I think the anatomy of our NII development this quarter kind of validates that.
So I like what we're doing.
From a risk standpoint though, I don't think you'll ever wake up one morning and see us heating up the balance sheet 15%, 18%, 20%, that's kind of not us.
So that's ---+ does that address it clearly.
But we think the floating from 7% to 8% up to more like 8% to 10% is really doing good things for the revenue build.
Well, <UNK> and I talk a lot and I talk a lot with our affiliates.
They're ---+ we're always, to some extent, affected by macro shocks, and that's kind of in the who knows category.
But a big macro shock does expose us to market action.
Now separately, flows, flows are fundamentally about client behavior and about our ability to maintain client appeal.
So that's kind of on us.
I do think flows tend to come perhaps a little more readily in a rally.
They're a little more dear in a big selldown, but that's kind of how we parse it.
We're always thinking about macro effects that drives market action that has big effect on our portfolios.
And we've told you in the past that our portfolios have about a 50% beta relative to market action.
So if U.S. equity markets are plus 10, we're kind of blended ---+ we're quite often up 5.
If markets are down 5, we'd be down half of that sort of thing.
But that's how we parse it.
Macro events, market action, and then client behavior and what we're doing in terms of client attraction and client development.
We're excited about the remainder of the year as you [glean] from my comments.
I like the growth profile in the first quarter.
I'm not happy with the profitability, but we understand the expense dynamics and we're sticking with what we're doing and standing by our commitments.
Thanks everybody for listening in, and we look forward to more conversation.
| 2017_BPFH |
2016 | TDY | TDY
#Thank you.
I think in the Digital Imaging, it was 6.3%, <UNK>.
Yes.
<UNK>, I think you should look at that segment with one thing in mind.
There's a part of Digital Imaging, which is our research lab, which is about $30 million, $35 million of revenue.
There, we take no profit.
So ---+ and that, if you look at it that way, that comprises approximately 10% of Imaging.
Having said that, the improvement in margin are coming from DALSA, our large operations, and they will continue to improve the remainder of the year, perhaps another 100 basis points or so.
I think next quarter, next couple of quarters, we ought to see maybe [300] basis points improvement in the margins in that segment, primarily because we won't have the onetime restructuring charges that we took in the marine businesses.
And so, I think we've structured the business, as I mentioned before, to start having meaningful margin improvement even at the current level.
If and ---+ when I should say ---+ when the oil and gas market comes back, coming back, there's no question it's going to come back and the reason for that is very simple: the existing wells all across, whether its land-based or ocean-based, they've be been depleting, the reserves are depleting.
People can estimate anywhere between 4 billion and 5 billion barrels a day per year.
And also, there's some continuing change in demand that's positive.
But the depletion is more significant.
And we have to have new sources of energy to just offset depletion.
And so I think this business will come back and when it comes back, I expect our margins to go back up in the 15%.
Yes, it's a cash tax benefit of about $7.7 million, $7.6 million.
So it's not affecting the rate.
That will ---+ it will make the right 1031 exchange.
We did not make an election.
No.
<UNK>, the way this works is very simple.
The fact that you sell a building for a gain, especially a building that we're hoping to replace with a similar building, the tax benefit will reduce the cash that we will be paying for the new building, because otherwise, if we don't, we'll have to pay the $7.7 million in taxes.
But it doesn't affect our current tax rate, our earnings or anything else.
There's no book impact.
It's a contingency.
If you don't use it, you'll have to cope up the cash in the future.
First, as you know, <UNK>, we have a whole range of vehicles going from gliders to remotely operated vehicles to automated underwater vehicles and of course, we have the largest vehicles for the special forces.
Having said that, the advantages that we enjoy over others are that we also have a very strong suite of sensors that we incorporate in our vehicles, whether it's a glider or its an AUV or an ROV.
And what that does is it gives us the ability to offer customers vehicles with completely integrated solutions from us.
Now we sell our sensors to other people.
But of course, we have the advantage of cost benefits when we use them in our own vehicles.
Just to give you an example, we have produced some deep tool vehicles specifically for the Chinese.
This has to do with trying to find the Malaysian airline that disappeared.
And we've sold three of those already, just under $1 million each.
But those contain about 10 of our different sensors in them all in the vehicle.
Finally, we just say that we not only are working with our vehicles in the commercial domain, but we have remotely operated vehicles that are now being used by the Navy for mine explosive ordinance disposal and we have underwater vehicles for the special forces.
So I think our ---+ as you said, other people are entering the market, some have been in there for a while.
I think the important thing for us is to continue to improve our range of our offerings and integrate our sensors into them.
Yes.
There are two parts to that.
Under laser-based mapping, we have a whole sequence of new products that are enabling operators to do the mapping without having someone direct instrument, so they're totally automated.
And our ---+ that comes out of our Optech businesses that are part of DALSA.
We have a significant increase there, just small business, but nevertheless year-over-year, we had about 25% increase from new products.
The other area, the geospatial software, that is a business that we just acquired that's called CARIS.
It's also part of DALSA.
It's in Canada.
And what they do is they use hydrographic sensors, those are acoustic sensors primarily, that do surveys of oceans floors.
And they provide all the data the software for people to convert all of that data into useful information and maps.
And nine countries around the world use those systems.
And that's an increasing business for us because it not only occupies a space that it predominates in, but it's also very complementary to our existing other marine businesses including the aerial surveying, the Optech business where we do near-shore and offshore surveying.
Thank you <UNK>.
Thank you very much, operator, Justin.
What I'd like to do now is I'd like to ask <UNK> to please conclude our conference call.
Thank you, everyone, for joining us this morning and if you have any follow-up questions, please feel free to call me at the number on the earnings release.
Justin, if you could give the replay information right now, that would be ideal.
Thanks, everyone.
| 2016_TDY |
2017 | AMPH | AMPH
#Thank you.
Good afternoon, and welcome to Amphastar Pharmaceuticals' First Quarter Earnings Call.
My name is <UNK> <UNK>, President of Amphastar.
I'm joined today with my colleague, Bill <UNK>, CFO of Amphastar.
We appreciate you joining us on the call today and look forward to speaking with you and answering any questions you may have.
I'll now turn the call over to our CFO, Bill <UNK>, to discuss the first quarter financials.
Thank you, <UNK>.
Sales for the first quarter decreased 5% to $56.7 million from $59.4 million in the previous year's period.
Sales of enoxaparin declined to $10.4 million from $18.4 million due to both lower volumes and lower average selling prices.
Naloxone, which, for the first time, is our biggest-selling product this quarter, saw sales increase to $10.9 million from $10.3 million on higher unit volume at lower average selling prices due to increased discounts and rebates.
Sales of our epinephrine vial totaled $8 million in the quarter and were the main reason why our total epinephrine sales increased to $9.6 million.
However, we will have to discontinue selling epinephrine vials by May 10, unless the FDA grants our request for an extension to sell our current inventory.
Our insulin API business generated sales of $700,000.
Backorders are not usually a material factor for the company.
However, we ended the first quarter with an $8 million backorder.
This resulted from our IMS plant shutdown in December and early January.
We shut down the finished products manufacturing area to install new equipment to increase capacity and improve our quality systems.
However, the project took longer than expected.
Compounding this situation, a competitor experienced a shortage of 3 products in the quarter, leading to a surge in order for these products.
We expect to relieve the backorder situation by the end of our second quarter, which should lead to an increase in sales for products from our IMS facility in this quarter.
Cost of revenues declined in dollar terms to $33.8 million from $34.5 million.
Gross margins declined slightly to 40% of revenues from 42% of revenues in the previous year's period, primarily due to lower margins for enoxaparin and because our reduced manufacturing at IMS facility led to a decrease in overhead absorption.
Selling, distribution and marketing expenses increased slightly to $1.5 million from $1.4 million in the previous year's period.
General and administrative spending increased to $11.3 million from $10.9 million, primarily because of increased legal expenses.
Research and development expenditures increased to $11.3 million from $8.6 million as we increased expenditures on APIs and other supplies ahead of several clinical trials planned for later this year.
Additionally, we recognized a gain of $2.6 million on the sale of ANDAs we had previously purchased.
The company reported a profitable quarter with net income of approximately $900,000 or $0.02 per share compared to last year's first quarter net income of $2.5 million or $0.05 per share.
The company reported an adjusted net income of $4.5 million or $0.09 per share compared to adjusted net income of $5.5 million or $0.12 per share in the first quarter of last year.
Adjusted earnings excludes amortization, noncash equity compensation and impairments.
On March 31, 2017, the company had approximately $79 million of cash, cash equivalents, short-term investments and short-term restricted investments.
In the first quarter, cash flow from operations was approximately $22.4 million and was positive for the 12th quarter in a row.
We used a significant amount of our cash to increase our share buyback program as our stock price declined over the quarter, with cash spent on buybacks totaling over $10 million from the quarter.
We reviewed our financial assumptions for the year on the last call and they have not changed, so I will now turn the call back over to <UNK>.
Thanks, Bill.
We continue to make good progress on our pipeline.
Since our last earnings call, we filed one additional AND<UNK>
That brings the total number of ANDAs on file with the agency to 6, which represents a market size of over $1.1 billion.
In March 2017, the FDA performed a preapproval inspection at Amphastar for 5 of the 6 ANDAs on file with the agency.
Four of these products have GDUFA dates in 2017, and one was filed pre-GDUF<UNK>
With respect to the pre-GDUFA ANDA, there are no outstanding questions from the FD<UNK>
And we hope to be able to launch the product in the second half of the year, which would provide meaningful revenues for the company in 2017.
With respect to our CRL for Primatene Mist, we had a meeting with the FDA in the first quarter, in which the agency provided a more detailed explanation of its request for an additional human factor study.
We are currently assessing this information.
With respect to our CRL for intranasal naloxone, we have a meeting scheduled with the FDA in the second quarter to discuss the issues that need to be resolved in order to receive approval.
We believe that the real-world data for this product demonstrates its safety and efficacy, and FDA approval is in the interest of the public health given the ongoing opioid epidemic that is plaguing our country.
As Bill discussed, we had an $8 million backorder at the end of the first quarter.
This backorder was the result of the IMS facility shutdown, increased demand due to supply interruptions of our competitor and several stability fills for one of our high-priority pipeline products.
IMS is currently manufacturing commercial products as fast as it can, and we expect to make up for the $8 million in sales in the second quarter.
With that update, I will now turn the call over to the operator to begin Q&<UNK>
Sure.
So your first question about Primatene, no, we're not looking to abandon the product.
We still believe it's approvable.
I think we had a good conversation with the FD<UNK>
We got into some details regarding the human factor study they requested and some of the specifics around the protocol.
At this time, we're discussing this with our third-party consultants to determine the next steps with this application.
With respect to the GDUFA, at this time, all 6 products that are on file, all the 6 ANDAs on file with the agency, they're all injectable.
So that includes the non-GDUFA as well.
And the non-GDUFA is the one we've talked about in previous calls, where it's been on file for quite some time, so we've got more transparency with respect to that product.
So we feel good.
There's no outstanding questions.
So we're still hopeful for approval of that product, although there is no GDUFA date.
Yes.
So first of all, we had requested for more time, and that was denied.
But we're kind of appealing that request and ---+ to some higher-level people there, so we're in that process right now.
So that's why we're down to just a couple days left.
And as far as ---+ we do want to get that product approved eventually.
We've been selling it for a very long time.
And we are working on that process.
As we've mentioned, we have 7 unapproved products that we sell.
This is one of the 7.
And of the 7, we filed for those products.
And then 3 ---+ the other 3, we're working on filings.
So with respect to naloxone, we do have a meeting with the FDA this quarter.
So that will give us ---+ probably by the next call, we'll have a better idea with respect to that application.
And then on Primatene, we did have our meeting.
It was helpful.
So right now, we are talking with our third-party consultants in terms of what we should do.
So I can't say we have an exact time line on refiling.
Once we have further discussions with the consultants, we'll figure out our next step.
Sure.
So right now, as you know, at the end of December, we began shipping into the retail channel as we took over for Actavis in that area.
We did lose some share on the retail side.
And unfortunately, because Actavis had lost some before they ---+ their agreement with us had ended, and we were not able to get that back.
The dynamics right now is that the pricing is very low, which is why we took that inventory write-down at the end of the year last year.
So it's difficult to gain any kind of market share from where we are right now.
So ---+ and that's why that combination of price decline and market share decline led to the decline in the sales that we had this quarter.
I will say that at the beginning of the quarter, the sales were even a little slower than we had thought, I think, because there were still some Actavis inventory kind of making its way through the inventory channel.
So that could tick up a little bit, but we're definitely significantly below our run rate from a year ago.
Yes.
So right now, there's still some legacy Actavis share out there.
But the reality is the customer that they did lose, they lost, I think, in November.
So I don't think that, that customer really has ---+ there shouldn't be any more of the inventory out there flowing from that customer.
So I think that as far as this quarter's sales, they might be a little light because January.
I think there were still some inventory flowing through the channel, but we are down significantly from a year ago.
Yes, that's right.
We actually ---+ the one that we just filed recently, we got a 2018 on that, but the 4 that we filed over the last 2 quarters have 2017 GDUFA dates.
Yes, exactly.
So the most recent PAI was for 5 products: and so the 4 that have GDUFA dates this year as well as the one pre-GDUF<UNK>
The one that we just filed recently that makes number 6, that has not received a preapproval inspection yet.
Sure.
So yes, we're still aiming for the end of the year to file 2 more ANDAs.
So we wanted to do 2 to 3 this year.
We just did one recently, an injectable AND<UNK>
We've got 2 more ANDAs, so 505(j).
One is in inhalation, and one is an injectable.
And we're hoping for the end of 2017, but it could slip to early '18.
Yes, it's a pretty good level until we get any new approvals.
Yes.
So the way it used to work for Actavis is that we sold them product at a transfer price and then split the profit.
Although for over the last year, the profit was pretty close to 0.
The transfer price ---+ our cost of goods that come down slightly by the end of that contract, so we were making a small margin on that.
So ---+ but right now, this is a product where, on average, we're not making any money on.
So our margins are 0 or below 0 and as ---+ we potentially have to reserve inventory for a lower cost to market situation there.
Sure, that\
Yes.
I'll say we've looked at a couple things this year so far, and I would say the valuations have not come down from what ---+ for the assets that we've been looking at.
Yes, thanks for the question.
So actually, in terms of consultants, we have added some consultants on regulatory that could be very helpful and have added some value already.
So I would say that we have engaged some very good consultants to help us with some of these products.
Thank you very much, operator.
This concludes our call for today.
Thanks again for participating.
Have a great day.
| 2017_AMPH |
2015 | PLUS | PLUS
#Thank you, Nicolaus.
and thank you everyone for joining us today.
With me are <UNK> <UNK>, Chairman, President and CEO of ePlus; <UNK> <UNK>, Chief Operating Officer and President of ePlus Technology; <UNK> <UNK>, Chief Financial Officer; and Erica Stoecker, our General Counsel.
I want to take a moment to remind you that the statements we make this afternoon, that are not historical facts, may be deemed to be forward-looking statements and are based on management's current plans, estimates and projections.
Actual and anticipated future results may vary materially due to certain risks and uncertainties detailed in the earnings release we issued this afternoon and our periodic filings with the Securities and Exchange Commission, including our Form 10-K for the year ended March 31, 2015 and our 10-Q for the quarter ended June 30, 2015, when filed.
The Company undertakes no responsibility to update any of these forward-looking statements in light of the new information or future events.
In addition, during the call we may make reference to non-GAAP financial measures and we have posted a GAAP financial reconciliation on our website at www.eplus.com.
I'd now like to turn the call over to <UNK> <UNK>.
<UNK>.
Thanks, <UNK>, and good afternoon to everyone.
First quarter results were a solid start for fiscal 2016.
Our gross margin on products and services expanded 150 basis points on a 2.1% increase and non-GAAP gross sales of product and services, boosted by a higher mix of software and services.
Our growth in gross profit from services for the first quarter of fiscal 2016 was in excess of the 14.8% in organic services we delivered in the full year of 2015.
Diluted earnings per share this quarter increased 6.1% to $1.21, as compared to diluted non-GAAP EPS in the same quarter of the prior year.
On the call in the year ago quarter, ePlus recorded a one-time gain of $1.4 million.
Overall, we believe shifts in our revenue mix, as well as the significant investments we made in the business last fiscal year, positions us to grow gross profit to increase faster than revenue moving forward.
<UNK> will go into greater detail on the financials in just a moment.
The entire technology landscape continues to evolve at a fast pace across hardware, software, infrastructure and the applications layer.
In recent years, including fiscal 2015, we purposely invested ahead of what we see as major paradigm shifts in various technologies and how they are deployed, significantly increasing our complex systems integration capacity and our engineering capability and advanced technology such as flash storage and hyper-converged infrastructure.
This has allowed us to work with clients, implement technology solutions that offer them greater efficiency, cost benefits and the option to explore OpEx-based IT models.
As a result, we have been able to expand our gross profit ahead of revenue representing our capacity in these higher margin areas and demonstrating the positive ROI of our strategy.
We are encouraged that the industry and our partners are recognizing our abilities to provide more robust and complex solutions.
During the quarter, ePlus placed 32nd in the channel company 2015 CRN Solutions Provider 500.
Again, moving up in the rank within this annual survey.
Our relationships with the Tier One IT vendors including Cisco, HP, NetApp and EMC have never been better and we believe we are a partner of choice for both, as well as emerging technology companies with focused offerings in cloud, SAS, security and flash storage among others.
With that, I will turn the call over to <UNK> for a more detailed discussion of our business.
Thank you, <UNK>.
As <UNK> said, our results for the first quarter of fiscal 2016 demonstrates our ability to execute on our strategy which provided growth in gross profit, expansion in gross margin, and positive comparisons in earnings per diluted share at a time when many customers are evaluating new technologies.
Our [full] lifecycle approach provides high value to our customers and they see ePlus as true partners, starting with assessments and architecture through integration and managed services.
I'd like to focus on a few areas of our strategy.
The first is the work we've done with services to prioritize higher margin services, including managed services and staffing.
As discussed previously, we continue to build out our infrastructure including our three managed service centers and to expand the overall breadth of services offered.
We are pleased to report that we see many clients returning for additional services after the initial contract.
The benefit of this business is not only high margin, but also in the fact that it represents an annuity with consistent revenue spread out over a long period of time.
Our overall services backlog is the highest it's ever been and we're seeing increased demand for new service offerings.
The second component to the strategy is the evolution and expansion of our engineering expertise.
In recent years, we've greatly expanded our engineering capabilities to meet the demand for Big Data, converged infrastructure and security, as well as expanding our vendor certifications from both traditional and emerging vendors.
This has allowed us to meet customer demand for higher margin solutions and de-emphasize lower margin products.
Gross margin on product and services this quarter was 20%, representing a 230 basis point increase from 17.7% reported just 24 months ago in the first quarter of fiscal 2014.
In the current environment, with IT budgets stretched and a whole range of new technology available, it's only the most advanced solutions that can really command that kind of margin expansion.
The third component I'd highlight is geographic expansion.
Over the last several years, we've grown organically or via acquisitions to expand our presence nationwide.
We've shown our ability to stand up new regions with support from our existing operations in order to expand our footprint and develop new client opportunities.
We have the resources and the expertise to continue growing both organically and through M&A and geographic expansion remains a key part of our strategy.
To give one example that really sums up all the things that I just discussed, we were recently engaged by a medical devices company to provide a video conferencing solution to support their US and international growth.
The client is based in upstate New York, one of our areas of geographic growth over the last few years.
In terms of services, the solution we provided features professional services, enhanced maintenance services, with a managed services component pending.
This solution allowed the client to communicate more effectively internally and externally and reduce travel costs.
From our perspective, the key point is that we engaged early with the client and offered a combination of advanced professional and integration services, including leasing.
As a result, all competitors were locked out due to our ability to provide complex solutions with flexibility in services the customer required.
Before I turn the call over to <UNK>, I want to touch on a final subject that we feel is crucial, namely security.
Security threats have become more prevalent and we have invested to build up a strong practice centered on perimeter security and data center security, overlaid with security services from assessments to staffing.
Security solutions are among the most complex in the market and they are synergistic with many of the complex solutions where we have established practices.
For the first quarter of the year, security revenues represented 15% of non-GAAP gross sales of products and services.
We believe we have the expertise, the geographic reach, and the sales infrastructure to take advantage of this growing market.
I'll now turn the call over to <UNK> for a closer look at our results for the quarter.
Thank you, <UNK>.
Results for the first quarter of 2016 showed healthy year-over-year comparisons in key metrics we focus on, including gross profit, adjusted EBITDA, non-GAAP gross sales of product and services, and earnings per diluted share.
Our results were built on continuing margin expansion in our technology business, which is 97% of revenue, and by our focus on operational efficiencies.
Net sales for the quarter declined 0.9% to $269.9 million, even as gross sales on product and services rose 2.1% to $332.3 million.
In contrast, this contrast is the result of a focused change in our product mix which mirrors that of the broader IT industry where providers are moving away from perpetual software license models to work more of a subscription or term model.
Security software is a good example of subscription-based software where the license and updates are provided for a term.
In these transactions, we booked 100% of the profit on the transaction as net sales, contributing to the year-over-year improvement in gross margins.
We are also executing a greater proportion of sales from third party maintenance and software assurance contracts that line with the overall trend in the IT industry.
To highlight the trend, the adjustment recorded to present these transactions on a net basis increased to 23% of non-GAAP gross sales of product and services in fiscal year 2015, as compared to 20% in the prior year.
We will continue to report gross sales of products and services and non-GAAP metrics to give investors a better understanding of our sales volumes and how we manage the business.
Consolidated gross profit for the quarter was up 4.8% to $59.1 million.
Consolidated gross margin was $21.9 million in the quarter, up from 20.7%, [for a 21.9% in the quarter, up from 20.7%] in the first quarter of fiscal 2015, with a 150 basis point improvement in our gross margin on sales of products and services.
Last quarter, we began reporting adjusted EBITDA, a metric we believe gives insight into the operating performance of our business.
We calculate this metric by taking net earnings and adding back interest expense, depreciation and amortization, provision for income taxes and other income.
We consider the interest on notes payable from our financing segment as well as depreciation on assets, finances, operating [uses], to be operating expenses.
As such, they are not included in the amount added back to net earnings and in the adjusted EBITDA calculation.
For the first quarter of fiscal 2016, adjusted EBITDA totaled $16.3 million, a 4.2% increase from $15.6 million in a comparable quarter a year ago.
Operating income was up 2.2% to $15.1 million from $14.7 million in the first quarter of fiscal 2015.
The lower operating income figure when compared to adjusted EBITDA is the result of increased depreciation and amortization following the acquisition of Evolve Technology in August of 2014.
Net income totaled $8.8 million, or $1.21 per diluted share, for the first quarter of fiscal 2016.
In our first quarter last year, net income was $9.5 million, or $1.25 per diluted share, and it included a non-cash gain of $1.4 million from a retirement of liability in the financing segment.
Excluding this gain, first quarter 2016 EPS was up 6.1% from a year ago.
Turning now to results from our individual segments, in our technology segment, net revenues fell 0.7% to $261.5 million, despite higher non-GAAP growth sales in product and services for the reasons I just mentioned.
Looking at revenue by end-market, we continue to be well diversified by industry.
On a trailing 12 month basis, the SLED market remains our largest, accounting for 23% of revenue, next our technology and telecom at 20%, then media and entertainment at 18% with the remainder split between financial services, healthcare and other.
Technology gross profit rose 6.5% to $53.8 million.
As <UNK> mentioned, we saw double digit growth in gross profit from services last quarter, above the 14.8% organic growth we reported for full fiscal year 2015.
Gross margin on sales of product and services was 20%, up from 18.5% a year earlier.
This was driven by an improved sales mix, including the growth from services in terms revenue and gross margins, as well as by the increased proportion of sales booked as net revenue as previously discussed.
Operating expenses in the technology business totaled $40.8 million, an increase of 7.1% year-on-year, driven by higher salaries and benefits which totaled $33 million, as compared to $30.7 million last year.
Higher salaries and benefits are related to both increased headcount and higher variable compensation tied to increased gross profit.
G&A expenses were also up, rising to $6.5 million from $5.8 million in the first quarter of fiscal 2015, partly due to non-cash expenses related to the Evolve acquisition in 2014.
Professional fees were $1.3 million, down 20.4% from the first quarter of fiscal 2015 when we incurred certain expenses related to the secondary offering.
Looking now at the financing segment, as you know, results in this business tend to be uneven due to transactional gains and post-contract earnings.
Transactional gains are derived from our decision to sell financing arrangements at origination or during the term of the arrangement.
We make the decision to sell a transaction for several reasons, including balancing portfolio risk or generating cash for other uses.
In this quarter, financing revenue was $8.4 million, down from $8.9 million in the first quarter of fiscal 2015, due to lower transactional gains.
Gross profit fell 10.1% to $5.3 million, while operating income was down 11.3% to $2 million, compared to $2.3 million a year earlier.
Segment earnings were $2 million compared to $3.7 million a year earlier.
This was partly due to lower transactional gains and also to the $1.4 million gain from the retirement of a liability that I mentioned earlier.
This gain was recorded as other income in the financing segment in the first quarter of fiscal 2015.
Although results can vary on a quarterly basis, we are confident in the financing segment's long-term outlook and ability to contribute to full year's results.
Turning now to the balance sheet, we ended the quarter with a cash position of $88.8 million, up from $76.2 million at the end of March.
These funds mean we have the financial flexibility to pursue growth opportunities, both organically and through acquisitions.
I will now turn the call back to <UNK> for closing remarks.
Thanks, <UNK>.
To sum up, our long-term strategy continues to pay off.
And we are pleased that ePlus ranks with the top of its peer group in both margins and return on capital.
We believe we are well-positioned to take advantage of the current dynamics of the IT market and to post increases in gross profit that exceed revenue growth.
In general, we see the solid demand across our customer base and we are particularly encouraged by what we are seeing in our services business and the opportunity in security related solutions.
As we progress through fiscal 2016, we will remain focused operationally on further penetrating our vertical markets and capturing greater [wallet] share among our existing customers while also expanding our overall client roster.
We also continue to also evaluate inorganic opportunities for growth given our solid balance sheet.
At the same time, we remain disciplined in this effort, looking for acquisitions that provide the right strategic, operational and financial synergies required to provide the long-term benefit to ePlus.
Operator, please open the call to questions.
Thank you very much.
A couple things that help drive it.
If you remember about a year ago, we announced that we were expanding our maintenance renewal scheme and also talked about our enhanced maintenance service offerings.
And what they are is where ePlus provides the first level of support to our customers.
So, instead of just the traditional resell of maintenance, we're actually providing level one support and, in a lot of cases, managed service capabilities and staffing.
And what we've done with that is we've gone back to our key vendors, like Cisco, NetApp and others, to build those programs.
And then over time, we're going to look to expand it.
The good news with it for us is it's a customer stickiness piece because we're that one throat to choke, so if you think about like a FlexPod, a FlexPod deployment, we can provide the FlexPod solution itself, both install and implementation.
We provide the level one support.
We provide the managed services.
And if they don't have the staffing on site, we provide the staffing.
I guess the easiest thing, <UNK>, the benefits to the vendor is, if you think about it, when you've got these integrated silos of compute, storage and networking they all know their own piece, but they're integrated solutions.
So, when they have a problem, I don't want to say the vendors are pointing fingers at each other, but they all think that their technology's the best.
So, what we're, we're involved, we're that one throat to choke and it's our responsibility to get it resolved across the multiple vendors, siloed solutions that are part of FlexPod.
Sorry, <UNK>, you broke up.
I didn't hear the last piece of that.
<UNK>, I apologize, I'm not really sure what you're trying to ask there.
So, if you can try maybe one more time.
No, hey <UNK>, if it's important we'll answer it.
I'm just not sure what you're asking.
In some cases, it's a little bit difficult to tell based on the filings.
But from what I've seen, there is still some differences across the board, at least in our peers.
But it is difficult to ascertain exactly what they are taking net versus gross.
Well, two things, on your second question first, on the leasing piece, I think we've always stated that there's lumpiness in leasing.
And there was a one-time fee last year that was not replicated.
So, that's kind of how to explain the leasing side of it.
And on the services side, <UNK>, as you know we've made major investments in terms of implementing our third managed service center, adding significant headcount in the managed service for Tier One, Tier Two and Tier Three, expanding our managed service offerings with FlexPod, video and things of the like.
So, we would not be doing that if there wasn't a market from our customers looking to us to provide that proactive [monitoring] and management.
And as you know, the managed services is an ongoing annuity.
So, it's an annuity-based service that we're providing.
Let me think about this one, <UNK>.
Here's the easiest thing, we're happy with what we've seen so far in services, both with what we'd consider professional or transactional services, as well as what I call the annuity services, which is your managed services and staffing.
They're two types of businesses, though, if you think about it.
One is kind of a total contract value which is your annuity piece and the other is just a booking of professional services that's recognized as it's delivered.
So, it's kind of hard to give you an exact which one is expanding quicker, if you will, because they're both recognized differently, but they each have value to ePlus as we go forward.
More importantly, they add value to our customers.
It's both.
It's both stand alone and it's combined with our existing solutions.
What's nice about security is, as you know, everybody is concerned about what's going on in the market with all the different threats and hackers that are out there.
So, whether it's a data center solution, whether it's a lab solution, we try to include security within each of our different offerings.
We also have specific security offerings around securing a perimeter, kind of keeping the bad guys out, securing data.
And that's, for example, if you had an on prem data center and an off prem and the data was going outside your network with the security solutions that go with that.
And then we also have security services where we provide [PEN] testing, vulnerability assessments, risk and compliance assessments and a virtual [C-SO] capability.
The things in the market that kind of fits to our strategy, about five years ago we saw where the market was going with security.
We made an investment in NCC, which was an acquisition in the Midwest about four years ago, a little bit over.
What that gave to us was security expertise that we were able to leverage across the rest of ePlus and build up our security practice across all of our offerings.
The big thing that a lot of our clients look for from us, <UNK>, though, is to sit down and help build the roadmap and kind of build the gap analysis of where they have holes and things they've got to protect.
Did that cover what you need, <UNK>.
<UNK>, every customer's different.
I think what you're seeing in the market, and you're seeing it and hearing it from some of these legacy storage vendors, if you will, customers have a lot of choices now.
So, it's not just your old legacy storage solutions.
You've got flash with what they call solid state drives, if you will.
You've got converged infrastructure, which is kind of your FlexPod and Vblock play.
And then you've got hyper-converge.
So, I think in terms of as the market continues to evolve and we have more and more data in the market, both structured and unstructured, I think you'll see the continued need for more and more storage as we go forward.
It's just going to be which solution is the solution of choice for each customer.
I think as you've seen from our strategy and how we approach the business and what we've invested in, our services are continuing to be a larger part of our business.
We did disclose that the services gross profit grew last year 14.8%.
And that is contributing to our gross margin increase this quarter, as well as the amount that we are reclassifying on a net basis.
Those products are a focus for us.
As <UNK> mentioned, the team that we have in place selling maintenance renewals and also the trends in the marketplace that we're seeing in terms of how software is currently being licensed, and that's particularly prevalent in the security space where those licenses are on a subscription or term basis.
And the way that those are licensed, we are required to account for those on a net basis.
And those are a direct contributor to our gross margin.
So, those factors, coupled with our strategy, we would believe that we would continue, we're well-positioned to continue to grow that gross margin over the longer term.
A couple different things, what we're seeing so far.
We haven't seen any indication of a slowdown from our customers yet.
The other thing to note, our gross revenues were up.
Our gross profit was up [6.5%] and our gross margins were up 150 basis points as we had talked about.
The other thing is we believe pretty strongly in our strategy.
And part of our strategy is working with both emerging as well as the existing technology vendors out there.
So, we feel we're very well-positioned, as the market evolves and adjusts, to be right there both from a revenue and from a gross profit standpoint.
And we believe we're still well-positioned to exceed the market on a gross revenue basis.
Did you ask about our pipeline.
I'm not sure what you asked there.
We're still, as part of our strategy, one of the things that we're trying to do is build out our region, our national footprint.
That's both organic as well as through mergers and acquisitions.
And we will continue to hire customer-facing headcount, which is sales and services headcount, to address the market needs for our customers.
Thank you for your time and interest today.
And we look forward to speaking to you next quarter.
Thanks a lot.
| 2015_PLUS |
2017 | CORE | CORE
#Thanks, <UNK>.
I think that part of the same-store sales growth is coming from our independent stores.
And so it really shows that our core strategies and our initiatives are working.
And really that's being driven by our field sales force and our territory managers.
So definitely they are, you know, they're embracing our core strategies and really trying to add the right products to their stores.
I think there still is competition again from the large chain stores and we've seen examples where a QT, opens up next to two, three, independents and take a lot of business away.
We have other smaller regional chains that do the same thing.
A Maverick opens a new store and they bring pressure on the independents.
But at the end of the day, what that does it actually propels the independent stores to embrace our strategies even more.
Because that's who they're competing with.
But they still strongly, the independents continue to grow and we continue to focus because we believe that's really the strength of the industry is the number of independent stores that are out there.
We're much higher today because of the number of stores we've added, in particular in 2016, and, of course, when we do an acquisition like Pine State, we add a lot more independent accounts.
But we we're probably higher than that level today.
And higher than I would like to be.
But again it's all about opportunities that present themselves and so we're going to continue to grow the independent account and change as they become available to us, we're going to go after that business also.
Organic growth.
Yes.
I think it, you know, traditionally it's been about 6%.
Total sales.
Total sales.
Right.
The bigger chunk coming from about a 10% growth coming from organic.
And then the remainder is really what's being driven by the chains.
So I think really in the fourth quarter we did see a downturn again, like we talked about, a little bit of a slowdown really in the center store categories, right.
So we saw our slowest growth in the fourth quarter in those categories.
But on average we're growing probably the organic is about 8% to 10% I think.
Yes.
In the fourth quarter it was about 13% of same-store sales, of the total increase in the non-cigarette sales.
Excluding all the large accounts.
Correct.
Okay.
No.
And you know, dairy again, fluid dairy tends to be the one that we saw that definitely last year and it's starting to come up a little bit this year in eggs, right.
Those are the two categories that impact us.
But we haven't seen any price decreases from many of our like beef jerky vendors (inaudible) like that.
They're sort of probably holding on to the margins.
(Laughter).
We knew who you were.
Well, first on the share repurchase, so as you know, our first priority is to invest back in the business.
And so we are spending I think, what, $50 million in 2017 for CapEx.
But we definitely intend to go forward with the share repurchase program.
And probably at a similar level to, probably close to $10 million for 2017.
And then in regards to the acquisitions.
We've talked about this in the past.
We always have ongoing discussions with various distribution companies and it's a long dance a lot of times.
And so who knows when they may happen.
The nice thing about acquisitions and I'll use Pine State as an example, is Pine State was a well-run organization.
We didn't really have to do anything.
We just basically consolidated their financials and started to integrate our sales forces up there.
But we have the ability to convert an acquisition on to our systems when we feel it's necessary.
And so if an acquisition becomes available and it's the right thing and it's the return that we're looking for, we definitely will ---+ we will make an acquisition.
So, you know, really we control the on board ---+ the conversion costs from an acquisition perspective.
Thanks.
Thank you.
| 2017_CORE |
2018 | HFC | HFC
#Thanks, <UNK>.
Good morning, everyone.
Today, we reported first quarter's net income attributable to HollyFrontier shareholders of $268 million, or $1.50 per diluted share.
Certain items detailed in our earnings release increased net income by $131 million on an after-tax basis.
Excluding these items, net income was $137 million or $0.77 per diluted share versus a net loss of $33 million or $0.19 per diluted share for the same period in 2017.
Adjusted EBITDA for the period was $316 million, an increase of $230 million compared to the first quarter of last year.
This increase was principally driven by our Refining and Marketing segments, where we were able to capitalize on favorable crude differentials and strong product crack spreads in our market.
Our Lubricants and Specialty Products business reported EBITDA of $41 million, driven by strong rack forward sales volume and margins.
Rack forward posted adjusted EBITDA of $56 million, representing a 14% EBITDA margin and had operating costs of $36 million.
HollyFrontier continues to expect rack forward EBITDA of $180 million to $200 million for 2018 with an EBITDA margin of 10% to 15% of sales.
Lower base oil cracks combined with the lumbering impact of our feedstock supply issues hurt rack back earnings in the first quarter.
With our feedstock supply issues behind us, we expect significant improvement in rack back as we enter the seasonally strong second and third quarters.
We do have plant maintenance at our Mississauga facility in the second quarter, which will impact both rack forward and rack back volumes.
Holly Energy Partners reported EBITDA of $89 million for the first quarter compared to $70 million in the first quarter of last year.
This growth was driven by the acquisition of the Salt Lake City and Frontier Pipeline as well as volume growth in HEP's crude gathering system.
Distributable cash flow came in at $69 million, delivering a distribution coverage ratio of 1.04.
During the quarter, we purchased $25 million-worth of HFC shares.
This demonstrates our disciplined capital allocation strategy of first, maintaining our current assets and balance sheet strength; second, sustaining a competitive dividend; third, growing our business, both organically and through transactions; and fourth, returning excess cash to shareholders.
Going into the summer, we are optimistic about light products and lubricant markets as well as the sustainability of crude differentials.
Now I'll turn the call over to Jim for an update on our operations.
Thanks, <UNK>.
For the first quarter, our crude throughput was 415,000 barrels per day, in line with our guidance of 410,000 to 420,000 barrels per day.
While our crude throughput was impacted by our Tulsa turnaround and unplanned maintenance at Woods Cross, our Refining system as a whole performed very well.
Our consolidated operating cost of $5.86 per throughput barrel, was a 16% improvement versus the $6.97 in the same period last year.
The improvement was driven by increased throughputs along with operating cost reductions across our Refining system.
In the Rockies, operating expenses were $9.62 per throughput barrel, a steady improvement over the $9.87 recorded in the first quarter of 2017.
This was led by the continued focus on improving operational reliability and operating costs at our Cheyenne refinery.
Our Navajo plant ran approximately 106,000 barrels per day in the first quarter.
We continue to see the benefits of higher crude throughputs since the completion of our debottleneck project in the first quarter of 2017.
In the Mid-Con, despite the turnaround at Tulsa, our operating expenses, per throughput barrel, of $5.28 improved by $0.52 per barrel versus the first quarter of last year.
We have completed all the turnaround work at Tulsa safely, and we have resumed normal operating rates there.
Our Woods Cross Refinery experienced a fire in mid-March.
We are still in the process of repairing the #1 crude unit and expect Woods Cross to run at reduced rates for the balance of the quarter.
During the quarter, we also have planned maintenance scheduled at our El Dorado Refinery that will slightly impact our sales volumes.
For the second quarter of 2018, we expect to run between 440,000 and 450,000 barrels per day of crude oil.
I will now turn the call over to Tom for an update on our commercial operations.
Thanks, Jim, and good morning, everyone.
For the first quarter of 2018, the 415,000 barrels a day of crude throughput was composed of 32% sour and 22% WCS and black wax crude oil.
Our average laid in crude cost was under WTI by $8.47 in the Rockies, $2.80 in the Mid-Con, and flat versus WTI in the Southwest.
In the first quarter of 2018, we witnessed global and U.S. product inventories to continue to be rebalanced, signaling global economies are continuing to grow and increasing the demand for refined products.
Gasoline inventories in the Magellan system ended the quarter at 9.8 million barrels, which was similar to last year's first quarter ending inventories.
Diesel inventories remained static as compared to the fourth quarter of 2017 and approximately 0.5 million barrels lower than last year levels.
First quarter cracks in the Mid-Con were $15.56, $13.70 in the Southwest and $15.66 in the Rockies.
When compared to 2017, first quarter cracks were higher in the Mid-Con and lower in both the Rockies and Southwest.
Crude differentials widened across heavy and sour slates during the first quarter.
In the Canadian heavy market, first quarter crude differentials at Hardisty averaged over 20 ---+ $4.25 per barrel compared to a fourth quarter differential of $12.25 per barrel.
HFC with its firm space commitments on various pipelines was able to purchase and deliver adequate volumes of price-advantaged heavy crude from Canada to meet our refining needs.
Our Canadian heavy and sour runs averaged 86,000 barrels per day at our plants in the Mid-Con and Rocky regions.
We also refined approximately 174,000 barrels a day of Permian crude in our refining system composed of 106,000 barrels per day at our Navajo complex and 68,000 barrels a day at our El Dorado Refinery delivered by the Centurian Pipeline.
Increase to Permian-based crudes will allow us to take advantage of the widening differentials for Midland price-based oils.
First quarter consolidated gross margin was $12.83 produced barrels sold.
This was a 70% increase over the $7.54 recorded in the first quarter of 2017.
This increase was driven by improved laid in crude costs in the Mid-Con and Rocky regions and the small refinery exemptions at our Cheyenne Refinery With widening Permian differentials and consistent discounts for WCS and black wax crude oils, we anticipate continued margins across our Refining system in the second quarter.
RINs expense in the quarter was $6 million, which is net of the $72 million cost reduction resulting from the Cheyenne 2015 and 2017 small refinery exemptions received during the quarter.
And with that, let me turn the call over to Rich.
Thanks, Tom.
As <UNK> mentioned, the first quarter included a few unusual items.
Pretax earnings were positively impacted by $104 million lower cost to market benefit as well as a $72 million reduction in RINs costs as a result of our Cheyenne refineries small refinery exemptions.
These positives were partially offset by $4 million of PCLI integration-related charges.
The table detailing these items can be found in our press release, and I am pleased to report we completed the integration of PCLI in the first quarter.
For the first quarter of 2018, cash flow provided by operations was $334 million including turnaround spending of $57 million, and HollyFrontier's stand-alone capital expenditures totaled $57 million.
As of March 31, our total cash and marketable securities balance stood at $782 million, an increase of $151 million over the balance on December 31 of 2017.
This increase was driven by our strong earnings and supplemented by a drawdown of inventory we had built in preparation for the first quarter turnaround at our Tulsa Refinery.
During the quarter, we returned a total of $84 million of cash to shareholders comprised of a $0.33 regular dividend totaling $59 million as well as the repurchase of approximately 550,000 shares of common stock totaling $25 million.
As of March 31, we had $152 million remaining on our existing stock repurchase authorization.
As of March 31, HollyFrontier had $1 billion of stand-alone debt outstanding and no drawings on our $1.35 billion credit facility.
This puts our liquidity at a healthy $2.1 billion and debt-to-capital at a modest 15%.
HEP distributions received by HFC during the first quarter totaled $36 million, a 20% increase over the same period in 2017.
HollyFrontier now owns 59.6 million HEP limited partnering units, representing 57% of HEP's LP units with a market value of $1.7 billion as of last night's close.
For the full year of 2018, we slightly increased our CapEx guidance, driven by higher turnaround scope and costs.
We now expect to spend between $380 million and $440 million for both stand-alone capital and turnarounds at HollyFrontier Refining and Marketing; $70 million to $90 million at our Frontier Lubes and Specialties, and this includes our scheduled turnaround at the Mississauga base oil plant; and $50 million to $60 million of capital for HEP.
And with that, Luke, we're ready to take questions.
Yes, I think, Doug, the best way to answer that question ---+ those differentials we covered in the Analyst Day, we view as the long-term trend.
It's going to bounce around above and below that, depending on the timing of crude production and pipeline capacity.
Right now, obviously, things are getting tight at the Permian from a pipeline perspective and you're seeing dips in the $6 to $7 per barrel range and perhaps even spiking up a little bit above that recently.
In Canada, we saw dips blow out as wide as $25-ish and have now settled back into the $16, $17 range.
So that's going to be a function of how much crude can be taken out by rail in the interim year until the next increment of pipeline capacity is added.
Yes, Doug, I don't think it ---+ our current stock price impacts our capital allocation strategy.
We're going to get monies back to shareholders to the extent that we have excess cash above our other priorities as I laid out in my prepared remarks.
Again, I just view it as a way of getting money back to shareholders.
Yes, I would say that we're in the process of working through all that, Brad.
We haven't heard anything back yet, otherwise we would have reported it.
Yes, I think the DC appellate court finding late last year, they've found that the previous EPA had erred in their review of applications for small refinery exemptions.
So I think that was the key change from previous that opened up the door for what's provided for in the Clean Air Act, to allow the EPA to exempt small refiners from the RFS, from disproportionate economic harm.
And, obviously, we view a high RIN cost market as disproportionate economic harm.
Longer term, we're pleased by what we're seeing coming out of Washington.
We applaud both of our Senators from the great state of Texas for their efforts in this area.
Senator Cruz has gotten very involved in this effort and has been very involved through the Philadelphia Energy Solutions bankruptcy.
Senator Cornyn is working on a legislative fix.
But we're also encouraged by what we're hearing from Congressman Flores and Shimkus working similar legislative action on the House side.
So you never know what's going to come out of Washington, but we're pleased with the direction things are going and fully recognize there's still a lot of work to be done here.
It's a little bit premature to talk too much about it, but what we can tell you is we expect HFC to be the major customer for that facility.
And we view it as a great opportunity to sell more diesel into the growing Delaware Basin market at improved netbacks to HollyFrontier versus our other alternatives for that product.
Absolutely.
These are exactly the type of projects that ---+ we view HEP as being a key part of our overall strategy.
Yes, this is Tom <UNK>.
Yes, we look at the forward markets as well on the Midland.
As <UNK> mentioned earlier, that's just an indication of the imbalance of takeaway capacity versus drilling activity, which we believe is going to continue well into '19.
So we're well poised to take advantage of those conditions.
On the ground levels, we don't really see anything that's happening.
There are some recently announced ---+ or previously announced pipeline production projects that will be completed later this year that will help remedy it, but those are already built into the price.
<UNK>, it's a fair question.
I'd say that the maintenance we have this quarter as well as the fourth quarter was always planned.
The maintenance we had last year was really not ---+ to your point, like it's not ---+ is there room for improvement, absolutely.
But really looking into 2019, we always expected a turnaround at that facility in the fourth quarter, and we have also minor maintenance here in the second quarter.
Yes, it should be better.
I mean, 2019 is a turnaround year, so fairly typical in that sense.
And then we would expect a cleaner run, obviously, 2020 and going forward.
So at a high-level here, <UNK>, we have 2 major process units at Mississauga and those units go down every 3 or 4 years on average.
And this just happens to be the year, as Rich laid out, that we're taken both those units down this year.
We can swing 100% sweet to sour.
Now a little bit of that depends on what you mean by light sweet.
When you start getting too much above, say, 45 gravity we can't process a lot of that material.
As you know, that type of crude has a lot of light ends and we're constrained in our saturates gas plant.
But as far as the swing from sweet to sour, we have 100% flexibility.
And <UNK>, that's where ---+ this is Tom.
That's where the Centurion Pipeline comes in, too.
That's a huge advantage of being able to bifurcate those crudes and move them around within the system.
Yes, obviously, IMO is going to help us from a crude differential perspective with the Canadian heavy.
I don't see it impacting the rate of Canadian heavy we run because even at the recent or past differentials, we tend to run as much Canadian heavy as we can.
But net-net, as Tom said in his prepared remarks, we run about 85,000, 90,000 barrels a day of Canadian heavy, and we'll run about those type of levels even in an IMO 2020 scenario.
I don't think so.
Sure, <UNK>.
So it really starts with keeping the balance sheet healthy, which we've laid out.
We think, given where we are today with debt levels and a credit facility, we feel like $500 million of cash on the balance sheet is a good number.
And above that, we would consider it to be excess.
So first, it's maintaining the facilities; second will be to keep the dividend competitive; third would be to grow, whether that's organic capital or whether it's acquisition; and then beyond that when we've hit that $500 million threshold, we'll look to buy back stock.
I [don't] think it was [done on a reasonable] pace, but it's definitely on a ---+ it will move around a little bit based on what else we have going on.
Obviously, we've got a higher level of capital spend in the, call it, last 3 quarters of the year than the first quarter of the year.
It will also depend on how cash flow's going here, we're all very optimistic about the rest of the year.
But until the dollars are in the door, we're not going to spend them either.
And most of our repurchases were back half loaded.
Correct.
Yes, I think on the Permian, we did a really good job in the first quarter moving volume through our Centurion leased space.
As Tom said in his prepared remarks, we ran, what, 68,000 barrels per day through that lease capacity.
That's really good.
So we might be able to squeeze a little bit more, but I would view that as being near the top of the end.
And then I think, similarly, on the WCS, Tom mentioned 86,000 barrels per day of WCS runs between Cheyenne and El Dorado.
We might be able to squeeze a little bit more, but I wouldn't view it as being significantly more than that.
<UNK>, this is Rich.
There's a couple of things going on there, capture, it tends ---+ just the way the math works, capture tends to be better at higher cracks, which they've definitely been better in the last, call it 6 months, than they were late ---+ early '17 and certainly 2016.
Second, honestly our benchmark cracks are based on WTI at Cushing.
So in as much as crude differentials are widening, that's a big boon to capture rates per se.
And then we obviously have a pretty good discussion on that.
And last then will be RIN costs again.
That gets back to that, at the higher level.
If RINs are roughly the same but cracks are higher, the capture's going to look better.
So that's the other big factor that comes in here.
So to your point, <UNK>, of we've been running well.
We expect to continue to run well at higher differentials and we'd expect to see higher capture rates going forward.
I don't really believe so.
No, <UNK>.
Just wanted to start off on the Lubricants business, PCLI.
And as the crude price have ticked up, we've been watching your index here.
But how do you see higher crude price impacting the profitability of that business.
And can pricing increases keep up with input costs.
<UNK>, so this is where, frankly, having an integrated business is really helpful.
Obviously, we saw some compression on the rack back side.
And to your point, we saw base oil, kind of benchmark cracks compress in the first quarter, some of that's seasonality.
Some of it was just where we are on the cycle on the Group III side.
We expect it to get better seasonally on the second and third quarter, and what we've seen, frankly, is base oil postings have started moving up.
On the flip side, then, there is going to be a lag on the rack forward side going through and passing through pricing that's slower to move.
But again, this where we're optimistic on the business in general and having an integrated business model is really helpful.
All right.
And a follow-up is just on the share repurchases and dividend growth.
Again, I recognize that you want to see the cash come in first.
But one of the constraints we've viewed historically about being overly aggressive for you guys around different growth has been the fact that you guys are BBB- and so want to protect that investment-grade rating.
Do you think there's the balance sheet capacity to become more aggressive around the buyback.
And do you think the ratings agencies would give you the space to do that.
<UNK>, I think, again, we laid out earlier kind of how we think about cash return, and that we view excess cash above, call it, $500 million in the balance sheet.
But today's debt loads and revolver capacity, $500 million is sort of our walk around number and beyond that is excess.
Keeping in mind that we've got an eye for growing the business, both organically and inorganically.
So where we are in those kind of opportunities will affect that pace in rate.
Yes, Phil, there was a small working capital benefit in the quarter.
About $80 million or so, just looking for the number exactly.
Sure, Phil.
So I think in this quarter, to your point, it's a little bit of a working capital build, which is good ---+ or excuse me, benefit.
As I mentioned earlier, we've got just timing of the CapEx for this year.
We are a little bit back end loaded, so we've got to keep that in mind.
And the reality already is we can't predict necessarily a month or 2 out in our business, given where crack spreads are, so there's a lot of art to the speed of a buyback at the end of the day.
I think the way we view it is pretty much status quo.
I think the macro read that we have is consistent with what we shared at our Analyst Day that we think the issue is going to continue to consolidate.
I think the scale is important, which is why we have our desire to double the size each of our businesses in a disciplined manner.
But as far as the set of opportunities that we're seeing in the market right now, they really aren't impacted by the announcement earlier this week.
Yes, Phil, that's correct.
Yes, we're very encouraged by what we're seeing and hearing out of the Uintah Basin.
To your specific question, we have been receiving all the wax crude that we need, especially prior to our incident at Woods Cross.
But I think the producers that are in that region now are very focused on that region.
They've made some significant technology improvements in the way they're producing the oil.
So I think we think, as long as crude is in the ---+ above the $60 per barrel range, we're pleased with what we're seeing out of the production in that region.
Yes, I think you just hit it.
I don't think using this quarter is representative for our business because, as Rich said in his prepared remarks, we have built up inventory in advance of the Tulsa turnaround, that we've liquidated through the quarter.
| 2018_HFC |
2017 | PH | PH
#Thanks Cathy, and welcome to everyone on the call
We appreciate your participation this morning
I'd like to take a moment to congratulate Cathy on her new role as Chief Financial Officer, which we announced earlier this month
We will certainly miss Jon Marten, who announced his retirement; we thank Jon for his great leadership and service during his 30 years with the company
We're very fortunate to have someone of Cathy's leadership and experience to step into this important role, Cathy has 30 years of experience in operational and financial roles at Parker, and has been acting CFO since November of last year
This seamless transition is an indicator of the effectiveness of our leadership succession planning at Parker
Now, moving onto the results, I'd like to share highlights of our third quarter results, which were strong across many measures, give you an update on the CLARCOR integration, and comment on our changes to the fiscal year 2017 guidance
Before I get into the financials, I'd like to first report on our safety performance since keeping our people safe is our highest priority and our most important measure
During the third quarter of 2017, we were able to reduce our recordable injuries by 28% compared to the prior year
Importantly, we reduced our lost time due to injuries by 39% compared with the prior year period
This builds on a significant year-over-year improvement in the last several years, and it's even more impressive considering the increase in volume we've experienced this quarter
This improvement is being driven by strong leadership, training, and engagement of our team members globally through high-performance teams that are focused on achieving the goal of zero accidents
Now onto the financial highlights for our third quarter results: This was another strong quarter for Parker across many measures, third quarter sales were $3.12 billion, a 10% increase compared with the same quarter a year ago
Organic sales increased 6%, and acquisitions contributed 5%, while currency was a negative 1%
We are particularly pleased with the strong organic growth, driven by improving conditions across many of our end markets
This is noteworthy as it is the first quarter of organic growth since the December 2014 quarter
As you know, we closed the CLARCOR acquisition in late February, and had one month results included in the quarter, which drove the 5% increase from acquisitions
Order rates, which do not include the impact of acquisitions, also continued to move in a positive direction for the third consecutive quarter
Total orders increased 8% compared with the same quarter last year
Industrial North America orders increased 9%, Industrial International orders were double-digits at 13%, and our Aerospace Systems Segment orders were flat
Again, we see encouraging signs of recovery in demand levels
We'll provide more color on the markets in our Q&A portion of the call
Net income for the third quarter increased 28% to $238.8 million, as reported compared with the same period last year
Earnings per share were $1.75 as reported or $2.11 on an adjusted basis, a 40% increase in adjusted earnings per share compared with adjusted earnings in the same quarter last year
Our overall segment operating margin performance this quarter was very strong at 14.8%, as reported, or 16.1% on an adjusted basis
Adjusted segment operating margins increased 140 basis points compared with the third quarter of fiscal 2016, an excellent year-over-year improvement
Year-to-date cash from operations excluding a discretionary pension contribution was 11.8% of sales, demonstrating our ability to be a strong generator of cash on a consistent basis
Now just a few highlights, updates on capital allocation
As we announced at the end of February, we closed the transaction to acquire CLARCOR
Since the transaction closed, we've welcomed the global CLARCOR team to Parker and have begun the process of integrating our businesses
Filtration Group President Rob Malone has formed a leadership team for the newly combined business
We have also formed a dedicated integration team staffed with some of our most experienced and talented operational and functional leaders
I feel very good about the progress we've made with the integration and I'm confident we can generate the $140 million in cost synergies we initially expected from our combined filtration businesses
We've incurred the expected amount of one-time acquisition related expenses, which Cathy will highlight in her slides and we will provide FY-2018 CLARCOR costs and EPS projections when we provide full year guidance in August
Also during the quarter, we completed the acquisition of Helac Corporation to add specialty rotary actuators and attachments to our hydraulics portfolio
During the quarter, we announced a 5% increase in the quarterly dividend
We've now increased our annual dividends paid for 61 consecutive fiscal years
This is among the top five longest-running dividend increase records in the S&P 500. We've also continued our 10b5-1 program and bought $50 million worth of shares in the third quarter
These actions reinforce our commitment to being a great deployer of cash in ways that generate increased long-term returns for our shareholders
Just one other strategic update to comment on, this week, we launched our Voice of the Machine Internet of Things offering at the world's largest trade fair for industrial technologies in Hanover, Germany
The Voice of the Machine IoT platform is an open, interoperable and scalable system of connected products and services
We are excited about the launch of this new capability that offers benefits to our customers such as improved safety, reduced maintenance cost and downtime, while simultaneously uncovering opportunities to improve operational performance
Moving to our revised FY 2017 guidance
We are increasing our full-year sales growth forecast from a negative 0.5% to an increase of positive 5.9% at the midpoint in our new guidance to reflect higher organic growth and the impact of acquisitions
For fiscal year 2017, we are updating guidance for as reported earnings in the range of $6.90 to $7.20 per share or $7.05 at the midpoint
On an adjusted basis, we expect EPS in the range of $7.70 to $8.00 for a midpoint of $7.85. Earnings are adjusted for our anticipated business realignment expenses of approximately $0.25 forecasted for fiscal 2017 and for acquisition related expenses of $0.55. To be clear, our revised guidance does include the benefits and costs from the CLARCOR and Helac acquisitions
For now I'm going to hand things back to Cathy to review more details on the quarter and the fiscal 2017 guidance
We've continued to make progress through fiscal 2017 and our third quarter continued this momentum
I'd like to thank our team members around the world for their dedicated efforts
We are making meaningful progress with the new Win Strategy, which is designed to drive top quartile performance versus our proxy peers and generate long-term shareholder value
All signs point to a strong close to the fiscal year
More importantly we continue to see opportunities that will allow us to achieve our key financial objectives by the end of fiscal 2020, which includes organic sales growth of 150 basis points higher than the rate of global industrial production, 17% segment operating margins and a compound annual growth rate and earnings per share of 8% over this five-year period
This is a special year for us at Parker as we celebrate our 100 year anniversary
We are very proud of our history and confident of the bright future that we see in front of us
So, with that, at this time, we're ready to take questions
So, Shannon, if you could go ahead and get it started
Question-and-Answer Session
<UNK>, this is Tom
Because aerospace was a little challenged with some extra development costs in the quarter that kind of deflated the marginal return on sales a little bit
If you back that out, just look at industrial and then also take all the acquisitions out, we're in the mid-50%s
Now, I would not project a mid-50% MROS for us going forward
We tend to have the first quarter to up about that level, and then glide back down to a more steady state of plus 30%, but these margins are really, really stellar that we put up in this quarter
Okay, <UNK>, I'll start then I'll hand it over to <UNK> for the markets
On MROS, I think with CLARCOR all in (27:43) you should see us do what we've historically done
If – that plus a little bit more, because everything we've done as a company, with the new Win Strategy, the fixed costs that we've taken out, simplification
So I think you could model historical plus a little bit better
On the integration, it's going terrific
I'm very pleased with integration so far
The teamwork between both companies basically becoming one, they are the talent that the cultural fit, all the synergies, very interesting, the synergies we thought when we're kind of looking at it, more isolated now that we're looking at it jointly
There is a lot of harmony between both teams looking at and saying we've created, this is a dynamite list
So we're very encouraged and there is – as we go forward, we update you in August give you a better clarity as to the cost to achieve and the savings for that fiscal year, but we're off to a good start with that
And then on the markets, I would just tell you that's it's nice – it's really nice having sat in this room now for 10 quarters to have a quarter where we have an exciting organic growth story to tell you
I mean, it's across pretty much board, and I'll let <UNK> give you the color on that
<UNK> - Credit Suisse Securities (USA) LLC Sorry, Tom, just a follow-up on the incremental though, but in – obviously it's very encouraging that you think you can do a little better than where we were historically and you don't see sort of price cost is an issue as well like that's not to be short-term
<UNK> - Credit Suisse Securities (USA) LLC Okay
Sorry, <UNK>
Go ahead
The trend – Joe this is Tom
The trends through the quarter, North America and Europe showed steady progress through the quarter and Asia Pacific and Latin America were pretty much consistent, stayed at a high level for the quarter, and April is consistent with what we saw and it's reflected in the guide
So, in general, I think <UNK> kind of hit it, we're encouraged, but couple of more quarters would just solidify that for us
<UNK>, I'll start at a high level and I'll let Cathy fill in, add any more details, but our goal is, we're about 3.2 times debt-to-EBITDA
Over the next 24 months to 36 months, we want to drive it down to the 2.0 debt-to-EBITDA
So, we're going – the cash flow, we're very proud of at almost 12%, CFOA, we're going to be using that to help pay down the debt and we're encouraged by what we've seen so far as far as synergies and our ability to put these businesses together, so we think cash will continue to be a very strong component of it
But that's the focus is driving that down
In fact, when you look at all the end markets in China, it's hard to find anything that's red
<UNK>, it's Tom
We can't predict it at this point
I mean I know everybody would like me to start talking about FY 2018 in April, but FY 2018 is hard enough to talk about in August
So we'll give you the color on that, we just started our process internally
So, I'm going to just ask you to wait until we get to August
Really, so I mean, have to go do that math, but part of it'll be (43:15) doing that math, but also, we'll be talking to our customers, looking at economic forecasts
So, it's not just trying to take current quarter and projecting it out and comparing it to prior periods
It's actually looking and understanding end demand and what's going on
So, we will do that, but that's not the only factor that will influence it
<UNK>, I think the best approach would be take it offline
You and Robin and Ryan can talk about in the follow-up call
This is Tom
We actually think the supply chain side has a tremendous amount of synergies because CLARCOR is a very decentralized company similar to us
However, they ran a very decentralized buying organization
So they didn't leverage any of their spend or very little of the spend across their various businesses
So, you've got leverage there, first, just by itself
But then combining it with our spend as well, you have that aggregation
So, we see big upside
And I think all of you know, we've been careful on breaking the buckets up, because obviously, some of those buckets are sensitive to how you – how we would disclose these things
But you can rest assured, we have a very finite detail by major cost bucket and supply chain being one of the largest actually, and it's the natural things you would think of
The Win Strategy initiatives, corporate SG&A, supply chain, leveraging the manufacturing capabilities for both of our companies
And the advantage here is not just looking at one isolated, it's the combination, so looking at both of our manufacturing capabilities and leveraging that
And just part of how we did – we did this with our own insight and what's really been great is now with the CLARCOR team's viewpoint, and we've been spot on as far as in agreement as what we think we need to do, which has been very encouraging
I think what we'll certainly do is every quarter, starting in August we'll give you the projection that we think we'll do for that fiscal year as far as cost to achieve, then the synergies that we're going to get and then we'll update how we're doing every quarter against that
The supply chain savings, I am not worried about disclosing that, so if that's something in particular that you'd like to see, we can provide more detail
I also don't want to scatter the herd on my suppliers either, so we'll have to think about how much of that we actually do
But the team on the phone has to – you have to be very confident that we have this down to a very finite detail by major bucket
There is various sensitivities as you disclose that, that we'll just have to consider, but certainly we're going to give you the total and how we're tracking against it
<UNK>, it's Tom again
I guess the encouraging thing is there's been no negative surprises, it's all been positive reinforcement and affirmation of the assumptions we made
And I am very pleased with the leadership talent and the strength of the organization
I am pleased with the cultural fit, I am pleased with the fact that both teams are working as one
When I look at these synergies and there's been a lot of buy-in as to what we have to do to make both of our filtration businesses, the best filtration business in the world
So – and I'm knocking on wood, I couldn't be happier with the start
Yeah
Millie (52:47), it's Tom
Well, first of all, when we set those targets, they were top quartile performance threshold for our peer group and that continues to be a good number
I am very happy to relook at that number once we've achieved it
I don't want to de-motivate the team by moving it before we've actually achieved it
So, we're going to achieve it first, we're going to obviously continue to drive continuous improvement and we'll also look at what top quartile is running at that time because we see our abilities to continue to get more profitable all the time, but we're not going to move the 17% target until we actually achieve it
Unknown Speaker Okay
And then I guess just as a quick follow-up
More of a clarification, I think, you mentioned price cost a little bit earlier in the Q&A session
I just want to clarify, you said, you don't think that that's going to be a challenge as the year goes on?
Joe, it's Tom
Again, I'd characterize it as early days still
There's some things that we moved out more on division consolidations and those type of things
But we'll continue to look at that and we'll certainly update you on the plans we might have there in the future
But the bigger area that has, I think, the most upside is that whole revenue complexity that looking at the product line simplification, that last couple percent of revenue and the complexity associated with that want to service our customer to make it faster and better experience for them, but also to redesign our organization and our processes and SG&A cost that supports that
So I am very encouraged because every time we look at that, I still see tremendous upside
That part that I just described, the product line complexity is hard work, I've described this as hand-to-hand combat, you got to go part number by part number to go through that
So that's why I characterize that it's still very early days because a company of our size with the number of part numbers, there's still a lot of work we're doing and we're very active on that, and I think you'll see that'd be a contributor for margin expansion for multiple years
| 2017_PH |
2016 | ONB | ONB
#Thank you.
Yes, <UNK>.
So the Wisconsin contribution there is just a little bit over $200 million.
So the legacy piece is about, a little over $900 million.
Yes.
Just really, good execution with our vendor management group just trying to drive down early termination charges on their key IT contracts, most notably their core service provider.
There was some great negotiation done on behalf of the Anchor team and our team just driving those contracts lower.
No.
It's about $280 million at this point in time.
I would say all banks are watching commercial real estate.
Despite what we've said about the growth, everybody's looking at that and making sure that we don't get too heated there.
We have very small energy.
We've gotten a little bit of coal, we are watching that.
Outside of that, everything else seems to be moving along pretty well, <UNK>
No, not at all, <UNK>.
I think, I get criticized when I use this analogy but I think we've earned the right to be a little more selective in our partners.
We've built ---+ we're in the markets we want to be in.
If we get a deal that makes a lot of sense with reduced earn back, great strategic opportunities, good expense saves.
We clearly have to look at it, but I can tell you that we're spending a lot more energy on execution and really trying to drive higher quality earnings.
September.
Mid-September when we do the conversion.
Thanks, <UNK>.
There would be just a little bit of benefit in the fourth quarter.
Depending on exactly when we execute that's really in the guidance.
Then most of the benefit, though, will be in the first Q of 2017.
That's absolutely correct.
When opportunities present themselves.
So if we get a backup in interest rates, we might look at putting some additional duration on the investment portfolio.
It probably won't move the needle meaningfully but nonetheless, we're going to continue to look for opportunities, maybe swapping some stuff back to fixed rate on the loan side.
Those types of actions.
When opportunities present themselves, I think we'll give us a chance that insulating from some of the flatter yield curve we find ourselves in today.
Yes.
I think that's a great observation.
We are more asset sensitive than we've ever been as a bank.
So we got more asset sensitive in the second quarter, primarily as a result of bringing on the Anchor balance sheet, even though they have commercial real estate loans, most of those loans are variable rate in nature.
So we will look for ways to still remain asset sensitive and to benefit if rates ever do rise.
But that is an expensive position to maintain.
So to the extent that we feel comfortable adding some additional duration, we will look for those opportunities.
Welcome back, Mr.
<UNK>.
I think the opportunities are really growth.
We're just seeing ---+ I think we're at the beginning of seeing what this franchise can look like in terms of the growth, both on the commercial ---+ we don't talk about retail a lot, but as part of our United Bank & Trust partnership in Ann Arbor, we brought on an extremely talented management team, part of which ---+ we have a gentleman now running our retail bank that's got Huntington and Old Kent and Fifth Third background that Ray Webb is doing a great job.
So I think the growth is optimistic.
I wouldn't be my normal honest self if I didn't say that I think we've made some good progress on expenses.
I think we still have an opportunity to do a better job on reducing cost.
I will tell you were all very focused on it but at the right manner of doing that.
As you think forward, I think the risks for all of us is just this yield curve and the interest rate environment.
The question at the end is what keeps you awake at night.
I'm not sure that stock price would be at the top of that list for me as I think through what we've done and kind of where that stock price sits.
I wouldn't be doing my job if I wasn't focused on it.
Yes, I think that's a great question, <UNK>.
I think that's one of the things Chris is looking at.
Chris is two months on the job in indirect and the balance of his capital markets ---+ you saw the yield increase there through some of his efforts.
But we've asked Chris and Chris is going to take a real hard look at that portfolio to see if it's the best use of capital and funding.
I think as you look forward to the future, we will have some more decisions to communicate there.
Thanks, <UNK>.
Glad to have you back.
Welcome back.
<UNK>, we're always looking at opportunities to keep that tax rate in check.
So obviously as we make more income that will put pressure on that rate, but I don't know if we're willing to say this point in time that rate is going to go back up from here.
I think we're continuing to look for ways to moderate that rate even into 2017.
As part of what Chris is focused on in the capital markets with some of his transactions in that group, we've also got some way to moderate our taxes.
So, as <UNK> said, we're feeling keenly focused on it.
Thanks, <UNK>.
Great.
Thank you all.
Thank you for your insightful questions.
Any follow-up, let <UNK> know.
We look forward to talking to you again soon.
| 2016_ONB |
2015 | NI | NI
#Thank you, Michelle, and good morning, everyone.
I'd like to welcome you to our NiSource quarterly investor call.
Joining me this morning is <UNK> <UNK>, CEO, and <UNK> <UNK>, CFO.
As you know, the primary focus of today's call is to review NiSource's second-quarter 2015 financial performance as well as provide an overall business update.
Following our prepared comments, we will open the comments to your questions.
At times during the call we will refer to supplemental slides available on our website.
Just a reminder, on July 1 NiSource successfully completed the separation of Columbia Pipeline Group, or CPG, into an independent publicly-traded Company.
As a result, NiSource no longer maintains any ownership interest in either CPG or Columbia Pipeline Partners.
However, the financial information presented today does include CPG segment results as it was part of NiSource through June 30.
I would note future NiSource financial results will report CPG as discontinued operations.
Therefore, our business discussed ---+ business segment discussion today will focus solely on NiSource utilities.
As an independent company, CPG is hosting its quarterly call later this morning at 10 AM Eastern.
And finally before I turn the call over to <UNK>, I'd like to remind everyone that some of the statements made on this call will be forward-looking.
And these statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in these statements.
Information concerning such as risks and uncertainties is included in the MD&A and risk factor sections of our periodic SEC filings.
Having covered all those reminders, I'd like to now turn the call over to <UNK>.
Thanks, <UNK>.
Good morning, everyone, and thank you for joining us for this first NiSource call since the separation of CPG.
Today we'll briefly cover our second-quarter results and earnings drivers before discussing execution highlights at our utilities.
And we'll close with an overview of our investment proposition and our future business plan as a premier pure-play utility Company.
And we'll leave plenty of time for your questions.
Before we get into the details though, let me just say how excited I am about the path ahead for NiSource.
We've set a solid foundation for continued long-term growth and enhanced customer value guided by an experienced Management team with a proven record of execution.
And it's a privilege to represent our team today in sharing some of the highlights of our performance as well as our outlook for the future.
As <UNK> noted, I'll be referencing a few slides in the supplemental deck that was posted online this morning.
First a few key takeaways for the quarter.
For the second quarter, results were solidly in line with our plan.
The NiSource team delivered $0.18 per share non-GAAP in the recently completed quarter versus $0.25 per share in 2014.
Across the board we had continued solid execution of our infrastructure investments, customer programs and regulatory initiatives.
As <UNK> mentioned, we finalized the tax-free separation of CPG on July 1.
After the market closed on July 1, shareholders received 1 share of CPG common stock for each share of NiSource common stock.
Our commitments through the separation where met including disciplined cost effective execution, our ongoing focus on customer service and our commitment to investment grade credit.
In fact, following the separation, our credit ratings at the three major agencies have either remained the same or approved.
Standard & Poor's upgraded our credit rating to BBB plus from BBB minus.
Fitch Ratings revised its outlook to BBB minus with a positive outlook from BBB minus with a stable outlook.
And Moody's reaffirmed its reading of Baa2.
These ratings set a strong foundation for us as a pure-play utility with significant long-term infrastructure investment opportunities.
One of the key value drivers NiSource will continue to offer investors is a solid and growing dividend, which we expect to increase by 4% to 6% annually.
We announced our first post separation quarterly dividend of $0.155 per share on July 2 which is consistent with the Company's intention announced in May to increase the initial combined NiSource and CPG dividend by nearly 8%.
As we also announced in May, we expect to deliver non-GAAP earnings per share of $1 to $1.10 in 2016 with planned infrastructure enhancement investments of approximately $1.4 billion.
Now let me turn the call over to <UNK> to review our second-quarter financial results highlighted on page 4 of our supplemental slides.
Good morning, everyone, and thanks for joining us.
As <UNK> mentioned, we delivered non-GAAP net operating earnings of about $57 million, or $0.18 per share, which compares to about $78 million, or $0.25 per share in the second quarter of 2014.
On an operating earnings basis, NiSource was down about $7 million.
As a reminder, these results include CPG reportable segment financials.
Two factors impacted our net operating earnings compared to 2014.
One was additional interest expense related to Columbia Pipeline Group's long-term debt issuance prior to the separation.
The other was NiSource's non controlling interest in Columbia Pipeline Partners which was formed in February 2015.
Combined these items add up to nearly $0.06 for the quarter.
On a GAAP comparison, our loss from continuing operations was about $36 million for the second quarter versus income of about $79 million for the same period in 2014.
This decrease was primarily, as you would expect, attributable to a loss on early extinguishment of long-term debt and separation costs.
At the segment level, each of the three pre-separation business segments delivered financial results well in line with our expectations during the second quarter.
Full details of our results are available in our earnings release issued and posted online this morning.
Now turning this to slide 5, I'd like to briefly touch on our debt and credit profile following the separation, which as you'll see is consistent with our May 14 webcast.
Following the recapitalization, our total debt level was reduced to $6.7 billion with a weighted average maturity of approximately 14 years and an average coupon of approximately 5.86%.
On the liquidity front, our $1.5 billion revolving credit facility went into place as separation.
And as of July 1, we maintain net available liquidity of about $2 billion.
Our financial foundation for our continued growth as a pure-play utility is solid, on track and consistent with our commitment.
Now I'll turn the call back to <UNK> to discuss a few customer, infrastructure investment and regulatory highlights across our utilities.
Thanks, <UNK>.
Our teams remain on track to invest approximately $1.3 billion during 2015 which is part of our $30 billion of long-term regulated utility infrastructure investment opportunities.
These investments further improve reliability and safety, enhance customer service and reduce emissions, all while generating sustainable long-term growth.
Let's turn to a few highlights in our Gas Operations business segment on slide 6.
We're continuing our disciplined execution on core infrastructure investment in modernization programs supported by complementary regulatory and customer initiatives.
In fact, just last week Columbia Gas of Massachusetts reached a settlement in principle with the Massachusetts Attorney General in it's base rate case.
The settlement agreement is expected to be finalized and filed for approval with the Massachusetts Department of Public Utilities later this month.
The case as you recall seeks to recover costs to support CMAs multi-year modernization plan to maintain the safety and reliability of natural gas service for customers.
Columbia Gas of Pennsylvania's base rate case is progressing on schedule.
The $46 million request supports continued investment in our well-established modernization programs that enhance safety and reliability.
A decision in that case is expected by the end of this year.
Turning to the pending base rate case at Columbia Gas of Virginia, on June 30 the hearing examiner recommended specific fixed customer charges for each rate class addressing the final outstanding issue in the case.
The Commission had previously found that the stipulated annual revenue increase of $25.2 million is reasonable.
A final order in this case is expected later this year.
And back to Massachusetts, as an update to what we shared in our first quarter call, we received Department of Public Utilities approval of the 2015 gas system enhancement plan on April 30.
Cost recovery began on May 1 and is projected to increase annual revenues by approximately $2.6 million.
And at NIPS Gas, we continue executing on our seven-year natural gas system modernization program.
Our 2015 projects, which include enhancement of existing infrastructure and extension of gas service to rural customers, are well underway.
And we expect to file our program and tracker update by September 1.
Now let's turn to our Electric Operations on slide 7.
On May 26, NIPSCO, the Indiana Office of Utility Consumer Counselor and some of NIPSCO's largest industrial customers, reached a settlement agreement resolving all concerns raised by the parties in an Indiana Court of Appeals proceeding surrounding the Company's long-term electric infrastructure modernization plan.
As part of the agreement, NIPSCO will file a base rate case followed by a new seven-year plan.
We expect to file the base rate case on or about October 1 of this year.
The FGD unit under construction at NIPSCO's Michigan city generating facility is on schedule to be placed in service by the end of 2015.
Following the completion of the Michigan city unit and with those we placed in service over the past two years, all of NIPSCO's coal burning facilities will be fully scrubbed.
NIPSCO's two major electric transmission projects are also progressing as planned.
Right-of-way acquisition, permitting and substation construction are underway for both projects.
You'll recall these projects involve an investment of about $500 million for NIPSCO and are anticipated to be in service by the end of 2018.
As you can see our teams continue to execute on our well-established infrastructure, customer and regulatory plans.
Before turning to your questions, I'd like to reaffirm the value proposition that we believe differentiates NiSource.
Following the separation of CPG, we are well aligned with our aspiration to be a premier regulated utility Company.
Our plan represents a best-in-class risk-adjusted total return proposition with $30 billion of long-term 100% regulated utility infrastructure investment opportunities, significant scale across seven states, transparent earnings drivers and constructive regulatory environments.
We're focused on leading in the areas that matter most in our industry.
Those are enhancing value to our customers and communities, stewarding our assets to ensure safe, reliable, affordable and efficient service, engaging and investing in the communities we serve and ensuring through disciplined execution that we deliver on our financial and other stakeholder commitments.
This transparent, sustainable growth is expected to drive shareholder value.
As we first announced in May, we expect to deliver non-GAAP earnings per share of between $1 and $1.10 per share in 2016.
We expect our capital program will grow to about $1.4 billion annually starting next year.
And finally, we expect to grow our non-GAAP EPS and our dividend by 4% to 6% per year.
Thank you all for participating today and for your ongoing interest and support of NiSource.
We look forward to sharing continued updates on our progress.
Now, Michelle, let's open the call to questions.
The settlement details will be filed later this month and you could look for some potential changes in the timing of the rate implementation in that settlement, but I don't want to get ahead of the actual settlement itself, the filing of the settlement.
Yes.
We are certainly seeing the steel industry weather some very tough conditions relative to imports.
And on the industrial side in that particular zone, we're encouraged to see some sign of support from Washington related to the import issues although the recovery looks like it'll be prolonged.
And on the other side of the coin, we see economic development opportunities emerging which will provide a nice boost and hopefully a modest offset to the industrial decline in our territory over time.
But altogether, the key point here is our outlook factors in those conditions and the effect of that downturn and we remain confident in our guidance for 2016.
We're working out the details of that filing as we speak, <UNK>.
The key element for us is to reposition the modernization efforts allowing for the deferral of the TDSIC investments we've made in 2014 and 2015, rolling those into that rate case and then filing a new TDSIC plan afterwards.
And again, we'll file that case around October 1.
Thank you, Michelle, and thank you all for joining us this morning.
As you can see NiSource is very well positioned for execution as a premier pure-play utility.
Our regulatory efforts continue to play out across the states and we're very encouraged by the opportunities we see in the future.
Until next time, look forward to talking to you then.
| 2015_NI |
2016 | MDP | MDP
#<UNK>, <UNK> will take out the numbers and answer the question.
But maybe you would give a little color on our auto renewal program from a digital perspective and the prospects we have for that as we go forward.
And I think that is probably the part of circ that I am the most excited about as we look ahead.
Sure.
Yes, I think overall the great news on the circulation side of the business is that the consumer demand for our magazines in the print form continues to be very, very strong.
Response rates both in traditional direct mail and digital are performing very, very well.
And the strategies, as <UNK> mentioned, we're kind of working on two things.
We do bundle our products and we have this tremendous database with a lot of data.
So when you add in a new product like Shape or Martha Stewart, we are able to bundle those with our other titles and brands and offer them to consumers at very, very favorable rates.
And then <UNK> mentioned, we have talked about this before on other calls, our CRT program or our consumer revenue transformation, which is a three- to five-year program where we are really focusing in on auto renewal where consumers are giving us their credit card information and, like other products in the marketplace like Netflix, we are able to auto renew them.
And the early ---+ it takes a little bit of time because you have to run out how long the subscriptions are.
But it is very, very favorable and the lifetime value of a auto renewal subscription compared to a traditional check payment is very substantial.
So we are right in the middle of that and all of our efforts are growing very, very strong.
We could dig out the exact percentage, but we are scaling it ---+ again, we offer on a term perspective, we have done a lot of testing in the last 12 to 18 months.
I think we will be approaching somewhere close to 10% when we get done with this fiscal year from an auto renew perspective.
We have given two numbers in the past, about a third of our circulation transactions now are digital.
And as <UNK> said, the auto renewal part of that now has grown to be about 10% of the file.
And that is in all sincerity the greatest financial opportunity in circulation that I have seen in all the years that I have been here at Meredith.
It just eliminates the decision and causes a consumer to take a proactive step to turn it off.
And it is worth a lot of hard work and investment to grow that part as we go forward because, as <UNK> said, our readership and all of that is very, very strong.
So keeping them on the file and making more money from that part of the business is really a great future opportunity.
Bill, to give you some numbers kind of how we look at it in the P&L, from a GAAP reporting standpoint I think we were up 12%.
We said that was Martha and Shape coming in because we didn't have those last year and that really was the growth.
When you look at the organic you really have to break it into both the subscription and the newsstand.
And subscription for us has been quite flattish.
There we really manage though to the margin.
So if we can get rid of agent subscriptions and bring them online, the impact is probably lower revenue because you are getting less per copy, but you are getting a lot more profit because we are taking that to the bottom line and not paying agent commissions.
So I think of circ ---+ or subscription as flattish, but we are really ---+ we are seeing the decline.
Luckily it is not a big part of our business.
But that is on the newsstand, that continues to be very difficult.
And so when you blend the newsstand with the subscription down a few percent is what we are seeing on an organic basis.
But I would really chalk that up to the newsstand being very challenged.
And frankly, that is where we were at in Q2 and kind of our expectations as we look through the second half of the fiscal.
Okay.
Thank you.
Yes.
Well, I will let <UNK> speak to it because he lives it every day.
But I think at a high level ---+ and <UNK> mentioned this on the call ---+ we saw a lot of accounts going out for renewal with the agencies.
And we think that probably had a dampening effect on Q1.
That came back and we saw flattish in Q2 which is better than kind of our long-term thesis.
So I think a large part of it was really timing between Q1 and Q2, but I will let <UNK> share his thoughts.
Yes, I think to <UNK>'s point, we mentioned that in the last call that over the summer and the beginning of the year there were a lot of accounts that were up for review with agencies.
So we were waiting for the agencies to be selected, which did transpire.
And we saw our two biggest categories, our biggest advertising category is food.
And the second one is pharma, and they were both up from the quarter.
And pharma has really been driving in the last 12 months, we have been getting a lot of pharma business.
And also when we look at the calendar year period, which most of our advertisers are working on, we continue to take share.
We finished calendar 2015 in our core print business up 3 basis points when you compare that to the other magazines that we compete against.
And our food, which is our largest category, and pharma are both at record share heights for calendar 2015.
And we chop that up a lot to what we've mentioned before too is our print sales guarantee that we're out where we are guaranteeing sales lift.
And we think that that is driving our share gains in the marketplace.
Well, <UNK>my, I will answer that.
Basically we have ---+ as part of the settlement agreement we have an exclusivity period, we are not going to get into the detail on what properties.
As we mentioned, it is looking at a few broadcast stations.
As I am sure you are aware, there are some overlap markets that Media General and Nextstar has.
And so it gives us an opportunity to look at those properties and see if we can reach a deal as well as some of the digital properties as well.
And basically it is a fair market value, if you will, negotiation.
So, while we have a first look, obviously there is no pre-determined economics, so it is a deal ---+ if there is a deal it would have to be good for both Meredith and something that Media General and ultimately Nextstar feel is in their best interest as well.
But we are looking to undertake that pretty quickly over the next 30 to 60 days.
Well, <UNK>, I haven't (laughter), I'm not really looking forward to this, but started accumulating what we would have spent so far in January.
Obviously you can look at what we called out in the first quarter and the second quarter.
And I think combined it is probably close to $16 million in those two quarters.
We will have some more in January, but it is really going to be just legal fees, which I don't think will be that much.
So hopefully we have now capped that around call it maybe $17 million if there is another $1 million this quarter.
Again, I haven't ---+ we haven't asked the attorneys for their final bills yet.
The $60 million will be taxable, so I would just assume what our effective rate is will come off of that.
And then if you take the fees out of it, although a lot of those have already been paid in cash.
In the first quarter with the signing of the contract we had some banker fees that were payable, we had the fairness opinion that was delivered that was payable.
So a lot of that cash has actually already been paid.
But to answer your question, if you want to try and net the $60 million down, take the tax effect and then say $16 million or $17 million of expenses, many of which have been paid, but would be netted against that amount.
Does that help, <UNK>.
<UNK>, one last question because I got this on a call earlier and I just wanted to clarify.
I think you guys would realize this, but the $60 million we will book in our third-quarter, it will be below the line, we will call it out, obviously it is non-operating.
But the question I got was, did you take the bottom end of your guidance up because of that $60 million.
And the answer is absolutely not.
I mean, we will exclude that from the guidance, it is really the ongoing business that allowed us to take that guidance up.
So let me take kind of a kind cut at that, <UNK>, and then certainly would ask <UNK> to add color.
First of all, you are right about the ongoing growth of the digital business.
And we are not a long ways away from that growth exceeding the print declines, if you sort of kept it in kind of the mid-single-digit range, which it has been for either four or five years in a row now.
And obviously that is a big part of why we have been building out these multi-platform businesses.
And then the other two major drivers, one of them we already talked about was the auto renewal, the circulation business, that helps us get less dependent on agents and direct mail sources.
It also helps us get younger because they are digital.
And then the other part of it is the continued growth of our licensing, which you know is very, very high margin business.
So all that comes together and I think gives us a lot of confidence about the National Media business as we go forward.
And <UNK>, whatever you would like to add to that ---+ I mean we are not, <UNK>, yet in a position to give fiscal 2017 guidance or anything like that.
But obviously <UNK> wouldn't have tightened the range and pulled up the guidance without confidence really about both of the major businesses that we operate at this point.
So, <UNK>, anything else you want to add to that.
I would just add that we are balancing ---+ we are always balancing investments in our digital business also.
We just went through a re-platforming of our Allrecipes website, which was not insignificant to really gear that up for the changes in consumer habits really going mobile.
And we are starting to see those results where they had ---+ the month of December Allrecipes had an all-time high in traffic and actually had an all-time high for any food site on the Internet.
And that took significant investment for us to re-platform that brand on the website.
So I just would add that we are always balancing organic investment in our brands from a digital perspective.
Anything else, <UNK>.
Well, we have kept all of you for nearly a full hour, so we are going to wrap the call at this point in time.
And appreciate everyone's interest and continued support.
And as always, <UNK> and I are available for follow-on calls.
And otherwise we are all going to get back to work.
So have a great day and thank you for participating.
| 2016_MDP |
2016 | KR | KR
#I'm going to broaden your question a little bit, <UNK>.
For us, Corporate Brands is a huge important critical part of our strategy and a very important competitive advantage.
And it starts with what products are we offering and what's the quality of those products and the value for those products.
We find it always an advantage from a competitive standpoint because of national brands do something that's non-economic, our Corporate Brands pick up share.
So, we find them our customers love them and they vote by buying a lot of them.
We also find that it's a way of keeping the market honest.
We certainly would have an advantage in terms of understanding the true economic cost to produce something, and retail pricing would be based on that true economic cost.
I always ---+ and, as you know, we always look at the CPG companies as partners ---+ I obviously go to quite a few meetings where the CPG partners and Kroger meet, and a lot of times it's hard to figure out who works for who, which I view as a positive.
Both of us are trying to drive volume and trying to drive profitability.
Most of the CPG teams have a responsibility for part of our profit, as well.
I don't see those discussions changing.
They're healthy respect but they're also healthy negotiations that go on.
I don't sense a change in that basic approach.
The other thing that we always feel that we were able to provide the best insights for CPG companies on introducing new items, what's the success what customers are buying, and we try to work with the partners to grow their business, as well.
If you look at the areas that we would consider discretionary, like high-value wine, Boar's Head, Starbucks, Murray's Cheese, all those areas, they continue to have nice growth.
The comments I made are more based on the surveys where we survey customers almost every day, and the changes in terms of what the customers tell us they anticipate will happen.
We did not provide a point estimate or a range in our 8-K that we filed this morning.
We only talked about the fact that we expect to see product cost deflation for the balance of the year.
And, as <UNK> said, it could extend into early next year, as well, in his prepared comments.
We continue to be very pleased with our tonnage growth.
It's positive.
There's a lot of things that go on inside tonnage growth.
There's mix pack changes, there are certain categories where we've gone to multi-pack units, selling units of multiple items in the same package.
We continue to be very bullish about our ability to grow tonnage.
We try to avoid giving an exact measure because it's as much an art as a science.
But it's something we're fundamentally focused on.
We had nice tonnage growth and we continued to have market share growth in the quarter, as well.
If you look at how long it lasts, the only insight that I could provide is the comment I made a little earlier.
If you go back and look at 2009 it was three quarters, if you go back to 2002 it was four quarters.
We've had inflation every quarter other than those since the first quarter of 2002, is how far back we went.
In terms of moderating, as you get toward the latter part of the year and early next year you're starting to cycle the deflation.
So, certainly we would guess it would start to moderate just because you're starting to cycle some of the deflation.
And an awful lot of the deflation is driven because of commodity pricing.
That would be the reason why that we would believe that it would start moderating.
And then when you start cycling we don't expect it to be negative on top of negative for a long period of time.
<UNK>, if you don't mind asking the question again because all of a sudden we had extra voice in the room.
I would certainly say a big piece of that is the compare to last year.
Last year in the third quarter we had 5.4% ID sales.
So, when you look at the deflation we've had since then compared to that compare, it's really a little bit of a compounding effect as we begin the third quarter here.
Keep in mind last year's fourth quarter was 3.7% IDs, so the compare starts to moderate a little bit, as well.
It's the range we feel at this point where we think we would wind up in.
When you look at the total health and wellness strategy, we are very excited about the opportunities there.
Obviously all of us baby boomers keep getting older, and the new generations, as well, and it creates higher demand for pharmaceuticals and other things.
So, it's an area that we like.
It's an area where we believe we have a unique competitive advantage just because we can start helping customers eat healthier, as well.
And that's something that's a positive in terms of the overall connection with the customer.
When you look at all of the pieces together, we think it's a great opportunity to create sum of all parts where a customer can engage with us in a physical facility, online or through the specialty drug channel, and we can leverage across.
And then the Little Clinic helps, as well.
We really get excited about the opportunities.
And the other thing that we really like is that customer is very loyal, as well.
It's the back-half range.
And remember <UNK>'s comment about, first of all, we're cycling incredibly strong identicals a year ago, and then as you get to the fourth quarter you start cycling identicals that were lower than where they were in the third quarter.
<UNK>, anything you want to add.
A little less than 1% including pharmacy, 1.25% excluding pharmacy, and grocery is about 1.5% negative.
And that's grocery only, and that's the way we define grocery.
Which include the dairy complex.
Not everybody has the dairy complex in grocery but we do.
We see a little bit of everything out there.
As <UNK> said a few minutes ago, over the breadth of the geographies we have you see a variety of everything.
You see people in certain ---+ even if they're a broad-based retailer you see them doing things in one geography and not other geographies.
And then you see regionals doing particular things in and out of different promotions, and then other people continuing to make investments in price.
We do a little bit of all those, as well.
We put out a circular, sometimes weekly, sometimes for a couple weeks.
And we continue to invest in everyday price, as well.
So, it's really no different.
I think the thing to keep in mind is we don't always necessarily just react to what particular competitors are doing.
With our relationship with 84.51 we put significantly more science behind how and when we make price investments, whether it's promotional activity or a permanent price reduction.
When you look at the surveys overall, first of all, SNAP continues to decline, and it has for the last ---+ I'm going off memory, and, <UNK>, if you remember the exact number ---+ but I want to say like a year and a half or so that it's been declining.
That's about right.
Some of the decline is driven because of changes in terms of what is in SNAP in terms of programs that get renewed or don't get renewed.
If you look at the items in the basket, that's always a tough one to answer because, if you look at items in the basket, we've been flat or up slightly or down slightly for a long period of time.
The thing that's important to note is, if you look at customers over a month, how do they spend with us.
And they continue to spend five more items from us.
And as we get better and better in our fresh departments, customers come in and shop our stores more often because on fresh products people want to buy it.
It's not quite to the European standards where people buy daily but you'll see people increasingly come into the store every two or three days to pick up their fresh items, and that affects the items in the basket.
I think it's always difficult to look too much at items in the basket.
We would focus much more in terms of over a month how are customers behaving.
In terms of competitors, I don't know that there's too much I can add from what <UNK> and I mentioned before.
Overall, I wouldn't say that we're seeing a huge difference.
If you go back and look you, you have competitors that had gone out of business that now stores have been reopened in some parts of the country.
You have all kinds of different things going on.
And to make a blanket statement or a blanket statement toward a specific competitor, I don't think it would be helpful because I really don't see it changing massively when you look at big groups.
<UNK>, anything you would want to add to that.
I would agree with you.
We've obviously done a lot of work at this point in the year to pare back capital spending in the current fiscal year because you have projects in the pipeline.
There are certain projects that will slide into the next fiscal year and then projects from 2017 that will slide into 2018.
I'll remind you that our view of the $500 million reduction is for this year and next year ---+ well, for this year and then keeping next year in the same range as this year.
We just think it's prudent in this environment to maintain and increase our financial flexibility to respond to the environment that's out there, and to have that incremental cash to be able to spend.
Our view is that there will always be a significant number of projects in the pipeline and we're comfortable we're going to be able to do the projects we have the highest level of confidence in and get those built while maintaining as much financial flexibility as we can.
It's not concentrated in any one geography particularly this year.
Frankly, some of it was where did we have stores we're not legally committed to open or start projects on.
And we feel very good about ---+ that level of spending will still be a record year for spending, so it's a very substantial investment in the business.
The biggest effect will probably be in terms of net new stores, if you just make a blanket statement in terms of where will it.
It will be a little bit of everything, but that's probably the biggest bucket.
I would agree with that.
If you look at our market, we continued to gain market share in the second quarter.
If you look at from a competitive standpoint, our second biggest competitor would actually be somebody other than Albertsons.
I don't remember where Albertsons is right now but Costco would be the second largest competitor.
I always think it's important to look across the whole country and what's going on.
I made the comment before about all short statements in economics are wrong.
You can see all kinds of different behavior across the country.
What competitors are going to do, your guess is as good as ours would be in terms of whether that's something they're going to do everywhere or if that's something they're testing, and what speed does it take for them to do it everywhere.
I don't know, <UNK>, anything you'd want to add.
I agree.
Keep in mind, when you think about what competitors are doing it's not like our prices have remained stable or increased.
We continue to invest in price, as well.
I would challenge your comment because, first of all, we would not publicly say what we are going to do from a competitive standpoint in advance of doing it, because I think the FTC would probably get a little bit upset with us, along with I know our General Counsel would be.
I did not say that we would be comfortable at any specific number.
And you gave the specific numbers that you speculate what that is.
I would go back to the comments that <UNK> and I made before.
We continue to execute our strategy.
There's parts of the strategy that's more important than just price.
It really is everything altogether.
To react to your specific comments I think would be very difficult.
And how you look at a basket of goods may be different than how a customer looks at a basket of goods, as well.
One of the other things that continues to fascinate me with all of the conversation about investing in price or not investing in price, 18 months ago all of the questions I was getting is ---+ why do you guys continue to invest in price, why don't you let your gross margins go up.
You've closed the gap everywhere, now you can reap the benefits of what you've sown.
And we've staunchly said for years we're going to continue to invest in price because if you look at any segment of retail over any period of time, gross margins always decline.
And we'll continue to maintain our financial flexibility and execute our Customer First strategy, investing not only in price but through other elements of it, as well.
In looking at market share gains I don't think the data is quick enough to be able to answer where we are so far in the third quarter on market share gains.
And I actually couldn't answer the question because we wouldn't have the data yet from the market.
We look at market share by looking at Nielsen data, IRI data and other sources.
It certainly did pick up in the grocery category in the second quarter as far as more deflation.
The other thing that's happened, and I said this actually earlier today when I was on CNBC, if you look at produce it wasn't deflationary in the quarter but there was disinflation in produce in the second quarter.
So, it was less inflationary in the second quarter than the first quarter.
It's fairly broad based.
Yes, but if you look at within grocery, it's heavily driven by the dairy category, which is obviously mostly milk, eggs is a huge part of that.
If you look at the acceleration it's really being driven by a few select items within it.
Fair point.
It would only be in terms of the areas that are commodity driven.
So, if you look at eggs, eggs is fascinating because there wasn't as much inflation a year ago in eggs that were organic eggs.
So, the deflation there isn't as much because they didn't inflate as much.
So, it would be a little bit but if you look at the alternatives in terms of grain-based milks, really not so much there.
I don't know, <UNK>, any---+.
I agree with you.
We continue to be thrilled with Simple Truth.
It continues to grow as a brand.
More and more households continue to enter into the category and stay in the category.
Our corporate brand folks continue to do a great job of expanding the category with incremental products in the category, as well.
It's really the cornerstone of our natural and organic program.
And it would continue to be growing at close to double digits, especially if you don't include chicken because quite a bit of deflation in chicken right now.
I wouldn't feel comfortable telling you the specific time until we give 2017 guidance.
And I don't want to think we want to go ahead and give 2017 guidance now.
We really look at it over a rolling three- to five-year period of time.
And if you look at it historically, we've actually grown well in excess of the 11% over a three-year period of time and five-year period of time, both on the quarter and the annual basis.
It really is, when you look at the overall ability to connect with the customers, that's why we feel comfortable with that 8% to 11%.
We still see tremendous opportunities to improve the way we connect with customers and the way we run our business.
And you guys hear me say often that our to do list remains bigger than our done list, and that certainly remains the case.
That's the reason we remain confident in the 8% to 11% plus the dividend that's increasing over time, is that we still see plenty of opportunities to grow the business, connect with the customer in a deeper way, and to continue to run our business better.
It's one of the things that's exciting.
Every time you figure out something to do better and you do, it helps you learn how to do something else better.
So, that's the reason why we get excited.
At this point I wouldn't feel comfortable to give you the specific period of time.
And obviously at some point we'll give some guidance on 2017 but it's really too early at this point.
It's purely driven by how many stock options wind up getting exercised in any time frame, and a reclassification from an accounting standpoint, where the benefit of that goes in the financial statements.
Our view for the rest of the year is that on a rolling four-quarters basis, it will continue to trend down from where we finished the quarter.
And I wouldn't see that expectation any different.
We had a very strong fuel quarter last year.
Its actually held up better so far this year than we thought.
We finished the rolling four quarters at the end of the second quarter at 18.4.
That was down.
$0.02 from last year and we would expect that downward trend to continue a little.
Thanks <UNK>.
Before we end today's call, I'd like to share some additional thoughts with our associates listening in today.
I want to thank the many associates sharing in the Kroger journey.
We have six generations working with us today.
Each associate makes a unique contribution.
You bring your energy and ideas, your experiences and expertise.
We are a better Company because you've made Kroger the place where you want to be and work.
Even as we've grown and gotten bigger as a Company, I know that when the doors open and the lights go on at our stores, offices, distribution centers and manufacturing facilities, everyone is giving their best to our customers, our Company, and each other.
That means a lot and that will make all the difference.
Thank you for everything that you do for our customers every day.
That completes our call today.
Thanks for joining.
| 2016_KR |
2016 | DAKT | DAKT
#Thank you, operator.
Good morning everyone.
Thank you for participating in our third quarter earnings conference call.
I would like to review our disclosure cautioning investors and participants that in addition to statements of historical facts, we will be discussing forward-looking statements, reflecting our expectations and plans about future financial performance and future business opportunities.
All forward-looking statements involve risks and uncertainties, which may be out of our control and may cause actual results to differ materially.
Such risks include changes in economic conditions, changes in the competitive and market landscape, management of growth, timing and magnitude of future contracts, fluctuations of margin, the introduction of new products and technology, and other important factors as noted and detailed in our 10-K and 10-Q SEC filings.
Fiscal 2016 is a 52-week year and fiscal 2015 was a 53-week year.
The extra week of fiscal 2015 fell within the first quarter resulting in the year-to-date results comparison to be a 39-week versus 40-week comparison.
At this time, I would like to introduce <UNK> <UNK>, our Chairman, President, and CEO, for a few comments.
Thanks, <UNK>.
Good morning everyone.
Our backlog was solid as we entered into the third quarter.
While a portion of backlog is for projects we don't plan to convert into sales until FY17, we had a large book of sports business ready to build, and were able to convert nearly $22 million of this backlog to sales during the quarter.
You may remember, we had delayed some of this build from second quarter since these projects had flexible lead times.
We could then take advantage of new product enhancements in our module designs, while still meeting our customer commitments.
This allowed us to achieve a 4% increase in sales for the quarter as compared to last year.
Our third quarter remains historically lighter for sales and profit due to the seasonality of our business in sports, impact of weather on construction cycles, and the decrease in production days available due to holidays in the quarter.
Profitability is also historically impacted during the third quarter because of the cost of the capacity we carry through the quarter, yet still need to meet demand for the remainder of the year.
Our order bookings in our business are inherently volatile due to our project-based and large account-based businesses.
This creates unevenness in order flow, creating difficulties in making comparisons over the short-term.
Order bookings were down for the third quarter, with the biggest decrease in our Commercial business unit.
For the quarter, orders in our billboard niche were down over 50%, causing the decline in Commercial as compared to last year.
Orders in our on-premise segment of Commercial remained strong.
Year-to-date, orders are down 4% overall.
Commercial orders are down $30 million due to the decrease in orders in out-of-home advertising and in the spectacular niche, offset by the increase in orders in our on-premise segment.
Our billboard business has been down this year across our major customer accounts and local independent billboard operators.
We believe this lag is partially due to customer capital allocation decisions and due to high overall satisfaction with our product lifetime, leading to increased product replacement cycle.
We continue to maintain strong relationships with key national billboard companies and expect demand to pick up in the coming months as deployment activities pick up again in the spring.
We focus on large multimillion dollar projects in our spectacular niche and have seen many projects push out in this segment.
Many of the projects we expected to be completed by now have not yet been awarded, and we continue to see delayed decisions from customers due to the complexities in design, permitting, or obtaining capital needed.
International orders for the year are down nearly $12 million.
While some difference is due to the natural volatility in large projects, we suspect that the volatility in the world economy, regional political relationships, and the US dollar is also having an impact.
We are down primarily in out-of-home and spectacular niches internationally, while the transportation niche has been quite successful.
Live Events orders continued to exceed last year on a year-to-year basis.
A large impact to profitability in the quarter was warranty expenses.
In the past year, we have experienced failures on modules installed in certain outdoor environments used in 24/7 applications.
While we have deployed a firmware update to mitigate this issue at a number of at-risk sites, we continue to experience failures and have or plan to repair modules for certain locations.
We believe we are taking appropriate preventative measures and corrective actions to deliver to our customers the quality experience we promised while minimizing the cost impact of the company.
However, the issue is complex and could be more prevalent than these estimates entail.
While we have reserved all probable warranty claims, we are unable to estimate total claims where there is reasonable possibility of further expenses due to the complexities and uncertainties in the failure rates.
We believe this could lead us to incur additional warranty expenses in future quarters.
We are continuing to refine our reliability models to better predict future performance on the impacted population of installations.
While these models are helpful in our analysis, we are a few months away from having enough data to create a reserve for the remaining life of our displays operating under these conditions in the field.
Because of this, I suspect we may have similar warranty charges in future quarters.
We have qualified our new designs to higher levels of long term reliability to avoid these issues in the future.
For more details on the financial results, I will turn it back to <UNK>.
Thank you, <UNK>.
Sales for the third quarter of fiscal 2016 increased to $123 million, as compared to $118 million last year.
As on previous years, due to the seasonality within our business, the third quarter is generally the lightest quarter for revenues.
This past quarter, sales were up primarily in our Live Events business as we continue to build out the backlog from prior quarters.
We were able to make great progress on the Vikings Stadium, the Cleveland Indians, and the Las Vegas Arena, for example.
The increase in Live Events offsets the declines in the Commercial and International business units.
For the third quarter, gross profit was 17.8% this year and down as compared to 21.2% last year.
Gross profit was impacted by the number of multimillion dollar projects in the quarter which, while profitable, are less profitable than other orders due to the competitive nature and bid process in that market.
The warranty impact was approximately $2.3 million, which caused a decrease in gross profit percent of 1.9%.
Total warranty as a percent of sales was 4% for the quarter.
As <UNK> discussed, we will continually monitor our warranty claims and provide a reserve for estimated costs upon initial sales recognition.
We determined with respect to claims that we needed to increase the reserves in this quarter for the probable costs we know today.
We will continue to monitor and adjust reserves as necessary.
Gross profit improved in Transportation and High School Park and Recreation business units due to increased volumes and higher margins on the sales mix.
Gross profit decreased in the Commercial business units for the warranty impact, decrease in utilization of the fixed cost infrastructure due to lower sales, and in Live Events due to the mix of lower margin projects realized into sales.
Operating expenses for the third quarter were $27.6 million as compared to $26.6 million last year.
The increase relates primarily to information technology maintenance costs in the general and administrative areas.
We are entering the fourth quarter with a $177 million backlog.
Approximately $50 million of this backlog relates to projects with customer needs beyond the fiscal year, and we expect to convert sales beyond fiscal 2016 into 2017 primarily in the Live Events and Transportation markets.
In addition, we have experienced the lagging of orders and our uncertain order volumes in Commercial and International business units.
This lag and the current planned schedule for production of booked orders cause us to expect revenues to be slightly lower than last year fourth quarter.
Gross profit predictions also remain dynamic pending the conversion of sales, but we expect gross profit to be similar to slightly down from last fiscal year fourth quarter as well.
We anticipate operating expenses in dollars to be up slightly as compared to the fourth quarter of fiscal 2015, for general increases in personnel costs, information technology maintenance cost and increased design and development activities.
Our overall effective tax rate for the third quarter was a benefit of 64% due to our operating loss and due to the reinstatement of the research and development credit.
Going forward, the research and development credit was made permanent which will avoid these catch-ups we have historically had due to the law changes.
We forecast an effective annual tax rate of approximately 36%.
Our tax rate can fluctuate depending on changes in tax legislation and the geographic mix of taxable income.
We reported negative free cash flow of $10 million for the first nine months of fiscal 2016 compared to positive free cash flow of $16 million for the same period of fiscal 2015.
The cash usage was primarily due to lower net income levels and timing increases in working capital due to project cash receipt and payments for inventory.
Our cash and marketable securities positions remain positive at $56 million at the end of the quarter.
We expect our capital usage to be approximately $20 million for fiscal year 2016.
Use of capital expenses is for manufacturing equipment for new or enhanced product production, expanded capacity investments in quality and reliability equipment, demonstration equipment for new products, and continued information system infrastructure investments.
With that I'll turn it back to <UNK> for additional comments on our outlook.
Thanks, <UNK>.
The world economy remains dynamic with oil prices, uncertainty in interest rates, currency fluctuations, regional political unrest, to China's growth or lack of growth rates.
It appears that this volatility has created some uncertainty in our marketplaces.
In addition, we continue to compete in a dynamic competitive environment, with each company working to find their niche in this growing market.
While these challenges may have some short-term impacts on orders, we have faced similar competitive challenges in our history and we believe the long-term outlook is still good.
Our strategy is to continue to focus on things we can control, serving our customers in the growing market with high quality and reliable solutions which meets their business needs over the long term.
In the coming year, the economic environment may have an impact on large projects or opportunities in Commercial and International business.
However, we continue to work with our customers to help them realize their visions for successful use of their video systems.
We also continue to refine and enhance our global Transportation products and see opportunities in Europe and the Middle East, but those projects can take time to close and then delivery schedules can extend when revenue is recognized.
We continue to see strong demand in our Live Events, our High Schools Park and Recreation, and our Transportation businesses, and compete strongly in our product offerings by providing the full solutions our customers desire.
Transportation quoting in the North America is also strong due to the recent passing of the US Transportation Bill.
This allows for longer term planning at the state DOT levels and more availability of projects for the foreseeable future.
Seasonal variability and the influence of large projects in our business will continue to affect individual quarters and fiscal years.
As the order picture for the short term becomes clearer we continue to monitor and limit the amount of cost added for personnel, our largest non-inventory cost.
We also continue our strategies for continuous improvement and operational excellence, all of which will lower our overall cost to serve customers in the future.
We also will continue to utilize and improve our capabilities on quality and reliability during design and manufacturing of our products to lower overall cost of warranty.
Our market outlook over the coming year is positive.
We see continued adoption of our products in all of our major markets.
Our on-premise and out-of-home customers continue to turn to digital messaging solutions to advertise or communicate information to their audiences.
Unique projects, such as seen in Times Square or Las Vegas, continue to be considered by developers and venue owners to help attract large sustained audiences.
Our solutions in these markets have natural replacement cycles, as the products have a known end of life.
This provides us the outlook to continue to investment in customer-centric solutions to meet the demands of the market.
With that, I would ask the operator to please open it up for questions.
Yes.
We are anticipating slightly down from last year compared to last year's fourth quarter.
Yes, I think Live Events will be similar as compared to last year depending on the project cycle.
Some of that backlog I spoke about is a little bit of a longer lead time.
And then you're right, the Commercial market and International may be ---+ you might expect a bit down from last year during the same quarter.
Right.
I appreciate the question <UNK>.
We had teed up some designs ready to go into production in early to mid-summer and as we started to dive into this BGA issue that we have been having we chose to stay with the design we had and make it more reliable because we at least knew what that product would do; and that caused us to delay the release of a number of these products until early in our Q3.
And so that pushed out a number of activities that we had planned for our fiscal year and the cost of our products, which would help us improve our margins.
So we think we've made it through this hard period and are working to get these strategies in place for our product competitiveness.
There is certainly uncertainty in any estimate we make, but I'd say a couple of quarters is reasonable.
It's our understanding, <UNK>, that our share in the billboard market is relatively consistent and that there was a shift in capital spend at least in the last half of calendar 2015.
Hi, <UNK>.
Good morning, <UNK>.
I think that worldwide, out-of-home companies, especially in the billboard space, are using LED technology and it's proved to be profitable for them and we don't see another technology out there.
As I tried to indicate in some comments, some of our customers had planned to replace, but the products that we had in the field are still performing well and so they pushed out their replacement for a period of time.
How long they choose to do that is somewhat uncertain, but the LED technology is very popular in this business.
In a billboard application 24/7, it's seven to ten years.
We are doing many things internally.
As we indicated, there is a software upgrade we can do to these systems to give us better visibility and to control and mitigate.
This is an attachment, a mechanical attachment.
And then we have different ways to implement changes in the field.
And we've worked on how to do those changes to keep our costs down if we would choose to do work in the field.
Certainly, Data Display has been a nice acquisition for Daktronics and that integration is going well and I think some of the growth has to do with, they have access to products that Daktronics has as well as Daktronics has access to products and services that Data Display had.
Also, the overall mood in that market is up as they passed the US Transportation Bill.
So in North America at least, that's a real positive.
As well as in some of our other markets, they're continuing to invest in infrastructure.
I think all of that together gave us a positive look at Transportation this year.
Thanks everybody for your time this morning.
We appreciate your continued interest in what Daktronics does.
We have realized this has been a hard year, but like we said, we're optimistic about the future of our business and our ability to continue to perform in it.
So I hope everybody has a great week.
Thank you.
| 2016_DAKT |
2017 | NKTR | NKTR
#Thank you, <UNK>
Thanks to everyone for joining us today for our third quarter conference call
On today's call we will review the many upcoming milestones for Nektar's pipeline over the next six months, including our plan submission of an NDA for Nektar-181 and the continued advancement of our I-O portfolio, including Nektar-214, Nektar-262 and Nektar-255. We will also update our financial guidance for the remainder of 2017. As you know, we will see many of you at the SITC Conference at the upcoming analyst event and we plan to discuss our Nektar-214 program and the rest of our I-O portfolio in more depth at the event
So, we'll keep our comments brief today in anticipation of the important presentation with our clinical investigator panel on Saturday
First let's review the substantial progress we've made with Nektar-181, which has emerged not only as a critically important new potential medicine to treat patients with moderate-to-severe chronic pain, but also as an important building block in our nation's effort to solve the opioid public health emergency and stem the tide of new opioid addiction
As you know our data package for Nektar-181 includes an extensive amount of efficacy and safety data in over 2,100 patients and healthy subjects
This includes our 600-patients Phase 3 efficacy trial, our two-human abuse potential studies, our 630-patient long-term safety and efficacy trial as well as a wide range of PK and PD studies of therapeutic and supra therapeutic doses of Nektar-181 in over 450 healthy volunteers
Our CSO, Steve Doberstein and our Head of Regulatory, Carlo DiFonzo, recently led discussions with the agency in a Type C meeting in October to discuss our plan to submit an NDA for Nektar-181 for the treatment of moderate-to-severe chronic low back pain in patients who are new to opioid therapy also known as opioid naïve patients
I also participated in the meeting
We had an extremely productive conversation with the agency and they clearly recognized the opioid crisis and as a result of their input, we're planning to submit an NDA with the current extensive data package we have for Nektar-181. Since we only recently completed the meeting, we are awaiting final minutes from the agency
The staff indicated that a single efficacy trial for approval of a new molecular entity opioid to treat chronic pain will be a review issue and the NDA will also likely go to the Advisory Committee for discussion and recommendation
In the recent meeting, the agency also confirmed that the overall safety database is adequate for an NDA submission, the agency further confirmed that Nektar has an adequate human abuse potential assessment data package to support an abuse potential assessment review in the NDA and that both the abuse potential package and the safety database appear to be adequate to warrant a discussion of a less than C2 schedule
As a result of these positive conversations, we've already requested a pre-NDA meeting
To prepare for NDA submission, we are currently completing the final steps needed for the NDA which includes real-time stability studies for the CMC module
We are on track to submit the NDA in April of 2018. The opioid abuse and addiction epidemic has clearly become a central focus of the FDA, Congress and the White House
It is one of the few truly bipartisan issues facing our country and we've heard from our discussions with all these stakeholders
I personally have had the privilege of meeting with the White House and key members of Congress to discuss the importance of Nektar-181 as a tool to help in the fight against the growing opioid epidemic
In the past several months I have also participated in a number of important government-led initiatives to discuss opioid abuse topics, including a meeting of the President's Commission on combating drug addiction and the opioid crisis, which was led by Governor, <UNK> <UNK>tie and an HHS Secretary roundtable on opioids led by Dr
Elinore McCance-Katz who is the first Assistant Secretary for Mental Health and Substance Abuse
Steve Doberstein also has been actively involved with the leaders from the NIH and NIDA as a participant in the public-private initiative to address the opioid crisis
In all of these meetings our scientific research and clinical data for Nektar-181 have been acknowledged as an extremely important part of the solution to help prevent the next generation of opioid addiction in this country
As the first new full mu opioid agonist molecule to be developed in over 50 years, Nektar-181's unique inherent properties position the drug to not only help stem the rate of new addiction to conventional opioids, but also to reduce diversion of prescription pain medicines for abuse
The comprehensive Nektar-181 data established the potency of its analgesia, its low abuse potential, its favorable safety and physical dependency profile and the strength of its molecular structure, which can't be tampered with broken or converted into a rapid acting euphorigenic opioid form
We're also actively engaged in conversations with potential commercial partners for Nektar-181 so that this important new medicine can be made available to patients
Moving on to Nektar-214, we're very excited about the maturing data from the ongoing trial for Nektar-214 in combination with nivolumab
As a T-cell growth factor Nektar-214 provides an important and singular new mechanism in immune oncology
NEKTAR-214 acts as a biased agonist on the IL-2 pathway to expand specific cancer-fighting T cells and natural killer cells directly in the tumor microenvironment in cancer patients
It also increases expression of PD1 on these immune cells
This positions Nektar-214 to provide clinical benefits in many patients who currently can't respond or response sub-optimally to checkpoint inhibitors
Further Nektar-214 could be administered on an antibody like dosing schedule with an exceptionally favorable tolerability profile in combination with a checkpoint inhibitor
There are simply no other I-O cancer treatment of its kind in development
Many of you have already seen our press release this morning for the upcoming SITC presentations, we have seven different abstracts being presented for our I-O portfolio
As you saw this morning the pivot Nektar-214 nivolumab abstract contains highly compelling preliminary efficacy data for the first set of 16 melanoma and RCC patients in dose escalation, which has at least one post baseline scan by the end of July
Clearly these early data that show strong response rates in the first set of patients are exciting and earned us an oral presentation at SITC
For Dr
Diab's oral presentation on Saturday, November 11, he will present efficacy and safety data from the full 38 patients in the entire dose escalation portion of the pivot trial, including non-small cell lung cancer patients who are PDL1 negatives and have progressed on prior chemotherapy
As I stated earlier, we're not going to go into much more detail today as the presentation is this weekend
We continue to be extremely pleased with how the data are maturing and how Nektar-214 is clearly emerging as a differentiated I-O asset that has strong synergy with checkpoint inhibition, particularly in PDL1 negative patients as an area of high unmet need in today's treatment paradigm
Nektar and Bristol are continuing to enroll patients in the expansion cohorts in the Phase 2 stage of the pivot trial across multiple tumor indications, enrollment is proceeding rapidly with approximately 50 patients already dosed in the expansion
At SITC we'll provide more insight on these expansion cohorts and discuss how our data from the dose escalation phase of the study is shaping our planning for the future development of Nektar-214 including potential registrational trials of Nektar-214 with nivolumab or other checkpoint inhibitors
Our objective is to position Nektar-214 as a keystone therapeutic in I-O and the emerging data from the PIVOT studies reinforces that this objective is achievable
In addition to the PIVOT trial, we're also conducting the PROPEL trial, which is designed to show that Nektar-214 is also synergistic with other checkpoint inhibitors TCENTRIQ and KEYTRUDA
Based on its mechanism as a T-cell growth factor we believe that Nektar-214 could be combined with many other agents beyond checkpoint inhibition as well
For example, at ASCO earlier this year, we showed that after Nektar-214 treatment we observed an increase in ICOS-positive CD8 T cells, suggesting Nektar-214 plus an ICOS agonist could be a rational combination
Another example that we mentioned in the past is the work we have underway with Takeda in liquid and solid tumors with five separate Takeda clinical compounds
We expect to have our initial preclinical data from these combinations before the end of this year
As you know in addition to Nektar-214, Nektar is developing a broad portfolio in immune oncology and we will present the development plans for this portfolio at our IR event at SITC
The portfolio also includes Nektar-262 a TLR agonist and Nektar-255 an IL-15 candidate, which can stimulate both NK cells and memory T cells
The preclinical data for the 214-262 combination are particularly compelling
We are on track to file the IND for the combination trial of Nektar-262 and Nektar-214 by the end of this year in order to dose our first patients in early 2018. As a novel small molecule TLR agonist Nektar-262 was designed specifically to be administered with Nektar-214 and most importantly would give Nektar our first wholly-owned combination regimen in I-O
Before I hand the call to <UNK> for brief discussion on our partnered portfolio and financial guidance, just a quick note on the progress of Nektar-358 with our new partner Lilly
This morning Nektar and Lilly presented very strong proof-of-concept preclinical data for Nektar-358 at the 2017 American College of Rheumatology Annual Meeting in San Diego
The collaboration with Lilly is progressing extremely well
The project team composed of Nektar and Lily researchers and clinicians is working closely together to shape the development of Nektar-358 and Nektar-358 is advancing through the Phase I single ascending dose escalation trial in healthy volunteers
As a reminder, the first Phase 1 study evaluates safety, tolerability and mechanism-based immunological biomarkers associated with the pharmacodynamics of a single subcutaneous doses of Nektar-358. Lilly and Nektar are planning to start the Phase IB trial, which will be multiple ascending dose escalation study of Nektar-358 in early 2018. The Phase Ib trial will include evaluation of Nektar-358 in both healthy volunteers and patients with lupus
With that, I'll hand the call over to <UNK>
And we've also broken down the data by patients who are PDL1 positive and negative
Well look I can't comment on the expedited review because we have to ---+ we have to submit our NDA and then the FDA can make decisions on how they want to proceed
I can tell you that as I said earlier, we've had discussions ---+ intense discussions with the White House Members of Congress and all the parties that are principally involved in dealing with his opioid crisis and I think there's a general high level of interest in Nektar-181. That said Nektar has evolved into an immuno oncology company if you look at our portfolio in immune on immuno oncology with 214 and 262 and 255 and I'm not even discussing the things that we have at the preclinical stage prior to that
I think we clearly plan to find a partner for Nektar-181. We don't intend to become a pain company
We're focused on immuno oncology and therefore a partnership on 181 is still absolutely in the plans
No, that didn't come up at our meeting with the FDA and I think we recognize that at this point we have data in and chronic lower back pain on opioid naïve patients and that's what the NDA submission will be based on
I think given the fact that there's a significant opioid crisis, I can't comment on how narrow or broadly the FDA wants to review this at this stage, but I certainly don't think they have any concern with the statistical design of the study that we run
It could be limited to opioid naive patients, that's entirely possible, but also remember, also remember that that's the population that is directly affected by the opioid crisis
You have patients that are already addicted to opioid and Nektar-181 is not the solution for helping them with their addiction problems
This potentially could be, but it's not ---+ that's not necessarily what we looked at
If you look at the patients who are opioid naïve, patients who have chronic or back pain for example who have not taken an opioid in quite some time, those are the patients that are subject to the problems that we see with the current crop of opioids and we hope to make a big impact there
So, I don't see that as being an issue either way
The partnership we're looking for would be global in nature
Of course, there's certainly more significant opioid crisis in the U.S
than there is ex U.S
but the partnerships that we're looking at would span the globe
or European-only partnership
Well there are criteria for that and it's generally ---+ it's generally patients who have not had opioids in six months or taking less than 10 morphine equivalent units
There are some guidelines for that
So, I think opioid naïve patient doesn't mean a person who has never taken an opioid
It means that they haven't taken an opioid recently or they're on a fairly low dose of opioids
We used those guidelines in our trial
So, when we studied opioid naïve patients, we follow the guidelines that the general population and that the FDA looks at for the definition of opioid naïve
Yeah look I think ---+ look the FDA has to take our submission
They have to file it
They have to review it and then we will ---+ then they will engage us in discussions and as I said earlier, the issue of one efficacy trial was a review issue, it will ultimately most likely go to an ad-com for discussion
But I think we were very pleased with the FDA clearly recognized that there is a major opioid crisis in this country and understand that we put almost all of our effort into the human abuse potential side and the safety side
I think is very little debate that mu-opioid agonists are good analgesics
That doesn't need a lot of scientific proof and we all know what this molecule is
It's very well-defined
It's very well characterized
The real issue is, can you demonstrate that you don't cause abuse, that you don't cause likability, that you don't cause the kinds of problems associated, safety problems associated with the current opioids and I think we did that in a very meaningful way and that's where we put all of our effort into trial, into the abuse potential side and the safety side and we have an incredibly powerful safety database
So, on a risk-benefit ratio, reward ratio there is very little risk connected to Nektar-181 and there is lot of potential reward
And I think that's how we approached it
In terms of scheduling, the FDA did say that they believe our data package is adequate to allow the discussion ---+ to allow the discussion as to whether we should have labeling that is better than C2 that would be three or four
Obviously, that's a review issue
They're not going to comment now on whether they believe that our data package is adequate for that, but they clearly stated that they believe we have enough data so that it warrants that discussion and quite frankly it's all going to be review issue at that point
Look the FDA will never tell you please file it
We're going to ---+ please submit it, we're going to file it, they're never going to tell you that until you get it and they review it for the first pass
What they did say is that the issue of one efficacy trial will be a review issue
They did say that they plan to bring it to an ad-com and they did recognize the opioid crisis and they did say that they hope to move this program forward
And quite frankly like I said earlier, we don't have the minutes back from the meeting yet
So, I got to review the minutes when we get those back, but you know the FDA never tells you go ahead and file your ---+ submit your NDA
We're going to file it
They don't do that
So, it was a very encouraging meeting
They recognized that there is a major opioid crisis
I think everybody recognizes that the opioid agonists are good analgesics and I'm hopeful that we move this drug forward as rapidly as possible
Well, thank you for joining us today
I think we've been working very hard at building our I-O portfolio
We hope to see many of you, if not all of you at SITC and it should be a very interesting meeting
And again, I want to thank all the Nektar employees and scientists for all the incredibly hard work they put into making what I think is one of the best I-O portfolios in the business
So, thank you everybody
| 2017_NKTR |
2017 | HZO | HZO
#Thank you, <UNK>.
Good morning, everyone, and thank you for joining this call.
Before I turn the call over to Bill, I'd like to tell you that certain of our comments are forward-looking statements as defined by the Private Securities Litigation Reform Act.
These statements involve risks and uncertainties that may cause actual results to differ materially from expectations.
These risks include, but are not limited to, the impact of seasonality and weather, general economic conditions and the level of consumer spending, the company's ability to capitalize on opportunities or grow its market share and numerous other factors identified in our Form 10-K and other filings with the Securities and Exchange Commission.
With that in mind, I'd like to turn the call over to Bill.
Thank you, Mike, and good morning, everyone.
I'm very proud of our team's effort in driving improved margins and unit sales growth.
Although we did expect that we would generate even greater revenue in the quarter, industry data showed that sales of larger products were mixed but generally down during the quarter.
However, we did not experience this choppiness until the later months of May and June.
During the quarter, media reports pointed to increased frustration of higher-income individuals over the slow progress of change in Washington, which has impacted their confidence in the economy for the near term.
This likely contributed to the softness.
While we believe this is to be temporary and expect the trend to reverse itself, it clearly pressured our results.
Also, while I prefer not to discuss the weather, our stores across much of the Midwest, including the Northeast, started their season very late in June due to unseasonably wet and cool temperatures, further dampening our results.
Having said this, I think it is important that I give you even more color on the quarter.
Last year in the June quarter, we called out the strength of product over 60 feet as an important component of the 44% same-store sales growth.
We said over half the growth was driven by an increase in average unit selling price.
By comparison, when we exclude the Northeast and our business over 60 feet, our same-store sales is about 11% and most of the regions outside of the Northeast were up in total revenues regardless of size.
Factoring in this deeper understanding of our revenue and the fact that we produced reasonably positive unit growth over last year's strong June quarter is why we are convinced about the long-term state of the industry.
Another reason for our confidence is that the industry is still off about 40% from a unit perspective from the prior 20-year average before the financial meltdown.
Pent-up demand for new models by our manufacturers continues to be greater than any point in time over my 40-year career.
Plus many new boaters are joining the MarineMax family and the industry as evidenced by both our and the industry's growth in smaller boats, which is critical to the long-term health of the business.
Further, from a macro-industry perspective, we are now seeing deep discounting or aggressive incentives from other dealers.
Dealers generally feel that new and used boat inventory are tighter than ideal.
As an example, many of our storage had less inventory that we would've liked for certain recreational day boats, and we are firmly confident that our unit growth would have been measurably higher if we had, had this additional product in our stores.
Clearly, our ability to deliver the right product, combined with our customer-centric approach, continues to resonate well with the boating enthusiasts and together, it creates strong demand.
Let me now recap a few additional highlights for the quarter.
Our gross margins grew 290 basis points in a very material quarter, which is outstanding.
Despite a decline in revenue, we incrementally grew pretax earnings and we produced almost $27 million of cash in the quarter, adding more firepower to our already strong balance sheet.
Another quarterly highlight is that we completed our first full quarter with 6 additional stores from the Hall Marine group acquisition, which we closed in mid-January.
The integration and business combination have gone very well.
We continue to reap the benefits of numerous brand and segment expansions that we executed over the past several years.
They provide our customers with greater breadth of choice and, ultimately, the expansions have allowed us to be more diversified and better able to serve boating enthusiasts.
We believe that our team's commitment to ensuring our customers capitalize, own and enjoy the boating lifestyle along with the continued flow of fresh, innovative product from our manufacturing partners, should allow us to grow same-store sales and drive improved results as we move full steam ahead.
And with that update, I'll ask Mike to provide more detailed comments on the quarter.
Mike.
Thank you, Bill, and good morning again, everyone.
For the June quarter, revenue approached $330 million.
Our decline in revenue year-over-year was driven by a 10% reduction in same-store sales.
However, from a unit perspective, we had a mid-single digit increase on a comparable basis.
Our average unit selling price was down greater than our same-store sales decline.
This illustrates the impact of a larger boat softness.
As Bill said, growing units on top of the 44% growth we had last year is pretty strong.
Geographically, Bill gave good color earlier when he said outside the Northeast, most regions were up.
Given that Florida tends to sell more product above 60 feet in other markets, a few markets were down in Florida.
Despite revenue being pressured, we were able to grow gross profit dollars to $85 million in the quarter.
This was driven by a meaningful increase of 290 basis points to our consolidated gross margins to 25.7%.
In both the December quarter and the March quarters, we commented that on a brand-by-brand basis, we were seeing gross margins expand.
In this quarter, that expansion continued across most of the brands and segments we carry.
The biggest drivers of the product margin expansion are a greater mix of newer models, our improved use of market-based pricing, especially when new models are launched, and the stable environment we are operating within.
This, coupled with our team performing well in our higher-margin segments, mixing our revenue more favorably, led to a large increase overall.
As we look ahead, we have the ability to incrementally improve gross margins on an annual basis for the foreseeable future.
Selling, general and administrative expenses exceeded $59 million for the quarter.
The increase in dollars over the prior year was a little over $5 million, of which close to $3 million is due to the acquisitions we have completed year-over-year.
Other increases were largely due to investments we made assuming our growth would be greater.
While we still feel very good about the future and our industry, we have taken actions to curtail some of the investments to better align expenses with sales.
Interest expense increased modestly due to an increase in borrowings to finance our inventory.
From an income tax perspective, as we stated on prior calls, we do not expect to pay any material taxes until we absorb our remaining NOLs and other deductions, which approximated $21 million when fiscal 2017 started.
Based on trends and our expectations, the NOLs will be absorbed before the end of 2017 and we will pay some leveling taxes.
We do provide for an income tax provision and our annual rate should be about 39% until any corporate tax reform that may happen.
Let me remind you of the new accounting standard that we adopted at the close of fiscal 2016.
The new rule required that the difference between book and tax expense for equity compensation be reflected as a change in the tax provision.
Previously, these changes ran through equity on the balance sheet.
The rule required financials to be retroactively reflect the impact of the new standard.
It reduced last year's 9 months through June by $0.01 and had a similar impact on the current year.
We don't plan to talk about the standard in the future since going forward, it's a normal recurring item.
Turning to earnings for the June quarter.
Our diluted earnings per share was $0.57 this year compared to $0.56 last year.
Regarding our first 9 months, I will make only a few comments.
While we would've preferred stronger results, our team produced same-store sales growth of 6%, which is on top of 25% growth last year and 23% growth in the comparable period 2 years ago.
When you add back depreciation of stock-based compensation, we produced more than $44 million of cash and our earnings increased to $0.78 per diluted share, all healthy results.
Onto our balance sheet at quarter end, we had about $59 million in cash.
Keep in mind, we have substantial cash in the form of unlevered inventory.
Our inventory increased to $385 million.
As we have previously discussed, part of the planned increase in inventory is due to our expectations regarding our ability to outperform in an improving industry, combined with the need to have new models in stock that we did not have last year and the addition of more stores.
Our property and equipment has increased due to the acquisitions we completed the past 12 months as well as investments we have made to several of our mariners and ongoing normal maintenance CapEx.
On the liabilities, our customer deposits, while not a perfect indicator of the future due to the size differences of deposits and the impact from large trades, continued to be substantially up year-over-year and now 24% over last year.
We ended the quarter with a current ratio of 1.52 and total liabilities tangible net worth ratio of 1.06, both of these are very strong ratios.
Our tangible net worth is now up to about $309 million or $12.30 per diluted share.
We own over half of our locations, which are all debt-free, and we have no debt other than our inventory financing.
Turning to guidance.
We are updating our earnings per share guidance for the full fiscal year.
Based on our performance thus far in fiscal 2017 and our expectations for the balance of the year, we now believe we will deliver same-store sales growth for the full fiscal year of approximately 6% to 9%.
This would imply low to high single-digit same-store sales growth for the fourth quarter.
We now expect diluted earnings per share in the range from $0.97 to $1.02, down from our previous guidance of $1.14 to $1.24.
This compares to a non-GAAP adjusted to fully taxed diluted earnings per share of $0.87 in fiscal '16 and $0.47 in fiscal '15.
Our revised guidance does not anticipate any material gross margin expansion or better leverage than what we achieved in the past 2 fiscal years.
We will continue to update guidance as dictated by our performance.
We will also plan to provide guidance for fiscal 2018 when we report our September results.
Let me comment on current trends.
Last year, we produced 12% same-store sales growth in the September quarter.
As we are moving through July, our backlog is greater than last year and building.
It's too early to draw conclusions for the balance of the quarter, but we have started to see signs of better large boat sales.
In this quarter, July and September are similar in size and August is usually the smallest as families get ready for school.
We have much work ahead of us to produce the results we want for the quarter and our team is focused and working very hard.
With that update, I'll turn the call back over to Bill.
Thank you, Mike.
We have had a productive 9 months from a sales, earning and cash flow perspective, with an optimistic view towards future sustaining levels of growth.
Our manufacturers are producing new models, laced with innovative designs and technology enhancements.
With our increased depth and breadth of product, along with our proven approach of delivering the boating dream, our team is ready to build on our performance.
Our efforts to expand and strengthen our geographical presence in key boating markets is ongoing.
However, we will remain patient and are focused on adding locations that could produce sustained cash flow through a sale of industry-leading brands.
We are committed to building long-term value for our shareholders by consistently exceeding our team's, our customers' expectations one at a time.
And with that, operator, we'd like to open the call up for questions.
Well, <UNK>, we ---+ the consumers that we\
Yes, for sure.
So our same-store unit growth was in the mid-single digits.
That would certainly include Florida.
The Northeast, I don't have the exact breakdown now, but it's probably down, unit wide, because of weather.
I traveled up there in May and June and it was, I hate to talk about weather, but it's pretty ugly in Northeast in May and June.
No, but Bill said it, the demand that we are seeing for new models, let me give you a number of examples, but from our different manufacturing partners is very, very strong.
Still, industry seems to be very healthy, probably more importantly as is the lifestyle is very healthy.
People are out there in the water enjoying their boat, enjoying their lifestyle.
You couple that with our unit growth, with the unit growth the industry is seeing, it tells you that, fundamentally, there's a lot of positives out there.
there's just something that's got the maybe the wealthier side of the spectrum, pausing a little bit more than they used to.
Yes, they're ---+ we're very busy right now in the northern markets that were impacted by weather in June.
So once the sun broke in late June and weather got nicer, we've been slammed up there.
Will we get it all back.
In time, we will tell.
That's certainly the goal, but time will tell on that.
Yes, good question, <UNK>.
When the March quarter ended, we did not see softness in larger products.
All of our boat shows we're very strong.
The month of April did finish up double-digit same-store sales growth.
Brunswick, on their earnings call, commented they saw some softness on larger boats which prompted 10 different investors to call me.
And in fact, the industry data that came out on March, which would've come out in late April, did show softness on larger boats in March.
We didn't see it.
Maybe it was our great execution of boat shows, maybe it was geographically how our stores are, we didn't see it.
You go into May, which is a much bigger month than April, and then June, which is usually the biggest month of all of them, and we saw some difficulty in larger boats in those 2 months, which is what's impacted our top line.
So it's really the ---+ what we saw in May and June that we had not seen prior to that period on larger product.
When I look at the last several quarters, we had ---+ in the December quarter, we had modest improvement in gross margin.
It's kind of hard to see it because we had a big spike in big boats as well.
March quarter, we had a little bit of improvement.
This quarter, we've got a great improvement.
I just think it's too early to start putting that into our guidance.
We may weigh that more into 2018 when we start thinking about 2018.
So we had 12% same-store sales growth in the September quarter last year and 44% in the June.
So if you kind of do the math, we were down 10% in the June quarter.
And what we're seeing for the September quarter is low to mid- to high single digits.
So 3% to 7.5%, 8%, something like that, in that range.
Part of that depends on do we end up seeing a little bit of life on some larger boats.
Do we not.
Did the Northeast come back.
But we think we are up against an easier comp than we had than the March quarter or the June quarter.
But we're comfortable with that range that we put out there, low to mid-single digit comp.
I think when it comes to all the new models we have coming from manufacturers, the manufacturers have all the right intentions to get the new models integrated and get them in our showroom as fast as they can.
I think reality has been it's been tougher to get them integrated.
So I think part of this, thus level-setting our expectation, is that we probably won't get them all to the degree that we expected to have them.
They still are tight in our stores today, certainly impacting our unit growth than we otherwise would have seen in the June quarter.
And Steve, you heard us say that new models sell.
And there's a lot of new models from almost all of our manufacturers, and with that comes ramp-up.
And with ramp-up means you don't get the units as quick as you want them or you need them.
And they are selling in the stores, that's part of the reason our unit sales are up so well, is that we have new models from a bunch of our manufacturers.
And so as Mike said, it'll probably always be a bit of a challenge because of the new models that they're bringing out, and that is the right thing for the manufacturers to be doing.
But we feel good about our inventory.
The question wasn't asked, but the model mix is right.
The products we have in our inventory are good models.
We don't have a lot of issues from there and the aging is in very good shape, so it's a little higher than probably what our sales came out to be for the first 9 months of our fiscal year.
But we've still got this quarter remaining with the active customers out in the water, our getaways and events are very, very, very busy.
And as such, people are out boating.
The waterways are packed on the weekends in the markets where we're having decent weather.
It's ---+ let's call it 60 feet and larger is ---+ and that goes all the way up into 80s and 90s, with the brand like Ocean Alexander and with Azimut.
But it ---+ the potential customers are still there, as we said, Mike, that it's just ---+ we're having a little more trouble getting them to pull the trigger.
Mike, the industry data cuts it a bunch of different way.
The industry data has talked about 40 to 62 also being soft.
I'm sure there's some of that impacting us.
We tend to be able to somehow plow through that a little bit better than maybe what the industry is showing, but for sure, above 60 feet is what Bill called out in his prepared remarks.
So units would be very low.
The revenue, I'd be guessing here in the call, it's a material number, meaning, it's going to be over ---+ it's going to be probably around $100 million-ish, something like that, over 60 feet.
Around 10%.
Yes, probably around that at the top line.
It's going to be a smaller percentage of the bottom line because the margins up there shrink.
But it's an important part of who we are and what our business is and it's something that we've been very passionate about for the 20 years that we've been around.
And once in a while, you do have ebbs and flows in the business.
It has been ---+ that specific segment has been fairly hot since the recession ended.
So this is the first time there's been somewhat of a pullback since probably 2010 or '11, that us and others in the industry believe it would be short lived once things in Washington gets moving in one direction or the other.
It doesn't all have to be rosy.
You just need to move on to whoever it's going to be and get done and people are going to make a decision about what they're going to buy.
And it's not for the consumer having the cash or ability to finance because financing is excellent.
It's just ---+ they've got ---+ we believe that they just need to feel a little more comfortable with what's going on.
Honestly, we're going through every line.
We have done some of these already, every line, every store every department, just looking, is it something we really need today.
Can we do without it today.
Is it going to help us drive revenue, take care, obviously ---+ and if it takes care of a customer we're not going to reduce.
So it's not any one specific place, Mike.
There'll be reductions in different places in the organization to try to better align the overall expense structure with what we're seeing from a sales perspective.
And it's the prudent thing to do, moving into the winter months, anyway, to make a clean look at everything you're doing and say, how do we minimize expenses without hurting the business.
; We'll evaluate what we did last year from a boat show perspective, what brands we took, what spaces we had, what boat shows we're in, what was the anticipated returns.
So there could be some tightening of the belt of different shows.
It's one of the things that we're looking at.
And if it is a tightening, it'll be a smarter way to do it.
Right.
It's just cutting what we're doing.
Thank you, operator.
And in closing, I'd like to thank all of you for your continued support and your interest in MarineMax.
Mike and I are available today if you have any additional questions.
Thank you.
| 2017_HZO |
2016 | VFC | VFC
#Yes, <UNK> we don't give the comp specifically.
We just talked about from a shave standpoint, low single-digit.
Thanks.
Yes, I guess I'd go first, I mean we all get to watch the TV these last few weeks and I think there's an over-arching theme going on in our political atmosphere that's giving consumers a little bit of pause and potentially making them a bit conservative as we are all uneasy about where we are ultimately going here.
I think last year's Fall season has had a compounding effect not just on the winter goods but in apparel and footwear in general.
And we've seen bankruptcies come into view, having an impact on certainly where businesses like ours have the opportunity to sell, but also where consumers are looking to engage.
So I think the US market just finds itself in maybe a similar situation of where our European business was two or three years ago and as we've got a lot of lessons learned and are employing a lot of really great solutions, I think you saw the growth we delivered here for Q3, I think we have a really strong playbook of how to navigate this.
Because I think at the center here is powerful brands.
Consumers absolutely want to connect with them, engage with them, and purchase from them and it's really in our court to create the compelling products and the demand creation that draws them to us and really create that loyal relationship that we can build on year over year.
I'll add just a little bit of context for you <UNK>, because there is a consumer thing and then there's the thing that <UNK> talked about, the bankruptcies and the inventory hangover from last winter.
So peeling it back for The North Face because it's such an important part of our story.
In the quarter in the Americas our direct-to-consumer business was up mid-teens and in Europe, it was up high-teens, and in Asia it was up mid-teens, so we're all kind of right in the same pocket, where we're selling products to consumers through our stores.
It's in the wholesale side that there's a different story.
In outside the US and inside the US and a big part of that is the bankruptcies and the inventory hangover from last year.
And as I've stacked them up geographically, and by the way you see about the same thing in Vans wherein Americas it was up low-teens and in EMEA it was up over 20%, it was still strong growth in our own stores and differences in the wholesale piece of the business.
But real quick our model is very intact.
Our wholesale partner relationships are very important, it's over 70% of our total revenue today.
And I think our best wholesale partners are looking to and actively evolving their model that marries with our model, and we use our stores to really position our brands in the most complete way.
And that learning flows into our best wholesale partners.
And as we evolve our model and really move to more frequency of deliveries across the seasons, this idea of pre-book and wait for reorders starts to give way to more monthly or every six to eight weeks drops of meaningful collections across the different channel partners that our brands have to work with.
In putting the right product for that consumer in front of them and using the powerful demand creation to draw them in to transact with us directly or through our powerful wholesale partners.
Thank you, <UNK>.
<UNK>, this is <UNK>.
So obviously I think if VF is known for anything we're known for the way we manage our inventory.
And we look at this very carefully every month really, not even every quarter.
And we set targets based on the balance between trying to manage the balance sheet and the cash flow versus making sure we're matching with demand, and you look at our days, they are right in line with what we've historically run from our standpoint.
Our business mix has changed a bit.
Our model has evolved a bit as we go to a little more D to C.
That has impacts, if you look over a long period of history, but I guess the short answer is we're right about where we want to be from an inventory standpoint and it's back in line from the hangover that we had a year ago.
Yes, <UNK>, we don't get into profitability by brand.
I think you can logically say that our largest brands are also our largest contributors to both gross margin and operating margin expansion.
That's just the law of big numbers, but in terms of actually quoting the profitability we don't do that by brand.
Yes, we've given you the growth on the top five brands and beyond that we really don't give more detail.
Thanks, <UNK>.
The inventory levels across our channel partners in Jeanswear is fine.
It's in line with expectation.
Ours is really looking at coming off a strong Q2 and that shift in our Asia business from Q3 to Q4, and just really moderating shipments based on consumer demand with our channel partners, which our Jeanswear team does extremely well.
If anything they are the benchmark that all of our other businesses have learned from.
I tried to answer this question.
I mentioned before in my script, we had an issue during the year on Vans which is normalizing as you saw in our results.
As far as we know there's no real issue in the market in other brands or in other channels.
Sure.
There have not been any cancellations to our order books.
If anything its been that shift to the right of demand from what historically was Q3 into Q4.
What really caused us to talk about mitigating our inventory positions in the marketplace really has to do with what we see in the off price channel, really driven from the record warm winter of last year but also the bankruptcies that compounded.
And as we rolled into September and just were able to see the amount of inventory out there not just ours but of all brands, it just ---+ we've taken the position to be very proactive and thoughtful about managing long-term integrity of our brands.
And these are great channel partners, but there's a finite amount of capacity out there and we want to be really thoughtful about how we're utilizing it.
No, well I think high level answer to that is, we run our business on average we have about 100 days of inventory, so right now our plans are kind of in that zip code.
I hope we end the year with 90 days of inventory because that would mean that we had a good winter and we were able to sell some more through, but it's not like we're standing here with no product to sell.
The question is, does it match up with what demand is, and that's never going to be perfect.
But I don't want people to think we don't have the ability to chase some things.
We just can't chase everything.
I don't think we're capable of that.
Great question.
Sure, well the numbers I gave in an earlier comment and I was focused on the North Face for our direct-to-consumer business was up mid-teens both in the Americas and Asia and high-teens in EMEA.
Guaranteed there's unit sales increase in that because we certainly don't have mid-teens to high-teens price increases in our products.
Particularly in the third quarter, where we're not selling our most expensive outerwear products or selling other kinds of products in those stores.
So it implies, it actually tells you that there's a unit price increase, that might be slightly below those because we haven't taken big retail price increases.
Thank you.
Thank you and thank you all for being with us on this call.
I said at the opening that we had a lot to cover, that's why we went a little long on the Q&A.
We wanted to give you a chance to ask your questions.
I hope you heard from us a lot of confidence about the upcoming quarter.
As I said earlier, the fourth quarter is where our business model shifts and our direct-to-consumer business peaks, both in dollars and as a percent of our revenues.
And that's our best indicator and that's where we've been performing strongly, we're up 7% year to date.
We also have confidence in our wholesale business because by this stage in the game, we obviously are in the quarter we have the most visibility of any quarter in terms of what's going to happen from a wholesale business, and we sit here confident that we can deliver the year as promised.
Even though we have ---+ it is not what we promised at the beginning of the year for lots of reasons that we've discussed.
I hope we gave you some clarity and look forward to talking to you in February.
| 2016_VFC |
2017 | DE | DE
#<UNK>, the margin performance this quarter came despite warranty costs that were a headwind here.
I'm wondering if you could talk about what's been driving the higher-quality costs for you folks over the past 2 years compared to history, and over what time frame would you expect warranties to return to the low 2% range that's more typical for you folks in the past.
And sorry, <UNK>, over what time frame would you expect performance to return to more typical levels.
<UNK>, I mean, I think if you note where our working capital receivables and inventory forecasts are for the end of the year, I think it's appropriate to assume that next year is going to be up.
We don't want to get into the 2018 forecast, <UNK>.
But I think the statement that we have in terms of a shift in our thinking in terms of working capital at the end of the year should give you a good idea.
Yes.
And <UNK>, I think that's a good point.
Now if you look at broader, longer-term global demand for commodities, still going up.
And if you look at the USDA for the '17-'18 production forecast, it's lower, which means the stocks-to-use is what we're saying is likely to come down.
And the equilibrium ---+ all we'll say is the equilibrium is getting tighter.
Now we haven't put in our projections any disruption to the production for commodities.
But if any of those should come up, there's even further upside, you're right.
And to add to <UNK>'s point, if you look at the soybean prices, the current prices, you're right, they're down, okay, because of the additional soybean coming into the market from Brazil.
But if you look at the futures, number futures, they haven't changed much.
So that should help with what <UNK> just said.
And then if you look at the longer term, since you brought up Brazil, longer-term ag export is very critical to Brazil and for their foreign exchange.
And historically, you've seen governments, regardless of the party, support the ag sector very well.
And we will ---+ while there is uncertainty, we cannot say what's likely to happen.
And if you look at the past and if you look at what is good for Brazil, okay, we should ---+ we see them continuing to support the ag sector.
And the percentage for Q4 is closer to 16%.
If you just take the 9% for the full year, that's what it would work out there.
Okay.
Yes.
<UNK>, we are making good progress with respect to the cost reduction ---+ structural cost reduction goal of $500-plus million that we talked about.
Now you'll recall that when we talked about it, we said, if the investing conditions stay the same as in 2016 levels, we will aim to get over $500-plus million in structural cost reduction by the end of 2018, okay, so ---+ and be fully realized, end 2019.
And a couple of things I will point out.
While we are making very good progress towards the structural portion, the controllable part of cost reduction, there are some headwinds, one essentially being the material inflation.
And then there is a second one that might confuse, when you look at the total picture, which is lever pulling.
So as the volumes come up, we had pulled a lot of levers over the last 3 years, and as the volumes come up, we'll be releasing some of those.
But if you look at the underlying structural cost reduction, we are making very good progress.
And we are committed to hit the $500-plus million that we talked about.
You actually kind of just answered the question, but is there a way to parse out how much of the increase on the construction side was from some of the new products deal at CONEXPO.
You did talk about some of the smaller ---+ the mini class, but also there's a fair amount going on, on the production side class there as well.
And then lastly, could you mention anything about the parts commitment having any impact on the sales outlook.
<UNK>, can you talk about how you view normalized margins in Ag & Turf.
Obviously, really strong performance here towards the bottom of the cycle.
And so if you apply your normal operating leverage, that would get you to 15%, 17%-type margins at normalized volumes.
And I'm wondering, at which point do you folks start to think about, is that too high from a competitive standpoint.
How do you think about what's normalized in this cycle for you.
| 2017_DE |
2015 | RGS | RGS
#Thank you.
Thanks, Jessica.
Thank you, everyone, for your questions and for dialing in or coming in through the web for the call.
We'll look forward to talking to you again towards the end of August.
Have a great day.
| 2015_RGS |
2017 | ESE | ESE
#Thanks, <UNK>, and good afternoon.
As noted in the release, we're wrapping up '17 in a strong fashion, which <UNK> will describe in a moment.
I'm happy to report we delivered on our earlier expectations of EBITDA and EPS.
Setting aside the numbers for a second, I'm most satisfied with our recent M&A activities as we've added 4 great companies this year, supplementing the 3 we acquired in 2016.
With these new partners, we've not only added great companies to our portfolio, we also added strong management teams who share our vision and our values.
As we look toward the future, we plan to build on both the organic and acquisition successes we've achieved over the past 2 years, and we will continue to aggressively address the normal market challenges we face every day.
This gives me a favorable view of our future, and our goal remains unchanged, and that is to increase long-term shareholder value.
Before I give my perspective on our outlook for '18, I'll turn it over to <UNK> to wrap up '17 with a few financial comments and to summarize our '18 outlook.
Thanks, Vic.
I'm pleased with the '17 financial results and very proud of what we accomplished this year in the way of acquisitions, which better positions the company for achieving our long-term growth objectives across the portfolio.
At the start of the year, we set our financial goals centered around EBITDA, which we expected to be in the range of $122 million to $124 million and with GAAP EPS expected in the range of $2.16 to $2.26 a share, and we also described several non-cash items that would be impacting our GAAP results.
Given our additional M&A activities completed late in the fiscal year, coupled with the corresponding GAAP required non-cash purchase accounting charges from these acquisitions, our GAAP earnings became less comparable as the year progressed.
As a result, adjusted EBITDA and adjusted EPS became more important operating performance measures when looking at our comparative results.
This adjusted approach is consistent with our view of '16's operating performance.
So touching on a few financial highlights from '17.
For the year, we reported $123 million of adjusted EBITDA, which is slightly better than our previous expectations of $122 million communicated in August.
This represents a $22 million and 22% increase over '16's adjusted EBITDA of $101 million.
During Q4, we reported a record-high quarterly adjusted EBITDA of $43 million, which reflects a 34% increase over the comparable $32 million noted in Q4 of last year.
All 4 operating segments contributed to the Q4 earnings increase as follows: Filtration delivered a 22% EBIT margin; Doble, within USG, came in above 28%; and Test reported a 16% EBIT margin.
Of special note, over the past 6 months, Test delivered $89 million in sales at a 15% EBIT margin, reflecting our lower cost structure.
Our adjusted EPS of $2.22 a share in '17 increased over 9% from the $2.03 reported in '16.
Q4's adjusted EPS of $0.79 a share increased 18% compared to Q4 '16's adjusted EPS of $0.67.
Sales increased $115 million or 20% year-over-year with organic sales increasing about 4.5%, supplemented by an M&A sales contribution of about $90 million.
Entered orders were $737 million, reflecting a book to bill of 1.07 and increasing our end-of-year backlog by $51 million or 16% from the start of the year.
Our orders increased $161 million or 28% over the $576 million in orders received last year.
All 4 operating segments also had positive book to bills for the year led by the Test business, which recorded nearly $200 million in orders.
And I'm pleased to report that this strong order trend continued into the first 6 weeks of fiscal '18, which Vic will discuss later in his commentary.
And finally, cash provided by operating activities was $67 million, resulting in net debt of $229 million and a reasonable 2.2 leverage ratio.
Our significant credit capacity and available liquidity have us well positioned to execute our long-term strategy.
As we enter '18, I'm confident that our current backlog and our expected order profile supports our outlook as described in the release.
So now turning to '18.
As noted in the release and as discussed in my earlier comments, given the significant increase in our recent M&A activities comparative GAAP EPS amounts become a bit more complicated.
As an example, non-cash depreciation and amortization from the recent acquisitions is expected to increase over $7 million, or $0.18 a share in '18 compared to '17.
As such, management will continue to emphasize adjusted EBITDA as a supplement to GAAP EPS as we believe this is more relevant metric to be considered when measuring operating performance on ongoing basis and is a better measure for determining ESCO's enterprise value.
For 2018, we expect adjusted EBITDA to increase between 15% and 17%, resulting in $141 million to $143 million of adjusted EBITDA, which compares to the $123 million we reported in '17.
To bridge our expected adjusted EBITDA to our GAAP EPS, in the release, I've called out a few items, including higher non-cash depreciation-amortization charges, which I mentioned at $0.18; additional interest expense impacting GAAP EPS by $0.12; and the estimated tax rate differential, which impacts GAAP EPS by $0.07.
These result in a total EPS impact of $0.37 in '18 compared to '17.
As these ---+ as a result of these incremental charges, '18 EPS on a GAAP basis is expected to be in the range of $2.30 to $2.40 a share, and that obviously assumes no additional M&A activities during the year, which could impact this range depending on their timing, the profit contributions and the related purchase accounting.
On a quarterly basis, '18's EPS profile is expected to be back half weighted but with a more pronounced second half earnings contribution when compared to '17.
So when comparing '18's guidance to last year, we're expecting meaningful increases in sales at USG and Test, along with higher sales of aerospace products at PTI, Crissair and Mayday within the Filtration group.
Filtration continues to benefit from the strong commercial aerospace market, but its growth in '18 is muted by: PTI's reduced sales of a low-margin industrial, automotive product driven by a specific customer's desire to move to a foreign competitor offering a substantial price reduction; and by the timing of VACCO's SLS sales as this program transitions from design and development revenue to production hardware.
VACCO's future margin will benefit significantly once the SLS program begins its launches, where our content is over $13 million per launch.
Test sales are expected to increase in the mid-teens with the projected EBIT margin at 13%.
This view is supported by Test's ongoing and strong opening balance sheet, a catch-up of the 2017 program delays, recent large program wins as well as its lower cost structure, which we validated in the last 6 months of its performance.
USG sales are expected to grow over 37% with EBIT margins over 21%.
This is despite our continuing investment in new products and solutions as well as an increased focus on international sales and marketing when compared to '17.
The sales increase reflects the full year impact of USG's recent M&A activities coupled with growth from recent new product introductions such as the DUCe, protection hardware, software applications and the rationalization of our sales channels.
Lastly, corporate costs are expected to be significantly higher in '18 due to the additional non-cash amortization of the identifiable purchase accounting assets recognized on the corporate books.
I'll be happy to address any specific financial questions when we get to the Q&A, and so now I'll turn it back over to Vic.
Thanks, <UNK>.
Entering fiscal '18, I'm confident all of our businesses are in a solid financial condition with known and quantifiable growth opportunities.
We're well positioned to deliver our projected results in '18 and in the out years.
As I've noted previously, we're not immune to the economic headwinds that many industrial markets face.
But with that said, I strongly believe the breadth and diversity of our end markets in the specific niches which we operated in, provide us with the protection to mitigate a lot of these pressures.
While we're not without challenges, I like the position we're in across our various businesses and anticipate that we can achieve growth rates in '18 and beyond that exceed those of our defined peer group as well as the broader industrial markets.
I'll provide a couple of specific thoughts and comments on individual businesses entering '18.
In Filtration, we expect to deliver solid results in '18, and I'm comfortable with our outlook for 6% to 7% growth in EBITDA in the segment.
We are well positioned on several fronts in Filtration, including the continued up cycle in commercial aerospace as well as additional technology we're providing for submarines and surface ships, which are critical for the U.S. Navy.
We recently won a large multiyear contract at Westland to supply mission-critical proprietary hardware for surface ships.
At VACCO, we were awarded a follow-on order for the next lot of Virginia Class submarines.
So taken together with our Westland outlook, we have tangible and profitable growth embedded in our naval product offerings for many years to come.
Mayday continues to expand its product offering, including entry into the aerospace MRO market, where we see strong growth in a market we only recently entered.
Several existing customers have already placed meaningful MRO orders, which we can build upon.
Our Technical Packaging group's future has improved, given our scale and leadership positions across several growth markets and geographies.
We recently expanded our production capacity at our facilities in Poland and England.
This provides a capability to deliver highly engineered products to customers in the medical, pharmaceutical and consumer markets throughout Europe.
In USG, we see solid growth opportunities across the global platform, including hardware, software and services.
We're also seeing numerous opportunities for our expanded product offerings, both internally developed and acquired.
Our rep and distribution network rationalization is nearly complete, and I'm really impressed with the quality of our sales channel partners.
This process is very key as we integrate our new partners into Doble.
We need to ensure that we are able to service our customers in the most effective and efficient manner possible.
Our entering into the renewable market with the acquisition of NRG was an important move in '17.
We look forward to enhancing our position in this fast growing market in '18 and beyond.
At Test, we're seeing the results of our past cost reductions materialize as anticipated.
Our reduced cost structure and ongoing operational improvement initiatives support our 13% EBIT margin expectations.
Test sales growth, while appearing a bit aggressive given our history, is supported by several metrics such as opening backlog and the nearly $30 million of new business awards in October and through today.
I feel good about the growth opportunities we have across all our businesses in '18, and I can see tangible avenues for additional growth in future years.
Regarding our recent M&A, I'm pleased with the integration process across-the-board.
This complex process is nearly complete and showing favorable sales and earnings opportunities.
Within USG, I like our ability to enhance our overall growth strategies and past customer relationships where applicable.
Commenting on my longer-term view for the total business, we continue to see meaningful sales and EBIT growth across our business, consistent with our previous communications.
Acquisitions remain a key component of our ability to meet our longer-term growth targets, and we continue to evaluate additional opportunities.
We certainly have the balance sheet capacity to do more M&A, and we have the management bandwidth to handle this additional growth within our current operating infrastructure.
But we will continue to remain disciplined in our approach.
Our focus remains constant that we continue to improve our operational performance and to execute on our growth opportunities both organically and through acquisitions.
I'd be glad to answer any questions you have now.
Yes.
It's remained pretty active.
Honestly, we ---+ obviously, we had a lot of success over the past 2 years, and we see ample opportunities going forward.
And we think a lot about why that is because probably before 2 years ago, we weren't seeing as much traffic.
And I think it's a matter of a lot more things coming to market, and then I think we have proven our ability to be successful in some of these acquisitions.
So I think we're getting on more people's radar screens and getting access to more of those acquisitions.
Plus, we have a focused activity here to go out and seek competitors, partners, people that we're aware of in the market.
So it remains pretty robust.
And I think, John, from the valuation side, if you look at our last 5, 6 or 7 deals, it certainly doesn't feel like we overpaid for those relative to the multiples we paid.
And I'd say the things in the pipeline today are generally within that bandwidth.
There's not things we're looking at that are 12 and 13x EBITDA.
So I think the future performance will look like the past, and then the sizes certainly appear digestible.
We've not built a lot of synergies just because it usually takes a year to kind of figure that out.
So we don't want to build something in there kind of betting on it to come.
We're still in a process of doing that.
But I would say, there's no hard numbers assumed, and what we have in the forecast is probably the most succinct way to answer that.
Yes.
So I would say the flatness that we're seeing this year is probably not going to be long-term.
What I would say is the attrition rate in what we saw in the European acquisition was a little higher than what we'd anticipated.
Just some simple things like the razor market, which we did ---+ have participated with our Plastique acquisition there.
It's amazing that the Internet razor business is really forced ---+ and we see it with the razor manufacturers in how they're all struggling.
As a result of that, where they were maybe using higher-end package, historically, they're basically competing on price now, and one place they can take out price is on packaging.
So we've seen a little more attrition in some of those areas at Plastique than what we'd anticipated.
I'd say that the biggest thing we have is a pretty big pickup at our Mayday business, both as a result of getting them onboard fully now 11 months versus ---+ or 12 months versus 11 months.
I think the efficiencies are going to be higher there.
And then as I mentioned, this MRO business has tripled year-over-year.
I'd say that's the biggest piece.
And then Westland as well, we have been waiting on a contract there, which, as I mentioned earlier in the call, we did get that.
So that had some impact on us in '17, and now we have that contract in place, we'll be able to deliver that in '18.
So I'd say those are the 2 biggest impacts year-to-year.
Well, I'd say that ---+ well, let me talk separately about the 2 businesses.
I mean, NRG is not really going to be integrated within Doble.
It's a freestanding business.
I think where we'll see margins improve there is as we continue to grow that business, and maybe we can help them with some of the efficiencies.
So we're not going to get the same type of synergies that we would with the company we're going to integrate.
With Morgan Schaffer, as you know, we had bought their product historically and integrate it with a system of ours.
So just having that lack of a second markup, if you will, I think will be helpful there.
And then as we get their new product at a little higher production rate into the field, I think that will help as well.
And then we're also finishing up, as I mentioned, the integration of the sales channels, and so that has some inherent cost savings as well.
And we're very fortunate we got some really strong people there.
In fact, we were in the process of looking for somebody for Doble to run the European sales operation.
Fortunately, there was somebody at Morgan Schaffer that filled that role for us, so it allowed us have an internal candidate to fill a role like that.
There's a couple other places where we were able to do that as well.
Well, I'll let <UNK> put some tight numbers or tighter numbers on it.
Obviously we don't want to give specifics.
But I'd say both with sales and software, that's trending up.
The acquisition we made a couple of years ago, the Software business, that business has grown pretty significantly.
I mean, it's a fairly small business but grown pretty significantly.
And then we've had a focus on Software at Doble as well in services, so we see both of those areas trending up.
And so, <UNK>, I'd ask you to think about the pieces that we had, so if we just split them into individually what they are, Morgan Schaffer is generally a hardware business.
They supply products, so there's not ---+ I mean, there is some services there, and there is some software.
But it's predominantly 90-plus percent would be added into the product bucket.
On NRG, they have a better mix of services and some software applications.
So that's probably about 60% hardware and 40% the other bucket.
And then the Vanguard piece is almost nearly all hardware.
So as you think about that added to what Doble's historical mix was between those allocated pieces, you will see hardware becomes a bigger piece of it because we added the Vanguard and Morgan Schaffer piece of that.
So ---+ but it doesn't dominate it to the point or to the expense, if you will, of the Software and its favorable margins.
So as Vic said, the Software business organically is growing faster, but it's the law of small numbers.
And then you're going to see a disproportionate growth in hardware just because of the acquisitions.
Yes.
I would say, if you look across the sales platforms there, let's start with Filtration.
Like ---+ we did mention a little bit of headwind.
We have about $7 million or $8 million of product that we're not going to go forward with because of some extraordinary pricing conditions that it's already a low-margin business.
We're not going to give the stuff away.
So that part of the business goes away.
So let's call that $7 million or $8 million as we go into '18, and that's at PTI.
The good part is, like I said, it's not aerospace.
It's low-margin industrial and automotive.
So I'd say, the way I would look at that as a group in Filtration, you're probably talking somewhere in the neighborhood of 2% or 3% because of that headwind there and because of the timing on the VACCO transition from development into production.
The nice part is there's a significant margin trade to the positive on that that's worth about 2 full points of margin at VACCO.
So you're actually going to see, despite the kind of flattish sales, they're going to actually have improved operating performance there, operating profit margin there.
So if you were to use that as a group at 2% or 3%, I'd hold the packaging group flat.
As Vic alluded to, there's some attrition there so holding that, give or take, $1 million around where they're at.
And then the Test really comes from, if you think of the large technology program that we talked about last year that had some construction-related timing things from its headquarters.
We pick up that.
Plus, we pick up the momentum from the backlog ---+ significant backlog growth.
So I would think of the Test business, as I mentioned in there, high teens to 15%, validated by those 2 metrics.
And then on the USG side, the growth is going to be north of $60 million, combination of dollars.
The combination of the acquisitions for the full year but then the inherent organic growth in there is attractive as well.
So hopefully, you could follow all those pieces of that.
As far ---+ on the revenue side or profit or what.
Okay.
So if you look at Morgan Schaffer, obviously, they're based in Canada, so I'd say about 50% of their business happens in the U.S. and 50% happens around the world.
So if you peg them at $23 million, $24 million, you could take half of that in that regard.
Vanguard, at $11 million or $12 million is almost predominantly U.S., so I'd say 20% of that is international.
And then on NRG, it's probably a little closer to 50-50.
So if you peg them at $45 million or something like that and put that net relationship, that should help.
Within the aerospace business, there's not a whole lot ---+ or within the Filtration business, there's not a whole lot of international content.
And then at ---+ in Packaging, it's about 50-50 because Plastique is a big chunk of that $80 plus million we have there.
And then Test is probably 50-50 as well.
I can't do all that math in my head at the same time, but I would be comfortable saying about 30% or 33%.
Historically, <UNK> mentioned that we're ---+ historically, we'd be in the upper 20s, and now we'll be in the low 30s as a percentile or a percent of international content.
Okay.
Well, thanks, everybody.
I look forward to talking to you on the next call.
Thank you.
| 2017_ESE |
2016 | WSO | WSO
#Let's give it to <UNK> <UNK>, since you've heard from <UNK> and I.
Yes, I think the trend is going to continue long term.
We definitely have seen not only seen the pricing of 22 to go up, but also the availability of 22 going down.
So, with this vast population of R22 in our installed base, obviously I think it's going all have to be replaced with 410.
I feel very, very bullish about the replacement market ---+ at least for the next four to five years.
Well, it always has.
We leverage our sales into a higher growth rate of either, and I don't see why that should not continue, and then of course the offset to that can be the incremental technology spending.
As I said earlier, and as I said in prior conference calls, everything we think about is long term.
So, we're going to take this technology thing and change ---+ change what we do, help our contractors be much more efficient and more loyal to everything that we're doing and that's just the goal.
It's a long-term goal.
So that's the variable ---+ how much are we going to spend for that.
Eventually, these things that we spend produce ---+ produce something.
Right now, we're seeing the benefits in cash flow.
We're seeing the benefits to our contracts as they are getting and picking up their products much quicker.
They're ordering anytime they want now, seven days a week, 24/7 on e-commerce.
There are all kind of things that are in the initial adoption, so that's the only caveat.
I just think that we have got to continue to look long term on investment spend and just follow the opportunity.
Yes, I think that is going to continue.
That was in the quarter, yes.
Just when you make the comparison from prior year.
I'd consider it to be very strong that it's up double digits ---+ the 410 is, all by itself, year over year.
Go ahead, <UNK>.
I haven't spent any time even trying to reconcile.
I don't know what their database is, what their geographic locations are.
You know, it's wonderful that they've grown, but Watsco is a national company.
We have our consistent financials that we have to report year after year.
So, it just isn't something that we follow.
I don't know what the sales mix is of those people.
Again, the answer is yes, <UNK>, for the quarter, for the fourth quarter, there's very little benefit to, so most of what you've seen year to date is what it will be.
No, it wasn't.
There is a couple of drop-in replacements for R22 that are available from the three big refrigerant manufacturers, so you can get it.
It has a slight degradation as far as the capacity and the efficiency of the equipment, but it is available.
(multiple speakers)
A year ago, we had a short period to sell R22 product before manufacturers wouldn't make it anymore, and we did have a real nice bump from refrigerant-free equipment last year, and that's the comparison this year, that's what <UNK> is saying.
We grew double digits in equipment sales this year, but when you compare it to the prior year that had refrigerant-free equipment, that we could sell before the deadline, we didn't have that repeating this year.
But fundamentally, if your equipment sales are growing at double digits, that's a very healthy thing, we believe.
Great.
<UNK>.
Most of it was volume.
We had some price pickup, obviously, as we switched over to the 14 SEER, but we also had a lift in unit sales.
Morning.
I think <UNK> really likes that.
(inaudible)
Why don't we have <UNK> answer that.
The answer is yes, of course, we have visibility into exactly where dollars are being allocated.
And the growth in spending over the last several years has been on new platforms, new technology to enhance the customer experience and help make our operations more efficient and more profitable, and hope to create some new profit streams through these Watsco Ventures programs, which are going to have a little more speculative at this point.
But yes, we have visibility to that, of course.
It is not just the new programs, but the spending at the branches and in the ERPs are now of course influenced by the new programs and technology, so, they should be looked at as a whole because development is part of ongoing programs.
Good morning, <UNK>ua.
<UNK> or <UNK>.
I have no idea what Carrier reported.
There is a global sales anyhow I presume.
Yes.
We're just talking domestic.
Okay, I guess we'll follow up with you on a call later.
Morning, <UNK>.
Yes, that's a good question.
Yes.
We noticed, it doesn't happen very often, that late season it didn't occur in the second quarter.
So, we were very conservative and said so at the last conference call that we were not going to provide outlook until we got a better fix on it.
We didn't know whether it was a late season or something different than that, and as it turned out, it was only a late season because the (indiscernible) very strong beginning of the third quarter.
And now that we have a better feel for things, we're providing [to date].
We don't like to reach out there unless we have a good sense of it.
Yes, I would say, generally speaking, around the second quarter, yes.
Good question though.
You know somebody working in our company that's giving you our information.
(Laughter)
<UNK>.
Yes, that's the real fun part of the Watsco Ventures vehicle that we've created is that we get to dream, we get to explore, we get to learn about what others are doing, we get to try some things internally and of course, IoT, the Internet of Things, is very much on our minds.
I'll answer this question a little generically in that if and when, I think it really is a when, all of the HVAC systems in the country or the world are connected and there is visibility into the data and the health of the systems and the ability to measure and monitor and meter those systems, it can only be a good thing for us.
Because we are very well positioned to leverage that data and build business models on top of that data for all stakeholders.
So, yes, we love that idea.
Some of our OEM partners already have some of that measuring and monitoring technology in their highest-end equipment, and there is some fun stuff happening in the Watsco Ventures portfolio where we are also thinking of taking a deep dive into that.
Well, once again, thanks for your interest in our company, and we'll speak to you at the end of the year when we have our year-end numbers ready for you.
Bye.
| 2016_WSO |
2015 | GIS | GIS
#Sure.
Yes, the consumer response has been very positive.
The baseline turns ---+ so full-price, non-promoted, sort of just true core baseline turns have been up very nicely through the first three months of that period.
Even with that one-week impact from the recall, they are up between 3% and 4%.
So we are quite pleased with how that has worked out for us so far.
Obviously the recall was a stumble, but the fundamental consumer reaction is in line, if not a little bit better than we anticipated at this point and we are going to continue to support that initiative quite heavily in the second half with more merchandising events and continued very good advertising.
Yes, Rob, as I said, the inflation flow this year is a little bit reversed from last year.
It was higher in the first half last year and then decelerated as the year went on.
This year is kind of the reverse of that, so we are certainly benefiting this year in the first half from lower inflation.
Our productivity, the $400 million, tends to be fairly stable throughout the year, so there's not really a phasing to the productivity savings.
So the result we are seeing this year is that we are seeing greater net inflation, if you will, productivity less inflation that we saw a year ago.
And as I said, we are rolling over the merchandising changes that we implemented starting in the second half of last year.
So as the year unfolds, we will start lapping that piece of it.
We will start seeing inflation accelerate a bit in the back half.
Green Giant was a lower gross margin business.
Its operating margin was actually fine, but it's lower gross margin business, so that will have a little bit of an accretive impact on our business as the year unfolds.
And there's been a lot of work at our international business and actually if you look in the quarter, international was a significant contributor to our gross margin expansion.
And, <UNK>, I don't know if you want to add a few words on what we are doing from a margin standpoint on our international business.
Yes, obviously, it's a combination of good, strong HMM efforts focusing on product mix, obviously, developed markets growing faster and emerging is contributing to part of that mix effort, but it's really just solid execution against the fundamentals.
Yes, part of our reinvestment, it was a smaller piece of our reinvestment, but the other thing you have to take into effect, Rob, we've talked about that you drive a little bit of volume in the businesses from those reformulations and you can see gross margin expansion.
I think that you've heard <UNK> Harmening talk before about our experience with Cinnamon Toast Crunch where, as we increase the cinnamon content, we did see a higher cost per unit on a variable basis, but given the volume increases and sales increases that were high single to double digits, you leverage the fixed plant and you see gross margin expansion.
So really it is a case-by-case basis, but while we do see reinvestment, we oftentimes don't see a gross margin percentage impact because of the leverage that you get on the plants.
The only thing I would add to that is those margin moves around product renovation, they are, obviously, there, but in the context of our ongoing HMM programs and the restructuring initiatives we have underway and the zero-based focus we have on administrative spending, they are relatively minor in the larger picture and that sort of explains our conviction around our gross margin expansion goals.
I will start with just reaffirming your point that I can't control the consensus.
I can try to influence it, but I can't control it.
We started the year with mid-single digit expectations and our underlying business is going to deliver that.
We have seen the $0.09 forex headwind.
I think we started the year with $0.04, so we saw that increase as the year unfolded.
I'm assuming that the consensus has that factored in appropriately.
We gave a range of $0.05 to $0.07 for Green Giant for this year and it ends up being $0.07.
Again, I don't know, in the $2.90, if people were using $0.05 or $0.07.
So I don't know what people's assumptions were or inputs were on those two measures.
And then I think the other thing, frankly, we had a strong first quarter and I think people might have gotten ahead of what the full year was going to look like.
And as we said at the end of the first quarter, we had three quarters to go.
We saw the business performing as we expected and we are still on track to deliver what we said back in July.
Yes.
Flat-ish, yes.
No, I will come onto your brand comment in just a second.
I think the issue is, in the first half, is primarily this change in the merchandising context in the category.
That's clearly what happened driven by these dramatic declines in milk prices.
And as you know very, very well, we want to be in the zone on promotion, but that's not how we try to win.
But we did see ourselves lagging the market there and we are going to adjust very carefully as we move into the second half and our performance will strengthen.
But that was clearly the reason for what happened in the category in the first half and will beyond that.
To your comment on the brand portfolio we have now, that's a really good thing.
You should like that.
We've got great core cup equity obviously in Yoplait.
We've come on very effectively over the last couple of years with our Greek varieties, but actually products like Liberte, which have a different positioning and naturalness and this sort of thing, they are participating in another high-growth segment of the market now and they are doing really well.
And the organic sector of the yogurt market is growing double-digit and Annie's is a fantastic brand to put into that segment and that was a long-held desire of Annie's when it was an independent company, but they didn't have the capability.
So actually, the fact that we have brands tailored to different consumers in different segments, some of which are very high growth, that's a tailwind for us right now.
We like that.
Sure.
Just a reminder, internationally, we focus on five global platforms ---+ cereal, ice cream, yogurt, meals and snacking ---+ and you know we've been focusing our efforts on emerging markets, first China, Brazil and then EMEA trying to broaden out our footprint.
With regard to bolt-on acquisitions, we are open to that and looking for that.
The thing ---+ the key difference between our businesses in the emerging world versus US and Canada is we are not very broad, so we believe we can find the right bolt-on acquisitions because our strategy has been to build first and foremost infrastructure and pipes in places like China, Brazil and India and then to start filling it out with those platforms.
So I think we are looking.
It is part of our strategy, but then obviously we can't control the pace because it's really what's available and what we like.
No, I wouldn't say fundamentally, no.
Obviously, the environment is changing, but I wouldn't say there's a sea change of difference out there, but we continue to mine.
Well, I will get into much more detail in February.
Suffice it to say, we are focused on this.
We had a 19% growth in the quarter.
You've got to remember there's also favorable dairy in there and there's a bunch of factors in there, but we are focused on this and we've got more levers now that we are firing on.
We've got HMM, we've got Century, we've got Compass, which will start flowing through.
So I will give more details when I see you guys in CAGNY.
Yes, no, I think ---+ thanks for the question, <UNK>.
And just to your point on soup and baking, we shouldn't lose the plot that those are doing what we wanted them to do and going to have a good soup season there and the baking business has substantially improved.
And in cereal and snacks, we did, of course, have some good news in the second quarter particularly gluten-free Cheerios, which has been very important news.
And as I said, there, the baseline movement has been very much what we expected and we really like how that is developing and so that's been really good.
The story for us in the second quarter is that our merchandising just didn't have the total impact that we had planned for it to have.
So I would say event by event, as we bring more focus and precision to our merchandising, our lifts were actually a little bit higher than we had planned, but just the frequency and the overall quantity was less than we thought with some very particular and deep reductions in our largest customer.
And so that we did not anticipate and that caused the underperformance in the second quarter versus what we might have expected ---+ fully expected.
And just the continuing intense promotional environment in yogurt.
And so as we've said now, we believe that we have addressed those as we go into the second half and as a result, performance will improve.
Well, I think you put your finger on it.
That's very much ---+ cold winters tend to be good for us and so far, it's been an unusually warm season and we think that that's a key factor with the overall market right now.
But that said, in the last quarter, our retail movement was still up and we gained shared.
So yes, we would like to see the category move a little bit better, but we are pleased that the effectiveness of our programs are working.
| 2015_GIS |
2015 | STBA | STBA
#Okay, thank you.
Good afternoon, and thank you for participating in today's conference call.
Before beginning the presentation, I want to take time to refer you to our statement about forward-looking statements and risk factors, which is on the screen.
The statement provides the cautionary language required by the Securities and Exchange Commission for forward-looking statements that may be included in this presentation.
A copy of the second-quarter earnings release can be obtained by clicking on the press release link on your screen or by visiting our Investor Relations website at www.STBancorp.com.
I would now like to introduce <UNK> <UNK>, S&T's President and CEO, who will provide an overview of S&T's results.
Well, thank you, <UNK>, and good afternoon, everyone.
As announced in this morning's press release, we reported net income of $18.2 million or $0.52 per share, compared to first-quarter earnings of $12.8 million or $0.41 per share and second-quarter 2014 earnings of $14.7 million or $0.49 per share.
Once again, the big story this quarter is the continued integration of Integrity Bank.
We completed the conversion of the banking entities and IT systems on May 11.
And overall, the conversion went extremely well, thanks to the planning and preparation that was done by our conversion team.
We're very pleased with the activity levels that we're experiencing in the southcentral Pennsylvania market across all of our lines of business ---+ retail, commercial lending, mortgage banking, wealth management and insurance.
So all in all, that's going very well.
Another big factor this quarter was loan growth.
We set a new benchmark for the organization this quarter, which increased $115 million or 9.8% annualized.
And it was, again, it was a nice mix across the board of commercial real estate and construction, and then C&I, which increased $61 million and $40 million, respectively.
And our consumer loans increased by $14 million, which were predominantly home equity loans.
In addition to growth in core markets in southcentral Pennsylvania, we're also seeing nice activity in our LPOs in Ohio and western New York.
As bankers in all of our markets are working very diligently to expand relationships with existing customers, as well as developing relationships with new clients.
Our Chief Lending Officer, <UNK> <UNK>, will provide more color in his comments in a few moments.
I think another good story this quarter was asset quality, which remains consistent with net charge-offs, totalling $1.3 million or 11 basis points annualized.
Totals did increase in some of our criticized and classified categories as a result of the margin.
But on a percentage basis, levels are still within acceptable levels, and we think they're going to be trending in the right direction.
Production in our retail mortgage division has been another bright spot.
Total production, including Integrity division, was $102 million through June, versus a combined $75 million last year and this represents a 36% increase.
The pipeline is also very robust, and we expect to continue to see a similar pace throughout 2015.
I think mortgage banking fees were about $1.3 million for the first six months.
All in all, we're pleased with our performance this quarter.
Now that the conversion is behind us, our focus will be on maximizing revenue opportunities throughout the organization, as well as being disciplined and efficient in our operational areas to control expenses.
We really like our position as an organization, to generate returns that meet our shareholders expectations.
At this point, I will turn the program over to <UNK> <UNK>.
And I want to thank everybody for your continued support of S&T Bank.
Thanks, <UNK>.
Good afternoon, everyone.
<UNK> mentioned our expansion into new markets, including southcentral PA, via the Integrity merger, continues to be the primary contributor to our loan growth.
Growth in the Integrity portfolio totaled $33 million for the quarter.
While our loan production offices in central and northeast Ohio, State College and western New York contributed $64 million to this quarter's $150 million total growth.
We're very pleased that our growth strategy has resulted in increased loan balances.
And we're also very encouraged by our activity levels and the improved pipelines that exist in all of our markets.
During the quarter, we expanded our commercial banking staff by adding three bankers to our western New York team, and one to our northeast Ohio team.
In total, balances in our LPOs were $389 million at June 30.
We're also very encouraged by the diversity of growth that we achieved during the quarter.
In addition to the $14 million in consumer loan growth that we experienced, balances in all of our commercial loan categories increased in Q2, as <UNK> detailed.
Within the C&I portfolio, we experienced increased line commitments and balances, along with an increase in the number of commitments.
Revolving line utilization remained flat for the quarter.
We continued to benefit from our investment in our floor plan lending area, where commitments increased by $12 million to $192 million, and outstandings increased by $7 million to $114 million during the quarter.
Another area of growth is municipal lending, where we've had success attracting borrowers looking to finance public projects or refinance public debt while rates remain low.
It's also important to note that these relationships provide opportunities to attract significant deposits.
Finally, our loan production offices grew their C&I balances by over $8 million during the quarter.
In conclusion, our growth this quarter came in spite of increased competition from bank and non-bank financing sources, who continue to offer very aggressive structural and pricing options that caused payoffs to exceed our expectations by more than 20% in the second quarter.
We expect this trend to continue, but we're very confident in our ability to maintain the pace of our growth.
And now <UNK> will provide you with some additional details on our financial results.
Okay, thanks, <UNK>.
The impact of the merger with Integrity shows up in three main ways in this quarter's results.
First, the second-quarter results include a full quarter with the Integrity merger, compared to just 27 days in the first quarter.
This impacts average balances, most income statement items and the average shares outstanding.
Second, this quarter includes accretion related to the fair value of purchased loans and certificates of deposit.
And third, we had $866,000 of one-time merger-related expenses.
The total accretion in the second quarter was $2.7 million or about $0.05 per share ---+ approximately $2 million impacting loans, and a little under $700,000 in the CDs.
This impacted the net interest margin rate favorably by 21 basis points.
We expect the accretion to continue, but at a declining rate.
Our modeling indicates about $1.7 million in the third quarter, and less than $1 million in the fourth quarter.
There can be some volatility with the loan-related part of accretion, depending on the asset quality of the purchased loan.
Without the accretion this quarter and the special items in both the first and second quarters, the NIM rate was essentially unchanged.
Loan growth continues to be primarily flowing.
And the gap between new and paid loans widened slightly to about 50 basis points this quarter, compared to 35 basis points in the past two quarters.
The one-time expenses of $866,000 primarily related to the system conversion this quarter, and should be at the end of our merger expenses.
This represented about $0.02 per share.
Expense synergies are just now being fully realized, and we continue to expect our quarterly expense run rate to settle in at about $34 million.
We also expect effective tax rate for the year to be between 26% and 27%.
The risk-based capital ratios declined this quarter due to loan and commitment growth that outpaced the increase in retained earnings.
We continue to evaluate the impact of Basel III on our capital ratios, but remain comfortable with our current capital levels.
Thanks very much.
At this time, I'd like to turn it over to the operator to provide instructions for asking questions.
Yes, we're still looking at upper single-digit loan growth.
We think we've got the teams in place throughout all of our markets to drive that.
Certainly the Integrity merger is going to help with that, as well.
There's going to be some upside as we add the staff, but we're pretty well staffed in terms of production.
So we think that up high-single-digit growth rate's still achievable.
We like how we're sitting for pipelines and ---+
Right.
Pipelines are strong.
We're just really getting western New York off the ground, and they've got some nice activity in that market.
So in terms of the new market activity and core market activity, we're sticking to that high-single-digit number.
And economic conditions overall are still pretty good.
There has been a little bit of a slowdown in the energy industry.
But some of that right now has just shifted into ---+ from drilling over into the pipelines.
There's 15 pipeline projects going on throughout the state, and that will create opportunities down the road too.
So we like long-term prospects right now.
We're a construction lender; it's what we do.
So we've seen some of that growth accelerate.
It's really going to follow the economic activity throughout all of our markets.
So as economies go in the various regions that we're in, those opportunities are going to provide themselves and we're going to move with them.
And it's across the board.
We've seen nice growth in the quarter in retail construction, apartment construction, office, and there's even some decent industrial.
So it's pretty well-diversified in terms of type of growth that we're seeing.
<UNK>, this is <UNK>.
First is, an increase in the NPA numbers that you're seeing is really a direct effect of the merger.
So we're integrating all those into our processes now.
And those two credits that we did talk about last quarter, we did resolve those.
It's <UNK>.
Yes, it's $54.2 million.
We just ran it a couple days ago.
Out of that, the bulk of it is really just to support companies that ---+ it's to provide cancelling services.
No really direct exposure into the drilling activities.
No.
As a matter of fact, they have contracts, and they're still fairly busy right now.
The other thing in the other, we did have some higher-than-normal loan-related fees.
And there were a number of different categories, but our spot fees were about $250,000 ---+ just a little bit higher than normal.
We also had some weather credit fees: that's mostly timing.
And then we did have, related to a resolution of a non-performing item from years ago; we had a special asset fee of about $150,000.
So that's unusual.
So I'd say of that, it might be $300,000 or $400,000 that is above normal.
Thanks, <UNK>.
Hi, <UNK>.
Utilization was flat quarter-over-quarter.
So it's really additional commitments, additional customers.
When we finally got a hold of the detail we needed as we were approaching the merger, the number for the quarter actually came in within $50,000 of what we had modeled out.
But we really didn't have a good handle on that until midway through the second quarter.
Right.
That's both the credit and the interest portion.
About $500,000.
I mean, of what we took this quarter.
From the original, the credit was $11.7 million, and then the interest was just under $3 million.
Hi, <UNK>, how you doing.
Yes, just under ---+ it was about $950,000 for fourth quarter.
I mean, there's a pretty long tail to that, because it goes with the whole life.
We're actually doing the accounting for it at the loan note level, so it's going to depend.
There's something on every single loan, essentially, that came over.
So in theory, it lasts as long as the last loan that we bought.
But it should ---+ I would say within a couple years, certainly, it becomes something that's relatively immaterial.
Right.
And we didn't go out any longer than that at this point.
We wanted to get at least another quarter of the experience behind us before we re-forecast that.
We still think it's ---+ without all the special items, it's in the ---+ about the 345-ish range.
We still think it should hold in relatively close to that.
I hope so, but I think we're pretty close.
We still could see a basis point here or there.
But I think as far as meaningful declines, I believe we're past that, short of something else that's different perhaps with the yield curve, or the competitive environment changes quite a bit.
We have a lot of different efforts going right now on the deposit side.
It's like utilizing some of the brokered markets, and also borrowings.
So we'll do that when we can.
At this level of rate, it can be difficult to get people to move, just because rates are so low.
But we're doing a number of different things, both in the new markets.
In southcentral Pennsylvania we think there's a lot of opportunity out there, since we're a relatively small player there, that we can do some things differently out there that might be effective.
And then we're looking at some different sub-markets even within our own markets, that might have some potential.
So we think there's a lot of room to operate within the current market, but we won't hesitate to borrow or to access the brokers markets a little bit further to fund that loan growth.
Yes, our goal is to try to stay under that 100%.
It was around $370 [million], I think.
Thanks, <UNK>.
I just want to thank everyone for participating in today's call.
<UNK>, <UNK> and I appreciate the opportunity to discuss the quarter results, and look forward to hearing from you in our next conference call.
So have a great day.
| 2015_STBA |
2016 | ACN | ACN
#Yes, so that's a very good question, and I'm glad you asked it.
When you use the word core, just to level set everyone, you're referring to that portion of our business that is not in the roughly 40% we identify as in The New.
So you're talking about the 60%.
And I think the important point to make there, and <UNK> has made this point several times previously as well, is that our investment agenda, and our innovation agenda, covers the full scope of our business, including the 40% that we identify with The New and the 60% that we identify outside of The New.
So again, we have a very vibrant business, outside of that which we identify as being digital, cloud, or security.
So the point is that we do invest to maintain vibrancy in our core business and our goal, just as it is in The New, is to grow our core faster than the market, and take share.
If you look at the year that we just completed, we estimate that our core grew ---+ had positive growth, albeit in the single digit, low single digit range, as by design, the vast majority of our growth comes from new, which is the essence of our strategy.
But nonetheless, our core business continued to grow, and we estimate that it grew faster than the market and we took share.
And we invest for that growth, and we focus on it as a key part of our business.
An example of that would be something that, again, I think <UNK>'s referenced, Bhaskar Ghosh, who leads technology, has talked about this in different forums.
But an example of that would be the investment that we've made in our myWizard platform, which fundamentally reinvents, if you will, innovates around the way we do core application services work, through the use of an automated tool that includes an intelligent agent or agents, in the case of this tool, and really just helps us deliver application services work in a way that is more efficient and more effective.
When you look at, for example, some of the investments that we've made in our strategy and consulting business, while our strategy and consulting business is focused on The New, consistent with our strategy, there are parts of our strategy and consulting business that are not in that bucket that we call The New.
When you look at the investments that we make in that part of our business, for example, the acquisition that we just announced of Kurt Salmon, which gives us an industry-leading strategy capability in the retail sector, and really strengthens our position there.
Certainly a part of that investment benefits us in The New, but there's a part of that investment that is the core strategy capability in retail, that is part of the 60% that we benefit from, as well.
So we invest in both parts of the business, and in both cases, our intent is to be a leader, to grow faster than the market and take share.
Good question.
And I have to say thanks for not asking me the margin question first.
You'll ask it second, I'm sure.
<UNK>, what I would say is that when you look at the maturity curve for The New, and I think this applies to digital, it applies to each of the three components within digital that we talk about, analytics, mobility and Accenture Interactive, it applies to cloud adoption, and it applies to security.
I would say across the board, universally, we are on the low end of the curve, if you will, or to say it differently, we are in the early innings of the adoption curve.
These are ways that we think have a lot of runway in front of them.
Paul Daugherty would give you a more eloquent view, as our Chief Technology Officer ---+ our Chief Technology Strategist.
But I feel comfortable that he would say that certainly this is a decade-long, if not beyond a decade-long adoption curve for these new technologies, and really the profound impact that they will each have on the way global businesses and governments operate.
And so I would say we're early stage in the adoption, and this wave has a long runway in front of it.
Well, it's ---+ again, I think you have to look at ---+ you have to look at the fact that ---+ I want to make sure that in the way I answer that question, that I start with the fact that we feel very good about the momentum in our business, and we feel very good if we were ---+ within the range that we guided to, and that would represent, we think, market leading performance.
Now having said that, why would it be different.
And I don't want this to sound negative, because in fact, we're very positive.
But when you think about the quarter, and when you think about the operating groups and the industries that have had really extraordinary double-digit growth, in many cases, not only for the last year but for the last two years, right.
As confident as we are in many of our industries, as we sit here in the first months of the year, to assume that all of those industries and all of those geographic markets are going to continue at this same level of extraordinary double-digit growth for a third year in a row would just ---+ probably wouldn't be prudent.
Does that mean that we don't have confidence in our industries.
No.
Does that mean that our business runners aren't working hard every day to hit the repeat button, and do again what they've done the last two years.
Absolutely not.
But <UNK> and I have a responsibility to be balanced and prudent in the way we set our expectations externally, and that's what's reflected in our guidance.
And again, that's not to say that our guidance is conservative in any way, because we don't.
We think it's very good guidance in the context of the market growth, and it's entirely consistent with our strategy to be a leader, and grow faster than the market.
But if some of these industries have strong, but let's say lower growth, than they've had the last two years, then that would put us in the 5% to 8% range, and that is the possibility in several of our industries.
I'll start at the end and then work back.
What's driving that assumption is that we don't see anything as we sit here today that would fundamentally change the dynamics that we see in the market, let's say, as we look out over the next four quarters.
We see more of the same.
And what we see is an organic market that would continue to grow in that 2.5% range, which means that we are making our own market through our differentiation, the uniqueness of our strategy, leveraging the power of our investments, to drive a level of organic growth that is meaningfully higher than that to take share.
But we don't see anything that would meaningfully change that underlying organic growth of about 2.5%.
So in other words, we're not speculating on ---+ you pick your black swan of the day.
We're not speculating on some black swan event, that would materially change the market.
If that were to happen, all companies will be revisiting the impact of something like that, should it occur.
In terms of the ---+ again, I almost hate to use the word deceleration, because in almost all cases our growth ambitions for the vast majority of our verticals continue to be quite strong, and well above the market, albeit at lower levels than, in many cases the very, very strong double-digit growth we've had the last year, if not two years.
And so deceleration, what I would say for many of our verticals, we've assumed lower but still strong growth, is the way I would characterize it.
Energy and chemicals and natural resources, we don't see a catalyst for change.
We think those industries are going to continue to be tougher, let's say, continue to be tough as we go through the fiscal year.
As I mentioned, we have seen some pressure in communications, in Europe in particular.
And although we are very pleased with our growth in financial services and banking and capital markets specifically, I would say that is an industry that we are watching through Richard Lumb's leadership, we are watching very, very carefully and very closely.
Yes, so the 2% would align very closely to an assumption that we spend about $1 billion, which is what we've assumed in our capital allocation strategy, if you will.
Could it be higher.
As <UNK> and I have said, we have the willingness and the courage, if you will, and the capacity, the fire power, to spend more than $1 billion, should we have the right opportunities.
And if the right opportunities presented themselves, then we have no reservations, no concerns, and complete flexibility to go above $1 billion, if the circumstances were right.
And so, in theory could it go higher.
It could go higher, and we'll just have to see how the year plays out.
A lot of it has to do with the timing of when those would occur.
Did I miss anything.
On DSOs, we are managing to have our DSOs in the 40-day range.
We had been signaling that DSOs, really for many years, that our DSOs would tick up but still be industry-leading.
And right now we're assuming DSOs in the 40 day range for next year.
Just in terms of color, I would say that we are investing in talent acquisition, in literally in every major market that we have around the world.
When you look at our five businesses, you can connect the dots, and see where we have more ---+ higher growth, let's say, in strategy and consulting, as an example but not just limited to strategy and consulting, and digital, I might add.
Certainly a lot of that talent acquisition investment is in each of the markets that we operate in around the world.
I would also point out though that digital ---+ that GDN also supports, and is very integral, very integral to a big part of The New.
We are investing in differentiated skills, and obviously in cloud and in security, in digital, in the GDN as well.
But again, we will ---+ we're very comfortable with our ability to acquire talent, and to ramp that up, as we need to, as the market growth evolves throughout the year.
Just quickly, as we're running out of time, I would say that I can't comment on our competitors.
What I can say is that the resiliency ---+ let me back up.
A key tenet of our strategy, our growth strategy, is to create durability and resiliency in our business, and that is reflected in our focus across five businesses.
It's focused in our investments to lead in The New.
And it's focused in ---+ it's rooted in the focused but diverse portfolio that we have across industries, and across geographies.
And whereas maybe some of our competitors ---+ you can apply this to who you want ---+ are more dependent on one or two or three verticals in one or two markets, that's not the case with Accenture.
And that is, in fact, the differentiator, and probably colors our comments and our results versus some of our competitors, all of whom we respect, but yet we think we're differentiated, for the reasons that I mentioned.
Again, in addition to chemicals and energy and natural resources, we've got our eye on communications and Europe in particular, and while we haven't seen any impact at this point in banking and capital markets, we're not blind to the dynamics of Brexit and how it could evolve.
And Richard Lumb, who is our Group Chief Executive for Financial Services is very focused on staying on top of that, and we'll see how it plays out.
I would say so far, so good.
Thank you very much.
Okay, so let me just close out the call, and thank everyone again for joining us on the call.
Hope you found it helpful and insightful.
As we enter FY17, we're very pleased with the ongoing momentum in our business, with the differentiated capabilities we're building, our continued rotation to The New, and our disciplined management of the business.
We're very confident in our ability to continue gaining market share and driving profitable growth.
On behalf of <UNK> and our entire leadership team, I want to thank all Accenture people around the world for their hard work, dedication, and commitment to our clients and our business, and to delivering another excellent year.
We look forward to talking with you again next quarter.
In the meantime, if you have any questions at all, please feel free to reach out to <UNK>.
Thank you.
| 2016_ACN |
2017 | DVA | DVA
#Yes, <UNK>, it's a little early for us at this point.
As you know, there's a lot of variability between the advance and the final notice.
We've got some very high-level assumptions that have been put out, but the county level specifics are very important for us.
So it is way too early to tell, and when we get more information, we will let you all know.
Thanks <UNK>.
It's in our earnings release.
Hang on.
Fully diluted at the end of the quarter ---+ average for the quarter was 196,743,187.
We will get back to you.
Well, it's not locked and loaded.
The probabilistic gives and takes are embedded in the number that we gave you.
Well, it could be a little better, it could be a little worse.
It's the name of the game.
We try to be as constructive and productive as we can and give you as much as we can, and that's what's embedded in our guidance.
On the non-Medicaid, I doubt that it would come back.
I would say no to that, although you never say no to anything nowadays because everything is being questioned.
And so is that the bulk part of your question, or is there something else in that.
Yes.
I don't know if I quite think about it the same way, so let me stumble around here for a second and see if it can be useful.
As we accumulate cash, if we are not thinking that we've got the right business opportunities to invest in, there is a point at which we get somewhat uncomfortable and usually a bunch of you do also with the amount.
And then we do stare at the price of the stock that we are not in the camp that some people are in where they just say buybacks are ---+ buyback decisions should be made totally independent of what the stock price is.
We're not in that camp, nor do we think that we are excellent prognosticators of which way the stock moves as you can tell by the decisions we've made over time, whether it is stock buybacks or option exercises or whatever.
So we are appropriately humble in thinking about that, and there's always upside and downside.
So clearly putting all that stuff together and the fact that it didn't feel at all appropriate to use your money to pay down debt, we thought it was right to put the cash to work by buying back stock, put it to work for you rather than having it sit for a longer and longer period of time on our balance sheet.
And, of course, we didn't want to reduce our standards for making additional business investments.
It is also the case that we think that while 2017 is going to be a very tough year compared to perhaps any year in memory, that things are going to be better as we move forward out of 2017.
That's not to say there isn't risk, but that's where we lean.
So is any of that helpful to you in trying to resolve what you feel is sort of a contradiction.
Well, it doesn't take much to get better.
Taking a couple hundred million dollars in hits between government actions and big payer hits, we've never had that happen in, I think, 17 years.
And so just by not being another 17, it already is a very nice step-up.
In addition, the fact is when we do eliminate some higher than usual rates, that is another element of downside that is gone.
In addition, we do have some policy upsides.
In addition, we are hoping that DMG and international start to be incremental contributors.
So I think those are some of the reasons beyond just the continued positive operating performance of our core US Kidney Care platform leads us to think we got a very good chance of doing better.
<UNK>, while I've got you on the phone, both <UNK> and I have answers.
This is <UNK>.
I don't think I was clear in my answer, I might have even misspoken.
The Medicaid is likely not to come back, and then non-Medicaid it's too early to tell.
I think I might have confused my labels there, so my apologies.
There hasn't been any that I know of.
The other parts of the business are very different from a regulatory and decision-making point of view, so that's the current status.
The real answer is that with open enrollment done, the substantial part of the equation played out.
And so it's not right now about the design issues, but rather that we missed the open window.
Yes, unfortunately, there are no major developments to report on this.
It has been a long transaction, and we are anticipating a Q2 close, and that is all unfortunately we have to say.
To be honest with you, the date has been a moving target.
I can't remember the last one that we gave you because the buyer and the FTC and the process has been one that has kept going.
So we've probably given you more dates, and the last one was, I believe Q1, but I can't recall.
Yes, I don't have anything insightful.
The labor markets are getting tight.
It's a competitive landscape, and just workers are demanding higher wages.
Of course, it's our job to create a special place to work where people are more fulfilled.
And, so, therefore, on average, wages becomes while, of course, everybody needs to make a competitive wage, but people are less willing to consider moving to another place just for the wages.
And so that's what we're dealing with.
I don't have anything else to add to that.
Well, if they achieve corporate tax reform, the kind of tax reform that they are talking about, we'll have a really nice party with you guys because we are one of the highest taxpayers in America and always have been.
And the good news is that the new Congress is really serious about doing that.
We're in DC now, and that subject has probably come up in four of the meetings that I've been in in the last 24 hours.
Having said that, that is a tall mountain to climb, and so you have got tremendous resolve with Paul Ryan and others.
At the same time, you've got formidable challenges in pulling it off.
So we just love the fact that it is a real possibility, and then what would we do with it.
Well, I think we will wait until we are about to get it before we spend too much time on that.
But I think we will put it through the same decision-making filters that we've put our current cash flow through.
And then I think your broader question about is there any other legislation.
The other piece of legislation which has a good shot is our patient demonstration legislation wherein we would pick up the right to put thousands and thousands and thousands of our patients into a globally capitated environment where we can provide integrated care, which would significantly improve clinical outcomes and over time save taxpayers money.
So that's a very, very big deal.
We were with a number of the bill sponsors here in the last 24 hours who remain very enthused.
And so that is percolating and has very attractive potential.
Yes, <UNK>, on de novo certification, we see somewhere in the range of 90 to 110 for 2017.
So pretty consistent to the range we had for ---+ did I say 2016.
So for 2017, we have that range.
It is consistent to the range we had for 2016.
As it relates to the small players, we have seen a slight pickup in the marketplace, but the reality is that there is just not a lot out there.
And so it's on a very low base, and so you shouldn't see a big spike or meaningful movement in the acquisition number.
We haven't heard any.
That doesn't mean the conversations aren't happening, but we have not heard of any.
It is included in the guidance, and the number ---+ I will check in a sec here.
It is not material is what I'm being told, but I will get the number in a sec.
Thank you, <UNK>.
<UNK>, just to wrap up, it is approximately $10 million.
Thank you.
Okay.
Well, thanks, everybody, for your continued interest in our enterprise.
We will do our best to serve your capital well between now and our next call.
Thanks.
| 2017_DVA |
2015 | NWN | NWN
#<UNK>, this is <UNK> <UNK>.
I'll take those questions in order.
First of all, the recovery of the $13 million, we'll see an increase in revenue for that amount, and you'll see an offsetting increase in expense or amortization.
We'll report it as an operating expense as we amortize the deferred balance.
So the net-net, it will be a positive cash flow perspective but net zero from an income or net income perspective.
Now, we're collecting the $13 million, which has been authorized.
This is not something that's subject to refunds.
This is something that we're collecting, amortizing those balances.
Any adjustments to collections of deferred balances would be done on a prospective basis as we go through each calendar year.
Once it gets put into the PGA, we're collecting it.
Those are dollars that have been approved for collection by the Commission and there's no second look at it.
Right.
Yes, I think maybe a couple of things to be helpful here.
Gill Ranch, we had about $1.8 million recorded last year on the storage segment which increased Gill Ranch's O&M, which we wouldn't expect to be repeated this year, or as something that would be recurring.
As we think about O&M more generally, we have implemented cost control to try to offset some of the impact of weather and the write-off, frankly, coming off 2014, which was actually a pretty, we had a pretty low level of O&M expense that year based on FTEs and so forth.
So we're coming off a pretty low base.
From a budgeting perspective we actually expected to be up fairly significantly year-over-year, in the 7% area.
And the fact that we have held it to relatively close to flat year-over-year is acknowledgment of the efforts that we've taken this year, which are probably not sustainable next year.
At some point we have to have, we have to adjust staffing.
We have to reflect increases in costs that are baked into third party expenditures and other things.
So I would say if you look at our, if you look year-over-year, if you take our O&M of 121 that's reported year-to-date, and we adjust out of that the about $16 million in the write-off, the environmental write-off and other adjustments, and then if we look at some of the baked-in increases that we had to offset, which included the bargaining unit, labor increases, and compensation increases, again we have kept that flat relative to last year.
So that, in total, that gets you somewhere in the $4 million plus area in terms of savings that we have been able to achieve, which are baked into our forecast numbers.
Thanks, <UNK>.
Okay, doesn't seem to be any additional questions.
I want to end by thanking you all again for joining us this morning and for your interest in our company.
We appreciate it.
Take care.
Thank you.
| 2015_NWN |
2017 | VRSN | VRSN
#Thank you, operator, and good afternoon, everyone.
Welcome to VeriSign's fourth-quarter and full-year 2016 earnings call.
With me are <UNK> <UNK>, Executive Chairman, President and CEO; <UNK> <UNK>, Executive Vice President and COO; and <UNK> <UNK>, Executive Vice President and CFO.
This call and our presentation are being webcast from the Investor Relations section of our VeriSign.com website.
There, you will also find our fourth-quarter and full-year 2016 earnings release.
At the end of this call, the presentation will be available on that site, and within a few hours, the replay of the call will be posted.
Financial results in our earnings release are unaudited, and our remarks include forward-looking statements that are subject to the risks and uncertainties that we discuss in detail in our documents filed with the SEC.
Specifically the most recent reports on Forms 10-K and 10-Q, which identify risk factors that could cause actual results to differ materially from those contained in the forward-looking statements.
VeriSign retains its long-standing policy not to comment upon financial performance or guidance during the quarter, unless it is done through a public disclosure.
The financial results in today's call and the matters we will be discussing today include GAAP and non-GAAP measures used by VeriSign.
GAAP to non-GAAP reconciliation information is appended to our earnings release and slide presentation, as applicable, each of which can be found on the Investor Relations section of our website.
In a moment, <UNK> and <UNK> will provide some prepared remarks, and afterward we'll open the call to your questions.
With that, I'd like to turn the call over to <UNK>.
Thanks, <UNK>, and good afternoon, everyone.
I'm pleased to report another solid quarter, which capped another solid year for VeriSign.
The year marked some significant milestones for the internet community and for VeriSign, with the completion of the IANA transition, our signing of the root zone maintainer service agreement with ICANN, and the dot-com registry agreement extension amendment, which extends the dot-com registry agreement until the end of November 2024.
Our fourth-quarter and full-year 2016 results were in line with our objectives of offering security and stability to our customers while generating profitable growth, and providing long term value to our shareholders.
During 2016, VeriSign delivered strong financial performance, including reporting $1.142 billion in revenues, expanding free cash flow to $666 million, and producing full-year 2016 non-GAAP operating margins of 64.5%.
Operationally, 2016 was a solid year for the Company.
VeriSign processed 35.8 million new dot-com and dot-net domain name registrations, and finished the year with 142.2 million dot-com and dot-net names in the domain name base.
During the year, we marked more than 19 years of uninterrupted availability of the VeriSign DNS for dot-com and dot-net.
As part of managing our business, during the fourth quarter we continued our share repurchase program, by repurchasing 2 million shares for $160 million.
During the full year of 2016 we repurchased 7.8 million shares for $637 million.
Effective today, the Board of Directors increased the amount of VeriSign common stock authorized for share repurchase by approximately $641 million to a total of $1 billion authorized and available under the share repurchase program, which has no expiration.
Our financial position is strong with $1.8 billion in cash, cash equivalents and marketable securities at the end of the year.
We continually evaluate the overall cash and investing needs of the business, and consider the best uses for our cash, including potential share repurchases.
At the end of December, the domain name base in dot-com and dot-net was 142.2 million, consisting of 126.9 million names for dot-com, and 15.3 million names for dot-net.
This represents an increase of 1.7% year over year.
As noted in prior conference calls, the fourth quarter of 2016 was somewhat unique as the volume of domain name registrations up for renewal in the quarter had a larger than normal percentage of first-time renewing registrations, due to the strong performance during Q3 and Q4 2015 coming from China investors.
As first time renewing names have a lower renewal rate than previously renewed names, fourth-quarter 2016 deletes were elevated, and resulted in a domain name base decrease of 1.9 million net names, after processing 8.8 million new gross registrations during the quarter.
This larger percentage of first-time renewing names is also leading to an overall preliminary fourth-quarter 2016 renewal rate of 67.5%.
This preliminary rate compares to 73.3% achieved in the fourth quarter of 2015.
In the third quarter of 2016, the renewal rate was 73%, compared with 71.9% for the same quarter of 2015.
While activity from China has normalized over the last few quarters, the China name surge of late 2015 declined, but did carry over into the first quarter of 2016.
As a result, we expect a small group of names to contribute to a slight increase in deletes towards the end of the current Q1, and the beginning of Q2.
Based on these and other factors, we expect full-year 2017 domain name base growth of between 0.5% and 2.5%, with an increase to the domain name base of between 0.7 million and 1.2 million registrations in the first quarter.
Now, I'd like to provide two updates, before handing the call over to <UNK>.
First, as it relates to our becoming the registry operation for dot-web, on January 18, 2017, the Company received a civil investigative demand from the Antitrust Division of the US Department of Justice, requesting certain information related to VeriSign's potential operations of the dot-web TLD.
The CID is not directed at VeriSign's existing registry agreements.
As we said at the time of the auction last July, we strongly believe VeriSign is well-positioned to grow and widely distribute dot-web to provide an additional option for the TLD, given our proven track record of reliability and stability, and we look forward to explaining our views as we respond to the CID, and continue to cooperate with the DOJ.
Second, we continually evaluate the strategic opportunities for our business, and as you may have seen earlier today, we have decided it is in the best interests to sell our iDefense business to Accenture.
As part of this sale, VeriSign will continue as an iDefense customer, to benefit from the threat intelligence information provided by iDefense.
The announcement of the iDefense sale only relates to iDefense, and is not a sale of our other security services offerings, including DDOS protection and managed DNS.
The terms of this transaction are not being disclosed, and the financials associated with this business are not material to our overall business.
We anticipate closing the next few months, subject to customary closing conditions.
Now, I'd like to turn the call over to <UNK>.
Thanks, <UNK>, and good afternoon, everyone.
For the year ended December 31, 2016, the Company generated revenue of $1.142 billion, up 7.8% from FY15, and delivered GAAP operating income of $687 million, up 13% from $606 million for the full year 2015.
Revenue for the fourth quarter totalled $286 million, up 5% year over year, and down 0.4% sequentially.
This small sequential decline was a result of the 1.9 million reduction in the domain name base during the quarter that <UNK> discussed earlier.
During the quarter, 59% of our revenue was from customers in the US, and 41% was from international customers.
GAAP operating income in the fourth quarter totalled $169 million, up 6.6% from $158 million in the fourth quarter of 2015.
The GAAP operating margin in the quarter came to 59%, compared to 58.1% in the same quarter a year ago.
GAAP net income totalled $106 million, compared to $102 million a year earlier, which produced diluted GAAP earnings per share of $0.84 in the fourth quarter this year compared to $0.76 for the fourth quarter last year.
As of December 31, 2016, the Company maintained total assets of $2.3 billion, and total liabilities of $3.5 billion.
Assets included $1.8 billion of cash, cash equivalents and marketable securities, of which $368 million were held domestically, with the remainder held abroad.
I'll now review some additional fourth quarter financial metrics, which include non-GAAP operating margin, non-GAAP earnings per share, diluted share count, operating cash flow and free cash flow.
I will then discuss our 2017 full year guidance.
Fourth quarter non-GAAP operating expense which excludes $14 million in stock-based compensation totalled $103 million, as compared to $100 million in the third quarter of 2016, and $103 million in the same quarter a year ago.
The sequential increase was primarily a result of increased marketing expenses deployed in the quarter.
Non-GAAP operating margin for the fourth quarter was 63.9%, compared to 62.4% in the same quarter of 2015.
Non-GAAP net income for the fourth quarter was $115 million, resulting in non-GAAP diluted earnings of $0.92, based on a weighted average diluted share count of 125.5 million shares.
This compares to $0.79 in the fourth quarter of 2015 and $0.93 last quarter, based on 133.4 million and 127.8 million weighted average diluted shares respectively.
Dilution related to the convertible debentures was 20.6 million shares, based on the average share price during the fourth quarter, compared with 21.4 million for the same quarter in 2015, and 20.8 million shares last quarter.
The share count was reduced by the full effect of third-quarter 2016 repurchase activity, and the weighted effect of the 2 million shares repurchased during the fourth quarter.
Operating cash flow was $195 million, and free cash flow was $198 million for the fourth quarter, compared with $189 million and $176 million respectively for the fourth quarter last year.
With respect to full-year 2017 guidance, the financial guidance that I will provide reflects the expected completion of the iDefense asset sale within the next few months.
Revenue for 2017 is expected to be in the range of $1.138 billion to $1.158 billion.
Full-year 2017 non-GAAP operating margin is expected to be between 64% and 65%.
Our non-GAAP interest expense and non-GAAP non-operating income net is expected to be an expense of between $93 million and $100 million.
Capital expenditures for the year are expected to be between $35 million and $45 million.
And, finally, cash taxes for the year are expected to be between $15 million and $25 million.
Substantially all of the expected cash taxes in 2017 are international, primarily because of domestic tax attributes, including cash tax benefits from our convertible debentures.
These convertible debentures continue to generate cash tax benefits while they remain outstanding, and they are an important part of our capital structure.
Although we will have the right to redeem these debentures under the terms of the indentures starting August of 2017, our intention, based on current conditions, is not to redeem these debentures, which will allow the cash tax benefits to continue to accrue.
In summary, the Company continued to demonstrate sound financial performance during the fourth quarter and full year 2016.
Now, I'll turn the call back to <UNK> for his closing remarks.
Thank you, <UNK>.
In closing, during the last year, we expanded our work to protect, grow and manage the business, while continuing our focus to provide long term value to our shareholders.
We think that our focus on profitable growth and disciplined execution will extend the long trend lines of growth in our top and bottom line, and will allow us to continue our consistent track record of generating and returning value to our shareholders in the most efficient manner.
We will now take your questions.
Operator, we're ready for the first question.
<UNK>, thanks for the question.
In general, our renewal rates both domestically and internationally have been relatively consistent with one another.
But the vast majority of the decline that we saw in our international renewal rates really related to the China names.
That was the biggest factor.
Everything else stayed relatively consistent for us.
Yes, for the group of names that are similar ---+ the group of names.
It was about 750,000 to 1 million names that came in, in the first quarter of 2016, that was also from what we believed to be the China investor phenomena.
We expect those to have similar renewal rates as the names that renewed in the fourth quarter of 2016.
Sure, I think there is a variety of factors that go into our revenue guidance, which is $1.138 billion to $1.158 billion for next year.
Clearly, we had a very strong 2017.
We were up 7.8%.
I'm sorry, 2016, we were up 7.8% 2016 versus 4.9% 2015.
And as we talked about, a lot of that revenue growth was from a unique event, which was attributed to the strong China investor community.
And as we mentioned, about a third of those names renewed in the fourth quarter.
So we do have some names, as I just mentioned coming up in the first quarter, that should ---+ if they had the same renewal rate, will delete out of a zone sometime in the late first quarter, early second quarter.
And so that is part of what's influencing it.
Also to a lesser extent, you're correct, the iDefense business, we expect that revenue to get out of the business as we close this transaction.
And so without disclosing any details on the iDefense business which we're not, I would say it is really those two factors that are giving our view of revenue today.
And as always we'll update our guidance each quarter, as we get more visibility into the year.
Sure.
Well, I think, in my comments I not only said all I should, I think I said all there really is to say at this point.
There is no information beyond what I told you.
I can give you a little bit more color, I guess.
We certainly said in the past that inorganic growth is part of our growth strategy, and sometimes regulatory review becomes part of that process.
So we received the CID, which is like a subpoena.
We have been discussing it with the DOJ since shortly after we received it.
And we provided some information already, and we're continuing to cooperate.
So like I said in my remarks, we believe we're well positioned to grow dot-web, we think that the industry is extremely competitive.
Beyond that, it is too early in the process to say anything beyond that.
It is just speculation, and I really can't do that.
Well, dot-net was also impacted by the China activity in 2015, and so we did see some of dot-net names also churn out of the zone, in the fourth quarter of 2016.
Dot-net is still a great brand for us, globally.
It's well-recognized, it continues to do well in markets internationally, as well as domestically.
But there is a lot of choice in the domain name industry, and there is clearly competition, whether it be from ccTLDs or other technologies.
But we still are looking to drive demand in dot-net, and it is still a great brand for us globally.
Certainly dot-net is not the brand that dot-com is.
Com is a stronger brand, but there are 15.3 million dot-net registrations.
It's a globally recognized and trusted brand.
It had in the past couple of years actually dipped briefly below 15 million names, and it's recovered.
So I think its growth trajectory is different than dot-com, it is still a very, very strong and recognized brand.
It's the second largest generic TLD behind com.
Well, we currently have three of the transliterations of com and net generally available.
That's two of the Korean or Hangul transliterations, one for com and one for net.
And the Japanese or Katakana script of dot-com.
At this point, we're not providing any additional details on other launches.
As we mentioned last quarter, we do continue to work on our licensing process to operate the Chinese IDNs, and we will update as we develop our plans further.
I don't know if you're on a cell phone.
The very end of that was a little difficult to understand.
You said that other revenue was higher in the quarter, and then you said something else that at least I wasn't able to get.
Try again, please.
I got your first question.
Okay.
Let me address your first question about iDefense.
I think you were asking about strategic rationale.
We've certainly said consistently that we are certainly better suited to be a consumer rather than a producer of threat intelligence.
Our primary business is obviously the secure and stable operation of infrastructure supporting dot-com, and dot-net.
That is our primary mission, that's the most important thing that we do.
We obviously need good cyber defenses in order to do that, but we will continue to be an iDefense customer, and receive it.
But it's a little different than the other security services, and as I mentioned in my remarks this is specifically iDefense, it is not our managed DNS business, and it is not our DDOS protection businesses.
So I think it is just a logical sort of business progression for us.
Your other question was about other revenue and I'll ask <UNK> maybe to address that.
Yes, so there was nothing unusual in the quarter.
I'm not sure how your models track our revenue performance, but nothing unusual from an other revenue perspective.
If I can just throw out some additional color for you, we've had, as you know, a number of different growth initiatives, and we did monetize some patents in 2016, and we expect to do so in 2017 as well, but the amount is not material.
We've adjusted our growth efforts to align with a rapidly-changing domain name market.
Some of those changes include shifts in traditional channels for domain names, possible secondary market activity, and corresponding changes to how we invest in marketing.
While we're planning to realize 2017 revenue from these other efforts, we don't expect it to be material, and none of it is in our guidance.
Yes, sure, <UNK>.
Be happy to.
So if you looked at the quarter from a non-GAAP basis, we had about $103 million of expenses in the quarter.
That was up about $3 million from the third quarter, where we had about $100 million.
And the majority if not all of that increase was spent in the marketing area.
We continue to partner with our registrars, to put more marketing dollars in various markets to drive domain name growth.
So we were able to put that money to work, and we continue to look to opportunities to partner with registrars to do that, in markets that we think can drive profitable growth for us.
The general availability for the earliest ones was not until second quarter of 2016, so we're not up to our first year.
We haven't lapped yet.
I think it's too early to tell.
They are such a different product.
Yes, we don't guide to the renewal rates, but there is only a few more months and that information will be available.
Thank you, operator.
Please call the Investor Relations department with any follow-up questions from this call.
Thank you for your participation in this call.
That concludes our call.
Have a good evening.
| 2017_VRSN |
2018 | SM | SM
#Thank you, Tiffany.
Good morning, and thanks to all joining us by telephone and online for SM Energy Company's First Quarter 2018 Financial and Operating Results Q&A.
Before we start, I'd like to advise you that we will be making forward-looking statements during this call about our plans, expectations and assumptions regarding our future performance.
These statements involve risks that may cause our actual results to differ materially from the results expressed or implied in our forward-looking statements.
For a discussion of these risks, you should refer to the cautionary information about forward-looking statements in our press release from yesterday, the presentation posted on our website for this call, the Risk Factors section of our Form 10-K that was filed earlier this year and our Form 10-Q filed for this quarter.
We will also discuss certain non-GAAP financial measures that we believe are useful in evaluating our performance.
Reconciliation of those measures to the most directly comparable GAAP measures and other information about these non-GAAP metrics are described in our press release for this call.
Other company officials on the call are Jay <UNK>, President and Chief Executive Officer; Wade Pursell, Executive Vice President and Chief Financial Officer; Herb <UNK>, Executive Vice President, Operations; and <UNK> <UNK>, Vice President, Investor Relations.
I'll now turn the call over to Jay.
Well, thank you, <UNK>.
I think everybody understands.
It was a pretty straightforward quarter.
So we'll just turn over to you for your questions.
Yes.
All right, Mike.
This is Herb.
And yes, we've already done co-development of 2 zones and we have for, in this year's plans, co-development of a large pad ---+ set of pads in the rock ridge ---+ RockStar area.
So that's going to be late in the year.
And I believe it's 25 wells.
It will be 3 zones and that will be Lower Spraberry, Wolfcamp A and Wolfcamp B.
So yes, we've done 2 zones, co-development in numerous places.
It will be lumpy.
It just depends on the timing.
In some cases, we have 4 pads that will come on in successive order and they can be a month apart, but that ---+ it will be a pretty lumpy production.
No.
The Lumbergh wells is ---+ are standard completion.
There's nothing really special on Lumbergh wells at all.
And of course, they are the 10,000-foot laterals on those.
Yes.
It's really a great area.
So on the whole market side, we think we're really well-positioned.
Our gathering and sales are diversified to several counterparties and all our counterparties for oil have firm takeaway capacity.
And one real differentiating thing for us is the oil is really high-quality, 37 to 41 API, which is great for Texas refineries.
It doesn't need to be exported.
And then, of course, we're hedging with our routine hedging program where we're really watching that.
And finally, we've got great relationships with all our off-takers.
So we think we've managed through ---+ we're managing through what we see as a temporary tightness that everybody sees.
Yes.
The answer to the first part of that, Joe, is no.
We are not.
We ---+ our purchasers and our gathers are well-positioned and so we don't foresee any issues from those counterparties at all.
And we've had a long-standing relationships with them, some of them in other basins also.
So we're ---+ we do not see any issues with flow assurance.
Yes.
That's ---+ it's hard to understand, Joe, what all drives the ---+ how the market is moving, if people see tightness in the future and ---+ but it would be pure speculation on my part.
So on ---+ let me go to the fiber optic question first.
So that installation was a permanent installation.
And so we've already completed the fraction stimulation of that well.
So we see exactly what happened and we tested a number of different changes in the completion design over typically 6 to 8 stages in each and we're going to ---+ we're just now starting to flow back on that well.
So we'll see how the completion design changes the influence, the contributions from each stage.
So we're really excited about that.
And we did try several different things in the one wellbore.
And we'll just be sharing that as we get the results in over the next couple of quarters.
We only completed 5 wells in the quarter so ---+ and we didn't have any completions for about a couple ---+ 3 months before that.
So it's been pretty light in terms of new results on the Eagle Ford.
And of course, we're going to get the 9 on this next quarter.
Brad, this is Herb.
Yes, I think in the February presentation, we showed our maps and that's a pretty detailed look at where we confirmed and where we believe the sweet spots are.
And we're continuing our march on expanding that confirmed contour over time.
And you're right, over that northeast edge of our acreage, we've got 3 wells up there, 3 different zones.
So we've been real pleased there and, of course, we're stretching it out wherever we can.
Brad, when I put numbers in like 1/3 or 1/2, they're really rounded.
So you can assume, for example, 1/2 might be 45% or 55%, 1/3 would be plus or minus a few percentage points.
So I don't think it's ---+ would work to back calculate off those round numbers.
No.
I think.
.
No ---+ this is Herb.
It's in the February presentation.
We gave all this information in February.
Well, our sales are typically to third parties and it would be Midland basis-priced.
Well, this Jay.
That's a big, big question you just asked.
And in general, what we're going to do at the corporate level is we're focused on returns that will allow us to operate within our own cash flow and generate competitive debt-adjusted per share cash flow growth rates and we're going to optimize based on that.
We will be in a position by the time you get through next year where we've got almost all this acreage held by production in one shape or form.
So we can go at a pace that's going to make sense from an overall corporate returns and growth standpoint.
Yes, Oliver.
This is Herb.
So the 420-foot spacing makes a lot of sense for certain areas and 513 makes sense for areas in 660.
So what we've really been doing is refining what's optimal by different intervals and by different locations.
So it's hard to say there's just one single rule of thumb.
It just so happens where the wells that came on, those 19 wells that came on, the majority of those were Wolfcamp A and they were where we were doing the 420-foot spacing.
So it's really that's what it comes down to.
Yes.
I think when we talked about 500 spacing, we're talking sort of an average number across the acreage.
And we've used that to help people understand our inventory numbers.
Yes, <UNK>.
Yes.
So let me just step back a minute.
So we've got this large Eagle Ford acreage position and it's really a great asset and it's not really valued as highly as we think it should be.
And we mentioned over the last couple of quarters in our calls what we're seeing and we're moving to wider spacing and definitely drilling longer laterals.
And then, we're also steering a little bit into different landing zones and then we're working on that frac optimization that I just talked about earlier with the fiber optics.
So we think that with what we're doing in our 2018 program and going forward is that we're going to add significant value to each of the wells we drill, just like when we talked about the Permian when we went to longer laterals that we were quadrupling the value per well.
This is the same sort of thing that we see significant value enhancements by going to the new plan.
And we've got lots of data off-site operators plus when we do a lot of data analytics on our existing wells, we can really see and we're now just putting that program in place.
And we're doing that really where we're drilling, which is basically on the undeveloped leasehold.
And so it's really increasing the value of the undeveloped leasehold that we have.
Yes.
The undeveloped leasehold in the eastern acreage hold, that Galvan area, that's great rock out there.
Well, as far as further divestitures go, I think we've proven that we're not shy about making portfolio changes.
If you track our divestitures today, you know that, on average, those assets were sold at very highly values relative to the cash flow they generated, at the same time not materially reducing the amount of our really high-return drilling inventory.
And that's still going to be our objective in any transaction or combination of transactions that we would pursue.
Well, we work on improving our portfolio all the time, but we're not in the market selling anything right now.
Yes, this is Herb.
Pretty much we see, after first quarter, things are right on track with what we assumed, that 10% to 15% increase over last year.
We don't really see any reason to take a different view at this time.
And really, the pace we kind of laid out there, what we're doing in terms of dropping some rigs and frac spreads a little bit later in the year.
So we look on track right now.
And of course, well results we've been really pleased with, too.
<UNK>, just let me clarify.
So you're talking about in the JV area on the western acreage when we're getting results from there.
Yes.
Right.
We just got 8 ---+ the first 8 full D&C wells in the JV.
We just got them online now.
We'll get another 8 by the end of the year.
So you're really talking towards the end of the year that we'll have some months of production from the first 8 and then it will be in the next year that we'll have results from the next set of 8 out there in the JV area.
Well, <UNK>, first of all, the NGL component is really big on the Eagle Ford, so that's really a key driver.
And so we've shown like in the IR figures in February where NGL spend and that drives it.
And you'll see that they're pretty competitive and what we're doing now is making them even more competitive by expanding the laterals and widening spacing somewhat.
We see those returns really coming out considerably.
I think your question implies something that we don't necessarily agree with.
We think the Eagle Ford can compete with our Permian returns, but clearly we need to drill an amount of spacing that's appropriate for the price environment we're in and the NGL value is significant.
So we really believe that it's a great asset.
It's just not valued the way it should be.
And results from these next-generation wells are going to show us a lot of potential and increase substantially the value of that undeveloped acreage and that's what we're about this year.
Okay.
Let me take that, <UNK>.
It's really the NPV ---+ clearly, it goes up substantially when you're increasing NPV per well by a considerable amount.
In terms of inventory, we're really talking about economic inventory and that's really a threshold IRR that we use.
So economic inventory, it's really a positive outlook on economic inventory if you look forward, if we get the results that we expect.
We put a lot of this data in to our February release.
There's a pretty good rundown on inventory there and you can assume that almost all those laterals are 10,000-foot laterals at this point.
Well, thank you.
I mentioned earlier, our vision for the company is to be one that generates high returns, can grow with our own cash flow and deliver high debt-adjusted per share cash flow growth rates.
And we're on a path to get there as quickly as we can.
And I'm really happy with our quarter.
We're on track with all the plans, on track or ahead of our trajectory on everything we can come up with today.
So thanks, again, for your time and attention and we'll look forward to sharing our results with you next quarter.
| 2018_SM |
2015 | BA | BA
#Yes, I put it into three main areas, <UNK>.
R&D, we do expect R&D to pick up a little bit in the back half, with the, in particular, the 777X ramping up.
We'll have more 787-9 deliveries, 787-9 deliveries, and then with more 747s, as well.
So that's the ---+ I'll say the dilutive impact for the margins, going through the balance of the year.
Having said that, obviously, we got everybody extremely focused on continued good productivity, and we will through the balance of the year.
But it's really that mix that's driving it.
I would say traditionally, as you know, we're back-loaded.
But third and fourth quarter will be heavier than first and second quarter.
And again, progress payments, milestones, and then just delivery profile.
We don't mention commitments unless things are largely done.
And so things are largely done.
And there's timing considerations, and in some cases, driven by customer requirements and things.
And so we let the customer decide when to finally approve and release.
But I have a very high degree of confidence in the 25 number.
We don't anticipate any change from what we talked about when we gave guidance.
So again, I see advances about flattish year over year ---+
Thank you.
Thank you.
We'll continue this morning with media questions for <UNK> and <UNK>.
If you have any questions following this part of the session, please call our media relations team at 312-544-2002.
Operator, we're ready for the first question.
And in the interest of time, we ask that you limit everyone to just one question, please.
Good morning, <UNK>.
Listen, you're right, they decided not to go through with the election.
Presumably because they felt they didn't have the votes, but you'd have to ask them specifically about why they withdrew.
We are very happy with our relationship with our teammates down in South Carolina.
The site is technically, and on a manufacturing, certification, engineering basis, doing very well.
I'm very pleased with its progress.
But I also highly value the relationship that we all have with our employees in Puget Sound.
One group has a union, one doesn't.
We prefer to have a direct relationship with our employees, but when they choose to have a union, we want to work with them.
So it's not either/or.
Our task is to work with both environments, and to grow them to their potential.
But very happy with developments down in South Carolina.
That place is really doing well.
Didn't see Airbus' comments today, but I think our supply chain has anticipated robust growth, probably from both of us.
They see the orders in the backlogs, as we do.
We spend a lot of time talking with our supply chain, and working on them with readiness ---+ on readiness issues, I should say.
We've announced 52.
They count a little bit differently.
60 is not ---+ is roughly the same as 52, 54.
I've forgotten how the math works.
But I think the supply chain is ready, and we've spent a lot of time investing in getting them ready.
Good morning, <UNK>.
I'm not sure about the last number.
There's no anticipated charge here, <UNK>.
Our estimate ---+
No.
I don't know where they got it from.
Our estimates have taken all that into consideration on first flight, as well as completing the balance of the airplanes.
Certainly, there's work left to be done here, and we're going to get the airplane into the air sometime this summer.
And that will be fully militarized, and we'll see how that goes, and continue to execute the balance of the program.
But there's no change to the financial position on the program at this point.
Operator, we have time for one last question.
Yes.
Yes, good morning.
Sure.
Yes, I think that all the problems are not resolved.
We do have a high confidence in the plan to resolve them.
We have ---+ and it's because our people are deeply involved with them in the resolution.
We don't anticipate a lot of it being worked through until the end of the second quarter.
But we've all figured out a way to work together, that it's not going to disrupt our production plans.
And we're pleased to see their response now to getting this fixed.
That concludes our earnings call.
Again, for members of the media, if you have further questions, please call our media relations team at 312-544-2002.
Thank you.
| 2015_BA |
2015 | CIR | CIR
#Thank you, <UNK>, and good morning, everyone.
CIRCOR today reported revenue of $166 million and adjusted earnings per share of $0.60.
On the top line, after adjusting for currencies, revenue from our international project businesses was up year-over-year.
However, as expected, we saw a decline in our North American short-cycle business.
Our Aerospace & Defense group experienced lower sales, driven in large part by the exit of our structural landing gear products last year.
From an orders perspective, we recorded strong bookings in our long cycle international projects business, driven by new customers and an improving win rate in the Middle East.
Large project strength adjusted for currencies more than offset the significant decline in upstream short-cycle orders in North America.
Our Aerospace & Defense group recorded higher orders year-over-year, due in large part to bookings for fluid control products on commercial platforms.
On our last call, we discussed the restructuring actions we are taking to mitigate the impact of market dynamics on our earnings and to align our businesses with lower near-term demand.
These actions are on track to be completed by the end of the second quarter and we expect them to generate approximately $8 million of annualized savings.
In addition, today we are announcing further actions to generate an additional $5 million of annualized savings.
These new actions are primarily volume related and should be largely completed by the end of the second quarter.
Please turn to slide 4.
A couple of weeks ago we announced the acquisition of Schroedahl, a German-based privately-held manufacturer of safety and control valves.
This acquisition is aligned with the capital deployment strategy that we presented at our investor day last September.
Schroedahl accelerates our penetration into the high-growth power generation market, including a strong presence in Asia.
The Company has strong engineering capability and an excellent reputation for severe service products.
Schroedahl has a leading position in the niche market for auto recirculation valves, which protect pumps against overheating, collapse, or destruction.
This business carries sustainable high margins because of its differentiated technology, its reputation for consistent high-quality products, and its severe service applications where the cost of failure is extremely high.
Strategically, Schroedahl fits nicely into CIRCOR, where we have the opportunity to leverage our global sales and operations footprint.
As we look at the financial metrics for this acquisition, we paid net consideration of EUR76 million, representing about 8 times 2014 EBITDA.
The return on invested capital exceeds our cost of capital in the first year.
In addition, Schroedahl is it expected to be EPS accretive in year one.
We funded the deal with existing international cash and about $20 million of debt.
We are excited to welcome the Schroedahl team to CIRCOR.
During the quarter, we initiated our $75 million share repurchase program.
To date we've purchased 648,000 shares for about $36 million.
As we initially communicated, we expect to complete the full program this year.
I should note that with the share repurchase program and the acquisition of Schroedahl our leverage ratio is expected to be less than 1.
Our simplification plan and operational excellence initiatives remain on track.
We're making progress on many fronts, including customer on-time delivery, supplier delivery and quality, material savings, and factory productivity.
In line with our focus in these areas, we are excited to welcome our new Vice President of Global Operations, [Jay Lapointe].
Jay has a wealth of experience in operations and comes to us from DRS Technologies, where he was responsible for their global operations.
Prior to DRS, Jay was a senior operations leader at United Technologies.
In his role at CIRCOR, Jay will be responsible for our operational excellence initiatives including everything from production planning through product delivery.
Jay's near-term priorities are to drive on-time delivery across CIRCOR, improve productivity in Aerospace & Defense, and accelerate our simplification plan through the market downturn in Energy.
From there, he will be driving continuous improvement through the expansion of the CIRCOR business system across our global operations network.
After <UNK> discusses our Q1 financial results, I will provide more context to our expectations with a review of our markets.
Now I will turn the call over to <UNK>.
Thanks, <UNK>.
Before I get into the energy results, you'll note that we have excluded last year's divestitures in our year-over-year comparison for both segments.
Starting with Energy on slide 5, Energy sales of $128 million decreased 16% over the prior year and 9% organically.
This was primarily due to lower sales in our short-cycle North American distributed valves business, offset in part by higher sales in our large project businesses.
Energy's adjusted operating margin decreased 110 basis points to 13.8% as a result of lower volumes, currency headwind, and pricing pressure.
Restructuring savings helped mitigate the bottom-line impact.
For Aerospace & Defense, please turn to slide 6.
Aerospace & Defense sales of $38 million decreased 17% of the prior year and 11% organically.
This was primarily due to the exit of the structural landing gear product lines and the completion of certain UK Navy projects last year.
Aerospace & Defense adjusted operating margin of 8% was down 150 basis points year-over-year, due in large part to unfavorable mix from the UK Navy and the loss of the CH-47 program.
This was partially offset by ongoing operational improvements, including the exit of certain structural landing gear product lines.
Operationally, we are making good progress in Aerospace & Defense as our adjusted operating margins improved sequentially by 300 basis points.
Turn to slide 7 for selected P&L items.
Our tax rate for the first quarter was 25.4%.
We expect our second-quarter tax rate to be in the range of 28% to 29%.
Corporate expenses decreased by $1.1 million in Q1 as we continue our cost reduction efforts across CIRCOR.
In the quarter, we recorded a $1.5 million charge for restructuring actions, a charge of $500,000 related to the costs associated with the Schroedahl acquisition, and to charge of $400,000 related to additional equity compensation for the retirement of a senior officer of the Company.
These charges were offset by a special gain of $1 million associated with the completion of the previously-announced divestiture of Cambridge Fluid Systems.
Adjusted earnings per diluted share was $0.60 compared with [$0.79] (corrected by company after the call) in the prior year, primarily as a result of lower volume and currency headwinds.
Turning to our cash flow and deposition on slide 8, during the first quarter we used $18.4 million in free cash flow.
Our net working capital build drove a significant portion of the cash outflow, especially on the inventory side.
The increase in inventory was due in part to the faster-than-expected declines in the distributed valves business in the quarter, as well as the impact of a strike at the Port of Los Angeles.
Much of our distributed valves product comes from our factory in China and enters the US through LA.
We expect our inventory situation to normalize in the second quarter.
During the quarter we spent $16.7 million under our share repurchase program.
That equates to about 302,000 shares.
Given the timing and the amount of the buyback, there was no impact to Q1 EPS.
That brings us to our guidance.
Given the number of moving pieces, let me provide you with a baseline for comparison purposes shown on slide 9.
For the second quarter of 2014, the divested businesses generated $13.5 million of sales and $0.03 of EPS.
In addition, if you take the current exchange rate, especially for the euro, the year-over-year impact is a headwind of about $15 million on the top line and $0.09 of EPS.
So adjusting for divestitures and currency headwind, Q2 2014 would reflect revenues of $178.9 million and adjusted EPS of $0.79.
Slide 10 summarizes the annualized impact of restructuring actions, as well as the savings in 2015 of $10 million.
For Q2 we anticipate special charges relating to restructuring actions to be in the range of $3.1 million to $3.4 million, or $0.13 to $0.14 per share, including the actions we announced today.
Now for the second quarter of 2015, please turn to slide 11.
We expect revenue to be in the range of $145 million to $160 million, primarily due to lower volumes from our upstream, short-cycle businesses in North America.
We expect adjusted EPS in the range of $0.45 to $0.55, reflecting the earnings impact from lower revenue and pricing pressure, offset in part by savings from restructuring and productivity.
This guidance includes revenue of approximately $6 million and adjusted EPS of $0.08 from the Schroedahl acquisition.
The adjusted EPS does not include amortization related to acquired intangible assets, as that will be treated as a special charge in our reported results.
Going forward, we will not break out Schroedahl from our guidance.
With that, let me turn it back over to <UNK>.
Thank you, <UNK>.
Let me start by providing an overview of our first-quarter order intake as well as current market trends.
Let's start with Energy.
As a reminder, about 37% of our consolidated revenue was in the upstream oil and gas segment last year.
This includes most of our distributed valve and international projects businesses, as well as part of our instrumentation and sampling business.
In our short-cycle distributed valve business, we expect continued pressure as a result of the significant drop in North American rig counts since the beginning of December.
As we look at the remainder of the year, we're expecting this business to be down 40% to 50% year-over-year, in line with market expectations.
This includes lower end-customer demand as well as distributor destocking.
In addition to the volume-related impact on earnings, not surprisingly we are seeing price pressure as customers attempt to take advantage of excess capacity in the market.
Within our long-cycle project businesses we saw strong order intake in Q1 that should translate into a sequential increase in revenue towards the end of this year.
We're seeing strength in the Middle East, especially for gas projects, and decent activity in engineered projects in North America for LNG and downstream oil and gas.
Asia-Pacific is weak as a result of CapEx reductions and project delays.
Looking at instrumentation and sampling, we see good activity in the downstream market for sampling products in North America, while upstream oil and gas markets continue to be weak, especially offshore.
In power, we continue to see good activity in Asia and the combined cycle segment of the North American market.
Other markets are weak.
We expect our Schroedahl acquisition to be a positive contributor to our future growth in this market since it has a stronger foothold in Asia than our legacy businesses.
In Aerospace & Defense, we see growth from increasing production rates on commercial platforms, certain military fixed wing platforms like the Joint Strike Fighter, and in missile production.
However, we do not expect this growth to offset the headwind from the exit of structural landing gear product lines.
Let me sum up by leaving you with three important points.
First, given the downturn in our upstream oil and gas end-markets, we are focused on those things that we control.
We are managing our cost base and executing on our operational excellence and simplification initiatives.
Our restructuring actions are on track and we will be implementing further cost-reduction actions as necessary.
The top priority is to take advantage of the downturn to remove as much structural cost as possible so that when this cycle inevitably turns up, we emerge as a leaner company with better operational performance and margins.
Second, even as we focus on managing costs, we continue to carefully invest in growth.
We are investing in areas where we see relatively short horizons to generate results.
We've moderated without stopping some of our longer-term investments to align with market activity.
Our growth investments are primarily focused on building out our commercial team in high-impact areas, developing new products, and making CIRCOR easier to do business with.
We plan to continue to leverage our strong balance sheet to capitalize on attractive M&A opportunities as we did with Schroedahl.
We remain active in the market.
Third, we are starting to turn the corner operationally in our Aerospace & Defense business.
During the past few quarters, all the work we have done to improve our operations is starting to show up in our results.
As <UNK> discussed, we have gone from mid-single-digit adjusted operating margins in the second half of last year to 8% margin in Q1.
We expect to see ongoing operational improvements through the remainder of this year, and we remain on track to exit the year with double-digit margins.
And, finally, regardless of the headwinds we are seeing in our markets, we remain focused on creating long-term shareholder value by investing in growth, expanding margins, generating strong free cash flow, and remaining disciplined with capital deployment.
With that, <UNK> and I are available to take your questions.
Sure, <UNK>.
On the top line it's $8 million of revenue and the ---+ I'm sorry, it's $6 million of revenue and $0.08 of EPS.
<UNK>, I think the ---+ I'll talk in two pieces here.
The revenue in the first quarter came in more or less where we thought, between that 10% and 15% down year-over-year.
Orders were actually down further than we thought.
We mentioned somewhere around 20% orders declined in the first quarter.
It was actually worse than that.
It was north of 30% down in the first quarter on orders.
As we go through the rest of this year, as we mentioned, we are expecting orders down 40% to 50% and revenue to follow with that.
It's hard for us to know exactly how much of the order decline is destocking versus just market.
I am ---+ at some point the destocking, obviously, stops.
The distributors get to a lower level of inventory and they start buying at market rates.
We're not sure exactly when that is going to happen.
I know some of our peers have mentioned they think that that happens at the end of Q2 or shortly thereafter.
We're not sure.
That seems reasonable to us, but what we are planning on right now is 40% to 50% down for the rest of the year.
So price is becoming a bigger and bigger topic as time goes on here with the market downturn.
We got hit by price in the first quarter in aggregate by about 50 basis points.
We're expecting going into the second quarter that that is going to be a little bit worse and we look at the orders we're taking into our backlog that would say ---+ I would say it's more or less consistent with that guidance.
<UNK>, before you hang up there, just to clarify, the EPS impact for the Schroedahl acquisition of $0.08 is before any amortization associated with acquired intangibles.
I don't know if you caught that in our script.
Just the purchase price accounting for whatever we acquired with respect to Schroedahl.
I will start and then maybe I will let <UNK> jump in.
So we are still expecting global CapEx is going to be down around 20% in aggregate around the world.
What we are seeing is a difference depending on the region.
So if you look at the Middle East, we are seeing ---+ we are not seeing ---+ frankly, we are not seeing much of a downturn in the Middle East.
We're seeing good activity in gas.
We are quoting ---+ a disproportionate share of our outstanding quotes are being done in the Middle East and so we are, I'd say, pretty optimistic about the current trends that we are seeing there.
We are seeing worse than 20% down in terms of activity in Asia.
I think the cost of the projects in Asia usually leads to a more severe drop or I'd say an earlier drop in CapEx in that region, and we're certainly seeing that.
North America we are seeing, I'd say, a drop, but with parts of the market we are seeing some decent activity.
As I mentioned the prepared remarks, we have decent activity in downstream in North America.
We are seeing activity on the power side in North America, but we are certainly seeing lower activity overall.
Then for the North Sea, we're obviously seeing a lot less in activity as well.
There's probably a couple of big projects that you read about that are ongoing, but a lot less in activity there.
I think offshore in general for us is down pretty significantly, so you will see our revenue mix shift where we had a fairly substantial portion of our revenue in 2013 and 2014 was offshore.
That is going to change here in 2015 and 2016.
Both of these actions that we just announced, one in Q1 and the one we just announced today, have two components to it.
There's a volume piece and there is a structural piece, and we are looking across the enterprise.
If you recall the one we announced in the first quarter, half of it was structural, half of it was volume driven.
The one we're talking about now, the $5 million, is focused more on the volume side and maybe about 20% of it is structural.
And as I said, it's across the enterprise and it's managing through this downturn.
It looks, I'd say, pretty good.
We are having quite a few, I'd say, early-stage discussions.
The priority right now is to integrate Schroedahl and so we're spending a lot of time and resources on that to make sure that we are successful and that we build some credibility here with M&A, but it's not to say we are not spending time on this.
So as I mentioned in the prepared remarks, we are active in the market.
We are having quite a few discussions.
We do have a lot of relationships with potential targets that I inherited when I got here to CIRCOR and we have continued to build on to that.
So I wouldn't expect anything in the very short term.
We are focused on integration with Schroedahl, but over time we intend to be an acquisitive company.
So we continue to build the pipeline.
Let me take that, <UNK>.
Most of it is being driven by the short cycle.
We do see some pricing pressure on the large project business, but it's a little different.
If you recall, on the short cycle a lot of the end-users and the distributors are the ones that are pushing for the pricing.
On the large project business, there is a piece of it that comes into play with the competition and the competitors and what they are doing there.
But the 50 basis points is biased towards the short cycle.
You're talking about the short-cycle business.
Yes, there are two pieces to that.
If I look back at the 2008/2009 timeframe, we did see some significant impact on margins, probably the 200 to 300 to 400 basis points in the aggregate.
So it can get to that level when you get to the bottom.
And revenues, if you recall, dropped about 50% back then.
We've done a lot in the recent past of trying to variablize our cost structure and drive ---+ use more suppliers and outsource some of the machining and those kind of actions that will help mitigate and help us react more quickly to the drop in demand here.
So it can be ---+ there is a substantial impact to the margins here, but I don't think it will be to the same tune as what we saw back in 2008/2009.
The bigger issue is not the pricing; the bigger issue is the volume.
The magnitude of the volume drop is really what's hitting us harder.
With respect to the other part of your question about how variable is the cost structure, the majority of the resources that support our short cycle business are in the US and in China.
In both of those businesses we can and are moving pretty quickly to reduce headcount and reduce cost, but with the magnitude of the drop in revenue, it's going to be hard to not have a margin impact.
So price plays a role, but I would say it's a smaller role than the volume drop itself.
We haven't seen any material change.
We actually feel pretty good in the sense that we have kept very close to our major distributors and the end-users and are managing through that.
So the sales team has actually done a very good job of keeping very close to our customers.
We picked up a couple of new distributors in the first quarter that would be outside of the normal churn that you might see in that business.
So we feel like we are doing pretty well from a share perspective.
Sure.
We did have a very good order quarter in the first quarter, and as you probably know, <UNK>, this business is pretty lumpy.
We had a strong orders quarter in the third quarter.
We just had another strong quarter here in the first quarter.
We feel pretty good about the second quarter.
I don't think it will be as strong as the first quarter, but I think you're going to see a good orders quarter from the large project business in the second quarter as well.
You will also see a lift in revenue as a result of the orders in the third quarter last year and the first quarter this year.
You'll see our sequential revenue start to pick up during the second half of this business.
So the direct answer to your question is we feel like we're going to have a good quarter in the second quarter on orders, but not as good as the first quarter.
No, no, we will; you're absolutely right.
We've done a lot of work on the sourcing side, so the benefit is hung up in inventory and as we deliver that should fall through.
The revenue for the $6 million is for the second quarter, so we started like mid-April.
So you can pro-rata that.
The business is relatively stable, so you are ---+ that is a good run rate here.
However, our focus and <UNK>'s and the team's focus is to drive the top line and to leverage the CIRCOR sales footprint to drive the top line.
For purposes at this point, it will be ---+ that's a good run rate to look at.
On your synergy question, your sales synergy question, the nice ---+ there's a couple of nice things with respect to sales synergy about the Schroedahl acquisition.
Almost half of their revenue is in Asia and they are pretty largely focused in power generation.
Our power sales today is largely in North America.
We don't have a lot of sales in Asia like we would like, and Schroedahl doesn't have a lot of sales in North America.
So we do think there will be nice sales synergies in both directions for our legacy products as well as Schroedahl products.
With the margins that Schroedahl brings, obviously the way we make this deal a home run is to drive the top line so we are focused on that.
We are focused on cost synergies as well, but clearly the big opportunity here is to drive the top line.
If you recall, <UNK>, when we talked about guidance, we said that we were looking at kind of mid to high single digits for the quarter and we came in at 8%, so not too much of a surprise.
We did drive the operational benefit here.
Now I'll let <UNK> comment a little bit about some the things that we are doing to continue to drive margin improvement in that business.
We've talked in the past about operational issues in our Corona facility.
We talked about some unprofitable product lines that we had and were kind of stuck with, as well as in France.
And what we're seeing is really across our French business, as well as our Southern California business, we are seeing much better operational productivity.
We're seeing the benefit of exiting some unprofitable product lines, including the bigger one, which was the landing gear that we exited last year, but these are smaller things that we did as well.
And we were also ---+ we are also pushing up price.
So where we have leverage in our Aerospace & Defense group, we are pushing up price.
They have been quite successful so far over the last six months and we are expecting to see some more of that.
So it is a fairly holistic approach to driving the margins up, but we remain on track to continue to drive them up to where we believe they should be, which is mid-teens.
And just to add to that, when we announced our $8 million restructuring program in February, the portion associated with the Aerospace & Defense business unit and group was already completed.
So they acted fast and took care of the reduction in workforce then pretty quickly and that helped the quarter.
There's a number of facilities that we have in our aerospace business that ---+ if you go back two years, we have four fewer facilities than we did two years ago.
We will continue to consolidate over the next couple years and in the process we are also operationally fixing the isolated situations where we are struggling.
So it's not across all of aerospace.
We have some very well-run facilities in aerospace, but there are some specific problems.
Southern California, our Corona facility, has struggled.
It's getting better, but has struggled and continues to, we will say, underperform.
I would say the same about our French facilities, the two facilities in France; getting better but not where we would like them to be.
So in terms of horizon, when do we think that they're going to be operationally performing.
I would say we are probably looking at six months in France and 12 months in Southern California before we are looking at it and saying we've got the productivity we expect; we've got the delivery and quality we expect.
No, there weren't.
The absolute dollars actually came down from over $1 million.
It's really just a function of the denominator, for the revenues being down a percentage to spike up.
But the absolute dollars are down in the quarter and we would expect to continue to improve for the rest of this year as well.
Some of the restructuring that we are in the process of doing here is going to hit both SG&A but also the direct costs as well.
And that will help.
So that will help.
And we should be largely complete with all the restructuring that we have announced by the end of this quarter and so you should see a different run rate as we get into the back half of this year.
Okay.
Thank you very much for joining us this morning and we'll look forward to talking with you again next quarter.
Thank you.
| 2015_CIR |
2017 | FIS | FIS
#On the Brexit front, certainly I wouldn't say we're seeing a massive tailwind on our consulting business related to Brexit.
I will say that our European consulting group has performed very well and we continue to see growth there.
The opportunity for that to be a tailwind certainly exists, but I wouldn't tell you that we're attributing Brexit as a major growth engine for us in 2017.
If you go into the tax rate, <UNK>, if you go back to May, we look at the bridge of earnings growth over the next couple of years, the tax rate was a component of that.
We're just getting it a little faster than we anticipate.
And to your comment with regard to revenue growth, we wanted to make sure we put together another conservative guide that we felt very comfortable being able to meet or exceed.
Joe, we started on this journey, as we've talked about a number of times, FIS has a very clear playbook that we like to execute on these large transformational acquisitions.
That takes us about two years.
At the end of two years what we would tell you is by then the companies are so integrated it's really hard to determine what is truly based on synergies and what are just operating efficiencies that our teams continue to drive in.
So, we're really halfway through the process at this point in time.
2016 was an outstanding year from an integration standpoint.
We raised guidance on our synergies twice in 2016.
Frankly, at the time we started this, we thought there were $200 million of synergies over two years.
We got that in year one on an exit rate, as <UNK> talked about.
We just raised it again now to we think we'll exit 2017 with $275 million.
we've got roughly 11 months to go here left on where we're really focused on what I would say executing our plans and playbook and then it will just become part of the operating unit.
But we're very focused on it.
We think there's a lot of opportunity.
I think I've shared on prior calls this has been the best combination we've been through as a Company.
The teams have come together very well.
The cultures have come together very well.
The clients have been very receptive.
We're actually starting to see some nice cross sell and upsell across the existing SunGard base, frankly.
We've talked about where they have not pooled their products up under common salesforces to get cross sell and upsell of their own solution suite.
I highlighted a couple of those on the call today.
11 months ago, but I would tell you we're very confident and continuing to integrate this company.
And the teams are very focused to continue to discover opportunities to get cost out and operate more efficiently and drive value back to our shareholders and also to our clients.
We're trying to help everybody understand the new norm in our product portfolio mix.
When you really look at the institutional wholesale side, it's always going to have a strong quarter in Q4.
And that's very traditional with licensed businesses.
You've got people wrapping up their budget years, they're wanting to sign on in license products and get projects kicked off so they can then get deployed throughout the next year.
So, you'll always see Q4 being a heavier weight on institutional wholesale.
Frankly, we saw it across the board in that group.
Very strong production out of the asset management group, out of a lot of our risk and compliance solutions.
So, we're just very pleased with where that revenue flowed in and, frankly, the results of the team.
I think some of it is we are starting to get cross sell and upsell across the SunGard portfolio, which would push that growth rate a little higher.
The leadership team has done excellent, the sales team, consolidating that.
We've got a fantastic sales leader over that group and really driving the team appropriately.
It really came in as expected from that standpoint with regards to the quarter, but it was across all of the major business lines.
We don't have a specific one.
What we talked about in May, if you look back to the guide we talked about in May, what would drive it to the lower end to the 3% to 6% and what would drive it to the higher end of the 3% to 6%, continued higher levels of consolidation would drive you towards the lower end and that's where we're at.
We're still at a high level of consolidation, and there's very little de novo activity in the marketplace.
The business, as I talked about earlier, <UNK>, the business really does run ---+ it's got a seasonality effect to it.
So, you'll see the quarters of IMW behave very much like they did last year.
We did have a very large license fee on a renewal in Q1 last year.
You won't see that repeat.
That's just due to timing of the renewal.
Frankly, the business, the pipelines are very strong.
But expect the seasonality in this business to follow very similar to what you saw in 2016.
Once again, this year we'll have a very large Q4 heavily weighted around licensees, which is very traditional of the business, but the other quarters will follow pretty much in alignment with last year's.
I think the broader commentary is really going to be around continued consolidation.
You've seen IFS running in the lower end of that for a few years.
We've got some tailwinds specifically this year in EMV and the people-based project.
But we think that lower end, that 3% to 4% zone is where you're at, really, given consolidation being the broader driver there.
Yes, <UNK>, just to build on that, you're really seeing consolidation run 5% to 6% per year.
No de novo activity.
We've only had two de novos since 2010.
So, you really have no additional customers coming in.
The new disrupters, I want to be careful about that.
We're not seeing an increased level of competition in 2017 that we didn't see in 2016.
So, the reality is we do, as we've talked about for years, see pricing compression in this segment.
But I would tell you, when you look at our guide for 2017, there really is no material changes in expectations, from our standpoint.
We're not materially seeing increased competition over 2016 or increased pricing compression.
We're also not seeing a decline.
We haven't modeled a decline in compression.
And, as we talked about in May, that just naturally pushes IFS to the lower end of that range we gave.
We think the guide, as <UNK> says, is conservative for the year because, frankly, we want to make sure that we have something we're very comfortable in meeting.
We haven't seen any material shift in it, but it is a fact.
That's just what is going on in the industry right now.
Yes.
You had a people-based services project in IFS that was completed in the third quarter that won't recur in the first quarter.
You've got accelerated EMV growth in the first quarter of 2016 that will be a difficult grow over in 2017.
And we had a large license renewal in the IMW, the institutional and wholesale group, in global trading that will not recur in the first quarter.
Those are the three biggies that are headwinds for Q1.
In 2017, certainly ---+ let's answer your first question ---+ we believe we've got the strongest solutions suite in the industry in both retail banking payments and institutional wholesale.
So, we're very confident in the capability.
Frankly, the sale of public sector, we disclosed that as we were pulling together the SunGard acquisition.
We said we're going to look at our non-strategic assets and see if we can find a more strategic home for those assets because they don't fit in the Company.
So, that's just us following a very focused strategy in deployment.
When we look around, are there going to be some tuck-ins that need to be occur.
Frankly, we don't have those on the white board at this point.
We see some investment that we're making in our products.
I highlighted the stuff we're doing around our private cloud deployment.
That's going very well.
We also have very strong growth in our digital capabilities.
Some of our next generation payment capabilities, as highlighted, with PB are doing very well.
But even in our traditional businesses, we continue to sign and take shares.
So, we're very comfortable with our product suite.
We're very comfortable where we compete.
So, 2017 we're going to look to repeat what we did in 2016 with that and sell very aggressively in the market.
I am glad you asked the question because I think I actually misspoke on <UNK>'s and I want to make sure we've got it clear.
This year we have $4.15 to $4.30 range I just outlined.
We believe we can grow that 13% to 18% in 2018, which I still think that collected will imply $4.65, $4.68 to almost $5.
That guidance has stayed intact.
What I was trying to isolate was PS&E around the original guide will be difficult.
But our range of $4.15 to $4.30 should grow 13% to 18% in 2018, to be clear.
I think I misspoke earlier.
I'm glad you asked the question to clarify.
The reported number, $9.2 billion ---+ $9.241 billion ---+ is the base to grow off of.
Again, you've got three moving parts.
You've got the sale of PS&E, about 3 points negative.
You've got our deferred revenue acquisition adjustment from SunGard acquisition.
And then we've got about a $75 million expected headwind from FX.
So, you definitely got that right in terms of your base there.
To add, as far as the consulting business, as we talked about, <UNK>, in prior remarks, very comfortable with the leadership team, very comfortable of the refocus back towards transformational consulting engagements, going very well.
Certainly, as we've talked about on prior calls, that business will continue to grow in alignment with IFS's numbers going forward.
So, very complementary to our solution set, engaging them in opportunities where we also have product penetration, and that's working very well.
<UNK>, it's a good question.
We've talked about it a lot.
Certainly we wanted to isolate our non-strategic businesses for our investors so they could get some transparency around it.
What remains in that business is our former ---+ our Certegy check business, which we all know what is going on with the declines around checks, especially at the point of sale.
You've also got a global commercial services business which is really just IT infrastructure sales.
Both of them are non-strategic for us at this time.
In a perfect world, if there was a valid divestiture to be had, certainly we would do that.
But we're also, at IFS, we're not going to make a bad business decision.
Frankly, we have good leadership over both of those groups, very focused on serving the clients.
So, they'll deal with the macro issues that they're facing very effectively.
But if there was an opportunity that presented itself and it made financial sense, we absolutely would consider it.
Pure play, holiday play.
You always see a bump in Q4 around the holidays because you see volumes come in and nothing more than that.
We still expect that to be a decliner over time.
Yes.
Absolutely.
We tried to add some color around the commentary.
We believe we'll be able to prepay all of our prepayable debt in 2017 and still generate excess cash flow in late 2017 and into 2018 and we could be buying back share.
Thank you for joining us today, for your questions and your continued interest in IFS.
We are very pleased with our results, concluding a very strong year of performance and earnings growth.
We have a solid pipeline heading into 2017 and we are confident in our strategy and our business model.
This provides us continued belief in our ability to consistently execute and deliver tangible value to both our clients and shareholders.
Thank you to our loyal clients who depend on and trust us to keep their businesses competitive every day.
Thank you also to our FIS leaders and our more than 55,000 employees around the globe for their hard work and commitment.
It is because of them that FIS continues to empower the financial world.
Thank you for joining us today.
| 2017_FIS |
2016 | NI | NI
#Thanks, <UNK>.
Good morning, <UNK>.
Yes, <UNK> can answer that.
Yes.
We've had some property tax appeals and true ups this quarter that's probably a couple pennies of the adjustments, that certainly stands out this quarter.
I'd say half of that is probably one time and some of that does go forward.
yes, it does.
Yes.
I won't comment, <UNK>, on other people's deals or strategies or speculate on M&A.
We're very focused on executing our plan which as you know is not based on transaction, but on executing on serving our customers and our deep inventory of ---+ and backlog of investments that we've identified, $30 billion, noting none of that has any premiums on it, so very focused on execution there, continue to monitor the trends in the marketplace, but not in focus for us.
I wouldn't think of it as pulling any 2017 spending forward.
As you think about ---+ and that's predominantly on the gas side of the business.
As you think about the $20 billion of identified investments on the gas side, we generally have flexibility within our regulatory programs to execute on that as conditions are favorable.
I've noted that we had favorable weather conditions during the first half of this year, meaning the ground wasn't frozen, we could continue working through the early part of the year.
So just continuing to work through that backlog of identified investments, not specifically pulling anything forward from next year into this year.
Thank you.
Thanks, <UNK>.
That's ---+ the best way to think about that, <UNK>, is the early estimates were very much the high level estimates, and as we came into this year, we updated with refined detailed estimates on that project.
Reflected changes in design, very prudent changes in design relative to the type of construction, the tower sizes and the spans on the construction, all very consistent with other designs that we've made in other projects and is seen in the market place.
So really not even inflationary, just an update to the design.
Not on that one.
We don't expect any.
yes, that's correct.
We're looking at both earnings and dividends as the base for the share.
Thanks, <UNK>.
At any point in time, Greg, we look at all the jurisdictions, we try to ensure that our regulatory strategy maintains pace with our investment strategy.
That's a mix of base rate cases as well as the tracker programs that are up and running across electric and gas.
In general the earnings profile ebbs and flows around 10% across the Nisource ---+ ROE across the Nisource portfolio, and pretty close to allowed in most cases, so no significant concerns about under earnings in a specific jurisdiction.
We are not updating previous guidance on outlook beyond 2016.
We're updating 2016, again, based on strong momentum this year and an opportunity to work through favorable weather conditions.
We continue to have reaffirmed the guidance of 4% to 6% in EPS and dividend growth on notionally a $1.4 billion annual CapEx program.
This is <UNK>.
No, at this point we're still in great shape from a balance sheet standpoint and the credit metrics, and as we reported, Fitch did upgrade us this last month or in June to BBB and stable.
So we feel really confident about the balance sheet and don't see any immediate need for equity.
Thanks, Greg.
Good morning, <UNK>.
Thank you, Michelle.
Again, I appreciate the interest and the support and for joining us today.
Hopefully you see continued execution and continued momentum of the Nisource story as we reported our results on the second quarter.
We look forward to sharing continued updates on our progress in the months ahead.
Have a great day.
| 2016_NI |
2018 | CHTR | CHTR
#Good morning, and welcome to Charter's First Quarter 2018 Investor Call.
The presentation that accompanies this call can be found on our website, ir.
charter.com, under the Financial Information section.
<UNK>efore we proceed, I would like to remind you that there are a number of risk factors and other cautionary statements contained in our SEC filings including our most recent 10-K and 10-Q.
We will not review those risk factors and other cautionary statements on this call, however, we encourage you to read them carefully.
Various remarks that we make on this call concerning expectations, predictions, plans and prospects constitute forward-looking statements.
These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ from historical or anticipated results.
Any forward-looking statements reflect management's current view only, and Charter undertakes no obligation to revise or update such statements or to make additional forward-looking statements in the future.
During the course of today's call, we will be referring to non-GAAP measures as defined and reconciled in our earnings materials.
These non-GAAP measures, as defined by Charter, may not be comparable to measures with similar titles used by other companies.
Please also note that all growth rates noted on this call and in the presentation are calculated on a year-over-year basis unless otherwise specified.
Additionally, all customer and passings data that you see in today's material continue to be based on legacy company definitions.
Joining me on today's call are Tom <UNK>, Chairman and CEO; and Chris <UNK>, our CFO.
With that, I'll turn the call over to Tom.
Thanks, <UNK>.
In the first quarter, our primary objective was to continue to integrate our operations and prepare to launch mobile.
Our all-digital initiative is moving forward and is on schedule for completion by this year-end.
At the end of the first quarter, approximately 20% of legacy Time Warner Cable and 60% of <UNK>right House Network continue to carry full analog video lineups, with TWC though improving from approximately 40% at the end of the year 2016.
The whole company will be fully digitized by end of this year as we deploy fully functioning 2-way digital set-top boxes, mostly our Worldbox and all remaining analog TV outlets that we serve.
<UNK>ut while all-digital is on track, it is disruptive, both to our operations and to our customers.
It creates large volume of short-term activity, which is inconsistent with our long-term operating strategy of reducing transactional volume.
The all-digital project though is clearly in the long-term interest of our business, it allows us to free up bandwidth and to realize the full potential and capacity of our network as well as further improve the video product itself.
In the fourth quarter, we prepared the expansion of our gigabit speed offering to several new markets and launched those markets just a few days ago.
We now offer gigabit service to approximately 23 million passings, about 45% of our total footprint and expect to have gigabit service available to virtually all of our footprint by year-end.
Also this month, we raised the minimum Spectrum Internet speed to 200 megabits in a number of additional markets with no additional cost to customers.
We're raising our Internet speeds faster than originally planned in order to maintain a superior competitive position.
We've compressed our capital spend to raise speeds and to launch 3.1 across our footprint and our strategy is working.
In the markets where we launched 200 megabits as our minimum speed in December, sales are up, churn is down, net additions have improved year-over-year, consistent with our experience with previous speed increases.
Today, over 50% of our Internet customer subscribe to tiers that provide 100 megabits or more throughput.
We don't offer anything less to new Internet customers and it's now a 200 megabit of minimum offering nearly 1/4 of our footprint.
Rollout of Spectrum pricing and packaging remains on track.
As of the end of the first quarter, 55% of Time Warner Cable and <UNK>right House customers were in our new Spectrum pricing and packaging, which reflects the pace of integration in migration prospective.
Over time, we expect Spectrum-branded products to drive continued higher sales and longer customer lives.
In the first quarter, we continued to see year-over-year improvement in sales in connect volumes, although higher year-over-year churn offset the higher sales volumes.
Higher churn has been a result of some customer service system changes we've been making as part of our large and complex integration.
While we are not executing a billing migration, last year we collapsed 13 service environments based on our billing systems into 4 using our software isolation layer.
In 2018, those 4 service environments were moved to 2.
That integration execution, which will result in quality, uniform services and efficiencies, impacted both our customer qualification and collection process, both resulting in higher nonpay disconnects and bad debt.
We corrected those processes, however, and both nonpays and bad debt should be back to planned levels by the end of the second quarter.
Despite that self-inflicted disruption we've grown total Internet customers by 1.2 million or over 5% in the last year.
And in the quarter, we grew revenue by 4.9% year-over-year and adjusted E<UNK>ITDA E<UNK>ITDA by 6.8%, excluding mobile start-up costs.
Turning to mobile, we remain on track to launch our new services in the middle of this year under our MVNO agreement with Verizon.
We recently launched a field trial, which includes 5,000 employees who are going through an end-to-end sales activation of service process in May.
And we are building out our sales channel and service capabilities, including modifying several hundred of our 700 retail stores and setting up the call center environment.
Ultimately, the goal is to use our mobile service to attract and retain our cable-bundled multiproduct customers.
And the partnership we signed with Comcast last week will accelerate our ability to scale our MVNO service offerings by stepping into a proven MVNO back-office platform and improve the economics of our emerging mobile business.
While our entry into mobile is new, we're already a wireless operator today with over 250 million of syndicated wireless devices connected to our deployed small-cell network.
Our infrastructure design provides us with the unique opportunity to build the businesses based on how consumers use the service, what I call them inside out wireless strategy.
In addition to the continued advancements in WiFi, throughput and latency, we're testing in various bands, including 28 gigahertz and 3.5 gigahertz, which are going well and support our thesis that small cells using unlicensed and licensed Spectrum including <UNK>ig <UNK>end Spectrum like 3.5 gigahertz, working together with our widely deployed power and terrestrial network and combined with the DOCSIS products like Full Duplex and coherent optics will allow us to offer high-capacity, low-latency connectivity products, both inside and outside the home, fixed, wireless and mobile and with and without our superior video applications.
Ultimately, our strength as a connectivity provider comes from our powerful, easy-to-upgrade network.
Its unique design allows to the most cost-effective deployment of new technologies, which will drive massive increases in the amount of data we can drive through that network.
And over time, we will open up opportunities for new products.
Now, I'll turn the call over to Chris.
Thanks, Tom.
<UNK>efore covering our results, a few administrative items.
First, we have reclassed all inbound sales and retention expense from cost to service customers, to marketing expense for current and prior periods.
We already provided a pro forma change schedule in our fourth quarter materials.
Also a reminder that when discussing first quarter customer results, I'll be comparing these results to the first quarter of 2017 results that have been adjusted to exclude seasonal program customer activity in the first quarter 2017 at Legacy <UNK>right House.
That comparison is on Slide 6 of today's investor presentation.
This is the last time we need to compare year-over-year quarters for these adjustments since we're now beyond the 1-year mark from the seasonal program change.
Customer statistics that you see in today's materials continue to be based on legacy company definitions.
And in the second quarter of this year, we'll reclass customer stats and our trending schedules using consistent definitions across all 3 legacy entities.
The largest differences will be in TWC and <UNK>right House classification of customer types, particularly universities, moving between residential today where they're reported on the doors basis, and commercial accounts which will be reported on physical sites.
TWC and <UNK>right House also reported SM<UNK> and enterprise-based on billing relationships, and these will convert to a physical sites methodology.
When we report our second quarter results, we'll report on the uniform definitions for Q2 and prior periods with the reconciliation schedule.
In the third quarter of this year, I expect we'll only report consolidated operating statistics and revenue results.
At closing, we said we will report at least 5 quarters of legacy entity top line results following the close of our transactions.
The second quarter of this year will be the ninth time we've reported legacy entity results.
Finally, starting on January 1 of this year, we prospectively adopted FAS<UNK>'s new revenue recognition standard.
There are a number of relatively small adjustments in the quarter related to the adoption of the standard, both in revenue and expenses, but in total had no material impact to revenue or adjusted E<UNK>ITDA recorded this quarter.
Now turning to our results.
And total customer relationships grew by 261,000 in the first quarter and grew 890,000 over the last 12 months with 3.1% growth at TWC, 3.4% at Legacy Charter and 4.6% at <UNK>right House.
Including residential and SM<UNK>, video declined by 112,000 in the quarter, Internet grew by 362,000 and voice declined by 25,000.
55% of residential TWC and <UNK>right House customers were in Spectrum pricing and packaging at the end of the first quarter.
Customer connects were higher year-over-year, including our new markets.
Disconnects were also up year-over-year, reflecting the nonlinear progression of net adds I've often spoke about.
TWC was the largest driver of higher year-over-year disconnects, the key drivers were higher nonpay disconnects from integration-related system changes that Tom mentioned where we have since conformed to the customer qualification and collection process to our standard policies.
And nonpay disconnect and associated bad debt should be back to normal rates by the end of Q2, which practically means the beginning of Q3.
We also had continued roll off churn from legacy packages.
These factors had a declining impact on our results as the quarter progressed.
We should continue to have less of the monthly impact as we progress through Q2.
Slide 6 shows we grew residential PSUs by 157,000 versus 338,000 last year.
Over the last year, TWC residential video customers declined by 2.3%, video Charter declined by 1.5% and Legacy <UNK>right House video was 0.3% lower year-over-year.
In the quarter, TWC residential video customers declined by about 90,000, with higher additions offset by higher nonpay disconnects.
Legacy Charter lost 32,000 residential video customers in the quarter versus a loss of 13,000 a year ago.
Additional competitive build-out and less year-over-year benefit from a struggling competitor kept sales relatively flat at Legacy Charter.
<UNK>right House video customers were flat during the quarter versus a gain of 13,000 last year.
In residential Internet, we added a total of 331,000 customers versus 416,000 last year, with higher nonpay disconnects, for the reasons I mentioned, responsible for all of the year-over-year decline in Internet net adds at Legacy TWC.
Total company Internet sales were higher year-over-year and in the 17% of our footprint, where we offer 200 megabits per second is our minimum speed as of the beginning of Q1, there was year-over-year improvement in both sales and net additions.
As Tom mentioned, we now offer 200 megabits per second as our minimum Internet speed in nearly 25% of our footprint, and we offer gigabit service in approximately 45% of our footprint and expect to have gigabit service available nearly everywhere by the end of 2018.
Over the last 12 months, we grew our total residential Internet customer base by 1.1 million customers to 4.9%, with 4.8% growth at TWC, 4.9% growth at Legacy Charter and 5.9% at <UNK>right House.
In voice, we lost 52,000 residential customers versus a gain of 30,000 last year, driven by fewer additions and higher churn of legacy packages and nonpay churn at TWC.
As we've said before, our progress towards better customer growth will not be linear.
We do, however, expect to ---+ we continue to expect higher sales and better retention over time as a higher portion of our base is now in Spectrum, we upgrade our video and Internet capabilities, our service delivery and platform improves and as we work throughout the integration.
Over the last year, we grew total residential customers by 739,000 or 2.9%.
Residential revenue per customer relationship grew by 1.6% year-over-year, given the lower rate, of SPP migration, promotional campaign roll-off and some minor rate adjustments, partly offset by higher levels of Internet-only customers and better sales we sell-in at promotional rates.
Slide 7 shows our customer growth combined with our ARPU growth resulted in year-over-year residential revenue growth of 4.8%.
Total commercial revenue, SM<UNK> and enterprise combined, grew by 5.3%, with SM<UNK> up 4.1% and enterprise up by 7.3%.
Excluding cell backhaul and NaviSite, enterprise grew by close to 11%.
Sales were up in both SM<UNK> and enterprise, with SM<UNK> PSU net adds at TWC and <UNK>right House up over 10% in the first quarter versus last year.
Our revenue growth in the TWC and <UNK>right House market hasn't yet followed the unit growth, and it won't until we get the transition to more competitive pricing of both our SM<UNK> and enterprise products.
We expect that ARPU offset will continue through 2018 and the revenue growth will ultimately following the unit growth.
First quarter advertising revenue grew by 5.6% year-over-year, driven mostly by higher political.
In total, first quarter revenue for the company was up 4.9% year-over-year and 4.8% when excluding advertising.
Looking at total revenue growth, excluding advertising in each of our legacy companies, TWC revenue grew by 4.6%, pre-deal Charter grew by 5.2% and <UNK>right House revenue grew by 5.0%.
Moving to operating expenses on Slide 8.
In the first quarter, total operating expenses grew by $254 million or 3.9% year-over-year.
Programming increased 5.7% year-over-year, driven by contractual rate increases in renewals and a higher expanded customer base and mix, partly offset by improved revenue benefit.
Excluding the onetime benefit this year, programming would have grown by 6.5% year-over-year or approximately 8% per video customer.
Regulatory, connectivity and produced content grew by 7% primarily driven by our adoption of the new revenue recognition standard on January 1, which also reclassed approximately $15 million of cost to this expense line in the quarter.
Cost to service customers grew by 3% year-over-year, driven by the higher bad debt expense for the reasons I described.
Excluding the temporary impact of higher bad debt expense, we are lowering our cost to service through changes in business practices and seeing early productivity benefits from insourcing, all while growing our customer base and investing in more insourcing and training.
Marketing expenses declined by 1.8% year-over-year as the prior year period included certain transition cost and with or without that effect, our marketing and sales expenses are more efficient on higher sales.
And all other expenses were up 2.7% year-over-year, driven by higher ad sales cost, enterprise and product development cost, offset by lower overhead cost.
Excluding mobile, adjusted E<UNK>ITDA grew by 6.8% in the first quarter.
The impact of the new revenue recognition standard and a few onetime and out-of-period items, including the programming item I mentioned, essentially offset each other.
When including $8 million of clearly defined mobile start-up expenses, our adjusted E<UNK>ITDA grew by 6.5%.
Turning to net income on Slide 9.
We generated $168 million of net income attributable to Charter shareholders in the first quarter.
Adjusted E<UNK>ITDA was higher, severance-related expenses were lower.
We did not have any losses related to the extinguishment of debt as we did last year, and we had a gain on financial instruments from currency movements on our <UNK>ritish pound debt and the related hedging.
Those positive drivers were partly offset by higher depreciation and amortization and higher interest expense.
Turning to Slide 10, capital expenditures totaled $2.2 billion in the first quarter, primarily driven by higher spending on CPE, scalable infrastructure and support capital.
The CPE spend was driven by higher connect volumes, continued migration of legacy customers over to Spectrum who were frequently provided with new equipment.
We also incurred $186 million of all-digital spend, which falls primarily into the CPE category.
The increase in scalable infrastructure was related to the timing of video spend and planned product improvements for video and Internet including spending related to DOCSIS 3.1 launches.
We also spent more in the support category and in our vehicles, tools and test equipment, software development and facility spending; in each case, some insourcing, some related to integration.
Given the pace of all-digital, DOCSIS 3.1 deployment and our overall state of the integration and planning, the ability to spending capital more consistently as compared to last year is in fact a good sign.
For the full year, we continue to expect a cable capital intensity or cable capital expenditure as a percentage of cable revenue to be a bit lower than 2017.
Slide 11 shows we generated $49 million of negative free cash flow in the first quarter versus $1.1 billion of free cash flow in the first quarter of last year.
The decline was largely driven by higher CapEx and working capital timing this quarter where I provided a fair amount of color on overall working capital timing last quarter.
The Q1 working capital headwind is primarily driven by the timing of our late fourth quarter CapEx spend, which drove early Q1 cash payments without offsetting intraquarter CapEx timing.
We finished the quarter with $70 billion in debt principal, a run rate annualized cash interest expense at March 31 was approximately $3.8 billion, whereas our P&L interest expense in the quarter suggests a $3.4 billion annual run rate.
That difference is due to purchase accounting.
As of the end of the first quarter, our net debt to last 12-month adjusted E<UNK>ITDA was 4.46x, within our target leverage range of 4 to 4.5x.
Earlier this month, we issued $2.5 billion worth of 20- and 30-year investment-grade notes, which will primarily be used to fund an upcoming maturity.
During the first quarter, we repurchased 2 million shares in Charter Holdings common units, $683 million.
And the fact that we started the year at the high end of our target leverage range as opposed to increase a leverage in 2017 mathematically means our 2018 buybacks will be less than 2017, same as I mentioned on last call.
We may also reduce our cable leverage somewhat over the course of the year to ensure that consolidating E<UNK>ITDA remains at/or under 4.5x.
<UNK>eyond starting point leverage, other factors also play a role in the amount of 2018 versus 2017 buybacks, including the early pace of our mobile product launch, working capital effects in consumer devices, and I don't expect we can achieve the same level of working capital improvement for cable in 2018.
Within those constraints, however, we will remain opportunistic to preserve flexibility to create shareholder value.
Turning to taxes on Slide 13.
We don't currently expect to be a material cash income tax payer until 2021 at the earliest.
Given the tax reform passed by Congress and signed into legislation last year, we estimated that the total present value of our tax assets reflecting a later NOL utilization against the lower rate has declined from just over $5 billion to about $3.5 billion.
That decline is offset by the much larger value associated with net present value of tax reform, which drives higher free cash flow in perpetuity.
<UNK>efore moving to Q&A, I wanted to reiterate the financial framework for the launch of Spectrum mobile service later this year.
We believe that our entry into mobility can further accelerate customer growth and drive for penetration.
The more customer growth we generate, the more incremental revenue we'll generate, mobile and from cable.
Much of that revenue in the beginning will be device contract revenue, which is fully recognized on the contract date and similarly as cost of goods sold under EIP accounting, with the actual customer payments received over a longer period.
As with any subscription business, there are upfront launch costs and acquisition activity, which creates OpEx and CapEx, which exceed the gross margin benefits in the short term.
The more mobile customer growth we generate early on, the more E<UNK>ITDA and initial cash flow drag we'll experience in the early days.
And over time, we expect our mobile service to generate positive E<UNK>ITDA and cash flow on a stand-alone basis with broader growth benefits to our core cable services.
Our mobile business will eventually be fully integrated as just another cable product in the bundle from a marketing care, billing and service perspective, so no different than Internet and voice today, and it will not be a separate payable or segment as such.
Through the launch phase, however, we'll be able to create transparency around cable performance by disclosing mobile revenue, mobile operating cost and, therefore, mobile effects on adjusted E<UNK>ITD<UNK>
We should also be able to isolate the largest working capital impacts from the timing into cash flow from device costs and related subscriber payments.
We'll provide additional details on the mobile business as we move through the year and as the business scales.
Operator, we're now ready for Q&<UNK>
Sure.
On customer trends, look if ---+ we talked at length, the big driver is the nonpay disconnect.
Had it not been for that, customer net adds particularly in TWC for video and Internet would have been better on a year-over-year basis.
And so it's entirely driven by that issue.
Sales are up across the company and across TWC in particular, which is, obviously, the largest driver.
And so nonpay disconnect was the biggest factor.
The second piece that I would highlight is that where we've increased to DOCSIS 3.1 not only were sales up year-over-year but net ads were up significantly year-over-year in those markets.
And the issues that Tom highlighted have been addressed for nonpay takes a little while to get out of the system, so by the end of Q2 or early Q3 the disconnect side is expected to improve and is improving throughout the first quarter and we'd expect the same to continue through Q2.
So yes, we expect the net adds to improve.
The sales are moving very well, and so our expectation has been and remains that customer net adds will continue to improve.
On ARPU, the residential customer ARPU, which is I think is what you're referring to as the most relevant metric, there is still a large amount of revenue reallocation from bundled pricing that goes on through Spectrum pricing and packaging.
So I think the product ARPUs are somewhat irrelevant but the customer relationship ARPU is.
The factors that I went through in the prepared remarks are, we had a lower rate, as you get more mature into the Spectrum pricing and packaging migration process you have a lower rate of SPP migration, which removes some of the negative ARPU factor that we've had over the past few quarters, meaning it's just a lesser impact.
You have more services, better sales and so all of that's flowing through.
And then we did have some minor rate adjustments which will carry through for the rest of the year.
So without sitting back and giving guidance specifically by quarter, I think the ARPU headwinds that we've had through the initial SPP migration should be less going forward.
The one big factor I'd mention is that single-play Internet sell-in is the other one, the amount of single-play Internet sell-in including ---+ has an impact to the overall customer relationship ARPU.
And if we can get more of that for customers who are unwilling to take video, we will, and so I put that one caveat into the ARPU.
Sure.
Look, it's a brand-new business.
We have a budget, we know what we plan to do, and I think using Comcast as a proxy is as good as any at this point.
And ---+ but the biggest driver there is the level of subscriber acquisition.
There's a lot of upfront subscriber acquisition cost and these are NPV-positive customer acquisitions once you get to steadier state growth, the business has a not only a positive E<UNK>ITDA, but a positive free cash flow contribution on a stand-alone basis.
So the faster we grow, the more short-term pressure we put onto the E<UNK>ITDA and free cash flow.
Now having said that, Comcast has been extremely helpful to Charter as we go through establishing back-office systems, and the JV should continue to help us do that.
So is there an opportunity that the go-forward platform costs for companies are reduced by sharing in those expenses and that's the whole idea of getting into the JV.
So I think on a relative basis because of how we're cooperating now, could we do marginally better maybe, I would say, that both companies should benefit from the JV that we've signed together.
Yes, this is Tom, <UNK>.
So I agree with Chris that both companies should benefit by the joint venture from an operating cost perspective and therefore the business is more valuable as a result of that.
We will not have the same marketing strategies.
And so we will diverge in terms of performance most likely and so really the impact is driven by the speed at which we'll roll the business out and how successful you are in the market.
Well, Cathy, no.
Simply, our vision of the business is what we expected several years ago and continue to expect going forward.
We think that from the superior infrastructure that allows us to stand up highly competitive if not more competitive products than alternative networks, and we've been successfully selling and marketing our product but at the same time, going through a very complex integration of 3 very large companies to get to a single simplest platform.
That integration is actually going quite well and pretty much as planned.
It's ---+ it has lumpy aspects to it as we combine the companies in various ways.
<UNK>ut generally, we are going exactly as we planned in creating the kind of future value that we expect to create.
And since we told our initial story, obviously, we've done the acquisitions and we've done an entry into mobility, which we think is a natural fit to our existing infrastructure and service infrastructure and will create additional value for the shareholders that wouldn't be created without doing it.
So we think the Charter story is fully intact and getting better as a result of the mobility.
The ---+ in terms of capital intensity and free cash flow creation, I think, there are ---+ obviously, we're in a capital-intensive trend at the moment as we integrate and as we make our networks all-digital so that we can take advantage of the full capability of the network, which was planned.
And ---+ but the long-run trend is less capital intensity, and significantly less capital intensity as our need to buy CPE goes away and as CPE costs come down.
And there are some forces there that are even greater than we had thought.
I mean, obviously, the change in video, the change in the video marketplace, essentially requires less capital intensity in video because with the competitors that we face and with our own profits in IP, you don't necessarily make new set-top boxes, you can move to an application-based delivery system in some situation.
So we think that, along with decline in prices for CPE, mean capital intensity improves maybe marginally better than we might have thought previously.
And the changes in the video business, they are significant and hard to predict, but we still think there's video growth capable inside of our asset base.
It's fairly marginally insignificant though in this sense.
There's very little margin in the video business.
So whether you're (inaudible) by 1 million customers is relatively immaterial to our plan.
And while we think that we will make a great video product available to our customers and that, that great video product will continue to help us drive the overall connectivity business we have, if we're asked in our forecast for that, it's not significantly financially material to our growth prospects.
So I can't explain market reactions, but our activity and our project management is going as we expected and the kind of marketplace acceptance of our products is going as we expected.
Maybe two quick thoughts.
One is if you think around the timing of good quarter off quarter as it relates to net adds for somebody's model, a lot of people are looking for a linear outcoming, we've tried to do as fair as we can, but that's not going to be linear.
And if you take a look back at the Legacy Charter experience, look at it on annual basis, it looks pretty linear.
<UNK>ut if you go back and take a look at 2013 and 2014, in particular, it really was anything but linear.
That applies to net adds and it applies to the financial results.
And it looks choppy as we were going through it.
So in some respects, market reaction, which I haven't focused on that much as of yet this morning is a little bit of a d\u0102\u0160j\u0102\xa0 vu.
And we're turning a lot of knobs same as we did with Legacy Charter and (inaudible) integration, and there's a lot of moving parts but the trajectory remains as good as ever.
The second one is on the impact to wireless where the conversations we've had with some investors is somewhat bifurcated.
On one hand, there's a group of investors who get it and say, go as fast as you can from a competitive standpoint.
It's the right thing to do.
It does have a positive NPV, and it's an attractive business.
And then there's another group who are very, very focused on the short-term impact to have it done free cash flow and what that might do to an overall growth rate.
So one, we are going to isolate that impact so people can focus on the core value creation of the cable platform and the option value, if you want to call it that, on the mobility business.
<UNK>ut that investment relative to the overall size of the Charter's revenue or E<UNK>ITDA is relatively small and the potential upside attached to that investment is significant.
And I think that's the piece that is missing in terms of understanding and putting that upfront investment into perspective.
And we're going to isolate it along the way so people, if they see this as a bet, they can the size up, size that bet and understand the relative materiality.
<UNK>ut we think it's attractive.
We think it's going to help us, not only add E<UNK>ITDA and free cash flow over time, but we think it's very constructive and helpful towards further Internet growth in particular in the cable business.
No.
I mean, the biggest free cash flow generation that you're going to see from 2019 CapEx when it comes down and that hasn't changed.
This year we're doing all-digital, we're doing the DOCSIS 3.1.
We still have a tremendous amount of integration capital that's inside these numbers and that essentially comes down next year.
And in the meantime, despite some lumpiness on subscriber net adds from one quarter to the next, the financial results we mentioned in Q4 will be at the lower point on E<UNK>ITDA (inaudible) that's the case and the business is moving.
It doesn't mean that it's going to be linear so not much treated that way, but we did hit the low point already on the financials and the business is moving in the right direction.
<UNK>, it's Tom.
Obviously, the markets move through time, our strategy moves with it.
And we think that we have needed to change our product and our mix in order to take advantage of our assets and compete in the marketplace prospectively and we think that we can do that and are doing that, and our sales volume and our connect volume and our management of our customer base, pricing and packaging gives us confidence that we can continue to do that.
Take data speeds, for instance.
With Legacy Charter, when I came with Charter, our average data speeds was 10 megabits.
And we took the minimum up over time to 30, and created most of our subscriber growth at 30.
Today, in this new model, we've just gone to 200 meg minimum speed in a significant part of our market, 100 megabit speed in the bigger part of our market.
<UNK>ut that's shifting as we rolled out this 3.1 technology.
So we've taken advantage of the marketplace and the capacity of our network to change our data product so that it will continue to drive the kind of results we expected to get.
<UNK>ut we are in the middle of the tooling of that process right now as we integrate the company.
We have a vastly superior product almost everywhere we operate.
And we expect to get results from that.
And if we need to change that 2 years from now, we have the ability to do it at very little or very small incremental cost, which is the beauty of the infrastructure that we built out in this company.
So, I guess the answer to your question is we have the same high expectations for free cash flow growth in this entity now based in the current marketplace as we understand it now just like we did 5 or 6 years ago.
So <UNK>, I don't know when markets award you or don't award you.
Ultimately, our job is to create a free cash flow that we expect from these assets.
And we think we're on track to do that or on track with the plan that we made.
So whether we'll get rewarded before that occurs or after it occurs, I don't know, but we expect to create the free cash flow.
And in terms of the infrastructure that we have, we do think that we are the natural small-cell provider and that we have the most efficient ability to provide small-cell connectivity compared to any other infrastructure competitor we have.
And we have 26 million small cells already connected to our network.
We have 250 million wireless devices already connected to those small cells, and we plan to continue to build out the small-cell environment.
How that relates to other business opportunities, it's hard to say, but we have them.
Yes, that's a very interesting question.
The short answer is no.
And in fact, we think we'll be more productive.
<UNK>ut we are in the middle of the transition, where we're moving from an outsourced environment to an insource environment.
And we're creating a more professional workplace that is designed to provide higher-quality service which will improve subscriber lives and reduce transaction volume ultimately in our business.
So we'll have less transactions per customer.
If we have less transactions per customer we believe, and which we're trending toward every day as our operations improve and as the skill sets that we ---+ that are needed are developed inside the company.
So if you think about what I just said, insourcing and outsourcing, at the moment, we decide to move calls from the Philippines to St.
Louis, for instance.
We have to stand up a brand-new call center in St.
Louis.
We have to build it out physically, so there's capital involved, and then we have to hire a workforce and train that workforce to take the calls.
In the meantime, we're still outsourcing to the Philippines until that workforce is up and running and skilled.
Once the workforce is skilled though, then the number of transactions that occur as a result of having a higher skilled workforce, goes down.
And we think that the transaction volume goes down faster than the cost structure goes up by having it in-sourced call center.
And when you have less transactions per customer, you actually have happier customers, and so they're ---+ not only are they less costly to serve, they're happier.
And as they're ---+ and because they're happier, their average life extends, which means that average value per sale that you create goes up.
And the number of transactions, connects and disconnect per dollar of revenue that you spend, goes down.
So we're still in the middle of the transition process that has operating expense in it as part of the strategy.
<UNK>ut our expectation down the road, which is part of a the free cash flow driver of the business, is that you get this virtual ---+ virtuous growth structure where you get better-served customers who have ---+ who cost you less and are happier.
And that benefit is set to be realized from our activity today.
<UNK>ut it is part of our plan and our expectation.
And the numbers that we expect to generate today that will prove out that thesis are occurring as we expected.
Just to add, the way that you can tie it to the P&L and the metrics, I think the metric you're using is actually not right because it's apples and oranges.
So if you think about the Time Warner cable call center infrastructure at one point, you could have had 50%, over 50% was outsourced.
Today, over 85% of that is insourced.
If you're taking a look at employees, you're completely ignoring the amount of contract labor that's inside there.
And so it's an apples and oranges comparison between the 2 types of operating models.
If you look at cost to service customers, the other way to think about it, we have all of the investment that Tom just spoke about, but despite having all of that investment, and despite having customer relationship growth of over 3%, our cost to service customers gross is actually coming down, excluding this bad debt, temporary effect.
So our cost to service customers, which is where the vast, vast majority where the labor cost exists, is already coming down on a gross basis and on a net basis, meaning on a per customer basis, it's actually already coming down dramatically despite the amount of upfront investment that we're making that Tom highlighted.
So I think you have to normalize for what ---+ you can't just look at how's labor, you have to add in the contract labor, which has come down dramatically, and for some companies comprises a very, very significant portion of their overall labor cost.
So on the improvement, yes, we had less of a negative impact from the nonpay disconnect issue, which has since been addressed throughout the quarter.
The last of the systemic changes needed to make that ---+ for that to take place occurred inside of April.
And so we expected to continue to ameliorate during the course of Q2.
And it should be fully out by the beginning of Q3.
So the trends are improving in that particular area.
And I don't want to get drawn into guidance, but we wouldn't have said what we said if we didn't view that particular issue is ---+ was declining in its materiality.
So <UNK>, yes, I think, we said that we got 200 megabits in front of 25% of our customer base.
We have built out as of this moment 43% of our footprint to 1-gig speed capability using 3.1 DOCSIS capability.
And by the end of the year, we'll have 100% of our infrastructure capable of 1 gig or 200 megabits or 400 megabits.
We haven't said where we'll roll out 200 megabits.
<UNK>ut it's in a substantial amount of markets today, and we'll ---+ and we're getting good results from it.
We're also getting good results from our higher ultra-tier, which is 100 megabits.
And it's selling in at a substantially higher rate than our previous set.
So while I don't want to give you a forecast of where we go, from an infrastructure perspective, the entire network will be capable of this product mix this year.
So this is Tom.
As far as the ecosystem goes, we ---+ I think we're strategically complete in the sense that we think that we can execute our business plan with the assets that we have.
So I don't think we need to own content to do better.
That doesn't mean there aren't opportunities that might arise that are priced properly that would be synergistic with us.
<UNK>ut I think we are fairly confident that we can execute our strategy, which, from our perspective, we're a connectivity company selling connectivity relationships.
Video is not material from a margin or E<UNK>ITDA driver perspective, but it is ---+ as a stand-alone product, but it is material in terms of product attribute to the overall relationship that we create with customers.
And so we will have access to video.
We have ---+ we've launched Netflix on our network.
We plan to integrate all the video products into our UI and make us the best place to get video of every kind.
<UNK>ut that doesn't require us to own video assets per se.
From a capital expenditure, okay, there was a proxy that was over 3 years ago used with our board that ended up being publicly disclosed.
So I don't want to go back in time and start looking at that.
Other than to say, we expect 2019 capital expenditure to be a materially lower amount of gross dollars of CapEx and in a growing new business, therefore, materially smaller amount as a percentage of revenue.
We will still have integration activity going on inside of 2019.
And so that means that we expected, as a percentage of revenue ---+ we expect to have continued solid revenue growth for many, many years to come.
It means that your capital intensity just continues to decline.
I think 2019 will be a big move, and I think it continues to get better as a percentage of revenue from there.
I am speaking about cable capital expenditures as a percentage of cable revenue.
I don't think wireless is that or mobility is that big given all the factors that I described before where it move through the P&<UNK>
<UNK>ut I think 2019 starts to fully expose the free cash flow capabilities of company.
Sure.
So I'm glad you asked the first question in case I don't think I did, but in case I misstated.
What I said in the fourth quarter is the fourth quarter of 2017 was the low point of E<UNK>ITD<UNK>
I did not say that the first quarter was the low point of E<UNK>ITD<UNK>
First quarter E<UNK>ITDA was actually pretty good.
And, yes, I think it will ---+ it continued to improve over time, but that doesn't mean that, that will be linear.
So that's certainly wasn't what I was implying.
My comment from the fourth quarter 2017, which I reiterated today, was that the fourth quarter 2017 E<UNK>ITDA was the low for cable E<UNK>ITDA growth.
In terms of managing leverage, what we're trying to make sure that we do is that we stay within 4.5x, inclusive of the short-term launch cost for mobile and any working capital impacts from the launch of mobile.
And what that means is that you need to create a little bit of headroom on your cable E<UNK>ITDA leverage so that you can accommodate that upfront cost.
So the faster we go with wireless means that you might just need to pull in a little bit on your cable E<UNK>ITDA leverage, and that's the only distinction I'm making to make sure that the consolidated leverage remains at/or below 4.5x.
We're a large issuer in the debt capital markets as well and we have investment-grade ---+ we've made commitments to that market as well that we intend to keep, and that's to make sure that we stay in line from that perspective.
Thanks, <UNK>rett.
Michelle, that concludes our call.
Thank you, everyone.
| 2018_CHTR |
2015 | HD | HD
#Sure.
<UNK> do you want to.
Sure, that as we mentioned last quarter the West Coast ports have been a very challenging situation for us.
The team here has done a great job in terms of working together to mitigate the issues there.
Having said that we have had negative impact on our in-stock particularly for our direct import items but we've also seen some hits to our fill rates from vendors and that has led to lower in-stock than we would like to see.
So our inventory probably is a little lower than we would like it to be given where it's at but that inventory is coming and it's recovering as the port has gotten a lot better.
Do you want me to quantify this for you.
The impact to in-stocks was about 20 basis points.
And it's very hard to measure sales impact because what our store associates do and they do a beautiful job of this, if you come into the store and you can't find what you're looking for our store associate is going to take you something out there.
Our best thinking is 60 million-ish.
It's weather.
Plain and simple.
You know if you look at the areas in New England very, very late start to the spring selling season.
We have 178 stores in the state of Texas.
We've seen no visible impact whatsoever in that state at this point.
Matter of fact all our major markets in that state posted mid-single-digit comps.
It's something that we're keeping our eyes on very closely and we'll adjust accordingly if need be but have not seen it at this point.
We don't break out comp guidance by US versus total, so no.
We want to do this the right way.
We don't want to do it by going out of stock.
This year in fact our targeted turns are 4.8 times.
You will recall a few years ago we thought we would get to 5 times by the end of this year.
We're not going to get there because we want to do with the right way.
The good news is that we've got a number of initiatives underway that once they are fully employed I think the 5 times turn will be something considerably higher.
Now that won't be in 2015 but there's more to come on the inventory story at the Home Depot.
On inventory.
You mean on the inventory turns within categories.
Yes I think when we actually go through our product line review process this is something that we incorporate into those review.
So the merchants are looking at not only how they can drive more top-line sales and productivity out of the product categories as well but they are looking at how they optimize inventory productivity and first and foremost in-stock within that.
So we've seen improvement in categories that we've actually run through our model.
The ticket we called out was a total Company ticket.
FX impacted ticket by $0.58 year on year so that's a pretty big drag.
Yes.
It's the impact of our garden business being more normal than what it was a year ago.
We're not in most cases we're still operating a single shift if you will through our distribution network.
So we have the ability to add a lot of capacity through the asset base we own.
Yes, it's <UNK> <UNK> here.
We don't have any development plans right now on further distribution centers for the core side of the business.
We have been of course improving our direct fulfillment capabilities and we will be bringing on the new direct fulfillment center in Troy, Ohio in the second part of this year.
Well it's very difficult for us to get a good measure on marketshare.
But if you look at the census data which is a good proxy for us the census data showed us growing our marketshare somewhere around 10 basis points to over 27%.
Not yet.
Working on it.
I would say that's a tough one to call out.
There is the theory of the case that in some cases there was a delayed spend.
Clearly during the economic downturn and people focused strictly on maintenance of their homes.
If you recall or maintenance category were strong throughout the economic downturn.
And when a home moves to a positive growth in terms of value what was once an expense now becomes potentially an investment.
It's pretty easy, if you look at your own personal balance sheet it's easy to put a value on your home.
It's easy to put a value on your stock investments or your bond investments or even just the cash that you have in the bank account.
Hard to put value on softgoods, harder to put value on other consumables.
So that could be one reason if you think about wealth creation putting money into where you want to create wealth.
We are not current on the HELOCs activity.
Can't help you there.
Audra, we have time for one more question.
<UNK>, I'm sorry, I didn't catch the first comment.
Well I don't think the general promotional activity in the marketplace in the first quarter I would say was similar.
We didn't really change our cadence, what we did and the events we did with things like the spring Black Friday.
On mix we have seen the consumers we've talked about this before where we track all sales by various price points and we saw yet another quarter of where the consumer is buying up the continuum.
And we are seeing higher comps in each price gradient as you go up the mix from OPP to good or best premium products.
On brands the consumer always is looking for value.
The right product at retail and I think we have a great mix of the right brands and our own private label product to satisfy that customers.
I would say one other comment as it relates to the mix is with much of the country seeing a much more normal kind of spring obviously just outdoor projects in general were stronger in the first quarter than they were a year ago.
No, we haven't we still don't have a specific target on a private label penetration.
We're over 15%.
And again we're letting the consumer choose the value proposition they want.
Well thank you everyone for joining us today.
We look forward to speaking with you at our next quarterly earnings call.
| 2015_HD |
2016 | WLTW | WLTW
#Okay, <UNK>, do you want to start off with the currency impact.
Well, yes.
I mean, I think it was in the script that there was about $50 million, a little over $50 million of FX impact on the revenue line.
I don't know that we gave any PS impact, but it would ---+ it was ---+ it would be modest.
And just to note going forward, you'll note that our guidance on FX is a little bit lower than where the Pound and the Euro are now, so, you know, there's probably a single-digit, from an EPS point of view, single-digit kind of sense, potential upside if rates stay the way they are now.
And so I guess, just on ---+ sorry, I was going to answer on Brexit.
So just on that I think, you know, like everyone else, we are ---+ we're following the debate there, and there's ---+ some people are concerned about the impact of some uncertainty in the UK, although I think the uncertainty leading up to the vote is probably as great as anything that they would see to.
We see basically some cons and some pros.
The London insurance market could see some premium declines accelerate, the ---+ you know, the insurance centers could move elsewhere.
On the other hand, their added complexity in the market place is, in general, something that's good for consulting firms and for brokers.
There's ---+ there would be issues around any ---+ if people did move wiggle entities or capital or staffing, that would create opportunities for us, you know, in particular, it could benefit CRB and HCP.
So, I think there would clearly be some short-term dislocations.
We generally feel that when there are dislocations in the market, it favors companies that are agile and nimble and flexible and we like to think of ourselves that way.
Thank you.
<UNK>, I just mentioned, you know, it's, to some extent, maybe the main driver, the continuing success in Health and Welfare Administration business and the new clients, as we've been talking about over the last year or so.
But, again, that is good.
Those are usually ---+ <UNK>, those are like long-term deals where we'll sign up the client, you know, for a five-year deal or something like that, and every once in a while if there's a big law change, that part of the business might have some a ---+ special projects, but relatively rarely.
I'm sorry, first half versus second half for ---+.
It's the Gras Savoye and the seasonality there, <UNK>.
On the revenues.
Yes.
I think, you know, it's certainly over 50%, you know, probably reasonably over 50% in the first half and pretty much all the profit is in the first half.
Okay.
Well, thanks, everyone, for joining us this morning, and I look forward to talking to you on the Willis Towers Watson earnings call in August.
So long.
| 2016_WLTW |
2016 | NSIT | NSIT
#Thank you.
Welcome everyone, and thank you for joining the Insight Enterprises conference call.
Today we will be discussing the Company's operating results for the quarter and full year ended December 31, 2015.
I'm <UNK> <UNK>, Chief Financial Officer at Insight.
And joining me is <UNK> <UNK>, President and Chief Executive Officer.
If you do not have a copy of the earnings release that was posted this afternoon and filed with the Securities and Exchange Commission on Form 8-K, you will find it on our website at insight.com under our Investor Relations section.
Today's call, including the question-and-answer period, is being webcast live, and can be accessed via the Investor Relations page of our website at insight.com.
An archived copy of the conference call will be available approximately two hours after completion of the call, and will remain on our website for a limited time.
This conference call and the associated webcast contain time-sensitive information that is accurate only as of today, February 10, 2016.
This call is the property of Insight Enterprises.
Any redistribution, retransmission or rebroadcast of this call in any form without the express written consent of Insight Enterprises is strictly prohibited.
In today's conference call we will refer to non-GAAP financial measures as we discuss the fourth quarter and full year 2015 financial results.
You will find a reconciliation of these non-GAAP measures to our actual GAAP results included in the press release issued earlier today.
Finally, let me remind you about forward-looking statements that will be made on today's call.
All forward-looking statements that are made on this conference call are subject to risks and uncertainties that could cause our actual results to differ materially.
These risks are discussed in today's press release and in greater detail in our Annual Report on Form 10-K for the year ended December 31, 2014.
With that, I will now turn the call over to <UNK>.
<UNK>.
Thank you, <UNK>.
Hello, everyone.
Thank you for joining us today to discuss our fourth quarter and full year 2015 operating results.
For the fourth quarter of 2015, consolidated net sales were $1.4 billion, down 4% year over year in US dollars, and down 1% in constant currency.
By operating segment, year over year we saw growth trends soften in North America, while EMEA and Asia Pacific businesses reported low-single-digit declines in sales, all in constant currency.
Gross profit was $181 million in the fourth quarter, down 1% in US dollars, but up 3% in constant currency, reflecting gross margin expansion in all three of our operating segments.
Gross margin increased 40 basis points year over year to 13.0%.
This increase was primarily due to a higher mix of services sales, which are transacted at gross margins notably higher than our corporate average, and an increase in performance-based partner funding across core product offerings.
Consolidated selling and administrative expenses were $147 million in the fourth quarter, up 3% in US dollars, and 6% in constant currency, reflecting investments in sales, technical and services headcount across the business.
Earnings from operations, excluding severance and restructuring expenses, decreased 13% to $33.5 million.
On a GAAP basis, earnings from operations decreased 13% to $30.5 million.
And diluted earnings per share, excluding severance and restructuring expenses, increased 4% year over year to $0.57.
On a GAAP basis, diluted earnings per share were $0.50, also up 4% year over year.
Within these results, the North America business reported 1% top-line growth in constant currency.
In the hardware category we continued to see solid growth in client devices and displays.
This growth was partly offset by lower service sales resulting from the end-of-life Microsoft Windows Server 2003, and the completion of certain multi-quoted network deployments.
In the software category, public sectors clients increased their spending for business productivity solutions, but our reported software sales declined year over year, due to a higher mix of maintenance sales, which are recorded net in our financials.
And in the service category we added BlueMetal, and interactive design and technology firm, to our portfolio of service offerings on October 1st, which led to a 4% improvement in sales in that category in the quarter.
Gross profit in North America in the fourth quarter grew slightly faster than sales, but the effect of SG&A investments made over the past few quarters led to a decline in earnings from operations year over year.
As we look back at our North America business in 2015, there are quite a few areas that we're excited about.
Hardware sales grew 7% for the year, ahead of our internal expectations, and outperformed the market according to third-party data.
Our software business in North America performed well in 2015, growing 5% overall, including particularly strong performance in the public sector space, where we grew more than 30% by adding new clients and continuing to cross-sell and grow within our existing portfolio.
And our services sales grew 20% in 2015, reflecting the benefits of expanding our solutions capabilities and investing in the right talent over the last two years.
And as part of our continuing efforts to deliver client-relevant technology solutions, we completed the acquisition of BlueMetal in the fourth quarter of 2015.
Integration activities are underway, and we're excited about the ability to bring BlueMetal's application design, mobility and big data solutions to our clients.
From a profitability perspective, gross margins in North America in 2015 were pinched by a higher mix of device sales to larger enterprise and public sector clients, and the effect of lower fees earned on software enterprise agreements.
But our team executed well to optimize partner funding under core partner programs, and increased the mix of higher-margin services gross profit in the portfolio, which helped mitigate some of the margin compression.
And as committed, we invested in sales and technical resources in 2015, adding more than 100 selling resources to the business that we believe will position us well to continue to grow in 2016.
In EMEA, net sales decreased 4% year over year in constant currency in the fourth quarter, reflecting lower software sales to large enterprise clients that were partly offset by a 29% increase in services sales.
But gross margins expanded by over a 100 basis points, and the team controlled expenses, which drove non-GAAP earnings from operations up 7% year over year in the quarter.
Our EMEA business is stronger today than in recent years.
Our management team has matured.
Our sales execution has improved.
And our strategy to transform to a solutions and services based selling model is showing progress.
For the full year of 2015, our EMEA business grew top line by 2% in constant currency terms, and gross profit by 3 times that rate, due partly to over 20% growth in cloud and other services sales.
We delivered improved financial performance in France and Germany, where we've struggled in recent years, and continue to execute well in our strongest businesses in the UK, Italy, Nordics and Netherlands.
Currency exchange rates dampened our reported results all year.
But we're pleased with the performance of our EMEA business overall, where 2015 non-GAAP earnings from operations grew high single digits in constant currency terms.
In Asia Pacific, fourth quarter net sales decreased 4% year over year in constant currency.
During the quarter we saw increased demand in Australia and New Zealand, and softness in China and Singapore.
In addition, the top line results were affected by a higher mix of [netted] software sales year over year.
Gross profit dollars increased in the fourth quarter of 2015, which drove earnings from operations up in constant currency terms.
Q4 represented a solid close to a tough year for our Asia Pacific business.
For the full year of 2015, the softer economy drove our top line down by 5% in constant currency, compared to 2014.
And our APAC business, which is mostly comprised of software sales, received $4 million less in incentives due to partner program changes in this category.
Our team continued to execute our strategy to grow cloud and professional services capabilities, and expand hardware sales in the portfolio, but could not offset the effects of the economic downturn of the region and the program changes.
I will now hand the call back over <UNK>, who will discuss our full-year 2015 financial results in more detail.
<UNK>.
Thank you, <UNK>.
For the full year 2015, consolidated net sales were $5.4 billion, an increase of 1% year over year in US dollars, and 6% in constant currency.
North American net sales increased 7% to $3.8 billion, with growth reported from all three categories of hardware, software and services.
In EMEA, net sales decreased 11% year to year, and to $1.4 billion in US dollars.
But in constant currency, net sales increased 2%.
Hardware and software sales in EMEA grew 2% and 1% respectively, while services sales grew nicely at 24%, all in constant currency.
In Asia Pacific, net sales of $178 million decreased 16% in US dollars, and 5% in constant currency.
Full year 2015 consolidated gross profit was approximately $716 million, up 1% in US dollars, and up 5% in constant currency.
Gross margin in 2015 was 13.3%, down 10 basis points year over year.
This decreased was primarily driven by partner program changes in the software category, which resulted in approximately $8 million in lower gross profit in our software category, about half in each of EMEA and APAC.
Selling and administrative expenses for the full year of 2015 were $585 million, an increase of 1% year to year in US dollars, and 6% in constant currency.
In North America, SG&A increased $24 million year over year.
The prior year results include a $5.2 million non-cash charge related to our Illinois real estate asset recorded in the second quarter of 2014, compared to $800,000 recorded in the third quarter of 2015.
We also invested significantly in sales and related headcount in North America, and incurred higher variable compensation on higher gross profit.
In EMEA, SG&A expenses were down year to year in US dollars, but up 5% in constant currency in 2015.
The increase in constant currency was due to increased investments to support services and cloud growth across the region.
And in Asia Pacific, expenses increased 3%, also in constant currency, due to an increase in teammate-related expenses.
And as a result of additional restructuring activities in EMEA and the continued review of resource needs in North America, we recorded severance and restructuring expenses of $4.9 million in 2015, compared to $4.4 million in 2014.
Earnings from operations were $127 million in 2015, a decrease of 3% from 2014.
Excluding severance expenses and the non-cash real estate charges, earnings from operations in 2015 were $132 million, down 6% year to year.
Our effective tax rate in 2015 was 36.4%, compared to 39.1% in 2014.
The decrease was primarily due to reduced operating losses in certain foreign jurisdictions in 2015.
And finally, diluted earnings per share came in at $1.98 on a GAAP basis.
Excluding severance expenses and the real estate charges, diluted earnings per share were $2.11, up 6% from $2.00 reported for 2014.
Moving on to cash flow performance, for the year ended December 31, 2015, our operations generated [$181 million of cash] (corrected by company after the call), up 64% year over year.
These results exceeded our historical average annual cash flow generation of $80 million to $120 million, due to a single significant receivable received from the client in the fourth quarter, but for which the payment to the supplier as a result of timing only, was due and paid in January.
In 2016 we expect the payments to the supplier in January will have the opposite effect on our 2016 cash flow results.
We invested $13 million in capital expenditures in 2015, up from $10 million in 2014, reflecting technology and facility enhancements made in 2015.
And we spent $92 million in 2015 to repurchase 3.3 million shares of our common stock.
And as discussed in the last conference call, we also purchased BlueMetal in the fourth quarter for a cash purchase price of $41 million, net of cash acquired, and the assumption of $3 million of debt that was repaid at closing.
All of this led to a cash balance of $188 million at the end of 2015, of which $159 million was resident in our foreign subsidiaries, and we also had $89 million of debt outstanding under our debt facilities.
This compares to $165 million of cash and [$61 million] (corrected by company after the call) of debt outstanding at the end of 2014.
And from a cash flow efficiency perspective, our cash conversion cycle was 20 days in the fourth quarter of 2015, a decrease of four days year to year, as a result of the higher DPOs in North America, driven by the single payment I just mentioned.
One more item before I turn the call back to <UNK>, this week our Board of Directors approved an authorization to repurchase $50 million of our common stock.
These share repurchases will be made on the open market through block trades or through 10b5-1 plans.
Subject to market conditions, we plan to commence this program during this quarter.
Over the past three years we have repurchased over 8 million shares of our common stock, deploying [$200 million] (corrected by company after the call) of cash under this initiative.
Our capital structure remains healthy, with sufficient capacity to support our internal investment plans and this repurchase program in 2016.
I will now turn the call back to <UNK> to review our 2016 operating priorities and outlook.
<UNK>.
Thank you, <UNK>.
Moving on to our 2016 operating plans, across the markets where we do business, industry analysts expect flat-to-low single-digit growth in hardware sales in 2016, and low-to-mid single-digit growth in software and services sales.
Our plans for 2016 are focused on driving growth and excess for the market across our operating segments.
However, given continued weakness in major global currencies against the US dollar, we expect that our reported growth in US dollars will be in the low-to-mid single-digit range.
The IT industry is healthy and constantly changing, which provides opportunities for Insight to continue to bring value to our clients, partners, teammates and shareholders.
We believe that the investments we've made over the past few years, combined with our global scale, strong data center, software and services capabilities, position us well to compete in the marketplace in 2016.
In North America over the past two years, we have invested in sales and technical resources in the business, particularly in support of large corporate and public sector accounts across the region.
As we head into 2016, we're highly focused on helping our new reps improve their productivity and drive the return on our investments.
Our strategy in the large corporate space in 2016 is to leverage our expanded salesforce to earn new clients and more business with existing clients through our core competencies around supply chain, software and cloud, and to bring additional value to our technical and consulting services capabilities.
In the public sector we intend to expand our footprint in the K-12 space, leveraging on network and expertise in new markets.
In the state and local space we'll continue to grow our capabilities around public safety.
While on federal space, a business largely built around software, we will leverage newly-won contracting vehicles to garner our share of the hardware spend by federal agencies.
In addition to our strategies in large corporate and public sector markets, we have a number of initiatives underway to scale and expand our small-to-medium business go-to-market capabilities.
In 2016 we will look at all facets of the SMB sales engagement model, including hiring, training, development and compensation; as well as sales enablement for digital marketing, web automation and cloud aggregation; and look forward to updating you on this initiative throughout 2016.
In EMEA, we'll continue to expand on the momentum that we gained in 2015 around our two-prong strategy.
First we'll continue to drive sales excellence in our core business, and look to expand our client portfolio with cloud offerings and consulting services.
And second, we will continue to grow our services capabilities, focusing primarily on licensing optimization services, cloud assessment and deployment services and modern workplace collaboration solutions.
This strategy is critical to our long-term transformation into a client-centric solutions company.
Finally in Asia Pacific, our plans are focused on penetration in the mid-sized and enterprise markets and the development of more specialized software services capabilities, particularly in the areas of software licensing optimization services, cloud assessment, migration and management.
Moving on to our outlook for 2016, for the full year of 2016 we expect our business to deliver top-line growth in the low-to-mid single-digit range in US dollar terms.
We also expect diluted earnings per share for the full year 2016 to be between $2.25 and $2.35.
This outlook reflects the adverse effect on gross profit; our previously announced partner program changes in the software category which the Company expects to be between $5 million and $10 million; an effective tax rate of approximately 37%; the completion of a recently-authorized share repurchase program of up to $50 million, leading to an average share count of approximately 36 million shares for the year; and capital expenditures of $10 million to $15 million.
This outlook excludes severance and restructuring expenses.
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.
And we'll now open your line up for questions.
Yes.
Thanks <UNK>, for the comment.
On the North America side, as you saw, the revenue in constant terms was 1% growth.
On the hardware category, we did actually see good growth on notebook category and tablet category.
So we did see continued growth.
That led to a little bit of margin compression with some of our larger clients where it's a little more competitive.
But we did see good growth there.
What we did see is the networking category was challenged, as well as other aspects of the data center, being the server market.
Some pretty tough compares, year over year as well, but all in all that's where we saw some of the softness in that regard.
We're confident in that what we're proposing as far as the 2016 outlook, and that sort of mid-single-digit growth for the revenue side of the equation.
That's what we're seeing.
So we think it's certainly a function of what we saw in some softness is Q4.
Going into Q1, we do think that the revenue numbers are there.
We'll see a little bit of still some margin compression for us, as we go into Q1.
But we do believe that we'll see growth in the hardware categories as we forecast into Q1, and obviously throughout the year.
Correct.
Yes.
And as you know, we've been sort of experiencing that sort of now for a quite a few years, the last three years, certainly that kind of number.
So that's sort of now become almost built in.
We do hope that that will run off this year.
But that's what the number calls for this year in the software category.
I think your analysis is correct.
When you look at the overall mix of business, we would anticipate the 5% to 10% expansion in overall EFO margin is about where we would come out.
We're going to get some benefit ultimately from services with regard to higher margins there.
And it does have a higher growth rate associated with it.
However, the base of business is actually the hardware and software business.
That's larger, significantly larger than our services business.
And we're anticipating a little bit of---+ not margin compression, but still margin pressure.
So we're not expecting significant expansion in margin in the hardware and software categories.
And that we have that software effect that's 100% gross margin that impacts the overall margin profile.
So your analysis was spot on.
So it was we---+ there's a program that went into effect that is a carryover going into 2016, just based on the timing about how the contracts that were impacted end up rolling over ultimately.
There's a very minor change in the program that's driving a little bit of that.
But in general, we anticipate that it's going to be between the $5 million to $10 million range, and likely closer to the $5 million range at this stage.
And it is---+ partners make changes all the time, not just one partner, ultimately.
So as we---+ as I was talking to <UNK> about in his analysis, I think that that 5 to 10 basis point improvement at the EFO margin is a realistic number and assumption that you could use going forward.
When you look at the investments that we made in 2015 and 2014---+ not 2014 so much as the ones in 2015---+ those are actually kind of anniversarying at different stages in Q1 through Q3 primarily in 2016.
So some of that SG&A is incremental in 2016 as well.
We assume that we're going to get some incremental profitability out of the overall investments that we've made.
One other factor a little bit in the overall revenue growth, we're anticipating kind of low-to-mid single-digit US dollar growth.
And we're anticipation mid-single-digit constant currency growth.
Because there's a little bit of impact in terms of currency related to the euro, the GBP, the Canadian dollar and the Australian dollar primarily.
I'd say it's pretty normal from what we've seen, <UNK>, going back.
So I haven't seen a real---+ a significant change there.
The decline in Q4 was---+ a lot of it has to do with sort of the [netting] effects.
As you can see, the European business did deliver a nice GP dollar growth, as well as EFO growth.
So in the software business we tend to really look more at the GP dollars than even the top-line revenue growth.
So I don't think that was an indication of any real softness overall that we're seeing in the European market.
So again, as we've stated, we're pleased with the progress that we're making.
The team is very stable, and continues to make good progress.
So I would say overall that the competitive environment to me seems very much the same.
I don't see any significant differences in that environment.
And I think also, on a year-over-year basis, <UNK>, there was some very large deals that we had in Q4 of 2014 that didn't reoccur in Q4 of 2015.
And that's part of the driver ultimately in EMEA between the growth on a year-over-year basis.
I would say that if you had excluded---+ if we hadn't received that---+ collected that receivable from our client, our cash flow would have been in a normal range, towards the high end of our normal range.
That $80 million to $120 million that we've given you.
I would just also say that relative to the first quarter---+ I meant to make this as a commentary on <UNK>'s question when he first asked---+ we anticipate that our first quarter is going to be a little bit softer, just coming out of the fourth quarter that we've had and the indications that we're seeing right now.
So as we think about our guidance for the year, I would just want to let you know that from our perspective, our first quarter is going to be a little bit softer than a normal seasonality would imply.
| 2016_NSIT |
2016 | UFI | UFI
#Good morning, <UNK>.
Yeah, hi, <UNK>.
It's <UNK>.
So let's talk about Brazil first.
In Brazil, we've had a couple of things happening in the Brazil market that have really helped our business there.
Firstly, we invested a lot in our PVA capacity to produce PVA product in Brazil, and that investment is really paying off.
We've seen significant growth in the PVA product portfolio in Brazil.
At the same time, our market share has also expanded, particularly in the PVA product area.
But also, at the same time, the market for synthetic fibers in Brazil has expanded compared to the comparable quarter of last year.
I think our comps versus Q1 in Brazil are relatively easy.
Q1 was a relatively low point for the Brazil market, so we have seen the market expand from there.
What's also been happening in Brazil during this quarter, and we saw it in the fourth quarter as well, is the exchange rate environment was beneficial for the mix of products that we manufacture versus products that we import and then resell.
And our margins on the products that we manufacture are higher than the margins on the products that we import and resell.
We also are running at a very high capacity in Brazil because of the high proportion of manufactured products and the high volume we're getting on the PVA products.
Running at high capacity, we get efficiency from our manufacturing facility there as a result of that.
So all of these things came together to result in a very strong performance in the Brazil market.
If you look at Asia, Asia continues to be a growth area for us.
As you know, we have announced expansion into Sri Lanka, we continue to look at Vietnam.
We're very encouraged by the interest that we see from global brands and retailers to supply our PVA product into the Asian supply chain.
And Asia is essentially entirely a PVA market for us, so that's a higher margin market for us.
We expect this market to continue to show growth for us during the remainder of the year.
So in the International Segment, we continue to see both Asia and Brazil performing very nicely this quarter as a result of the factors I just described.
Yeah, so the way we look at it, let's think about Brazil first.
I think we are going to see a continued strong volume in Brazil.
We're very encouraged by the product mix and the market in Brazil and I think we will see continued strong volumes in Brazil.
Remember, though, that our comparables in Brazil are much easier in the first half of the year than the second half of the year, because we did see a pickup in the Brazil market in calendar 2016.
However, we would say that we would expect the margin rates in Brazil to be under some pressure in the remainder of the year relative to the margin rates that we saw in Q1, and the reason being is that now with a stronger Brazilian real, a more stable Brazilian real, the mix of product between domestically manufactured and the imported for resell product will shift a little more away from the manufactured products towards the resell products, and that will adversely impact our margins.
So in summary on Brazil, the volumes should continue to be strong.
The margin rate, though, we'd expect that to decline versus the levels that we saw in the first quarter.
We're also concerned in Brazil about potential changes in tariffs, I think <UNK> referred to these in his script, that could adversely impact our cost structure.
So we're watching that.
That could adversely impact our margins in Brazil.
When we look at Asia, with the Asian business, we think that the margin levels that we have in Asia should be fairly sustainable during the remainder of the year.
Of course, it does depend on the mix of products there, but the margins in Asia should be sustainable during the rest of the year.
Sure.
So the domestic market and the NAFTA/CAFTA region performance for us has been relatively weak this quarter.
We see a very uncertain retail environment, and the key issue for us there is the level of inventory.
Level of inventory has remained at somewhat elevated levels versus historical levels, and this is creating some softness in our supply, that coupled with lower retail sales has impacted us.
In the medium to longer term, we do expect the region to continue to grow.
We're optimistic about the region.
We're seeing a trend towards more regional fast fashion and lean inventory and just-in-time inventory.
We also do benefit from having diverse segments, from apparel to industrial to automotive, so that allows us to benefit as the region continues to expand.
But right now, we are seeing weakness in the domestic market.
A lot will depend on how the winter season goes.
If we have a cold winter, that'll help us in the second half of the year.
But it's a somewhat fragile environment at this point in time.
Oh, thank you.
Good morning, <UNK>.
Yeah, sure, <UNK>.
It's <UNK>.
Let's just start on the pricing.
When you look at the comparable period, you see that raw material prices in Q1 of 2016 were about 15% higher than they were in Q1 of 2017.
And what happened during the course of last year, the 2016 fiscal year, is raw material prices were high in Q1 and they dropped down around 15% by Q2.
So, just as you think about Q2 through Q4, our raw material prices we expect to be broadly in a similar range in 2017 to what they were in 2016.
However, in Q1, we did have a significant raw material price decline of about 15% for virgin materials, and that is the predominant driver of price change in the polyester side.
When you look at this from a volume point of view, our volumes are down by about 4%.
We wouldn't attribute that to a denier change associated with PVA.
That is really related to the retail softness that we're seeing.
You know, in some segments our volume is actually up, and in some segments our volume is down, but overall, the decline that we are seeing is in line with retail softness in the region.
So, thanks.
Look, there is the retail softness, is one factor.
But the nylon decline is more than just the retail softness.
The nylon decline is also consumer preferences.
We are seeing a decline in ladies' hosiery and casual clothing from nylon.
There is that particular decline that we are seeing in the nylon market.
We are also seeing a few segments where some nylon share has been passed to polyester.
Polyester is a less expensive fiber.
Now, we're attacking the nylon situation from two fronts.
One, we're certainly managing our assets to control our cost in that area.
And two, we are working together with our joint ventures partners to develop specialty areas for nylon.
But, as I say, going back to the beginning, nylon supply is more than just retail softness.
There's other factors involved.
And we're seeing that across the board with our customers in nylon.
Yeah, <UNK>.
This is <UNK>.
That is mostly related to our bottle processing facility, and we were talking about going into maybe some food packaging and some other areas for our polyester flake coming from bottle processing, and also potentially some other uses for our recycled polymer at our REPREVE recycling center as well.
You know, we're looking at those markets, and I think we're out seeding those markets right now with product, and that will be a gradual increase over time.
And I guess another end use would be nonwovens as well, for our product.
Thanks, <UNK>.
Thank you, <UNK>.
Yeah, <UNK>, this is <UNK>.
You know, I think we look at that market very positively.
I mean, it's a difficult environment to do business down there because of all the issues that <UNK> and I have discussed previously.
But certainly if market dynamics dictate, I think we would consider future expansion down there for sure.
We are.
Currently, we're very close to full capacity.
We've continued to, as <UNK> alluded as well, we've continued to invest in the capacity, adding PVA capabilities, which we've benefitted greatly from.
And we will continue to do that as needed.
Well, I think Apollo and Nike, for us, at least on the surface, is positive.
It's reinforcement that the brands and retailers are moving programs back to this region.
And, with Nike and Apollo there are other potential entrants to this market coming back, and especially in knitting and weaving capacity that are potentially moving back to this region based on what they're hearing from the brands and retailers.
So we're encouraged about our business long term.
Thank you, <UNK>.
Thanks, <UNK>.
Thank all of you for joining us today.
| 2016_UFI |
2016 | LNC | LNC
#<UNK>, I appreciate the input.
We have actually used ASRs in the past.
Most recently we used one a couple quarters for about half of that quarter's buyback, so it's something we definitely have used in the past and will definitely think about moving forward, but appreciate the comments.
<UNK>, I really appreciate the predicate to the question.
Thank you for those compliments.
Thank you, and we are at the top of the hour, so we want to be cognizant of another call about to take place.
As always, we're around to take questions on our investor relations line at 800-237-2920 or via email at investor relations@LFG.com.
Thank you and have a good day.
| 2016_LNC |
2016 | PCG | PCG
#Sure, thanks, <UNK>.
Just as a quick reminder, for the year miscellaneous items is roughly about $0.02.
What I will say is, miscellaneous items generally have a number of factors, both timing and non timing related.
A couple of the things that have driven the Q4 results were higher gas transmission revenues as a result of the colder weather we experienced in the fourth quarter, as well as we experienced some favorable settlement and employee benefit costs during that quarter, which are reflected in those numbers.
But, again, these are really timing items and over the course of the year they netted out to a small amount.
That is correct.
That $0.10 really relates to our operating expenses for which we are not receiving a recovery through the GT&S rate case because of the delay in the decision.
But the full impact on a quarter basis is roughly $0.15 when you include the lack of return on rate base depreciation, et cetera.
As I mentioned, it's a total of roughly $0.60 for the full year, is the full impact of not having the GT&S decision.
$0.15 for the quarter, includes both the unrecovered cost, of which that's $0.10, and then $0.05 is roughly the impact of the lack of the rate base return.
I'm sorry, six-zero - $0.60.
That's right.
Okay we will walk through those.
And I may hand off some of them for some more detail.
The distribution records cases, it's in process.
There's been testimony given in the case.
We've got a consultant's report.
And in a minute I'll let <UNK> <UNK> just comment on exactly where that is.
With respect to the criminal case, the trial has been pushed back to the end of March.
We continue to believe that there is no basis to conclude that any PG&E employee willfully violated the Pipeline Safety Act, and we are proceeding on that basis.
Obviously when it goes to trial there's going to be negative publicity but we still firmly believe that we've got a solid case there going forward.
And then you had one other case.
Oh, the bush fire.
Let me ask <UNK> to comment on that.
Hi, <UNK>, this is <UNK>.
As we've previously reported, that CAL FIRE is investigating whether in fact a live tree made contact with some of our power lines in the vicinity and near the ignition point.
It is a very detailed investigation.
It's continuing.
We haven't heard anything additional, so we really don't have any further updates at this point.
Obviously cooperating with them, providing them lots of information.
We are hopeful that we will hear something soon but our experience shows that this could take a while.
Let me let <UNK> <UNK> comment on where we are now on the penalty.
Hi, <UNK>.
The court issued an order late last year basically eliminating the loss-based Alternative Fines Act allocation.
It could have been up to $1.13 billion and that fine possibility has now been eliminated.
The other question that is under consideration right now is whether or not the Alternative Fines Act allegations based on gross gains can be admitted.
And the court just recently deferred decision on that and basically said that the court wants to see how the case comes in.
If the company is convicted, and if the alternative gains evidence is not going to unduly complicate the trial, then the court will bifurcate the trial and consider that as a second case.
That is $562 million.
That is what has been deferred.
But you have to also recall that the court dismissed 15 counts, so we are now down to 13 counts.
And if you don't have the Alternative Fines Act allegations that come in, and the government doesn't prevail on that, then each count has a fine of $500,000.
So, 13 counts would amount to $6.5 million.
Let me let <UNK> comment on the safety records case.
On the distribution records OII ---+ this is <UNK> <UNK> again ---+ as <UNK> said, we concluded the hearings in January.
I think we had a good and successful hearings in that case.
So, the case is now concluded.
I would just highlight a few things.
I think it's worth noting that, even in SED's testimony they acknowledged that PG&E has made a lot of improvements in our distribution record-keeping, and commended us for some extensive use of internal and external audits.
And we had the opportunity through the hearings to really comment about a number of the industry best practices that we've been implementing, including our multi-year efforts to consolidate and digitize gas distribution records, providing crews in the field with additional tools, including electronic maps and tablets, and really multiple layers of safety protections in place when we do work in the field.
So, we thought that getting those things out was a successful conclusion to that case.
The next steps, just to highlight for you, next week we expect parties to file.
They will be filing open briefs next week, including SED, so we will see what that says.
And just the last reminder is that we already were fined for the Carmel incident so we'll see what comes out after, that remains.
That fine was $10.8 million.
This is <UNK> <UNK> again.
The court has not decided whether to admit the gross gains evidence.
That is still under consideration.
The trial is scheduled to start on March 22.
And barring any further continuance, the parties have submitted an estimate, and the estimate that has been submitted is that it may take approximately six weeks ---+ four weeks for the prosecution and two weeks for the defense.
But that's, I think, a very rough estimate at this point.
This is <UNK>.
One other thing on the issue around the alternative fines, because it's a criminal case it has to be proven beyond a reasonable doubt.
And I have trouble figuring out how there would be any gains shown.
In fact, the Company sustained huge losses as a result of that.
The suggestion that they are going to be able to prove beyond a reasonable doubt that the company had $500 million in gains resulting from San Bruno is hard for me to understand.
They have to prove that first.
That's the first step, is that they would have to prove that there was a willful and deliberate violation of the law, that somebody decided ---+ I know what the law is but I'm just going to violate it any way.
And then you don't even get to the alternative gains consideration unless you get that.
And then they would have to prove beyond a reasonable doubt that the number was the number, whatever number they want to push.
Let me comment on the settlement.
We are always open to a settlement if someone wants to make an offer.
We have made efforts in the past that have not gone anywhere.
We would be open to it <UNK>, why don't you comment on the timing.
I gave you the current estimate of how long the trial might take.
And then, of course, it's a question of how long it takes for the jury to deliberate and reach a decision.
I can't tell you how long that will take.
But given a late March start, you'd be looking at some time in probably the May time frame.
I really think it's probably premature to forecast what the decision will look like before we have it in hand.
What it will say, though, is that capital expenditures forecast for the year that we've included, the $700 million reflects what we filed in that case.
So, you'll have to make your own assumptions around where that case will ultimately end up.
The ranges we provided do not reflect any incremental capital from that mechanism we've had in the past.
I really think it's important to point out that regulatory mechanism, which has allowed us to spend that additional capital when bonus was extended in the past, it was really intended to address those situations where that extension occurred after we received a rate case decision.
In this case, bonus was extended before we have a decision so it's not necessarily applicable in this case.
We have requested the extension of that mechanism as part of our original 2017 GRC filing.
But, again, it really is intended to address situations where bonus was extended after we received a decision in the case.
I would say that is a fair assumption.
It could be extended but since bonus has already been extended for five years, I think that's a fair assumption.
I really don't think the numbers change in this case.
What it will point out, though, in the comment that I made, the high end of our ranges reflect what we've currently filed in our rate cases.
Just as a quick reminder, over this 2016 through 2019 period our currently filed rate case for our electric transmission assets is only through 2016.
So, we will have to file an annual case for 2017, 2018 and 2019.
As well, our GT&S case only covers up to 2017 so we will file an additional rate case covering the period of 2018 and 2019.
There is the opportunity where we may spend additional capital or request additional capital in those rate cases that are not reflected in these ranges here.
What I will come back to is the two main drivers of our equity needs have really been our CapEx program.
So, we've provided ranges here.
You're going to have to make your assumptions about where we fall out in that range and what that incremental equity will be needed to fund those levels.
The other driver of our equity needs, as I've mentioned before, is our unrecovered costs.
As I mentioned, the majority of the unrecovered costs that are driving our equity needs in 2016 really relate to the financing of the remaining penalty for the San Bruno penalty decision.
We will complete the financing of that penalty this year in 2016.
So, you can make your assumption about what those unrecovered costs will be post 2016.
We're constantly focused on affordability of our service.
But there's a number of factors that are going to play out over the period of time with which bonus depreciation reverses.
So, I don't think we can isolate that today as a driver or concern about our rate levels.
As <UNK> <UNK> mentioned earlier, net energy metering is not fully resolved.
The Commission issued a decision in what we call net energy metering 2.0, but in 2019 they're going to take the issue up again.
There is still this issue of cross subsidization.
We think there's still work to do to get the rate structure right so we don't have one group of customers subsidizing another.
And we are going to be continuing to work with not only the Commission but all the parties on this.
So, more to come on net energy metering.
That is something we are going to be working on.
The other part ---+ CCAs, that gives local communities the right to aggregate.
Now, they are still PG&E customers.
We deliver the energy to the customer.
The energy costs are a pass-through, so we don't make money or lose money on CCAs.
One of the frustrations that we have is we want to make sure that customers understand what they're getting when they go to a CCA.
We want to make sure that, from a cost standpoint and a clean energy standpoint, we are very competitive, and we think we are.
But in the end right now it does not have an impact on our bottom line.
Yes, net metering doesn't hurt us.
It hurts our customers, or certain class of customers.
This is <UNK> <UNK> again.
I think you're referring to the PCIA proceeding that occurred last year in our [ERA] case.
And the Commission, they finalized the ERA case in December and that sets our rates for this year.
They did announce they're going to have a workshop to look at the PCIA methodology going forward.
It's a very complex methodology by which we calculate what are the costs that when customers leave, bundled customers have already procured on their behalf.
As a part of the CCA mechanism, they retain those costs when they go to CCA service.
We will have a workshop on that here coming up very shortly, actually.
And we'll continue to work through that during the year.
But there's not another formal proceeding that has been opened on that.
In California there are always lots of pieces of legislation and it's hard to handicap which ones are going to make it through the process and which ones aren't.
And, quite honestly, we have stayed out of that issue.
However the State wants to structure the CPUC, we will work with it.
The bottom line, though, from a regulatory standpoint in California, we still have really good regulatory structures in place.
And there's nothing that leads any of us to believe that the fundamental positive regulatory structures that we have in California is going to change.
Yes.
We think from the utility standpoint, we will work within whatever regulatory structure.
And a lot of the proposals are around governance at the CPUC.
But no one is proposing we change some of these very positive structures and the trends that we've had, such as going to clean energy, which means we've got to modernize and make the grid more flexible, which means we've got a lot of investments which is driving our capital needs.
That is something that we've obviously been pointing out to the court.
The requirement is knowing and willful violation of the Pipeline Safety Act regulations.
And there's also an obstruction charge, as well.
There is a theory out there called collective knowledge and we believe that is what the government is looking to.
But, as you know, corporations are entities, and corporations as legal entities don't commit actions.
It's the individuals.
These are issues that are very much at play and they're before the court right now.
We have not.
I want to continue to emphasize that TAMA account, or that regulatory mechanism that we had to increase our capital expenditures in the past really isn't applicable in this case for the extension of bonus.
What I would really concentrate on is the potential opportunity for additional spending in our transmission rate cases, which we will file over the next couple of years.
We haven't picked up that any of them are demanding we spend more money right now.
And to just reiterate what <UNK> said, in these later cases that we file we're going to be evaluating what our needs are, and that will then be the subject of a hearing.
But no one is out there saying, that I've heard, has said yes, because of bonus depreciation being extended you guys ought to be spending more money.
I want to clarify that $0.60.
That really is the full impact of not having a rate case decision.
The placeholder that we put in terms of a driver of our equity needs, there are a number of assumptions that are going to go into that.
It includes things like what are the overall level of revenues that are going to be authorized in that case, the timing of the decision, when we will collect those additional revenues.
We are not providing guidance to the specific factors.
I will leave that up to you.
But I wanted to point out that one of the drivers for the reduction in equity needs year over year is the fact that we anticipate the GT&S decision this year.
I think that's a reasonable way to think about it.
That is a really good question.
Over the four and a half years I've been here the focus has been on really focusing on back to basics, getting the Company running well, getting through the regulatory proceedings ---+ things we've talked about on these calls.
We do think that there are opportunities.
I will tell you the affiliate rules here in California make that very difficult.
In many states you can have your experts in various areas spend part of their time looking outside the utilities to divvy up their time and make sure their time is being charged to the right place.
Whereas in California it's very difficult to use the expertise you've developed in utility to work on things outside the utility.
You have to have a big enough opportunity to say ---+ all right, I'm going to bite the bullet, set up a whole separate organization to pursue these things.
But that said, I don't think a week goes by where one of us on the team doesn't have somebody coming in and having some ideas about how technology can improve this business.
We actually look at them, can we incorporate them within the utility structure and be successful and help us there.
It wouldn't help the bottom line necessarily but it might lower our costs to our customers, which in the long run I think is a very positive thing.
So, we are looking at those opportunities because we really do believe that we are as far, if not farther, along than most other utilities incorporating some of these technologies into the grid.
As I said, we've crossed over 30% on renewables now, and that's with a 33% requirement by 2020.
So, we are way ahead of the curve.
Going to 50% renewables ---+ we're confident that we can manage 50% renewables.
Many of our colleagues in the industry are struggling with how do you handle 10% or 15% renewables on your system.
We've put in place the mechanisms and the technology to do it.
We are not providing those individual factors.
But what I would say is we provided rate base out there so you have the inputs to calculate it yourself.
And, in addition, we've got a couple of slides in the back of the deck which highlight the equity needs for the San Bruno penalty decision, which you can also use to back out the equity needs related to that component of our equity drivers.
So the factors are there but we are not providing specifics.
I think I'll leave you to do that calculation.
Thank you, everyone, for joining us this morning, and have a safe day.
| 2016_PCG |
2016 | PDFS | PDFS
#We are pulling forward some R&D.
We still expect it to be available in [scanning lifers and office facility] early 2017 and shipping in the second part of 2017, which is on our original plan.
In terms of the market opportunity, we do believe and as we talk with our fabless customers, they see the opportunity for new project introduction when you bring in the product into a fab to more quickly bring that product up as well as we believe there will be process control applications.
We are ---+ we don't know what fraction of the process control market this represents.
We believe it would be a meaningful part of it, but we don't know exactly what that is down until we understand where customers (technical difficulty) .
It's not really ---+ we are pricing ---+ it's a very different type of inspection, right, so it's really allowing for new information.
So at this point, we don't fully know how people will use it.
Just like we didn't expect people to really use the eProbe-150 in the way that they're using it.
They found applications for it that were in process R&D that we had not anticipated.
And that's why we are meaningfully spending on the eProbe-150 and expect to deploy more of them than we have so far.
That would be a new customer.
That is correct.
So our current plan is to not break that out.
The reason for that is in many of the engagements, these will be sold as either a direct part of an ongoing yield ramp deal or be merged with several of our other competitors for a business, like Exensio Big Data.
It would be hard to kind of break out the elements.
So you won't see that, although we will give you color on the scale of the business and the growth rates as we proceed through.
And what was the second part of your question.
We actually saw quite a number of engagements get booked this quarter, particularly in both the DFS side of the traditional business, but also across all the nodes: 14, 10, and 7.
As we said, we are seeing some early interest in 5 nanometer also.
Yes, we are expecting R&D expense driven by the DFI program to increase from Q2 to Q3 and Q4 by 3% or so per quarter.
<UNK>, it's a great question.
So yes, it is on multiple fabless and fabs.
I have lost track of the number now, but it's over five or so fabless companies and a similar number of fabs at this point.
You know, now there's two machines out there that can measure.
We also have capability in our clean room here in Silicon Valley and at this point, wafers do come back to us and other fabs are scheduling to ship ---+ fabs and fabless ---+ are scheduling to ship wafers to our facility where we can demonstrate the kinds of information that you can generate from these instruments.
Remember, that's really what drove the first two systems was in the summertime 2015, we had wafers come from those first two fabs to our facility here in California.
And we showed them what kinds of information you could get.
So, some of those tape-outs will go through ---+ most of those tape-outs will go through one of those few machines, the ones that are non-facility as well as the ones that are in the existing customers.
Also for our fabless customers, once they put this into their design flow, then it becomes a standard operating procedure and every tape-out has these instruments in there.
And they recognize, and we talked with our fabless customers, and we recognize that in order to get fabs to adopt, if you tell a fab, I have a new inspector and I can just use regular wafers, they can make a decision about an inspector or not worry about what the fabless do.
But our approach is you put something on the wafer to make the inspection problem much easier.
So when we go back to the fabs, we need to be able to point to a community of designs and wafers that have these instruments.
And now what we have got with a couple of customers now doing this on all of their tape-out, built into their flow, foundries can get comfortable with the fact that they are ---+ there will be tape-outs that are coming into their factories that are fully instrumented.
And therefore this methodology is possible.
This is a chicken and egg problem, right.
We are actively going fabless to adopt and then turning back to them and showing them what benefits they could get.
And the fabless are helping us with the fabs with this.
You know, if somebody says well, does my fab have a machine to ---+ does my foundry partner have a machine today.
And in many cases, the answer is no.
So well, where am I going to do it would be a response you get from a fabless company.
What we see with the leading edge fabless ---+ and they're very enlightened about this ---+ we know that it is very hard to see the problems that limit our new product introduction.
We think we know what product layout patterns are tricky to build.
We want to give instruments for our foundry companies that can make this problem easier for them.
So that's the dialogue that starts.
And they put those instruments down and then literally they go to their foundry partners and say, we have done this work.
We'd like you to work with PDF to inspect these.
And we've had that happen with numerous fabless now across multiple foundries.
And the first two foundries are a result of those fabless companies bringing this up to their foundry partners.
Yes, you know.
Because we run electrical test vehicles on every flavor of 10 and 14 that's out there, we have a lot of insight about what instruments you would like to put on a wafer to make the process controlled problem easier.
And we also ---+ our layout software runs through those both for our fabless customers run through most of the major tape-outs on application processors and graphics chips, etc.
So we have a good handle on what patterns are tricky in their layouts.
So when you marry those two data sets together, you [can] build an on-chip instrument that has good sensitivity to customer specific problems.
Well, what we have seen on the fabless side and we have talked about one of the engagement side in the last quarter was 10 nanometer for a Chinese fabless ---+ DFM for Chinese fabless.
so on the system and the design companies' side, we see a very accelerated use of advanced nodes.
Now of course whether designing at 10 nanometer or 7, they are not using foundries inside China that are Chinese-owned foundries in China.
They're working primarily with our customers in the US and the rest of Asia.
And again, part of the value that PDF can bring them is we run vehicles in those facilities all the time, so we have a lot of expertise about helping them characterize their overseas suppliers.
Now what's happened in the last couple of quarters is those fabless companies are also trying to use that 28 nanometer and then I think on future nodes in internal capacity inside China.
And again, because PDF has business with many of those companies, we are able to provide them an infrastructure to make that a more smooth on boarding process as well.
We expect the ramp of 14 nanometer in 2016 and early 2017 to be a big driver.
And as you get out to 2017, the second wave 28-nanometer customers to also become an important factor.
No.
I think we do believe and we have seen in our foundry partners an uptick in volumes that would drive the third- and fourth-quarter Gainshare.
Yes, so generally, your description is right, <UNK>.
I don't think you need an EE degree; you're doing just fine.
What happened was that our original thought was the 150, we were going to put a couple of them in the world for collecting data to verify the on-chip instruments worked, and to give ---+ because <UNK> brought up a very good question for fabless.
People will ask, hey, are there machines out there that could measure these things.
We knew it would take a while to develop the 250 platform and so we thought, well, while we're doing that, we have got one or two of these out there to create some data sets for our staff and fabless customers to gain confidence in the instruments and learn how to use the data.
And that's why we said, if you remember on our previous calls, we think there would be a small amount of revenue at the end of 2016.
And what's happened is as the data sets tended to be more valuable for our foundry partners than we thought, fabless customers are also putting more of them on their test vehicles than we initially anticipated.
And they are seeing good application for the data.
And you know, it's still R&D, so you're moving a little bit from the lab to the R&D process inside the fabs.
And we are starting to find some applications that could leverage the 150 even for production, even though it's still very early in proving those out.
And we started to realize that the 150 had to place separate than the 250 for a different set of applications.
And it's a very ---+ we were able to strike up relationships with customers that were very compelling for them and for us a profitable business, so something that we could afford to bring out.
And now, we see other customers wanting that same capability, so now we are making plans, and this is part of the reason why the expenses have gone up, to continue to develop applications and capacity for the 150s while we continue to develop and explore the development of the 250.
And we think they are going to complement each other in the field rather than our original intention, which was to replace the 150s with 250s.
So you know, we have not gone out and asked for orders or solicited orders on the 250s, but we have gotten folks to express their interest in that ---+ that wafer could do what we said it would do.
And primarily they are different applications.
If I kind of alluded to my prepared remarks, for our fabless customers that express interest in the 250, they are quite interested in the new product rampup because being able to scan billions of on-chip instruments in an hour is kind of an out of the imagination capability, at least 100 X faster than what you could do alternatively.
And they think that that would greatly shorten their learning [curve].
And that is a little bit different than the 150 application, which really is getting around process window verification and more IP pattern development as opposed to full product bring up.
The pipeline is really those tape-outs that are out in I think at this point five different foundries.
We anticipate generating ---+ or getting wafers in our facility in Q3 and early Q4 from other foundries, as well as the existing two, kind of digesting what the initial capability can be.
We are not looking to push it so hard that we trip over ourselves, so we would be excited if we had an additional system by the ---+ in the second half of 2016 with kind of an on-ramp or an up-ramp in early 2017.
But we don't need to get to a big number in this year.
And also remember that the model that we use for this is a ratable revenue model.
It's almost like a time-based license on software.
So the machines that we ship are still generating revenue.
When you're in a capital equipment model, once you ship and recognize revenue, you start again from zero on your revenue for machines for the next quarter.
Whereas for us, we build off the base of what's already been established.
So we don't need to ramp them up very quickly in order to sustain ourselves.
And we will ramp it up at a rate that we feel comfortable we can meet customers' expectations and exceed them.
So if we can get one more in this year, that would be super, and then ramp into early 2017 would be great.
And that would meaningfully impact our revenue.
That's reasonable.
Yes.
If we think about 2016 maybe being in the mid to high teens level, it's probably rational.
When you look at 2017, it's hard to call because, as <UNK> pointed out, we may be expanding and ramping additional machines on the 150 series overlapping with going to early ---+ late development early production on the two series, which is a significantly more expensive capability.
So we have got a variety of potential projections depending on timing of those things, but I would expect that a similar to slightly more spending in 2017 than in 2016 at least.
Correct.
Yes, and you know, that's driven by the fact that our plan is to not actually sell any of the machines associated with this business.
They will be treated as capital goods and then depreciated over probably five years.
Yes, I believe the number was 23, although we are going backwards and looking.
I'm sorry ---+ it was 27 that we booked new or extended deals with in the quarter.
27 customers.
That number can vary quite a bit quarter to quarter because of the software business.
But it has been growing is a good way to think about it.
I can go off-line and get you last quarter's number.
It's quite significant.
Yes.
I think, <UNK>, you and I have talked about this before.
I think you would continue to see the solutions margin improve slightly quarter to quarter.
Now there's some timing that will follow their, but on a happier basis, if you're thinking up a point or 2, driven ---+ on the good news side being driven up by increasing mix of the software business and now even some of the 150 series business.
Offsetting that we will be as we ramp up business in China, it takes a while for those margins to get back to full levels.
Yes, margins should go up, but only by a point or 2, I think.
Yes, it's a great question, <UNK>.
We right now charge nothing to fabless who want to put instruments on the wafers.
They then generate a key in effect, which is where the instrument are located within the design.
And PDF has the right to distribute the key to the foundries.
So really the strategy here is to ---+ the fabless put these on as a way of making their design easier to bring up and control.
And we right now monetize the foundries.
And that will be the model for the near term.
Thank you so much for the question.
Unfortunately, we really can't comment on our customers' contracts with their customers and tend to not have much visibility into that.
We will probably see those things when the customers are required to file their SEC documents.
Would be about the soonest we'd see it, other than hearsay.
Thank you, everyone.
We look forward to talking with you at the end of Q3.
Have a good day.
| 2016_PDFS |
2017 | SUPN | SUPN
#Yes, regarding the Oxtellar bipolar.
Currently as far as the market is concerned, we estimate there is about 2 million prescriptions on oxcarbazepine that are in the psychiatry space, and we believe most of them are in bipolar.
In addition to that if you look at other antiepileptic drugs, as I mentioned, about 34% of the bipolar annual prescriptions are actually from antiepileptic drugs.
And most of those prescriptions are coming from molecules like lamotrigine, which is also a sodium channel blocker as oxcarbazepine is.
Lamotrigine is actually about 16% of these prescriptions.
So there is a huge amount of usage in bipolar that is actually coming from antiepileptic drugs such as oxcarbazepine, lamotrigine and so forth.
As far as Oxtellar XR, currently, we have very, very minimal usage in the bipolar, and the reason for that is because we don't call on psychiatrists.
All our calls are in the neurology space.
So clearly we don't call on psychiatrists because it is not in our label, and therefore if there is any usage it's just by people hearing about the availability of the product, and it's very, very small probably low single-digit in that space.
So we certainly look at this opportunity as a major growth opportunity for us.
Because currently there is barely any usage of course of Oxtellar XR in bipolar, and secondly because oxcarbazepine as I answered previously to the previous question, oxcarbazepine is known to work, at least a lot of physicians are currently using it.
If it didn't work, clearly they would be using it.
So at this point, it has been a matter for us to figure out the exact patient population.
What is it going to require from an investment point of view as far as the two phase III studies, and push forward with that.
Because the return on this investment could be huge for us.
And finally, regarding your question on capital deployment as far as corporate development.
Nothing really changed there as far as our degree and the intensity of the efforts.
So we continue to look for areas in neurology and psychiatry, in both areas, and neurology clearly to augment our capabilities that we have today, the strong footprint that we have with our salesforce in the neurology space (technical difficulty) Oxtellar XR and Trokendi XR.
And clearly in the psychiatry space, as we mentioned earlier, if we can bring in an asset that is before 812 or 810 and can get us into psychiatry before that, we are interested in that as well.
So we continue to look for either products or products in late-stage testing that could have meaningful differentiation in the marketplace where we can make a big difference with these kind of products and get us into the psychiatry space early and/or expand our footprint in neurology.
Regarding the peak sales, when we always used to mention and continue to mention that we believe both products peak sales are around the $500 million or more, that always included the migraine.
Now, it remains to be seen if we can exceed our own internal expectations as far as the migraine is concerned, we are taking the launch of the migraine very seriously.
We are launching this as a new product.
We're going to continue to invest behind Trokendi XR, and we are investing heavily this year behind the launch in migraine.
So should we prove to ourselves that we can even exceed our initial expectations in migraine, clearly that $500 million peak target for both products combined would move north of that.
In addition to that, as we just talked today about the bipolar opportunity in Oxtellar XR, that could even bring us closer to the $800 million mark with both products combined if we even are successful in the bipolar space.
Which we believe we should be able, but we still have to of course do the studies, have positive studies, do the filing and get the approval and launch to that.
But the use of that molecule is well proven in that space.
So combined all of these growth initiatives and growth opportunities behind both products conceivably could approach the $750 million or $800 million.
It's not a wild guess at this point that could be achievable in the future.
Thank you.
2016 was another outstanding year for Supernus, with record financial results and significant accomplishments.
We have established a solid foundation for sustainable growth, and expect 2017 to be yet another outstanding year with strong net product sales and operating income growth.
In addition, we are very excited about the key milestones that we are looking forward to, including the launch of migraine for Trokendi XR, starting the new growth initiatives on Oxtellar XR, starting phase III testing on SPN-812 and making significant progress towards completing the phase III studies on SPN-810.
As I also mentioned earlier, we also continue to look for strategic corporate development opportunities that could further accelerate our growth in neurology and psychiatry.
Thank you, everyone, for joining us this morning, and we look forward to updating you through the year.
| 2017_SUPN |
2017 | ESRX | ESRX
#I'm going to give you an answer you probably expect.
We remain in conversations; the conversations are productive.
You should expect an announcement that we've renewed or haven't renewed when that actually occurs.
That has not occurred at this point.
As far as leveraging on the generics, we currently feel well leveraged, but that is something we evaluate constantly, at least every year.
Sure.
No, I would say actually ---+ and we've, as you can imagine, those often get tacked down far in advance.
Because to contemplate making a change requires more than the three or four months that you can move most other large employers, for example.
So I would say it's not at all outsized on any one of those.
I would also say that we've seen a little bit of ---+ given the uncertainty around ACA and other things, we've seen in our book, and I suspect we may see it in the market place generally, that the movement level will probably be lower [though] our plans wanting to extend.
And we're using the opportunity to help our plans extend their contract with us over a longer period of time.
So early renewing those plans and so forth has kept them spread out, and you may not have tracked some of that in your data.
So no, no bias towards a large health plan renewal.
We have important health plans that we're going to renew this year, let me be clear, or that we have already renewed.
And those are really important relationships to us, but there's not a disproportionate share of them this year up.
I would tell you that ---+ thanks for the question, I would tell you that's the strange thing.
I was asked by somebody recently, so how much are you having to talk your clients through some of the headline stuff.
The answer is, listen, the headline risk to your constituency investors in our Company is what we're very concerned about, because the facts just aren't getting out.
I will tell you the great, good news.
And again, it manifest itself in a good selling season last year, it manifests itself in extraordinarily high retention, manifests itself in a very high satisfaction on our clients' surveys, is that this is not, by and large, a client issue.
It's not to say clients don't force us to compete; they force us to compete.
But I can tell you that the client conversations move very quickly to their spend, their trend, the programs they're in, the recommendations and ideas that we have for them, and there is just not time spent on this debate.
Now, folks will want to know where do you think ACA is going, particularly our health plans.
Obviously, we work very closely with them and their strategic planning.
But the great good news is that our clients ---+ and again, our Drug Trend Report last week was proof of it.
We'll have our Drug Trend Report out in another month for our regulated business, our Med D business, and so forth, Medicaid.
Again, I think what you'll see is we're getting results for our clients, so the conversation stays very focused on what we can do for them.
So our rate limiters are two things: our creativity and having pharma willing to support their products and to come forward in creative ways or to respond to our creative ideas as it relates to that.
From that standpoint, I think over the next four, five years, first of all, again, PCSK9 is a great example.
Our cardiovascular program is going to be completely reinvented, and it may get reinvented again as the market changes and all of these programs will be adaptive over time.
So they're not static and then you don't work them.
We know that in 2018 we have two additional areas; we haven't talked about which ones yet.
We're still working with manufacturers and retailers to again, each one has a unique set of attributes that you then leverage.
We have to leverage the specific dynamics and opportunities in class.
We look forward so we can think about how we manage that class over the longer term, based on what we know is either happening or going to happen.
And so again, we see this as a great chassis and a great long-term runway for us in terms of how we've contracted with manufacturers, how we contract with retailers, and ultimately, how we help our clients get cost certainty.
But again, to answer your question directly, two of them in 2018 incrementally, and beyond that, we've got several other ideas.
Sure.
So our thinking there is Anthem is going through what I would have expected Anthem to go through absent the lawsuit or anything else, which is they're looking at the marketplace to determine what is the state of play in terms of services that a PBM provides to make sure that when ---+ the extent that we have the opportunity to sit down with them, they've got some context.
Their RFP is out, as we expected it would be.
It's very heavily weighted toward understanding capabilities and guarantees and those sorts of things, as well as pricing.
And the way I think about that is that we welcome the opportunity to sit down once they've done that.
And the good news is they know our capabilities.
They know the 1/1 we just delivered for them.
They know the results that we've been able to achieve in helping them install in their group.
They know what we've been able to do as they've narrowed certain programs and used our tools.
And so, from our standpoint, I think that we stand very, very well positioned when they're ready to come and have a conversation about moving forward, to the extent that happens.
What I'd tell you is rebates are really precisely defined, and they are obviously negotiated hard.
So if I understand your question, what I would say is it is all rebates, all things that are governed around either market-share movement or inclusion in a formulary and so forth.
Now, we certainly have things that we do that are governed by fair-market pricing where we're paid to do a particular report or service and so forth for certain things.
Those are relatively small, but those are not attributable to rebates.
And so, the 89% number is an all-in number.
Yes, it's important to us.
Dr.
Stettin's area that continues to build out our clinical programs, which we take to clients and do get paid fees for administering, usually guarantee ---+ almost always guarantee the outcomes of those, are an important component of how we overall not only provide care, but also how we then profitably administer our clients' accounts, and align with our clients through those programs.
And you're right, prior auths and utilization management, Med D has chosen to use prior auths rather than tighter formularies in a lot of cases.
And so, we are paid to administer those program.
As I've said, we're paid to, for example, in PCSK9s, to administer the tests that at least the last year, physicians were still learning which patients were appropriate for those products.
And so we had a large percentage of the patients that shouldn't have been on those not get those drugs, get more appropriate therapy, and much less expensive therapy as well.
But it was more appropriate and happened to be less expensive, and we were paid to make those things happen.
And so, from my perspective, again, it's part of the overall way that we work with a client.
If we know a client is going to take a large basket of our managed approach, then we obviously discount more deeply those things than if they only take one of them, for example.
So we benefit our clients when they work with us more deeply to put those programs in place, and they're meaningful to the overall value we create.
No, because again, in some respects, we have clients that don't pays us for those programs because, for example, they let us keep some rebates.
So they would rather share ---+ make up a number here, but it's pretty consistent.
We will have a client who will say, you can keep 10% of all the rebates that we together create, but I don't want to pay you for the rational med program and the utilization management bundle that saves a lot of money now.
With those clients, we will show them the results of those programs.
They will know what we were paid by virtue of the rebates that we were to keep.
Because again, all of that is very transparent with these clients and auditable.
So it really does depend on how the individual client wants to work with us and pay us, and it's not as simple as just breaking that out as a single line of business.
We've got time for two more questions, operator.
Thanks for your question, <UNK>.
It's obviously not an easy question.
What I'd say is there's an amazing amount of ---+ and, first of all, you said it, so let me repeat it.
We are in one of the most competitive businesses I know, and so, our clients have great choices besides just us.
We are in a competitive business.
They have terrific choices.
They have consultants a lot of the times that add to the mix of evaluating us and ensuring that we make and keep meaningful promises to them.
And so the market does work here, and I think that satisfaction with PBMs is high.
If you look at the patients in Med D, satisfaction with PBMs is high and it saved a fortune, so I think there's a lot of stuff that could you point to.
I point to our operating margin versus ---+ or our net income versus a pharma company's net income stands on its own; no one writes about that.
But again, I don't think our business over-earns as it relates to that.
I look at our drug trend, and we're pretty darn transparent as relates to how we report drug trend, which again, for our client is the result of the work we do.
They know what they pay us, they know what they get in drug trend, and they can decide whether or not they're getting good value for not.
But to your point, we continue to challenge ourselves to say is there something else we can put out there.
You heard me say 89% today for rebates, and the reason that I thought that was important is because I think there was a misperception as relates to that keep.
But quite frankly, the real number that matters is 100% of the time, our clients make the determination.
I think the questions that need to be asked, frankly, need to be asked of the drug companies in terms of why they're raising their prices, why they're choosing to use rebates.
From that standpoint, I think that we're not the only ones that should be answering these questions.
But I like the fact we create a very competitive marketplace, and our ability to manage the supply chain end to end is very, very strong and our clients get that.
That is a great question, and I completely believe that there is a lot we have done there, but there's more that we are doing they.
By the way, it starts with working with our plans.
Because we've had rebates at the point of sale, for example, for 10 years and we've had less than 20 plans enrolled.
But as I pointed out in an earlier question, I think our plans are re-looking at all of the dimensions of the plan designs, particularly as these integrated deductibles have created some unintended consequences.
So but helping a member understand that versus helping them navigate it are two different things.
And to your point, now we show our members what the plan pays and they pay today, for example.
They get to see that real-time.
Our digital and online tools are very strong in terms of showing different choices, both in terms of where they get their drug and what drug that they're on versus one that would be a lower cost alternative.
But I do believe, to your point, it is the place that we've got work to continue to do.
Because by the way, the better job we do helping patients see that and participate in it, frankly, it will lower our client's cost because what those patients will navigate intentionally versus unintentionally to better choices.
Thank you.
Final question.
Thanks for the question, and as I said in my prepared remarks, there are ---+ I didn't put them all there, the things that we're advocating for, but we are strongly, both as a Company and through PCMA, and I appreciate you mentioning them, because I should have earlier.
We're very engaged leveraging our industry association, as well as our own large footprint to advocate strongly.
And I think the most important thing we can do with the ---+ or among the most important things we can do with the new administration, as well as folks at the state level, is demonstrate what has been done already as it relates to generics, as it relates to creating competition.
Because I tell you, folks often say, well, the bioequivalents aren't going to be exactly the same as generics, and [I don't] take that point.
But even if they behave like a somewhat lower price competitive brand, they open the doors for us to start the spiral of price competition that ultimately moves to a very different place over a fairly short period of time.
And what we're going to focus on doing as we engage with folks isn't just telling them that; it's showing them the case studies.
It's bringing the voice of the payer into the room, because our payers completely get it and understand the opportunity that if we can unleash these biosimilar will be created over time.
Just in less than a half a dozen or a half a dozen categories if you look at current expired patents, there's a ton of head room that we could be creating so that we can continue to have innovation that we can afford across our patient population.
So it is an important role that we're taking to advocate for them.
We aren't betting on them.
In our 2017 guidance, I wish I could tell you that there's a strong bioequivalent contributor there, and there's not.
We're waiting.
We've got a couple that we know are very close to the edge.
But over the next five years, we're going to play a very strong role, because it's going to help our clients stay in the game and be competitive.
With that, I want to thank everybody for dialing in.
We're proud of where we ended 2016.
And again, I've mentioned our employees before, but from that standpoint, we could not have hoped for a stronger contribution from our 26,000 employees.
And we all stayed focused on our patients this year.
we produced the result for our shareholder.
And as we come into 2017, the unspoken thing about 2017 is you've seen our guidance.
We have over a percent of EBITDA that is again going away as a result of Coventry and the Catamaran, the final roll-off of those two things.
So we're again in 2017 very focused on backfilling to those headwinds and performing very, very strong for you, our investors, because we know this model over the long term is a model that produces tremendous value for the marketplace and it should produce tremendous value for you as well, and we are very focused on that.
So with that.
Just one last comment before we close.
I just want to clarify one thing.
Our blackout period opens at the end of this week in response to one of the questions on capital deployment from Bob <UNK>.
I may have indicated end of the month.
But the blackout period is the end of this week, and we'll be back in the market purchasing shares at that time.
Absolutely.
So thank you all for dialing in.
Appreciate it.
We'll talk to you next quarter.
| 2017_ESRX |
2017 | XOXO | XOXO
#Thank you, <UNK>, and welcome, everyone, to our first quarter earnings call.
As always, it is a pleasure to speak with our fellow stockholders.
I'll begin by reiterating the strategy we laid out in my letter to stockholders in our annual report.
We believe this strategy puts us in a position to drive meaningful growth to our revenue and EBITDA and will unlock significant shareholder value.
I'll end with the headlines from Q1.
XO Group's mission is to help couples navigate and enjoy life's most important moments together.
For most young couples, they have never had a bigger moment than their wedding.
Pulling off their event requires the average couple to instantly become wedding experts and qualified event planners to book over a dozen local vendor professionals they have never met before, to coordinate about comings and goings of over 100 guests and to spend more than a year's after-tax income on this single event.
They are anxious, overwhelmed, and they turn to The Knot for help.
Our strategy is to help our couples by providing them an indispensable wedding planning product that connects them to the services they need, thereby increasing the number of valuable connections between our couples and our partners.
We do this first by informing our couples how to plan their weddings and what to do next for the brand, app and website content trusted more than any other service in the space.
Secondly, we help our to-be-weds discover the perfect vendors for their wedding, including the venue, photographer, entertainers, invitations and hotel room blocks for their guests, through the marketplace that we've been aggressively building and improving over the last 3 years.
Thirdly, we help our couples manage their guests, RSVPs, gift purchases and more.
Entering 2017, we're focused on following initiatives in pursuit of this strategy: one, product improvements to attract and engage our couples and match them for local vendors or services they need; two, more features to help our local vendors respond to these couples, meet their needs and close more business; three, expansion of our local sales capabilities to capitalize on these improved connections and grow our local marketplace; four, more tools to help our couples manage their guests, continuing the growth of our guest transactions business; and five, managing our national advertising business for sustainable profit.
We have unique and significant opportunity to grow our company to the benefit of our users, customers, employees and stockholders.
I'm excited about this plan, and I am confident in our ability to do this, as this team has shown the ability to vastly improve our products to better serve our users and partners.
Now turning to our Q1 results.
Our financial results are in line with the guidance we laid out, but honestly, we want to do better.
Our financials in Q1 continued to be impacted by the challenges we've faced in the early part of 2016, but our underlying KPIs are strong, and our execution on key initiatives has set us up for success in the quarters to come.
In our local organization, we added new system local sales and sales support members.
By the end of this year, we expect this team to grow by around 50% compared to 2016.
The team is still ramping up, but we believe the early traction they are gaining will lead to increased sales, more paying local vendors and stabilized retention rates.
In our transactions business, continued product improvements contributed to revenue increasing 18% year-over-year, solid growth on top of an 84% growth rate in the prior year.
International online business.
We're in an environment where large-cap Internet companies and programmatic trading desks are putting downward pressure on the prices that publishers like us can charge.
However, we believe our efforts in product and content development will drive growth in impressions and performance for our partners.
We're making good progress, and we're off to a good start.
We still have a lot of work ahead of us, but we've never been more opportunistic about the long-term opportunity for our company.
One more thing, this Sunday is Mother's Day.
And to all the moms out there, we want to thank you for everything that you do.
With that, I'll turn it over to <UNK> with the financial review.
Thanks, Mike.
Our focus is on moving our financial results back towards our current target model of 10% revenue growth and a 20% adjusted EBITDA margin and continuing to be good capital allocators.
In pursuit of this, in 2017, we are taking steps to return our local online revenue to growth, drive solid results in our transactions revenue, deliver stable results in national online advertising and manage our publishing business.
We are also making investments that better position the company to execute our growth road map and into some elevated compliance items.
Total revenue for Q1 was $36 million, flat year-over-year.
Total operating expenses were $34 million, up 13% year-over-year.
Q1 EPS were $0.01.
We ended the quarter with $103 million in cash, down from $106 million at the end of last year, and bought back $5 million of stock in the quarter.
As of last Friday, we have bought back almost $9.5 million worth of shares year-to-date, surpassing the yearly repurchased totals for 2015 and 2016.
Now turning to the individual revenue lines and their respective key drivers of our performance.
In our local online business, revenue increased 1% year-over-year.
For The Knot, on a trailing 12-month basis compared to the prior year comparable period, we ended the quarter with a 4% decrease in vendors, a 5% increase in average revenue per vendor and a 72% retention rate.
I'd note, our quarter-end vendor count was 24,168, up 3% compared to December 31, 2016.
And our retention rate of 72% is up from a low 68% at the end of last year.
In transactions, the increase in revenue of 18% was driven by an increase of our user traffic to our services and the majority of our partner sites.
Additionally, a slight improvement in the conversion rate for our partners contributed to the year-to-year growth, partially offset by lower average order value.
Our take rates remain stable.
For national online, the increase in revenue of 3% was driven by a 25% increase in display ads, partially offset by a 30% decrease in custom ads and lead generation revenue.
The increase in display advertising, which accounted for 64% of national online revenue, was driven by a double-digit increase in sold impressions and a high single-digit increase in our effective CPMs.
Turning to operating expenses.
In sales and marketing and product and content, our 2 largest expense categories, the increase in expenses were consistent with our strategy.
For sales and marketing, the increase was driven by our investment in expanding the local sales organization and advertising.
In product and content, the increase was driven by our continued investment in enhancing our user experience and the functionality of our local vendor marketplace.
In G&A, the increase was primarily due to an incremental corporate business tax charge and compliance costs.
Finally, our 2017 outlook remains unchanged from what was discussed during our last earnings call.
As a reminder, that guidance calls for our business to trend back towards target model after Q1 but has us falling shy of our model on a full year basis.
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.
Yes.
<UNK> on the first question, as we look across the different business lines, we continue to see good product development, good KPIs and good execution, in particular on our transaction line item and on our local business, as our local business climbs back out on the systems issues from last year.
So we continue to feel optimism there.
On our national advertising business, we continue to believe that we can deliver a steady growing business.
It's one that's going to require us to push harder on the inventory that we sell to our customers and the way that we deliver for those customers because we've got some of these bigger macro level issues affecting the online display business.
We've articulated those on ---+ in these discussions before.
But overall, what we're seeing is in line with what we have planned for and expected and what we've guided you guys to, and that's the source of our confidence.
On your second question, we don't specifically ---+ we don't share the exact number of sales and support people in the local ad sales team.
I've indicated that we're growing that team to help to support the growth of our local business, and the costs of that growth are already contemplated in the guidance that we've given you guys.
Sure.
So on national online, I'm not sure if you were on the beginning of the call, but it was driven by a 25% increase in display, offset by a 30% decrease in custom ads and lead gen.
That display business is about 64% of the business in the quarter.
And there, we are growing our sold impressions in the double digits, with a high single-digit increase in our effective CPMs.
In terms of the custom and lead gen, the decrease was driven by just the lumpiness of that custom business.
And as Mike said, our goal here is to deliver a steady business, and we're watching this business carefully to make sure that we are always operating against the environment we are in.
And we continue to believe we can deliver a steady business in this area.
Yes.
<UNK>, what drives the success for the local business is us doing a good job of connecting ---+ attracting more couples, connecting those couples to the vendors who can pull off their wedding.
And as we continue to see solid performance in our user metrics and in our ability to connect those users to vendors, we have to continue to invest in the team that sells and services the vendors who drive that local revenue line.
That's what you're seeing there, and it's all in line with what we've been planning for and the expectations that we've set for you guys in recent calls.
Yes.
And then in case you've missed this part of the call, I would just note that the December ---+ the vendor count from the end of December to now is up 3%.
Our retention rate is now 72%, up from 68% at the end of last year.
So you're starting to see our KPIs come forward with us to underline the business as well.
<UNK>, if you ---+ to refer to the investor presentations we've shared in the past, you tend to see the bulk of our optimism and enthusiasm for our long-term opportunity to be around really growing that ---+ the local business and continuing to drive strong growth in our transactional business.
We think of our national advertising business as a ---+ as one that can be a steady grower, but not one that delivers that same kind of numbers as our opportunity in local and in transactions.
Our print business is in secular decline and will continue to be in that ---+ to be in a significant state of decline, just as is the rest of the industry, and we've prepared ourselves for that.
<UNK>, would you just ---+ would you say the last sentence, again.
We lost you there.
Great.
So to your first question, it's important that I restate this.
Our goal and our intent is to grow EBITDA at this company, and the way that we're going to get that is growing revenue faster than we grow costs.
I'll let <UNK> chime in with more of the specific guidance, but I don't want that to be lost in this discussion.
We're here to significantly grow value to our shareholders, which we will grow by growing EBITDA.
<UNK>, did you want to comment on the Q2 number.
Yes.
I think we don't really give quarterly guidance.
But what we have said last quarter and we continue to say now is that in Q2, we think the financials can trend back towards our target model, so that guidance is unchanged.
In terms of the operating expenses of the company, if you kind of run through our model, you end up with OpEx growing a little bit faster than revenue, particularly here in the early part of the year.
And as you look at that one thing I'd have you note is G&A, in particular, we have some elevated costs there, mainly due to compliance issues and also the adoption of 606.
606, for a company like ours with so many revenue lines, is a big, big project.
Our long-term intention is for G&A to grow slower than revenue, but you will see that be higher here in '17.
And again, our overall '17 guidance is unchanged from what we went through with you guys last quarter as well.
And <UNK>, you had a question there on the national advertising business.
Our ---+ as you think about the 2 different ---+ the 2 components, one is the display business, the other is custom content and performance products.
The display business is driven by the amount of inventory we can create, which is based on the amount of the number of couples we can get to come to the site and how many times they click.
The second is the price that we're able to charge advertisers for that inventory and our ability to sell through that inventory.
We saw fine growth in that piece of the business in the first quarter of 2017.
The second piece of these bigger custom-content deals on a business pinhole whose total revenue in a quarter is in the $10 million range, any one of these custom-content deals could be $0.5 million, $0.75 million, et cetera.
And so the lumpiness of the performance of that custom-content business just ---+ it really shows up in one quarter's numbers.
So there's nothing broader going on there other than we had planned for the team to sell another 1 or 2 of those deals in Q1 that didn't just come through in Q1.
Yes.
I'm have to double-click on that again.
<UNK>, one of the things that we started hearing from our investors and our analysts was we started to see folks look at our local businesses as if we're now becoming 2 different businesses, one where we sell listings, and one where we sell transactions.
And that's not the way we're looking at the business, so we try to bring clarity to that business model and how you should look at our business from the outside.
As far as we are concerned, it is our job to connect our couples with local vendors and help those couples transact with those vendors.
That is the job.
When a venue or a DJ or a photographer buys inventory from The Knot, that is the reason that they're buying inventory from The Knot.
We are launching a bunch of products that bring that couple and that vendor closer and closer together, and ultimately, facilitate the transaction.
We are flexible on whether or not we will charge our vendors for a listing or for a transaction.
We will continue to pursue the pricing strategy that maximizes our revenue opportunity.
If you look at our suite of products, you already see a blended model on GigMasters, where we ---+ when you sign up for GigMasters, you pay a listings immediate fee, and you pay a percentage commission per transaction.
You don't see a model like that today on The Knot.
But to re-emphasize, we continue to be bringing our couples and our vendors together so that they can execute the transaction, and we will continue to be flexible on the model that we use in our local business that optimizes its revenue.
Does that make sense.
Yes.
We've ---+ as always, there are a lot of product development pokers in the fire.
And as these products launch, we get a better sense for how much impact they'll have on the business.
So I can best give you color on this by looking backwards at some of the things that we've done in the past that have worked.
In 2015 and 2016, work that we've done around the overall guest platform and work that we've done specifically around creating the best free wedding website product in the space.
It's what has been a significant driver of that business.
The more couples are coming, create wedding websites with us, the more likely they are to create a registry with us or connect one of their registries to us, and the more likely they are to share it with their guests.
That's been a real driver.
We've got a bunch of stuff we're working on here in 2017 that we believe in aggregate will be a real contributor to the business.
As things ship and as they start to demonstrate success, those are the kinds of things that we'll continue to share with you guys.
| 2017_XOXO |
2016 | QNST | QNST
#Thank you <UNK>.
Hello everyone.
Thank you for joining us today.
Our strategy to invest in new product and media initiatives that reestablish topline growth and re-expand adjusted EBITDA margin is working.
We grew 10% year-over-year in the March quarter, excluding a one-time item, delivering over $80 million in quarterly revenue for the first time since 2012.
Adjusted EBITDA margin re-expanded to over 4%, the highest adjusted EBITDA margin since 2014, again excluding the one-time item.
Growth was driven by continued strength in Financial Services, our largest client vertical, now approaching 60% of total Company revenue.
Financial Services revenue growth accelerated to about 50% year-over-year on the success of new products and media partnerships.
We delivered strong double-digit revenue growth in insurance, mortgage, and credit cards, our three largest businesses in Financial Services even excluding the effects of the All Web Leads partnership.
We are pleased with progress of the All Web Leads partnership.
While its ramp has been somewhat slower than they or we expected due to difficulties and complexities associated with the integration of their acquired InsuranceQuotes business, it is already contributing significant new revenue and creating new opportunities for both companies to better serve clients and grow revenue together.
Our enthusiasm and expectations for the partnership's potential are stronger than ever.
We also continue to make good progress with initiatives to diversify and transform our education client vertical.
Revenue from not-for-profit schools and international markets has grown at a compound annual rate of 46% over the past two years.
New products also continue to grow as a percentage of revenue and represented almost 50% of total education revenue in the quarter.
Our exposure to US for-profit education continues to decline, and represented less than 20% of Company revenue in Q3, down from almost 40% just two years ago even as total Company revenue has grown this year and is now growing at an accelerated rate.
Our strategy has been and continues to be to invest in successful new product and media initiatives in big markets where we already have considerable scale and competitive advantage, and in so doing, one, diversify our business and offset challenges in US for-profit education, two, reestablish sustainable topline growth, and three, re-expand adjusted EBITDA margin, all while maintaining positive cash flow and a strong balance sheet.
The strategy is working.
Our revenue, excluding US for-profit education, has grown at a compound annual rate of about 17% over the past two years, and we just delivered 10% total Company revenue growth and the highest adjusted EBITDA margin in two years despite significant declines in US for-profit education.
Turning to our outlook, we expect the effects of our strategy to accelerate with revenue and adjusted EBITDA margin momentum continuing through the fourth quarter and into fiscal 2017.
Specifically, Q4 revenue is expected to grow 15% to 16% year-over-year, beating historical sequential seasonality with adjusted EBITDA margin at or above Q3 levels.
We also expect to continue to expand EBITDA margin with topline leverage going forward.
With that, I will turn the call over to <UNK>, who will discuss the financials in more detail.
Thanks <UNK>.
Hello and thanks to everyone for joining us today.
We are pleased with our results for the third quarter, which marks an important inflection point in our business.
Topline growth has accelerated, and we've begun to expand EBITDA margin.
From here, we expect positive trends to continue in Q4.
For the third quarter of fiscal 2016, we reported $81.2 million of revenue and grew 8% compared to the same quarter last year and 25% sequentially.
Revenue grew 10% year-over-year in the quarter, excluding a one-time benefit associated with the collection of a historical receivable in the same period one year ago.
Adjusted net income for fiscal Q3 was $1.2 million, or $0.03 per share on a fully diluted basis.
Adjusted EBITDA was $3.5 million, or a 4% margin.
Turning to revenue by client vertical, our Financial Services client vertical represented 56% of Q3 revenue and grew almost 50% compared to the year-ago quarter to $45.6 million.
We saw strong performance pretty much across the board.
Our insurance business grew 49% year-over-year and now represents 42% of total Company revenue.
Our mortgage business grew 55% year-over-year and our credit cards business grew 196% year-over-year in the quarter.
During the quarter, we successfully integrated with All Web Leads and are already seeing significant revenue and new opportunities for growth from the partnership.
We expect growth in Financial Services to accelerate in Q4 as strategic partnerships like AWL ramp and as mortgage and credit cards continue to scale.
Our education client vertical represented 28% of Q3 revenue, or $22.7 million.
The year-over-year decline was due primarily to the exit from the channel by a large US for-profit education client, as previously discussed.
The decline is also related to the comparison against a one-time benefit of $1.6 million associated with the collection of a historical receivable in the year-ago quarter.
Revenue from US for-profit education was less than 20% of total Company revenue in the third quarter.
Revenue from not-for-profit schools in international markets has grown at 46% over the past two years and is expected to total approximately $30 million in revenue in fiscal 2016.
We believe the not-for-profit and international markets represent big long-term opportunities for QuinStreet.
Revenue from our other client verticals represented the remaining 16% of Q3 revenue, or $13 million.
In these verticals, our Performance Marketing products grew 6% year-over-year.
Display revenue in our B2B technology business was down year-over-year, primarily due to budget shifts to programmatic buying.
B2B technology is the only client vertical where we have significant display revenue, and even there it represents a small share of revenue.
Moving on to EBITDA, adjusted EBITDA was $3.5 million, or a 4% margin.
Excluding the one-time item in the year-ago quarter, this was our highest quarter of adjusted EBITDA since March of 2014.
We expect adjusted EBITDA to expand primarily due to topline leverage in future periods.
Turning to the balance sheet, cash and cash equivalents at quarter end were $55 million.
Total debt was $15 million and our net cash position grew by $4 million in the quarter to $40 million.
Normalized free cash flow was $2.3 million in the quarter, or 3% of revenue.
Most of our adjusted EBITDA drops to normalized free cash flow due to the low capital requirements of our business model.
In summary, we delivered results in the quarter that validate turn in our business with accelerated revenue growth and re-expansion of adjusted EBITDA margin.
Excluding the one-time item, we grew 10% year-over-year in the quarter, and delivered our best quarter of adjusted EBITDA since March of 2014.
Importantly, we expect positive momentum to continue in Q4.
For the fourth quarter of fiscal 2016, we expect to post revenue growth of 15% to 16% year-over-year.
We also expect adjusted EBITDA margin in Q4 to be at or above Q3 levels, and that EBITDA margin will continue to expand with topline leverage going forward.
With that, I'll turn the call over to the operator to open up to Q&A.
Sure.
The complexity or the difficulties relative to expectations ---+ the AWL partnership was really solely related to the acquired InsuranceQuotes business.
That business ---+ AWL has had to be more aggressive in rationalizing that business than they or we expected.
I think, in so doing, they are really setting it up to be much more successful going forward, and setting it up for good, strong, sustainable future growth.
But they have had to be much more aggressive in that rationalization than they and therefore of course we expected them.
It's really related to the fact that the industry itself, as you've heard us say over and over again, in all of these verticals, there's a major shift going from lower quality blended pricing to much higher quality and right pricing.
And that's where AWL has taken their business and that's why they were growing when the acquired business was not.
And they are really repositioning the acquired business to be able to get on that same track, but that is requiring a lot more change, again, than ---+ and rationalization than either of us expected.
Our expectations over time are every bit as big as they ever were, in fact in some ways bigger because we've actually discovered a lot more ways to work together.
We and AWL have been ---+ were anticipated in the original partnership, and we are super excited about those things.
In terms of the effect on the quarter, I would say that the difference ---+ if you look at our current guidance, it puts us in the mid to high single digits for growth for the year.
And the difference between that, whether we end up at 6%, 7% or 8%, which is the most likely range of year-over-year growth, between that and the 10% that we were expecting a few months ago is pretty much 100% associated with the delta from the acquired InsuranceQuotes business with AWL.
Some.
Certainly, we didn't ---+ we had partial ramp in the third quarter because we didn't really integrate with the acquired business until early February.
And so you've got the effects of that working for you.
What you have working against us a little bit is the more aggressive rationalization that AWL has done, again, in order ---+ and I think very pragmatically and in interest of the clients, which is an interest long-term growth.
So but yes, we expect more this quarter than we did last quarter.
And we expect more next quarter than we will get this quarter.
So the business is on a very good ramp.
It's already delivering tens of millions of dollars in revenue to us and doing so in a way that's a strong return on the investment we've made there.
But it's the slope ---+ I would say that our view of the size of the opportunity is as big or bigger than it ever was, given particularly the added business opportunities that we now have, but the slope is definitely a little bit lower, given that the changes that they've needed to make and have decided to make have been a lot more aggressive and significant than they expected.
It's a good question and it's something that we discuss periodically.
I think that our view in the near term is that we've had to undertake a lot of changes in the business, and we've had to face down and address a lot of challenges in the business, particularly in for-profit education.
Our commitment has been to aggressively pursue those changes because we see great market opportunity in front of us, which, as you've heard, we believe we are delivering on but for the for-profit education phenomena that we are growing our way out of.
During that period, we just don't think it's prudent to do anything other than maintain a very conservative posture when it comes to our cash position or cash flow on our balance sheet because we certainly don't want to add to that mix of complexity.
The downside risk of either, best case, not having enough cash to pursue further opportunities like AWL, or worst case, running short of cash generally, obviously we are a long, long way from that with $40 million of net cash.
But we don't want to blend in financial risk with the significant operating risk and challenges and opportunities that we've been facing.
So, it will be something we will continue to discuss.
We have had vigorous discussions already.
I'd say that our position may or may not change on that as we continue to grow and to expand EBITDA margins, start generating significant cash again.
And as you know, we just don't have much, other than deals like AWL or historically acquisitions and we don't see ---+ we really don't see any acquisitions we are very interested in this point in front of us.
We don't really have many other uses of cash, and we are not a cash using business or our capital requirements for the basic business model are insignificant relative to our size.
So it's an absolutely right question, but one that we as a board continue to discuss vigorously.
And right now, the thinking that I outlined is really what's governing our decision.
Sure.
As far as the Google question, we have actually not seen any meaningful effects from the changes in the paid listings positioning.
I'd say that it's been more positive than negative, which was a little bit surprising to us, but certainly great news.
Our pay per click as a source of media for us continues to be very strong and just as strong and effective as it was prior to those changes.
So that's been very good, very good news because, again, nobody really knew exactly what those ---+ what the effect would be.
It's not surprising I guess to me.
We had the hypothesis that we probably do fine because we are able to be pretty aggressive on the highest-ranking terms, and the effect should have been primarily on lower ranking terms.
But the good news is that has played out, has played out that way.
In terms of amortization, it's a straight line amortization, $1 million a year over 10 years, which is the term of the deal.
And it's really a $1 million per year ---+
I's an exclusivity fee.
---+ exclusivity fee.
So it doesn't ---+ the way we amortize it through the P&L does not change by volume.
We are just treating it straight line $1 million a year.
And we do include that in adjusted EBITDA; it is not adjusted out.
We interpret it to be part of cost of services, so that payment is included in cost of services for calculation of adjusted EBITDA.
As far as gross margin, our gross margin outlook remains pretty similar to what it has been.
If you look a year ago to now, if you adjust out the one-time effects of the $1.6 million payment we received from a receivable, there is about a 1 point difference between last year and this year.
We lost some on some of the media margins because of the mix shift in the business, but we regained most of that through topline leverage.
About a third of our cost of services is associated with semi fixed costs, and so as we scale, those ---+ that gross margin actually benefits from that scaling.
So we still expect that to be an effect.
And of course the expenses below the gross margin line are also primarily semi fixed and will scale, continue to scale, with revenue growth as well.
So, <UNK>, I think what we will see, I think as discussed, the biggest portion of our semi fixed cost is headcount.
We carry the same headcount that we did at, or a similar headcount, that we did at over $400 million of revenue.
So although we will continue to remix the headcount to point, our resources at the most ---+ the biggest growth opportunities, we don't need to expand headcount to drive the topline.
So as we drive the topline up, the bulk of that media margin will drop to EBITDA.
And so that's where we will start seeing expansion, both on the gross margin and the EBITDA line.
That's the gross effect.
If you want to get slightly more detailed, it's really what we were describing before, which is about a third of cost of services is semi-fixed costs, and so you actually get the ---+ if you want to divide it up slightly, actually get gross margin benefit from the revenue scaling because that component of cost of services will remain fixed while the media margin ---+ and the media margin shouldn't change much from here.
It's changed quite a bit lately because of the mix shift over to more click-based products, particularly in auto insurance.
But the good news about click-based products is that, while they tend to have a lower media margin so therefore lower gross margin, they tend to have equivalent EBITDA margins even at a lower gross margin because they have a lot fewer costs below the media cost or the gross margin line.
And that's because, quite simply, when you sell a click, the click goes to the client's website.
When you sell a lead, the traffic goes to our own websites and we have to maintain those websites and those technologies and then eventually ship that prospect over the client.
So, you take out a whole chunk of the cost structure when you sell a click.
And it's ---+ primarily you see that below the gross margin line but you see some of it in the gross margin line.
So again, so the main effects are, to <UNK>'s point, revenue coming in at media margin, dropping through the same total fixed cost structure.
The gross margin operating margin components of that are about a third of gross margin is headcount or semi-fixed costs which will not grow generally, and quite specifically over the past couple of years, and we don't expect to over the next year or two with revenue.
So you get a scaling of gross margin with revenue growth for the same reason that you get it overall with the other semi-fixed costs.
And then you have the ---+ of course in the other operating costs, you have the topline leverage.
You have media margin dropping to a fixed cost base.
And then, again, the other way to look at it is, as I said before, it's that just a fixed and variable component of overall cost.
So does that make sense to you.
That's the way we look at the business and that's how it's actually working, and that's how you'll continue to see it working.
That's right.
That's fair to say and that's exactly how we ran the business before.
Back in ---+ four or five years ago before we hit both the product cycle and the auto insurance education, those two businesses have gotten to the point where they are about the same size.
And they had almost the exact same EBITDA margin structure.
But auto insurance and the click business of that did that on a media margin base which was about 33% lower than education, but did not carry the other operating costs associated with maintaining all of the websites and lead gen technologies because, again, that click goes straight to the client, the client's website.
So that's ---+ it's both ---+ it's the way the businesses are structured, it's the way we've seen them operate in the past and it is the way we expect to operate it going forward.
So as you see the mix shift away from leads, which is the dominant product in education, and to clicks, which is the dominant product in auto insurance, you'll see what looks like pressure on the gross margin line but really is not at any ---+ we're getting to the scale already where it's the case ---+ is not ---+ there's not similar pressure.
And in fact, the pressure is offset over time with scale on the EBITDA line.
| 2016_QNST |
2017 | PEP | PEP
#Thank you, <UNK>, and thank you all for joining us this morning
I am pleased to report that our second quarter results were very much in line with our expectations and that we remain on track to meet our full-year 2017 financial goals
For the quarter, while our reported results continue to be impacted by macro volatility and weak currencies, organic revenue was up more than 3% globally, a sequential acceleration from our growth rate in the first quarter
We generated organic revenue growth across both developed and developing and emerging markets, with developed markets up 2% and D&E markets growing 6%
The portfolio generated strong net price realization and core constant currency operating profit grew 7%
Core constant currency EPS grew 13%
Our results reflect the power and durability of our portfolio, its ability to deliver sustainable and well-balanced results, despite ongoing pockets of macro and geopolitical challenges in a number of our key markets around the globe, and in an increasingly dynamic retail and consumer environment
Let's briefly review the performance in the quarter across our sectors, starting with North America where organic revenue grew 2% and core constant currency operating profit was up 4%
Importantly, year to date through the second quarter, we have also generated more U.S
retail sales growth than all other $5 billion-plus manufacturers combined
Frito-Lay North America had another very strong quarter
Volume and organic revenue accelerated sequentially from Q1, as we expected, and results reflected a very good balance of volume growth, net price realization and margin expansion
We feel very good about the business, with innovation, pricing and execution, all on target
We are pleased to report that Frito-Lay alone was the number one contributor to total U.S
food and beverage retail growth by all $5 billion-plus manufacturers through the end of Q2. Similarly, North America Beverages grew organic revenue and core operating profit, but our growth rates were limited in part by adverse channel and subcategory mix in the quarter, as we have seen a lower rate of year-to-date growth in the C-store channel compared to last year and water growth outpace the balance of our business
We are encouraged by continued strength in our [stills] portfolio with good growth in Gatorade, our total water portfolio which benefited from the strong introduction of LIFEWTR, Lipton, and our distribution of Rockstar
In fact, in just five months of sales since its launch in Q1, LIFEWTR has already reached $70 million in retail sales across measured channels, was the top brand contributing to LRB retail sales growth of the second quarter, and is on track to generate approximately $200 million in retail sales on an annualized basis
On the carbonated side, we are encouraged by the performance of Pepsi Zero Sugar, but have more work to do on the carbonated portfolio overall
We will also be allocating a bit more marketing behind the big sparkling brand in the second half
We have strong activation for this summer behind Pepsi Fire and our DEW-S-A program, followed by strong execution behind the NFL as we get to the fall
As we execute our second half plans, we will remain very focused on driving better net price realization and letting our marketing and innovation drive the top line
Quaker Foods North America performance continues to be impacted by broader center-of-stove pressures, but is performing well relative to other large breakfast manufacturers
Going forward, we have powerful programming in place aimed to improve the trajectory of the business
So for example, we have activation behind portable breakfast innovation, namely Breakfast Flats that we launched in 2016 and Breakfast Squares that were launched in the first quarter, and we have just launched a new and first-to-market Overnight Oats Cup in the second quarter to capitalize on the recent and growing consumer trend of preparing chilled oats using a variety of healthy ingredients
Turning to our sectors outside North America, in Latin America we continue to see very challenging macroeconomic conditions, geopolitical instability, and high levels of inflation in key markets, including Brazil and Argentina, which are dampening consumer spending
Within this context, our businesses are performing well
Our largest market in the region, Mexico, encouragingly has been relatively stable and resilient and is performing well, and posted double-digit organic revenue growth in the second quarter
While our core profit performance in the first half of the year was impacted by difficult economic conditions, we expect to see an improvement in core profit growth in the second half as we lap incremental investments from last year and we realize productivity from supply chain initiatives
Similarly, we are experiencing macro challenges in a number of markets throughout our Asia, Middle East and North Africa segment, including the significant currency devaluation in Egypt and the economic impact in a number of markets across the Middle East stemming from persistently low oil prices
Related to these, we are experiencing significant cost inflation in Egypt arising from adverse transaction Forex and we are dealing with the recently imposed carbonated soft drink tax in Saudi Arabia
So we are adjusting our business to address these challenges
We are pricing to cover the increased cost of doing business, we are going more aggressively after productivity to reduce our overall costs, and we continue to transform our beverage portfolio to offer more non-carbonated options and reducing sugar levels across the portfolio
On the other hand, we are encouraged by a number of bright spots in the region, including China where we saw double-digit beverage organic revenue growth and mid single-digit snack organic revenue growth, in markets like Pakistan and Egypt where organic revenue was up double-digits
And finally, turning to Europe and Sub-Sahara Africa, we had very good results across the region, with organic revenue growth in each of our major markets and a sequential acceleration overall
Russia, our largest market in the region, had mid-single-digit organic revenue growth and very strong operating margin improvement
As you saw in the release, our results also benefited from our sale of our minority stake in Britvic
Even excluding this gain, core operating profit was up 19%
So we are very encouraged by the performance in the region and are optimistic about the outlook for the balance of the year
We continue to manage what's in our control and our portfolio products and geographies is working
And so, with half the year behind us and our performance overall in line with our plans and expectations, we remain very much on track to deliver our full year financial target of at least 3% organic revenue growth and 8% core constant currency EPS growth
And we continue to deliver these strong, reliable results even as our industry is undergoing some interesting shifts from multiple angles
Consumer habits and behaviors continue to evolve, some trends like consumers' increasing demand for convenience and variety have been present for decades but are becoming more pronounced, consumer shopping habits are rapidly adapting to evolving and new retail formats, and their lifestyles are increasingly influenced by pervasive social and digital media and mobile technology, and this in turn requires new marketing models that harness the power of digital media and big data in a way that enables us to communicate with consumers on a much more personal and individualized level
Consumers are also seeking more value and benefits from what they purchase and consume
They are also seeking more premium experiences, and at the same time seeking value
And across the spectrum, consumers continue to be interested in health and wellness, but with differing definitions, often not science-based of what this means
Perhaps more pronounced are the changes we are witnessing in retail where the lines are blurring between channels
Brick and mortar retailers are building deep e-commerce capability, pure-play e-commerce is moving into brick-and-mortar, and virtually every channel is melding aspects of grocery, convenience, foodservice, meal kits, prepared meals, and home delivery
So with all this change occurring and at an accelerated pace, we could look upon the spirit in our industry with hesitation and pessimism or with a sense of excitement and optimism
We choose to take the optimistic approach because this period offers a once-in-a-lifetime opportunity to strengthen our business and capture new avenues of growth
We believe we are well-positioned to win in this environment
In fact, we anticipated and prepared for many of the trends we are witnessing today
To begin, we participate in growing categories with products that are well-suited to consumers' continued desire for convenience, on-the-go portability, and snacking, in place of structured meals
Many of our brands occupy the number one or number two spot in their respective categories, giving them the scale to cut through an increasingly cluttered and fragmented media landscape, especially in the digital realm
Our product portfolio has the stretch to continue to evolve with consumer needs
We have the ability to innovate to provide new benefits and value to the consumer in ways that are not only consistent with the brand's equity but in many ways strengthen it
A few examples come to mind
Lipton tea, over the years we have not only added more variety but we have strengthened the brand by introducing increasingly premium offerings, first with Pure Leaf and more recently with the Tea House Collection, resulting in the leading share position we enjoy today
Or Mountain Dew, where over time we have expanded the trademark from traditional green-bottle Dew and Diet Dew to exciting line extensions like Code Red, White Out and Voltage, and our very successful Kickstart lineup
Or Doritos, where our loyal consumers have embraced flavor extensions to the core product and innovations we have taken to foodservice and quick serve restaurants
Or Quaker, where we have provided increasing portability and convenience to a hearty, healthy breakfast through the introduction of Breakfast Squares and Breakfast Flats
Beyond our product advantages, we also have a well-balanced geographic footprint that enables us to weather pockets of macroeconomic volatility
Importantly, we have extremely strong relationships with our retail partners and meaningful presence of scale across all our relevant channels
In each of our five largest markets, comprising approximately 75% of our total net revenue, we are the largest or #2 food and beverage manufacturer based on retail sales
Regardless of channel, our products and brands possess a number of important characteristics that make them highly appealing to our customers
They are often purchased on impulse, which makes them highly incremental and therefore build basket and box size
On promotion, they drive traffic
They are highly complementary to other food and beverage purchases and they have high velocities, which makes them very productive in whatever shelf they occupy, and therefore they are big cash flow generators
These attributes translate to the very foundation of the value we bring to our customers regardless of channel
We deliver sales growth and cash flow for our customers
And our partnership with customers goes well beyond supplying great products
Our deep capabilities, enabled by our scale and years of extensive investment, allow us to work with a strategic partner, delivering value in the areas of supply chain management, consumer and shopper insight, social and digital consumer engagement, research and development, design, data analytics, and e-commerce
In fact, our execution with retailers, leveraging the full breadth of our capabilities, deserves to be named the #1 best-in-class manufacturer in the most recent annual Kantar Retail PoweRanking survey in the United States, and this was further reinforced a few weeks ago when I attended the Consumer Goods Forum in Berlin
In meeting after meeting with our retail partners from around the globe, they expressed how much they value the growth we generate for them
And finally, one of the most compelling reasons for our optimism is our culture
Over decades, we have built and developed a culture that thrives on change
We have the heart of a challenger, a can-do spirit, with a must-do result
We view the evolution of our business, that is products, supply chains, processes, organizations, or business models, as our natural state
Our business today is very different than it was five years ago and we expect it to be very different five years from now
Consider our beverage portfolio transformation that began decades ago when we had declared that we would become a total beverage company, and over the years we have built an enviable portfolio of leading brands across virtually every sub-segment of the beverage category, including Gatorade, Tropicana, Aquafina, Lipton, and Starbucks, through organic introductions, joint ventures and acquisitions
And this transformation continues, as evidenced by our recent introductions of products like LIFEWTR, Lemon Lemon, and IZZE Fusions, and acquisition of KeVita
By having continuing to evolve our supply-chain over the years, as the retail landscape has changed and new technologies have come to market
Our supply chain in Frito-Lay today is very different from the one we operated just a few years ago
For example, our deployment of GES has enabled us to handle more SKUs, fulfill demand with greater speed and accuracy, improve product quality and freshness, and operate more efficiently
With our embrace of performance and purpose, the journey we embarked on more than 10 years ago that has transformed our business to adapt to the changing world around us
We have reduced added sugars, saturated fat and sodium in many of our products, while continuing to expand our lineup of nutritious foods and beverages to meet growing consumer demand
Our product transformation efforts to date have resulted in a portfolio where we now derive approximately 45% of our net revenue from products that we refer to as guilt-free
These products include diet and other beverages that contain 70 calories or less from added sugar per 12-ounce serving and snacks with low levels of sodium and saturated fat, as well as what we call 'everyday nutrition product'
And a full 28 points of the 45 points is made up of what we refer to as 'everyday nutrition', products with positive nutrients like grains, fruits and vegetables, protein, unsweetened tea, and water
We have steadily improved our operational water use and energy efficiency, reducing our packaging and waste, and promoting responsible agricultural practices globally
We have built a workplace that attracts and retains the world's best and brightest
And we intend to continue to make strides in these areas
We have announced even more aggressive product, planet and people goals that we intend to achieve by 2025. Net, we feel very good about where we stand
We have a leading product portfolio, balanced development across channels and geographies, broad capabilities, a robust productivity agenda, a great corporate culture, and excellent talents
These factors and combinations have enabled us to continue to deliver an attractive balance of top line and bottom line growth, and they give us the confidence to lead into an ever-changing environment with a sense of excitement and cautious optimism
With that, let me turn the call over to <UNK>
That was 10 questions, <UNK>
That was 10 questions very wonderfully rolled into one, but we're going to try to answer every one of those
Let me start by saying that I think you are beginning to see the limitations of the syndicated data, because as I mentioned in my script, the channels are beginning to blur between food service, retail, home delivery, restaurants, everything, the channels are beginning to blur
And when you have blurring channels, you now have a shopping occasion being replaced by home delivery or replaced by a meal delivery of kits
So what we have to do is rethink what is the real growth of the marketplace, the food and beverage marketplace, in a much more holistic way
There's no question that the syndicated data showed a slowdown in the overall market I'd say in the first half
Rather than talk about quarter to quarter, let's just talk about the first half
Slightly south of 2% is what we saw in the first half
But I think if you include a much broader definition of the market, I think you're going to see what the traditional growth is, which is population plus some, more in the range of somewhere between 2% and 2.5%
I think that's what you'll see as an overall growth rate
I think we all as manufacturers have to start to rethink how we serve this multiplicity of channels and how we should retool our business models to serve every one of these fragmenting channels
That's the challenge all of us have and we have been looking at that very, very carefully
Now let's talk a little bit about the category weakness
I think, on salty snacks in particular, let me speak to that
I have belief, and we watch volume, revenue and pricing very, very carefully on a weekly basis, I think where the market is today, when we can take pricing, we should take the pricing, and we have been trying to move the portfolio more to premium products, and the good news is that we are actually making progress in Frito-Lay to move the business more to premium products
And so, I'd say, this thing will right itself, we are gaining share overall in the marketplace, we are gaining value share which is really what we are focused on, we are managing the mix very carefully, managing channel mix, product mix very carefully
We feel pretty good about the Frito-Lay performance and where we are moving the portfolio, nudging it towards premium, balancing the value of mainstream part of the portfolio very, very carefully
So we feel good about that
On the beverage side, we've got good price realization, so I feel good about that
Do I have some concerns about our carbonated soft drink business? Not concerns, but I think they have more opportunity, and I think that as we move towards the second half of the year and we sort of fine-tune our calendar, you'll start seeing more activity from us on carbonated soft drinks
On balance, we have good innovation, and I wouldn't say we are concerned, but we are watching it very, very carefully to make sure that everything that we can control, we do right by these businesses
Big businesses, very attractive businesses, we just want to make sure we get our fair share of those businesses
But the key thing is we are going to focus on price realization and let marketing drive the top line
And it's a great tasting product
So, I'm going to let <UNK> get all the answers ready for the 10 questions you asked in operating margin, <UNK>
Let me talk about the changes in channels
We are all figuring it out as we go along
The good news is, our e-commerce business is growing brilliantly
We are doing very, very well
We are not yet ready to talk about it in any significant way
Maybe in the next couple of calls we will start focusing on that
But it's growing really, really nicely
But it's growing with our traditional products and our traditional packaging, if you want to call it that
There is clearly an opportunity for us to think about innovation for e-commerce, which is what we are all focused on
We want to make sure that our snacks are more shippable, not just in click and collect, but more also for delivery, so that the cube efficiency is there
And on beverages, I think there are two issues
One is the cold delivery of the beverages, if consumers so desire ice-cold beverages delivered to them, which I find it hard to believe, but you can never tell
And then how do we make sure that we address this whole delivery of water, because beverages is largely water
So we are looking at meaningful innovation, both in snacks and beverages, in order to address the exploding growth of e-commerce
And with our big brands, I think we are well-positioned
Now let me come to the impulse nature of our products
I think the whole e-commerce area is going to be impulse as you see it in a brick-and-mortar store, which then translates to e-commerce and then becomes part of a replenishment cycle
But then as people stop going to brick-and-mortar and start shopping only on e-commerce, which well could be the Gen-Z, the new I-generation, if you want to call it that, I think the new digital tools can easily afford you the ability to create the impulse experience online
We have seen so many virtual reality tools right now that can actually simulate grocery stores or whatever version of a grocery store you want online, and you can easily navigate the aisles and just with a click shop for whatever you want
So, I think in an interesting way there's infinite possibilities to create impulse all through technology online, and I think as this market matures and evolves, you're going to see a lot of that happening, and we are focused on developing all of these tools ourselves with our e-commerce partners to make sure that we are responsive to them when they so choose to go that way
So with that, let me turn it to <UNK> to give you the [treaties] [ph] on operating margin
And I think, <UNK>, it's fair to say that with the changing marketplace, where there's blurring of retail channels, the consumer preferences changing, the marketing models changing, we have to invest in these new capabilities in order to generate the top line growth we are generating
So, we intend to continue to invest judiciously in these new areas, so we can sustain our top line growth globally
We model out different channel shifts, what could be the pricing implications, we look at analogs from Europe when there were lots of retail disruptions, and then we look at what do we need to do to get innovation-driven pricing, mix-driven pricing, and then what do we need to offset the productivity, how do we need to go deeper on productivity programs
So <UNK>, what we do do is model this out constantly, we look at multiple scenarios, and then we figure out how to get the best blend of top and bottom line growth in a changing retail environment
The good news is that as the retail environment shifts, we just have to retool our model for the retail environment shifts
The market is still growing, that's the good news, and these are huge categories
So, our goal is to capture the growth with a changing environment with our innovation and our big brands
That's why we focus so much on innovation because we believe innovation can actually create consumer demand and get us the price premium, and then we keep investing in our brands, both at the big brand level and the emerging brands like KeVita and Naked, so that we can grow our business on both ends of the spectrum
I don't know about harder, they are different
I think it's different buckets, different areas, some areas that we are comfortable with, some areas where we have to develop new muscle, but that's part of life in our food and beverage industry
I've been in PepsiCo for 23 years and every five years or so there is a brand-new skill we have to develop
And this place is amazingly resilient, we develop the muscle, we hire from the outside when we have to, we retrain, and then we go on
So, I wouldn't say it's getting harder, I'd just say that it's different buckets and we have to put in the work to make sure that we can deliver growth in this new environment
As I said in response to an earlier question, we are looking at how much productivity we need to deliver to offset any price inflation if it happens because of retail disruption
So, we are constantly looking at how we need to balance top line and bottom line growth, and clearly productivity is a major factor in bottom line growth delivery
So we are looking at that
<UNK>, did you want to add anything to that point?
And I think a lot of the new technologies actually allow us to deliver more productivity
We just need to – I think the key thing people have to take away is that in order to deliver productivity downstream, you have to invest upstream
So you have to invest today to get the benefits tomorrow
Benefits don't come out of thin air
And so, what we are doing is investing today to get more productivity downstream
So, first of all, we don't lose the Lipton business even with change of hands
So I would rest assure that we are protected there
On this whole industry outlook, <UNK>, I think you guys on the sell side are much more knowledgeable about industry and industry trends, because you've been following it for such a long time
We actually read your reports to get insights into where you think the industry is going
So I'd rather depend on your opinions here and we'll keep our opinions to ourselves on this one
Thanks <UNK> for the question
First of all, we don't reconcile our data with the scanner data
We just keep running the business and just we keep selling, we keep making sure that our product is on the shelf
Remember, we are high velocity products
So, we know on a weekly basis exactly what we sell and what's being pulled by the consumer
So we have good data on what's happening in the marketplace
I have no idea why the scanner data diverges so much
It's been happening in many markets and I think it reflects some of the limitations of syndicated data and they need to go back and retool it, but we are very comfortable where we are and we are just going to keep running the business this way
So with that, let me thank you for your questions, and to summarize, we are pleased with our results for the first half, we remain on track to deliver our full-year financial targets, and we feel well-positioned to continue to perform well, even in the midst of change and disruption
Thank you very much for joining us this morning and for the confidence you've placed in us with your investment
| 2017_PEP |
2016 | ANF | ANF
#Yes, <UNK>, the outlet business, we were pleased this quarter to have converted another 18 stores in Hollister to the made-for-outlet model.
The made-for-outlet model, from a margin standpoint, has been an incredible win for us and continues to drive improvement.
We see that as the model going forward.
We've been pleased with the demand for our brands and outlet centers and continue to believe that there is room for growth.
Our growth in the outlet channel will be measured, however, to make sure that we strike the right balance between outlet stores and full price stores as we continue the growth.
No, we don't disclose that level of detail.
| 2016_ANF |
2017 | STX | STX
#Thanks, <UNK>
With the shifts taking place in Seagate’s business, there are few specific areas of our financial performance in the December quarter that I would like to provide further context to <UNK>’s earlier discussion
For the December quarter, Seagate’s addressable HDD market was in line with our forecast
We continue to drive our HDD product set sales towards our higher capacity products across our portfolio, benefiting both our revenue and margin results for the quarter
HDD enterprise revenue was up 5% year-over-year and represented 37% of our total consolidated revenue
Nearline product revenues were up 15% year-over-year and our ATB nearline product continues to be our leading revenue skew
Mission critical product sales remain stable and were up slightly, sequentially
HDD client high capacity growth opportunities include consumer, surveillance, DVR and NAS markets, and represent approximately 30% of total consolidated revenue
In the December quarter, revenue from these markets grew 19% year-over-year and average capacity per drive across these markets was approximately 1.9 terabyte per drive, up 20% year-over-year, and PC client shipments continue to represent 24% of consolidated HDD revenue
Operating expenses for the December quarter were $521 million on a GAAP basis and $458 million on a non-GAAP basis
During the December quarter, we implemented a certain cost reduction activities and recognized approximately $33 million in pre-tax restructuring charges
The magnitude of these cost efficiencies we implemented across our company in calendar 2016 to ensure the resiliency of our business has been upwards of $500 million over calendar 2015. In this short period of time, we have improved our factory utilization, reducing our manufacturing cost by approximately $200 million year-over-year, operating expenses, excluding variable compensation have been reduced by approximately $300 million year-over-year
We will continue to drive cost out of our manufacturing operations and operating expenses, as we move through the fiscal year
Capital expenditures were $95 million for the December quarter for maintenance capital, supporting the acceleration of the ramp of new products in our portfolio that utilize new tooling and equipment, and the accelerated expansion of our Korat facility to expedite the manufacturing footprint reductions that are in progress across many sites
Our capital expenditures and maintenance capital requirement levels are expected to be less than 5% of our revenue for the remainder of the fiscal year
And through our manufacturing consolidation activities, Seagate is and will continue to operate at or very near full capacity
Cash flow from operations in the December quarter was $656 million and free cash flow was $561 million
Our balance sheet remains healthy and we ended the December quarter with $1.7 billion in cash and cash equivalents and $295 million ordinary shares outstanding
Our debt structure and level of interest expense is well within our financial capabilities and reflective of our investment grade framework, given our staggered maturities and low interest expense
Due to the confidence in our cash flow generation, our Board has approved our quarterly dividend payment of $0.63 for the December quarter, payable on April 5. Our December quarter dividend payout of $188 million is at the low-end of our long-term target range of returning 30% to 50% of free cash flow
In addition, we deployed $147 million for the redemption of 4.1 million shares for the December quarter
Our ability to return to our long-term financial model in the December quarter is a reflection of our portfolio optimization, as well as Seagate’s operational cost reductions
From a market demand perspective, we continue to believe that optimizing our full HDD portfolio to the structural shifts in the application workloads towards higher capacity will prove to be a resilient and competitive marketplace strategy
Combined with our Cloud Systems and Silicon Group, we review that approximately 80% of our storage product revenue opportunities in calendar 2017 have growth potential
At the same time, we have structured our refreshed portfolio to optimize the gains in areal density improvement, increasing storage capacity per drive, and in turn this enables us to lower our build and material per drive and redeploy the internal head and media components towards our highest margin products across the portfolio
While we are still in the process of executing many actions, we believe the overall cost alignment activities and the new high capacity and cost advantage products within our HDD product portfolio refresh will continue to benefit our product gross margins and overall profitability of our business over the course of our fiscal and calendar year 2017. Given the current demand outlook and assuming a stable macroeconomic environment, we are confident in our ability to remain around a higher-end of our long-term targeted margin range of 27% to 32%, and within our operating income margin targeted range of 13% to 15% for FY 2017. I would now like to turn the call back to <UNK>
Hi, <UNK>, this is <UNK> <UNK>, I’ll tackle some of the OpEx ones and then turn it over to <UNK> <UNK> to address some of the COGS and the improved efficiency there
I would take you back to middle of last year, where we had approximately two 8-Ks that we signaled upwards of $225 million of restructuring
We’ve had a significant amount of that get recognized in the P&L, as we’ve noticed on in the 8-K
With that said, we haven’t necessarily seen all the savings come through, and those are just on the activities that we’ve announced thus far
And so, as you think about the OpEx, that’s going to continue to trend down
Now some of that’s been masked a little bit by some of the variable compensation that’s gone into the first-half
But we believe we’re on a trajectory for that to continue to take steps down exiting not only the March, but continued into the back-half of the year
So that’s our alignment right now
And then <UNK> in regards to…
Thanks, <UNK>, and thanks, <UNK>
Seagate does carefully monitor any and all potential tax law changes, not only here in the U.S
, but in all areas of the globe, where we operate
We continue to evaluate the various proposals coming out of Washington to determine what their potential impact might be
And most of the proposals and process and in flight do contain certain provisions, which could have both positive and negative impacts to the company
We do believe that the most serious tax proposals being considered, including the House Republican Blueprint with its border adjustability tax provision would not likely have a significant near-term impact for the company
But again, that’s still under heavy review
Yes, I mean, you’re nailing both of them, right
We’ve got through the March quarter and then extending into June in the back-half of the year
A lot of those savings will come to fruition on that top line, as well as some of the mix iterations and as we continue to ramp up the portfolio as well
So that’s where we have a high degree of confidence in enabling that that sustainability in those levels at that margin range
| 2017_STX |
2015 | ACN | ACN
#Just working backwards, <UNK>, I'll give you a view on digital growth, as well as our dimensional growth.
I'm going to give that view at IA day, because we're still working through our view on that.
To your other question, I'll start with 2015.
Our inorganic contribution signaled last quarter was in the range of 1% to 1.5%.
Our actual inorganic came in roughly at the mid-point of that range.
The point being that when you look at our 11% growth for the year, the organic growth was obviously substantial.
As we look forward to 2016, we are very proud of the success that we've had in the market with our acquisition activity, in the last two quarters in particular.
We also have four acquisitions.
<UNK> mentioned Cloud Sherpas, which had been announced but not yet closed.
But if you take what we've closed and the four that have been announced, not yet closed, then we would estimate that our inorganic would be, let's say, approaching the range, in the range of about 2%.
Of course, that can change, depending on the timing of when these four deals, Cloud Sherpas in particular, ultimately gets closed.
But we would be in that range, so it would be a click up.
Thank you, <UNK>.
<UNK>, let me just mention two things, and then <UNK> will want to round this out, just in terms of the factual context.
Again, I want to point out that the year we just closed, our organic growth would have been about 9.5%, roughly.
And so, the organic part of our Business, that machine was hitting on all cylinders in 2015, and was a real testament to the power of our growth strategy.
And this evolution of Accenture to focusing on our five businesses that we've talked about, leveraging the very distinctive channel that we have through our operating groups and our largest geographic markets.
So, just that factual point, our inorganic growth machine is hitting on all cylinders.
You mentioned ERP.
I'll go ahead and put this out there, that the ERP business ---+ we've always said that ERP goes through cycles, but yet at the end of the day, it's an attractive business.
Our ERP business did stabilize in 2015.
It actually grew slightly.
Now, as a percentage of our total revenue, it's actually gotten ---+ it's come down a click in terms of what it represents of Accenture's business, because the non-ERP is growing significantly.
But nonetheless, the ERP story is not a bad story.
I'll just pass it over to <UNK>.
Just to reconfirm the element of our acquisition strategy, we are doing acquisitions for three reasons.
The first one is to accelerate access to capabilities in the new, and what we're calling the new at Accenture is now the combination of digital services, cloud services, security services, or new technologies, if you will, such as cognitive computing, automation, or artificial intelligence.
Second is to have access to very deep industry expertise, especially in consulting.
That is the rationale for acquisition of Axia, Javelin companies, consulting, deep, structure, Hytracc, either deep industry expertise in upstream energy, in retail.
That's the reason ---+ that's number two.
And the number three would be to scale faster, to take the leadership position in the marketplace, and by leadership, we mean the number one.
I'm thinking about Procurian.
I'm thinking about Cloud Sherpas.
I would put in that category, scale to lead, putting more distance between Accenture and the competition.
Three reasons why we are doing the acquisition.
And then we grow organic on top of these acquisition.
Probably one of the best case coming in my mind would be Procurian.
We made the acquisition of Procurian.
We became the number one in procurement services.
And since we made this acquisition, we've been scaling faster, and now we are the market leader, and the organic growth of our procurement services is even higher than the business case we set.
Yes.
First of all, I would encourage you and others to look at the absolute amount, because the absolute amount, as you referenced ---+ I'll use my word, but your thought, I hope, is that it's outstanding.
Our operating cash flow, our free cash flow exceeds net income, which I think is a standard for any company, which is indicative of outstanding cash flow.
And we're in the range, across our range, we're in the range of, let's say, a rounded 1.1 of free cash flow to net income.
The absolute number is very, very strong.
As we talked about before, there are many puts and takes in our cash flow in any particular year.
Changes in DSO is an example.
We have allowed for the possibility, not that this is our ---+ what we're trying to drive our teams to, but we've allowed for the possibility of a slight uptick in DSOs.
You also notice that we have allowed for further CapEx spending, which is part of the increase.
And then beyond that, there are differences in timings.
For example, tax cash payments can be very different on one year ---+ from one year to the next.
So, there are many swings.
But what I would encourage you to focus on is the absolute cash flow, which exceeds net income and is a great indicator of a strong cash-generating Company.
If you look at it indeed, we had a good year in some of these markets.
Overall growth markets, double-digit growth, if you look at all the growth markets.
Again, you've seen in these growth markets some of mature markets' names; I'm thinking about Japan and Australia.
Now, in these, we had very good performance of Brazil last year, on back of some very good programs in Accenture operations and our BPO business, as well in launching innovative services, especially around mortgage as a service, on back of a small acquisition we made a few years ago called Vivere.
And our digital rotation, as well, which is happening in Brazil.
Likewise, it's happening in other places.
That being said, we're looking at the market, as you do.
We understand that the global economic conditions in Brazil are deteriorating at some pace, and it has been factored in our plan.
We have given that disclosure.
I guess we show the revenue number for Brazil.
Brazil is above $1 billion.
Is about $1 billion for Accenture.
So, again, it's significant.
It's not something that will be oversignificant.
And in China, we are around $0.5 billion.
Trending to ---+
China, we're about in the range of $300 million, in that range, so about 1% of Accenture.
The CEO is always optimistic.
I think that we think in terms of continued strong double-digit growth.
35% is a big number.
And for planning purposes, we consider the scale of the Business, but 35% is a big number, and I don't know that we would assume that for planning purposes, not that we wouldn't strive for it.
We plan for double digit.
Certainly for double digit.
I would say that you may remember it was in the ---+ our second quarter's call I mentioned that we were pleased with the progress that we had made in pricing, relative to where we were in the previous year.
And I would say that, relative to those comments, our pricing has remained very stable.
And so, we've ---+ I would characterize the environment ---+ it's tough to paint with a broad brush because it really is different depending on which part of our Business that you look at.
But certainly, overall, the environment continues to be competitive.
If I had to give an overall characterization, I would say stable at the levels that we indicated in the second quarter.
If you peel it back, I would ---+ you asked specifically about application services.
It continues to be a very competitive market, but our pricing is stable.
We see other parts of our Business where we see some pricing power.
And when I say that, I think about Accenture strategy and Accenture consulting.
We don't think in terms of a natural resistance point.
We think that we've got a lot of flexibility for how our global delivery network can continue to evolve, but we certainly don't think in terms of any natural resistance point.
We drive it as the market evolves, and as I said, we've got flexibility still in front of us.
And when you look from a skill standpoint, I mean, you're right to mention that part of the work we're doing in digital-related services could be on shore, however, we are probably the largest ---+ one of the largest enterprise apps developers in the world.
All these developments are being made by our global delivery network, and it's definitely part of digital-related services.
I'm thinking about a significant part of our Business in analytics, as well, being done with our resources, especially in India and other places.
When I think about strong innovations, in terms of automation, robotics, cognitive computing and artificial intelligence, they are coming a lot from the Philippines, and from India as well.
So, I guess it would be a bit simplistic to see our GDN as a kind of low-cost, low-value kind of capability.
It is the right cost, very high-value workforce.
Well, first of all, Ed, I would say that if you look at the performance of our portfolio overall, we're quite pleased with the performance of our portfolio of acquisitions from revenue through profitability and cash flow, and that's something we track very carefully.
We review, certainly ourselves, but with our Board as well each quarter, and we believe we have some pretty high hurdles ---+ financial hurdles for the transactions that we do.
Having said that, as you know, it certainly wouldn't be unusual for an acquisition to be dilutive in the first year or two possibly, but we do ---+ one of our hurdles is the pace at which a deal becomes on par, and then accretive.
But certainly in the first couple years, they can be dilutive.
I'll also point out that where as many other companies in our sector tend to adjust for certain types of acquisition-related costs, the amortization of intangibles, things like performance retention payments at the time of closure, third-party fees, et cetera, we've chosen not to do that, and we report our margin all-in.
To date, our margin expansion commitment has been based on a philosophy that we absorb those as part of our investments, and we drive the Business forward.
And of course, that's just one part of our investment.
We have investments that go well beyond that.
The impressive thing about our profit model to date is that when you look at that 20 basis points of expansion, underneath that we are driving significant efficiency across our Business to absorb the investment to acquisition and otherwise, and that's an important story to understand, so I'm glad you asked that question.
So, to remind you and the other listeners, when we talk about price, and we've always said very clearly that we're talking about the profit or margin percentage on the work that we sell.
And it's in that context, when I say pricing is stable, it's in that context that I make that statement.
So, when you look at application services, as an example, when you look at our margin on work that we are contracting, that is stable.
I mentioned other areas where we have sources of some pricing power; I mentioned strategy and consulting.
I also say that in the context of the margin, but I'll also add that if you were to look at, in that part of our Business, people might talk about things like average daily rates.
We're also pleased with average daily rate progression in that part of our Business, as well.
Yes, so, if you look at our guide for quarter one, the range is 6% to 9% in local currency growth.
I mean, when I look at quarter one or the full year, maybe, <UNK>, I'll just ---+ let me just expand my comments a little bit.
When you look at our guidance, you first of all have to understand what is our assumption on market growth.
And we assume that the market will continue to grow, plus or minus, in the 4% range.
And so, when you look at our guidance for the year, certainly if you look at our guidance for quarter one, the same would apply.
Across that range, but certainly at the upper end of that range, it reflects taking significant market share ---+ continuing to take significant market share, which is our strategic objective.
The other thing that you have to consider goes back to some of the discussion that <UNK> had, I believe, with <UNK> on the growth markets and the risk profile, but also I think when we look at the macro environment in general, relative to where we were 90 days ago, I would say relative to where we were at this time last year, the volatility and risk in the macro environment has clicked up a notch or two.
And so, that's factored in.
The other thing that we think about when we look at our guidance is that it's as important, if not more important, to look at the absolute dollars as it is the percentage, whether it be the first quarter or the full year.
And if you just look at the full year, before you adjust for the FX headwind, just taking that out, look at the underlying growth, at the upper end of our range we would be adding about $2.5 billion of revenue, excluding the impact of FX in FY16, which is a pretty healthy number.
And so, we work hard to drive to the upper end of the range, although the range reflects what we think are the range of possibilities.
And as it relates to the full year, we're early in the year.
As we did last year, we'll adjust as we go.
That was more of an answer than your question, but it gave me an opportunity to share some of those thoughts.
We've not seen much change in the competitive environment.
I think the competition is quite well established in the different businesses we are operating in, from the consulting and strategy with the usual players, then you have the technology with the other players, and then, of course, operations, a different part of our Business.
So, I guess the environment is pretty stable, with some winners and losers, and we are investing and driving our Business to be part of the winners.
But not much to say around the competitive environment.
It's still the usual suspects.
I would say that to the extent that digital has a strong consulting concentration, and if you look at the ---+ let's say, the average duration of a consulting contract versus an outsourcing contract, it would be true to say that the duration is shorter for consulting than it is for outsourcing.
So, in that sense, it does give you a different backlog profile going forward.
We're very pleased with how our strategy in consulting and the development of new technology that we report within application services, that has been a great story for us, but it does change the dynamic, as you're alluding to.
We are still in the midst of finalizing those, and I will comment on that, as appropriate, at IA day.
It's a little premature for me to give you a number at this point.
First of all, we were really pleased with our recruiting in the fourth quarter.
We continue to be, and even more so, a real, I would say, magnet for talent in the marketplace.
So, we had very successful recruiting efforts, as you know.
The fourth quarter is typically when we bring on our campus hires, and so that's reflected in the number.
And so, we manage the supply and demand very carefully.
And one point is where we start the year, and then, of course, we have to manage our headcount as we progress through the year, and we will see how attrition plays out as we evolve through the first half of the year.
We'll see how the revenue trajectory progresses, and then, as always, we adjust headcount appropriately.
Well, it's ---+ as a general ---+ well, it depends.
It just depends on so many different assumptions.
It depends on how we see pricing evolving.
It depends on how we see our revenue yield per head evolving.
It depends on what we might expect with attrition.
It depends on, perhaps we hired a disproportionate number of people in quarter four, and we expect to hire less than normal in quarter one.
And so, there's so many factors that go into that.
I wouldn't over-read the headcount.
What I'd focus on is the guidance we gave and the context that I gave for the guidance.
We actually see very balanced growth, as we have looked at our business plans.
We actually see very balanced growth, and we would see, let's say, both consulting and outsourcing, in the context of a 5% to 8% range, we would see both of those being in the same zone.
So, in the mid- to high-single digits is the potential range for both of them.
Sure.
Thank you.
By the way, Jo Deblaere, who was leading our European business, is in the room, and he couldn't be more pleased with your comment on Europe.
And, yes, I mean, we're pleased with where we are, because you've seen the growth, and of course, when you understand the overall economic environment in Europe, it's much different from the one, for instance, you have in the US.
So, it's more about us than about the market, of course.
And I would call probably the same trend.
It's fascinating to see that the digital rotation we've seen in Europe is as strong, even slightly stronger than the one we could see in the US.
It appears that our target clients, mainly the premium brand in the G2000 we are serving in Europe, are really accelerating their investments in terms of digital rotation.
Second, we had some very significant transactions leveraging Accenture operations with our business process services; I'm thinking about the financing, the accounting, the HR, the procurement as well, and it's been a significant source of growth.
And overall, the consulting is back, probably driven as well with digital-related services.
So, for Europe, again, the clients we are serving more than the geos are reinvesting, with always an eye on rationalization, driving good growth for Accenture operations, and the other eye on growth and digital, which is driving more business for Accenture digital, Accenture strategy and Accenture consulting, and of course, the leadership of Jo Deblaere.
Sure.
Two main reasons: First, and you've seen that in the terminology which has been used by Paul Daugherty, our Chief Technology Officer, we're taking a Cloud first approach.
We are strongly believers that indeed now, and even more moving forward, this Cloud first agenda will be quite prevalent for our clients.
And we want to preempt, to be ahead of the curve, or to embrace, whatever you're going to call it, this new cloud first environment, and so to be a prominent provider in the as a service, software and solution as a service environment.
So, second, when we have defined this position for Accenture, the name of the game for us was how to scale more actively to take a leadership position, especially around the Salesforce.com solution.
And Cloud Sherpas was a very relevant opportunity for us to scale rapidly the good capabilities we have.
As we speak, we are the leader in providing services for Salesforce.com.
We are already the leader, and we believe that through this acquisition they have excellent people, a significant number of these people being certified, which is even more important.
We are scaling faster, and are taking the leadership in this market, which we believe is going to be very promising in the coming years.
Indeed.
It's global, with a very significant and good footprint in the US, but it's global and nicely covering two or three of our most significant markets around the world.
So, we should take this leading position in not only in one, but certainly in a few other markets around the world ---+ very nice fit for us.
All right.
I think it's time to wrap up, <UNK>, excellent.
So, thanks to all of you again for joining us on today's call.
And in closing, I just want to take this opportunity to first thank our clients for the trust they place in Accenture as their business partner.
At the same time, I also want to extend my deep and sincere thanks to the men and women of Accenture around the world.
Every minute of every day, our people demonstrate an incredible level of commitment to delivering value for our clients and for our Company.
And finally, of course, I want to thank you, our investors, for your continued support and confidence in Accenture.
We look forward to talking with you again next quarter, and also to seeing many of you in person at our investor and analyst conference in New York on October 7.
In the meantime, if you have any questions, please feel free to call <UNK>, and all the best.
| 2015_ACN |
2017 | EHTH | EHTH
#Good afternoon, and thank you all for joining us today either by phone or by webcast for a discussion about eHealth, Inc.
's First Quarter 2017 Financial Results.
On the call this afternoon, we will have <UNK> <UNK>, eHealth's Chief Executive Officer; and Dave <UNK>, eHealth's Chief Financial Officer.
After management completes its remarks, we'll open the lines for questions.
As a reminder, today's conference call is being recorded and webcast from the IR section of our website.
A replay of the call will be available on our website following the call.
We will be making forward-looking statements on this call that include statements regarding future events, beliefs and expectations, including statements regarding the impact of the CMS marketing guidelines; our increased focus on the profitability of our Medicare business; shift in our Medicare marketing strategy and our focus on direct and strategic partner channels; the interim slowdown in submitted Medicare application growth; our intent to aggressively pursue the Medicare supplement market; expected submitted applications growth for all Medicare products; our work with partners in the labor union and military personnel markets; progress on establishing a more effective connection to the federal exchange; expected benefits from our new online enrollment platform for small businesses with our largest carrier partner; our data proposition and investment in the small business insurance markets; revenue and earnings generation potential of our Medicare and individual and family plan businesses; operating and financial leverage inherent in our individual and family plan business; profitability of the individual & family plan business; expected loss in the Medicare segment for the full year 2017; and our guidance for the full year 2017, including revenue, adjusted EBITDA, earnings per share and segment revenue and profitability.
Forward-looking statements on this call represent eHealth's views as of today.
You should not rely on the statements as representing our views in the future.
We undertake no obligation or duty to update information contained in these forward-looking statements, whether as a result of new information, future events or otherwise.
Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected in our forward-looking statements.
We describe these and other risks and uncertainties in our annual reports on Form 10-K and quarterly reports on Form 10-Q filed with the Securities and Exchange Commission, which you may access through the SEC website or from the IR section of our website.
We will be presenting certain financial measures on this call that will be considered non-GAAP under SEC Regulation G.
For reconciliation of each non-GAAP financial measure to the most directly comparable GAAP financial measure, please refer to the information included in our press release and in our SEC filings, which can be found in the About Us section of our corporate website, under the heading Investor Relations.
And at this point, I will turn the call over to <UNK> <UNK>.
Thank you, <UNK>, and welcome, everyone.
Our first quarter revenue was $78.9 million, representing 7% annual growth.
And our adjusted EBITDA was $35 million or 31% annual growth.
Non-GAAP net income per diluted share was $1.93.
Cash flow from operations was positive $8.4 million, bringing our cash balance as of March 31 to $68.2 million.
We are very pleased with our first quarter financial results.
The performance of our Medicare business allowed us to post meaningful year-over-year growth in overall first quarter earnings despite the decline in our Individual & Family membership and the investment we are making in the small business market.
As a reminder, during the first quarter, in addition to commission revenues from new Medicare enrollments, we recognized substantially all of our annual renewal commissions from our existing Medicare Advantage membership.
Given that the vast majority of Medicare renewal revenue falls to the bottom line, it had a meaningful positive impact on our first quarter earnings.
Our total estimated Medicare membership at the end of the quarter was 29% greater than our estimated membership at the end of the first quarter a year ago.
Medicare renewal revenues further benefited from better-than-expected commissions per member that we observed on our Medicare Advantage book of business.
First quarter 2017 Medicare Advantage and Medicare Part D renewal commissions of $41.3 million grew 43% year-over-year, outpacing the growth in our estimated Medicare membership.
Total Medicare revenue for the quarter was $58 million, representing 33% annual growth.
First quarter submitted applications for all Medicare products grew 1% year-over-year.
Our application activity during the quarter reflected the lingering impact of the CMS marketing guidelines introduced last year, which we will anniversary at the end of the second quarter, and also increased focus on the profitability of new Medicare Advantage members.
As we deemphasize less profitable customer acquisition channels and work on building out the more efficient direct and strategic partner channels, we expect to continue to experience a near-term slowdown in submitted Medicare application growth.
At the same time, in line with our new strategy, we intend to more aggressively pursue the Medicare Supplement segment of the market.
Medicare Supplement submitted applications were up 32% compared to the first quarter of 2016.
For the full year 2017, we continue to expect that submitted applications for all Medicare products will grow in the mid-teens on a percentage basis.
Now I'd like to highlight 2 important developments in our Medicare business.
First, last month, we won an RFP with Union Plus to provide a Medicare Exchange and distribute Medicare products.
Union Plus was founded by the AFL-CIO, America's largest labor federation, to provide voluntary consumer benefits and services to members and retirees of its 55 affiliated unions that represent 12.5 million working men and women.
There are currently 2.5 million union retirees over 65 years of age and approximately 25,000 members per month that are aging into Medicare.
To win this RFP, eHealth competed against some of the leading brokers and insurance carriers in the space.
We are very excited to work with Union Plus and believe this win is a true testament to the strength of our online platform, our customer care and enrollment capabilities and our extensive Medicare product offerings.
This is also a great example of our news channel strategy in the Medicare business, which emphasizes strategic partnerships over lead aggregator and paid search sources.
I'm also pleased to announce that earlier this month, we signed a contract with USAA to distribute their branded Medicare Supplement products.
The USAA family of companies provides insurance, banking, investments and retirement products to 12 million current and former members of the U.S. Military and their families.
USAA is a well-recognized and respected brand, and we are honored to have the opportunity to offer their Medicare Supplement plans to eHealth customers.
Upon launch of their products, which is slated for June of this year, eHealth will be the first external distribution partner USAA has ever used for this product.
With these 2 wins, eHealth gains a significant presence in the important labor union and military personnel markets.
In the Individual & Family Plan market, we are currently in what is known as the special enrollment period, or SEP, during which only a small subset of consumers are eligible to enroll into the new Individual & Family plans.
Many of the insurance carriers do not pay any broker commissions on enrollments during the SEP or pay a fraction of their normal commission rates.
In addition, we continue to be constrained by the inferior connection to the Federal Exchange, which precludes us from efficiently signing up subsidy-eligible consumers.
As planned, we discontinued the vast majority of our Individual & Family Plan-related marketing efforts after the open enrollment period, which is reflected in our first quarter Individual & Family plan application and membership metrics.
Our Individual & Family Plan submitted applications were down 70%, and our estimated Individual & Family Plan membership was down 49% compared to the first quarter of 2016.
Nevertheless, this business continues to be highly profitable, and we expect it to be a significant earnings generator this year.
Dave will provide more color on the financial performance of our Individual & Family business later on the call.
Last month, we were disappointed in the failed effort by the U.S. House of Representatives to pass the Health Care Reform Bill and bring meaningful improvement to the health insurance market and, specifically, to the individual market, which has been disproportionately impacted by the Affordable Care Act.
At the same time, we are encouraged by the discussions that we are having with the administration on reestablishing a more effective connection to the Federal Exchange for eHealth and other web-based entities.
We are also encouraged by some of the near-term fixes recently put in place to bring more stability and choice to the individual market.
Turning to the small business market.
As I shared with you on the last call, we are investing aggressively in this market with approximately half of our total projected adjusted EBITDA loss for 2017 being driven by our small business investment.
We believe this market is underserved by traditional brokers, and that eHealth can offer a superior value proposition to small business owners by combining the strength of our technology platform with our best-in-class customer care support.
In the first quarter, we reached an important execution milestone in this market by rolling out an online enrollment platform for small business with our largest carrier partner, UnitedHealthcare.
This is our first major carrier implementation in what has historically been a predominantly paper-based, agent-driven business.
The new platform significantly simplifies the enrollment process for both the employer and the employees with a guided online shopping and application process; tools that allow employers to track and manage their employee enrollments; and a self-service document management solution.
In addition to making the process more customer-friendly, the platform significantly reduces agent involvement which should, over time, result in higher member profitability.
Our first quarter small business enrollments were up significantly, albeit off a small base.
The number of approved groups grew in excess of 80% compared to the first quarter of 2016.
I'm also proud of our small business team for generating a significant increase in cross-selling into our small business customer base with approved ancillary policies up 60% year-over-year.
As I shared with you on the last earnings call, we see 2017 as a transition year for eHealth, and our first quarter results reflect this notion.
Our results point to the significant revenue and earnings generation potential of our Medicare business as well as the operating and financial leverage inherent in our Individual & Family Plan business, which continues to be solidly profitable despite the challenging market environment and declining member base.
At the same time, our first quarter results reflect the ongoing regulatory challenges in the Individual & Family market as well as strategic changes we are making, including a shift in our Medicare marketing strategy and a stronger emphasis on Medicare member profitability, each of which impacted our application volumes during the quarter.
Overall, I'm encouraged by the progress we are making in executing on our 5-year strategic plan and look forward to seeing many of you at our Analyst Day next month.
And now I'll turn the call over to Dave to cover the financial and operating items in more detail.
Thanks, <UNK>.
Good afternoon, everyone.
Our first quarter results reflect solid revenue and earnings growth in our Medicare business and continuing profitability of our Individual & Family Plan business, which we currently operate with emphasis on earnings and cash flow generation while maintaining the flexibility to focus additional resources on the business should the regulatory environment become more favorable.
Our first quarter 2017 revenue was $78.9 million, an increase of 7% compared to $73.8 million in the first quarter of 2016.
Commission revenue for the first quarter was $76.2 million, an increase of 10% compared with $69.4 million in the first quarter a year ago.
First quarter Medicare revenue grew by $14.5 million, a 33% increase compared to the first quarter a year ago.
This increase was primarily driven by better-than-expected commissions per member that we experienced within our Medicare Advantage membership who renewed in the first quarter.
As <UNK> mentioned, during the first quarter, we recognized the vast majority of renewal revenues on our existing Medicare Advantage book of business, making it the largest Medicare revenue quarter for the year.
We are pleased with our Medicare renewal performance this season, and we'll discuss the impact of these renewal revenues on our 2017 financial guidance at the end of our prepared remarks.
The estimated number of revenue-generating Medicare members was approximately 285,000 at the end of the first quarter, up from approximately 220,000 at the end of the first quarter of 2016, an increase of 29%.
Medicare membership declined slightly on a sequential basis compared to the fourth quarter of 2016, which is a reflection of a typical seasonality of our Medicare business, where a large number of new members are added during the fourth quarter annual enrollment period.
In contrast, much of the member attrition associated with the annual enrollment period occurs during the first quarter.
First quarter Individual, Family and Small Business revenue was $21 million, down 31% compared to the first quarter of 2016, driven primarily by a significant decline in our Individual & Family Plan membership and revenue.
As we have discussed frequently, we continue to observe a challenging market and regulatory environment in our individual business and are managing our IFP-related variable spend accordingly.
To further illustrate our expense management in the IFP business, our first quarter variable marketing spend was down 77% compared to the first quarter a year ago.
Our estimated Individual & Family Plan membership at the end of the first quarter was approximately $265,000, down 49% compared to the estimated membership we reported for the first quarter a year ago.
This was a greater decline than we had originally anticipated, likely driven by the combined effects of carrier withdrawals from the market and substantially increased premiums.
We will discuss the impact of this decline in the estimated IFP membership on our 2017 segment guidance in a moment.
The estimated number of members on small business products was approximately 31,000, a 7% increase compared to a year ago.
Our total estimated membership at the end of the quarter for all products combined was approximately 893,000 members, including approximately 312,000 members on ancillary products.
Now I would like to review our operating expenses.
Driven by a broader revenue base as well as a significant decline in IFP-related spend, first quarter non-GAAP operating costs, which exclude stock-based comp and amortization of intangibles, declined both as a percentage of revenue and in dollar terms compared with the first quarter a year ago.
First quarter 2017 non-GAAP marketing and advertising expense, which excludes stock-based compensation expense, was down by approximately $5.5 million year-over-year.
First quarter 2017 non-GAAP customer care and enrollment expense grew by approximately $2 million year-over-year, driven primarily by an increase in Medicare sale ---+ excuse me, Medicare agent headcount.
We also hired additional customer care personnel to support our small business initiatives.
First quarter non-GAAP technology and content costs, which excludes stock-based compensation expense, were down by approximately $0.5 million compared to a year ago.
First quarter non-GAAP G&A expense, which excludes stock-based compensation and amortization of intangibles, grew by approximately $1 million year-over-year, driven primarily by lobbying expenses and costs associated with recent executive changes.
Adjusted EBITDA for the first quarter of 2017 was $35 million compared to $26.8 million for the first quarter of 2016.
We calculate adjusted EBITDA by adding stock-based compensation and depreciation and amortization, including the amortization of acquired intangibles to our GAAP operating income.
Our Individual, Family and Small Business segment remained very profitable on a stand-alone basis, generating segment profit of $11.1 million despite reductions in revenue.
Our Medicare segment generated a profit of $30.7 million compared to $17.9 million for the first quarter a year ago.
Please note that Medicare profitability is seasonally strongest during the first quarter, driven by renewal revenues that have little variable costs associated with them.
We continue to expect a loss in the Medicare segment for the full year in 2017 as reflected in our guidance.
I will remind you that segment profit or loss for our 2 business segments excludes depreciation and amortization expense, stock-based compensation expense and amortization of intangible assets, in addition to shared general and administrative expenses, which, under our new segment reporting structure, are reflected under the corporate category.
First quarter corporate shared services expenses, which exclude depreciation and amortization and stock-based comp, were $6.8 million, relatively flat compared to the first quarter of last year.
First quarter 2017 non-GAAP net income per diluted share was $1.93 compared to net income of $1.10 for the first quarter of 2016.
GAAP net income per diluted share was $1.80 for the first quarter of 2017 compared to net income of $0.99 for the first quarter of 2016.
Our first quarter 2017 cash flow from operations was $8.4 million compared to $4.7 million for the first quarter of 2016.
Capital expenditures for the first quarter of 2017 were approximately $1.7 million.
Our cash balance was $68.2 million at March 31, 2017.
Before moving to our guidance, I want to quickly remind you of our Investor and Analyst Day scheduled for May 10 in New York, where we look forward to providing more color and context on our business and growth strategy at that point.
With respect to financial guidance and based on information currently available, we are reaffirming the overall revenue, adjusted EBITDA, and earnings per share guidance for the full year 2017 that we provided on our fourth quarter 2016 earnings call.
At the same time, based on our first quarter results, we are adjusting our segment revenue and profitability and non-GAAP earnings per share guidance.
We now expect Medicare segment revenues to be in the range of $96.5 million to $101.5 million compared to the prior range of $91.5 million to $96.5 million.
We expect Individual, Family and Small Business segment revenues to be in the range of $68.5 million to $73.5 million compared to the prior range of $73.5 million to $78.5 million.
2017 Medicare segment loss is now expected to be in the range of $11.5 million to $12.5 million compared to the prior range of a loss of $16.9 million to $17.9 million.
Individual, Family and Small Business segment profit is expected to be in a range of $23.5 million to $24.5 million compared to the prior range of $29 million to $30 million.
2017 non-GAAP earnings per share is now expected to be in a range of negative $0.86 to negative $0.96 compared to the prior range of negative $1.06 to $1.17.
The adjustment to our non-GAAP earnings per share guidance results from a reduction in estimated cash-based operating expenses, primarily compensation, benefits and other personnel costs, due to lower projected headcount, which are partially offset by higher projected stock-based compensation.
As a reminder, segment profit or loss for our 2 business segments exclude depreciation and amortization expense, stock-based comp expense, restructuring charges and amortization of intangible assets, in addition to the shared general and administrative expenses, which are ---+ which, under our new segment reporting structure, are reflected under the corporate category.
Our 2017 guidance for corporate shared services expenses, excluding stock-based comp and depreciation and amortization expense, is unchanged at approximately $27.2 million.
I want to remind you that these comments are based on current indications for our business, which are subject to change at any time.
We undertake no obligation to further update our guidance.
And now we'd like to open up the call for questions.
Operator.
Right.
Thanks, <UNK>.
I appreciate the acknowledgment.
Yes, we were just thrilled with the Union Plus RFP win against very substantial publicly traded brokers, whose names you know, as well as other competitors.
And it was a highly competitive and attractive deal for us.
I think that we can be looking at a launch in early Q3 for both USAA and for Union Plus.
These are big whales that we closed.
We have other deals in the pipeline but don't have the materiality of projections that these represent.
But we're encouraged that, because of the scale and the competitiveness of the process, that we're well positioned to win these other deals.
We don't have experienced marketing in, to these membership basis, but we are expecting 8-figure memberships, per year, from the Union Plus deal, which is slightly meaningful for our Medicare Advantage business.
<UNK>, it's Dave.
The ---+ essentially, the renewal revenues or the renewal numbers that we were anticipating coming through in the quarter were largely in line with our expectations.
We took what we believe to be a conservative approach, relative to budgeting for what the commission rates were going to be attached to those renewal members, and the renewal rates came in from certain payers at a higher level than we had been anticipating.
So all around, a positive result for us for this renewal period.
Also, I just ---+ I want to tack on to <UNK>'s comment, too, about the Union Plus and the USAA deals that, we view these as significant points of validation relative to our value proposition in the marketplace and is emblematic of what we are ---+ some of the changes that we've been talking about making relative to our go-to-market strategy in trying to identify higher-quality, lower-cost sources of customers in the Medicare business.
So again, it's going to take a little bit of time for these things to impact the P&L but are very good early indicators of the strength of our value proposition as we continue to go-to-market in this regard.
Yes, <UNK>.
We are actually holding this call in <UNK>
C.
, where I was attending TechNet, which was founded by <UNK> Doerr and <UNK> Chambers from Kleiner Perkins and Cisco, respectfully.
And I've been making the rounds here in <UNK>
with <UNK> <UNK>, who is our SVP of Government Affairs.
And I actually asked him to sit in anticipating such a question, so I'm going to let him answer it.
<UNK>, yes, we're still going through the amendment but ---+ and our General Counsel is as well.
But as has been reported in the press, it seems to give the states the option of opting out of essential health benefits and potentially having a different rating ratio than is outlined in the Affordable Care Act.
Generally, I think <UNK>'s view about this, as we've been talking about it, is that it'll provide the consumer more flexibility and more potential options in the states for the type of coverage they can buy because it could allow the insurance companies to offer new products.
And so I think our opinion is that this is good for the consumer.
And usually, what's good for the consumer seems to be good for us.
And <UNK>, just let me add on to that.
We run monthly surveys of our customer base, and one of the reasons that we get at audiences at all levels of members of both the House, Senate as well as the administration, is that we represent the voice of the consumer.
Truly, many of our customers have been buffeted by ACA.
And they're the middle class, working class, they're early retirees, and these stories really resonate.
And what they say is that even more than price, they want more choice and more selection.
So in this regard, I regard the MacArthur Amendment as ---+ would be highly constructive if it could survive the House Senate reconciliation process and be signed into legislation.
Tobey, so this is consistent with the greater level of transparency that we began providing with our Q4 print, in terms of breaking out segmentation of the P&L and giving ---+ trying to give everyone a better sense as to what's going on in the different parts of the business.
Well, I'll be the first to acknowledge to you that the corporate bucket is one that is a fairly large one.
It encapsulates all of the parts of the business on the support side that can't be adequately allocated between the 2 parts of the business at this point in time and serve evenly both parts.
So it's meant to give ---+ the entire move toward transparency is meant to give you and the rest of the investing public a better look as to the dynamics of the business and a relative look at the different profit levers within each, understanding that there's a significant cost basis to support those as well.
So again, trying to give you as much transparency as we can.
Tobey, we're having a hard time hearing you.
Thank you, everyone, for participating in the call, and we look forward to having individual conversations with those of you who want a more detailed update.
| 2017_EHTH |
2017 | ILG | ILG
#Thank you, operator, and welcome to everyone joining us for ILG's First Quarter 2017 Earnings Conference Call.
I want to remind you that in our call today, we will discuss our outlook for future performance and other items that are not historical facts.
These forward-looking statements typically are preceded by words such as we expect, we believe, we anticipate or similar statements.
These forward-looking statements are subject to risks, assumptions and uncertainties, and our actual results may differ materially from these forward-looking statements and the views expressed today.
Some of these risks have been set forth in our first quarter 2017 press release issued earlier today, in our Form 10-K and in other periodic reports filed with the SEC.
In addition, ILG disclaims any intent or obligation to update these forward-looking statements, except as expressly required by law.
We will also discuss certain non-GAAP measures in connection with ILG's financial performance.
I refer you to the press release posted on our website at www.iilg.com for comparable GAAP measures and full reconciliations.
And now, I'd like to turn the call over to <UNK> <UNK>, our Chairman, President and CEO.
<UNK>.
Thanks, <UNK>, and good afternoon, everyone.
Thank you for joining ILG's First Quarter 2017 Earnings Call.
We are very pleased with the results for the quarter and are well positioned to meet our goals for the year.
Revenue and adjusted EBITDA for the first quarter were $452 million and $93 million, respectively.
As anticipated, our acquisition last May of Vistana, Starwood's Vacation Ownership business, significantly contributed to the results.
We are successfully executing our VO growth strategy across our branded sales infrastructure.
While we have not opened any sales centers since the end of 2015, consolidated timeshare contract sales were $117 million, up 4% compared to 2016, assuming we had owned Vistana for the entire period.
This is in line with our expectations, given the continued tough comp from the opening of 4 sales centers and the start of sales of the Westin Nanea, Maui, in Q4 2015.
For perspective, on a pro forma basis, Q1 2016 consolidated timeshare sales were up 26% year-over-year.
For the rest of the year, we expect a strong increase in sales, reflecting the opening of new sales galleries.
In total, we will be adding 4 sales centers this year, the most significant being the galleries at the Westin Nanea and the Westin Los Cabos, both which started sales in April.
Tour flow increased 9% in the quarter, again, on a pro forma basis, primarily reflecting the success of marketing initiatives focused on new buyers.
Consequently, total consolidated timeshare sales to new buyers increased 7%, to 45%.
Volume per guest was 5% less due to the shift in the buyer mix as well as the tough comp related to inventory mix at the start of sales at Nanea.
As part of our overall strategy to grow VO sales, we plan to gradually increase sales to new buyers in a disciplined fashion.
On the exchange side, despite headwinds in the U.S. market from the continued shift in our membership mix from traditional to corporate, we added resorts in highly desirable international destinations, further strengthening our network.
In the first quarter, we expanded our footprint in South America and the Caribbean.
We also entered into exclusive multiyear club affiliation agreements with subsidiaries of 2 Chinese hospitality companies, diversifying into the shared ownership space.
In the U.S., we continue to expand our network acquisition channels beyond developers by working directly with HOAs and independent sold-out resorts.
By assisting them in recycling their inventory, we benefit our HOA clients and strengthen another conduit for Interval International's new-member flow.
Turning to our rental management business.
Aqua-Aston posted strong top line growth, driven by an 11.5% increase in RevPAR, primarily reflecting the contribution of reflagged and renovated higher-rate properties, which have come online in Hawaii since the second quarter of 2016.
Beyond our financial results, I am very pleased that 2 of our companies were recognized with the most prestigious awards at the recent ARDA conference.
Interval International received the ARDA Circle of Excellence, ACE, Customer Service Excellence Award for its industry-leading global member services centers.
The award honors organizations committed to striving for and delivering the best service.
Advanced technology, attention to customer feedback, exceptional training and development, and creative employee incentives are just some of the factors that have been instrumental in ensuring Interval's high member satisfaction and retention levels over the years.
The Westin Princeville Ocean Resort Villas received the prestigious Circle of Excellence, ACE, Community Service and Philanthropic Award for its numerous charitable efforts in support of the local community on the Hawaiian Island of Kaua'i.
In the 9 years since the resort opened, it has raised more than $400,000 for various charitable programs.
I am extremely proud of our teams for their ongoing commitment to helping others and delivering best-in-class service.
Let me now turn to the integration of Vistana.
We have developed a multi-phase plan for successfully integrating many aspects of the Hyatt Vacation Ownership and Vistana businesses.
Our implementation plans will drive value, while continuing to showcase the power of each of our brands.
Last month, we completed the first of several organizational changes that support this process.
That phase includes: creating a dedicated leadership team for our sales and marketing organizations that allows us to share best practices, leverage recruiting, training and operating processes to build an even stronger organization; developing a shared services structure for the Vacation Ownership businesses, leveraging our finance, IT, legal and HR teams to support this new organization.
These departments are beginning to share programs, standardize processes, reduce costs, increase effectiveness and become more agile as they develop expertise across our brands and growth strategies.
In addition, we are leveraging Vistana's proven development capabilities to identify the right opportunities and successfully manage the design and construction process across our platform by combining these functions under a common leadership.
While we expect these changes will result in cost reductions, the most significant benefits of the integration will come from revenue growth, speed to roll out new initiatives and operating efficiencies, as we leverage Vistana's scale for the benefit of the HVO business.
We continue to build our capabilities, always focusing on providing excellence and outstanding service to our guests and our customers and best-in-class HOA management and board support, while also working to identify additional synergies and revenue opportunities between these businesses.
We are very excited about the future of ILG as we grow the Vacation Ownership business.
These changes are early steps in evolving the organization and continuing to optimize the performance of these leading brands.
Now I'll turn the call over to Bill to take us through our financials and guidance, then I'll return to closing comments.
Bill.
Thanks, <UNK>.
Good afternoon, everyone.
Revenue and adjusted EBITDA for the quarter were $452 million and $93 million, respectively.
Our legacy business was relatively consistent with 2016, and the inclusion of Vistana drove the strong performance in the quarter.
In the 3 months ended March 31, consolidated revenue increased $266 million from the prior year period due to the acquisition.
Net income attributable to common stockholders was $44 million, double that of the comparable period in 2016, primarily due to the inclusion of Vistana.
Also contributing to the result is $5 million of tax-effected net favorable items, primarily related to FX.
Diluted EPS was $0.35 compared to $0.38, reflecting the shares issued in connection with the Vistana acquisition.
Adjusted net income, which excludes the net favorable items I just mentioned, as well as the impact of purchase accounting, and acquisition-related and restructuring costs, was $42 million compared to $24 million in 2016.
Adjusted diluted EPS was $0.33 compared to $0.41 in the prior year, again, reflecting the additional shifts.
Adjusted EBITDA increased by $39 million to $93 million, reflecting the inclusion of Vistana.
In terms of our segments, Vacation Ownership revenue increased $229 million to $281 million, principally resulting from the Vistana acquisition.
Excluding cost reimbursements, Vacation Ownership segment revenue increased $182 million to $219 million.
This reflects an increase of $101 million in sales of Vacation Ownership products and a $53 million increase in resort operations revenue.
Higher consumer financing and management fee revenue were also important contributors.
Excluding Vistana and cost reimbursements, consolidated timeshare contract sales increased 11%.
The segment revenue decreased by $1 million, driven by lower GAAP reportability of HVO sales in the quarter.
Segment adjusted EBITDA increased $27 million to $34 million due to Vistana.
Exchange and Rental segment revenue was $171 million, an increase of 28% compared to 2016.
Excluding cost reimbursements, segment revenue was $145 million, an increase of 29%.
The increase was related to the inclusion of Vistana Signature Network, or VSN.
The addition of this proprietary club drove the $27 million increase in club rental revenue and contributed to membership and transaction revenues.
Total Interval active members at quarter end were 1.8 million, consistent with 2016.
Excluding VSN cost reimbursements, segment revenue was basically in line with the prior year.
While results were unfavorably impacted by the continued shift in membership mix, this was offset largely by an 8% increase in rental management revenue due to very strong RevPAR performance at Aqua-Aston.
Adjusted EBITDA for this segment was $59 million, an increase of 26% from the prior year, principally due to the inclusion of VSN.
Net cash provided by operating activities in the first 3 months of 2017 was $88 million compared to $40 million.
The $48 million increase was principally due to net cash receipts from our operations, mainly attributable to the inclusion of Vistana, partly offset by inventory spend of $57 million in the quarter, largely due to the ongoing development activities at Westin Nanea.
Net cash used in investment activities was $22 million related to CapEx for sales galleries and resort operations as well as IT initiatives.
Free cash flow for the quarter was $54 million compared to $34 million in 2016.
As of March 31, we had $171 million in cash, including $119 million, which is held in foreign subsidiaries and $290 million of eligible unsecuritized receivables.
Our total debt, excluding securitizations, was $610 million.
Until the next securitization, we plan to continue to drive down on our revolver to fund our investment program for the year.
Since we initiated our dividend program in 2012, our dividend per share has increased 50%.
Over the last 12 months, we returned approximately $170 million, or over 80% of our free cash flow, to shareholders through dividends and buybacks.
In terms of future buybacks, as you know, the Tax Matters Agreement related to the RMP transaction restricts total buyback and share issuances for a period of 2 years following the acquisition, with the safe harbor at approximately 10% of outstanding shares at closing.
As of March 31, we repurchased approximately 5% of the outstanding shares and had $46 million available under our current buyback authorization.
With about 1 year remaining under the limitation, we want to maintain flexibility to pursue a variety of opportunities, including M&A.
Turning now to our outlook, we are reaffirming our revenue, adjusted EBITDA and free cash flow guidance as our business is performing in line with expectations.
We are on track to achieve between 10% to 15% higher consolidated timeshare contract sales, this on the back of a 15% year-over-year pro forma increase in full year 2016 compared to 2015.
We will review this annual guidance on a quarterly basis.
As we mentioned last quarter, generally, there is less seasonality in the earnings of our combined platform, but we expect the second quarter to be lighter than the third and fourth quarters.
As a reminder, beginning in the second quarter, resort operations will begin to reflect the negative impact of the carry costs on developer-owned inventory at the newly opened properties as well as a decrease in the total number of available rooms as we begin the process of converting and renovating 4 Sheraton- and Westin-flagged properties.
These conversions and renovations are key investments in strengthening our foundation for long-term growth in the Vacation Ownership space, including related club, rental, management and consumer financing revenue.
With that, I'll hand the call back to <UNK> for closing remarks.
Thanks, Bill.
As we look to the rest of 2017 and beyond, I'm going to start by referencing a recent opening of the Westin Los Cabos Resort Villas & Spa and Westin Nanea Ocean Villas.
I could not be more proud of the team which successfully opened these properties within 15 days of each other.
These world-class resorts, located in 2 of the most sought-after the beach destinations in the world, are key additions to our portfolio.
The Westin Nanea, located on North Ka'anapali Beach in Maui, is designed to be a relaxing haven with culturally inspired programs and distinctive Hawaiian experiences.
The essence of Hawaii has been carefully woven into the design elements, landscaping and guest activities throughout the property, including an on-site cultural center.
Its world-class amenities include an expansive lagoon-style swimming pool, children's beach pool and play area, oceanfront cabanas and a WestinWORKOUT fitness studio.
Expected to be completed by year-end, the resort will have 390 units and is adjacent to our 2 other highly demanded Westin VO properties.
The Westin Nanea becomes our sixth upper-upscale branded property in the Hawaiian Islands.
In Maui alone, we will have over 1,000 Vacation Ownership units by year-end.
This footprint provides significant recurring fees and embedded marketing opportunities on one of the finest beach locations in the world.
We also manage over 40 condo and hotel resorts across the islands in our Aqua-Aston rental management portfolio.
Certain of these properties are providing additional lead generation channels for our branded VO business.
Coming back across the Pacific, the Westin Los Cabos Resort Villas & Spa was carefully rebuilt to preserve the hotel's iconic design as an architectural landmark.
The 147-unit resort combines a renowned Westin wellness positioning with authentic Mexican setting.
The spa reflects the colorful artwork of the Otomi people of Central Mexico and spans more than 10,000 square feet.
The offerings include a WestinWORKOUT fitness studio, 7 treatment rooms, a spa boutique and a relaxation lounge.
Other resort amenities include several distinct dining options, multiple infinity edge pools, community grilling stations and tennis courts.
The resort introduces the Westin family program, designed to cater to the new way modern family's travel, with a reinvented kids club, reimagined family experiences and more meaningful branded amenities for young travelers.
Clearly, these emblematic new properties enhance and diversify our product offering.
From a financial perspective, they provide a strong foundation for future VOI sales and related revenue growth.
To ensure strong sales performance for these exclusive properties, our team is leveraging our comprehensive product offering and broad distribution platform.
As a reminder, we have a unique product portfolio, which enables us to offer customers significant flexibility, while optimizing our inventory pricing.
We currently sell single-site and multi-site points programs as well as weekly intervals at certain locations.
However, irrespective of their home resort or points program, owners can convert to points to use within their respective Vistana or HVO network the hotel's affiliated with their corresponding royalty program for the Interval Network.
The Westin Nanea resort, which commenced sales in the fall of 2015, is sold as a single-site points program.
Like a multi-site property point system, the structure, also offered at the Westin St.
John, allows owners significant flexibility in terms of size of unit, length of stay and prefer dates.
The difference is that the single-site characteristic appeals to customers that value and desire guaranteed access to premium destinations and are willing to pay a premium price for that guarantee.
The multi-site club offers access to an attractive array of destinations appealing to customers who value flexibility and choice, while at the same time harmonizing the inventory point value for the system.
With respect to distribution, the Westin Nanea is currently being marketed at 6 sales galleries, including a newly opened 11,000-square-foot showroom located at the resort.
The gallery opens up the stunning views of the resort amenities and Pacific Ocean and features digital technology and high-quality imagery of our products and programs.
The other centers are located at the adjacent Westin Ka'anapali Ocean Resort at the nearby Westin Maui Resort & Spa hotel and our Sheraton Hotel and Westin Princeville properties on Kaua'i, as well as at the Westin Kierland in Scottsdale.
For the Westin Los Cabos, we are launching a new product, Westin Aventuras, a multi-site points program which builds on the appeal of Mexican vacations at the Westin Vacation Club resorts.
Initially, Westin Aventuras will include the Westin Los Cabos.
Moving forward, our plan is to include available inventory from our Westin properties in Cancun as well as from other Mexican resorts thereafter.
Pending final approval of the product from the Mexican authorities anticipated this quarter, we are leveraging our newly opened sales gallery at the resort to sell our existing weeks-based Cancun property, the Westin Lagunamar Ocean Resort.
Going forward, we plan to sell Westin Aventuras at sales galleries located at the participating resorts as well as the Westin Kierland.
Another very important point with respect to the Westin Nanea and Westin Los Cabos properties is that their completion marks the turning point in our inventory sourcing model.
As we have discussed, feasibility and permitting considerations associated with these projects resulted in a front-end-loaded investment plan.
Construction on both properties will be completed by year-end.
After 2017, we anticipate additional Vacation Ownership units to be built on a capital-efficient, self-sourced, just-in-time basis.
Accordingly we expect our return on capital to significantly increase in 2018 and beyond.
In closing, I would like to highlight our unique position in the shared ownership space.
We have a portfolio of world-class and irreplaceable leisure assets, $6.7 billion of embedded sales value of inventory supported by a solid capital-efficient development plan, a diverse and complementary platform with a significant contribution of recurring and contractual revenues, and global ---+ exclusive global rights and vacation ownership to 3 of the leading upper-upscale hospitality brands.
We have a industry-leading team with extensive experience in sales, marketing, management and development of world-class resorts as well as a track record of executing on strategic opportunities and integrating companies.
We look forward to providing you more detail on the significant value-creation opportunities ahead and our clear roadmap for delivering this increased value for shareholders at our upcoming Investor Day on May 25 in New York City.
That's the end of my prepared remarks.
Operator, please open the call for questions.
No, no blackouts.
What we're looking at here is, we continue to evaluate our uses of cash.
We returned approximately $170 million over the past 12 months in the form of share buybacks and, obviously, our dividend.
So we are keeping our flexibility for a variety of opportunities, including M&A, but we look at this every quarter.
We haven't changed our guidance for that period.
Look, as part of the transaction, we entered into a Tax Matters Agreement.
The agreement contains 2-year restrictions on our ability to issue and repurchase stock as well as enter into M&A transactions, unless certain conditions to satisfy.
That 2-year period in a common time frame for these restrictions.
So they're designed to make sure that we don't jeopardize both the tax-free nature of the transaction to Starwood as well as their shareholders.
So the provision cover situations that make cause the IRS to challenge this tax-free status.
It's very technical, dependent on specifying facts and circumstances, and we continue to comply with our obligations under these ---+ under this agreement.
We don't have any answer for you on that.
Yes, we've been cultivating, obviously, the Asian market through Interval International for a long time.
China is an attractive and growing market.
Our brands have international appeal, internationally there, but in terms of these affiliations, they're regional players.
Those are the ones that have started to get into the market quite a bit these days, and we're trying to grow that platform.
Yes, it's all of the properties, after Nanea and Cabos, are going to be converted or built in terms of additional units at existing properties on a velocity ---+ sales velocity-based basis.
So we considered that the same thing as just-in-time inventory.
It's just that we're able to capture all of the development profit as well as the recurring revenue streams that flow from that resort.
So we're not building ahead in the same way that we've done Nanea and Cabos.
We are not sharing any customer data.
The salespeople and sales organization at the property level are independent.
We're talking about senior management and, we're talking about the shared services structure that are being integrated.
We've been very acquisitive over the past several years since we got spun out from IAC.
We look at every deal.
We understand every deal.
And we're looking to ---+ we view all of our options, and our objective is to maximize sustainable long-term value for shareholders, and so we look at deals.
We've done in the past, and we'll continue to look at them.
We are particularly focused on the provision's cover situations that may cause the IRS the challenge, the transaction's tax-free status, both to Starwood and its stockholders.
And while we have some information around it, we don't have all of the information.
So we have to be careful, and we have to be conservative around it.
We need to comply with our obligations under the tax management, because we don't know what the total liability could be.
We always evaluate a number of things, but I don't want to talk about specific items.
I think at least directionally, the cost of sales of that product, it's a higher-cost product.
We do blend that with other inventory that we owned, including flex- and take-backs in order to trying right margin in the mid-25s.
Yes.
Could you talk a little bit more about the decision to introduce this multi-site points product to Los Cabos and also touch on your decision not to include the rest of the Westin portfolio in some sort of a Pure Points model.
So the Mexican product is a multi-site points-based product that is going to include the Mexican properties only.
We are starting off with Cabo.
We're going to add the Cancun properties next and then another Mexican properties.
So we sell that product both in Mexico on site as well as in The United States.
It is proven a true product in that it is ---+ mimics pretty much what we've done in other pure points club.
So we're very excited about being able to launch that as soon as Mexican authorities give us the approval.
What was the other question.
Yes, your decision not to ---+ maybe you convert your entire Westin portfolio, obviously excluding Nanea and St.
John, to some sort of Pure Points model.
Well, obviously, we're looking at opportunities to do that at certain locations, but as we have today Nanea in particular, that is a premium-priced product, and people are willing to pay a premium price for it.
It really doesn't work in a Pure Points kind of structure.
We also have in St.
John single-site Pure Points club with, again, is a premium product and consumers pay a premium price for that.
They want to be guaranteed that they can go there.
And when we look at some of our other properties and some of the other plans we have just-in-time or otherwise, we're looking at an opportunity to do more with the Westin brand.
Okay, great.
And then total contract sales up 4%, obviously a good number, in line with your guidance.
Just remind us and maybe rank some of the factors that give you confidence that metric's going to accelerate meaningfully in the back half just to get to that 10% to 15% growth for the full year.
Well, based on the fact ---+ we had a strong April.
We also have sales centers that are opening.
We have a lot of units that are opening in Nanea over the year as well in Cabo.
So we feel pretty good about what we've guided to.
So we're sticking with the guidance.
Okay, great.
And then maybe a last question.
You gave some color new and upgrade sales.
Do you guys have a targeted mix for new versus upgrade over the next year or so here.
Obviously, we'd like to get to a 50-50 mix.
The question is, how many years will that take us.
So over the next few years, we hope to get to a 50-50 mix, and we think that our portfolio and the new destinations will help us get there.
Thanks, operator.
I want to thank everyone for participating on today's call and for your continued interest in ILG.
We are excited about the stellar platform we have built and look forward to seeing many of you soon in New York, and may the fourth be with you.
Operator, please conclude the call.
| 2017_ILG |
2018 | AIT | AIT
#I just want to make sure I understand the expected tax rate.
What are you projecting for the fourth quarter.
Fourth quarter will be back to 33% to 34% effective tax rate, as we go through the final remeasurement.
Here again, we're on the blended tax rate since we straddle the tax act change at 28% this year.
That will step down to 21% as we exit our fiscal year and move into fiscal '19.
And the final remeasurement, there's that cost that spiked then in Q4.
As we round the corner, obviously, then we're looking at a 23% to 25% ongoing effective tax rate as we move forward in fiscal '19.
All right.
And if you could comment on the industry performance in the quarter as well as the performance of the oil and gas markets and the expectation for the oil and gas for the fourth quarter.
Okay.
So our sales performance in the top 30 industries, we would've had 21 with increases.
Positives around oil and gas, so we'll get to that.
I think primary metals, machinery OEMs, aggregates, chemicals are doing well.
Food and others that are either close to or demonstrating encouraging trends on oil and gas, if we think about it on a sales-per-day basis sequentially, it would have improved 10%.
It's predominantly in the upstream, drilling and ongoing production.
The U.S. is faring better in many areas, but especially the Permian basin.
Many will say Permian output is going to approach 3 million barrels a day in May.
Looking out over a longer-term horizon, some say that will go to, by 2023, to 4 million barrels a day.
So that's encouraging.
There's more pipelines that's connecting the Permian that are being built to either Corpus or Houston.
So that's also good for those businesses located there, including FCX and [Eed].
So that's driving a lot of that activity.
And looking forward, we would expect that performance to continue.
So in the quarter, it's probably a teens-type year-over-year improvement.
And then if I could just squeeze one more in.
Performance in April, how are sales tracking.
As we think about month-to-date, April is as expected.
Year-over-year, it's upper single digits comparison.
So good activity going on.
If we look at the quarter point to March, a very similar with a few days ago, maybe slightly down.
But I think it's going to be in a good rate in comparison sequentially and set up well from a year-over-year standpoint.
So our fluid power performance continues to be strong.
I think plus 13 backlog from a year-over-year basis, plus 20% sequentially in the quarter it grew.
So that's productive.
And the teams continue to do a nice job, connecting technology to the designs and offering and helping mobile and industrial OEMs improve their products and offerings with features and benefits.
So businesses are performing well.
And then on the MRO side, we're just active with industrials, helping them either with machine control, energy savings around pneumatics.
So that side of our business has been positive as well.
And then we think about it, take one step going forward, the natural link with process controls is very positive and should aid the business as we move into future quarters as well.
Yes, as we work through delevering, that would be an expectation for sure to continue to mitigate the interest expense as we move through fiscal '19.
I think, here again, they had a slightly different business model, thinking about the MRO nature there and the engineered components.
It might akin more to our fluid power versus the industrial distribution piece of the business here.
But I think we'll continue to share best practices and leverage here again, since we're on the same systems, there's operational excellence initiatives to try to leverage the inventory benefits across both pieces of the business.
We still expect incrementals to be ---+ so 11%.
11% includes the impact of onetime cost if you strip those out.
Okay.
We would expect, obviously, FCX mixing this up, we talked about $0.14 to $0.15 fall-through expectation on the incremental dollar.
We would expect that to continue to edge up, as we roll in the complete benefit of the FCX acquisition.
Correct.
Well we kicked off our annual planning process.
And so we're working it bottoms up right now and we'll be having sessions with the teams and the business units in the coming days and weeks.
But I think most are positive on their outlook as we go through the rest of calendar '18 and really going into '19.
And know there will be some economists and others that will talk about perhaps '19 in the back half could have a little bit of softening.
And I say to that, right, to be determined.
But if we look out over the horizon and our order rate and our backlog was relevant in some of those business, the activity that's going on in shops right now are at good, high levels.
So I think that's what we continue to see through '18 and we would expect it to carry through a good portion of '19.
After that, I guess, to be determined.
To me, it's a nice, blended mix across, I don't know, 7 or 8 of those segments and including others that could in some cleaner industries that are doing that as well.
So it's a nice blend.
No.
Really no outliers.
And a portion of it is technology-driven.
More and more electronic capabilities coming in, those being desired to come into products.
So that is very encouraging.
And then now with FCX, we think we have an extended opportunity to increase those from a value-added service standpoint, right.
Today, they'll work on pump skids, valve stands, providing component and repair services that get actuated by something we're doing today in either hydraulics or pneumatics.
So that will be a nice combination on the service side that can provide some additional work.
I'd say we are extremely encouraged and excited about all of them.
I don't know that we learned anything new in categories as you have the opportunity to get more in specifics, clearly, there is learning.
We probably have up to 18 work streams established, teams identified on them, building action plans around them, with a focus on hey, what can we do to help ourselves in the very near term.
What are good midterm plans and how do we pursue them.
And what will even be a little longer term, later term as we think in that synergy horizon.
So we are encouraged about those, and we have in our mind, the right focus.
The teams are delivering on their core responsibilities, while also seeking the additional opportunities that would either enhance competitiveness and cost or enhance the opportunities for sales and the margin.
Yes.
I think it's ---+ I would say in general, they're pretty similar, as they would go across.
I think as suppliers are trying to, perhaps, move away from either older technology or slower moving products to promote new products or some SKU consolidation, they will put more increases on truly older legacy products to help encourage that migration.
So we see that and we help our customers work through and sort through that transition in adopting or translating to some of those new products.
But I don't think a great deal.
And probably a little bit of thought comes up around tariffs, but there's really been kind of low, no activity to date to be determined how it plays out.
But also, I think, if it occurs on those products, it's going to come through in the form of on the products on price, which is that mechanism we know how to handle, right.
It is not going to come in as an additional item on the invoice, which makes it more challenging for everyone to handle on that side.
And then the other side, as the potential of some of those tariffs in those industries, we could see the early signs of maybe some added activity, right.
Hiring, staffing, shifting capacity.
So if there's more activity on that from the customer side, at least in an early period of time, that can or will contribute to the volume side of it, which can be positive.
I just had a few housekeeping items.
What's the current debt-to-EBITD<UNK>
And how much of the debt is fixed.
So we're at about 3.6% gross debt-to-EBITD<UNK>
3.3% on a net basis.
About 17% of that (inaudible) that we're working towards fixing a greater portion of that with some interest rate hedging, as we move forward here.
And what's the cash flow target, if you have one, to end fiscal '18.
Targeting $140 million to $150 million.
We've got ---+ here again, part of the story is, the great backlog build we've seen in fluid power, up $25 million in backlog there has been a bit of a headwind for us.
But still working through inventory reductions, as we work through some of the pre-buy activity and made some nice traction this quarter in terms of about 2.4% reduction in our past due collections as well as some payables extension initiatives that will continue to contribute here in the Q4.
I just want to thank everyone for joining us today, and we will look forward to seeing many of you as we move into the quarter.
| 2018_AIT |
2016 | DIN | DIN
#You should think about the exterior of course going through some transformation, the seating area, the entry area, some really new ---+ sort of think about it as the new way to sort of enter the IHOP restaurant.
Many of the IHOPs need a new bathroom, an updated bathroom.
As you know, guests find that very important, and we think it's important as well.
So that's a focus.
Less so in the back of the house.
You'll see it would be minor in general.
We have some platform work, but it's not significant.
The real dollars, if you looked at it, would be in the dining room, the entry, the exterior, and then it's not a system-wide bathroom, there's probably 40%, 50% have to do some major work.
So I will have a better answer on the costs in our next call because we would have people signed up for it and know pretty much who is doing bathroom this year and who is not.
But in general, it's really thinking of it as more contemporary and meeting the needs of our guests.
Very exciting.
I didn't cover it.
Almost identical to IHOP.
IHOP, it is their contract every five years.
Applebee's is every six years.
So it's pretty standard, so you'll see that process start all over again on the Applebee's side.
So it's sort of a continuous ---+ we've gotten this down to a pretty good system that you'll see a fifth to a sixth of the system every year at both brands.
I think the last couple of announcements we've made on remodels, the reason it's been lesser than that is because the franchisees have been so interested in the remodel, they're willing to do it ahead of their requirement.
But pretty standard.
No.
I think investors sometimes forget that it's not just royalty we take in on the IHOP side.
There are several revenue streams, both the rental income stream, the equipment stream, dry mix.
There are several multiple scenarios.
So when sales go up, it has sort of a ---+ <UNK> <UNK> There's a collateral impact.
Yes, a collateral impact, if you will.
<UNK> <UNK> On the rent.
On the rent especially and the dry mix.
Anything that relates to sales has an impact.
When sales go up, you have a large majority or a lot of the franchisees on percentage rent, so when sales go up, it impacts rent.
We had sort of an unusual level of prepayments in 2015.
I think in other years, it sort of holds together (multiple speakers).
I was just going to say we're (multiple speakers)
So our outlook is a little bit harder to anticipate because this event, it's sort of circumstantial.
But if we look into 2016, we are not anticipating anything unusual.
Just as a refresher, you know that we don't dictate price.
It's illegal in the domestic US.
So franchisees can price however they want.
We can give them a guideline.
We can tell them when a product costs too much or doesn't cost enough.
We give broad guidelines.
But pricing is a very individual, very specific item and the franchisees often take it down all the way to the store level or the market or the trade area.
So, what we have suggested to franchisees is ---+ and always do ---+ to be sensitive to pricing, and they have been at both brands.
IHOP has two menus this year.
Applebee's has three menus this year.
So when you reprint the menu, it gives franchisees an opportunity to rethink their pricing strategy.
But I find both brands and both sets of franchisees very thoughtful about the art and the science of pricing.
And what we have seen is people being very thoughtful about increases, or strategic about them, but nothing dramatic or large.
It's not like a 5%, 6% price increase.
To be honest with you, we don't tell this very often, but the large majority of that is because we have this purchasing co-op that I think we've said in the first five years take over $250 million in the middle of the P&L for our franchisees.
So we use that co-op to our advantage.
And when you are as big as we are, they don't feel the need to take massive amounts of pricing, because they're giving the value back to the consumer.
And frankly, that's because the co-op does such a great job.
So, I don't think we are seeing anything on the horizon that would indicate there's aggressive pricing nor is there a need to take it.
Especially in this environment, I think consumers want as much price value as possible.
No.
In fact, I would tell you, in general, when bar and grill goes on television, when you have a regional ---+ we just don't see any impact.
In other words, it's not like somebody goes on the air and oh my God we see a 2% decline.
It just doesn't work that way.
We're just so large, and I think really when you think about it, where you're really looking to see the change in independent because the category is made up so much of independents.
I would tell you, on the IHOP side, there's no question that McDonald's is affecting I think everybody in the breakfast space because they are spending so much money on breakfast, and so we are being very thoughtful about that.
I think, in the bar and grill category, not seeing anything meaningful.
I think our real opportunity at both brands is to think about how we can win in our own ---+ when you think about the future, how do we win in a different way.
So if our to-go business or our car side to-go business is more effective and efficient, we know we get a higher check average when we do that.
There's real opportunity (technical difficulty).
When you think about our products and their ability not only to travel but our ability to give great service, consumers love that in a timely way.
So it's really our ability to win looking at the business slightly differently, like you get a home-cooked from-scratch meal and don't have to stay in a line at a drive-through or through a queue.
So I think there's a real focus for us this year, how do we win with our competitive advantages.
And that's really what we're focused on.
We do have a big competitive advantage in all-day breakfast.
(multiple speakers)
(multiple speakers) 56 years at IHOP.
Thank you very much.
Thanks again for joining us.
We are scheduled to report results for the first quarter on May 5, so we look forward to talking to you all then.
If you have questions in the interim, please feel free to call <UNK> or <UNK> or myself.
The best, bye-bye.
| 2016_DIN |
2016 | TGT | TGT
#I'm smiling, and I may turn this over to <UNK>.
We've all actually visited our Bixby store in Long Beach over the last few weeks.
The store really captures the best of Target in a smaller, 30,000-square-foot environment.
And very positive reaction from the guest.
So as we think about future flex formats, that is a model that we're excited about, a model that certainly seems to be connecting with the guest, and you should expect to see more of those as we go forward.
But let me hand it over to <UNK> who's been intimately involved in the roll-out of flex formats and, specifically, the work we're doing in Long Beach.
Just to finish up on that, <UNK>, I think the Long Beach store that you visited is a great example that really shows how we're approaching each of these initiatives.
We are testing, we're learning, we're refining.
The team's getting better and better at layout and assortment, and you've seen that when you walk the Long Beach location.
And the feedback that we've received from the guest is, even in a smaller box, it feels like Target.
And it feels like the best of Target.
The work that the team's done in the center of that store to merchandise our soft lines is really outstanding.
We're getting great feedback around our food presentation in that store.
We've got the right home assortment.
So we're tailoring that for the local market.
But it's an example of the fact that we've been disciplined.
We're not sprinting, we're making sure that we're really thoughtful.
We're learning.
We're adjusting.
And you're seeing each of the new flex formats get better and better in layout, assortment, and tailoring to meet the local market.
So, we are very excited about it, and we'll continue to take that learning and build it into new flex formats that we'll be opening up over the balance of this year and into next year.
Thanks, <UNK>.
Well, <UNK>, as you might imagine, we're spending a lot of time, and have spent a lot of time, as a team looking at performance from a number of different vantage points, both internally, but also certainly incorporating external data.
Certainly it was an earlier Easter.
We recognize the impact of that.
Certainly weather in many major markets has been a factor.
It's not an excuse.
We've got to figure out how we perform under any circumstances.
We know, as the guest and our consumer has moved through the course of 2016, prices at the pump, fuel prices have risen, and that's certainly an impact.
And then when we look at a macro basis on overall spending, we certainly recognize that consumers are spending more on travel, on leisure activities, they've been investing in their homes, as I mentioned before.
But there's no structural change that gives us pause and has us changing our strategy, altering our outlook for the full year.
We think ---+ we're continuing to improve our digital capabilities.
I think our store experience is improving each and every week.
The response we're getting from the guest based on changes we made in apparel and home, and recently in food, are very encouraging.
As <UNK> mentioned, our flex format's performing quite well.
So we feel confident that the content we have in place, the plans we have for the second half of the year, some of the enhancements we've made from a branding and in-store and online standpoint are going to continue to deliver solid results.
So we see this as a momentary speed bump, but we see no reason to alter our strategy.
These are tactical adjustments we have to make.
And, market by market, we've got to make sure we're well positioned to compete going forward.
Thank you.
We've got time for one more question, operator.
So we, obviously, have insight into where May is at today, and then we've got Memorial Day coming.
We've got great plans around ---+ leading into Memorial Day and have every confidence we're going to have guests come to Target, whether in our stores or online.
And then, summer and warmer weather will come, and so we have an expectation that the trend we see today doesn't change overnight.
But it does improve throughout the quarter because we've got some really great plans to deliver for our guests.
And then also, in the latter part of this quarter, we have Cat & Jack launching, and we're very excited about Cat & Jack launching before back-to-school season.
And we expect that to be a leading Target-only brand that will be a $1 billion brand in time.
So, <UNK>, thanks for your question.
And I really appreciate everyone who called in today.
We tried to make sure we allotted significant time for your questions.
Hopefully, we had a chance to answer your questions, address some of your concerns.
So, that will conclude our quarter.
I appreciate your time today and thank you for dialing in.
| 2016_TGT |
2015 | STBA | STBA
#Thank you.
Good afternoon and thank you for participating in today's conference call.
Before beginning the presentation I want to take time to refer you to our statement about forward-looking statements and risk factor.
It is on the screen in front of you if you are using the webcast.
This statement provides the cautionary language required by the Securities and Exchange Commission for forward-looking statements that may be included in this presentation.
A copy of the first-quarter earnings release can be obtained by clicking on the Press Release link on your screen or by visiting our Investor Relations website at www.STBancorp.com.
I'd now like to introduce <UNK> <UNK>, S&T's President and CEO, who will provide an overview of S&T's results.
Thank you, <UNK>.
And good afternoon, everyone.
As we announced in this morning's press release, we reported net income of $12.8 million, or $0.41 per share, compared to $14 million, or $0.47 per share in the first quarter of 2014, and $14.5 million, or $0.49 per share in the fourth quarter of 2014.
Really, the big story this quarter is the consummation of our margin with Integrity Bancshares on March 4.
This did, however, have an impact on our financial results this quarter.
One-time merger related charges were approximately $2.3 million, or $0.05 per share.
While it's been only a little over a month, we are very excited about our prospects in the south-central Pennsylvania marketplace.
The S&T integrity brand has been well received by clients and early results are very promising.
The next milestone will be combining the banking entities and IT systems, which are going to occur on May 11.
I know our teams have been spending a considerable amount of time in preparation for the conversion and we do anticipate a smooth transition.
From a sales perspective, I really like our position across the organization in all of our lines of business, including commercial banking, small business, retail mortgage, and consumer banking.
We have a seasoned team of bankers who excel in developing deep relationship with clients and it's really what we think adds long-term value and benefit to our organization.
We're also happy with our results on the deposit side of our Business this quarter.
With the anticipated loan volumes that we expect to achieve in 2015, we made a strategic effort this year to focus on deposit gathering throughout the organization.
And in Q1 deposits increased approximately $198 million, not including the merger.
The goal for the year is to have our deposit growth equal to our loan growth and we're off to a nice start.
Once we've completed the Integrity conversion, our focus is going to be maximizing revenue and profitability in all of our markets including southwestern Pennsylvania, central Ohio, south-central Pennsylvania, and our new office in western New York.
We think we have a lot of potential to grow the organization organically throughout our footprint with the investments that we've made over the past two years.
Therefore, we can afford to be opportunistic in our approach to M&A and want to make sure it's the right fit for our organization.
On the credit front, net charges for the quarter were $1 million, or 10 basis points annualized.
Non-performing assets did increase by $6.8 million, which was comprised of approximately $5 million of non-performing loans at S&T Bank, as well as about $1.3 million of OREO properties that were carried over from the merger.
Approximately half of the $5 million increase in NPLs is related to one borrower.
And the good news is the properties are under contract to sell and we anticipate closing in late Q2 or early Q3.
In spite of these increases, our ratio of non-performing assets to loans plus OREO is still very manageable at 0.41%.
So, all-in-all it's been an eventful quarter but we like how we're positioned as well as our prospects as we move forward.
I also thank you for your continued support of S&T Bank.
And at this time I'll turn the program over to our Chief Lending Officer, <UNK> <UNK>.
Thanks, Dave.
This quarter's results include the impact of the Integrity merger.
One-time expenses were $2.3 million, or about $0.05 per share, primarily data processing and investment banking fees.
We do expect some additional one-time items in the second quarter related to the bank merger in May but it should be less than $1 million.
The Holding Company merger closed on March 4 so average balances include 27 days, or 30% of the quarter with Integrity numbers.
The merger accounted for the majority of improvement in net interest income, but had no impact on the net interest margin rate.
We received a special dividend from the Federal Home Loan Bank of Pittsburgh loan portfolio, mostly prepayment fees.
There is no impact yet in margin related to the credit or interest rate marks.
We are still evaluating how that will impact us, and it is, of course, dependent on the eventual asset quality of the acquired loans.
The credit mark on the loan portfolio is approximately $11.8 million.
With the addition $789 million in acquired loans with no reserve, our reported reserve to loan ratio decreased to 1.03%.
Eliminating these loans and also acquired loans from previous mergers with remaining credit marks brings this ratio to 1.27%, unchanged from the fourth quarter.
Our own loan growth combined with acquired Integrity loans was primary floating for the quarter.
The gap between new and paid loans has been about 35 basis points for the past two quarters, the lowest level in the past four years.
This helped keep the loan rate stable, not including the positive impact of the prepaid fees.
Of the $198 million growth in deposits this quarter, $86 million was in retail and business, $47 million came from our wealth management division, which we do expect to be invested over the coming quarters, and the remaining $65 million was in broker funds that mostly went to decrease our borrowings.
As we detailed in the earnings release, fee income improved due to the merger by including one month of Integrity results along with seasonality in our insurance business.
Expenses had quarter-over-quarter increases from one-time items of $1.6 million, $2.3 million was the total for the quarter, and another $1.4 million including one month of Integrity results.
Salaries and benefits increased beyond the merger numbers due to seasonal factors related to vacation accruals and payroll taxes.
We expect a new quarterly expense run rate of approximately $33 million.
The tax rate for the quarter of 26.7% reflects our expectations for the full year.
This quarter we had the implementation of the new Basel III capital rules which increased risk-weighted assets, and when combined with the impact of the merger accounted for the decrease in our risk-weighted capital ratios.
The leverage ratio shows an increase, since it is calculated using average assets which are lower than what they will be going forward due to the timing of the merger during the quarter.
This ratio would have been approximately 9% with a full quarter average of acquired assets.
Thank you very much.
At this time I'd like to turn it back over to Rob to provide instructions for asking questions.
They've been originated for a few years.
But one project they had a little bit of cash flow difficulty.
But actually there's two credits combined with the one relationship.
And like I said they're under contract, they are going to get sold.
And even with the increase in NPAs, we had done all of our impairment analysis and we've take the appropriate mark this quarter.
So, we're comfortable with where we are from a provisioning and reserve standpoint.
Like I said, it was real estate and the other relation ---+ <UNK> is here, too.
Yes, they were about $2.2 million.
We were at the 3.48%, which included the 3 basis points of the Home Loan Bank.
And I think we're going to be in the mid 3.40%s to low 3.40%s.
The exception will be if there's some timing-related issues with the credit mark accounting related to Integrity over the next several quarters.
But the core rate I'd still expect to be in the 3.40%s.
The wild card on pay-offs, as Dave said, they were up a little bit this quarter over where we experienced in the past.
But, like I said, we like how the pipelines are growing.
Not only the commercial side but also our small business is up significantly, retail mortgage is up, and we're seeing some nice activity on the consumer side.
So, as I said earlier, we focus a lot of attention on the sales side of the house and I think it's really starting to pay off for us.
Yes, it's about $200,000.
Maybe around 2 basis points of that.
Our core rate without those two items was probably flat to fourth quarter at about 3.43%.
Right.
Actually in the fourth quarter we didn't have any.
I think it's more the latter.
We did have some specials in the fourth quarter but those weren't in place in the first quarter.
There was some seasonality, I think, in the first quarter in the consumer side with taxes, so we did probably see some benefit from that.
But I think it's more just the concerted effort and attention that we're paying to deposit growth internally.
The first quarter they were a little bit light.
We did note that some, especially in January and February the activity was light.
March, however, we did see a bit of a pick up.
And we actually saw the first time in a long time the numbers in March were actually ahead of the year-ago period, but it wasn't enough to offset January and February which were lower than prior periods.
<UNK>, really, it was just seasonality.
If you break the quarter down, January was a very difficult month.
Originations were significantly less than what we had forecast.
February was fairly robust and March was extremely strong.
So, we like the trajectory, we like the pipeline, so I think we'll be back in line with our forecast.
Just one further point that we would like to make, too.
I think, <UNK>, you touched base on it, your question.
Obviously there's a lot of attention right now on the oil and gas business in the region.
And as Dave said, we're having continual conversations with clients and trying to stay on top of some of the events.
There's been some slowdown, there's been some migration of jobs out of the region.
But I think for the most part, as we sit today, we haven't seen any deterioration in our portfolio as a result of the oil and gas exposure that we have.
Right.
And there's a certain amount of infrastructure that still needs to be maintained once the wells are completed, too, whether it be hauling the water or some of the other services they provide.
So, now that the wells are in place, again, some of our clients support the completed well programs and it's been good for their business.
But it is an area we're looking at and we'll stay on top of it.
Again, we appreciate everyone's participation in today's call, and are looking forward to getting together next quarter to discuss our results.
Thanks again.
| 2015_STBA |
2016 | BMI | BMI
#I think the first thing is, probably the biggest thing that affected our margin in our minds, was lower obsolescence costs this quarter.
Last year, we had a significant charge in there.
I think we wrote down some gas radials.
This year, we didn't have that.
And, in addition, just normal obsolescence, I think we are doing a much better job, and we haven't really controlled that cost.
So I think that is in there.
I agree with you, material costs are down, but not as significant, I think, as some people think because, actually, copper has ---+ is in the same general neighborhood to where it was last year.
Much of that was behind us last year at this time, so you have got that in there.
And we don't comment, but product mix is always a factor.
When you are selling more products with radials, you tend to get higher gross margins.
No.
It is <UNK>.
I think it is two things.
One is that it is some mix, but, also, we have had a stronger focus on pricing discipline, and we probably could have jacked some more sales in there to make the top line work a little bit better.
But we are trying not to chase after really low margin business, and we are seeing some of our competitors chase that low-margin business as they are concerned about filling their factory.
But we have tried to maintain a more disciplined approach.
So I can just say that, from my point of view, and I review all of the large bids that we do, I can say that, over the last six months, I have noticed that on our last bids, we are maintaining a better discipline at going after higher margin business.
<UNK>, industrial flow is off about 5% of last year, both for the quarter and year to date.
So I don't see ---+ there isn't a big impact there.
Okay.
Clearly, we did not have some of the Middle East stuff in the third quarter.
The Middle East, a lot of that is getting pushed out, and we are very hopeful we are going to see some of it in the fourth quarter, but it may even be pushed off into 2017.
That is a very lumpy business because it is all contracts that occasionally come up, and you either get them or you don't.
So when you are talking about sequential quarter to quarter, I feel like August was a normal month and September was a strong month, but July was an unusually weak month.
And so, you're right.
We did make up some of it, but coming into July ---+ and I mentioned this on the last conference call ---+ we were seeing a slowdown, and a lot of that slowdown was distributed to just this backlog in getting the BEACON connections done.
We threw more people at that, we have gotten that approved, and as the quarter went on, we saw that improve.
The answer is yes.
When we had Hurricane Sandy, it affected a lot of our Northeast utility purchases to date.
So now, we are looking at what the impact ---+ and we haven't seen it yet.
It is going to be a fourth-quarter impact.
What the impact will be on the southwest.
I don't expect it to be as significant ---+ I mean Southeast.
Did I say Southwest.
I meant Southeast.
I don't expect it to be as significant ---+ and now I am speculating ---+ but I don't expect it to be as significant as what we saw with Hurricane Sandy or with Katrina because we are later in the year.
And a lot of the utilities are wrapping up their meter replacement programs as they are heading into winter.
So we might not see as severe an impact as we have seen in the past.
But, as you always know with these, it doesn't result in any lost sales.
What happens is, the utilities said, well, we were going to have our crews spend the next month or so replacing meters, but with this hurricane that came through, we need them to be cleaning out catch basins and helping us with other issues.
And so they divert the crews.
Once they are done with that, meters still need to be replaced, and so then they come back for meter replacement.
<UNK>, there is definitely a lag, from what we have seen in the past.
When we had the great recession of 2008, 2009, we didn't see an impact until we got into 2010 and 2011.
So there is definitely a lag.
On the water.
On the water ---+ we are talking the water side of our business.
The water utilities, they tend to lag, and then they lag getting back up again.
So that is what we saw last time.
If we do hit another recession, we would expect to see that.
We don't see it yet.
On our flow instrumentation side, that is a broader economy.
And so, yes, if there is a recession, it does hurt flow instrumentation.
Right.
Yes, <UNK>, for those who don't know, we did some remodeling this year ---+ last year and this year at our Milwaukee facility to create a customer experience center.
We do bring a large number of customers to Milwaukee for training.
Pretty much every week we are running some sort of event here for training customers or bringing in potential customers, and we felt that our facility here was getting older and was not showing well.
And we were not using some of the modern technology to give the customer the experience that they would expect from a higher tech company.
So we made the investment.
We remodeled a section of our plant to make this center.
The response from the customers has been extremely positive.
When we are dealing with somebody who has never dealt with Badger before and we are talking about our large multimillion dollar contract, bringing the key players to Milwaukee, giving them a tour of the factory, showing them how we test our meters, how we do our R&D, and then showing them our entire breadth of metering products is very important.
It is very important to their decision-making process.
And I will even say, with the Middle East, when we make sales in the Middle East, very often they will fly teams over here to inspect our factories, expect inspect our facilities.
And so all of that is an important part of the sale process.
So we feel good.
We opened it a couple of months ago, and thus far, all the feedback we have gotten has been very positive.
No.
You know, we don't get ---+ after a hurricane, a large number of sales of replacement meters because of damage.
The meters tend to be pretty robust.
You can have a lot of damage to collection towers, if they have a fixed network system.
That is why a lot of our customers are starting to prefer looking at a cellular option because one of the things we know is that when there is a hurricane or a natural disaster, one of the first things that happens is the cellular system gets high priority for being brought back on line.
And that is because that is a system used by first responders.
So when they have our cellular option, there is no utility owned infrastructure up in the air.
When they are using fixed networks, sold by Badger and by our competitors, there is a lot of fixed infrastructure that has to be repaired, and it takes them longer to get up and running again.
But, as far as the meters themselves, these meters are mostly underground.
They are very robust.
We really don't see a big uptick in meter sales.
Well, I think we've talked about it.
We see a lot of interest in the BEACON software.
However, until we get this interface issue behind us, that is what is holding back and delaying some of these sales right now.
And then, once the interface issue is resolved, oftentimes, utilities just want to buy, and they will test 100 meters.
And so we are working through those issues.
In fact, I think <UNK> on the last call said maybe we had about 140 customers.
Right.
Put some numbers around it.
On our system, I would say, absolutely not, <UNK>.
We design our systems with the water utility in mind, and you have to understand that the average water utility in the United States has about 1.5 employees.
So we are talking about very small utilities.
And when we designed it that way, we understand they are not going to have an IT department.
In fact, in most cases, we are not working with utilities' IT department.
We are working with a small vendor that wrote the billings system for the utility.
Usually, local to that utility.
And so those are the guys that we have to spend our time working with on the interface.
But we designed BEACON to be very much a plug and play.
Once you get past this billing interface and they shouldn't need additional IT support.
Now, I have to say, that is in contrast to the approach some of our competitors have taken.
Some of our competitors where they are making a software package that they expect to be used by electric, gas and water utilities, obviously, that package is going to be much more complex and need a lot more support.
But, in our case, we are making it just for the water utilities.
We are making a very simple package.
Well, obviously, every year ---+ and, in fact, we have got our November board meeting coming up.
So every year in November, we prepare our strategic plan for the next year and a four-year outlook beyond that.
So it is a five-year plan that we present to the board.
And then, occasionally, and it is episodic, I would say maybe it is every four years or so, the board says, let's do a deeper dive into options, and that is what happened last November.
Now, the last time that happened, about four years before that, what the end result was, we borrowed about $100 million.
We bought back about $30 million in stock, and we bought a company called Racine Federated.
So this time, we have done it again, and the end result of it this time was the stock split, a dividend increase and a continued focus on our current strategies.
But, there is no doubt that, at some point down the road, the board will want to do it again.
But it is episodic, not annual.
Well, I would love to find him, but in reality, we will never know, <UNK>.
Sure.
And, right now, when we say we are going back through our ---+ we are sticking to our core strategies.
When it comes to acquisitions, it falls into three groups.
First off, we are going to continue to look at our distributor network and make acquisitions within that network as appropriate.
And I will say, we have another one in the pipeline, and we are keying up what would be the fourth distributor acquisitions.
These are all relatively small.
They are all less than $20 million.
So they are not huge acquisitions, but in the case of our distributors, we've always had a very close relationship with our distributors.
The majority of what they sell is Badger Meter product, and so it is a fairly easy acquisition for us to make and integrate, and we found it brings a lot of value both to us and to our customers by having those under Badge Meter.
The second group of acquisitions is in the flow instrumentation side.
We kind of put that on hold as we are going through our strategic review, but we are firing those up again.
And, again, we are looking for the small, strategic acquisitions like the ones we made in the past.
These could be ---+ now, Racine Federated was an exception.
It was about a $60 million acquisition.
But, normally, these are $10 million type acquisitions also.
So we are continuing to look for those.
And then, the third group I would put out there is where we look for a unique, new up-and-coming technology that, perhaps, somebody has done work on developing, much like when we bought Aquacue, and we are able to go in there and modify it for our industry.
Very often, we look at it and say, should we buy the technology, should we license the technology, or should we buy the whole company.
In the case of Aquacue, we decided to buy the company because we wanted to use their capabilities to make the BEACON product and the ORION cellular.
So those are the three groups of normal acquisitions.
Beyond that, our board is still open to larger acquisitions, to major game changers, and this will be something we will be talking about in November as to whether or not there are other opportunities out there we should be looking at.
And, like any company, we are always looking at things like that.
I hope that helps.
No, <UNK>, we didn't lose any sales at all.
But, I even have a video of a competitor's sales person standing up at a town council meeting and saying, you know, you are about to sign a contract with Badger Meter.
You might want to hold off because there is a rumor that they are for sale and they might stop making water meters.
So, honest to God, he said that, and I have got it on video.
And as bizarre as that seems, very often, council members of a small town who don't really understand how these things work would hesitate and say, well, let's just put it off for a month or two and take a look at it.
So we saw some delays, but we didn't lose anything.
Nobody said, well, we're going to go with another company because Badger is for sale.
I mean, obviously, Sensus recently got sold.
Before that, Elster got sold.
A lot of companies get sold, and none of them are going to stop making the products that drive their company.
So it is just a disruption, it is a confusion factor, and it causes a little bit of a delay, and I think that is what we saw.
Well, I think the Xylem acquisition of Sensus is going to be very interesting because, from what I understand, they have some very aggressive synergy targets, cost reduction targets associated with that acquisition.
But Xylem obviously didn't make water meters before, so you don't have channel synergies.
You don't have manufacturing synergies.
So I think there's going to be some challenges in getting the synergies that they want to get, and it will be interesting to see how they do that without having any real operations that they can integrate.
There is also the question as to whether or not somehow any of the current Sensus products can integrate with any of the current Xylem products.
I think that is going to be challenging, too, because, obviously, the water meters are sold to the water utilities, and many of the Xylem products are sold into other channels.
So that is going to be a challenge, too.
As far as pricing, Sensus has always been a very disciplined company when it comes to pricing.
I really don't see that changing dramatically, and I think they are going to continue to compete with us as they have in the past.
I don't see a big change there.
Now, I am talking here ---+ when I talk about pricing, I am talking about North America.
I am not that familiar with Sensus's pricing in other markets.
But I know in North America, they have always been very disciplined.
And, <UNK>, some of the delays are not necessarily because of us.
It is simply getting access to those IP vendors of the various water utilities, and really that has almost been more of an issue than anything else.
It is just it takes them ---+ a lot of these are mom-and-pop shops.
So you're looking at, yeah, we will get to it in about two months.
Once you devote the resources, some of these issues are resolved in a week.
It is just a matter of getting their time and getting it on their calendar.
Right.
<UNK>, we had one vendor who ---+ one software vendor who had provided the software to three utilities that all wanted to move on to BEACON.
And the answer was, well, it is August.
The guys who handle this are on vacation.
They will be back in a few weeks so they won't be able to do anything.
And so we actually run into that kind of thing.
From quarter to quarter, it was still relatively flat.
The American Meter sales have not achieved what we had hoped for this year, and the main reason was the thing we were just talking about.
American Meter had a software vendor that we needed to work with to map all of the fields to get onto BEACON.
That vendor took a long time to get back to us with anything and to start a project where they would focus on this.
They are now on this now, and I am being told it should be completely done in about three weeks.
Once we achieve that, we should be able to see increased sales opportunities.
Yes, I was ready for that.
We actually (multiple speakers) 70 of the utilities in the backlog.
So we cut it in half, but we got 60 more in.
So I am right back up around 130 or so because of the new ones coming in.
So they are still pouring in almost as fast as we are clearing it, but we are now starting to get ahead of it.
On the other hand, <UNK>, frankly, nothing would make me happier than if we continue to clear 20 or 30 a month and 20 or 30 continue to come in.
Because it means that the demand for BEACON has far outstripped anything we had planned.
I think at some point, the new ones are going to slow down, but I am certainly not going to tell my sales force to back off on convincing people to move over to BEACON.
It is a great opportunity for our Company.
Every time we do one of these, it represents future sales.
So we certainly want to keep charging at it.
We have expanded the territories.
We had unassigned territories where distributors have fallen off, and we have actually ---+ for instance, you said United Utilities is small.
We have added two states to that.
So we've picked up those sales.
So, on a comp basis, I mean, that is now a company sale that (multiple speakers) sold through distribution.
(multiple speakers) <UNK>, without doing acquisitions of distributors, we are increasing the amount of sales going through our Company on distributor.
Yes.
Well, first off, we probably shouldn't give as much attention to the Texas warehouse as we are.
It is not a huge cost, and it is not a huge drag ---+ it is not a drag at all in any way.
It is just going to allow us to get more inventory closer to our customers and respond a little more quickly to our customers.
Again, this is part of expanding National Meter's territory, giving them additional territory; they need some additional facilities and warehousing capability.
We only cited that as an example of how we are expanding company-owned distribution and giving them the assets that they need to do that.
There is not a particular large customer.
It is there to support our Texas customers, and we will be able to provide them a higher level of service with that warehouse.
Yes, there is some inventory for the Mideast.
We thought a lot of that might have gone this quarter, but it is sitting over in Dubai or in Stuttgart, Germany, waiting to be shipped.
So there is some of that inventory.
But, also, it is the continued idea that we wanted to have a little more inventory in the field, respond a little more quickly to our customers, and provide this higher level of customer service that our distributors ---+ that our distribution network usually does.
That is why they are able to get a higher margin is because of that fast response.
But with low interest rates and with low carrying costs for inventory, it just makes good business sense to do it.
Yes and I will just say again that I was a little concerned coming into the quarter.
I was pleased with the way the quarter ended, especially considering we did the $0.30 after that unusual $740,000 or $0.02 charge from pension that really comes out of equity, goes to expense, and right back into equity.
So it has no impact on cash, no impact on the balance sheet.
So when I look at it, I kind of have to discount that and say, we really did have a pretty good quarter taking that effect out.
Yes, sales were flat, but we've maintained very good pricing discipline as we talked about on the call to achieve very strong margins and still get growth on the bottom line.
So in all, we are pleased about that, and we are optimistic about where the rest of the year goes.
And, with that, I will thank you for joining us.
| 2016_BMI |
2016 | JBLU | JBLU
#(laughter) Thank you for that clarification because you knew the first thing I was going to say.
So now I don't have to say it.
So I think it's a good question.
Let me just sort of an overall give what we're seeing as far as revenue strength.
I think there are two things that I'd talk about that have created the strength.
The first is we have seen a lot of strength in the transcon.
And primarily on the Mint competitive routes but not exclusively on the Mint competitive routes.
The second thing is we've seen a pretty significant change in the pricing environment.
Again, looking backwards in the pricing environment.
Prices are still down versus what they were in fourth quarter of 2015.
But sequentially throughout the year we're certainly seeing some pricing strength we hadn't seen before.
So from that perspective I think those are both combining pretty nicely to create some of that close and strengths.
I think that's fair, yes.
I think, again, <UNK>, thanks for the question.
I know it's something that we've discussed before.
I think that our plan is ---+ has historically been very prudent.
We have focused on for several years now in terms of building our focus city presence.
We had a lot of questions on Boston/Atlanta, for example.
That has really being the biggest ask for our Boston business travel community.
So I think we continue to run the airline prudently, focused on our strategy and the need to build more network relevance for our customers.
In terms of the theme of disruption, I think that's something that JetBlue has always tried to be in forefront of.
When <UNK> Neeleman and Dave Barger and others founded this airline many years ago, the first airline to put live TV on, then sort of changes like even more creating ---+ not our word but the word of the industry is a hub here in New York City at JFK when folks said it couldn't work.
Then Boston, can you really become a profitable airline in Boston.
I think we proved that wrong.
We sat out Wi-Fi until we had a great broadband solution that had the ability to transform the on-board experience of our customers.
We've continued to focus very much on culture and really put the crew member at the heart of what we do which has been challenging for other airlines to do.
So when I think about Tech Ventures and when I think about JetSuite, I just think these are more current and more modern manifestations of what we've been doing for 16 years.
It's certainly not intended to poke anyone in the eye but it is intended to make sure that we stay at the forefront and that I think there's a lot of complacency out there that says this airline industry can't get disrupted.
But we disagree with that.
And we see some things that are emerging through our technology ventures group out in Silicon Valley led by Bonny Simi that has the potential, at least in part, to change this industry.
And so we're pleased that we're part of that because we are much more smarter by being so than assuming it couldn't happen to us.
I think this is the last question, so I'm actually going to let <UNK> answer the last question on his last earnings call.
Plus he knows the answer.
(laughter) It's always a good start.
<UNK>, over to you.
Actually I think it would be elegant if we turned it over to the interim ---+ the soon to be interim CFO.
Okay there's a ceremonial passing of the baton here.
In front of everybody.
And I'd like to introduce <UNK> <UNK> onto the call, our interim CFO.
Welcome, <UNK>.
Hi, Mike.
It's <UNK>.
How are you.
We don't plan to consolidate the investment.
It would be an equity method pick-up.
| 2016_JBLU |
2017 | VRSN | VRSN
#Thank you, operator, and good afternoon, everyone.
Welcome to VeriSign's Second Quarter 2017 Earnings Call.
With me are Jim <UNK>, Executive Chairman, President and CEO; Todd Strubbe, Executive Vice President and COO; and <UNK> <UNK>, Executive Vice President and CFO.
This call and our presentation are being webcast from the Investor Relations section of our verisign.com website.
There you will also find our second quarter 2017 earnings release.
At the end of this call, the presentation will be available on that site and within a few hours, the replay of the call will be posted.
Financial results in our earnings release are unaudited and our remarks include forward-looking statements that are subject to the risks and uncertainties that we discuss in detail in our documents filed with the SEC, specifically, the most recent reports on Forms 10-K and 10-Q, which identify risk factors that could cause actual results to differ materially from those contained in the forward-looking statements.
VeriSign retains its long-standing policy not to comment on financial performance or guidance during the quarter, unless it is done through a public disclosure.
The financial results in today's call and the matters we will be discussing today include GAAP and non-GAAP measures used by VeriSign.
GAAP to non-GAAP reconciliation information is appended to our earnings release and slide presentation, as applicable, each of which can be found on the Investor Relations section of our website.
In a moment, Jim and <UNK> will provide some prepared remarks, and afterward, we will open the call for your questions.
With that, I would like to turn the call over to Jim.
Thanks, <UNK>, and good afternoon, everyone.
I'm pleased to report another solid quarter for VeriSign.
Second quarter results are in line with our objectives of offering security and stability to our customers while generating profitable growth and providing long-term value to our shareholders.
We reported revenue of $289 million, up 0.7% year-over-year and delivered strong financial performance, including non-GAAP EPS of $1.05 and $171 million in free cash flow.
During the second quarter, we continued our share repurchase program by repurchasing 1.7 million shares for $150.5 million.
Our financial position is strong, with $1.8 billion in cash, cash equivalents and marketable securities at the end of the quarter.
We continually evaluate the overall cash and investing needs of the business and consider the best uses for our cash, including potential share repurchases.
At the end of June, the domain name base in .com and .
net was $144.3 million, consisting of 129.2 million names for .com and 15.1 million names for .
net.
The domain name base increased by 0.68 million net names during the second quarter after processing 9.2 million new gross registrations.
Although renewal rates are not fully measurable until 45 days after the end of the quarter, we believe that the renewal rate for the second quarter of 2017 will be 73.9%.
This preliminary rate compares to 73.8% achieved in the second quarter of 2016.
We are updating the full year 2017 domain name base growth guidance to be between 2% and 2.75%.
Also, we expect the domain name base to increase during the third quarter between 0.8 million to 1.3 million registrations.
I'll comment now on a few recent events.
In June, the .
net registry agreement between VeriSign and ICANN was successfully renewed.
The new agreement does not contain changes to the material terms such as pricing terms, renewal rights, the 6-year term or fees paid to ICANN.
Also in June, we issued $550 million of senior unsecured notes with a 4.75% coupon maturing in 10 years.
This offering closed in early July, and we're pleased with the result of this issuance.
Lastly, today, we announced an increase in the annual wholesale fee for a .
net domain name registration as allowed by our agreement with ICANN.
As of February 1, 2018, the annual wholesale fee for a .
net domain name registration will increase from $8.20 to $9.02.
We believe this positions .
net competitively in the marketplace while keeping .
net price lower than other popular legacy TLDs.
And now I'd like to turn the call over to <UNK>.
Thanks, Jim, and good afternoon, everyone.
Revenue for the second quarter totaled $289 million, up 0.7% year-over-year.
During the quarter, 60% of our revenue was from customers in the U.S. and 40% was from foreign customers.
As it relates to our GAAP results, operating income in the second quarter totaled $175 million compared with $176 million in the second quarter of 2016.
The operating margin in the quarter came to 60.6% compared to 61.5% in the same quarter a year ago.
Net income totaled $123 million compared to $113 million a year earlier, which produced diluted earnings per share of $0.99 in the second quarter this year compared to $0.87 for the second quarter last year.
The second quarter include a pretax gain of $10.6 million on the sale of the iDefense business, which increased GAAP diluted earnings per share by $0.09.
As Jim mentioned earlier, the company continues to manage its capital structure.
Earlier this month, we took advantage of what we felt were favorable market conditions and added another long-term fixed rate piece of debt into our capital structure.
The 10-year note issuance, which totaled $550 million, is scheduled to mature on July 15, 2027, and carried an interest rate of 4.75%.
As this offering closed in early July, our second quarter ending balance sheet does not reflect the net proceeds from this issuance.
As of June 30, 2017, the company maintained total assets of $2.3 billion and total liabilities of $3.5 billion.
Assets included $1.8 billion of cash, cash equivalents and marketable securities, of which $269 million were held domestically with the remainder held abroad.
I'll now review some additional second quarter financial metrics, which include non-GAAP operating margin, non-GAAP earnings per share, diluted share count, operating cash flow and free cash flow.
I will then discuss our 2017 full year guidance.
As it relates to non-GAAP metrics, second quarter operating expense, which excludes $13 million of stock-based compensation, totaled $100 million as compared to $99 million in the same quarter a year ago and $101 million in the first quarter of 2017.
Non-GAAP operating margin for the second quarter was 65.3% compared to 65.4% in the same quarter of 2016.
Non-GAAP net income for the second quarter was $130 million resulting in non-GAAP diluted earnings per share of $1.05 based on a weighted average diluted share count of 124 million shares.
This compares to $0.91 in the second quarter of 2016 and $0.96 last quarter based on 130.6 million and 124.5 million weighted average diluted shares, respectively.
Results for the second quarter included pretax gain of $10.6 million on the sale of the iDefense business, which increased non-GAAP diluted earnings per share by $0.06.
As noted in our last earnings call, beginning with the second quarter financials, we are now using a 25% non-GAAP tax rate when reporting non-GAAP results.
Operating cash flow for the second quarter was $181 million and free cash flow was $171 million compared with 161 ---+ $167 million and $161 million, respectively, for the second quarter last year.
Dilution related to the convertible debentures was 22.5 million shares based on average share price during the second quarter compared with 21.9 million for the same quarter of 2016 and 21.3 million shares last quarter.
The share count was reduced by the full effect of first quarter 2017 repurchase activity and the weighted effect of the 1.7 million shares repurchased during the second quarter.
With respect to full year 2017 guidance, revenue for 2017 is now expected to be in the range of $1,155,000,000 to $1,165,000,000 increased and narrowed from the $1,145,000,000 to $1,160,000,000 range provided on our prior earnings call.
Full year 2017 non-GAAP operating margin is still expected to be between 64.5% to 65.25%.
Our non-GAAP interest expense and non-GAAP nonoperating income net is now expected to be an expense of between $103 million and $110 million as compared with the $93 million to $100 million range provided on our last call, reflecting the additional senior note interest expense from the recent issuance.
Capital expenditures for the year are now expected to be between $40 million and $50 million, changed from the $35 million to $45 million range provided on our last call.
And cash taxes for the year are still expected to be between $20 million and $30 million.
The majority of expected cash taxes in 2017 are foreign, primarily because of domestic tax attributes, including cash tax benefits from our convertible debentures.
As we said in prior calls, these convertible debentures are an important part of our capital structure and our intention, based on current conditions, is not to redeem these debentures as they become redeemable in August of this year, which will allow the tax benefits to continue to accrue.
In summary, the company continue to demonstrate sound financial performance during the second quarter of 2017.
Now I'll turn the call back to Jim for his closing remarks.
Thank you, <UNK>.
In closing, during the second quarter, we continued our work to protect, grow and manage the business while continuing our focus on providing long-term value to our shareholders.
We have marked some significant milestones since our last call.
In addition to renewing the .
net registry agreement with ICANN for another 6 years, earlier this month, the company surpassed 20 continuous years of 100% availability in the .com and .
net DNS.
This record is the result of the expertise of our people and our specialized infrastructure.
We believe our focus on profitable growth and disciplined execution will extend the long trend lines of growth in our top and bottom line and allow us to continue our consistent track record of generating and returning value to our shareholders in the most efficient manner.
We will now take your questions.
Operator, we're ready for the first question.
I think probably the biggest contributors there are or there is some strengthening in the economy.
There's more economic activity, which generally contributes to domain name growth.
But I also think the strong brands that common net represents, their strong, recognized, trusted global brands are showing their strength and contributed to that good performance as well.
The only other point I'd put on that, Rob, is as you saw in the first quarter, we had also good demand coming out of the U.S. market and that strength in the U.S. continued into the second quarter.
Well, we provided our guidance for our non-GAAP operating margin for the full year just now, but as far as how expenses flow, what we've outlined in our 10-Q is we do expense our sales and marketing expenses to be higher in the second half of the year.
But we'll continue to manage all the expenses of the business, and we expect to be within the non-GAAP operating margin of between 64.5% to 65.25%, just given earlier.
Well, is that ---+ let me see if I understand your question properly.
By international markets, I can point to one thing that has changed.
We did mention in several past quarters that the so-called China surge, which began in late 2015 and continued into 2016 including the second quarter, of course, affected renewals for 2017.
We believe now that, that effect, the China effect, so to speak, has pretty much pushed through the system.
So I think that might be a factor.
Certainly, some activity I would point to in terms of the international market.
There is general strong growth in the international market.
But as <UNK> pointed out, some growth in the U.S. market in the first quarter continued into the second quarter as well.
So there are good signs.
There's general growth outside the U.S. and an economic activity in the U.S. has contributed to some continuing growth here.
So we did see a slight increase in G&A expense in the quarter.
During the quarter, we purchased some additional software licenses for the core business, and we also had slightly higher legal fees in the quarter.
But again, on a non-GAAP basis, we were pretty much flat.
We can consistently be around that $100 million non-GAAP operating expense level.
Well, there's really no update to provide on .
web at this point.
With respect to our interactions with the Department of Justice, we continue to cooperate with DOJ as it pertains to the CID we discussed last quarter.
That dialogue is constructive ---+ has been constructive.
We produced the documents with information.
We'd answered questions as needed.
And we're meeting with the department.
So that's an ongoing process and beyond that, there's really nothing to say at this point.
Not sure what you mean by excess expense, <UNK>.
We continue to manage all the lines of expenses throughout the business, pretty much on a quarterly and monthly basis.
And each quarter, there's always going to be some type of expense that comes in that might not have been planned or one might call nonrecurring.
But I think if you continue to call those out, any expense you could almost view is nonrecurring.
As I said, in the quarter, we did purchase some additional software licenses in the quarter, and we did have some higher legal costs in the quarter.
But we will have, from time to time, the need to purchase additional software licenses in the business, and we'll have the need to spend additional money from a legal perspective for the company.
And so again, I'd look back at the big picture, on a non-GAAP basis, total expense was a little over $100 million, $100.7 million.
And compared to last quarter, which was a similar amount and year-over-year, I believe, it was $99 million a year ago quarter versus $100 million there.
We did have a little bit higher stock-based compensation in the quarter on a GAAP basis and that's really a function of 2 areas.
One, since last year, we have brought on some additional senior management to the company, in particular, (inaudible), an SVP of Product.
And then we also, as a senior management team, do have some longer-term incentive programs and as we continue to execute on our plan and deliver on results over and above some of the goals that were set, we do have some accelerators that are going to accrue there as we continue to execute.
So we'll continue to try to do that.
But again, from a GAAP perspective, we had a little bit more stock-based compensation.
And as I said, we had a few other nits and nat in the quarter.
But in general, very consistent with the year-ago period as well as sequentially.
Sure.
So as you point out, we absolutely added some additional debt to capital structure.
And as you know, as a company, we try to actively manage that capital structure.
One of the things that we clearly look at and monitor is our ability to erase debt in the market and the ability to execute it and also with the ---+ with interest rate, we can do that.
And when we look at the market, we felt that where the market was, it was an attractive time for us to go add another piece of long-term capital to our capital structure.
So as far as use of proceeds, as we mentioned in the offering, we plan to use those proceeds for general corporate purposes that would also include potential share repurchases.
As you know from following us, we don't guide the share repurchases.
But we try to be very prudent with the capital of the company, and we'll continue to look for ways to generate positive returns for the shareholders.
Thank you, operator.
Please call the Investor Relations department with any follow-up questions from this call.
Thank you for your participation.
This concludes our call.
Have a good evening.
| 2017_VRSN |
2016 | LXP | LXP
#Right now, we're not looking at that, to be perfectly frank.
The debt maturities over the next couple of years on a secured basis just aren't that significant and we don't see a reason to build up leverage and the cash position for a bond offering when we're still in the process of doing our dispositions.
Between dispositions and cash flow from ops, our mortgages are covered I think quite comfortably in the next couple of years.
If you assume that the New York City land portfolio is sold, the weighted average lease term in the portfolios is about 8.6 years.
Of that $12.3 million, the New York City land deals are $7.6 million of it.
Well, it's principally based on underwriting the credit of the lease.
In other words, this was a credit tenant lease financing where the lenders were essentially buying that bond-like stream of rent.
So the way I would explain it, <UNK>, is if you looked at the IRR of the transaction without factoring in any residual value, our return just from the lease itself, add our construction cost, it was about 6.1%.
But we were able to monetize that stream at a 20-year fixed interest rate of 4.04% because the lenders were essentially investing in the transaction and looking at it specifically as a Dow Chemical bond versus a mortgage on a piece of real estate.
And even after debt service on the facility, the monthly cash flow to us is about $15,000 to $18,000 per month.
Most of it, obviously, most of the rent will be going to debt service.
The value of our lease increased substantially during the construction period and that was reflected in the financing that we were able to get.
About 4.1%, yes.
We acquired it about a year later and, as a result, we were able to get over 90% loan to value financing on the second transaction.
And on the first transaction, we leveraged it at about 70% loan to value.
So it was really the value of the leverage that drove the cap rate on that compared to our expectation for the other three parcels.
Yes.
The model has them being sold at the end of the third quarter, yes.
Some of them do.
We list out on the property chart, <UNK>, that's found on page 30, we list out which ones are levered.
On Roche and Transocean, we hold those free and clear, if that was the question.
So, in 2016, we have the Memphis property that has a mortgage due on it.
So none of our 2017 office roll-overs have mortgages on them.
Morning.
For the remainder.
Well for the six months, we have spent ---+ yes, it's coming in a little less, but it really depends on how much the leasing activity may be ramping up in the six months.
It is a little less than what we said.
Well, in the first half of the year, actually in the last quarter, we had two tenants reimburse us for TIs that we had put out prior in the year, so it was about $2.6 million of cash that we received back.
So that kind of has lowered the amount of TIs and lease commissions we expect to spend for the year because we got the reimbursement.
No, no credit issues.
It was the United States government.
They decided to pay back the TIs instead paying rent on it.
But no, I did not expect that when I did the modeling.
Thank you.
Could you repeat the question.
I didn't hear you.
No, I mean, we enter into maximum guarantee contracts.
The leases are, all the properties were fully leased prior to our taking any type of responsibility, so we feel we're covered pretty well from a construction standpoint.
We use reputable builders, reputable developers, in many cases we'll have bonds, we'll have personal guarantees.
So we're not taking, there's no spec building and we don't feel we're taking any excessive risk.
Well, the investments were opportunistic for us and we will have done well with them and, at the same time, by selling them, we'll end up shedding a lot of leverage from the balance sheet, which I think should work well for the share price.
So there's nothing that we are contemplating that has a similar economic profile going forward.
Multi-tenant from a revenue standpoint is down to less than 3%.
It's 2.8% through the six months.
I would say that those companies that have sort of a unique focus on one specific asset type or niche are not especially competitive to us.
But look, our net lease sector has become very large over the last three or four years, so it is a more competitive landscape in general.
Sure.
Our commentary around the dividend has been consistent this year, which is that we've been managing the Company with a view toward reviewing the dividend sometime in the later half of the year with a bias toward increasing it.
Thanks to all of you again for joining us this morning.
We were very pleased with our results in the second quarter and we continue to be excited about the progress we've made year-to-date and our prospects for good execution through year-end.
We continue to appreciate your participation and support.
If you would like to receive our quarterly supplemental package, please contact <UNK> <UNK> or you can find additional information on our Company at our website, www.lxp.com, and in addition, as always, you may contact me or the other members of our Senior Management Team with any questions.
Thanks again and have a good day.
| 2016_LXP |
2015 | HCA | HCA
#Thank you, <UNK>.
This is <UNK>.
Last year we stepped up our efforts in our communities.
We partnered with several agencies including Enroll America and others to try to reach out inside our communities where we believe there are still uninsured people who have the opportunity to participate.
We are going to continue to do that in our enrollment period.
We have a team and a committee of people that are working with our local markets.
And some third-party agencies, where we will be sponsoring community agencies, participating with other community events, and trying to reach out to the uninsured volume in our communities that we think still are able for subsidies.
We're trying to target that very thoughtfully in some of our key and larger markets where we have data that suggest there is still opportunity there.
I would characterize it ---+ we are active in that space and we are working diligently to try to reach out to that community.
<UNK>, I would add, I think most of you saw, HHS, of course they put projections which are pretty conservative I think going into next year.
But the good news is they also cited that they were going to put increased efforts in 5 different markets.
The good news is 3 of those 5 happen to be important markets to us.
One is Houston, one is Dallas, and one is Miami.
We don't care much about their New Jersey effort, or wherever the other one was [laughter], but those are 3 good ones for us.
So, thank you.
All right.
<UNK>.
Let me try your bad debts, and <UNK>, thanks for the question.
As you know we have historically looked at the total uncompensated care, which includes bad debts and uninsured and charity, and from period to period you can get some movement from one or the other.
With our slowdown in pending Medicaid conversions we saw this quarter, that does put a little bit more in the allowance for doubtful accounts, which flows through for bad debts.
But our total uncompensated care generally is moving in concert with what our uninsured trends are.
We have seen recent growth or continued growth of co-pays and deductibles.
That's not recent.
Our collection rates are staying really consistent with where they've been in the prior year, so we're not really seeing any erosion in collections.
Even though the co-pays and deductibles have grown our collection rates ---+ our collection amounts ---+ are remaining stable.
The largest factor on our uncompensated care continues to remain the uninsured growth.
On the inpatient status, we would need to get back with you on that.
I need to flow through on that.
Yes.
All right.
We will follow up on that one <UNK>.
I'm not sure anybody has that answer.
Okay.
Thank you.
You missed it.
I will be happy to give it to you again, <UNK>.
Real quick.
Let me pull it up.
Our same-facilities charity care and uninsured discounts increased $525 million.
Charity care totaled $914 million which is a decline of $117 million from the prior year.
Uninsured discounts totaled $2.755 million which was an increase of $642,000.
Since he didn't listen I'm not sure we'll let you do the other two things.
[laughter]
Yes.
Let me just try to clarify.
We have a charity care policy that if you meet our charity guidelines we do write off 100% of your bill.
If you don't meet our charity guidelines and you are uninsured we apply an uninsured discount, which is basically reflective of what you would be billed if you were insured.
It's not 100% but it is a substantial portion of your bill, is written off as uninsured discount, and then the residual then goes through kind of the bad debt line item.
You also have movements going on with Medicaid and pending Medicaid that affects those two items as well.
Yes.
As I mentioned earlier we've seen over the past recent years a growth in the patient liability related to co-pays and deductibles and we still see that.
I'd call that in that 10% to 12% on a per-account basis, but our collections have remained relatively stable.
We've said, and we validated this recently, about 30% of our write-offs are attributable to the deductible and co's, and the balance to uninsured.
That really has not changed in the data that we've seen.
I would tell you that the deductible and co-pay environment is staying relatively stable for us.
Relative on a material way to our trends.
Most of that we are still collecting up front.
We still collect at least 33% of that up front.
Thank you, <UNK>.
Anybody want that.
No.
We got three no's.
[laughter]
I'll tell you what, we have got time for one last question.
All right.
<UNK>, thank you very much.
And I want to thank everyone, and hopefully I didn't offend anybody from New Jersey with my comments earlier.
It was not intended.
You all have a great day.
| 2015_HCA |
2016 | HSII | HSII
#Good afternoon, everyone, and thank you for participating in Heidrick & Struggles first quarter conference call.
Joining me on today's call is our CEO, <UNK> <UNK>; and our Chief Financial Officer, <UNK> <UNK>.
During the call today, we'll referring to supporting slides that are available on the IR homepage of our website at heidrick.com.
We'd encourage you to follow along or print them.
Today we will be using the terms Adjusted EBITDA and Adjusted EBITDA margin.
These are non-GAAP financial measures that we believe better explain some of our results.
A reconciliation between GAAP and non-GAAP financial measures can be found on the last page of our press release and on slide 20 in our supporting slides.
Throughout the course of our remarks, we'll be making forward-looking statements and ask that you please refer to the Safe Harbor language contained in our news release and on slide 1 of our presentation.
The slide numbers that we're going to be referring to are shown the bottom right-hand corner on each slide.
At this point, <UNK>, I will turn the call over to you.
Thanks, <UNK>, and good afternoon everyone.
Today we reported 2016 first quarter results that reflect solid top line growth.
Consolidated net revenue increased 13% compared to last year's first quarter, or 16% on a constant currency basis.
This improvement was largely driven by our Executive Search business, led by strong performance in the Americas and Europe.
The Asia Pacific region's results reflect the uncertainty in Asian economies driven largely by disappointing economic growth forecasts coming out of China.
And Culture Shaping continued slight revenue growth in the first quarter.
Our revenue growth in the first quarter did not translate into increased profitability, and we reported year-over-year declines in Adjusted EBITDA and Operating Income.
There are three main items that impacted profitability in the quarter, including two planned investments intended to accelerate the growth of our non-search businesses.
Our first investment was in Leadership Consulting.
We took the opportunity to reposition the business following the acquisitions of Co Company and Decision Strategies International or DSI.
The integration of these acquisitions with the company's legacy consulting business allowed us to align resources around the best of our strategic and leadership service offerings.
With this, we incurred $2.1 million of one-time, after-tax charges for salary and employee benefits and general and administrative expenses that were severance related, primarily in Europe.
As we noted in the press release, this item alone represented $0.11 of EPS.
I would mention that the integration period of these acquisitions also impacted profitability, as the build up of revenues has not yet offset the expenses we absorbed for both companies.
We expect the revenue contribution from those companies to grow beginning in Q2.
The second investment was in our Culture Shaping business.
As we indicated in our February call, we are increasing our investment in talent within Senn Delaney to support sustainable growth, while at the same time hiring the next generation of leadership.
This quarter, we added five new culture-shaping consultants to build upon our leadership in this segment, and support our long-term growth.
These investments in new and existing talent resulted in $2.2 million of additional salaries and employee benefits expense in the quarter.
Senn Delaney is a profitable business, and while margins will be lower in 2016, we expect the business to gradually return to historical margin levels by 2017.
The third factor impacting profitability in the quarter was Asia Pacific.
This region continues to feel the impact of softening economic conditions and market volatility, with uncertainty about the growth prospects in China weighing heavily on investment decisions.
The drop in revenue in this region was more than we anticipated for the first quarter, and it had a meaningful impact on profitability.
We are encouraged that confirmation trends in the region showed improvement in March.
One final comment before I turn the call over to <UNK>.
In 2014 in 2015 we stabilized, rebuilt, and re-energized Heidrick & Struggles.
We made significant and important investments in our people, especially in Executive Search, through hiring and development.
The impact of those investments is increasingly evident every day, not just in number of quality of our client engagements, but also in our financial results.
Our clients want more advisory services from us.
Building and growing Leadership Consulting and Culture Shaping should drive more sustainable cash flow and margin growth in the future.
We will continue to selectively invest and grow both of these businesses as opportunity arises so that they become a more significant part of our overall business mix.
Now let me turn the call over to <UNK>.
Thanks, <UNK>, and good afternoon everyone.
I'll start with additional details on the first quarter results, beginning on slide 2.
First quarter net revenue was at the high end of our expectations at $130 million, up 13% compared to last year's first quarter, and up 16% in constant currency.
The Executive Search and Leadership Consulting segment was the driver of the year-over-year first quarter revenue growth.
Specifically, Americas and Europe had great quarters, achieving growth of 17% and 36% respectively.
Asia Pacific was down 13%, reflecting the soft economic conditions as <UNK> mentioned.
We've added new slides to our deck this quarter.
Slides 5, 6, and 7 that reflect the trailing 12 months results for these segments in order to remove some of the quarter-to-quarter variability and give you a better perspective of the run rate of each of these segments.
Referring to slides 8 and 9, we ended the quarter with 332 Executive Search and Leadership Consulting consultants, of which 313 are specific to Executive Search.
And note that beginning in 2016, Leadership Consulting consultants include only Partners.
On slide 10, Executive Search confirmations globally were up 7% for the quarter, which is the highest first quarter performance in five years.
Turning to slide 11, the Financial Services, Healthcare & Life Sciences, and Global Technologies & Services practices drove net revenue growth.
Consultant productivity as shown on slide 13 remained at $1.5 million on a trailing 12 month basis.
And the average revenue per search was higher in the first quarter despite currency headwinds.
Turning to slide 15, the Culture Shaping segment reported a 3% year-over-year increase.
We've also added a trailing 12 month slide for this segment to account for the quarter to quarter variability of results which are largely a function of the timing the project execution.
Looking at slide 16, salaries and employee benefits expense increased 16% or $13 million in the first quarter of 2016.
Variable compensation expense accounted for approximately $3 million primarily related to higher bonus accruals for consultant performance.
Fixed compensation expense increased approximately $10 million.
The increase is due to the compensation related to acquisitions and new hires in Search and LC over the last year, the investments in new and existing partners in Culture Shaping as <UNK> just described, and severance related to the repositioning of the Leadership Consulting business.
As we mentioned in the release, the impact of our investments in Culture Shaping will be present throughout the year, although to a slightly lesser extent than what we experienced in this quarter.
Turning to slide 17, general and administrative expenses increased 17%, or approximately $5 million, to $35.2 million in the quarter.
As I mentioned on the February call, a couple million dollars of this increase is related to the ongoing general and administrative expenses assumed with the acquisition of both Co Company and DSI, which at present includes the cost of independent contractors used on client assignments.
The rest of the increase primarily reflects one-time costs associated with the repositioning of our Leadership Consulting business, and the timing of some G&A expenses related to training, meetings, and departmental spending.
These expenses should not drive a permanent increase in our expense run rate, but are more timing related.
Now I'll refer to slides 18 through 22.
As a result of the factors <UNK> noted earlier, Adjusted EBITDA and Operating Income in the first quarter both declined.
Absent the expenses for realigning Leadership Consulting and the investments in Culture Shaping, EBITDA and Operating Income would have both increased year-over-year.
Now referring to slide 23, those of you who follow us know that our cash position builds throughout the year as we accrue bonuses which are paid out in the following year.
In the first quarter, we paid out approximately $136 million to employees.
Approximately $10 million relates to the payments of bonuses that were deferred in the three prior years.
And the balance of $126 million was the variable compensation related specific to 2015 performance.
We also paid approximately $9 million in February related to our acquisition of DSI.
Reflecting those payments, cash and cash equivalents at March 31, 2016, were $62 million.
Cash used in operating activities was $119 million, compared to $88 million in last year's first quarter.
Our cash position, plus the cash we have access to through our revolving credit facility, is quite strong and we are in a great position to continue to invest in and grow the business.
Finally, I'll take a moment to talk about our effective tax rate for both the quarter and the full year.
Our tax rate is always been volatile due to the operating results in many of our foreign jurisdictions, and in some cases we have established valuation allowances.
The first quarter was no different.
The tax rate of 67% was higher primarily as a result of losses in Europe, associated with our repositioning of Leadership Consulting.
When normalized for these one-time costs, the effective tax rate would have been 46%.
And our full-year effective tax rate is expected to be similar to the prior year tax rate of also 46%.
Now looking out to the second quarter, the Executive Search backlog is shown in slide 26, and the monthly confirmation trends are shown on slide 27.
Other factors on which we base our forecast include anticipated fees, the expectations for our Leadership Consulting and Culture Shaping segment assignments, the number of consultants and their productivity, the seasonality of the business, and the current economic climate.
As we experienced in the last several quarters, we continue to expect volatility from foreign exchange rates, and this could lead to an adverse impact in the year-over-year comparisons of net revenue.
We are forecasting 2016 second quarter net revenue of between $145 million and $155 million.
Reported net revenue was $133 million in the second quarter 2015.
I want to mention that as we continue to invest in Leadership Consulting, we will continue to evaluate segment reporting in the presentation of our business in future periods.
And with that, I'll turn the call back over to <UNK>.
Okay, thanks, <UNK>.
Let me summarize by saying through the early part of 2016, we have accomplished much.
Our Executive Search business continues to strengthen with Americas and Europe to strong starts.
We've integrated two acquisitions into our legacy Leadership Consulting business, and realigned services to increase our impact with clients.
And as I mentioned earlier, we are investing in Culture Shaping to build on our leadership in this market and support our long-term growth.
We continue to lay the foundation for a more diversified business, building on the strength of our most important asset, mainly our brand and the access it gives us to clients.
It's our intention to grow and scale our service offerings across Search, Leadership Consulting, and Culture Shaping.
We will measure our success by market share, client satisfaction, and profitability.
I'm energized by the progress I see from Heidrick & Struggles on many fronts.
I'm excited about our progress working at the top and the types engagements we are winning and executing, feedback from our clients ---+ some of the most influential CEOs and Boards around the world ---+ assures me that what we are doing is the right strategy.
And I'm equally energized by the urgency we feel to turn that tangible progress and momentum in the market into sustainable, profitable growth.
We will pause, and then <UNK> and I will take your questions.
<UNK>, two comments.
One is on the last part, the business as you know, as you point out, is a multinational business but also an indigenous business in country, and I'd say it's a combination of both.
I wouldn't weight it one versus the other.
What I would say in Asia, when you get a little bit more granular behind numbers, what you're seeing is an impact from the financial services sector in particular.
Having said that, we have seen momentum in our confirmations in March.
And we're continuing to see that.
So, I don't know if I want to call a bottom per se, but certainly we feel an inflection point here with the opening performance.
We had a tough end to the last year, that carried through into the first quarter, and that some of the lack of momentum we saw in first quarter of this year.
So on the Search side, we feel very good about it.
The people who have come into the United States, the Americas, in Europe, selectively in Asia, we're able to spend more time than probably in a long time at Heidrick really looking at the talent.
You know, we don't feel the need to hire just to hire.
We feel the need to hire the right people.
So we're obviously looking at what kind of economic impact you may have on the firm, but we're also looking at cultural fit.
And just over the past year, we feel good about both of those dimensions.
Sure, I'll give you as much as I can, <UNK>.
It's <UNK>.
The core business, which is still the primary driver of a lot of our financial results, as you know, tends to be, start a little soft in the first quarter, the stronger quarters tend to be second and third.
And depending again upon hiring cycles, budget years, and the factors of marketplace tails off at the end of the year.
I will say in recent years, we've seen some change in trend in that business.
A good example is this quarter.
I think, with the exception of APac, we saw good strength in the first quarter that we haven't seen in some time.
Last year, at the end of the year, we saw good strength in Europe and America which we hadn't seen in some time.
So we're hoping that we're getting a little bit more even on cyclical basis, and with some of the changes that we've made in some of the focus we've made and where we're working and how we're working.
And the impact of Senn Delaney, as I mentioned in my comments, you know, and it also applies a little bit to LC, the nature of the business that we're starting to pursue in both of those areas tends to be a little bit more larger project oriented, and it can certainly have revenue recognition patterns that are different than what we would see in Search.
Our hope has always been that we would build those businesses to greater scale, and have a more even flow of both revenue and cash flow over the period of the years.
We're not there yet, but we're making progress to get there.
On the profitability side, particularly in 2016, the event we talked about today with LC, it's much more of a one-time nature expense, and the run rate on people expense should not be as big a factor in year-over-year profitability after this year.
It'll actually taper down a little bit towards the end of the year.
And the hope would be obviously that the revenue would be at a higher run rate as well, to mitigate that.
Let me just give you an overall sense of what's going on.
I'd say look, the business out there is as competitive as ever.
The opportunities that we are seeing are healthy and strong.
And our goal is overall in the marketplace is to win our share, and win more than our share, and grow our share.
But in terms of confirmations, <UNK>, you just want to comment on what's ---+
Yes, we're certainly pointing to an estimate in our slides that are up just probably in the upper quadrant approaching [400] confirmations, with just under 400 confirmations in April.
You know, again, as <UNK> said, they come in, in different patterns but the overall good feeling is, is that I think we feel good that, in line with our guidance, and that's the best way to give you the indication.
Is that we feel that on a year-over-year basis on the revenue line, largely driven by Search plus some inclusion of the new LC, as it ramps up, has given us some indication that our second quarter should be healthy year-over-year.
I think a little bit of both.
Certainly in technology, there's been no hotter industry space I think for us in the last couple of years.
There's a lot of activity going on in client activity around leadership talent that can deal with a world that's really got tremendous influence from technology.
And so, and we've got some of the best professionals in the world in that space.
So I think from the standpoint, I'm not surprised at all that's one of our leading sectors.
In healthcare, we certainly have benefited from the fact that we brought in some strong talent last year, in line with some of the very good talent we already have, but we clearly were not as big a factor in that market as we should be.
And we're actually making inroads to play at much higher level in that business because of that change.
Let me add to that, is the quality of clients that we're interacting with and working with and being hired by, across both of those sectors and others, just continues to be moving up.
Well Tim, one area's certainly Fintech, right, so you have traditional financial institutions where, we all read the papers every day, the impacts that are ---+ that is accompanying that sector right now.
But there is no shortage of movement in the financial sector broadly defined.
So if you're working in the conventional, you're going to have one story, if you're working in conventional and you're working in Fintech, you're going to have another story.
So that's an important part of it.
First of all, Tim, I'd say that what we call expenses on an income statement is obviously, it's felt internally here as investment.
We really had an investment ---+ for example, just take Leadership Consulting, something that we've talked about, the company's talked about for a period of time.
What you see us doing with Co Company, what you see us doing with DSI, is we're eager to basically represent in the marketplace a Leadership Consulting platform that's consistent with our brand.
We have, you know, very good legacy people there, we just don't have enough of them.
And we have a opportunity to take our brand and the access it gives us and move up.
So we're going to keep on doing that, Tim, I don't, I'm hesitant to give you a specific timeline, because we're not going to chase an opportunity in the marketplace.
But if we see one, we're going to take it.
And I don't know whether that's going to be, what that's going to look like across quarters or across years.
But yes, you can expect that we're going to invest in more Leadership Consulting.
On the Culture Shaping side, we came to the end of ---+ you know, as we get into last year, we realized that the number of clients who are interested in Culture Shaping.
Who recognize the impact it can have in its overall organization, is one that, you know, we felt that we've got a scalable platform here with Culture Shaping at Senn Delaney, but we feel we need to invest more in it, and as I said, invest in the next turn of leadership, so again, we're going to do that.
We feel good with where we are with these additional five right now.
If we find someone else we think is spectacular, we're open to it.
But we're not chasing someone right now.
We feel good about where that is, and as we signalled the investment in those people, the investment in the legacy people, that will continue throughout the remainder of 2016.
For Q2, it should ramp up pretty quickly to be a pretty steady run rate.
It's a good going concern.
We don't forecast individual profitability of our business segments.
It's not too dissimilar in size from purchase price of the Co Company acquisition.
So I think you'll see a positive, you know, we're hoping to see a positive contribution of the revenue certainly it's an outgrowth of the expenses over the course of Q2.
You know, we only owned it for literally a matter of days in Q1.
So, and as you know, in purchase accounting, especially when we buy a business, some of the stuff that's in the pipeline can get hung up on the balance sheet.
So we're looking forward to having some full recognition of revenue from both these companies as the year plays out.
I go back to the comment I made earlier that the business is as competitive, as intensely competitive as ever.
At the same time, we are seeing our ---+ at best, right, we are seeing an opportunity to compete in more situations, not less, both as a function of the increasing consulting community that we have, as well as the success we're having in any number of searches across any number of sectors.
So I would say the market is holding, and our performance in that market is strong, as you point out, particularly in the Americas.
In Europe, and as I'm sure everyone recognizes on this call, Europe in the first quarter of this year is stronger, and we all know it's off of a pretty weak comparison in the first quarter of 2015.
So we're delighted with the way our European team has responded.
We're also delighted in the continuing cross collaboration that happens across markets and across regions, which also helps the net activity.
So that'd be the way I describe the overall market.
Yes, the opportunity in general is probably best captured by saying what it does is it widens the [aperture] for us with the client, meaning it widens the conversation we can have with the client.
Obviously it's a super important conversation that we're having around talent and around search, and around who is the right person or right group of people in order to enhance the team of a client.
But now we have the opportunity to broaden that dialogue, to not only answer the question of who, but also answer the question of how can we help make that team better.
And that's where Leadership Consulting, coupled with Culture Shaping, works at not only the individual level, the team level, but also the organizational level.
So they feed on each other.
It's early days, right, we don't have this integrated across the firm in all the ways that we believe we will.
It is, some of the opening moves here, particularly with Co Company, under Colin's leadership now for Leadership Consulting, the addition of DSI, the continued investment in Culture Shaping under Jim Hart.
We're broadening that conversation with a client, having a more strategic conversation, but it's still early days in terms of everyone at the firm being as fluent in that as we expect them to be over time.
Sure, we probably had about a little over $1 million worth of our expenses that we would normally see spread out over the year accelerate closer to the first quarter, or in the first quarter.
A couple of reasons, number one, we did some, you know, along the lines of the [varied] platform that <UNK> was referring to, and as we're bringing in these acquisitions, we had reason to bring some of our top people together to talk about the platform, talk about the offerings, and help them engage constructively with the assets we had acquired.
So that certainly caused some travel expense, while not at the level, say, of global partners meeting, certainly, we brought some key people together from around the world.
In addition, and we talked about this on other calls, we're going to continue to ramp up our training and development, you know, in building our own consultant base and developing our capabilities within [core] Search.
And we advanced some of that sooner rather than later, again, mainly driven by market demand and the fact that we need these people engaged very quickly with our best people, because we have an opportunity to leverage their strengths in what we are seeing in the marketplace and with demand coming through.
And we also have a small piece of legal expense that probably was a little bit more than we expected during the quarter.
Those things will even out over the course of the year.
So like I said, those things should not drive our annual run rate any higher.
One thing I would quickly add is that there are more people, more terrific people that we need to bring together inside the firm who were unable to participate in this initial round.
So we've got a continuing education here, particularly as we broaden the platforms that we're putting in front of our clients.
We've got more work to do in terms of bringing people up the curve on that.
I'll just close by saying I want to thank everyone for their participation today.
What you see in the first quarter is clearly an investment in our business.
You've seen that in the Search business in particular.
During my first two years, you've seen the results that has terms of the impact in the marketplace, particularly in the Americas and Europe as noted in the first quarter.
We're going to continue that in Search, that is our core business, that will remain, and we want to do nothing but strengthen that.
At the same time, you're seeing investment in Culture Shaping and Leadership Consulting, because we're responding to our clients, responding to what we believe is the market demand, and we look forward to communicating the results of all that in the quarters to come.
Why don't we leave it there.
Thank you.
Thank you, all.
| 2016_HSII |
2018 | SKT | SKT
#Good morning.
This is <UNK> <UNK>, Vice President of Investor Relations.
And I'd like to welcome you to the <UNK> Factory Outlet Centers First Quarter Conference Call.
Yesterday, we issued our earnings release as well as our supplemental information package in our investor presentation.
This information is available on our Investor Relations website, investors.
tangeroutlets.com.
Please note that during this conference call, some of management's comments will be forward-looking statements that are subject to numerous risks and uncertainties and actual results could differ materially from those projected.
We direct you to our filings with the Securities and Exchange Commission for a detailed discussion of these risks and uncertainties.
During the call, we will also discuss non-GAAP financial measures as defined by SEC Regulation G, including funds from operations, or FFO; adjusted funds from operations, or AFFO; same-center net operating income; and portfolio net operating income.
Reconciliations of these non-GAAP measures to the most directly comparable GAAP financial measures are included in our earnings release and in our supplemental information.
This call is being recorded for rebroadcast for a period of time in the future.
As such, it is important to note that management's comments include time-sensitive information that may only be accurate as of today's date, May 2, 2018.
(Operator Instructions) On the call today will be <UNK> <UNK>, Chief Executive Officer; Jim <UNK>, Senior Vice President and Chief Financial Officer; and Tom <UNK>, President and Chief Operating Officer.
I will now turn the call over to <UNK> <UNK>.
Please go ahead, Steve.
Thank you, Cindy.
Let me start with a significant milestone that we will celebrate later this month: 25 years of our stock trading on the New York Stock Exchange.
Since the time of our IPO, we have grown from 17 centers with 1.5 million square feet to 44 properties with 15.3 million square feet.
Our enterprise value has grown from about $200 million to about $4 billion at the end of the quarter, a compounded annual growth rate of 13%.
Throughout this time, we have successfully navigated a number of different economic and retail cycles, and we have adapted our business accordingly, keeping our centers relevant and highly occupied.
We pride ourselves on keeping the tenant mix of our centers dynamic and giving <UNK> shoppers the brands and designers they want.
We have stayed true to our mission of delivering the best brands, the best prices and the best experience.
With this long-term view, we have proven we can successfully adapt to evolving consumer preferences and aligning those with tenant needs.
We have consistently focused on redevelopment and renovation of our properties.
We have invested approximately $340 million over the last 10 years, making <UNK> Centers more innovative and exciting.
We have also invested in the consumer experience across our entire portfolio.
In recent years, we had added enhanced shopping amenities, including gathering in play areas, digital platforms, which meet the needs of tech-savvy shoppers as well as community events such as 5Ks, concerts and food truck festivals.
We believe these investments help to drive the consistent traffic we experience at our centers and reflect our confidence in the long-term growth of the outlet distribution channel.
That being said, we are still working through some retailer closures and liquidations, and our budgeting for potential additional store closures and lease adjustments still to come this year.
We unfortunately also faced a challenge in the first quarter, caused by unusually harsh winter weather conditions, which led to higher-than-anticipated unreimbursed snow removal costs and center closures, which result in lower variable rents.
In light of this environment, we have adjusted our 2018 guidance accordingly.
This near-term change does not alter our long-term optimism.
Sales and traffic are strong.
Our conversations with tenants and prospects are encouraging.
And we continue to employ a strategic approach that has proven effective and successful for the last 25 years.
Importantly, our company maintains a very strong level of cash flow.
We remain disciplined in our capital allocation decisions with a singular focus on creating shareholder value.
The cash we generate covers our capital needs for investing in our assets and maintaining one of the sector's strongest balance sheets.
Our dividend remains a priority, as is evident by our recent 2.2% increase to $1.40 per share, which marks the 25th consecutive annual increase and represents a 3-year cumulative growth rate of 22%.
Today, our dividend is secure and well covered.
Furthermore, during the quarter, we executed our share repurchase program.
Going forward, we will continue to evaluate our priority uses of cash, including investing in our assets, continuing to raise our dividend, repurchasing our common shares and deleveraging our balance sheet.
Although not a current priority for us, we continue to monitor new development and acquisition opportunities.
Throughout it all, the 3 pillars of the outlet business have remained constant for us: brand, value and experience.
By keeping our tenant mix dynamic, we deliver the most popular brands and designers to our shoppers.
Through our best price promise, we take price out of the equation whenever a shopper visits any <UNK> Outlet Center.
In addition, the social experience of outlet shopping cannot be duplicated on a computer or a mobile device.
I'll now turn the call over to Tom, who will discuss the current leasing environment with you.
Thanks, Steve.
In recent months, we have met face-to-face with more than 70 retailers.
And while we recognize some near-term challenges exist, based on our conversations with current and prospective tenants, it appears that overall sentiment is improving.
Over the years, we have remained strategic in our approach to leasing.
We have evolved and invested in our centers and in the experience to keep <UNK> Outlet Centers fresh and fun, making us the desired location for retailers and the shopping destination of choice for customers.
As of March 31, consolidated portfolio occupancy was 95.9% compared to 96.2% on March 31, 2017.
The year-over-year decline was primarily driven by the roughly 200,000 square feet of closures that we faced in 2017, and the additional square footage recaptured in the first quarter of 2018.
Fortunately, we do not have any Bon-Ton or other department stores.
For the trailing 12 months ended March 31, 2018, commenced leases that were renewed for ---+ renewed or re-leased for a term of more than 12 months included 277 leases, totaling approximately 1.3 million square feet.
These leases achieved a 13.5% increase in blended average rental rates.
Recognizing some of the near-term pressures on occupancy, in certain cases, we've allowed for lease modifications and leases of 12 months or less.
By accommodating our tenants in these instances, we are maximizing revenue, maintaining relationships, sustaining the occupancy and vibrancy of our centers, and preserving long-term upside optionality in terms of tenant mix and rent increases.
Total commenced leases for the trailing 12 months ended March 31, 2018, that were renewed or re-leased for all terms, included 338 leases, totaling approximately 1.6 million square feet.
These leases achieved a 7.7% increase in blended average rental rates.
Our approach of selectively signing short-term leases is a strategy we have employed throughout our 37-year history.
To give you perspective, the leases of 12 months or less that we have signed represent about 2% of our total GLA, which remains in line with our historical average.
These leases are on a case-by-case basis, with no concentrations in any one tenant, geography or tier.
Of the leases with terms of 12 months or less, which commenced in 2017, we've already renewed or re-leased approximately 1/3 of the space at market rates for an average term of roughly 5 years.
I would like to point you to Pages 11 and 12 of our supplemental package, where we have added some additional disclosure regarding our leasing.
We are now providing you with details around trailing 12-month commenced leases, including leases only greater than 12 months, including all leases, and showing the impact of the remerchandising activities from last year, in order to provide a clear picture of our leasing activity.
We believe that the level of bankruptcies that we saw in recent years is tapering, although we may be impacted by some throughout the balance of this year.
During the first quarter of 2018, we've recaptured approximately 37,000 square feet within our consolidated portfolio related to bankruptcies and brand-wide restructurings by retailers compared to 62,000 square feet during the first quarter of 2017.
Retailer sentiment in the leasing environment showed signs of ongoing improvement, driven in part by increased sales and tenant profitability.
Average tenant sales productivity for the consolidated portfolio was $384 per square foot for the 12 months ended March 31, 2018, and then on an NOI weighted basis, it was $409 per square foot.
Same-center tenant sales performance for the overall portfolio increased 1.7% for the 12 months ended March 31, 2018 compared to the 12 months ended March 31, 2017, and traffic maintained a consistent level over this period.
For the first 3 months of this year, sales performance was up a strong 5.6%, noting, however, that this includes the impact of the shift in Easter from April last year to March this year.
Examples of some tenants that are performing particularly well, include Old Navy, Adidas, Tommy Hilfiger, American Eagle Outfitters and Coach.
We saw particular strength with apparel, athletic, handbags and the food categories.
We believe this performance demonstrates the consumer's continuing desire to shop at <UNK> Outlet Centers.
I will now turn the call over to Jim to take you through our financial results and a brief balance sheet recap.
Thank you, Tom.
First quarter FFO available to common shareholders was $0.60 per share, an increase of 3% over the first quarter of 2017.
Incremental income from our new developments and expansions completed in 2017 and reduced G&A expense was partially offset by our same-center results.
Same-center NOI decreased 1.5% compared to the prior year quarter, driven primarily by the 2017 and 2018 store closures, as previously mentioned as well as the harsh winter conditions, which resulted in greater-than-expected unreimbursed snow removal expense at certain centers and lower percentage rents due to center closings.
During the first quarter of 2018, due to snowstorms, <UNK> Centers were closed a combined 900 hours compared to 300 hours during the first quarter of 2017.
In addition to the time that centers are closed, snowstorms and road conditions affect traffic and sales on the date of center closes and several days thereafter.
Lease termination fees, which are not included in same-center and portfolio NOI, totaled approximately $1.1 million for the consolidated portfolio during the first quarter of 2018 and $1.2 million during the first quarter of 2017.
In addition, our share of lease termination fees and our unconsolidated joint ventures, which is included in the equity and earnings of unconsolidated joint ventures line, was $45,000 for the first quarters of both 2018 and 2017.
Our balance sheet is strong.
As of March 31, 2018, approximately 94% of the square footage in our consolidated portfolio was not encumbered by mortgages.
Only $228 million was outstanding under our unsecured lines of credit, leaving 62% unused capacity or approximately $366 million.
We maintained a substantial interest coverage ratio during the first quarter of 4.4x and net debt-to-EBITDA was approximately 6x at quarter end.
Our floating rate exposure represented 13% of total debt, down from 15% at year-end or 6% of total enterprise value as of March 31, 2018.
The average term at maturity and weighted average interest rate for our outstanding debt as of quarter end was 6.3 years and 3.4%, respectively.
We have no significant debt maturities until April of 2021.
In January, we completed mammoth store lines of credit, a line of credit agreement to extend the maturity by 2 years, increased our borrowing capacity to $600 million from $520 million and reduced the interest rate spreads to 87.5 basis points of our LIBOR from 90 basis points.
As Steve discussed, shareholder return is an important part of our value proposition.
During the first quarter, we repurchased approximately 444,000 of our common shares at a weighted average price of $22.52 per share for total consideration of $10 million.
This leaves approximately $66 million remaining under our $125 million share repurchase authorization.
In April, we raised our dividend by 2.2% on an annualized basis to $1.40 per share, marking the 25th consecutive year we have increased our dividend.
We have raised it every year since becoming a public company and over the last 3 years, our dividend has grown 22% cumulatively.
We expect our FFO to exceed our dividend by more than $100 million in 2018, with an expected FFO payout ratio of under 60%.
Our dividend is well-covered.
We have no new store openings planned for this year.
During 2018, upon completion of the residual funding of our 2017 development projects and spending between $35 million and $40 million for capital expenditures and lease-up costs, we should have internally generated cash of approximately $50 million that may be used to naturally deliver our balance sheet and further reduce floating rate debt exposure and/or repurchase additional common shares as market conditions warrant.
The strength of our balance sheet will allow us to take advantage of growth opportunities that arise as the cycle turns positive.
In terms of our guidance.
We are updating our expectations for 2018, and we are now expecting our FFO per share for the year to be between $2.40 and $2.40 (sic) [$2.46] per share compared to our prior expectation of between $2.43 and $2.49 per share, representing a change of 1%.
We\
We had anticipated Nine West to close.
We were led to believe of conversations with the tenant that they would stay open until the end of October.
And they made a decision to close basically the first or the second quarter.
So the 7 months' early closing, there was no way we could possibly anticipate that.
Nick, we felt ---+ we feel that the guidance today reflects our view of the current state of the industry.
We have increased the amount of expected or anticipated store closures from a 100,000 square feet to a range of 150,000 to 175,000 square feet.
We've also reduced our average annual occupancy from 96% to 95% to 95.5%.
We feel that this guidance is appropriate, and, obviously, we'll visit with it ---+ we'll visit the guidance every 90 days as we go forward.
Well, as you may know, being in the New York area, Riverhead is one of our marque assets.
Most of the space that vacated in Riverhead was due to some of these bankruptcies.
Fortunately in Riverhead, it's our flagship property, and we're being very selective and ---+ which tenants we want to put into the space.
I might mention that the, as an example, the OfficeMax space, which is now vacated, will be replaced and ---+ be replaced this summer by a new West Elm store.
And West Elm will join Pottery Barn and <UNK>-Sonoma as an addition to our home furnishings presentation to the consumers.
So we are being very selective.
Some of the other centers, we also are replacing tenants now that some of them have gone bankrupt, for instance in Jeffersonville, we've signed also West Elm and they'll be taking occupancy in July, and that will add ---+ that one store will add about 500 basis points or 5% to the occupancy to get it back up in the mid-90s.
So as you can see, we're aggressively in the process of upgrading our cotenancy, as these stores come back.
It gives us the opportunity to refresh our properties with exciting, new, more high-impact tenants.
We have no ---+ today, we have contemplated no significant expansions of any of our assets.
We are constantly reviewing our capital allocation strategy.
And the free cash flow that we generate, which is pretty substantial, will be used ---+ we just raised our dividend, as you know.
The balance of the year, the free cash flow after CapEx and whatever remainder there is on our 2 major projects last year, about $50 million will be allocated between naturally deleveraging our balance sheet.
And it's very important to us that we maintain our high credit rating of BBB+ and Baa1.
And also on a selective basis, repurchasing our common shares and executing our announced strategy there.
We have 3,100 leases.
So fortunately, only about 15% to 18% of them come up for renewal every year.
We reflect in our guidance our expectation for the renewals.
Thank you for reminding everybody that our cost of occupancy at 10% is, to our knowledge, the lowest in our peer group.
So fortunately, we've been a very profitable distribution channel for our tenants.
The current market environment is now in favor or there is some leverage on behalf of the tenants.
We're getting through that now.
But the good news is our properties are highly occupied and extremely well maintained, and we're focusing right now on putting high-impact, exciting new tenants into the properties.
And we've been through this type of situation before.
So all the replacement tenants are and all the new tenants are reflected in our guidance.
There is really no concentration, <UNK>.
The lease modifications, the lease renewals are spread out geographically by center, by tenant and across all of our asset tiers.
So there is really no conclusion.
It's a case-by-case basis.
All 5 of the remerchandised centers are now open.
3 of them are performing as we had expected or better, and 2 of them are still experiencing some remerchandising, one of which is Jeffersonville, which I mentioned we are adding West Elm, which will be opened this year.
And the other is Hilton Head, which was adversely affected or their occupancy was affected by some bankrupt tenants.
And we're in the process now and working through that to replace those tenants.
<UNK>, we have completed our package of renewals with Ascena through the first quarter of 2019, and they're reflected in these numbers.
The CapEx and the budget that we've put forward between $35 million and $40 million is in line with our 10-year average for the combined lease-up costs and CapEx.
So we are consistent with what we've done for the past, basically, 10 years, <UNK>.
We're not spending anymore.
Happy to, <UNK>.
The Myrtle Beach 501 property is preparing for the addition of a very popular regional tenant by the name of Carolina Pottery, which is going to take 52,000 square feet and which will bring the occupancy of Myrtle Beach back up to where it was.
They were ---+ we had re-leased them basically of market rents, which is up considerably from what the short-term leases were, and the term has been extended to 5 years from the short-term.
So this is a pretty good evidence that our strategy to keep our properties highly occupied is working.
We're building a bridge between today and when we think the market will turn with these short-term leases to keep our properties vibrant.
It's a strategy that we've employed successfully for many years, 37 years, actually.
So it's standard practice for us.
Well, some of them are bankruptcy-related.
We're attempting to keep stores open while they are in reorganization, so yes.
I don't want to lose sight pleasing the fact that it's a very small subset.
We have about 61 leases in that category, of which 11 have already been re-leased.
So that's out of 3,100 leases we have.
There is ---+ we ---+ as a trend, we have executed fewer short-term transactions in the first quarter than we did in the fourth quarter of last year.
<UNK>, I don't know if we really understand your question.
Jim, do you want to take a shot at it.
So <UNK>, the ---+ that bucket that we refer to, that's been re-leased.
Remember, these spreads are on a commenced basis, and these are ---+ we've re-leased them, but they have ---+ most of those, if not all of them, I'm not sure how many, but I know the majority of them would ---+ have not commenced yet.
So they have not ---+ they're not in the numbers.
<UNK>, are you ---+ is your question regarding why the differential is greater now than it was a year ago.
Jim, you want to take that.
I'll give that to you.
Yes, we have traditionally, Tayo, used shorter-term variable rate debt at the centers open and commence.
And when they mature is when we would consider ---+ hit the stabilization marks to mature is when we would think about putting longer-term financing.
Most of those JVs still are fairly new, but there are couple that already hit that maturity stage and we are in discussions right now with our partners to potentially put some longer-term fixed rate debt on those partners.
Tayo, we're having trouble with hearing you.
Would you mind repeating the question.
Tayo, it does incorporate a little bit.
It's ---+ bad debt expense for us hasn't necessarily been material.
It ranges usually between 0.3% and maybe 0.5% of our revenues.
And most of that would be to put a straight line rent write-offs, which doesn't get into your same-center NOI.
So unfortunately, we haven't really been hit that hard, particularly on a cash basis.
And while certainly that we may, we have built in with an expectation of getting the additional square footage back of a 150, 175, we have raised it a little bit, but it's really not that significant.
Steve, the West Elm is not currently in our existing property.
I don't know what their website shows.
But we're preparing the space for them now, and they were going into ---+ they are going into the closed OfficeMax property.
But I can get you further details.
Let me check on that for you.
<UNK>, as you may know, in the ---+ on the press release what we offered, we did increase interest expense, but we also increased an assumption for term fee, both $500,000 each.
Those tend to wash.
The offsetting ---+ I think ---+ no, you're right.
You got it right on the same-center NOI.
The offset is the centers that's in the non-center pool.
Fort Worth that we opened last year and the Lancaster expansion are leasing up a little bit quicker than we thought and some GAAP rents or another thing that doesn't factor into your NOI, because increased cash basis rents, but GAAP rent throughout the portfolio reflect those 2 properties as well as lot of this leasing activity that we'd been talking about earlier that will open later in the year.
As we said earlier, <UNK>, we anticipate having $50 million of excess cash flow.
We do expect, and it's in our guidance, to use a portion of that to pay down our debt and as market conditions warrant, we'll consider buying back some more shares.
<UNK>, no, there really is no color we can give.
And we don't have broker introduced to give us cap rate valuations on particular assets.
We have today no assets in the market for sale.
We in the past have entertained qualified reverse inquiries, which led to the sale of an asset last year.
But there is no color I can give you.
I wish there were many more comparables, because I think the private market puts a higher value ---+ this is just Steve <UNK>'s guess ---+ a higher value on our assets than the public market does.
First, <UNK>, if I might just go back to Steve's question with regard to West Elm.
There is not a West Elm warehouse store, but we do have a West Elm outlet store currently existing in our Riverhead property, and they are upsizing to the new ---+ to replace OfficeMax, and we are working to replace the existing West Elm.
So I just wanted to close the loop on a previous question.
With regard to yours.
Every part of a cycle during the down part feels like it's never happened before and it's only going to get worse and during an up part of the cycle, it feels like it's always going to stay the same and only get better.
We ---+ candidly every time is different.
After the stock market crash in '87, we experienced downturn after the bubble of the e-comm, tech bubble or the dotcom bubble of '98, '99.
Obviously 10 years ago, which was an economic cycle, I know there was no Amazon.
We have been tracking e-commerce sales for the better part of 20 years.
The comfort we have is that although retail ---+ although the country is over-retailed, or as one of my friends with a friendly competitor says, it's not over-retailed, it's probably under demolished, our industry is under built.
There is only about 175 outlet centers in the country, with about 70 million square feet.
There is, according to ICSC, over 1,000 regional malls with about 1 billion square feet.
We don't have large multiple-level boxes, department stores, category-killer type of asset ---+ stores.
We have a property type and a structure that's easily adaptable to new trends, and that's why we've been able to, for 37 years, never end the year less than 95% occupied.
So there is no easy answer, <UNK>.
It's just my instinct based on my experience.
We're still able to keep occupancy north of 95%.
Our traffic is flat.
If you read the popular press and if everybody was just sitting at home, our traffic would be off significantly, and I believe our sales would be off significantly, but the facts are the opposite.
So I can't point you to anything.
I wish that I had a crystal ball or a transporter to go 2, 3, 4 years in the future and look back, but we don't.
That's just my feeling; it's not corporate representation.
The lawyers are looking in the ---+ you asked a personal question and I'm just giving you a personal answer.
We review constantly our capital allocation strategy, as I mentioned.
We have a balanced strategy to pay down debt, opportunistically execute our common stock repurchase program and investing in our assets.
We want to make our assets as strong as possible, with the best tenant presentation as possible to the consumer.
I think it's the right strategy.
In addition, we raised our dividend, as you may know.
So we're comfortable with that current strategy and we don't see any reason right now to change it.
With no new development planned for 2019, I think that the free cash flow will continue to grow.
And with maybe $50 million this year after CapEx and paying for previous investments, may grow considerably next year.
And look, we constantly review our capital allocation strategies.
I don't see any reason for it today.
But you know what, we're a public company.
And as we get credit for shareholder-friendly governance, if someone wants to talk to us, we have a responsibility, and we're happy to talk to anybody as we have ever since we went into business as a public 25 years ago.
I want to thank everybody for participating today on our call.
As always, we're available for any follow-up questions, and we look forward to seeing everybody at NAREIT in a couple of weeks.
So have a great day and good bye, now.
| 2018_SKT |
2015 | CSX | CSX
#Well, clearly, we have the challenges of coal we've discussed pretty extensively here.
I think some of it depends on where the economy heads because, as you know, over the last two to three years, we've been growing those other businesses faster than the rate of the economic growth.
If the economy improves, we think we can do that again next year.
If it stays at a (inaudible) rate, obviously, it is much more challenging.
I think you are going to see us extremely focused on the productivity side.
You saw evidence of that here in the third quarter.
That same intensity we will bring to 2016 and we will take actions to make ourselves more and more productive going forward.
I think what you'll see is we are pretty far along in the adjustments that we are making for longer trains in our merchandise network.
We are also, as an aside, increasing the length of trains in our bulk network too, so we are taking ---+ we are pushing both levers.
What is great about the variable train schedule is, as demand requires, we can flex up and flex down.
So I think it will be a continuing effort on our part to match demand in what has traditionally been a fairly fixed ---+ what we've considered fixed ---+ network on our carload side.
So I don't know that the answer ---+ I think the answer is we are probably not ever done, but a principal and preponderance of the work has been done based on the demand that we are seeing right now.
And I couldn't remember your second question.
Passing sightings.
Passing sightings.
So I think we are evaluating really where we are in the corridors that we need to adjust the length of passing sightings.
We are really in the middle of that now.
So there's some corridors that are more impactful to us than others.
Obviously, the northern tier is mostly double track.
What we are going to be working on is in the southern part of our network that is preponderance of single track.
I think from a train perspective, I think we've taken advantage of our Northwest Ohio expansion and actually have reduced some train ---+ or increased some train length on our intermodal network as a result of that.
But we do have capacity on the trains for the foreseeable volume that we think we will see.
And I will remind you we've done a lot of work on double stack clearances and so forth as well.
So we feel pretty good about where we are there.
I think when we look at the coal network, it's kind of a spaghetti branch line kind of operation with some main lines in between.
As we are seeing some of the loaders ---+ loadouts ---+ either closing and consolidating, it is our ---+ we have an effort afoot here to try to figure out where the best efficiencies are.
Some of it will be main line operations.
Some of it will be facilities.
Clearly, the capital investments have been over time not maybe transparent externally, but have been over time coming down.
That will continue to take place and as we really lose on a particular branch or a particular line volume there, we can also look at repositioning some of the assets into other parts of our network where we are growing and back to the siding capacity question that I got a few minutes ago.
So there's kind of a multifaceted way that we are looking at it, but, as you can imagine, it's a very complex challenge because we want to certainly serve the customers that are loading.
It is very profitable business for us and as you probably would recognize, not everybody on one branch is closing.
We have multiple examples of places where we've got some closing, some not that we have to look at how we are going to serve.
So that project is underway and I probably can't give you more color than that.
I guess I would only add we do expect that Illinois basin coal to continue to grow.
As you know, we made an investment last year in what we call our Caskey yard to allow us to move unit trains from the Illinois basin down into the Southeast in a much more efficient manner.
So it's not just looking at some assets that are less intense, but also making sure we are positioned for the future growth.
I think it's probably a little early to look at that.
Obviously, we are still going to be making investments in the base safety and efficiency of our network, but, in addition, as we see our opportunities in the intermodal market growing, there will probably continue to be strategic investments there.
So I think it's a little early to give you an overall number on that.
So as far as productivity, we, obviously, want to be a reliable network and serve our customers, but we are probably never satisfied on the productivity side.
When you look at velocity and you look at ---+ to your point, take it a step back, we are seeing a concentration of volume on one portion of our network and we are seeing a tremendous reduction in volume on other parts of our network.
So you've got a compression there on top of building longer trains that we talked about, which in a single track railroad can be a little bit challenging, at least at the onset until we make maybe a few investments there.
I wouldn't say we have a target with cars online.
I think, with volume running well, you don't want that number to ever get to zero.
You want to be able to serve your customers and you want to be able to do it efficiently and effectively.
I think our viewpoints on going forward, it's probably on the productivity side, the cycle time of equipment and to a lesser extent maybe the velocity side.
Although that is an important component in terms of turning assets, but the asset component is really where we will be spending the most of our time.
Yes, so we've talked about that on previous calls that we are seeing the span on our arrivals decrease and that has continued into the third quarter.
So while the absolute number is exactly what you see, we are seeing the amount of lateness, if you will, go down.
And this is occurring as we are doing some tremendous ---+ I've talked about tremendous and significant changes to our operating plan.
So we expect that to get to more normalized levels going forward.
Yes, it's on the reported basis, <UNK>.
Well, I think your summation of the fourth quarter is correct.
It's probably too early for us to talk about the specifics on 2016.
We've certainly given you a lot of visibility into domestic and export coal.
And as we always do, we will be focused on the things that are most within our control ---+ rightsizing the resources, driving efficiency, running a better railroad and value pricing and growing what we can grow with the markets.
Well, I think evidenced today by the answers you've been getting from this new team we have in place, we have a super team here to drive us forward.
I think we've got the talent we need.
Our direction as a company is not changing.
It's all about controlling the things we can control, growing where we can and I'm very excited about it.
I will be around.
I've committed to be at least another three years to the Board to make sure that we have a good transition here as we work our way through this transition.
But I feel very good about it and I feel great about the team we have.
I do think we're going to stay away from specific guidance.
We are pretty transparent already in terms of the same-store sales that we provide you in terms of a look back in the previous quarter.
Intermodal is always the most difficult one to get sustained inflation plus pricing, but nevertheless based on the fact that we haven't been able to touch as many contracts as we would like since the beginning of last year, we do feel good about where we are heading on pricing going forward.
We have considered that.
At the same time, we are railroaders, not stock pickers, so we've also done some post-audit work on prior programs and really looked at whether or not a ratable approach or a timing approach was better and we are sticking with a ratable approach.
So you can anticipate a similar run rate to what you saw in the third quarter.
Well, <UNK>, that's interesting you mentioned that.
There may be a better way to look at it just as the absolute dollars.
Obviously, with the fuel surcharge revenues going down and as you know, that's not a profit element for us, but it clearly impacts those top-line revenues and maybe that percentage.
So I think thinking of it in terms of absolute dollars may be the way we evolve over time.
No, I think we continue to be focused on the intermodal side specifically on making sure that we continue to reinvest in the business.
We have a great service product.
We have a strong network.
We have some very innovative things in terms of what we've done with our hub-and-spoke system that gives us a network that I think is unparalleled in the East.
And as we move forward, we always will have a contract that comes up and we will always have some wins and losses over time.
The key thing for us, as I said, we've got to make sure we continue to reinvest in that business and that's how we judge in terms of how we look at and how we approach contracts.
Thank you, everyone, for joining us and we will see you again next quarter.
| 2015_CSX |
2017 | XEL | XEL
#Thanks, Ben, and good morning, everyone
We realized another solid quarter of earnings of $0.45 per share in 2017, compared with $0.39 per share in 2016. The most significant earnings drivers for the quarter include higher electric and natural gas margins, which increased earnings by $0.07 per share, largely due to the impact of rate increases in non-fuel riders to cover our capital investments, lower effective income tax rate, which increased earnings by $0.02 per share, the lower effective tax rate was mainly due to wind production tax credits which flow back to our customers through a rider or a fuel clause, and lower O&M expenses which increased earnings by $0.02 per share
Offsetting these positive drivers was increased depreciation expense, largely due to capital additions, which reduced earnings per share by $0.05 per share
Turning to sales, on a weather and leap year adjusted basis, our year-to-date electric sales improved 0.8%, reflecting approximately 1% growth in the number of customers across most customer classes and jurisdictions, offset by lower use per customer
Natural gas sales increased 1.7% year-to-date on a weather and leap year adjusted basis with a similar story, continued growth in the number of customers, partially offset by a decline in use per customer
While it's too early to call this a trend, it's nice to see that both year-to-date electric and natural gas sales are growing a bit better than expected
We continue to make progress on managing our costs
Quarter-over-quarter, O&M expenses were $19 million lower, largely driven by timing of planned maintenance at our power plants
On a year-to-date basis, our O&M expense is $10 million lower
We're focused on keeping our cost low, and are on track to deliver flat O&M expenses for the full year
Next, let me provide a quick regulatory update as we've made significant progress during the quarter and continued to execute on our plan
In the second quarter, the Minnesota Commission approved our multi-year electric rate case settlement agreement without modification
This multi-year plan covers 2016 through 2019, and provides the company and customers with revenue and price certainty
It also includes an annual sales true up, and continued use of all existing riders
In Colorado, the commission approved our advanced grid proposal and a decoupling mechanism with some modifications
First, the commission approved our advanced grid settlement
The project includes installing advanced metering infrastructure and communication networks, which will enhance grid reliability, improve the customer experience and enable new programs and rate structures
The settlement spreads the capital investment over a longer timeframe than originally proposed, deferring about $120 million of capital investment beyond our forecast
Second, the commission approved total class revenue decoupling for residential and small commercial customers
The decoupling adjustment will be based on actual sales, which eliminates the impact of weather
The commission modified our decoupling proposal and plan to file for reconsideration of the decision to calculate the decoupling based on class revenue rather than revenue per customer
We also filed rate cases in Wisconsin and Colorado
In Wisconsin, we filed to increase electric rates by $25 million and natural gas rates by $12 million
The filing is based on a 2018 forward test year, a 10% ROE and a 52.5% equity ratio
We anticipate a commission decision in the fourth quarter and final rates to be effective January of 2018. In Colorado, we filed a multi-year natural gas case seeking new revenues of $139 million over three years
The filing is based on a series of forward test years, an ROE of 10% and an equity ratio of 55%
We expect a commission decision and implementation of final rates in February of 2018. We're also planning to file electric cases in Colorado, Texas and New Mexico over the next several months
With that, I'll wrap up
Overall, it was an excellent quarter
We received regulatory approvals for a multi-year electric case in our wind proposals in Minnesota
In Colorado, the commission approved a decoupling mechanism in our advanced grid settlement
We filed proposals with the Minnesota and North Dakota commissions for termination or modification of higher cost PPAs, which will provide significant reductions to customer bills
Finally, we posted strong financial results for the quarter, and are well-positioned to deliver on our 2017 earnings guidance range of $2.25 to $2.35 per share, our 4% to 6% earnings growth objective, and our 5% to 7% dividend growth objective
This concludes our prepared remarks
Operator, we'll now take questions
Question-and-Answer Session
Good morning <UNK>
<UNK>, I think that the approval of our 400 megawatts of build-own-transfer wind projects in Minnesota would realize all that $700 million
That's correct
No, nothing discreet at this point, <UNK>
We're just working through the normal process of updating all of our capital plans for all of our operating companies
<UNK>, we've been committed to trying to close the lag in our earn to actual ROEs
We first started talking about this, I think our consolidated allowed was closer to 9.8% and we were earning closer to 8.9%
So we've obviously brought the bottom end of that number up
The top end has come down slightly, our weighted average authorized is closer to 9.6% now
I think in our first quarter call, we provided guidance that we were looking to be in or around where we were last year, and we hope to close that gap sometime in 2018.
Yes, sure, we can do that
Let me just say, I think, it's going to be more like the first quarter of 2018 for the final approval
We're on the ground, getting a lot of community support, legislative support
I think these projects are very popular for their obvious economic benefits
So this is about a $1.6 billion spend
I believe that increases our rate base and SPS by about 40%
As we know, we've suffered from some pretty significant lag at SPS
So our proposal is that we need concurrent recovery
The benefits are going to flow immediately to our customers
They're going to be significant
We need to get immediate recovery
And I'm cautiously optimistic that we'll get that, and we're going to need to get that
I mean, this is too big of an investment to put into place and suffer the historic lag we typically have
So that's what it's all about and that's what we're working on right now
Well, we haven't heard anything that would suggest that we can't work through a settlement, and that would be the ideal outcome
But these things take time
Chris, it's Bob
As Ben said, the reason and the rationale for the counterparties is really that the benefit to the customers is the fuel cost
The owners of the assets aren't making significant margins on the assets
The benefit to the customer is to get rid of a significantly high fuel cost that is relatively a pass-through to the other side's owners
Yes, 100%
Well, I think what you're talking about what jurisdictions, <UNK>
Is that what you mean, percentage?
Let me – give me some help here
I think Texas is about what, 60%?
So that's how it will be allocated
Thank you all for participating in our earnings call this morning
Please contact our Investor Relations team with any follow-up questions
| 2017_XEL |
2015 | RGEN | RGEN
#Thank you, <UNK>, and good morning.
2014 was an excellent year for Repligen.
As reported today, we had record sales of our bioprocessing products of $60.4 million, an increase of 27% over 2013.
Our results derived from strong organic growth of approximately 13% in addition to $6.8 million in sales of the ATF product line which we acquired from Refine Technology in June.
We also expanded our gross margin to 53.6%, an improvement of approximately 98 basis points despite a $400,000 or 68 basis point headwind due to ATF inventory re-evaluation and nonrecurring ATF manufacturing transition costs.
Our R&D group completed designs or prototypes for three new products scheduled for launch this year and they developed yield improvements for several high-volume processes to support continued improvements of gross margins.
We bolstered our management team with the hiring of <UNK> <UNK> as our Chief Operating Officer and <UNK> <UNK> as our Chief Financial Officer to effectively manage our expanding business.
I am pleased that <UNK> will be our next CEO and I'm confident that his commercial experience in the bioprocessing market will serve Repligen well.
To prepare for this next phase of growth, we also significantly expanded our sales force and commercial infrastructure to enable us to more effectively sell our OPUS and ATF product lines directly to end-users worldwide and to support the launch of new products in 2015.
With the opening of our new ATF manufacturing facility in January of this year and additional office space last quarter, we have completed our capital investment program to support our expansion for the next three years.
And we ended the year with a strong balance sheet including $62 million in cash and no debt.
In summary, we believe we have in place the product portfolio, the management expertise, the facilities and the financial resources to support sustained growth and increase profitability in the growing market for biologic drugs.
Our business strategy is based in part on our belief that the market for monoclonal antibodies will continue to expand driven by the introduction of new antibodies which address significant unmet medical needs and a growing contribution from Asia.
In 2014, there were a record eight new antibody products approved including two exciting new products for cancer from Merck and Bristol-Myers respectively.
We also saw the filing of marketing applications for two monoclonals developed by both Amgen and Sanofi which address the significant need to reduce elevated levels of cholesterol.
And there are many other exciting products in the pipeline.
We believe that the monoclonal market will expand at 8% to 10% for the next five years driving the growth of both our Protein A business and the opportunity for our proprietary products.
Now I will turn the call over to <UNK> for a review of our 2014 results and our expectations for 2015.
Thank you, Walt.
Good morning.
Today we reported our financial results for the fourth quarter of 2014 which were highlighted by strong sales of our key bioprocessing products.
We reported product sales of $15.4 million, an increase of approximately 49% compared to Q4 of 2013 despite a 6% headwind from foreign currency fluctuations in the quarter.
We experienced increased demand for Protein A affinity ligands in our OPUS line of pre-packed chromatography columns during the order.
In addition, we had record sales of ATF products with strength in both benchtop and production scale units.
As a reminder in the fourth quarter of 2013, Repligen received $5 million of royalty revenue from Bristol-Myers Squibb based on their US sales of Orencia under an agreement that expired on December 31, 2013.
For the fourth quarter of 2014, gross profit from bioprocessing product sales was $7.3 million or 47.5% of product revenue compared with $5.7 million or 55.3% for the same period in 2013.
The lower margin percent versus 2013 was the result of expected Refine integration costs and reduced capacity utilization in our Swedish factory.
Research and development expenses of $1.3 million were approximately equal to the fourth quarter of 2013 as we continued to invest in three key product development programs scheduled to launch in 2015.
SG&A expenses increased from $3.4 million to $5 million as a result of expected investments in our management and commercial teams and costs associated with the buildout of infrastructure and personnel to support our future growth.
The acceleration of ATF sales in 2014 resulted in an achievement of the 2014 Refine contingent consideration sales milestone.
This coupled with an increased probability of achieving the 2015 sales milestone required an additional $2 million of contingent consideration expense to be recorded in the fourth quarter.
The fourth quarter of 2014, we reported an income of $61,000 and realized a net loss of $399,000 largely driven by the impact of the $2 million Refine contingent consideration expense and timing of income tax recognition.
Now turning to the full-year 2014, we reported product sales of $60.4 million, an increase of 27% over 2013.
We had a modest negative impact of 0.5% on full-year product sales from foreign exchange fluctuations.
Product gross profit was $32.4 million or 53.6% of product revenue compared with $25 million or 52.7% for 2013.
The higher margin percentage in 2014 was the result of higher production volumes and benefits from yield improvement programs in our factories.
Full-year research and development expenses of $5.6 million were $1.7 million lower than 2013 due to discontinuation of the Company's drug development programs.
SG&A expenses increased from $12.7 million to $17.2 million as a result of expected investments in our management team and commercial organization as well as costs associated with the buildout of infrastructure and personnel to support our future growth.
Full-year operating income of $10.7 million is below the $22.9 million in 2013 due to lower royalty income of $15.2 million and the aforementioned Refine consideration expense.
Net income for the full-year 2014 is $8.2 million versus $16.1 million in 2013.
Cash and investments as of December 31, 2014, totaled $62 million compared to $73.8 million as of December 31, 2013.
The reduction was driven by the Refine acquisition and CapEx related to the expansion and buildout of our Waltham facility, partially asset by cash generated from business operations.
Today we are also issuing full-year guidance for 2015 which is based on current foreign exchange rates.
We are projecting total revenue in 2015 of $72 million to $75 million comprised exclusively of product sales and reflecting 19% to 24% total sales growth.
This is comprised of organic growth of 18% to 23% less a foreign exchange headwind of 7% plus an 8% gain from the full-year effect of ATF product sales.
Product gross margin is expected to be 55% to 57% as we continue to increase capacity utilization and implement process improvements.
We expect gross profit to be largely hedged from foreign exchange exposure as we have a significant percentage of both our sales and manufacturing costs denominated in Swedish krona.
Operating expenses for the year of 2015 are expected to be $60 million to $62 million including SG&A expenses of $21 million to $23 million.
The expense increases are driven by higher product volumes and investments in selling and infrastructure to support our growth.
We expect R&D expense of $5 million to $6 million as we complete the development of three new products in 2015.
Total income from operations is expected to be $12 million to $14 million including a $1.5 million Refine contingent consideration expense that will be required if we achieve the 2015 revenue milestone.
Net income is expected to be $8 million to $10 million including estimated taxes of approximately $4 million.
Our forecast for the year also includes $4.5 million to $5 million of depreciation and amortization expense compared to $4 million in 2014.
Key drivers include amortization from the refined technology acquisition and depreciation from our Waltham facility expansion.
Capital expenditures are expected to be approximately $2 million to $3 million to maintain existing facilities and equipment and to complete the Waltham renovations in the first quarter of 2015.
Based on the aforementioned projections, we are expecting year-end cash of $73 million to $75 million.
Our guidance for 2015 does not include the impact of future fluctuations in foreign exchange rates, potential milestone payments from BioMarin or possible future acquisitions.
I will now turn the call over to <UNK> for his view of 2015.
We expect to file on or before the 17th.
Sure.
We have actually, from prior guidance, seen growth in generally of our product lines, <UNK>.
So it spans from affinity ligands all the way through ATF and OPUS as well as growth factor, so we are seeing demand up by everywhere.
I think that's reasonable but those numbers are folded into of course the estimates for OPUS being up 50% for example.
That includes the new product contribution there.
I think for us the story and the revision of the guidance, as <UNK> said, was just a ground swell across all product lines growing with affinity 8% to 10% and the other lines much more robustly.
And typically we've seen in past periods some product lines advancing more robustly than others.
What we are seeing this year is all product lines advancing together leading to a much higher organic growth projection for the year.
That is all encompassed within our projections of 55% to 57% margins.
So that would represent expansion over 2014.
Also the fact that as we increase the projection for the affinity ligands, we get incremental better capacity utilization both in the Lund factory and the plant here in Waltham as well.
It's a combination of both of those effects.
There is always media ---+ it's Walt.
There is always media involved but what we do see as the columns get larger and the media acquisition costs get larger, we see customers actually supplying the media, consigning it to us, so with the 45 centimeter it was closer to the 50-50 ratio of columns versus media as compared to a higher ratio of media in some of the really small columns where we always buy the media.
So I expect at the end of the day as we look forward with the 45 centimeter and 60 centimeter, it will be 50-50 columns of media as more and more customers take advantage of large volume discounts they get from the media suppliers themselves.
| 2015_RGEN |
2016 | JBL | JBL
#Sure, <UNK>.
Just to clarify, right.
And maybe you understood it correctly, but just I want to be sure.
I wasn't saying ---+ so in the June call, what I said was, is that our EMS business, first half of 2016 to first half of 2017, we thought that business would grow at a core operating line 3% to 4%.
What I'm saying now and on this call is, is that we think EMS year-on-year, so all of 2016 compared to all of 2017, will probably grow more like 5% to 6% in terms of core operating income.
So if you ---+ last year, we did around $370 million I think in EMS.
If you just struck a midpoint to that and said, okay, what <UNK>'s saying is, is they did $370 million or so in 2016, multiply that by [1.055], and that would be a good barometer for FY17 in terms of EMS.
And then just roughly, if you layered in the four quarters revenue-wise to be similar to FY16, I think that would be a reasonably good model.
And then, what I said on top of that was, is for the entire FY17, I thought that the core operating margins for EMS would be 3.4% to 3.5%.
No.
If you did a scattergram on that, <UNK>, it's really all over.
And it really wasn't tied to, if you will, any specific businesses.
I pulled my whole staff together for six months of meetings.
We talked a lot about our three year strategy.
And then, we had a lot of discussion from a geographic standpoint, from a cost standpoint, from where business was headed.
And so, I wouldn't characterize it as one segment or another, or one business or another.
It's across the whole Company.
Yes.
It did come down pretty dramatically this quarter.
Based on our performance, we're not going to see vesting.
So US GAAP forces one to write back that expense.
So really as we're moving forward, I think I'd model somewhere in the region of $60 million for FY17.
Think of that roughly $15 million a quarter, something like that.
Thanks, <UNK>.
(Laughter).
Right now, we're just not going to talk about the back half, <UNK>.
And I appreciate, and so understand your question.
Could it be.
Yes.
Could it not be.
But we're just ---+ I think as we get to the December call, there's a lot of moving parts.
I know you're really close to the mobility space.
You can appreciate it.
We'll have a better sense as we get to the December call, on how the back half looks.
Yes, absolutely.
As I talked about $500 million to $600 million in CapEx, our D&A is running what, closer to $700 million, something of that nature.
So, yes, a nice delta there, and we think about that through 2018 also.
So as I said, feel very comfortable with the free cash flow number that <UNK> discussed, and cash flow from operations north of $1 billion.
There will be ---+ I think the majority of it will be through the SG&A line.
There will be some through the gross margin, clearly with some of the capacity realignment.
So sort of think of it, maybe 80/20, 70/30, something like that, SG&A to gross margin.
You're welcome.
Thanks, <UNK>.
Appreciate that.
We feel good about 50 years as well.
Feels like 350 years sometimes, but anyway (laughter).
<UNK>, I don't think I gave any commentary around overall sales for FY17, and neither did <UNK>, I don't believe.
What I think we did say is, is that you can get to it, you can kind of get to an overall EMS number.
If you think about the fact that I talked about core operating income for the year being up around 5%, 6% ---+ you want to be conservative in your models, use 5%, 5.5%.
And I said the margins would be 3.4%, 3.5%.
So take the core operating income, divide by the margin, and you can get yourself a pretty accurate, I think, revenue number for EMS as we sit today, and the way we see the outlook.
In terms of DMS, though, we didn't give any guidance at all for the year, nor will we, and we might, as we get to the December call, but we'll see how things look.
In terms of Q1, <UNK>, we didn't talk much about overall sales detail, other than to give you a number, which would suggest that our DMS revenues are down quarter to quarter, Q1 2016 to 2017, and our EMS top line is about flat.
So ---+ and again, even with that, Q1 2016 was what I would kind of characterize a bit of a blow-out quarter.
And I feel really good about the guidance we're offering today on Q1 of 2017.
In terms of the segments, <UNK>, yes, we'll cover that next week, as <UNK> said, there was a reference, we're having some of our leads of business present.
And we'll certainly give you an overview of that.
As we move into Q1, the guidance would suggest it's at the lower end of the range, that long-term range that we've had out there in the low 5%s.
But as I say, we'll give you a little bit more color on that next Tuesday.
Steve, on your first question, I think our Q4 came in largely as we expected.
So as far as a drag on gross margins, I just don't see it that way.
Q4 largely was just like we expected it to be.
We knew it would be, again, an investment quarter, and a ramp quarter.
In terms of does DMS ever get back to, quote, normalized margins, let's see what happens this quarter, and then again as we move through the year, we'll look at that, and we'll talk a bit about that in discussions on Tuesday.
In terms of the CNC [gear], not going to give you a breakdown of all that, other than to say that there's no volume CNC gear that is anticipated at all in the restructuring.
And so, by kind of the sheer nature of that comment, I think it's a pretty fair assumption to think that over the next couple years, we'll continue to have all that equipment well consumed.
Yes, thank you.
Thanks, <UNK>.
I don't know if I'd consider it step function, but, yes, pretty bullish.
I think in my prepared comments, I talked about healthcare and packaging year-on-year being up 15% on a core earnings line.
That's pretty substantial in this environment.
So I would read into that bullishness for sure, and we've really never broken that out.
Maybe as we get to the December call, we'll ---+ I can tell you it's starting to become material.
And we're really happy with what we've built over the last two or three years and where that's headed.
We'll talk in depth about the strategy around packaging and healthcare on Tuesday.
And then maybe as we move through the year, either the December call or March call, we'll at least start giving you a little bit more color on top line in those areas.
But yes, I think your read on that is, yes, not step function but good bullishness around healthcare and packaging.
<UNK>, I give you credit.
I'm thinking to myself, how many different ways could they ask about us providing guidance for the year.
(laughter) That was pretty clever.
And the answer is, is you've got a lot of information around our healthcare and packaging business.
You've got a lot of information around our EMS business, and we'll give you better color around the year hopefully in December.
Yes, that was a good attempt, applause.
Operator, we have time ---+
We saved the best for last, <UNK>, you're up.
(Laughter).
Thanks, <UNK>.
On the program wins, let's wait until Tuesday, and I think you'll get a sense of the energy and what's going on.
In terms of providing any more detail and color around, again the healthcare and packaging side, I'll just ---+ I'll again say, that it's an area of focus for us.
And as we sit today, we're pretty encouraged by that.
So I guess, I'll just ---+ I'll leave it at that.
And again, as we get further through the year, I think it's a fair expectation that we'll provide a bit more color around those two aspects of the business, because they'll start to become more and more material.
Yes, you're welcome.
Very good.
Thank you everyone for joining us on the call today.
We will look forward to seeing many of you next week at our Analyst meeting here in St.
Petersburg, Florida.
But I'll also remind you that we'll be here the rest of the week, and happy to do any follow-up calls that you might find necessary.
So thanks again for joining us.
| 2016_JBL |
2015 | EBIX | EBIX
#Thank you.
Welcome, everyone, to Ebix Incorporated' s 2015 first-quarter earnings conference call.
Joining me to discuss this quarter is Ebix's Chairman, President and CEO <UNK> <UNK> and Ebix EVP and CFO Robert <UNK>.
Following our remarks we will open up your call for questions.
Now let me quickly cover the safe harbor.
Some of the statements that we make our forward-looking including among others statements regarding Ebix's future investments, our long-term growth and innovation, the expected performance of our businesses, and our use of cash.
These statements involve a number of risks and uncertainties that might cause actual results to differ materially from those projected in the forward-looking statement.
Please note that these forward-looking statements reflect our opinions only as the date of this presentation and we undertake no obligation to revise or publicly release the results of any revisions of these forward-looking statements in light of new information or future events.
Additional information concerning factors that could cause actual results to materially differ from those in the forward-looking statements made today is contained in our SEC filings which list a more detailed description of the risk factors that may affect our results.
Our press release announcing the Q1 2015 results was issued earlier this morning.
The audio to this investor call is also being webcast live on the web on www.Ebix.com/webcast.
You can look at Ebix's financials beyond what has been provided in the release on our website, www.Ebix.com.
The audio and the text transcript of this call will be available also on the Investor homepage of the Ebix website after 4 PM Eastern standard time today.
Let's start by discussing the results announced today.
Bob and I will talk about the company from a financial perspective and then <UNK> will sum up and provide some added color on the quarter and the times ahead of us.
Revenue in Q1 2015 increased 24% from a year ago to $63.8 million.
On a constant currency basis Ebix's Q1 2015 revenue increased 28% year over year to $65.7 million as compared to $51.4 million in Q1 of 2014.
Also on a constant currency basis sequentially the revenue increased 7% to $64.9 million as compared to $60.6 million in Q4 2014.
In Q1 our exchange revenues continue to be the largest channel for Ebix accounting for 73% of the company's revenues.
The year-over-year revenues increased as a result of revenue growth from life, annuity, underwriting, CRM, and health e-commerce services, in addition to revenue growth generated from the companies 2014 acquisitions of Healthcare Magic, VERTEX, Oakstone partially offset by the drop in revenue from international locations as a result of the strengthening US dollar and a decrease in revenues from the Company's pharmaceutical and P&C Carrier backend operations.
Life exchange revenues grew 13% year over year in Q1 of 2015 while annuity revenues grew 3% and underwriting exchange revenues grew 15%.
CRM revenues grew 2% in the same year-over-year period.
Health content revenues were up 84% aided by the recent acquisition of Oakstone's continuing education business.
RCS revenues were up 255% because of the recent acquisitions of VERTEX and i3 consulting businesses.
The revenues in Q1 of 2015 were primarily impacted negatively by the recent decision of the Company to scale down its life sciences division as a part of its focus on increased margins resulting in pharmaceutical group revenues being 50% lower year over year.
The Carrier business was down 16% year over year due to reduced professional services associated with certain P&C carriers going into production as also lesser emphasis in the Company and nonrecurring license and professional services-based product sales.
The year-over-year exchange in Broker revenues were also impacted by the strengthening of the US dollar that resulted in Q1 2015 revenues being negatively impacted by $1.9 million.
In spite of Australia reporting one of its strongest top-line revenue performances ever in local currency, its revenues year over year were down by approximately $1.2 million since the US dollar has appreciated 12% year over year as compared to the Australian dollar impacting Australian revenues adversely.
Our Broker business revenue which is primarily international based decreased by approximately $750,000 in Q1 2015 as compared to Q1 of 2014 due to the strengthening of the US dollar.
Our Carrier P&C policy administration revenues dropped year over year by a approximately $550,000 due to reduced professional services associated with certain P&C carriers going into production as also lesser emphasis on the Company on nonrecurring license and professional services-based product sales.
I will now turn the call over to Bob.
Thank you, <UNK> and thanks to all of you on the call for your continued interest and support of Ebix.
Q1 2015 diluted earnings per share of $0.51 was up 28% for the first quarter of 2014.
For purposes of the first-quarter 2015 EPS calculation there was an average of 36 million diluted shares outstanding during the quarter as compared to 38.6 million diluted shares outstanding in Q1 of the year earlier.
Assuming we look at the anticipated impact of all stock repurchases made to date as if they had been in place at January 1, 2015 of this year the diluted share count would be 35.2 million, implying that the diluted EPS would've been $0.52 or $0.01 increase over our reported numbers.
As of today the Company expects the diluted share count for Q2 of 2015 to be approximately 35.2 million shares.
Operating income for the first quarter of this year was $20.5 million as compared to $19.4 million of operating income in the first quarter of 2014.
Ebix's Exchange business continued to have strong margins of 35% while the recently started Ebix Consulting Group had margins of approximately 16%, cumulatively resulting in the aggregate in 32% operating margins for the first quarter for the full Company.
The Company recently undertook several steps to improve operating efficiency including, increasing use of offshore resources in many areas of the business such as the life sciences group and thusly we expect our operating margins to improve going forward.
Operating cash flow for the first quarter as reported was at actually a net cash outflow of $7.3 million.
However, before the payment of the IRS settlement and legal fees in connection with the securities litigation it would have been a net cash inflow of $13.9 million as compared to $10.8 million for the first quarter of 2014.
First-quarter 2015 was negatively impacted by the previously disclosed one-time cash payment of $20.5 million which included interest of $1.6 million in regards to the settlement of the assessment of the Company's Internal Revenue Service audit for its tax returns for the years 2008 through 2012.
In addition to the above the Company also returned $25 million to our shareholders in the first quarter of 2015 as a result of a $22 million share repurchase reacquiring 995,000 shares and a dividend payment in the amount of $3 million for the quarterly dividend of $0.075 per share.
The Company also spent $1 million towards the acquisition of [VMV].
During the past quarter the Company drew $15 million from our revolving credit facility with Regents leaving approximately $105 million of available borrowing capacity from this recently expanded commercial banking credit agreement, which together with our aggregate cash, cash equivalents, and short-term cash deposit investments in the amount of $20.7 million as of the quarter end provides Ebix with approximately $132 million of financial resources to support the continued profitable growth of the Company both organically and through accretive acquisitions to officially integrate recent business acquisitions and to repurchase shares of our common stock.
This cash flow model in our view validates the sustainable value of the Ebix's business model.
Furthermore as the key balance sheet metrics and the health of our balance sheet as of the end of the first quarter our working capital position stood at $35.2 million, our current [ratio] stood at $1.74 million and our accounts receivable was a healthy 64 days.
Finally, Ebix's Form 10-Q will be filed this coming Monday, May 11.
I will now pass the call to <UNK>.
Thanks, Bob.
Good morning.
Before I get started I wanted to say that I have a bad throat so please bear with me.
<UNK> and Bob have already discussed the quarter in numerical and quantitative terms.
I will discuss the quarter briefly and then focus my talk on what I see ahead of us.
Let me first address the top line.
On a constant currency basis Ebix Q1 2015 revenues increased 28% year over year to $65.7 million as compared to $51.4 million in Q1 of 2014.
Also on a constant currency basis sequentially the revenue increased 7% to $64.9 million as compared to $60.6 million in Q4 of 2014.
During his talk <UNK> talked about the drivers behind this top-line growth in Q1 of 2015.
The area of life exchanges appears to be a good growth driver of top line in the short- and long-term future.
In the 2014 Annual Investor call we had announced the signing of 4 new enterprise deals with large carriers in the life exchange arena.
That trend continued in the first quarter of 2015 with three large carriers deciding to deploy our enterprise life exchange platform.
We expect to continue on the momentum that we have built in this area.
We signed new contract with clients in every facet of our business including RCS, broker systems, health e-commerce, health content exchanges, under-lighting exchanges, annuity exchanges, backend systems, and consulting contracts, et cetera.
I'm pleased that our top line grew in spite of the currency rates hurting us substantially to the tune of $1.9 million year over year and the conscious exercise we carried out in Q1 2015 to move our life sciences and pharmaceutical business completely offshore to ensure that the business generated higher margins.
This decision in the short term came with a substantial drop in Q1 2015 revenues from the life sciences growth until our offshore operations were ready to handle the new workload.
I can report that we have now successfully transitioned the work to our offshore centers and we now have the ability to service scaled-up revenues from this business at sufficiently improved margins.
We are pleased with our pipeline of new opportunities and the healthy list of clients who are in the deployment queue.
We are in the mist of a number of large-value deals that can have a material impact on our top line.
These deals are in the area of e-health, e-governance, enterprise life exchanges, and reinsurance.
While I cannot discuss these deals in specifics for competitive reasons yet I'll try to cover the opportunity at a broad level.
Let's first start with the news of Ebix having been selected to deploy an end-to-end London market exchange solution by BPL for the entire London market.
There's been a lot of speculation on the side of the deal the public announcement the timeline for the contract and the backing that that aggregation exchange will receive in the London market.
Firstly, let me state that BPL is a body that has a backing of all the key London market players who control premiums in the market.
BPL board comprises all the leading insurers, leading end writers, and broker associations, super brokers like Aon, Marsh, Willis and JLT with Lloyd serving as the observer.
BPL represents the might of one of the largest insurance markets in the world with Accenture serving as their advisor to them for the selection process.
Let me confirm that we are at very advanced stages of contract finalization with BPL.
While BPL is working through the cost allocation with its 150 plus key market product expense.
This is the first a deal of its kind in the world insurance market where in all the market product expense will be engaged on one common aggregation exchange.
Accordingly, this involves complex negotiations to ensure that the rights of all participants are protected.
We believe that this is a highly prestigious and strategic exchange that's going to show the way to the rest of the world insurance market.
While we cannot reveal the size of the contract at present let me just say that the five-year contract is likely to have substantial guaranteed annual revenue that's associated with it from inception as the intent is to aggregate the London market on this exchange.
We expect to make a public announcement on the details of the arrangement jointly with BPL once the contract is formally signed and we have worked out the announcement details jointly with BPL.
We are also presently in the mix of a number of deals in the area of e-governance and e-health that are even larger in size than the BPL deal that I just talked about.
We have a very strong pipeline of large opportunities in the government sector and international markets which can have a big impact on our top line.
To give you an example of the scale of these opportunities, one contract in the government sector can be worth $25 million in one year for Ebix.
While there are no guarantees that we will secure any of these large size contracts yet we believe that we are well positioned to pursue such opportunities.
Some of these large size deals involve a consortium of vendors working together with Ebix as a lead bidder in the consortium.
As a lead bidder we're teaming up with a few of the big four consulting firms to pursue such opportunities.
For example, we are presently pitching various versions of state-funded healthcare to governments in certain international geographies as an infrastructure end-to-end technology and systems integrated player.
These opportunities involve connecting hundreds of state-funded hospitals with insurers to manage the health insurance and medical needs of people below a particular level of income through a state-funded program with Ebix providing the entire backend infrastructure.
We're also bidding on an opportunity to provide a national health portal to the government of a country with patient education, health PR, health media, TV planning and execution, et cetera included as a part of the deal.
Two quarters back I had said that we are focused on ensuring that by fourth quarter of 2015 Ebix has an annualized run rate of $250 million to $260 million.
Our Q1 2015 results show that the annualized Q1 2015 revenues translate to an annual run rate of $255 million already.
I am accordingly revising our Q1 2016 annualized run rate goal now to be $300 million.
Let me emphasize that this by no means is guidance for the future, but an aspiration that we will strive for.
This goal will be aided by all the growth initiators that I discussed and also by our acquisition strategy.
Now let me talk about our aspirations as regards to earnings growth.
We believe that we can grow our earnings by following a multi-pronged plan.
One, growing our exchange top line organically to the initiators discussed earlier.
We believe the top line growth will be accompanied by incremental operating margins as the exchange-business model delivers increased margins with each new deployment beyond the perpetual level.
Two, being opportunistic and making large accretive acquisitions of complimentary insurance and financial services in international markets.
We believe that the strengthening of the US dollar provides us with the increased ability to get a lot more in international markets at present.
Also, our ability to streamline businesses allows us to generate margins at a traditional high operating margin levels sooner rather than later.
With cost of debt being at a historical low the acquisitions have the potential of being relatively more accretive now.
Three, not using stock as an instrument to make acquisitions.
We are not intending to use stock as an instrument to make acquisitions as the cost of stock is a lot more than the cost of debt and it reduces the accretive nature of an acquisition especially with our stock trading at low multiples at present in our viewpoint we do not feel comfortable using Ebix stock as an instrument.
Fourth, continue to use our operating cash to repurchase our own stock back.
The Company repurchased 994,869 shares of the Company's common stock in the first quarter of 2015.
While the Company has repurchased an additional 289,365 shares of the Company's stock since April 1, 2015 on August 25, 2014 the Company announced its intent to purchase up to $80 million of shares over the next 12 months.
I'm pleased to report that we have already purchased 3.54 million Ebix shares for $65.6 million since that announcement in approximately 8 months period.
We intend to continue with a share repurchase plan for the next few years until our board believes that our stock is trading at multiples that suit our Company without operating margin levels, operating cash flow levels, and recurring revenue characteristics.
Five, continued focus on high-margin services being serviced from low cost, high quality offshore centers.
All of this allows us the opportunity to set a goal of increasing our margins and earnings per share by as much as 50% in terms of earnings from the present levels sometime in 2016.
Again this by no means is guidance for diluted EPS, but an aspiration goal for the Company.
As Bob conveyed during his talk we have accessed $132 million of financial resources as of March 31, 2014 in the form of cash and cash equivalents and access to a bank credit facility.
This $132 million number does not include the prospective cash flows generated from operations by the Company over the next 12 months.
Thus we believe that we have the financial resources to carry out all the growth initiators discussed here with a goal of delivering improved diluted EPS and increased shareholder value.
Lastly, let me say that the 2,400 plus Ebix employees are at the heart of the accomplishments of the Company over the last decade and continue to be so.
I'm proud of their continued innovation, passion, and dedication that make all the accomplishments possible.
That brings me to the end of my talk.
I will now hand it over to the operator to open it up for questions.
Yes, <UNK>, first of all let's talk about the company the landscape because we're talking about a variety of deals.
These deal involve a variety of sectors, so our competition will tend to be different.
Some of the larger deals in the area of e-health.
The competition is going to be, I don't want to name the players there but these are large system integrator players that we all are familiar with across the world.
We also, at times, will deal with competition will be a consortium.
For example, I'll give you an example of one kind of deal, where Ebix would be a lead better bidder and we would have also another small software vender for a pretty close solution set, because the overall all solution is complex.
Also as a consortium partner, they would be a hardware vendor as a consortium partner, and then there would be a big 4 form providing some of the data, for example, that particular requirement with Ebix being the lead software player, lead system integrator, lead bidder in the whole process.
Our competition will tend to be similar, who would bring in a consortium to play.
Now believe we have an edge in some of these deals simply because of the expanse of the services we provide, because of our ability to provide a solution that on day one can exhibit that we already have the largest number of pieces of what they are looking for, so we do feel that we are well-positioned on that front with respect to these deals.
So the competition would be at times you could have another big four player teaming up with another large system integrated player, another insurance large financial services player, at times a pure P&M ---+ a pure project shop, a pure large company who just specializes in doing mostly software application jobs, projects, and things.
So in terms of timing ---+ to address your next question, in terms of timing these deals, are deals we don't go on for years in terms of decision time.
If your question is related to the timing of a decision, these decisions can happen any time, they could start happening in the next 90 days, or they could take the next ---+ basically, there are a lot of deals out there.
Decisions will continue to happen with respect to whether we win or lose.
They will be decisions that continue to happen.
Yes so the difference between the two is that yes, we won to deal.
We've been officially notified that we've won that we have won the deal at the same time basically what happens is this is a deal where all the money is coming in from PPL to us, and PPL in turn has to have constituents out there who are, they have to allocate all that cost out with everybody else.
So they are somewhere in that process.
So what happens in a deal like this is, you have to have back-to-back agreements with all the players and so somewhere we are in the process of that contract finalization.
So the first step of it was running through a complete detailed RFP with Accenture, and the second step was conveying the decision to one of the bidders that hey, you're out, to one of the bidders that yes, you been selected.
The third step of it is finalizing the contract.
We believe we are in the very advanced stages of getting that finalized.
I think parallelly the basic delay is not associated with the contract finalization.
It is with respect to, I wouldn't even call it a delay.
It's basically, when you do a deal of this nature you have to make sure that the rights of everybody are protected and they are doing the right thing in the back and that's where we are.
I think the first question, let's talk about you talked about 16% for Ebix consulting.
That's in operating margin, not a gross margin.
You I think might have mistaken 16% for gross margins.
So, that's the operating margin as far as the consulting business is concerned.
Coming back to it, you will see that overall, I'll address one more different question, that you will see that our gross margins overall will look a little bit lower, I think 71%, for example.
And that's primarily because what will happen is that, that really does not reflect anything about operating margin, simply because when you buy ---+ when you have a consulting business, a consulting business the cost of service is going to be very high.
At the same time in a consulting business you don't really have any other costs.
The remaining costs are so minimal that your overall operating margins, it doesn't really reflect on the operating margins.
But coming back to what is our goal with respect to the consulting business, I think our first goal is to take that 16% to a 25% margin.
We do believe we can take it there.
We have actually may have taken a lot of steps already in that direction and we do think that we are going to get there sooner rather than later.
That's the first answer to it.
Where can be ultimately take it.
We do believe that there's a place for a strategic consulting player in the market.
Part of it is we believe the reason we entered this market, you know when ---+ Ebix is an end to end player.
We want to be instrumental in decision-making, in carriers, in associations, in defining what are the technology trends.
As a consulting player it gives us the business process of engineering, it gives us a seat at the table, in terms of BPR, in terms business process, making decisions.
Having said that, when you look at niche firms in consulting, we're not going to compete with some of the system integrators of some of the normal software project players coming out of different destinations from across the world.
We are a niche player.
Our forte is insurance, our forte is healthcare, our forte is finance.
We're going to focus on these three niche areas and as we get more deep into what we believe we can charge much higher rates than others simply because we bring a different level of knowledge.
We bring a different level of successful knowledge of having done that rather than just providing a dollop in body to somebody.
That's not our focus.
So, having said that we do believe that the margins can be a lot higher than 25%.
Now, with respect to, what was the last part of your question.
We feel that we want to be absolutely back to the 40% kind of range.
We believe that we are going to get there.
Part of it is that we believe that if some of the things that we have already in hand, some of the deals that we have already agreed to, as they start getting deployed the margin characteristics of those deals are much higher, and because they are exchange related deals they will automatically bring up our margins.
And also as we take some of the key decisions we took, meaning for example, I talked about the life sciences pharma group.
In Q1 we consciously took our revenue down.
We basically, we terminated quite a few employees, we moved operation down to India, and our goal was rather simple.
Our goal was, we weren't getting enough margins out of that business and we felt that's hurting us.
The revenue is not good revenue for us.
We want to revenue coming with higher margins, so we took consciously our revenue down, because we have to be ready first in India to be to handle that ---+ be ready for handling that.
We built a knowledge base first of all.
We did that and now as we do that, that will bring increased margins, for example, in that business and we're doing the same thing on the consulting side of the business.
And as we deploy some of these exchange deals every exchange deal, the nature of exchanges is that every new dollar that comes on an exchange comes with an incremental margin, and the reason is rather simple that if you have an exchange where you have already deployed X number of participants, the next participant that you bring in your not adding necessarily new hardware or new infrastructure added or new databases added.
You're basically making them a consituent of existing infrastructure.
Accordingly it generates a lot more margins for you.
So we do believe we will get back to at least the 40% mark that we need to first get back to before we start thinking about the overall growing beyond that point.
Sure.
As far as the PP&E is concerned, our investments in the quarter primarily consisted of, hang on one second please, primarily consisted of here you go, ---+
Here you go, sorry in the quarter, $5 million was used to the continued build out of the global corporate headquarters here in the Atlanta area.
In the corporate headquarters.
And the other $1 million was used for the acquisition of Via Media Health and an additional $400,000 for general capital expenditures for the expansion of our network.
What was your question on EPS.
I don't have that.
I'll have to get back to you on that one.
Let me first address your previous question.
You talked about what was the currency impact.
I actually have that sheet I'm just looking at it right now.
The impact on earning was somewhere slightly more than $0.02 after exchange variation on EPS.
That is the first part of the question.
Second part of the question, you asked about with respect to, did you say ---+ .
Is your question basically that do we have sufficient capacity to do the things that I talked about, or do we need to take more debt.
Let me go ahead and address that.
In terms of our future growth, be it funding organic growth, integrating our recent acquisitions, or doing new acquisitions, we will fund that through a combination of both use of our credit facilities, as well as cash on hand, and cash being generated by our ongoing operations.
<UNK> if we need it, remember as I talked about ---+ during my talk I talked about $132 million available to us on top of it layering operating cash on top of that.
That takes it to obviously a number which is substantial when you add operating cash versus the next 12 months with $132 million.
Now beyond that are our banks willing to step up.
We believe so.
Again, I can't speak for the banks right now, but I will tell you that every indication we have a from everybody is they, banks like to see increased growth, banks like to see increased operating characteristics, increased EBITDA, increased cash generation and as they see that banks are up, we have a fantastic syndicate of banks backing us.
We feel that they'll be ready to step in if we have a need that arises.
Thanks, everybody, for joining into the call we look forward to speaking you speak soon as we announced the second-quarter results.
Thanks again.
With that I'll close the call.
Thank you.
| 2015_EBIX |
2015 | INCY | INCY
#Okay.
First, in terms of the dose, as I've said previously, we saw a higher than expected discontinuation rate in first-line pancreatic cancer patients in the expansion of the existing study in months two, three and four.
And we could not find any pattern among them.
I don't think there were necessarily any two reasons for discontinuation that were the same and none of them appeared to me to necessarily be related to the drug and necessarily be related to the dose.
That said, because the discontinuation rate was higher than we expected, we didn't want to go into a large registration study taking the risk that the discontinuation rate early was going to inhibit our ability to see a positive result in the end.
So, we had essentially two choices, one was to just get more patients at the dose that we've already been studying or to study a lower dose, or potentially we could have continued to do both.
But we wanted to be not so exhaustive in what we did such that we would be adding too much time to this, so we decided that let's look at a lower dose, a dose that should still provide levels of JAK1 inhibition as high or higher than ruxolitinib provides in the positive RECAP study analysis.
We feel comfortable with that lower dose.
With respect to whether this has any impact on our JAK1 in terms of other solid tumor combinations, I don't think that it does.
I think that we don't even know that this has anything to do with the JAK1.
We don't know that it has anything to do with the combination with gemcitabine and Abraxane, and we don't even know that this just isn't because the numbers of patients was relatively small in this lead-in to just by chance get a higher discontinuation rate.
We're being prudent but I wouldn't look at as impacting anything else.
Thank you.
And thank you, all, for your time today.
As we said at the beginning, I think it was a very successful first quarter with a fast-growing top line.
As you heard, also, a fast expanding portfolio of clinical projects.
We are looking forward to a series of important and exciting events over the next several months, and I just want to thank you for your time on the call today.
We look forward to talking to you at the second-quarter conference call in early August.
| 2015_INCY |
2016 | ABCB | ABCB
#Thank you, Jamie, and thanks to all of you for joining us today on the call.
During the call, we will be referencing the press release and financial highlights that are available within the Investor Relations section of our website at Amerisbank.com.
<UNK> <UNK>, President and CEO, and myself will be the presenters today and available after our prepared comments to answer any specific questions.
Before we begin, I'll remind you that our comments may include forward-looking statements.
These statements are subjects to risks and uncertainties.
The actual results could vary materially.
We list some of the factors that might cause the results to differ in our press release and in our SEC filings, which are available on our website.
We do not assume any obligation to update any forward-looking statement as a result of new information, early developments or otherwise, except as may be required by law.
During the call, we will discuss certain non-GAAP financial measures in reference to the Company's performance.
You may see the reconciliation of these measures and our GAAP financial measures in the appendix to our presentation.
And I'll turn it over now to <UNK> <UNK>.
Thank you, <UNK>.
Good morning, everyone, and thank you for joining our fourth quarter earnings call.
I will highlight a few items on our quarter and year-to-date results, provide an update on our recent acquisitions, and make a few comments about M&A activity.
First about the results, we're reporting operating earnings of $0.47 per share, up 21% from the $0.39 per share we reported in the same quarter in 2014.
Total operating earnings for the quarter were $15.3 million, which is an increase of 44% from the fourth quarter in 2014.
Of course, earnings-per-share growth is less than the growth in nominal earnings, because of the additional 5.3 million shares we issued in the first quarter of 2015.
Actual reported earnings for the quarter came in at $14.1 million or $0.43 per share, compared to $10.6 million or $0.39 per share in the same quarter a year ago.
Our operating results for the quarter exclude some acquisition costs associated with the upcoming Jacksonville Bank merger, as well as some costs associated with the recent conversion of M&S Bank and Bank of America.
Costs associated with the Jacksonville Bank are centered mostly on legal fees, while the remainder were related to conversion and system costs as well as additional severance costs that we incurred.
We had some other nonrecurring amounts that we'll touch on a little later as well that are important to note as we look forward into 2016.
For the year, our operating earnings were $53.4 million or $1.66 per share, compared to $41.2 million or $1.57 per share in 2014.
Actual reported earnings, which include the nonrecurring charges, were $40.8 million in 2015 compared to $38.4 million in 2014.
We saw a modest improvement in our operating return on average assets and tangible equity for both the quarter and the year.
For the quarter, our operating return on average assets was 1.12% compared to 1.04% for the same quarter in 2014.
For the year, our operating return on assets improved 1 basis point to 1.11% compared to 2014.
Our operating return on tangible capital for the year-to-date period was 13.7%, compared to 15.2% in 2014.
Our 2015 ROTCE was impacted by the first quarter capital raise that wasn't fully deployed until later in the year.
I expect the 2016 operating ratios to be stronger, due to the fact that we ended the year with high excess liquidity almost fully deployed.
Net interest income on a tax equivalent basis improved to $49.4 million in the quarter, compared to $48.1 million in the third quarter of 2015.
Loan growth in the quarter came in at around 7.5% annualized, which was slower than normal due to seasonal payoffs in agriculture.
For the year, we had organic loan growth of about 13.4% or $344 million, which did beat our initial forecast.
In addition to the organic growth, we added $592 million of variable rate mortgage loans with short durations as an investment vehicle for the extra liquidity that we picked up in our mid-year acquisitions.
For the year, including covered loan runoff, acquisition activity and the purchased mortgage pools, we grew loans by $1.1 billion.
I think it's important to note, too, that we funded 45% of that growth in loans with growth in non interest bearing checking accounts.
And in addition to the $490 million of checking account growth, we grew $511 million.
And now in savings accounts, while not interest bearing, they're not very rate sensitive.
Essentially, with just over $1 billion dollars of growth in low cost non rate sensitive deposits, we funded 91% of our record loan growth in a manner that materially improves our sensitivity to rates and long-term profitability.
Net income from our mortgage and warehouse lending divisions fell $1.2 million in the quarter, which was about $0.04 a share.
We did experience some higher costs associated with TRID and some slowdowns in closings for our customers, but the majority of the revenue decline was just seasonal.
I fully anticipate that mortgage will grow in 2016 relative to what we experienced in 2015, and we're budgeting a double-digit improvement in net income from these divisions.
And even in the event of higher rates, I believe our referral networks that focus on purchased business will allow for us to achieve our budgeted improvement there.
On the expense front, we reported operating expenses of $51.2 million net of acquisition-oriented costs, compared to $41.6 million for the same quarter 2014.
This 23% growth rate in operating expenses compares favorably to the 38% growth rate in total assets, despite some nonrecurring items in our fourth quarter expenses.
Salaries and benefits increased approximately $1 million, due almost entirely to $1.3 million in higher incentive accruals that should moderate back in the first quarter of 2016.
Credit resolution costs were higher in the fourth quarter at $2.2 million, compared to $1.1 million in the third quarter.
During the fourth quarter we expensed approximately $800,000 associated with an auction of loss share properties and loss share agreements that expired at the end of the year.
Additionally in the quarter, we incurred a final amortization of about $1.6 million associated with our largest group of FDIC acquisitions.
Our scheduled amortization is about $800,000 in the first and second quarter of 2016, and then about $150,000 in the last two quarters of the year.
Looking at credit quality for a loan, I'd point out that we finished the year with about $60.7 million in non performing assets.
And that includes $7.1 million that we reclassified on December 31, 2015, that was associated with the expiring loss share agreements.
Excluding that reclassification, we reduced nominal levels of non performing assets by $36 million or 40% when compared to December 31, 2014, and we reduced NPAs to total assets from 2.2% of total assets at the beginning of the year to 0.96% at the end of the year.
I'm very pleased with the improvement we made in credit quality, and believe the charge we took in the second quarter was a good timely decision.
Even with the extra costs associated with loss share into auction in the fourth quarter, we recorded total credit costs in the second half of the year of $4.8 million, which I believe is sustainable going into 2016.
The last item on the results, I would highlight capital levels and tangible book value.
We had a lot of moving parts with the capital raise and almost 40% growth in the balance sheet, but we finished the year with 7.44% tangible common equity to tangible assets.
Each year end, we do see liquidity spike with some of our municipal and corporate relationships, and we estimate our impact on total assets in 2015 was about $200 million in the fourth quarter.
I see our capital levels normalizing very shortly to the 7.75% area, and believe we will be over 8% by the middle of 2016.
Tangible book value increased 15% during 2015 to $12.65.
About 65% of this increase came from earnings less dividends, and the remainder resulted from the first quarter capital raise.
Only M&A front, we're working through the final stages of the Jacksonville Bancorp deal.
We currently have all our regulatory approvals, and anticipate it closing in the first quarter of 2016 and a conversion later in May of this year.
We're still having M&A conversations, but obviously, the pullback in bank stocks and the environment we're in has us recalibrating offer prices and strategies.
I've said it before and I'll say it again today, our first priority and focus should be on our core operating machine.
The smooth integration of Jacksonville Bank, the improvement in our operating costs, and focus on our core organic growth are the keys to successful results for us in 2016.
We're confident there will be opportunities for M&A, but we will remain disciplined and strategic with anything that we would announce.
With that, I'll turn it back over to <UNK> for a few more comments on the 2016 results.
<UNK>.
Thank you, <UNK>.
Our margin for the fourth quarter came in at 3.98%, which was down about 9 basis points from the 4.07% we reported in the third quarter of 2015.
When you exclude the effect of accretion, our margin declined to 3.74% compared to 3.81% in the third quarter.
This decline is completely attributable to the year-end liquidity that we see from the large municipal and corporate relationships <UNK> talked about.
Normalizing those levels of short-term assets in our earning asset mix moves the margin a couple basis points higher than what we saw in the third quarter of 2015.
When you look out into the first quarter with the difference between ending loans and average loans, I expect our margin to be a few basis points higher, probably in the 3.85% range.
A little bit of color on loan yields and loan growth.
On loan yields, the yield on legacy loans declined to 4.74% during the current quarter from 4.86% in the prior quarter.
A higher portion of our production was variable in the fourth quarter, and about 25% of the growth in the quarter came from our efforts on municipal lending.
Steady levels of accretion income on lower levels of purchased loans increased their combined yields to 6.65% from 6.09% in the prior quarter.
Lastly, the yield on purchased mortgage pools came in at 2.92% in the fourth quarter, which was slightly lower than where we had forecasted due to faster prepay.
This portfolio's cash flows in the fourth quarter came in at around a 21 or 22 CPR with a 2 1/2 year average life.
We initially modeled a 15 CPR and a 3 1/2 year average life that would have yielded about 3.15%.
Six months into this strategy, I would tell you that we're really pleased with this portfolio from the credit and yield perspective.
Especially when we still see investment portfolio options easily 100 to 150 basis points lower for the same average life.
Let me make a point of clarification about loan growth.
<UNK> mentioned a 13.5% growth rate in organic loans.
When we say organic loans, we're looking only at loans and purchased non-covered loans.
For 2015, purchased non-covered loans includes approximately $195 million of loans that we acquired in the Bank of America and Merchants & Southern transaction, as well as about $76 million of loans that we reclassed from covered status into purchased non covered status upon the expiration of those loss share agreements.
So when you exclude those two amounts, we get 13.4% loan growth.
So those amounts have been excluded to calculate that.
When we announced the deals a year ago, we indicated that we would look to be more competitive on yields and begin increasing our organic growth rate from about 10% up to 15% in order to deploy the funds into commercial assets over a few years.
Our loan yields have come in slightly during the year, and I feel like we are starting 2016 with enough momentum on the loan side to sustain the kind of annual growth rate that we had in 2015.
For the year of 2015, our organic loan growth was split evenly between municipal lending, mortgage, and commercial.
Our mortgage growth was about 50% portfolio lending, and about 50% growth in warehouse lending.
In the fourth quarter, loan production totaled $302 million versus $287 million in the prior quarter.
Yields on loan production came in at 4.47% for the fourth quarter, down about 12 basis points from where we were in the third quarter of 2015.
Now with that, I'll turn it back over to the moderator for any Q&A.
Morning, <UNK>.
The items <UNK> mentioned, there are a few other items, smaller items, but about $2.5 million.
Between incentives and the FDIC coming down, some marketing costs including normalizing credit back to the $2.5 million range that <UNK> had mentioned.
You get that it's $2.5 million to $2.75 million of items.
What our Mortgage President tells us is that the way TRID affected us is it took ---+ we went from say 30 minutes to draw ---+ it took us about 30 minutes to draw our closing package to about an hour and a half to draw a closing package.
And a lot of that was handled with overtime, so maybe $100,000 to $200,000 of extra costs between our personnel and reengineering some of the processes.
And back to what <UNK> said, it's not ---+ we don't ---+ all that's fixed and adjusted right now.
It's definitely more cumbersome and labor intensive, but that's not a driver on the bottom line.
The majority of that should come out next quarter.
Unfortunately, yes, I wish we could maintain that.
But the over accrual on taxes, that stems mostly from M&A adjustments, was about $1.4 million.
Hi, <UNK>.
Good morning.
<UNK>, I'll let <UNK> quantify that.
But just remember on the branch closings, when we had adjoining ---+ basically adjoining branches in four or five instances we did have to do some remodeling expense and retro fitting to accommodate the larger branch size.
So that has taken some time, and in fact, we've still got two that are in process that should be completed by the end of the first quarter, the early second quarter.
The savings that we're expecting from that, about $4 million annually, there was 10 branches initially, it's 11 now.
The 11th branch wasn't very costly, but about $4 million annually.
And I ---+ you'll probably see ---+ so the $1 million a quarter, you'll probably see about half of one quarter, maybe $0.5 million in the first quarter.
And then essentially all of the branches should be closed early in the second quarter, and you'd see the full run rate, almost the full run rate in the second, third, and fourth quarter.
You'd probably ---+ yes, given that the system's conversion is scheduled for around May 20.
Normally, we carry the costs for another month or so.
So I think probably the third quarter you'd see the majority of the cost saves.
Yes, <UNK>, we're hesitant to say, but let me say it this way.
We are absolutely focused on reducing operating costs and expenses.
We are also absolutely focused on making sure we have the right staff and the right processes in place so we have the opportunity to do more M&A.
But we would expect our efficiency ratio to average for the year, at worst, in the low 60%s.
It will be approaching 60% by the end of the year.
I think the margin should trend positively.
I need to go back and recalibrate.
I think JAX Bank ---+ we're below 4% now because of the concentration in investment securities and 3% loan pools.
I don't think we would end ---+ I'm confident we wouldn't end 2016 with the same mix of earning assets.
I feel good it would be centered more on just traditional commercial assets.
That's got to be positive for the margin.
But as far as quantifying it, I haven't done that yet.
No, the items I mentioned, Chris, were not in the operating.
The only items that were in the operating earnings were the merger costs that <UNK> talked about.
They're one time not coming back.
Yes, yes, I'm sorry.
That's a good question.
The first thing I'd say is, we want the number to be consistent and to be less noisy.
And when I say noisy, <UNK> talked about the 1.11% ROA, the operating ROA.
Our actual ROA with everything included was 85 basis points, and that included 33 basis points of credit resolution costs and merger costs.
And look at where we're going into 2016 on credit compared to where it was a year ago.
It's completely a different story.
So I expect a good bit of the noise that came from credit and that separated our operating ROA from our real ROA to go away.
We think credit costs should moderate to be virtually nothing, and merger costs, those will go away when we quit doing M&A.
But just excluding that, we should be somewhere in the 1.15% ROA I think as a minimum.
And <UNK> and I feel like we should be with mortgage and SBA doing what we think they can do and the contribution they give us, we should be somewhere in the 1.25% range, but 1.15%, you asked about the minimum.
I'd ---+ given what credit and merger costs did this year to the ROA, I'd say 1.15%.
<UNK>, that's a good question.
I don't really look at expenses to total assets, I'm really looking more at a net overhead ratio when you combine the two.
But still to your point, that number has been high, been right under 200 basis points.
We feel like the number should be in the 160 basis point range.
So there's ---+ that's 30 basis points between more revenues or less expenses that we need to be rationing out.
So to <UNK>'s point, we still feel like there's an expense lever here that we can pull.
It does feel elusive, but a lot of that has to do with constantly doing M&A.
Constantly shuffling people in and out and reengineering for a larger bank, and things that we've talked about before.
But I believe, getting to <UNK>'s number in the low 60%s, I believe ---+ for us to get there, <UNK>, you would see the leverage you're talking about.
I understand.
It's one of ---+ that's one of <UNK>'s three.
And I'll make one more comment and <UNK> may say something.
You can be more specific.
It's the second of my three.
Second of his three.
The smooth transition and integration of Jacksonville Bank is clearly on us and is critical.
But it's absolutely important, <UNK>.
And I think to <UNK>' point as we build up overhead, we grew 40% and we were investing still in overhead.
And looking at our foundation now, I think we probably have one position gap that we need to fill, which is not significant.
So it should in 2016 ---+ it's absolutely focus, and we should see some improvement.
And you and I think have talked about this before.
We've not had organic growth in the balance sheet.
We've added most ---+ almost all of our growth seems to come from M&A.
That's changing now, especially with covered loans pretty much having ---+ covered loan runoff being what negates organic growth, but that's covered loans into the year at only $130 million.
So that's not going to be a factor going into next year.
We had record 13.5% organic growth in loans.
I think that, plus where covered loans ended the year, I think you'll see you'll see ---+ start to see some of what you're asking for.
And more importantly, I think if you look at asset quality, if you look at our balance sheet risk, we've made tremendous strides in reducing our risk in our balance sheet.
And obviously, the covered loans continued to diminish.
And so it's expenses associated with that will diminish on a pro rata basis or more.
So I think until there's more M&A, I think most of the noise will be out of our store.
It clearly plays a role.
If you're going to use your stock as consideration, which we would typically do.
So it absolutely will have an impact.
And I think if you look at the overall the economy and the uncertainty and the volatility, I think it's going to give some people some pause.
But at the end of the day, we're pretty damn excited about 2016 and what we're going to be able to achieve.
And I think any pullback is going to be short lived.
So I could, obviously, be wrong.
I'm focused on results, not stock price.
But we do need for that to come back to give us an advantage that we've enjoyed up to this point.
It's very low, like 1.5% or 2%.
We don't feel like we need to have a lot there, given the position in investment securities; and really that's high, $200 million high because of the tax commissioner accounts and some of the other municipal and corporate accounts we've had.
A good bit of that is already moderated off the balance sheet today.
Good deal.
On ---+ well, we're talking about ---+ I'm combining both of those, <UNK>, mortgage warehouse and retail.
Our assumptions behind that have to do with just where we see production, and what we ---+ again, short of a recession, I believe we'll be highly successful ---+ I believe we'll continue to be highly successful in mortgage.
We ended the year ---+ we added a couple more teams on the retail mortgage side.
We've added some new customers, larger customers, on the warehouse lending side.
The fourth quarter, we were still pretty active in the fourth quarter.
When you look at the revenues, it ---+ especially on the retail side, it doesn't show it.
But from a hiring standpoint, new construction customers we signed up, new real estate agents that we had a new relationship.
I just feel confident that that's not going to be an area of disappointment next year.
And they experienced the same thing in their mortgage business that we experienced in ours.
That's why I lumped them together.
Yes.
<UNK>, I think the ---+ one of the larger pieces of that would be credit, and we clearly think that's behind us.
The credit costs, we got it to $2.5 million a quarter at mid year last year, and we actually did slightly better than that in the second half of 2015, even with the auction costs and the covered loans that we exited and loss share agreements that we exited.
So we're really confident about 2016 on the credit cost piece.
So yes, I think we're convinced that volatility is behind us.
From an M&A perspective, Jacksonville Bank, that noise is not going to be substantial.
But there will be some noise from that in the first two quarters, but not significant.
All right.
Okay.
No closing remarks, but thank you for joining the call and call us with any questions or comments.
Thank you.
| 2016_ABCB |
2017 | SEE | SEE
#Thank you, <UNK>, and good morning, everyone
On our call today, we will cover our third quarter results, outlook for the year-end, and provide an update on our capital allocation strategy, post the close of the Diversey sale
You will have also the opportunity to hear from Ted <UNK> who will be taking over as CEO from me on January 1, and Bill <UNK>, our acting Chief Financial Officer
But before all and relevant to my retirement, I take this opportunity to let you know that I ran my first marathon in New York last Sunday, thanks to my son, Alexi (02: 47) and my friend, Allen (02: 48)
For those of you who are up to the challenge, you will be rewarded for life
But don't worry I will not turn into Forrest Gump in my retirement
Back to business, you can see that in the third quarter net sales growth accelerated to 6% on an as reported basis and 5% in constant dollars
Adjusted EBITDA margin was 19%
Our performance in the third quarter continued to improve compared to the first half of the year when we delivered 3% constant dollar top line growth and 18% margin and this momentum is continuing into the fourth quarter and we are delivering on our 2017 outlook as a result of our highest sales in our pricing and cost disciplines
In fact, we are executing on our long-term profitable growth strategy that we outlined at the Analyst Day in June 2015. Remember, at that time we set a 3-year sales growth target of 4% to 5% for each of those two divisions
We said that we expected sales growth to accelerate throughout the period of 2016 to 2018 and that these growth would be led by volume, thanks to our market maker innovative strategy
In 2016, we didn't see much movement on the top line and exited the year with an increase of just 1% constant dollar sales growth
However, our growth have been improving each quarter since the fourth quarter of 2016. In the fourth quarter of last year, we started delivering in constant currency 1% sales growth
In the first quarter of this year, in constant dollars, we delivered 3% growth
In the second quarter, we delivered 4% growth, and now in the third quarter, we are reporting 5% constant currency sales growth
And should the temporary and incredibly steep PE resin cost increases of 13%, or $0.10 per pound since August and $0.15 year-to-date, not have surprised all of our industry, those sales gain would have translated into the bottom line already
The good news is that I said temporary cost increases
And also that we have fully implemented our announced Product Care and Food Care price increases on September 1 and October 1 respectively
This is where our confidence comes in as we head into year-end
We are seeing rapid adoption of our game changing solutions
We're seeing healthy end-market demand, particularly in North America and Asia and our now famous operational disciplines are taking hold
On September 6, we closed the Diversey sale
When we announced the transaction in March 2017, we increased our share repurchase program, and we said that we would pay down debt, address stranded costs, and target selective M&A that was aligned with our strategic direction
Through September 30, we repurchased approximately 15.5 million shares valued at $677 million through a combination of open market and accelerated share repurchase programs, including an ASR that is currently ongoing
We paid down $1.1 billion in debt, bringing our total debt balance down to $3.3 billion
We have already made progress on our cost structure and will continue to do so heading into next year
We also closed two acquisitions: a small strategic food packaging company in Brazil, Deltaplam, which closed in August and, then in October, we closed the Fagerdala acquisition, a protective packaging company based in Singapore that significantly expands our presence in Asia
As all of you know on September 9, I announced my retirement effective December 31, 2017. I have really enjoyed my time at Sealed Air, and I'm extremely proud of what we have become, thanks to the vision and determination of our management team and our 14,000 global employees who I want to recognize here
We have built a winning culture, a culture that is obsessed with creating new value for our customers
We take the responsibility of being the industry leader and the market maker by creating new markets with disruptive innovations and instilling discipline throughout the industries we serve
Our long-term profitable growth strategy is well under way, and we continue to gain traction globally as you could see from our sales growth focusing all of our efforts on some very key megatrends
Our journey as a knowledge-based company continues with many exciting opportunities ahead
And I am very confident that under Ted, Bill and the entire leadership team, the organization will continue to thrive and generate significant value for our customers, shareholders and employees
Bill joined Sealed Air in 2013 and has been on this journey alongside our senior leadership team
Ted and I continue to work closely together to ensure a seamless and successful transition
We have been spending time in Charlotte, North Carolina and now also traveling around the world with our senior team to meet with customers and employees
Let me now move back to our third quarter results in more detail, and turning to slide 6 where we highlight our results by region
We experienced constant dollar year-over-year growth across all regions
North America once again was our fastest-growing region at 7%, with sales up 9% in Food Care and up 4% in Product Care
Sales in EMEA, Asia Pacific and Latin America increased in the range of 2% to 3%
I want to highlight that Product Care sales in Asia Pacific were up 15% in the third quarter, led by volume growth
On slide 7, you can see our volume and price mix trends by division and by region
As we anticipated, top line performance was primarily driven by 5% volume growth with positive trends across all regions
Food Care volumes were up 5% with 9% growth in North America and positive trends in both Latin America and EMEA
Product Care volumes were up 6%, driven by our largest regions, North America and EMEA, increasing 4% and 7% respectively
Overall price mix was relatively neutral to our top line results
Keep in mind that our pricing actions in Product Care went into effect as of September 1 and in Food Care for our non-formula customers effective October 1. And now, let's turn to slide 8 and review Food Care results in more detail
Food Care sales were $716 million and adjusted EBITDA was $158 million, or 22% of sales
Sales were up 4% in constant dollars compared to last year due to higher volumes
Our margin compressed year-over-year primarily due to timing of raw material cost factors and higher input costs
It is important to note, however, that sequentially EBITDA margins improved 60 basis points as formulas started to align better with higher input costs, and we continued our focus on expense management
Our performance in North America which accounted for 51% of Food Care sales was driven by the ongoing adoption of our case-ready platform across all protein including seafood and higher equipment sales
We capitalized on end market demand in all protein segments led by an increase in slaughter rates of more than 5% in the beef sector
We expect our business in North America to continue outpacing the market in Q4, although keep in mind, we have tougher year-over-year comparables on volume to come
EMEA, which accounted for 22% of Food Care sales was essentially flat compared with last year
We are continuing to see adoption of our new products in an environment where the protein market is growing modestly, but this was offset by timing of equipment sales
Heading into year-end, we anticipate improving top line trends with growth coming from both equipment and new product sales
APAC accounted for 15% of Food Care with Australia and New Zealand accounting for close to 70% of our sales in this region
Australia and New Zealand declined in the quarter as a result of further deterioration in the dairy market
But an encouraging data point to share is that for the first time in over a year, slaughter rates in Australia were relatively flat with prior year
The beef cycle is now near bottom, and we expect growth to return late 2018. Latin America represented the remaining 12% of sales with Mexico, Brazil and Argentina accounting for approximately 80% of Food Care sales
Constant dollar sales were up 3% led by growth in Argentina and stabilizing trends in Brazil
This was offset by a temporary decline in Mexico where our business was impacted by the earthquake late in the quarter
But heading into year-end, we anticipate improving trends in both Brazil and Mexico, albeit slow, with continued growth in Central America
For the full year 2017, we expect Food Care to increase sales approximately 3.5% in constant dollars
Adjusted EBITDA margin are expected to be approximately 22%
Slide 9 highlights results from our Product Care division
Product Care net sales were $415 million and adjusted EBITDA was $87 million, or 21% of net sales
You can see in the EBITDA bridge that, compared to last year, higher volumes were offset by a negative mix and price/cost spread
Product Care margins improved sequentially by 100 basis points, this improvement was primarily related to higher volumes, yield on our pricing actions and cost management
North America and EMEA accounted for approximately 85% of Product Care sales and were up 4% and 7% respectively
APAC had another strong quarter with 15% growth led by China and Japan
Our advanced product portfolio, including inflatable I-Pack, self wrap and FloWrap, continued to gain significant traction as our e-commerce and fulfillment customers optimized and automated their distribution channels
In Western Europe, I want to highlight that in the third quarter, we benefited from accelerated execution of automated solutions, volume growth of our consumables after record level of equipment installs over the last 12 months and pockets of strength across some of the industrial segments
With the acquisition of Fagerdala, we tripled our manufacturing footprint in China and as you would expect, there are synergies to leverage and meaningful cross-selling opportunities
For the full year of 2017, we expect Product Care to increase sales approximately 6% on a constant-dollar basis which would include $20 million in sales from Fagerdala
Adjusted EBITDA margins are expected to be approximately 20%
And this implies Q4 constant dollar year-over-year growth of approximately 10% and adjusted EBITDA margin of 21%
Let me now turn the call over to Bill to review our overall sales and EBITDA bridges and outlook heading into year-end
So you -first of all, you have seen with all our competitors that everybody in the industry has been surprised by the pace of the cost increase in resin and the number
So, let me remind you, $0.15 since the beginning of the year
That's almost 20%
And $0.10 since August 1.That's about 13%
And here we're talking about PE
I'm not talking about nylon
I'm not talking about other raw materials which went up in a very steep way
So this is in light of us having in Food Care a sizable part of our business which is formula driven
And remember also that in the month of July and before, we were thinking, and not only us everybody was thinking, that because of the capacity addition coming onstream, prices were not going to go up
They were going to come down
So, yes, we did have margin squeeze
I would call it margin compression
And, as I said in my prepared remarks, we are seeing that this is temporary, and that as a result of that, we are going to do what we have done in the last round
When resin prices went down, we are going to recoup the quality of our business
So I'm really not worried
And we are going to start seeing this, in my mind, definitely in 2018 depending on the pace again at which resins are going to be coming down
Thank you
So let me start with the last part of your question
Our September 1 Product Care price increase went through fully
Our October non-formula pricing Food Care price increase went in fully
Why? Because we had PE margins and nylon and so on margin compression, and we also had other type of inflation, including freight
And for those of you who don't know that post-Harvey had consequences on freight cost, availability of trucks, needing to buy resins on the spot market, and all of those kind of things because our priority number one was to delight our customers who were in difficult times for supply themselves, et cetera
And we did not spare any efforts nor any money in making sure that we would have absolutely no disruption
Did that cost money? Absolutely
But what is absolutely important to understand is what I said exactly five years ago in January 2012 when I said we are the market leader
The market leader has a responsibility
And the responsibility for the market leader is to be disciplined and to lead on price
Yes, we do need to be leading on price
We have led on price, which is why we stood extraordinarily firm
Yes, we did hear that some competitors were not as disciplined
That's their problem
In order to keep investing the amount of money we're investing in innovation; in order to bring them, our customers, the revolutionary solutions that we're bringing them, and surprise them by adding value, tremendous new value to them, we need to be able to have the funds and the resources
And, therefore, keep investing at the pace we're investing and, by the way, accelerating to bring those solutions in automation, in new products, et cetera, et cetera
So that is the context
Next to that, you do have – and this is why we are already slightly improving on our margins compared to the first half of the year as a result of having this September 1 price increase in Product Care and such (32: 35)
So do we have competition? Yes, we do have competition
But you have customers who are price-driven customers, which are not the ones we want; and you have customers who are value customers, which is those we want
And we are absolutely committed to continue, thanks to our solutions, to add new additional and much higher value than they could get from a slight price concession
Do we have market skirmishes here and there? Of course, but not very much more than before
Depending on the country, including in the U.S
, we had some competitors who were a little bit desperate in taking business, but this is normal
Thanks, <UNK>
I'll start and Ted will continue
<UNK>, all of the above and our innovation, which means that you saw that we have renewed with constant currency growth in the fourth quarter of 2016. And since then it's been on and on and accelerating
The comparables are going to get a little bit tougher, but it is our innovation which is fueling all of this, the success of the strategy that we have embarked into in Product Care moving to automation
The very successful B+ acquisition of August 2015 continues at a fast pace
The deployment of those automation technologies in Japan, in China, in Europe, and in North America had some tremendous success
And also our automation in Food Care with Cogni Link and CogniPRO (35: 34), and on the other end, our case-ready which is really starting to take hold
So we're very confident that we are exactly on the pace to do and execute on what we said back in June 2015 when we gave the 2016 to 2018 look during our Analyst Day
It is actually amazing to see how what we said at that time is happening
Then back to your question on margin
We have formulas in Food Care and they have been a little bit slower to kick in because they would have kicked in – they were supposed to kick in from the third quarter as resins were coming down and as formulas was coming up, leading to margin expansion
And as resins came up, you see that this phenomenon is slightly delayed
And we have proven to you in the past that in an environment like the one we're going to lead through probably through the end of this year and into early next year, we are going to restore our margins
You had a quick follow-up to Ted on the operational excellence maybe
I can't stack because I don't have the detail of every single
number there
But it is all of the above
We do have a tremendous pull (37: 26) from our innovation
You know that depending on the division, some of those kick in faster than some others
The operation on trade needs to be approved by the retailer
This is done through – and we talked about this
on the cycle of innovation
And in some Product Care, it comes faster
And we're seeing all of those benefits
But there is discipline in this thing
The good thing about Sealed Air is that we say what we do and what we do what we say
And we are a disciplined organization
We are executing on it
And we demand value from our customers because we know we are bringing them tremendous value in the total cost to serve operation that they run
So I'm not going to give you a guidance for 2018. But in 2017 for the rest of the year, we have – in my prepared remarks, I made a comment about that, and we said that we are expecting about 3.5% or 4%
Altogether – what did you say? 4%
<UNK> said 4%
4.5%, <UNK> said
And, actually, what does this mean? It means that the momentum keeps on
It means that we have the North American cycle in full swing
Exports are good and strong
The slaughter rate is good and strong
And we are right now in the middle of the quarter, and there is nothing else to say than that
We're also looking at other protein
And the reason why we are, and it is as successful
And you hear about the beef cattle cycle at 5% slaughter rate increase, but you see our total business being very solid
And you know that our red – our meat, our cattle, beef prices or beef products are only a part of the whole thing, and we are having success with our case-ready solutions all over
And there is a change in the marketplaces, including in North America with our case-ready solutions because the market is changing, because of the need for sustainability, because, for example, California having banned foam trays and those kinds of things
And therefore, you have MAP, modified atmosphere packaging, and you have our Darfresh which is kicking in very nicely
So we're confident
2018, you're going to see that there is – that the comparable there will be easier, but when Ted is going to give you a guidance for the company and by businesses in February, this momentum is there and this is not a commodity business
The momentum is there
Thank you
You will love the Investor Day when it comes and you will get under-the-tent on our ecommerce 3PL solution
Having said that, and let me stay with the present, Ted will talk about the future
But with regards to the present, we had slight negative mix, which is being corrected, I can't say day-after-day but month-after-month as we are introducing our automation solutions and innovations, which are not only automation solutions
There are some very big phone companies who launch new products and they have our solution as the product in which their phones are packed through the Internet
And this is big business
And it is this innovation and it is this need for not only addressing dimensional weight, which is the number one cash costs operation in the cost-to-serve of ecommerce ,number one is dimensional weight, which means freight cost
The number two is labor productivity, is labor
Number three, damage when the items are fragile; number one, it is the cost of packaging
What we do is reducing freight costs, is improving labor productivity, eliminating damage, and we do that with a little, slowest, smallest cost component, which is our packaging cost and the solution, which adds total value to our customers
So, yes, this ecommerce and 3PL business is growing much faster and the margins are improving quarter after quarter as we address our – as we introduce our innovation and our solutions
So that's important to understand because it was an issue in 2016, a little bit in the beginning of 2017, and it is being gradually and nicely corrected
Ted, future of Product Care?
Thank you
I'll just start because I was intimately with Ken Chrisman in the early negotiations
And I will tell you that most companies look at the products and they look at the segment in which the target participates, et cetera
What I did really look at is quality of management
We all know that when you buy a Chinese company in China, you have to do your due diligence extremely tightly because you sometimes never know what you buy
We bought a Singaporean company which has operations and its major operations in China
So, we bought quality, quality, quality
What we also bought is superb management
That is really very important
And on top of that, we bought an extraordinarily efficient fabricator
And (51: 12) has traveled with Ken to see their operation and will make comments
And the short story is that he was very impressed with what we intend to do
And remember, fabrication is not what we do, but we want to be Chinese in China
We are becoming Chinese in China, and this is extremely important
| 2017_SEE |
2017 | CLDT | CLDT
#Good afternoon, everybody.
Our results for the fourth quarter, as you've read, significantly outperformed our expectations across the board.
Compared to the midpoint of our guidance, revenue beat by $1.2 million, which translates to $500,000 of FFO.
Hotel EBITDA margins exceeded our guidance by 140 basis points, which generated incremental FFO of $900,000.
FFO from our JVs surpassed our estimates, and we benefited as well from income tax true-ups of approximately $500,000.
So with that, from a top-line perspective, our revPAR declined 0.8% to $118 on a 1.7% increase in ADR, offset by a 2.4% decrease in occupancy to 75%.
Our guidance for the quarter was a revPAR decline of 1.5% to 3.5% negative.
Coming off a third-quarter revPAR decline of 2.1%, we were encouraged by the improvement on a relative basis.
Within the fourth quarter, revPAR performance was sporadic, with October revPAR down approximately 2%, November up 1%, and December down 1.3%.
Our performance through the first half of 2017 will continue to be negatively impacted by the six hotels that we own in the oil-industry-influenced Houston and Western PA markets, which equates to about 9% of our EBITDA.
RevPAR at those 6 hotels declined almost 20%, better than we expected, and impacted our overall revPAR performance by approximately 240 basis points in the quarter.
Excluding these six hotels, then, revPAR for the quarter would have risen 1.6%.
We have certainly felt the impact of new supply at certain of our hotels.
New supply has been more concentrated, as we have discussed, in the top MSA and urban markets during the earlier part in this development cycle.
So in the end, I think Chatham recovers earlier because of where our hotels are located and the fact that we have been hit earlier than most, particularly as we look back at 2016.
And when we look at where we are located and the kind of demand generators that exist in the markets where our hotels are, we are feeling good as that supply gets absorbed.
I do want to spend a few more minutes digging into some of our individual markets to talk about some of the bright spots.
Despite talking about new supply, despite absorbing an almost 10% increase in supply over the last couple of years, our four Silicon Valley hotels saw revPAR rise almost 5%, driven by an approximate 6% increase in ADR to $222.
Tech companies continue to drive our economy, and our four hotels in Silicon Valley are the perfect brand, that being Residence Inn, and excellent locations for this market.
And we have been able to outperform the industry as a result.
For the quarter, our four hotels outperformed our expectations by approximately 300 basis points.
Given our relationship with the top global tech companies around the world, as obviously they are our major customers in Silicon Valley, we knew that tech companies were building a presence in an area outside of Los Angeles that's referred to as Silicon Beach.
And accordingly, we were bullish in acquiring the Hilton Garden Inn in Marina del Rey in late 2015.
And this hotel is well positioned to benefit from the growth in that business segment.
During the fourth quarter, revPAR at our Hilton Garden Inn in Marina del Rey rose 16%, partly due to increased levels of business from tech companies as well as the renegotiation of ADR related to certain large corporate accounts.
Our Residence Inn Washington DC and Foggy Bottom had a great quarter, with revPAR up 8% on an almost 10% increase in ADR, offset by a 2% decline in occupancy to a still-strong 82%.
And revPAR growth was strong throughout the quarter, benefiting from election-related travel.
So you can see there is a theme here, particularly in hotels where we are getting stronger revPAR increases, that most of that revPAR increase are, for example, in the case of Foggy Bottom, 8%, but 10% attributable to the increase in ADR.
So some of the revenue management strategies that our folks at Island have been working on and implementing are really starting to pay off, I think.
We'd rather, at this point, sacrifice a little bit of this occupancy, continuing to push our ADR, since our Company-wide occupancies, particularly with our upscale extended-stay hotels, Residence Inns and Homewood Suites, are so strong, we are just going to keep trying to shift the mix of business and, frankly, the daily revenue through the retail segment and manage that revenue in a way to maximize ADR.
Obviously, we are trying to protect our margins here as well.
Other markets which experienced more than double-digit revPAR growth in the quarter were our SpringHill Suites in Savannah and Homewood Suites in San Antonio, which benefited from revenue displacement in 2015.
As well as our Homewood Suites in Maitland, Florida, where demand was driven by winning back some corporate business, and we also had some incremental business related to Hurricane Matthew.
I guess we need to talk about the weaker side, since our revPAR increase for the quarter sounds like it ought to be double-digit.
Right, guys.
But anyway, we do have our most wonderful hotels in Houston and Western Pennsylvania.
And really, I take it the first six months of this year we will be telling this story.
But we will be lapping over those numbers for the back half of 2017, which I think provides us a little upside.
Because, for example, looking at Houston, the 4hotels saw revPAR decline 22% in the quarter, which was a little better than what we had expected and projected at 26% down.
Two-thirds of the revPAR decline is attributable to occupancy loss and one-third to ADR declines.
So except for the Super Bowl impact in February, we do expect those trends to continue, as I said, through June, maybe into July a little bit.
And after that, things ought to look a lot better.
Despite two hotels being anchored to the Houston Medical Center, as we discussed, and the other two hotels being pretty close, again, the overall weak demand in the market and the high level of new supply in the Houston area obviously makes it a challenging market.
No other hotels outside of the oil markets experienced a revPAR decline greater than 10%, but a couple other weak-performing hotels in the markets were our Hyatt Place in Pittsburgh, with revPAR down 8%.
That market has been a casualty partially of the downdraft caused by the decline in oil prices and fracking overall in the area.
There's certainly no shortage of new supply in the Greater Pittsburgh area.
And lastly, our Residence Inn at White Plains, New York, which did see a revPAR decline of 9% in the fourth quarter.
-As I spoke on our last call and I want to reiterate today, our primary manager, Island Hospitality, has done a very good job not just maintaining, but growing ADR in the face of increased new supply in some of these challenging markets.
We have been hyper-focused, as I said, on revenue management, and we will continue to work together with Island in our revenue management strategies and looking at our utilization, of course, of the online platforms and revenue managing those for profitability.
Island Hospitality, as I said ---+ environment where revPAR is not or not likely to exceed the inflationary rate generally.
Obviously that, together with some wage pressures and increased OTA and other distribution costs in the business, you're going to have some margin erosion.
So we're going to continue to focus on ADR for 2017.
<UNK>.
Thanks, <UNK>.
Good afternoon.
Our same-store operating margins were down 50 basis points to approximately 46%, and for the year were down 130 basis points, but still to a very strong 49% overall.
As we discussed on our last call, we aggressively implemented some cost controls a few months ago.
And despite a small revPAR decline in the quarter were able to minimize the margin loss despite that.
And these ---+ and our margin levels were significantly improved from the margin loss of 120 basis points in the second quarter and 180 basis points in the third quarter.
Our fourth-quarter operating margin guidance projected a decline of 190 basis points at the midpoint, and the significant outperformance in our fourth quarter can be attributable to lower-than-expected wages due to tightening labor staffing models, lower utility costs, and maintenance expenses.
As stated earlier, compared to last year, our operating margins were down 50 basis points.
In the fourth quarter, that increase was driven primarily by an increase in reserves related to our hotel employee workers compensation costs of about $300,000.
On a year-over-year basis for the first time in almost two years, fourth-quarter guest acquisition costs were basically flat year over year at $3 million.
For the year, these costs are up approximately 16%, but at least on an incremental basis, and certainly one quarter does not make a trend, but hopefully these costs are beginning to flatten out.
When you look at our booking patterns in 2016, there was a market shift in 2016 as the business travel within our negotiated accounts was down 6% in terms of production.
And this was offset by a 4% increase in production from our retail segment, which includes our e-channels.
Accordingly, it is very important for franchisors to continue to work with its owners to find the most efficient way to capture and retain travelers loyal to the brands.
And obviously, that's going to increase our profitability and hopefully our margins, obviously.
So as we look ahead to 2017, we are projecting our margins to decline approximately 110 basis points at the midpoint of our guidance, which assumes revPAR range flat over the entire year.
Without revPAR growth of around 2%, it is very difficult to maintain operating margins at the same level.
The industry as a whole is facing wage pressures across several fronts, whether it's trying to find qualified labor, whether it's the states raising the minimum wage, or even new supply that's causing hotel operators to offer what we believe is above-market wages in order to entice employees to switch from our hotels to others.
Additionally, we are expecting and forecasting overall guest acquisition costs to rise approximately 30 basis points in 2017.
But like I mentioned previously, hopefully these costs will begin to flatten out as we move through 2017 and the brand efforts begin to pay off.
The 32-room tower in Mountain View opened on October 5 at an all-in cost of approximately $300,000 per newly constructed room, which is much lower than market value.
Recent transactions within Silicon Valley have shown hotels in limited service and upscale segments trading at more than $500,000 per room.
So certainly we believe that investment of approximately $8 million is going to pay off handsomely.
With respect to the remaining two Silicon Valley expansions, we continue to work with the city and our architects to finalize the plans.
It's been a long and tedious process and we still have a way to go before we begin construction.
Until we can come up with plans that provide the double-digit returns that we are expecting, we will continue to value engineer the projects.
Our guidance at this moment does not assume a certain construction date for either of those two projects nor any disruption related to taking those rooms out of service for the buildings that we would be tearing down.
Lastly, on the joint ventures, as most are aware, Colony and Northstar merged in early January to form Colony Northstar.
We certainly do not expect the merger to have any impact on our day-to-day responsibilities with respect to the two joint ventures.
The transition has been quite smooth, and we look forward to working with the new ownership team.
During 2016, we received cash distributions of $7.2 million from the joint ventures.
And based on our overall investment of $50 million, it equates to an approximate 14% return on our investment.
And by the way, that's even with the significant amount of renovations that occurred within the portfolio in 2016.
And with that, I will turn it over to <UNK>.
Thanks, <UNK>.
Good afternoon, everyone.
For the quarter, we reported net income of $2.7 million or $0.07 per diluted share compared to net income of $4.5 million or $0.12 per diluted share in Q4 2015.
The $4.5 million of net income of Q4 2015 included a $3.6 million gain from the sale of our Florence joint venture.
The primary differences between net income and FFO relate to non-cash costs such as depreciation, which was $12 million in the quarter, and one-time gains or losses and our share of similar items within the joint ventures, which were approximately $2.2 million in the quarter.
Adjusted FFO for the quarter was $17 million compared with $16.1 million in Q4 2015, an increase of 6%.
Adjusted FFO per share was $0.44, which represents an increase of 5% from the $0.42 a share generated in Q4 2015.
Adjusted EBITDA for the Company rose 1% to $26.3 million compared to $26.0 million in Q4 2015.
In the quarter, our joint ventures contributed approximately $3.4 million of adjusted EBITDA and $1.5 million of adjusted FFO.
Similar to the Chatham portfolio, both JV portfolios beat our expectations on both the top and bottom line.
Fourth-quarter revPAR was up 0.7% in the Innkeepers portfolio and 0.1% in the Inland portfolio.
Our balance sheet remains in excellent condition.
Our net debt was $573 million at the end of the quarter and our leverage ratio was 40%.
Over the past year, we've reduced our net debt by $14 million.
Transitioning to our guidance for Q1 and full-year 2017, I would like to note that it takes into account our planned renovations at the Residence Inn Gaslamp and Courtyard Houston Medical Center in Q1, and the Residence Inn Mission Valley, Homewood Suites Bloomington, Homewood Suites Brentwood, and Homewood Suites Maitland during the remainder of the year.
In 2017, we expect to spend approximately $27 million on capital, including $20 million related to these renovations.
We expect Q1 revPAR growth to be flat to up 1% and full-year 2017 revPAR growth to be minus 1% to plus 1%.
Our first quarter is expected to be slightly better than our full-year forecast as we benefit from the inauguration in Washington DC and the Super Bowl in Houston in early February.
For the full year, our revPAR guidance assumes the current trends of modest GDP growth combined with above-average new supply in the upscale segment will continue throughout 2017.
We have not factored any benefit from potential economic stimulus into our 2017 guidance because we believe they are unlikely to materialize before 2018.
Our full-year forecast for corporate cash G&A is $8.8 million, up $700,000 from 2016, but in line with 2015 G&A level.
On a full-year basis, the two joint ventures are expected to contribute $15.5 million to $16.5 million of EBITDA and $7.5 million to $8.5 million of FFO.
The decrease in FFO is due primarily to the expected rise in LIBOR on the debt in the joint ventures, which is entirely floating rate.
Although the Inland portfolio is adversely impacted by a significant amount of renovation in 2016, we are going to be renovating approximately a third of the Innkeepers portfolio in 2017.
I think at this point, operator, that concludes our remarks and we will open it up for questions.
I will lead it off, <UNK>, just by saying that we are always interested and have our eyes and ears to the ground at all times and talking to people that we know privately about good opportunities because we want to be opportunistic.
But we want to be nondilutive generally, so I think that's why you have other REITs talking about it.
And I think we would generally feel similarly that if we could buy something that was going to be an 8 cap, 8.5, 9 cap, something that's going to be better than our implied yield, or around the same number even.
, but we felt there was upside with our management team at Island or otherwise, yes, certainly we would take a look at it.
<UNK>, this is <UNK>.
We're still projecting those costs to go up 30 bps in 2017, which is a little over 10% year over year.
But I will say that the ---+ what we've talked about for the last year basically in regards to what the brands are doing in terms of incentivizing travelers to come on the websites, to book through the websites, to become loyalty members, we have always said that it's going to take a little bit of time to tell if that really pays off, which is why in my prepared comments I said listen, I'm not sure if the fourth quarter is a trend in that does that prove that these efforts are in fact finally making it through to us, the owner.
I think we still have to wait a little bit of time before we can tell if they are going to flatten out or not.
That's why I said listen, I'm not sure one quarter makes trend, but we are still projecting in our guidance a little over a 10% increase in those costs in 2017.
Listen, we believe so.
We haven't seen anything, just to clarify, from the brands proving that out yet.
But the fact is volumes were up in the fourth quarter through some of the other channels, especially on the brand website and through e-channels.
So whether that's the brand loyalty programs or that's the renegotiation of fees with some of the OTAs, it did appear that despite production being up, our costs were level.
We're not going to ---+ again, we're not going to make any tremendous conclusions on a go-forward basis because of that one quarter.
So we'll see.
Listen, I think I will chime in.
First, this is <UNK>.
But I think in a lot of the markets that we are in, and especially in the upscale segments where our brands are, most of the brands that compete with us have been built ---+ are in the process of being built in those markets.
So we don't believe that there's a whole lot of opportunity for the brands to all of a sudden grant a ton of new franchise licenses in those same markets again that would create additional new supply with competing markets.
They've done it.
So we believe that that is going to be fairly limited in terms of new supply.
Yes certainly.
So a couple of them ---+ Silicon Valley outperformed.
At 5% revPAR growth was about 300 basis points better than we expected.
Obviously, those four hotels have a meaningful impact on our results.
The four Houston hotels we expected fourth-quarter revPAR to decline 26%.
It was 400 basis points better than at a decline of 22%.
Those two are the primary drivers.
That is 8 of our 38 hotels alone.
So I think that's the first start of it.
When you look at the overall trend, we were down almost 2% in October and really until we saw November I think surprised everyone.
December was only down 1.3%.
So I think the week October leading into everybody's earnings calls certainly spooked a lot of people in terms of just seeing that continual downdraft that we had seen from the second and third quarter and through the end of October.
But really, those eight hotels between Silicon Valley and Houston had a pretty good impact on our outperformance.
Yes so ---+ for outside of February during the Super Bowl for those 4 hotels, we have low to mid-20% declines in January, March, April, May, and June.
And as <UNK> alluded to earlier, really we are not going to start to see some favorable comps until July.
For the rest of the year, we are still showing a slight decline in revPAR in those four hotels.
For the entire year, those six hotels ---+ the six hotels, which are the four Houstons, and the two Western PA hotels, are impacting our revPAR guidance by about 100 basis points.
Well, obviously, it's factored into our guidance.
In terms of actual the displacements, we have planned the renovations to minimize the amount of displacement.
I don't have the number of the top of my head.
I can circle back with you on what the EBITDA impact is on those six, but obviously we factored it in.
We're going to spend about $20 million on those renovations in 2017.
But I can come back to you on that number.
I don't think there's really a big pipeline out there.
And frankly, you got to work doubly hard to find something that is interesting.
But, as I said earlier, that is our job and so I think that we'll continue to look.
But it is [thick.
Prime is thick].
I think that the jury is still out for us on a brand, for example, like Marriott's AC brand.
You can go and look at some.
I'm sure you have, and they look all wonderful and attractive to that younger guest, but I think there's not enough out there, at least for me, to feel real good about the distribution yet.
And so we will wait to see on that front most likely, unless there's an unusual opportunity in a market that just most likely for us is so familiar to where and who the demand generators are.
We feel good on our own without the benefit of a reservation system that we can fill it up.
And sometimes that happens.
So I think that although we do and we are interested in these home-to-suite products, which is sort of the similar competitor, let's say, at the TownePlace Suite level.
The only difference is their actual ADRs and revPARs that have been achieved in this very fast-growing brand are very close to Homewood's numbers, and spending substantially less dollars to build them and substantially less dollars in the operating model to run them.
So that is intriguing and we are looking at some of those and thinking about those.
No.
Absolutely not.
I think that everybody's hoping and praying for the Trump thump to continue, and for some time down the road this GDP to really get moving again, which of course benefits all of us very directly and does extend the cycle.
So I think that banks ---+ if revPAR is going up in the range that everybody has guided, and even up 100 basis points or 200 basis points, are not going to jump back on the bandwagon that quickly.
So that bodes for a little bit more, as you called it, or an elongated cycle.
If that all comes to fruition, we'll see.
Our numbers in our guidance don't anticipate that per se.
Well, we appreciate everybody being on the call.
And we are just going to work as hard as ever to continue to do the kind of things we're talking about, both from the capital allocation side and in working with our operators on the operating side.
Thank you, all.
We will talk to you soon.
| 2017_CLDT |
2015 | BCOR | BCOR
#Yes.
This is <UNK>.
I think that one of the things that is true of the consumer electronics E-Commerce space is that it is evolving at a fairly rapid clip.
And so as we talk to Bernard Luthi and his team at Monoprice, the recognition is not just in terms of what are the initiatives underway at Monoprice, but also what's going on in the marketplace and how do we best keep pace.
One of the realities today is that more and more of the initial shopping and searching is going on inside of the large platforms like Amazon, and so you've got to be present there.
Just as years gone by people had made the same conclusion about the search engine.
And so I think that Monoprice is well aware of market dynamics and yes, it's focused on Monoprice.com and building that brand and also driving transactions through that web site, but they also have to be present in third party channels.
And I think they're doing a good job of getting fully present in them.
As it relates to Jet, I'm probably not in a good position to comment on that, but it will be an interesting thing to watch develop.
Thank you.
Thanks, everyone.
| 2015_BCOR |
2017 | AES | AES
#<UNK>, remember that 10% was through 2018.
So we're doubling the period going out through 2020 and saying 8% to 10%.
I think it's still consistent with our general trajectory.
We did use a baseline as a midpoint of 2016 guidance.
Remember that we got about $300 million from Maritza in 2016 so you're not going to get to normalize for that.
(Multiple speakers) This is <UNK>.
I think the shift will be more front-end loaded because we have $1 billion of equity in our construction projects.
Those projects are coming online in 2018, so we will see more contribution front-end loaded from those investments.
Put it this way, the cost overruns are expected to be in the range of 10% to 20%.
We have financing that we're closing on for up to 22%.
So, it would cover even the worst estimate in terms of cost overrun.
That's correct.
110% of the worst case of the cost overruns.
It would be like 220% of the expected case.
Yes, that's correct.
We think it's possible to get PUCO staff onboard.
Very much so.
Yes.
Obviously, <UNK>, time's running out but we continue to have an open dialogue and open door and expect something to be figured out sooner.
We're certainly open to that.
Again, because these are ongoing businesses we never talk about them before it's closed.
But what I would say is look at what we've said is our strategy in terms of derisking the portfolio, reducing our carbon intensity.
Those are the type of assets that we have sold and will continue to sell.
Obviously, with a number of $500 million we have specific in mind, which is advanced, for us to feel confident in terms of giving this guidance.
That's as far as I can go.
But I'd say that, as we've always said, we'll continue to churn our assets and invest them in better risk-adjusted returns.
Okay.
Taking the first one, that was basically we had a legal case which we had, let's say, the possibility of getting it funded and we took a reserve against that.
We don't want to get into more detail about that.
It's certainly a closed case which there shouldn't be anything more going forward.
Regarding the wind in Brazil, this is Renova's assets.
These are 18-year contracts in reals indexed to CPI.
I think we're buying them at a very attractive price.
We'll remind people that in the past when Brazil was really booming we never bought anything at those prices that we didn't think was attractive.
Now we see this as being at attractive prices.
I also think that it's very important to get Tiete to be growing again.
We're utilizing 100% of local financing for this project.
So it's an attractive acquisition and it really is a milestone for Tiete.
Absolutely not.
Shut case.
It's a shut case.
I think it's really anchored in the projects that we know.
Southland is in these projects.
The energy storage of Southland is there, as well.
We have the completion of OPCG-2 and the completion of Alto Maipo in 2019.
Besides that, we do have the growth of sPower that I talked about, 500 megawatts ramping up to one gigawatt towards the end of that period.
We also have some growth in terms of distributed energy, as well, around 200 megawatts a year.
Other than that, it's basically redeploying that cash.
There will be other acquisitions that could be smaller ones, add-ons, and there could be some additional energy storage projects, again, modest energy storage project besides that growth.
So, that's what's embedded in those numbers.
I think it's reasonably conservative.
I do think if some markets really pop, like energy storage and third-party sales or something, it could be superior to that.
We have other things that we're looking at from de-sal to other applications.
I think it's reasonably conservative, is the right approach to it.
I wouldn't say it's the most conservative.
That's a great question.
What we see is we'll continue our strategy of simplifying the portfolio.
I always said that we don't need to be in 20 countries to really have the advantages of a diversification.
We do see having a strong footprint in the US because it gives us stable cash flows.
It's also the most technologically advanced market in all regards, whether it be energy storage, whether it be in the commercial sense.
And then we really see ourselves being the bridge from that to faster growing markets, and with a big emphasis in Latin America and a big emphasis to the extent we can get dollar-denominated contracts.
So that's where we see the AES of the future.
Now, we do see conventional energy as being an important part of this.
We really see that as a great advantage to the extent you can integrate renewables into your product and service offerings to final clients.
So there is a greening of the portfolio in large part because we're just seeing energy prices from renewables come down so much.
Also, it's because you can get long-term contracts up for renewables.
And finally it's because that's the part of the market that's growing.
Last year, almost 60% of new adds in the world are renewables.
So, in virtually all of our markets that's the segment that's growing.
We want to be there.
On the other hand, we see the advantages of AES as being able to integrate that into existing platforms.
So, platform expansion continues to be an important part of our strategy.
It's one of the things we like very much about sPower, that they have a platform expansion strategy.
No.
And I'd say the following reason.
Brazil is its own market, it has its own relations, it has its own regulatory structure.
So, we think it will have to continue to be managed in that way.
Tiete is also a publicly listed company.
We're very happy to start Tiete growing again because I think that will have a good impact on local investors and the multiple we get for Tiete.
But, remember, our SBUs are basically organized around markets.
So, what we would like is the teams there face similar clients, similar regulators, similar financial institutions.
We've always said that Argentina had significant upside potential and we're seeing that this year ---+ or, actually started seeing it last year.
Argentina, we sold out of the distribution businesses, which were very, I would say, difficult, but we were left with a very solid, excellent technically, generation business, which has made money pretty much every year.
We had he three years where we weren't able to pay dollar dividends.
Argentina's part of the Andes SBU.
There's some synergies and some interconnections with the Chilean market.
We're seeing tremendous progress in Argentina, tremendous progress in our business.
I think it's very much in line with what we were telling everyone before, is that Argentina had significant upside potential and some of that upside potential is being realized.
I think there's even more potential going forward.
I think if we did anything in Argentina it would be using local leverage capacity, like we're doing in Brazil, like we're doing in the Dominican Republic.
In the past we talked about proportional free cash flow and how we were paying down sub-debt and creating opportunities.
I think between DPP and Tiete, are two excellent examples of how we can lever the local business, 100% levered, and come up with attractive, in both cases very carbon-friendly projects with long-term contracts.
No, we really aren't.
We're in negotiations now and we think we'll reach a settlement but we can't give anymore color.
That's right, yes.
You're right.
Okay.
So, I think with this we conclude today's call.
And we thank everybody for joining us on this call.
As always, our IR Team will be happy to answer your questions.
Thank you and have a nice day.
| 2017_AES |
2016 | SONC | SONC
#I think from our perspective, <UNK>, we're comfortable at that 3 times range.
So, the questions then become ---+ we believe in our business, we believe it's going to grow over time, and our EBITDA is going to continue to allow us to naturally delever ---+ so then the question just becomes how do we pace and sequence that.
I think, whether we're at 3 times, whether we're at a little over 3 times and naturally delever, that's what we look at.
We also look at the fact of, as we look at the state of our business, our targeted debt ratio, what are the opportunities that we have to return cash to shareholders.
I think we feel comfortable at 3 to 3.5 times.
You're going to find that kind of fluctuation.
When you take on the leverage, it's going to bump up above it, and when you operate well and reduce it over time we're going to hit periods of time where we're below it.
That kind of range is slightly below and then a little above.
<UNK> mentioned 3 to 3.5.
Once you take that step, you've got to step up or you're deleveraging, you start deleveraging immediately.
We haven't given a number on that but the objective is to have the rate of growth pick up year by year.
So, not just the absolute number, but have the percentage growth rate pick up year by year.
The objective would be over time to push toward that 3% on a net basis but that will be a multi-year build.
<UNK>, as an example, for instance, when we roll out the mobile app, our mobile app will be applicable to the majority of our drive-ins whether or not they have POPS or POS.
So, the benefit of having that mobile app will not be dependent on having the digital menu board in your drive-in.
That's where it becomes a little more nuanced.
As compared to, we will have increased functionality on our digital menu screens in our POPS locations, and those would obviously only apply to drive-ins that have POPS.
So, in that situation, they would only see those benefits in POPS locations.
So, while we're looking at those and we're seeing it internally, from our perspective, from a market perspective, our goal, again, is to continue to drive 2% to 4% same-store sales on an annualized basis driven by these multiple initiatives.
But that's where it becomes a little more nuanced because unlike our other initiatives that you can say ---+ this one applies to all, this one's being phased in ---+ we're going to be in the process of implementing multiple initiatives that have different impacts depending on what they are and what equipment you have.
Does that make sense.
A couple of things on wage rate pressure.
From a Company drive-in perspective, we have not seen any significant wage pressure.
Again, we know it's coming but we haven't seen anything significant, and that may be, we believe, in great part due to the fact of where our footprint is.
Two, we know our franchisees, depending on the markets they are in, are seeing a little bit more of that, so we're monitoring that.
From a turnover basis as a result of we're not seeing any major wage pressure at this time, we're not seeing anything significant on our employee turnover.
Our overall multi-year goal, again, as we work towards getting to $1.5 million AUV is we have been starting last year, as you know, been making investments in our human capital at the drive-in level so we cannot only prepare for this but make sure that we're in a good position to, over time, decrease turnover and build a strong workforce and a good, strong bench.
With respect to the NLRB, at this point we're not doing anything with franchisees.
We're waiting to see.
We're letting it work through the process.
We've had nominal discussion with franchise leadership.
We have not had formal engagement with franchisees on a broad basis on that topic, but private discussions with franchise leadership as a group because we do have formal structure with them.
But no action or plan to discuss with you today.
No, I think that 1% closure rate is a good way to think about the number of drive-ins that we'll be looking at every year.
We don't ordinarily discuss that and we probably won't today either.
But I would say that with the variety of products we promote and the manner in which we promote them, has resulted in positive daypart growth this past quarter, all dayparts.
And for roughly for the last two years we've seen ---+ as a matter of fact, in the last two years we have seen it but even month by month roughly for the last two years we've seen positive daypart growth for all dayparts.
I should say positive growth for all dayparts.
I think when we look at it I would probably tell you about, at this point, it's skewed a little bit more towards the commodity costs just because they were so high in the first fiscal quarter of 2015.
But, again, still seeing very good improvement from our inventory management tool.
And then, as I will say, we had the partial offset this past fiscal quarter of approximately about 30 to 35 basis points from implementation of our employee meal program.
The sales of the system are something more than 20% from developing markets.
We do not ordinarily break out comps by market type.
I would tell you that in the last quarter that all market types were positive from a sales standpoint, and last fiscal year all types of markets were positive from a comp standpoint.
So, they're all healthy but we don't break that out.
And part of the thing is, at any given point in time, based on the maturity and the circumstance of those stores and the initiatives that are under way, even local promotions, et cetera, there could be variable results, and it doesn't mean that the brand is unhealthy in a different market just because comps are different.
We had those initiatives quite intentionally based on market type.
But we don't break that out on a quarterly or annual basis.
I would say about 30 to 40 basis points.
It ramped up a bit.
We started to see the benefit of that in the second fiscal quarter.
The third fiscal quarter was the first full quarter where we saw a full quarter benefit.
Thank you.
I think that was the last question.
I want to thank all of you for participating today.
We'll be available here after for questions that you have.
But we felt very good about the first quarter and feel good about the momentum of the business.
We'll look forward to visiting along the way and should be a good ride.
So thanks for being on-board.
Take care and happy new year.
| 2016_SONC |
2017 | PRGO | PRGO
#Yes, great question.
So we do have a fair amount of synergies on the, I'll call it the cost of goods and operating side, so I'll start there.
We put a team in place early on and said we've got to figure out what we can do.
They had a lot of outsourced products, a number of plants, as we do, and our team there, we put people on the ground, headed under our <UNK> Janish, with our whole Irish operating and supply team, and they have been delivering great synergies between the businesses, doing insourcing across our plants, making sure we deliver high value across the products.
That part has been going well and we continue to try and expand what we can do there to help their cost of goods, as well as their operating costs.
The other side is we have a platform in Ireland and we continue to combine our Irish platform there with the platform of the operations in Nazareth, Belgium and continue to get benefits out of doing that.
On the sales side, there are some synergies, not as much or as quick as we had originally expected.
We had originally expected to be able to launch more products.
We are launching some products that tie into their value chain there.
We are launching some products here eventually that we think we can launch as good brands or control brands.
But it's not as much early on as we expected.
We continue to want to drive more value there.
One of our good wins has been we had developed in the states, with our partner in Denmark, a nicotine gum that was sort of best-in-class and with the purchase of the nicotine products that we did in our international CHC business we were able to bring that innovation to them, and they actually launched that product here over the last month and a half or two months, and are seeing good results.
So we feel that franchise as smoking cessation, and those kind of things continue to grow in Europe that can be a good franchise for us there.
And as a global player, we have a good supply chain to back that up.
So that's a good example where working together has proven to be a beneficial thing.
Yes.
So the first part on the business side, I would say when we look at the markets today, the switch products, the categories, all of that, we still are very optimistic on our CHC business and feel good about that.
But when we look at all of the components that we tried to lay out with store brand growing, favorable consumer dynamics, new products, you could see pretty strong volume growth across the segment in that close to 5% to 6%, so good volume growth.
The plants are running well and those kind of things.
We do expect, and we put in here pricing headwinds, and so we build those into our model, we expect pricing and make sure that we have the cost and other initiatives to do that for net growth of 2% to 4%.
So rather than bridging back, we're certainly switching and that was also in those models in the past and big switches, as well as just general growth dynamics depending on the time period that we were in.
But as we look forward for the next few years, we're looking to be able to grow this, which I think in general, will be at or above the pace of the normal US consumer business within the pharmaceutical and healthcare arena that we operate.
Yes, I'll take the question on ---+ I think you phrased it the target kind of leverage metric.
So listen, if you've been tracking the Company, again, we have not provided full 2016 information, but if you look at the LTM metrics as of 9/30 you can see the Company is running somewhere, let's call it in the high three to four range relative debt to EBITDA.
So then you step back and say what is the Company's financial policies, what's our priorities, we talked about those.
So, again, you look at next year, we're looking at around $560 million, I think the exact number is $557 million in maturities.
Again, we've talked about how we are using operating cash flow as our intent to pay that debt down.
So to your question, you can take that off the balance sheet.
We just ---+ we're looking to close Tysabri by $2.2 billion in 20 days, as we mentioned on our remarks.
Now, again, it's a tax efficient structure, but you always can still look at the tax effect of the sale.
You got to look at what is the cost to pay debt down.
You can run the models based on what the debt is trading on today, do your own estimates, plus assume, for sake of discussion, they are somewhere in the $2 billion to $2.1 billion there, so just to give you a kind of range.
So what does that mean.
Again, I don't want to say every nickel and dime goes to debt pay down, but let's say we're continuing to commit to investment grade.
We're continuing to work with the rating agencies on our credit profile to ensure we continue marching down that path.
If you take those numbers, you're talking in the range of $2.6 billion to $2.7 billion of debt that would be paid down over the course of the year.
You can run the leverage metrics.
I don't think I need to do the math for you, so you can take the guidance, run off an EBITDA model and then start saying what does that metric come out to.
Thanks, <UNK>.
Yes, I think, again, I'm trying to not down play 2% to 4%.
I realize where you're going on the 5% to 10%, but 2% to 4% means with all of that, volume growing 5% to 6%, store brands gaining, certainly volume share, profitability being offset some with a where does pricing go and what happens there, but still good volume growth, good share growth when you look overall at what we're doing.
There are consumer dynamics, we believe, continue to go that way.
Those mega trends you talk about in my mind are still very much at work.
We're all getting older, healthcare costs are doing nothing but go up no matter what we want to talk about.
Having a value proposition for consumers when they go to get it is a great thing.
We believe all those work in our favor.
At this point, when we look at all of those balanced together, and say organically, so, again, organically with the portfolio, with the R & D that we're doing, what do we see.
We believe it's in that realm.
That does not mean that there aren't other inorganic opportunities there to provide additional growth.
What we're talking about here is base organic growth with the portfolio in R&D across the segments that we're operating in.
Yes, so I think, without going back a couple years ago and saying here is what those dynamics were, I feel good in laying out here is the dynamics today and kind of what organic growth I see.
And, again, there's still a fair amount of volume share.
I just think all the dynamics of growth, products, switches, all of those things lead us as guidance which, again, I feel is a very strong, growing faster than segments, driving share, doing those things performance.
If you can add on to that some inorganic pieces, that's a very good strong business.
Thanks, <UNK>.
Last question, please.
Sure, you bet.
So first let's start with the effective tax rate.
So, listen, you're in a stone's throw.
I'm not going to say it's right or wrong, so I think you're within a window of acceptability relative to the tax rate.
We aren't providing guidance on that today.
We'll certainly update our models and give that more detail once we do close the transaction.
So, again, within a stone's throw.
Listen, we've worked with our partner, we are not disclosing the terms and conditions and we are not obligated to until we close.
We would like to withhold that comment until we get to that point.
I think what you'll find is it's a natural curve relative to Tysabri sales.
There's always a bid/ask spread, as you always know, relative to any street model, so I don't want to predispose one street number versus another.
Biogen doesn't provide guidance, so for me to go out there and start providing estimated revenues for the milestones right now, I don't think is appropriate.
But, again, we've looked at those, we understand what the metrics are.
We worked with our partner in what are appropriate milestones for those sales thresholds, and, again, once the agreements and so forth become public, we'll provide more discussion at that point.
And I know you're referencing this, but it is $250 million in 2018 and $400 million in 2020.
So as we discussed, when they're due it's just the terms we will get disclosed once closed.
Thanks, <UNK>.
Thank you, everyone.
I really appreciate your time and consideration.
I appreciate it.
Thank you.
| 2017_PRGO |
2016 | RIG | RIG
#Good morning.
Well, <UNK>, good morning.
I think what we have to look at is from our own conversations with our customers.
It's really hard for us, difficult for us to project what will happen to our competitors, but for those folks that are suffering for the lower commodity prices I think we will see more contract terminations or probably a little bit more a contract renegotiation, but from our fleet and our perspective we are not hearing those conversations as of today.
In fact, we are in conversations with some extensions of our fleet, so we believe that with our strong backlog that our conversations perhaps are going to be a little bit different than our competitors.
I think that's the point.
Almost 80% of our backlog is with the super majors and 90% is with investment-grade companies, so we feel really good about the strength of the backlog and being able to convert that into future earnings and cash flow.
Never say never though.
It depends on what happens in the market obviously, but right now we aren't having those conversations with our customers.
Yes, sure, <UNK>.
We focus mainly, as I've mentioned to you guys in the past, focus mainly on the new-debt maturities.
So we have been buying back the 2016, 2017, 2018s mainly with some focus on the 2020s to 2022s.
It just so worked out the previous quarter that our opportunity to actually attract bonds, raise the bond availability was later in March.
Good morning, <UNK>.
I think I'll be very clear in the past that we have substantial liquidity.
We have an industry-leading backlog and I think we have a debt maturity profile that allows us to avoid the equity market.
I think we'll be opportunistic with regard to adding and refinancing our maturities with secured-debt options in the event that we are able to achieve that, but at this stage we do not feel that equity is the right solution for Transocean.
As you well know, the impairment test is based on the remaining life of the assets and these assets will be dominantly delivered around 2000, so you're looking at assets that would last through 2020.
So given the fact that we have a significant tail, on average about 15 years or so of remaining life of these assets, I think it's fair to say we feel very strongly that given the way we have approached our stacking on these assets they've been cold stacked with the intention of reactivating these rigs very quickly and cost effectively, so as the market does recover in 2018 and 2019 as <UNK> has mentioned in the past, we believe these rigs will come back to the market and we will be able to earn sufficient cash flows to offset the carrying value of that remaining period.
Yes, <UNK>.
I think we've taken a pretty thoughtful view of the global float and kind of positioned our rigs against that.
As we look at our fifth-generation rigs, not all of them but the vast majority of them, we see them being highly competitive when the market turns around.
Other than really the Gulf of Mexico and presalt Brazil, these are excellent assets that are proven to be very valuable for us and our customers, so we feel good about our asset strategy and fifth gens will be a part of that asset strategy.
<UNK>, we typically look at our liquidity as spongeable, so cash and revolver, so we fully expect to be able to use a combination of both to retire the 2016s.
The potential secured debt is opportunistic on our part.
We don't feel that it's necessary to raise that debt to retire the 2016s or the 2017s for that matter, so anything we gauge in addition to our current liquidity in the form of secured debt would be over and above what we planned to manage through the cycle.
Good morning, <UNK>.
This is <UNK>.
Look, I've been very clear that in the past on these calls that currently the value arbitrage that we enjoyed when we listed Transocean Partners for the first time has reversed, so it's not economic for us to be able to use Transocean Partners in the capacity which was envisioned initially.
That is still our intention if and when the market does recover for both the offshore drilling industry and for yield-based vehicles.
So the intention there would be to nurture Transocean Partners as best we can and recognize when the opportunity provides itself we will utilize the vehicle in the capacity in which we intended.
Yes, that's a good question.
So we believe that the interest certainly with the majors is very high in Brazil and we think that at some point, and of course I can't tell you when that set time is going to happen, but the customers that have bet big on Brazil are very focused on developing those opportunities.
So when the time comes, I think that we will be participating in a meaningful way and, again, I think as we wait for Petrobras to take another look at their fleet and continue to high grade, I think that they are going to be able to extend some of these contracts, and we've been speaking with them a lot, too.
So, again, we've been having a lot of conversations about Brazil.
Good morning, <UNK>.
Well, <UNK>, I think I was very clear in my prepared comments with regard to what one-time costs we saw in the first quarter with regard to the reactivation costs on the Goodrich, the mobilization which we recognized in the quarter as some severance costs, but obviously the trend is Q1 will be higher, Q4 will be the lowest for the year because as you model out our operating activity with a number of rigs, those decline throughout the year.
That being said, we have to factor in the addition of the [Polassa], the Proteus, and obviously the reactivation of the Goodrich which will go in the other direction but, in general, you are going to see a significant reduction in operating cost.
In addition, as you know with the first-quarter's contract cancellations, we have announced that those rigs are going to be cold stacked, but there are certainly costs associated with cold stacking the units, which is expense in the 30 to 60 days, so you'll see that flow through in the February, March, and some of it in April time frame as well.
I think that there's going to be a few opportunities, more opportunities for blend and extend.
We did something a little bit different than our competitors have done.
We did actually with BHP in Trinidad we actually inserted a contract and then moved all of our terms to the right in Trinidad to help better align that program with BHP's objectives.
So you might see a bit more of that where we're able to do that and certainly remain focused on our cash flow, but as far as true blend and extend, we are in discussions with a few customers and again I they we will see a few more.
Hey, <UNK>.
<UNK>, I think that was three or four questions in one.
I'll try to go through them all again.
I think we've been pretty clear, do we see the up-tick in oil price and the sustainability of it early enough for customers to build it into their budgets for next year.
We aren't sure.
We said publicly we don't know the answer.
We said publicly we expect 2016 and 2017 to be challenging, so I think it would be a pleasant surprise if oil prices continue to move up and to the right and customers got confidence ahead of their budgeting cycle where we could see meaningful improvement and activity for next year, but we're not building the business on that right now, so that was one piece of it.
I think that the second piece of it in terms of how quickly can we respond, it's going to depend on the rig and the condition of the rig.
We have a team that is both responsible for the stacking of the rig and also that same team is responsible for reactivating the rig, so we're doing everything that we possibly can to ensure that we're preserving this equipment and preserving these rigs in a way we can reactivate them cost effectively and quickly, but it's going to depend on the rig.
Some of them may take 60 days, some of them may take 120 days, but that's the range of reactivation we're looking at across the fleet right now.
There was a little bit of static in the line.
I'm not sure you got the question.
Can you ask again, <UNK>.
<UNK>, this is <UNK>.
I think it's expected to assume that you're going to have dollars spent across the board, right.
You're looking at dollars being spent onshore, shallow offshore, harsh environment, deepwater, Gulf of Mexico, and elsewhere.
So I think what's going to be an interesting driver of the recovery is the makeup and financial viability and strength of our customer base.
So as we look around the world and we look at the basins and the main customers in those areas, that's going to drive how they return back to the market.
I think <UNK> made a comment in his prepared statements around Venezuela, for example.
If you don't have any funds available you aren't going to be able to attract service companies or E&P companies to be able to restart your production.
So I think we have to think about that as well in the context of what's going to be first, second, and what's going to be most viable on a perspective basis.
Well, <UNK>, I'd love to answer the question but <UNK> speaks to customers a lot more than I do, so I'm going to defer it to her.
As you look historically you're right because it's easy to plug and play on the jack-ups and the mid-water fleet and we certainly expect the UK Norway to react pretty quickly.
The ultra-deepwater sites, we do have the independents who are telling us that if $50 looks really great and they could do some plug and play, so I think we'll see that happen as long as we have some sustained momentum certainly with the commodity price, but as far as the majors they've got to get a little bit more stability.
It takes awhile to do their feed study, so I think we're going to see a pause until they get more comfort and are able to push their programs forward.
It's going to be a range.
It's going to depend on the asset itself, but we kind of had a range on ---+ if you go through the different classes of rigs, ultra deepwater might be somewhere between $20 million and $100 million and I know that's a big range, but that's kind of where we are.
And then as you go into some of the lower classes of rigs, that high end comes down obviously maybe into the $70 million and $60 million range, but until we do it we're not going to know.
We've got pretty good plans in place.
We have got good ideas of what it is going to cost us, but until we actually execute, we are not going to know, <UNK>.
Thank you to everyone for your participation and questions on our call today.
If you have any further questions, please feel free to contact me.
We will look forward to talking with you again when we report our second-quarter 2016 results.
Have a good day.
| 2016_RIG |
2017 | IPAR | IPAR
#Thank you for the question.
Yes, Russ, you want to.
I think it's a trend that has been going on for the last several years.
We've reached for our ---+ included in our SG&A was around 19% of our sales was spent on promotion and advertising compared to 17.9%, just a little under 18% the prior year.
As <UNK> mentioned, just two minutes ago, with launching new product into countries like China, or where the markets are relatively weak, or even to support the brands in most of the major markets around the world, we really have to support it, with promotion and advertising.
And even though we see in our in our numbers 19%, there's also a significant amount of dollars that are spent by our distributors in local markets in connection with promotion and advertising.
This is part of our business.
This is the way we drive the business.
It's the way brands grow and gain the name recognition that we need in order to keep these trends moving along.
So 19% is very reasonable.
I wouldn't be shocked if it grew a little bit, and went to almost 20%.
I think that's the trend that we are on, at least over the last several years.
Absolutely.
I will say last year, between what we spent and what our distributors spent, 25%, 20% at least of the budget was spent on digital.
And to go back to what Russ said, we should keep ---+ very important to support our brands, there to continue to grow the market.
We could make more money if we were short sighted, we could make ---+ we could be more profitable by cutting a point or two of advertising, but it would be a very bad mistake.
We need to support all of our brands.
Coach is new, and we are overspending, much more than our obligation, our contractual obligation on Coach.
We are overspending much more than our average of 20% on Rochas.
We are also overspending on Jimmy Choo, and we want to continue like that.
Let's not forget that we have to fight against a larger company who are launching also a lot of new products.
In order to be competitive, we continue the spending.
Absolutely.
I mean I don't have numbers, but we could add $50 million or $100 million of business with new license.
Without changing anything in our G&A.
Russ, do you agree.
Yes, certainly without any significant changes, absolutely.
It's a little bit early, but I can tell you that we are over budget, and for Japan, we launched also in Singapore, which was quite good.
We continue ---+ 2017 is really the rollout of Coach.
You know that Coach, besides being a very strong American brand in America, is a very strong brand in Asia.
So Asia is, is a major, major market for Coach.
So we are ---+ what I can tell you without disclosing very a precise number, is Coach is over our target in all the countries that it has been launched.
Then we continue with the men's line.
In August or September ---+ I would say August, we will start shipping the men's line in all the markets.
So we'll have even a stronger presence when we get to the Christmas season.
On Rochas, we will be launching the new Rochas in 12 countries next month.
Definitely Spain and France, which are the two very important countries for Rochas.
We continue with, with the rest of Europe, Belgium, Switzerland, Portugal.
Then we will launch in the Middle East.
Saudi Arabia, Dubai, Kuwait.
And of course, South America, Argentina and Brazil.
We will have a second wave towards July, August with the rest of the countries.
As you know, Rochas is not a license.
It's a brand that we own.
So of course we do not have to pay royalty.
So we are able to put more money into advertising.
And I think that it will help the launch of the new fragrance.
Russ.
Well I mean today, the sales that you see in any big-box stores is really coming through diversion, for the most part.
Other than, if there were lines that are being closed out, or discontinued, you might find them.
But otherwise, it comes through diversion, and we take it very seriously.
This is a problem that has been in our industry, as you know, for many, many years.
There are new techniques that we are looking into, with respect to inventory tracking.
And for where it makes sense to do that from a monetary standpoint, to protect some of our brands, we will do what we need to do to protect the brands.
But our business is not geared for big-box stores or Walmart-type stores.
So I would say 95% or 98% of that is coming through diversion.
That's great.
Thank you, operator.
One last point before we say goodbye, I just want to mention that I will be presenting at the B.
Riley investor conference, which runs from May 24 through May 25 in Santa Monica, California.
Two other conferences that are in New York in June, I will be at the Citi Small and Mid-Cap Conference which runs from June 8 to June 9, as well as the Piper Jaffray Consumer Conference, which runs from June 13 to June 14.
We should have more precise dates when we announce our first-quarter results in early May, and I hope to see some of you at these events.
Once again, thank you for your participation on this call, whether you are live or listening via webcast, and as always, if anyone has additional questions, I am available to take your calls.
Thank you, and have a great day.
| 2017_IPAR |
2016 | OFIX | OFIX
#Thanks <UNK>, and good afternoon everyone.
I will start by giving you an update on our fourth quarter and full year 2015 performance, after which <UNK> will walk you through the financial results that we reported today.
I will then follow up with a few thoughts about our expectations for 2016 before opening it up for Q&A.
Overall, we exceeded our expectations in the fourth quarter with a very strong finish to a transformational year at Orthofix.
Our Q4 results further validate our strategy, momentum, and the strength of our businesses.
Additionally, we believe there's significant opportunity to continue to improve our performance going forward, which I will discuss in a few minutes.
Now I'll give you a few financial highlights for the fourth quarter.
Net sales grew 7.6% for the quarter on a constant currency basis.
Excluding a benefit from a revenue recognition accounting change in Q3 of 2013, the fourth quarter was our highest quarterly year-over-year growth rate in the last six years.
The BioStim strategic business unit, or SBU, in particular had another exceptional quarter, growing net sales by 13.2% in constant currency over prior year.
The Biologics SBU continued to show consistent top line growth, with Q4 increasing net sales by 5.2% in constant currency.
The Extremity Fixation business net sales declined by 2.2% in constant currency in the quarter, but achieved a modest 1% growth for the full year in the face of continuing international challenges, particularly in Brazil.
And not to be overshadowed by the other SBUs, the Spine Fixation business achieved year-over-year growth in the fourth quarter of 11.9% in constant currency, which highlighted a notable turnaround of this business in 2015, as we had expected and communicated at the beginning of the year.
Adjusted EBITDA for the quarter was $19.3 million, or 18.4% of net sales, which demonstrates the fixed cost absorption and leverage achievable as a result of increasing net sales.
And as previously reported, in the fourth quarter of 2015, we initiated a $75 million, two-year stock repurchase plan that has resulted in stock purchases of approximately 294,000 shares for $11.6 million through December 31, 2015.
The repurchase plan remains in effect.
I'll now review a few of our key operating accomplishments for the full year.
As I just mentioned, in our Spine Fixation SBU we took the necessary steps to successfully turn around this business both organizationally, as well as financially.
This included a new leadership team, the expansion of our sales force by over 50%, the acceleration of our new product launches, and focus on profitability.
As a measure of that, the Spine Fixation business had the highest quarterly growth rate in almost four years and a positive operating income in Q4 of 2015 for the first time since 2010.
As in our Spine Fixation SBU, we continued to invest in our distribution channels in all of our businesses, increasing the size and quality of our footprint.
In 2015 we grew the total number of our US salespeople by approximately 20%.
We invested in clinical research and our products pipeline to drive organic growth in the years to come.
In 2015, we substantially completed several clinical studies, supporting the use of our regenerative products and continued to work on many other preclinical studies supporting all SBUs.
As an example of this, as we reported last week, the Spine Journal recently published online the results of a cellular study that indicate that PEMF therapy may reduce cellular inflammation and degradation associated with disc degeneration in human cells.
PEMF is the core technology product in our BioStim products, which we believe may have additional clinical applications beyond bone growth stimulation.
We also successfully launched six new products and four line extensions in our Extremity and Spine Fixation businesses in 2015.
And finally, we significantly improved our systems, internal controls, and accounting processes.
In addition to remediating our internal control deficiencies, we spent the last 18 months rebuilding the finance and accounting team, installing new commissions and consolidation software, streamlining our chart of accounts worldwide, significantly improving our internal reporting capabilities, and preparing for the reimplementation and upgrade of our Oracle ERP platform which is scheduled to go live on April 1.
While 2015 was a very good year overall for Orthofix, our expectations for 2016 and beyond are to capitalize on our building momentum and continue to drive performance improvement, which I'll discuss after <UNK> provides you with more detailed financial results.
<UNK>.
Thanks <UNK>, and good afternoon everyone.
I'll start with providing details into our net sales and earnings results, and then discuss some of our other financial measures.
Total net sales in the quarter were $104.6 million, up 4.3% from the fourth quarter 2014 total net sales of $100.3 million.
On a constant currency basis, net sales increased by 7.6%.
Now I'll talk about each strategic business unit in more detail.
Starting with our BioStim SBU, 2015 fourth quarter net sales were $45 million, up 13.2% versus the same period in the prior year.
The increase was primarily due to our sales force expansion and an increase in the number of spine procedures.
I would also note that approximately $1.7 million of the growth was a result of a one-time program that accelerated backlogged orders.
Turning to our Biologics SBU, 2015 fourth quarter net sales were $16 million, an increase of 5.2% versus the same period in the prior year, primarily driven by our increased number of sales representatives and an increase in the number of spine procedures.
Moving on to our Extremity Fixation SBU, 2015 fourth quarter net sales were $23.9 million, a decrease of 13.5% in comparison to the same period in the prior year, largely due to an unfavorable foreign currency impact of $3.1 million.
On a constant currency basis, the SBU declined 2.2%, due primarily to continued international challenges, including weakness in Brazil and the timing of cash collections.
Since we recognize revenue from a large portion of our stocking distributors only on cash collections, we believe that constant currency trailing 12-month revenue growth gives our investors the best measure of the performance of this business.
At the end of the fourth quarter, the trailing 12-month growth rate in constant currency was 1%.
And lastly, our Spine Fixation SBU's 2015 fourth quarter net sales were $19.7 million, an increase of 11.5% in comparison to $17.7 million in the same period in the prior year.
On a constant currency basis, the SBU grew 11.9%.
The year-over-year growth was driven by the reorganization of the SBU and from additional distributors added in 2015 as a part of our sales force rebuilding and expansion initiatives that <UNK> mentioned.
Now I'll move on to the rest of the P&L.
Fourth quarter gross profit was $83.2 million, up $4.4 million from the fourth quarter 2014.
Gross margin in the fourth quarter 2015 was 79.5%, up 90 basis points compared to 78.6% in the prior-year period.
The increase in gross profit and gross margin is primarily due to the increased sales mix from our higher-margin regenerative solutions, which were 58% of net sales versus 55% in the prior-year period.
Sales and marketing expenses were $44.7 million or 42.7% of net sales in the fourth quarter of 2015, up $2.4 million from $42.4 million, or 42.2% of net sales in the fourth quarter of 2014.
The slight increase in these expenses as a percent of net sales was primarily due to the overall increase in the number of sales managers and field-based training personnel as part of the strategy to increase the size and improve the productivity of our sales organizations, as well as sales commission quota overachievement in certain territories.
Net margin, which we define as gross profit minus sales and marketing expenses, was $38.5 million, or 36.8% of net sales in the fourth quarter of 2015, up $2 million from $36.5 million, or 36.4% of net sales in the fourth quarter of 2014.
The improvement as a percent of net sales was due to the improvement in gross margins.
General and administrative expenses were $23.7 million, or 22.7% of net sales in the fourth quarter of 2015, which was flat on a dollar basis compared to the prior-year period.
When adjusting for legal settlements of $4.2 million and Bluecore expenses of $700,000, G&A was $18.8 million, or 18% of net sales compared to 21.3% in the prior year.
This improvement reflects a more normalized rate for the next few quarters as we continue to wind down our infrastructure improvement initiatives.
Research and development expenses were $7.6 million, or 7.2% of net sales in the fourth quarter, which was up from $6.2 million, or 6.2% of net sales in the prior year.
Adjusted EBITDA during the fourth quarter was $19.3 million, or 18.4% of net sales, compared to $16.3 million, or 16.3% of net sales in the prior year.
The significant year-over-year increase in adjusted EBITDA is primarily due to increased net income from continuing operations, which was a result of our G&A cost improvement and higher gross margins driven by product mix, partially offset by increased sales and marketing and R&D costs.
Income tax expense for the fourth quarter was $5 million, or 71% of income before income taxes, as compared to income tax expense of $6.9 million, or 373% of income before income taxes in the same period of 2014.
Our income tax expense was 128% of income before taxes for the full year 2015, as compared to 130% in 2014.
Our 2015 effective tax rate was inherently volatile because we had relatively low pretax income, and because we had losses in several tax jurisdictions in which we received little or no tax benefit.
As we increase our pretax income in 2016 and beyond, it will lower our effective tax rate to more normal levels.
Additionally, we believe there are opportunities to drive our long-term tax rate down, and are acutely focused on tax planning in order to accomplish this.
Accordingly, we currently believe that our long-term normalized tax rate will be 38%, and in order to improve comparability and to eliminate tax rate volatility in our quarterly non-GAAP reporting, we will apply this tax rate to derive adjusted net income prospectively.
For the fourth quarter 2015, we reported net income from continuing operations of $2.1 million, or $0.11 per diluted share, as compared to a net loss from continuing operations of $5.1 million, or $0.27 per diluted share for the fourth quarter 2014.
After adjusting for certain expenses, including foreign exchange impacts, strategic investments, restatement and related costs, legal settlements, and the Bluecore infrastructure investments, and net of tax, adjusted net income from continuing operations was $5.3 million, or $0.28 per diluted share compared to a net loss of $900,000, or $0.05 per diluted share during the fourth quarter of 2014.
Moving on to the balance sheet highlights, days sales outstanding or DSOs were 55 days at December 31, 2015, down from 56 days at December 31, 2014.
Our inventory turns at the end of Q4 2015 were 1.5 times, which was down from 1.7 times at the end of Q4 2014.
The decrease in turns was driven by the additional inventory needed for new product launches during the year.
Cash and cash equivalents at the end of 2015 were $63.7 million compared to $71.2 million, which included restricted cash as of December 31, 2014.
We continued to have no long-term debt on our books.
As <UNK> mentioned, as of December 31, 2015, the Company had repurchased approximately 294,000 shares of common stock for $11.6 million under the $75 million share repurchase program.
Additionally, the Company has purchased approximately 417,000 shares for $15.9 million for the period from January 1 through February 24, 2016.
In total, since the beginning of the program we have repurchased approximately $27.5 million of the $75 million authorized under the program.
Cash flow from operations for Q4 2015 was $17 million compared to $15 million during Q4 2014.
The increase is primarily reflective of the year-over-year increase in net income of $9.2 million, partially offset by an $8.1 million decrease in cash provided by changes in working capital.
Capital expenditures for Q4 2015 were $6.7 million versus $7 million in the prior year.
For the year, capital expenditures were approximately $28 million, which includes Bluecore investments of $16 million.
As I noted on the last call, we anticipate we will incur approximately $6 million of Bluecore expenditures in 2016 and would expect that the mix of these costs will be recognized as approximately 15% operating expenses versus 85% capital expenses.
Free cash flow, defined as cash flow from operations minus capital expenditures, was $10.3 million for the quarter, compared to $8 million for the prior-year period.
The year-over-year increase in free cash flow is primarily driven by the operating cash flow increase, as well as the slight decrease in capital expenditures.
In 2016 we expect to see our free cash flow generation improve as a result of both our margin expansion strategy and a significant reduction in capital spending relative to 2015.
I will now turn it back to <UNK>.
Thanks, <UNK>.
With 2015 now in the books, this is a great time to reflect on the successful transformation of Orthofix over the last several years.
In 2014 we created a vision to become a highly respected orthopedic and spine company that delivers exceptional value to our stakeholders.
This vision is beginning to be realized and we are on the right path to fully realize our potential in the next few years as we focus on business fundamentals, including our key 2016 objectives.
Our first objective for 2016 is to grow our sales in each of our businesses faster than the growth in our respective markets by expanding and optimizing our sales force, while launching new and innovative products.
Specifically, this year we expect to accelerate our new product cadence with 10 new product launches and seven line extensions.
The most important of these launches will be our next-generation bone growth stimulation products at year-end, a novel hip fracture system at Extremity Fixation, and in Spine Fixation, our FORZA PTC and PTC PILLAR line of proprietary interbody products, Firebird NXG, a significant upgrade and enhancement to our Pinnacle screw system, and Sentra, a new anterior cervical plate.
Our second key objective is to expand margins through improved operating leverage and SG&A expense reductions.
We expect to make good progress in 2016, and this will continue to be a focus area for us in the years ahead.
And lastly, our third objective is to continue to invest in meaningful clinical research, particularly for our regenerative technologies to ensure the long-term success of the Company.
In 2016 we will continue to work on a variety of clinical studies that are currently in progress, both to support the existing products as well as to investigate new indications for the use of our core PEMF technologies.
We are also evaluating and have planned to initiate new clinical studies throughout the year.
Regarding our expectations for 2016, we expect to achieve net sales at today's FX rates of $407 million to $412 million.
This represents a year-over-year growth rate of between 2.7% to 3.9% and we anticipate growth in each of our SBUs in the year.
We expect that the quarterly distribution of our net sales will generally reflect the same seasonal pattern that we saw in 2015.
We expect gross margins in 2016 to be generally flat year-over-year and our percentage of adjusted operating expenses overall to decline marginally for the full year.
More specifically, we expect sales and marketing expenses to be in the range of 44% to 45%, G&A expenses between 16% to 17%, and R&D expenses to be in the 7% to 8% range.
These ranges are averages for the full year and are expected to vary from quarter to quarter due to the seasonality of our net sales, which will impact our operating income margin disproportionately in the various quarters due to fixed cost absorption and items such as sales and marketing expenses that are more front-loaded in the year.
We expect adjusted EBITDA for the full year to be between $67 million to $70 million.
This would produce an increase of 10.4% to 15.3% over 2015.
I previously stated that I expected to achieve a higher than 20% adjusted EBITDA percentage in the future.
While we currently don't expect to achieve that level for the full year in 2016, we do expect to achieve this for 2017.
We expect for the full year 2016 adjusted earnings per share to be in the range of $1.25 to $1.35 based on the diluted weighted average of 18.7 million shares.
We expect capital expenditures to be in the range of $15 million to $18 million for the year, of which approximately $5 million will be related to finalizing our Bluecore initiatives.
Lastly, turning to our 2016 capital deployment strategy, we intend to continue investing in research and development, tuck-in product and technology licenses, and acquisitions, while executing our stock repurchase plan.
Our focus on improving ROIC remains unchanged.
With that, operator, we can open up the lines for questions.
<UNK>, It's <UNK>.
How are you today.
Good.
We do expect to make some progress in our G&A this year.
Looking for a 2% to 3% decline in G&A spending for the year.
And we may make a slight amount of progress in our sales and marketing.
But actually, on the R&D side we're actually going up a bit, which is what we were trying to do last year.
We got a little behind in some of our studies and some of our enrollment.
So I'm a big believer in spending the R&D is for the future of our company.
So you're going to see some in G&A this year, we expect.
And sales and marketing roughly flat, maybe down slightly.
But that's generally how it's going to flow out.
The one thing that I would really speak to is the cadence of it for the year.
I think about our year in three pieces: our first quarter, then our second and third quarter, which are roughly equal, and then our fourth quarter.
Our first quarter has always dropped quite a bit over Q4 and then we lose a lot of absorption in Q1, so from a percentage basis it's going to be a little bit off from one quarter to the next, particularly in Q1.
And then probably in Q4 it will go the other way a bit.
But overall, we should see a decline, a marginal decline, for the year in our operating expenses.
That's a good question, <UNK>.
So I always think about things differentially between the different business units.
So <UNK> Niemann is the President of our BioStim business, got a little bit of a head start on expanding the sales force in 2014, a little bit before some of the other businesses.
That's partly why you saw the increase in Q3 and Q4 for our BioStim business, is it takes about a year for new salespeople who come on board to really contribute to the top line.
So you're seeing that in our BioStim business, you saw it in Q3 and Q4, and then also now you'll see more of that in 2016 for both our Biologics as well as our Spine Fixation business.
We've not added quite as many in the Extremity Fixation business yet, but it will roll out over a period of time.
So you saw part of it in 2015.
You'll see more of it in 2016 and even beyond, because we'll continue to expand our sales force.
But we've got some opportunity coming up.
I think you'd be thinking in the low to mid single digits for the year.
We would be happy if we get into the mid single digits.
We think we have great opportunity with leveraging both our TrueLok Hex, as well as our GALAXY product line outside the US.
But we also have some concerns still in Brazil and some other areas of the world.
We think the US will be a good market and a good business for us this year.
I think Brazil, we feel it's bottomed out and it's on its way back.
But there's still some uncertainty in the business so we're not as aggressive as we might otherwise be in our forecasting ---+ in our projections for the year.
The legal settlement had to do with going back to 2012 in the issue that we had in Mexico, and we settled all of that with the US and then Mexico wanted to get their piece of the pie as well.
We actually ---+ that's an interesting settlement, because there was some cash involved but it was also ---+ we had the opportunity to work directly with the government down there, which was a great experience for us.
And we're going to be getting some of that settlement in product and training, and we of course, for accounting purposes, we book that at the fair value of it, but our costs, when we do that, when we actually supply those materials and products, will be less than that.
So we have some opportunity to recover some of that.
But more importantly it really gives us a great relationship with the Mexican government where we can now deal directly and sell directly to IMSS there which is great for compliance and it's great for us all around.
And I think it's going to be a little bit of a model as to how other companies might work in Mexico so we're very excited about that.
<UNK>, this is <UNK>.
The adjustments will be the same adjustments that we've used around share-based compensation, FX, any strategic investments that we've traditionally done.
But there will be some Bluecore as I mentioned a few minutes ago.
We expect some OpEx impact that we will adjust for there.
So those are the primary items.
The OpEx impact of Bluecore will be less than $1 million for the year.
So the EPS impact based on roughly 18.7 million shares, I don't have that math in front of me but that's (multiple speakers).
It would be about $0.05.
Share-based compensation we expect to be roughly the same as we had in 2015.
So I'll leave it at that.
We'd have to do a little math on it, <UNK>.
You're welcome.
Thanks for calling.
Sure, <UNK>.
It's <UNK> again.
Couple things.
So the growth percentage is a little misleading.
We have some little bit lower comps, but overall we are very, very happy with that business.
And with ---+ we're getting some of the growth from just expansion of spine procedures.
We estimate that, our estimate, to be about 3% or so.
Of those procedures, we get a percentage of those procedures and so we're getting some growth from that.
We also are benefiting from the addition of the sales force that we put in in 2014 and really started to kick in in 2015 in the second half of the year.
So we'll see some of that continuing going forward.
We think overall that business is still a low to mid single digit growth business and we've had a couple good quarters.
We had one of the issues ---+ not issues, one of the things that we did in Q4 that we spoke about a few minutes ago is we had a backlog of orders that were being held by some of our sales force that we gave them an incentive to bring those in and reduce that backlog, which we did.
That contributed about $1.7 million or so in the quarter, which was about 4% of that 13.2% growth.
So overall we are very, very pleased with the business.
We're still doing things in the business to streamline the processes so we can move the claims through faster, we get a higher percentage of claims paid, those sorts of things, and we're really excited about in the fourth quarter our limited market release of our whole new line of Physio-Stim, Cervical-Stim, and Spine-Stim products with some really, really good features.
So we're very, very happy with that business and expect it to do well this year.
Sure.
Brazil has declined over the last four years or so, four or five years.
So the exposure is between $10 million and $15 million is our top line down there, now.
We don't give it specifically, but I'll give you kind of a range on it.
And then for Puerto Rico, we did approximately $5 million in revenue there last year.
And this year we've got we're not counting on any because of the financial situation in Puerto Rico that concerns us.
So we're not guiding to anything in our budget for Puerto Rico this year.
That's all upside.
We do expect to get some, but we don't know how to quantify it.
It's just we're going to take a little more prudent approach with that.
So that's all upside for us in the guidance that we've been giving you so far.
Thanks operator, and thanks for everybody joining us on the call today.
I look forward to updating you on the progress as we go through the year.
We're excited about the year, and hopefully I'll see some of you down in Orlando later this week.
Take care and have a great rest of your day.
| 2016_OFIX |
2018 | PETS | PETS
#Thank you.
Good morning.
I would like to welcome everybody here today.
Before I turn the call over to Mendo <UNK>, our President and Chief Executive Officer, I would like to remind everyone that the first portion of this conference call will be listen-only until the question-and-answer session, which will be later on the call.
Also, certain information that will be included in this press conference may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 or the Securities and Exchange Commission that may involve a number of risks and uncertainties.
These statements are based on our beliefs as well as assumptions we have used based upon information currently available to us.
Because these statements reflect our current views concerning future events, these statements involve risks, uncertainties and assumptions.
Actual future results may vary significantly based on a number of factors that may cause the actual results or events to be materially different from future results, performance or achievements expressed or implied by these statements.
We have identified various risk factors associated with our operations in our most recent annual report and other filings with the Securities and Exchange Commission.
Now let me introduce today's speaker, Mendo <UNK>, President and Chief Executive Officer of 1-800-PetMeds.
Mendo.
Thank you, <UNK>.
Welcome, everyone, and thank you for joining us.
Today, we'll review the highlights of our financial results.
We'll compare our fourth fiscal quarter and fiscal year ended on March 31, 2018, to last year's quarter, our fiscal year ended on March 31, 2017.
For the fourth fiscal quarter ended on March 31, 2018, our sales were $67.3 million compared to sales of $63 million for the same period the prior year, an increase of 6.8%.
For the fiscal year ended on March 31, 2018, sales were $273.8 million compared to $249.2 million for the prior fiscal year, an increase of 9.9%.
The increase in sales for the quarter was due to an increase in reorder sales, and the increase in sales for the fiscal year was due to increases in new order and reorder sales.
The average order value was approximately $89 for the quarter compared to $86 for the same quarter the prior year.
For the fourth fiscal quarter, net income was $10.2 million or $0.50 diluted per share compared to $7.5 million or $0.37 diluted per share for the same quarter of the prior year, an increase to net income of 36%.
For the fiscal year, net income was $37.3 million or $1.82 diluted per share compared to $23.8 million or $1.17 diluted per share a year ago, an increase to net income of 57%.
The increases in net income for the quarter and the fiscal year were mainly due to higher gross profit margins.
In addition, the new tax law helped boost our earnings.
New order sales decreased by 5% to $10.3 million for the quarter compared to $10.9 million for the same period the prior year.
For the fiscal year, new order sales increased by 8% to $46.3 million compared to $42.9 million for the prior year.
Reorder sales increased by 9.4% to $57 million for the quarter compared to reorder sales of $52.1 million for the same quarter of the prior year.
For the fiscal year, reorder sales increased by 10.3% to $227.5 million compared to $206.3 million for the prior year.
We acquired approximately 113,000 new customers in our fourth fiscal quarter compared to 126,000 for the same period the prior year, and we acquired approximately 521,000 new customers in the fiscal year compared to 514,000 for the prior year.
For the quarter, approximately 85% of our sales were generated on our website compared to 83% for the same period the prior year.
The seasonality in our business is due to the proportion of flea, tick and heartworm medications in our product mix.
Spring and summer are considered peak season, with fall and winter being the off-season.
For the fourth fiscal quarter, our gross profit as a percent of sales was 37% compared to 35.1% for the same period a year ago.
For the fiscal year, our gross profit as a percent of sales was 35.7% compared to 31.8% for the prior year.
The percentage increases for the quarter and the fiscal year can mainly be attributed to a shift in sales to higher margin items.
Our general and administrative expenses as a percent of sales was relatively flat at 9% for the quarter compared to 8.9% for the same quarter the prior year.
And for the fiscal year, it was at 8.9% compared to 9.2% for the prior year.
For the quarter, we spent about the same, $4.3 million in advertising compared to $4.4 million for the same quarter of the prior year.
For the fiscal year, our spending was $19.3 million for advertising compared to $17.7 million for the prior fiscal year, an increase of 9%.
We increased advertising for the year to stimulate new order sales.
Advertising cost of acquiring a customer for the quarter was approximately $38 compared to $35 for the same quarter the prior year.
And for the fiscal year, it was $37 compared to $34 for the prior fiscal year.
The increases are mainly due to increases in advertising costs.
We had $77.9 million in cash and cash equivalents and $23.3 million in inventory, with no debt as of March 31, 2018.
Net cash from operations for the fiscal year was $37.4 million compared to $47.2 million for the prior fiscal year.
The majority of the decrease was due to accounts payable staying relatively flat and an increase in inventory compared to the last fiscal year.
Capital expenditures were approximately $700,000 for the fiscal year.
This ends the financial review.
Operator, we are ready to take questions.
It is, yes.
It is a shift to higher-margin items, next-generation medications.
Our margins, going forward, will depend on the sales product mix and also how the competition behaves price-wise.
The market gets more competitive typically during spring and summer.
It's possible.
The competition picked up in the last week or 2.
So we'll see what happens.
The weather was colder, as you pointed out.
And the colder weather negatively impacts demand, especially on flea and tick and somewhat on heartworm meds, so we were not as aggressive, as you noticed.
We spent about the same dollars in advertising as we did the last ---+ same quarter last year.
Yes.
We just talked about the colder weather typically negatively impacts demand.
So we were not as aggressive.
I think really the biggest change, as Mendo actually spoke about it on his prepared remarks, is really a change in payables compared to some last year versus this year.
Our inventory also contributed to it as well.
I think those were the main factors with the cash flow from operations.
For this current fiscal year, you mean.
If you look at the G&A, there was an increase mainly on payroll mainly due to stock-based compensation because of the stock price going up during the fiscal year compared to the prior year.
And also credit card processing fees were up due to increased sales.
So we'll see what happens.
We anticipate spending more on advertising compared to the last fiscal year.
The weather was colder.
So the colder weather negatively impacts demand on the categories flea and tick and somewhat on heartworm.
So that's why our advertising spending was flat for the March quarter.
It's normal, typical.
And spring, typically, competition increases.
It's ---+ I mean, the sales are shifting to higher-priced items.
So it's going to depend on the mix.
Also, we're fairly successful on selling multiple packs.
Thank you.
In fiscal 2019, we are focusing on continuing to increase sales and improve our service level.
This wraps up today's conference call.
Thank you for joining us.
Operator, this ends the conference call.
| 2018_PETS |
2017 | LB | LB
#So mix will be ---+ will present some pressure for Victoria's in the first half of the year, as we went after the bralette and lower AURs sport bra business aggressively in the second half of 2016, so the mix will present some pressure in the first half of 2017, should not in the back half of 2017.
In terms of how we're going to grow sales at Victoria's Secret, it really gets back to the merchandise, most fundamentally, and then how we market and sell effectively both in stores and online.
And through some of the commentary previously, hopefully you know that our dominant emphasis is on merchandise itself.
And then, through compelling store design and compelling online presentation, good interactions with associates, sales experiences in stores, that's how we drive growth in the business.
Thanks.
<UNK>, I think, as you know with respect to PINK, we continue to be very bullish on that business.
And they've got a very strong loungewear and apparel business, and they've had that for a long time, and they've always had a very strong panty business, and they've also developed a very compelling high growth, high profit bra business within that brand.
So in terms of the growth opportunity, we see ---+ and I realize how this may come across, but we see several billions of growth and opportunity, to really double that business over the next four or five years, based on results that have been achieved over time, in our extrapolation mathematically around square footage in North America, let alone what we may be able to do internationally.
As you know, that starts with a clear brand identity and brand position, and then a very strong merchandise and marketing execution consistent with that position, and leveraging capabilities that you've heard us talk a lot about, including read and react, and chase, and short lead times, and all of that whole mindset.
And again, Denise and our team has such a strong understanding of that customer.
They're not perfect, they don't get it right every time, but their record is very, very good, and when they do have a miss, which is inevitable in these businesses because of those short lead times, and just their mindset of how they run that business, they adjust very quickly.
So I'm very optimistic about the growth potential for PINK over the next several years.
Hi, <UNK>.
So I think the best way to think about this, is obviously I mentioned, earlier, one of the benefits of having a short cycle business is that we get to leverage one of our best competencies, which is testing.
So we've had a relatively aggressive testing agenda taking place during the spring, and that will continue, and those reads will be most beneficial for the back half.
So more to come on that, as we get to the back half.
I think the other way of looking at it is, and with each delivery as we go through the spring season, there will be newness that is of a nature that's helping us evolve the brand as we move forward ---+ and I'm talking specifically about signature as per your question.
So we'll be in a read and react mode in the spring for the back half, and we'll also be in a read and react mode, for things that we put in the assortments that are coming anyway, or have come, and are coming anyway, that will lead to, how do we evolve this part of the business.
And so far, we're confident with what we're seeing, and I think we're moving in a pretty solid direction.
Yes.
I think, depending upon whether you measure share in units or dollars, you might get a little bit different answer, because we drove very strong unit growth in 2016.
We don't think about market share a lot, frankly because as the market leader and the dominant participant in the category, what we're looking to do is grow the market fundamentally.
But while there certainly are some emerging competitors, and some well-known names if you will, and then some smaller emerging players.
We're ---+ while we always had competition from the very beginning of the Victoria's Secret business, we think we're well-positioned, based on all the equities that the brand has, and the capabilities of the team and the organization to continue to be in a very good leadership position.
And again, we drove significant unit growth in 2016 in our categories.
Thanks.
Sure.
Thanks, <UNK>.
Short answer to your first part of your question is, I would expect stabilization of AURs in the back half of 2017, reflecting the commentary earlier about our aggressive push into bralettes and sport bras that we pursued in the fall of 2016, and those categories, in the bra business, do come at lower AURs.
We'll be anniversary that, and so I would expect that we would have a stabilization of AUR.
And that I'm trying to remember second part of your question.
Yes, over time, <UNK>, we would expect to have those margin rates be similar to the overall bra business.
Now I said over time, we were very aggressive in pricing in 2016, to drive a lot of unit growth and a younger customer to our business and that was intentional.
It was by design, and we were successful in doing that.
With that said, we will through fundamentally differentiation of merchandise in those categories, look to have margin rates over time, that are more similar to the overall bra business.
And we're not formulaic about that, and one should use a lot of judgment on that, and you got to about dollar growth versus rates and so on, and we try to do our best at that.
But maybe by example, if we thought about some other parts of our business over time ---+ for example, the PINK business, there was a time when PINK business had margin rates that were meaningful below Victoria's Secret lingerie margin rates.
That's no longer the case, and they did a great job through compelling merchandise, sourcing capability, speed, read, react, adjust to meaningful margin rates while still driving terrific growth in that business.
And we'll be looking to do the same in the sport bra and bralette categories.
I understand, and I want to be a little sensitive to how much we give out on the call.
But yes, there was some AUR pressure in the constructed bra business in 2016, and obviously, we'll be looking to moderate that, and get to flatter improved AURs in 2017, as the year progresses.
Yes, thank you.
I think we'll ---+ in both the bralette and sports bra categories, we'll begin to moderate the aggressiveness of our pricing as we work through 2017.
But that in part, is a function of how compelling the assortments are.
Thanks, <UNK>.
Yes, thanks <UNK>, for squeezing me in.
I'll maybe answer the question on the [VSBA], and then I'll throw it back to <UNK> on the compare on FX.
I think the patterns that we've seen in [VSBA ] very much mirror the patterns that we've seen in the beauty business in North America.
And as you know, under new leadership, we're starting to see some traction there, and we're excited about what's in front of us for the spring season.
And I would expect that to flow through, in a replication model to all of our international businesses, be they in the big store format, or the small store format.
So yes, I think pretty much the same pattern, that what you get away from home, is the same as you get at home.
<UNK>, do you want to comment on when we cycle the FX.
Absolutely.
<UNK>, currency start impacting our Company in total, and as you would expect largely or meaningfully in the international segment, really beginning in the fourth quarter of 2014.
And that effect continued through 2015, continued into 2016, but moderated in the back half of 2016.
And we don't expect that this point, a significant FX pressure in.
2017
<UNK>, do you want to take that or do want me.
Yes, I'd say, very difficult to tell really.
I don't think people can predict what's going to happen in the travel market.
But the extent of the change is relatively small to be honest with you, <UNK>.
What I would tell you, and I am somewhat biased, because I'm sitting here in China, is that China is absolutely fantastic.
And this is a great opportunity, and I'm thrilled with what we're doing here, and the opportunities both in the local market, and in the travel sector in China, will be just spectacular in the years to come.
Thank you.
| 2017_LB |
2017 | LMAT | LMAT
#Thank you, Heather.
Good afternoon, and thank you for joining us on our Q2 2017 Conference Call.
With me on today's call is our Chairman and CEO, <UNK> <UNK>; and our President, Dave <UNK>.
Before we begin, I'll read our safe harbor statement.
Today, we will be looking at some forward-looking statements, the accuracy of which is subject to risks and uncertainties.
Wherever possible, we will try to identify those forward-looking statements by using words such as believe, expect, anticipate, pursue, forecast and similar expressions.
Our forward-looking statements are based on our estimates and assumptions as of today, July 27, 2017, and should not be relied upon as representing our estimates or views on any subsequent date.
Please refer to the cautionary statement regarding forward-looking information and the risk factors in our most recent 10-K and subsequent SEC filings, including disclosure of the factors that could cause results to differ materially from those expressed or implied.
During this call, we will discuss non-GAAP financial measures, which include organic sales and growth numbers as well as EBITDA.
A reconciliation of GAAP to non-GAAP measures discussed in this call is contained in the associated press release and is available in the Investor Relations section of our website, www.lemaitre.com.
I'll now turn the call over to <UNK> <UNK>.
Thanks, JJ.
I'll focus on 3 headlines: first, top to bottom Q2 is a record quarter; second, XenoSure continues to drive growth and was up 30% organically in Q2; and third, all 3 of our biologic products set records in the quarter.
As to our first headline, we've posted several financial records in Q2.
Record sales of $25.8 million, up 15% versus Q2 2016; record op income of $5.5 million, up 46%; record net income of $4.6 million, up 78%; record EPS of $0.23, up 69%; and record EBITDA of $6.4 million, up 35%.
As to our second headline, XenoSure continues to drive growth and was up 30% organically in Q2 to $5.5 million.
This is just $20,000 shy of XenoSure's reported Q3 2016 record when it benefited from a competitor's backorder.
And we continue to invest in XenoSure.
On June 29, we applied for regulatory approval in Australia.
On July 13, the first 2 implants in our Chinese clinical trial took place.
And in Q2, we broke ground on a dedicated biologic clean room in Burlington.
As to our third headline, our 3 biologic grafts had record quarters in Q2.
Omniflow II and ProCol each grew 19% and Q2 results for RestoreFlow were 64% above its pre-acquisition revenues.
On May 18, we obtained RestoreFlow approval from Health Canada.
Biologics accounted for 34% of our sales in Q2, a high water mark.
I'll now turn the call over to JJ.
Thanks, <UNK>.
Q2 2017, operating income was $5.5 million, an increase of 46% versus Q2 2016.
The increase was driven by a 15% improvement in sales, as well as tight expense control.
Cost containment efforts initiated a number of months ago are now bearing fruit.
And operating expenses in Q2 2017 were up only 3% versus Q2 of 2016.
On a sequential basis, expenses declined $1.2 million from Q1 to Q2.
As reflected in our guidance, we expect an operating margin of 21% for the full year 2017, up from 18% in 2016.
Our effective tax rate in Q2 2017 was 15%, with the lower rate driven largely by increased employee stock option exercises.
Combined with the 46% increase in operating income, reduced tax rate resulted in net income of $4.6 million, a 78% year-over-year increase.
Earnings per share in the period were $0.23, a 69% increase.
We finished Q2 2017 with $30.1 million in cash, an increase of $4.3 million from Q1 2017.
Cash increases in the quarter were driven by cash from operations of $5.4 million, as well as receipts from stock option exercises of $1.5 million.
Turning to guidance.
We expect Q3 2017 sales of $25.4 million, a reported increase of 10% and 3% organically.
We also expect a gross margin of 70% in the quarter, operating income of $5.1 million and earnings per share of $0.20.
As you may recall, in Q3 2016, we benefited from a significant competitor back order.
For the full year 2017, we have increased our sales guidance to $101.9 million, a reported increase of 14% and 8% organically.
We now expect full year gross margin of 70% and have increased our operating income guidance to $21.1 million, an increase of 29% and earnings per share to $0.79, an increase of 44%.
In closing, I would like to thank Charles Haff of the firm, Craig-Hallum, for recently initiating coverage on LaMaitre.
We look forward to working with Charles in the coming quarters.
Separately, we are pleased to note that in May, we were added to S&P 600 small cap index.
With that, I'll turn the call back over to Heather for questions.
Okay.
So <UNK>, first of all, thanks for the question.
There are a lot of questions resident in there, and I'm grappling with where to start.
Maybe I'd start at the end and then, maybe you guide me through which other questions you want.
You're talking about operating margins, and I would guess, yes, we're feeling really excited about our op margins.
We went from 15% in 2015 to 18% in 2016, and now we're guiding at 21% for 2017.
So, of course, we're thrilled.
We never thought we'd get to these levels way back when and so, we're excited about what's happening.
As far as the 10%, 20% goes and as it relates to op margin next year and the year after, you know we've been pretty hesitant to put numbers around op margin but, of course, anyone on the call can do the math, which is 10% and 20% indicates operating leverage continues.
And I think you got 3 guys here, me, JJ and Dave, who would not open our mouth about 10%, 20% unless we believed in it.
And you've heard 10%, 20%, we were looking back, I think the 10%, 20% got started in our press releases about 2 and 3 quarters years ago.
So we're still on that, we still feel really good about it and for the foreseeable future.
That's who we think we are.
That all being said, of course, the law of larger numbers that you're talking about, we laugh around here that 10%, 20% is a cruel taskmaster.
It makes you push hard and you can see that in the cost-cutting that you hear about.
Even though things are going great guns here, we're still out there working cost cuts and things like that.
We're conscious that we're on the hook for 10%, 20%, but we feel very comfortable about being on the hook for 10%, 20%.
All right.
So <UNK>, I'm going to talk high level a bit about your question, and then I'm going to pass it over to JJ, who has a better handle on some of the tighter details of this.
But I will say, yes, Q2 wasn't our finest hour, gross margin-wise.
I look at that as an opportunity as the year goes on and as next year goes on because we did all of this ---+ this amazing quarter with a 68% gross margin.
And I think everyone on the call knows that we're capable of doing better.
In fact, to go back a couple of years, I think in 2014, we had a 68% gross margin and it's come up to 70% over those 3 years despite a highly dilutive acquisition called RestoreFlow and another diluted acquisition called ProCol.
Both those happened in 2016.
So what <UNK>'s sad or serious story is, is that we keep building the gross margin and then, it keeps getting beat up by the things that we buy, and then we go back and we repair them.
But that trip from 2014, where we had a 68% gross margin to 2017 where we're guiding to 70% gross margin, that's 300 basis points.
And then we lost another 200 basis points to FX over that time.
So the company, despite those negatively accretive dilutive acquisitions in terms of gross margin, has been able to pick up 500 basis points.
We're going and we're working on it.
But unfortunately, as we keep buying things, we're never really going to be promising you guys something way beyond 70% because we keep buying in things.
It's really hard to find companies of the size we're buying that are more than 40%, 30%, 50% gross margin.
We need to fix them and it takes time.
So that's the high-level look at it.
And maybe JJ can ---+ if I missed any details there.
Yes, <UNK>, if you've seen that slide on our corporate presentation, with the 10-year look back on the gross margins, I think we made it 5 or 6 years more recently.
But sort of flipping in and around that 70% range, and when we do an integration, we bring an acquisition from wherever it is into our facility and we usually take a hit; or when we do an acquisition, it generally has a lower gross margin than ours, and then we repair it pretty quickly as we get those things centralized, and you see the recovery.
But if you squint over the course of 10 years, you're sort of at that 70% range.
So I would say, more specifically related to the first 2 quarters, Q1 was a little bit of an anomaly at about 72% for gross margin, sort of surrounded by a 69.5% and now a 68%.
And then Q1, we had some efficiencies from prior periods coming onto the P&L from the balance sheet, and they all sort of conspire at the same time to come on and do nice things in Q1, and that helped out a lot.
And so the comparison to Q2 and the result of Q2 wasn't as impressive, if you will, versus Q1.
We also had some HYDRO rework items that we took care of in Q2.
And then the mix from RestoreFlow and ProCol.
As those guys grow, they're certainly going to be a drag on our gross margin, and we'll fix those margins over time.
But since they're relatively new acquisitions, those margins, typically, have lower margins than our corporate average, if you will.
So that's all sort of what conspired in Q2 to bring us down to 68%.
But we're thinking, in the next quarter, maybe a rebound to 70% as some of those manufacturing inefficiencies, if you will, to Q2 level out.
And maybe the FX piece actually helps us going forward.
I think we're at 1.16 or 1.165 for the euro/dollar right now, so that's going to help the margin a little bit.
And we've got a few little price increases coming through, as well, in Q3 and Q4 that'll help also.
So I think a little rebound here to the norm of 70% is sort of what we're looking at for Q3 and the back half of the year.
It is, <UNK>.
And I would just say ---+ you say we're not guiding, but we are.
We're saying 10%, 20% and you have the 3 of us on the call, saying 10%, 20%.
I would say, <UNK> ---+ I would just give a little more color.
Because we're geographically diversified and because we do a lot of acquisitions, mix affects the gross margin and, obviously, acquisitions do as well quarter-to-quarter.
So we have maybe a little more volatility in our gross margin line quarter-to-quarter.
But over the years, and I think that the answer is pretty constant.
Sure.
Okay.
And so, I notably remember, back in February, we were talking about the Rubik's cube of what's this thing going to grow this year.
And so maybe what ---+ we [have] and I think we have more clarity on now, and at a very high level, we can say it feels like on a reported basis, it's going to be about 25% number this year, but on an organic basis, it's going to be about 30% this year.
That 30%, which you saw in Q2 and we think it's going to happen ---+ sorry, 25% reported in the year.
Those numbers are roughly split 3/4 units and 1/4 quarter price.
And if you're looking for the split, international versus domestic, it feels more domestic because we've discovered pricing power domestically but we haven't discovered pricing power OUS.
Sure.
If ---+ we sold one ---+ tissue preservation services is what you're supposed to call it, was $1.5 million in Q2.
So you can annualize that sort of towards the $6 million number.
We bought a $3.7 million LTM business in November of '16.
So I think you can start saying, gosh, that feels pretty good.
Editorially, the sales reps are very excited about this device.
They're not always right, but on this one, they voted pretty quickly.
They're very excited about the device.
We feel great about it, sales-wise.
I think from contribution perspective, it's really not contributing much.
I would say, you can think breakeven.
You can think a margin and then, we're spending some stuff out there on admin and things like that.
So it's not something that's helping us profit-wise, but it is something that's helping us, sales-wise.
Okay.
Yes, definitely.
And I'd tell you, this will be a tale of 2 continents here.
One is in Europe, where you have a guy for 20 years who's just retiring.
He's 63 or 64 and he's retiring.
He's fairly well telegraphed to the Board and me, over the years.
He's still in his seat until September 30.
We've launched a search to replace him, and I'm ---+ I'll be in Frankfurt all next week, interviewing candidates for that job.
Who knows when that'll fill, we'll fill it when we find the right candidate.
That one's a much more orderly transition, in that it wasn't forced on us quickly.
We have 7 regional managers over there who've been with us for, pick a number, 5 or 8 years and I have very close contact with them.
So in the interim, I'll play VP of sales over in Europe, but we expect to fill the job at some point.
In the U.S., ---+ and so that's going normal on the transitions, well-telegraphed, everyone knows what's going on over there.
In the U.S., you had a fellow who worked here for 22 months and then quit abruptly with a 5-day notice.
So it's a little bit less well telegraphed to me.
I'm lucky, in that, amazingly, for the first 6 months, and you mentioned turnover, the only turnover in the entire worldwide sales force, the only voluntarily turnover was actually Mike Wijas, the VP of sales.
So we didn't lose one rep.
We didn't lose RSM and that goes globally.
But if you want to look into the U.S. portfolio of reps and managers, you'll remember that between the time I terminated the previous VP of Sales and Mike, the fellow who just left, there was a 5-month period when I was VP of Sales.
So I expect that we'll reprise this role, and all the managers are the same except for one guy who Mike hired.
1 of the 7 is a new manager who's been there 2 years now, and the rest them ---+ or 1.5 years, and rest of them have been there for 5 and 12 years, and I've been their manager intermittently over the years.
So in the U.S., it's much easier for me.
It's a much more homogenous system.
I feel very comfortable in the role as VP of Sales.
In Europe, it is a little more complex, it's a little less homogenous.
But I think the process in filling it, and Peter being there through September 30, make that a little bit less nerve-racking.
And then in the end, Chris, I would just say, it's all baked in the guidance so you can hear, we've now had a month or so to think about what does Mike and Peter's departure mean to us.
And I think, if anything, we've largely kept guidance the same, with a change for FX and a change for the beat.
So it's not changed our view of this year.
And on the bottom line, I think the show continues and I think our cost cutting has been a little bit more effective than we had thought it would be this quickly.
So we were able to share some of those earnings with the guidance change on that topic.
Yes, so Joe, there's 2 clean rooms, actually, that have been in process.
One is an expansion of our existing main clean room, where the majority of our products are manufactured.
And that was probably a $1 million to $1.5 million endeavor and that's turned on already over the last few weeks or so.
And then we are working, as you know, on a biologic clean room, and that'll probably be a $2 million to $2.5 million project.
And I'm going to guess that turns on sometime in Q4.
And that time, it could shift forward a little bit, maybe, but I'm going to guess it's in that time frame.
And the 2 of them combined are probably initially, maybe, are going to have an impact to the gross margin of around 0.5%.
And Joe, that's obviously baked into guidance.
Okay.
So I think the competitor, which is Baxter, as we all know, has sort of been the same the whole time and I just continue to think that our call point is more valuable than theirs.
We are the vascular surgeon company.
These things get sold to vascular surgeons and so, we just keep going.
We were trying to point out for everyone that in Q2, we almost got up to the Q3 high point, which is all of these free sales from Baxter in Q3 of last year.
This Q2, coming around 3 quarters later, we've almost made it to that level.
So yes, comp-wise, it's going to be a little difficult.
But I mean, the package of <UNK> and XenoSure keeps rolling on, it feels great right now.
And I would say, we even have a place to go, I know I keep talking about this, these are long approvals.
But Australia and China and Japan, Korea and Taiwan, these markets will come on at some point, and you sort of have 20% of the world to give there.
And then even then, I feel like if it's a $75 million market, Dave knows these number better.
What are we calling this market and what's it growing at.
$80 million market, growing, I'd say mid-single-digit driven by infection resistance.
And Joe, we had $18 million of that $80 million last year.
And you can stick a 25% number on top of that $18 million, as we mentioned here in the call.
Yes, size-wise, I'll be less specific.
I just know it'll wind up being our best product in all those markets when it gets online.
It's certainly bigger than the Valvulotome.
It's certainly bigger than what we have out there.
Timing-wise, which may have been your question, Australia is the one with the most visibility.
We've labored over that application so we're closer to understanding that.
It's not a clinical trial.
It's a plain old application and we feel like it's an 18-month, at the outside, approval.
And I don't think there's that many hurdles.
This thing should pass but we'll leave that up to the Australian regulators to decide.
The Chinese one, as you've heard before, after many delays, we finally got our first couple of implants.
We're going to see, over the next month or 3, how quickly this thing starts enrolling, given that we've now broken through every single one of those bureaucratic hurdles.
But we're still saying something like 2021 approval.
But honestly, there's a lot of back and forth between here and there.
That's a long way away.
I'd be surprised if all the shareholders on this call still own the stock in 4 years.
No.
I think I mentioned before, we terminated 2 reps [inside this] so we're down from 95 to 93.
And we have job requisitions out there for 3 more to hire.
So we're not really trying to go down right now, we're just trying to get at the underperformers and sort of move forward.
Drew, it's Dave, that's a good question.
I would say, a high level no.
We don't feel like we need to get to 20 or 25 product lines.
As you pointed out, our addressable market now is around $800 million or $900 million and, of course, we have about $100 million in sales.
So what do we have, like 12% or 15% share of the addressable market.
So certainly, with the existing portfolio, we could grow a lot.
On that being said, there are a lot of interesting product opportunities that we don't currently offer in our bag.
I'd say that center of the fairway for us, still, is open vascular.
But we also like endovascular, for sure.
It would leverage our call point very well.
And then, we also look beyond arterial work into maybe venous or varicose vein or dialysis access.
Those are, to mix metaphors, zip codes right next door.
So I think there are a lot of opportunities for us in terms of products, but no, I don't feel like 20 or 25.
I feel like at 15, we could maybe add a few or 5 more and have plenty of room to grow for years.
At the end of the day, a typical sales rep has trouble focusing on more than 5 or maybe 7 products in the bag.
So you just need to get really good suite of 5 or 7 core products, I would say.
That's right.
All 93 reps have gross profit plans, not sales plans.
Sure.
So the total addressable market now, again, our bag is centered mostly on open vascular which we feel is converging as a total market; could be flat, could be growing a little bit.
We've grown primarily from taking share.
But as endovascular growth rates come back down to earth and now are turning towards the mid- and low-single digits, as we've seen some uplift in the open vascular surgery growth rate.
So I think we're in a market that's growing, maybe low single digits, possibly more than that.
But generally, in that range and we're taking share and we're growing units also by going into new geographies, getting approval and selling in places like China and other countries.
Hi, <UNK>, and a special welcome to Craig-Hallum to the team.
We're really excited about you guys covering us, so thanks for the great question here.
Yes, actually, Omniflow, I think we bought that in August of '14, and I think, initially, we sort of shared your baseline expectation for that product line.
And it's gone swimmingly in Europe over the last ---+ it's only available in Europe effectively and Canada, and it's gone swimmingly.
And again, that 19%, I think, we quoted on the call today, that's kind of a new normal number for that product line.
And it is basically all Europe and Canada ---+ sorry, and Australia as well.
So yes, we've had it for a couple of years.
It's exceeded our expectations.
I think we bought about a $2.5 million business back then and I think it's about a $5 million business right now.
In Terms of ProCol, we have a lot less information on that.
We've just lapped the one-year time after we acquired it.
We happened to have a really nice Q2.
It was sort of a standout Q2 so I wouldn't put all of my reputation on the line, saying, we know we've discovered a winner there.
It had a nice quarter.
It had a couple of medium quarters before that, so we'll see, we'll take a watchful eye on that.
But Omniflow, we're starting to get really excited about around here.
So we now have ---+ I would say, the excitement is centered around RestoreFlow in the U.S. and Omniflow in Canada and Europe.
Yes, thanks for the question.
They definitely have an impact on the reported corporate number.
It depends what time frames you're comparing.
But year-over-year, certainly, the impact is significant, probably around 2% negative to the margin because of the introduction of those products.
And then, as they grow sequentially, it'll be a drag as well until we start fixing that.
So I would say, yes, a lot of work on fixing that gross margin like we typically do with our acquisitions and that will happen over time.
But in the meantime, yes, those margins are definitely lower than corporate and they definitely have a drag on the answer.
And JJ, can I add in that maybe a little of that is driven by the purchase accounting from the inventory that we got at the acquisition.
So when we bought RestoreFlow in November of last year, we got a year, maybe a little bit more, of inventory.
When we bought ProCol in March of last year, we got 2 years worth of inventory.
So, of course, <UNK>, when you acquire inventory, the margin we get on that is probably in the 30% range.
We have to sell all of that through before we start to get the full corporate gross margin on the products that we manufacture internally.
| 2017_LMAT |
2017 | CTSH | CTSH
#Good morning, everyone and thank you for joining us today
Cognizant delivered solid third quarter results
Q3 revenue was $3.77 billion, which is at the high end of our guided range and up 9.1% year-over-year
Three of our four business segments were strong contributors to our performance
Healthcare, product and resources and communications and media and technology averaged double digit growth rates
Our third quarter digital related revenue grew well above company average
And to further enhance our digital capabilities, we recently announced two acquisitions
Netcentric, a leading independent Adobe partner in Europe and a leading provider of digital experience and marketing solutions for some of the world's most recognized brands
And Zone, a UK based leading independent full service digital agency that specializes in interactive digital strategy, technology and content creation
These acquisitions will broaden our portfolio of digital services and solutions
To continue with our financial results, non-GAAP EPS quarter for the quarter was $0.98 and our non-GAAP operating margin was 20%
For 2017, we delivered three consecutive quarters of strong execution at the top and bottom lines
This consistent performance underscores the soundness of our strategy and investments and the continuing strong demand for our portfolio of services
Turning to guidance, we are again raising the low end of our revenue guidance range and expect full year revenue to be in the range of $14.78 billion and $14.84 billion
And we expect our full year 2017 non-GAAP operating margin to be at least 19.6%
Now, we're in the business to help our clients adapt, compete and grow in the face of continual shifts and disruptions within their markets
Therefore, we've systematically built out significant capabilities to enable clients to transition from the physical to the digital world
Today making that shift has become mandatory for them
Most clients now know they must become digital enterprises themselves or more precisely, the right mix of physical and digital
So we work with them to transform their business, operating and technology models simultaneously
This three layer transformation is what we mean when we talk about digital at scale
In prior calls, we've discussed how we enabled this transformation, applying our deep industry knowledge, innovation, advanced technologies and consulting expertise
More recently, we've also been emphasizing our client co-innovation centers and our platform based software and solutions
The result of developing and integrating all these capabilities and intellectual property is that we are turning Cognizant into a different kind of company that's envisioning and building the digital economy
Increasingly, we see ourselves as a leading firm that develops repeatable solutions by infusing software and services to deliver business outcomes that make a real difference to clients
And this morning, I'd like to highlight how this new Cognizant is resonating with clients and winning in digital
The best place to begin is with a few client examples of digital at scale, delivering a competitive upside for Cognizant
For a US car company that's preparing for a future of ride sharing and driverless cars, a team of consultants, developers and social scientists from Cognizant and ReD associates help to reimagine the relationship between driver and automaker
And then they jointly develop a marketplace that offers mobility services to help drivers move around more easily and access services remotely from vehicle diagnostics to smart parking reservations
For a leading financial institution facing slowing growth in a major business, Cognizant developed an artificial intelligence enabled robotic investment advisor that would appeal to a new market of approximately 90 million millennials and that will enable the firm to achieve its goal of doubling retail assets under management by 2020. To envision and build this digital solution, we brought a cross-functional team from the client together with Cognizant digital business designers, strategists, technologists and financial services experts
And we also helped a leading life sciences company bring to market new drugs with proven therapeutic benefits for smaller patient populations
We assembled a team of doctors, nurses, pharmacists and technology and design consultants to drive efficiencies in the clinical development process and apply digital marketing techniques
As a result, the client was able to achieve the goal of bringing new therapies to even relatively small patient populations
Absent this new approach, these drugs might not have been economical to develop and market
The upside for Cognizant is that most of the world's companies are now dealing with these digital at scale challenges in one form or another
And therefore, we can keep combining our services and software in new ways to create repeatable solutions for a wide variety of clients
Now, enterprise transformation is such a demanding work that we make sure that all our services and solutions are organized from the client's perspective, which is why last year we established Cognizant digital business, Cognizant digital operations and Cognizant Digital systems and technology
These three practice areas, which run across our business segment, mirror our client needs and the parts of their enterprises they need to transform
And Raj will talk about how our digital practices are progressing in solving client's current and emerging challenges
Within these practices, our value to clients hinges of course on the depth, breadth and currency of our knowledge
So we've been aggressively building high-end digital skills in areas such as data science, design thinking, cyber security, the Internet of Things, artificial intelligence and automation
But strong digital skills alone are not enough
So, we combine these skills with our industry expertise to speak the language and understand the core processes and technologies of every industry we specialize it
And we draw on this knowledge to build specialized software platforms and industry specific solutions to quickly create new value for clients
You can see all of this come together for example in the way we've invested to extend our leadership as a fully integrated digital healthcare technology and operations provider
We've made major health care investments, beginning with the TriZetto healthcare administration platform, a leading software platform used by payers and providers
Earlier this year, we moved our TriZetto products to the Microsoft Azure Cloud and launched our healthcare cloud solution, a SaaS platform for healthcare payers of any size
And having completed the TMG Health acquisition in August, we've now combined TriZetto with the business process services of TMG
TMG Health has further strengthened our scalable business process as a service or BPAAS solution for the government and public health program markets
These investments along with our market leading footprint in the commercial space establish Cognizant as the top solution provider of enhanced government processed platforms, digital solutions and services for commercial and government managed healthcare programs in the US
Since TriZetto, we have invested in many other platforms in areas such as digital content operations, sales transformation, mortgage servicing and patient safety
All of these technologies and platforms provide the benefit of scale, enabling Cognizant to develop repeatable offerings that can be used by multiple clients across multiple markets
While digital at scale is a heavy lift, Cognizant has the resume to execute this transformation successfully
It starts with a high level of client trust that encourages and enables the successful co-innovation of solutions with clients
Once we've established for the future, we know how to design, prototype and scale digital experiences to reshape clients, products and business models
But building digital experiences for the front end of a client's business is not enough
We have the deep knowledge to help clients reengineer, digitize, manage and operate their core business processes and build software platform for specific processes and industries
We couple this with a mastery of the technologies, software and tools to develop digital solutions as well as the ability to combine digital technologies with clients' heritage systems and applications
And we provide much of this capability to clients using our highly efficient and reliable global delivery model, which works at scale
And finally, we have the global consulting expertise to advice on strategy, operations and technology and orchestrate all of the knowledge, services, software and solutions that come together to enable enterprise transformation
Cognizant bring this entire set of capabilities to the table
That's what continues to differentiate us in the marketplace
And by integrating all of these capabilities and intellectual property, that's how we're turning Cognizant into a different kind of company that's envisioning and building the digital economy
And now over to Raj who will talk about the work our three practices are doing to drive digital at scale for clients and then review our business segment performance
I'll talk a little bit about the overall plan
I think we're roughly right on track right where we expected to be
I think about the transition or the shift to digital in two pieces that sort of the services that we offer to clients
And I think we continue to make great progress there
I'll let <UNK> comment on the overall digital revenue, it grew again double digit - at a double digit pace much ahead company average this quarter
The two acquisitions that we announced a few days ago Netcentric and Zone add to that capability
And we feel good about the transition of the service mix to digital
I think it's also important that just to note that as we've said before that today our portfolio if you look at the entire portfolio of digital revenue it is running at a higher margin than the rest of the business
So overall just a very healthy mix shift going on and I think that that will continue to unfold through 2018 and beyond
The other side of that - of this transition that we talked about when we laid out the plan for you a few quarters ago, at the beginning of this year is on the margin improvement side
And I think we've demonstrated there that we're well on track there
This year, if anything I think we're a little bit ahead of where we thought we'd be
And we'll continue to, you know, we feel very comfortable as <UNK> said in her prepared remarks with a target of 22% by 2019. And I think we'll just keep executing on that
And I'll turn it <UNK> to talk about percent of digit revenue
Having said that, <UNK> it's Frank, I think it's worth adding one additional piece of color for you which is that, <UNK> mentioned that last quarter digital revenue as a percent of total company revenue was about 26%
We are right around there in financial services as well
So this isn't a story of we're waiting for digital revenue and financial services to convert
We're already doing a substantial amount of work in digital, in financial services
So I don't think by any stretch that we are not a significant player in financial - in the digital aspects of financial services as these big money center banks start to think about and start to execute on their digital plans
Again, I want to separate
We are already doing a considerable amount of work
So, yet there are deals that if they convert could be significant going down the road, but we are already - the point I was making, <UNK>, is that today digital is already and financial services is roughly in line with our company average
So think about the 26% number, we're right around there in financial services
So we're already doing a considerable amount of work in digital and financial services
Look I think <UNK>, I'll turn it, I'll let Raj answer as well, but it's Frank
Look I think changes is, change plays to our strengths actually
As the healthcare market changes and evolves we have just sort of a very strong end to end portfolio of service offerings whether that's consulting to help our clients figure out what they need to do to respond to the changes, whether that's operating in terms of our BPaaS offerings and our ability to run core parts of the operation for our client or whether that's on the technology front as they think about modernizing and digitizing their technology backbone
I think we're very well positioned both at the business model, the operating model and the technology model level
So as these changes come to healthcare given that we have such a strong portfolio of assets both software assets, intellectual property in the form of our people and capabilities
I think you put that together and we're very - we feel like we're very well positioned for healthcare going forward
It's Frank, let me take that
When closed the two acquisitions will become part of the Cognizant digital business practice area
So recall that as I said in my prepared remarks, we have - and Raj talked about as well, three big practice areas, Cognizant Digital Business, Cognizant Digital Operations and Cognizant Digital Systems and Technology, these two acquisitions will become part of Cognizant Digital Business
We will continue to let them operate relatively independently, but of course we have a synergy plan which is largely focused on revenue synergies around taking their capabilities and taking those to a broad range of Cognizant clients
We do a tremendous amount of marketing work today for our clients across all three practice areas
So in Cognizant Digital Business, we're doing marketing work that relates to content, content creation, marketing, marketing strategy, channels those kinds of things
In Cognizant Digital Operations we're doing marketing related work that's largely around content and content management, content creation, and curation that Raj spoke a little bit about in his prepared remarks
And in Cognizant Digital Systems and Technology, we're doing a lot of marketing work that you can think about in the broad area of marketing technology, right
So across all of our three practice areas, we're doing a significant amount of marketing related work
These acquisitions in a sense will allow us to put a front end on a lot of that work that we're doing and take that to a client in a more integrated and holistic way
And so that's broad plan
So we'll run them relatively independently, let them continue to do the great work that they've been doing for their clients
We'll execute on the revenue synergy by bringing them - largely by bringing them into our clients
We think there maybe some opportunity to cross-sell our traditional services into their clients and we'll continue to execute on that going forward
Yeah, I think what I was referring to when I talked about repeatable is the sort of the solution packages and solution offerings that we're creating which we've been talking to you about in the past things like our BPaaS offerings and so on and so forth
By combining sort of our services and software capabilities increasingly together, we're creating these - think of them as solution offerings capabilities that we take to the market
We've always as a company tracked repeat business from our existing clients
And I think that's where you'll really start - where you really see it continue to play out is repeat business from our existing clients because that's going to be the metric that we focus on is to say, are we continuing to be relevant to our existing clients
And to be relevant to our existing clients, we've got to continue to innovate, we've got to continue to find new sources of value and that shows up in repeat business because every year or every period, our clients are assessing the work we're doing for them and they're choosing to give us new work based on the relevance of that work
So the metric that we use internally is repeat business from our existing customer base which is the metric we've been tracking from the beginning as far as I can remember
Well, thanks very much
Look everyone thanks again for joining us today and thanks for your questions
We're pleased with the results this quarter and I look forward to speaking with you again next quarter
Thank you
| 2017_CTSH |
2015 | UFCS | UFCS
#Thank you, Jamie.
Good morning, everyone, and thank you for joining this call.
Earlier today, we issued a news release on our results.
To find a copy of this document, please visit our website at www.unitedfiregroup.com.
Press releases and slides are located under the Investor Relations tab.
Our speakers today are <UNK> <UNK>, President and Chief Executive Officer; <UNK> <UNK>, Executive Vice President and Chief Operating Officer; and <UNK> <UNK>, Senior Vice President and Chief Financial Officer.
Other members of our executive team are also available for the question and answer session that will follow our prepared remarks.
Please note that our presentation today may include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995.
The company cautions investors that any forward-looking statements include risks and uncertainties and are not a guarantee of future performance.
These forward-looking statements are based on management's current expectations and we assume no obligation to update them.
The actual results may vary materially due to a variety of factors, which are described in our press release and SEC filings.
Please also note that in our discussion today, we may use some non-GAAP financial measures.
Reconciliations of these measures to the most comparable GAAP measures are also available in our press release and SEC filings.
At this time, I'm pleased to present <UNK> <UNK>, President and Chief Executive Officer at United Fire Group.
Thank you, <UNK>.
Good morning everyone and welcome to United Fire's 2015 Second Quarter Conference Call.
This morning we reported another solid quarter.
Our operating income was $0.57 per share.
Net income was $0.59 per share and our GAAP combined ratio was 97.7%.
Year-to-date, operating income was $1.50 per share.
Net income was $1.54 per share and our GAAP combined ratio was 93.8%, our return on equity as of June 30 was 9.4% and book value was $33.21 per share.
Equally as exciting for us is the growth pattern, we have developed over the last few years.
Total revenues grew for the quarter by 10%, consolidated earned premium increased 13.6% and consolidated written premium increased 11.3%.
We are currently on track to achieve $1 billion in total revenues on a consolidated basis during 2015, which will be a milestone for us.
Mike <UNK> will be commenting in a few minutes on market conditions being more competitive than we have seen in several years and that would suggest that perhaps our growth is somewhat more aggressive than practical.
I would argue that our growth is very calculated and deliberate; for several quarters now we have been talking about our 2020 vision and the strategies for meeting the objectives of that plan, which are designed to result in profitable organic growth.
As a reminder, we are expanding our geographic reach through agency growth in regions where we feel we are underutilized.
Over the last few years, we have added approximately 100 new agencies per year.
We take these partnerships very seriously and work diligently to create a successful partnership for both parties.
We are now seeing the rewards of our efforts, of course signing new agents is only half the battle.
We continue to assess existing relationships for profitability and mutual benefit.
We continue to grow our lines of business, a prime example would be our E&S specialty division, which is expected to expand into additional states by the end of 2015 as we extend our concentration from west to east.
To facilitate the expected growth in this line, we have reactivated Texas General Indemnity Company, renamed as UFG Specialty Insurance Company and the redomesticated it to Iowa.
UFG Specialty will become our admitted carrier for this segment of business.
With the addition of Mercer insurance companies, we initiated our association business.
As we become more familiar and experienced in writing that business, we see the benefit of expanding not only our existing relationships, but into additional programs.
These programs are written based on the experience of the entire group of companies instead of each individual company.
Loss ratios tend to improve as a result thereby strengthening our underlying book of business.
Programs that begun as regional trials have now become national.
Additionally, related to the Mercer acquisition, we have introduced United Fire & Casualty products in our Western region.
This has generated material premium volume in classes other than those that are contract related.
This has had the desired effect of diversifying away from our heavy contractor booked in that region.
We continue to target our small business owners' products.
These are generally accounts less than $10,000 in premium and include a complete insurance package.
Going forward, we will have some exciting new automation to help us be more competitive and profitable, in this line, including up to date our online [court] and application submission process.
More updates to come as the year progresses.
Additionally, we continue to add enhancements to our single premium whole life products, including our Qualified Care rider, which we have discussed previously.
Mike <UNK> will be touching on the P&C segment in a few minutes.
But as long as we're on the subject of the life company, I would like to make a few comments.
Sales of our single premium whole life policies improved during the second quarter due to implemented enhancements to various products and improved commission schedules, which allowed us to offer a better pay-out to our clients.
However, deferred annuity deposits decreased 68.1% and 49.5% respectively for the quarter and year-to-date compared to the same periods of 2014 due to gradual lowering of the credited rate offered on our deferred annuity products.
Plain and simple, other competitors are offering rates above where we can't.
As a result, we have seen accounts moved to lower rated competitors offering higher rates.
Losses and loss settlement expenses increased $0.1 million for the second quarter when compared to the same period in 2014 and $0.6 million year-to-date due to the corresponding increases in death benefits paid.
Fluctuations in the timing of death benefits occur from quarter-to-quarter and year-to-year.
Interest credited decreased $1.8 million for the quarter and $3.2 million for the year-to-date due to net annuity withdrawals decreasing the base on which interest is paid along with a periodic reduction in interest rate credited on annuity products throughout 2014 and continuing into 2015.
Net income for the life insurance segment declined slightly year-to-date compared to 2014.
I would be remiss if I did not remind our audience today that we recently initiated a branding campaign, going forward our organization will be known UFG rather than United Fire.
With that, I'll turn this morning's discussion over to Mike <UNK>, our Executive Vice President and Chief Operating Officer.
Thanks, <UNK>, and good morning, everyone.
We continue to request and receive rate increases in lines of business and in geographic regions where warranted, but we are also experiencing competitive market conditions on both renewals and on new business.
As we enter a softening market, holding true to our underwriting strategy of targeting specific market segments and managing our hazard class mix of business within our risk appetite becomes that much more important.
We are an underwriting company, our actions include repricing and/or eliminating our lowest level of under-performing accounts where appropriate and evaluating new regions for expansion of our footprint, we assess the potential impact of geographic concentration risk through mapping tools such as cartography.
The valuation of [lockaway] price will become a key component of renewal underwriting as we progress through the softening market.
We underwrite, we take calculated risk and we price our business accordingly.
Commercial lines renewal pricing varied by region with average percentage increases in the mid-to-low single digits on smaller accounts.
Larger accounts were more competitive with flat-to-low single digit decreases on quality accounts.
Nonetheless, this is the 15th consecutive quarter of overall commercial lines pricing increases.
Personal lines renewal pricing increased slightly during the second quarter.
Premium written from new business remained strong, up from the prior quarter when compared to the same quarter a year ago.
Our success ratio on quoted accounts decreased slightly, but remains at an acceptable level.
Current rate increases continue to meet or exceed loss cost trends depending on the line of business.
We continue to believe loss cost trends will remain at low levels in 2015, but the gap between loss costs and rate increases will narrow as 2015 progresses.
We currently believe that loss costs are approximately 3%.
We base this belief on data from multiple resources, including JLT.
Policy retention remains strong at 82% increasing slightly from the prior quarter for the Group and several regions.
Premium retention was down from the previous quarter, but remained strong at 85%, which is consistent with our expectations as the market trends towards softening.
Policies in force were up 2.5% compared to the second quarter of 2014, mostly in general liability and commercial umbrella.
New policies written were sufficient to offset policies lost or non-renewed.
The U.S. economy continues to grow at a slow rate, premium from endorsements and premium audit continued positive trends up from the same quarter a year ago.
During the second quarter, direct premiums written increased 9.2% approximately 3% is attributed to rate and exposure changes, 3% is attributed to premium audits and endorsements and 3% is attributed to new business.
Our expectations for rate increases for the balance of 2015 continues to be low-single digits for another quarter, but likely flat by the end of the year.
Pre-tax catastrophe losses for the quarter totaled $20.2 million or $0.52 per share after tax compared to $20.6 million or $0.53 per share after tax.
The impact on second quarter combined ratio was 9.6 percentage points.
Year-to-date, pre-tax catastrophe losses totaled $20.4 million or $0.53 per share after tax compared to $23.9 million or $0.61 per share after tax.
The impact on the 6-month year-to-date combined ratio was 5 percentage points.
As you may recall, first quarter was essentially void of catastrophe losses, second quarter events were mostly Midwestern storms during April and May.
These storms included the St Louis hail storm in early April Texas wind and hail storms in the latter half of April and a hail and windstorm in Kansas and Texas in the latter half of May.
Our expectation for catastrophe losses in any given year is 6 percentage points of the combined ratio.
It's important to note, however, that our book of business remains primarily in regions of the country that are susceptible to seasonal weather events such as winter and spring convective storms, which will likely result in volatility in our results from quarter to quarter, especially during the second and third quarters.
As a company, we don't get too excited about this volatility since our final analysis is based on annual results.
Large losses, which we define as losses greater than $500,000, totaled $20.7 million in the second quarter.
This compares to $20.3 million in the second quarter of 2014.
Second quarter 2015 large losses remained within our expectations.
Year-to-date, large losses totaled $42.6 million compared to $43.3 million in 2014.
Though the current comparison seems pretty consistent from period to period, this is not typical.
Large losses vary from quarter-to-quarter and year-to-year.
Frequency for the quarter and year-to-date was down significantly as compared to the same periods in 2014; as you may recall, second quarter 2014 was a high cat loss quarter, so our claims counts in 2015 are more consistent with our expectations.
Severity for the quarter and year-to-date was up slightly, but still within our expectations.
During the first half of 2015, commercial property lines had double-digit improvement in loss ratio due to a decline in the frequency of claims associated with severe winter and spring storms during 2014 and a noticeable reduction in the number of large fire losses in 2015 as compared to 2014.
We've also seen much improved loss ratio during the first half of 2015 in our workers' compensation line of business due to the combined effects of a decrease in severity and frequency of claims, favorable reserve development and recent proactive underwriting initiatives.
Our personal lines have seen the most improvement in loss ratio in the first half of 2015 due to the improved frequency and severity of claims in 2015 as compared to 2014, improved pricing and the implementation of policy underwriting adjustments.
With that, I'll turn the financial discussion over to <UNK> <UNK>.
Thanks, Jamie.
This now concludes our conference call.
As a reminder, the transcript of this call will be available on the company website at www.unitedfiregroup.com.
On behalf of the management of the United Fire Group.
I wish all of you a very pleasant day.
| 2015_UFCS |
2018 | ALE | ALE
#Good morning, everyone, and thanks for joining us today.
With me are ALLETE's Senior Vice President and Chief Financial Officer, Bob <UNK>; and ALLETE's Vice President, Controller and Chief Accounting Officer, Steve <UNK>.
Today we reported first quarter 2018 financial results of $0.99 per share, a net income of $51 million.
The results for the quarter were consistent with our expectations, and demonstrate the benefit of our differentiated growth strategy.
Before Steve and Bob go through the details from the quarter, I would like to highlight several areas of interest.
We take great pride in delivering value to our shareholders with ALLETE's differentiated strategy.
A balanced strategy built upon a foundation of long-standing commitment to environmental, social and strong governance values.
We strongly believe in the importance of how we deliver value to our shareholders with annual earnings growth and dividends underpinned by our culture that incorporates a longer view and sustainability in all of our strategies.
Building upon our strategic positioning, we expect to see the benefits of our differentiated strategy throughout the remainder of this year and into the foreseeable future.
Minnesota Power's Energy Forward strategy includes plans for generation sourced from the Nemadji Trail Energy Center or NTEC.
A new natural gas facility that supports additional renewable generation and grid stability as well as the Great Northern Transmission Line to be completed in 2020, which will move carbon-free hydro energy from Canada.
Both of these initiatives provide new opportunities for sustainable investments that further add to our history of environmental stewardship.
Regarding the Minnesota Power rate review status, Minnesota Power filed for reconsideration in early April, and Steve will provide you more details in a moment.
Minnesota Power fully intends to earn its allowed ROE and has already made some difficult decisions, which include workforce reductions and other expense management efforts, while still meeting its obligations to provide safe and reliable services to its customers.
The combination of an allowed ROE that is lower than industry average and disallowance of certain expenses, transmission revenue and the inequitable treatment of prepaid pension as part of the commission's order are somewhat challenging, but Minnesota Power is working diligently to earn its allowed ROE, while balancing various stakeholder interests.
We are pleased that Minnesota Power's taconite customers are operating at near full production.
We anticipate continued strength supported by an improving economy, and actions by the Trump administration to reduce excessive imports that damage our country's steel industry.
As mentioned last quarter, we are excited to see taconite customers making new long-term investments in their mining operations.
There has also been constructive progress in the permitting process for Minnesota Power's new potential non-ferrous mining customer.
These industries are important to our region and to Minnesota Power, and we believe they are well-positioned to benefit along with other stakeholders as our country pursues infrastructure upgrades along with a clean energy economy.
ALLETE Clean Energy is making significant progress with its already announced initiatives to refurbish 385 turbines at several of its wind energy facilities, as well as construction startup on several renewable projects for others.
In addition, ALLETE Clean Energy continues to evaluate a robust pipeline of potential projects with its strategic investment in wind turbines, already qualified for federal production tax credit Safe Harbor provisions.
2018 is a foundational year for ALLETE, as we expect improved positioning and growing returns from our business segments.
I will provide additional comments in my closing remarks, but first I will ask Steve and Bob to go through the first quarter financial details.
Steve.
Thanks, Al, and good morning, everyone.
I would like to remind you that we filed our 10-Q this morning, and encourage you to refer to it for more details on the first quarter results.
For the first quarter of 2018, ALLETE reported net income of $51 million or $0.99 per share compared to $49 million or $0.97 per share for the same period in 2017.
Our 2018 results reflect approximately $600,000 after tax of severance-related expenses.
Earnings were diluted by $0.02 due to additional shares of common stock outstanding as of March 31, 2018.
ALLETE's Regulated Operations segment, which includes Minnesota Power, Superior Water, Light and Power and the company's investment in the American Transmission Company, recorded net income of $43.9 million, an increase of $400,000 compared to the same quarter last year.
Net income at Minnesota Power was slightly lower than 2017 results, primarily due to the timing of reserves recorded for an interim rate refund, discounts provided to EITE customers, a lower transmission revenue and higher property tax expense.
These decreases were mostly offset by lower depreciation expense due to the timing of the Minnesota Public Utilities Commission's decision to modify the depreciable lives at the Boswell Energy Center, as well as lower operating and maintenance expense, higher sales to industrial customers due to the start-up of United States Steel Keewatin Taconite plants in March 2017, and higher sales to residential customers due to favorable weather conditions.
If you recall, we recorded the full year impact in the fourth quarter of 2017 of interim rate refund reserves and lower depreciation expense as a result of the January 18, 2018, commission's decision in our 2016 rate review.
We will continue to see these timing impacts throughout the remaining quarters of 2018.
Net income at Superior Water, Light and Power was higher due to a full quarter of new rates this year, which were implemented in August 2017 and colder weather in the first quarter of 2018 compared to last year.
A few additional comments on Minnesota Power's rate review status.
On April 2, 2018, Minnesota Power filed a petition for reconsideration at the Minnesota Public Utilities Commission requesting reconsideration of certain decisions in the commission's order dated March 12, 2018, representing approximately $20 million to $25 million in additional annual revenue.
Minnesota Power requested reconsideration for certain items, which included the allowed return on common equity, recovery of the prepaid pension asset and rate base, certain disallowed expenses, and certain transmission revenue adjustments.
The Minnesota Department of Commerce filed a separate request for reconsideration, proposing to reduce the depreciable lives of Boswell Unit 3, Unit 4 and common facilities to 2035, and use the benefits of tax reform to offset the resulting increase in customer rates.
On April 12, 2018, Minnesota Power responded to the Department of Commerce request for reconsideration, and stated that with modification and conditions, the commission should generally accept the Department of Commerce proposal.
We expect a decision on reconsideration by mid-2018.
A couple of updates on the open dockets related to tax reform for our Regulated Operations.
In December of 2017, the Minnesota Public Utilities Commission opened a docket to review the effects of tax reform in Minnesota.
Minnesota Power submitted an initial filing to the commission, in which it proposed to use the net tax benefits to offset other regulated costs to the extent the company is able to earn its allowed return on equity, and flow the remainder of benefits to customer through a new tax cost recovery rider.
And as I noted, Minnesota Power responded to the Department of Commerce's proposal that the commission generally accept, with modifications in conditions, the Department of Commerce's proposal to shorten the lives of our Boswell Unit 3, Unit 4 and common facilities to 2035, while utilizing the benefits of tax reform.
We anticipate a commission hearing and decision on this proposal in the second half of this year.
In February of 2018, Superior Water, Light and Power filed comments with the Public Service Commission of Wisconsin and proposed deferring the benefits of tax reform and incorporating any impacts into its next general rate review.
Superior Water, Light and Power expects to file a rate review later this year.
Next, a few details from our other business segments.
Net income at ALLETE Clean Energy increased $1.4 million or 21% from 2017.
Net income in 2018 was higher by $1.2 million, due to a lower federal income tax rate as a result of tax reform, and $600,000 after tax due to additional production tax credits as ALLETE Clean Energy continues to execute on its refurbishment strategy.
These increases were partially offset by higher operating and maintenance expenses.
U.S. Water Services' net loss increased $1.1 million from 2017.
The net loss in 2018 includes higher operating expense, partially offset by increased revenue, primarily resulting from the September 2017 acquisition of Tonka Water.
And the first quarter of 2018 was also impacted ---+ negatively impacted by the timing of equipment sales and colder weather conditions, which reduced chemical sales.
The net loss in 2018 included $300,000 of after-tax expense related to purchase accounting impacts.
ALLETE's effective tax rate for the first quarter was a 7.8% benefit compared to 21.1% expense in 2017.
The decrease from 2017 was primarily due to the reduction of the federal income tax rate from 35% to 21% and lower pretax income.
ALLETE's financial position is supported by increased cash flow and a strong balance sheet.
Cash from operating activities was $121.3 million year-to-date and our debt to capital ratio was 42% as of March 31, 2018.
I'll now hand it off to Bob to review our earnings guidance and positioning for 2018.
Bob.
Thanks, Steve, and good morning, everyone.
Today we reaffirmed our 2018 earnings guidance at a range of $3.20 to $3.50 per share on net income of $165 million to $185 million.
This guidance range is comprised of Regulated Operations segment earnings within a range of $2.45 to $2.65 per share and Energy Infrastructure and Related Services businesses, which includes ALLETE Clean Energy and U.S. Water Services and corporate and other earnings within a range of $0.75 to $0.85 per share.
Our differentiated growth outlook anticipates average annual long-term earnings growth of 5% to 7%.
This includes growth from the Regulated Operations segment of approximately 3% to 4%, and approximately 15% average annual growth from our Energy Infrastructure and Related Services businesses over the long term.
We expect improving financial performance over time for Minnesota Power as it continues on its path to earn its authorized ROE in 2019, through a combination of expense management, small coal plant closures, potential rate review reconsideration, and legislative and other regulatory outcomes.
Our rating agencies are closely monitoring the status of Minnesota Power's reconsideration filing and the outcome as an indication of the regulatory environment and the company's ability to earn its allowed return on equity.
Consistent with all of the ALLETE businesses, earning our cost of capital is a priority for the long-term sustainability of our company.
As you know, ALLETE Clean Energy focuses on developing, acquiring and operating clean and renewable energy projects.
ALLETE Clean Energy currently owns and operates approximately 535 megawatts of wind energy generation that is contracted under power sales agreements of various durations.
In mid-March, we were pleased to announce ALLETE Clean Energy's newest project to build, own and operate an 80 megawatt wind energy facility pursuant to a 15-year power sales agreement with NorthWestern Corporation.
Construction is expected to be completed in 2019.
Upon completion of this project along with the previously announced project to build, own and operate a wind energy facility for Northern States Power, ALLETE Clean Energy will have over 700 megawatts of carbon-free, renewable wind generation in its portfolio.
For this robust project development backlog of approximately 465 megawatts, which includes the Clean Energy 1 project, the South Peak project, and the refurbishment projects yet to complete, ALLETE Clean Energy has proposed and bid approximately 900 megawatts of additional PTC projects and is evaluating more than a dozen potential existing renewable facility acquisitions.
U.S. Water Services' quarterly financial results reflect selling certain products that are seasonal in nature with higher demand typically realized in warmer months.
So it is not unusual to experience weaker financial results in the first quarter.
I remain excited about the prospects for all of our businesses at ALLETE and look forward to updating you throughout the year with our differentiated multifaceted growth platform.
We are well on our way with a new and exciting chapter at ALLETE.
Al.
Well, thank you for the financial update, Steve and Bob.
ALLETE is an energy company with a differentiated strategy.
We recognize that the impacts from human activity including climate change are real, complex and interrelated.
And we have thoughtfully positioned the company to do more than just operate, but to be a recognized leader to address these issues through our family of businesses.
Our strategy is intentionally designed to provide cleaner energy solutions through initiatives at our regulated utility businesses, and also at our complementary and growing Energy Infrastructure and Related Services businesses.
As we have shared previously, Minnesota Power's Energy Forward Strategy includes a proposal to further balance and diversify its energy sources with the Nemadji Trail Energy Center natural gas facility.
In 2017, the Minnesota Public Utilities Commission directed that the related natural gas energy power purchase agreement be decided through an administrative law judge process.
Recently the Minnesota Department of Commerce weighed in favorably relative to the role of and the need for the NTEC initiative.
The administrative law judge is expected to provide a recommendation by July of 2018, and the company anticipates a commission decision in the second half of 2018.
The Minnesota Public Utilities Commission did not take any action regarding the tandem or complementary wind and solar energy power purchase agreements, which will be refiled separately, but still parallel to the natural gas initiative.
Minnesota Power believes the optimal generation mix that best balances the sustainability, reliability and affordability interest of our nation and Minnesota Power's customers is a combination of 2/3 renewable and renewable enabling natural gas, and 1/3 environmentally compliant coal generation.
Also in progress as part of our Energy Forward initiative is the ongoing construction of the Great Northern Transmission Line.
The GNTL is designed to deliver carbon-free hydroelectric power from Northern Manitoba by 2020.
Minnesota experienced a more traditional winter, which supported more efficient construction activity on the frozen swamps and bogs of Northern Minnesota.
Minnesota Power expects to spend approximately $100 million on construction this year, with an estimated total investment of $330 million upon completion of the transmission line.
Superior Water, Light and Power continues to invest in growth initiatives to enhance the quality and reliability of electric, gas and water services provided to its customers.
In support of these initiatives, the company anticipates capital investment of approximately $20 million in 2018, and anticipates filing for a rate review later this year.
On the new customer front, PolyMet proposed copper, nickel and precious metal mining operation in Northeastern Minnesota, continues to make progress on major permitting milestones.
In January of this year, the Minnesota Department of Natural Resources and the Minnesota Pollution Control Agency released PolyMet's draft permit to mine and also its air and water discharge permits.
The last required public hearings for these permits were held in the first quarter of this year.
The U.S. Forest Service has previously authorized a land exchange with PolyMet and continues to work with the company on the final title transfer.
Upon completion, this will result in PolyMet obtaining surface rights to land needed to develop its mining operation.
The final environmental impact statement also requires records of decision by federal agencies, which are expected in 2018.
Minnesota Power could supply between 45 to 50 megawatts of new load under a 10-year power supply contract that would begin upon start-up of the mining operations.
And now a few comments on ALLETE's Energy Infrastructure and Related Services businesses.
ALLETE Clean Energy is making significant progress with its construction activities to refurbish wind turbines located at three wind farms in Minnesota and Iowa.
ACE and its project teams are on schedule to complete these refurbishment initiatives in the planned 2020 time frame.
These initiatives will improve performance and availability of these facilities, while generating federal production tax credits, as they resume generating carbon free energy for their customers.
We believe the long-term operational benefits and resulting economics from these refurbished facilities will benefit the renewal of power sales agreements, further contributing to ALLETE Clean Energy's long-term financial performance.
ALLETE Clean Energy is about to ramp up construction activity on an energy facility, it will sell to Montana-Dakota Utilities upon completion.
Construction is on schedule and the project is expected to be completed in the second half of 2018.
With its strategic investment in production tax credit ---+ tax qualified Safe Harbor turbines, ALLETE Clean Energy is an attractive partner as it evaluates additional renewable projects and formally bid into a nationwide pipeline of renewable RFPs.
The next several years will be transforming to earnings growth, to larger scale, and to project construction activity for ALLETE Clean Energy, as it moves forward with its multifaceted growth strategy.
Lastly, we believe U.S. Water Services is well-positioned for growth, as it captures revenue streams in the emerging integrated water management industry.
With our first quarter financial results behind us, we are confident that our differentiated strategy is positioned to provide growth and earnings as well as dividends.
We believe ALLETE's family of businesses will continue to benefit from investment growth opportunities, primarily driven by demands for cleaner energy and water conservation, along with our nation's renewed focus on infrastructure upgrades and expansion.
Thank you for your time and for your investment in ALLETE.
And at this time, I will ask the operator to open up the line for your questions.
This request for reconsideration, you said $20 million to $25 million, that could really move the needle.
Could that by any chance be retroactive depending on what comes out of it.
Yes, hi <UNK>, Steve <UNK>.
It would be as of most likely January 1, 2017 that's when we started to implement our interim rate refund reserve that's what the effective date would be.
So we would go back and adjust that through that period of time up through today.
Thank you, and when do you expect that to be decided.
Well, tentatively there's a hearing this month, so we would, and that could get changed, but we would expect that to be heard and decided in the second quarter, so by the time we have our second quarter results.
And then just some clarification that the department made their proposal regarding Boswell and tax reform, is that going to be consolidated with your proposal to hit your ROE and then start getting back.
Or ---+ what's the procedural schedule on those.
Yes, I think they are 2 separate things.
So one of our proposals was in response to the Department of Commerce proposal to go back now and shorten the lives to 2035 for Boswell was that would be heard in conjunction with our tax filing and not part of a rate case.
And so that's really a cash issue, it's not an ROE issue.
The department's proposal, and your proposal to hit your authorized return before you give back would be the same proceeding.
Well, our tax proposal was exactly that, it was in essence to earn our allowed ROE.
That's in our tax filing, and the Department of Commerce in their reconsideration for a rate case also asked for a shorter life for Boswell.
In addition, in the tax filing that their response was the shorter life of Boswell.
So we think it's appropriate that the life of Boswell be taking ---+ taken up with our tax filing and not part of rate case, because that's a tax reform issue.
And then also at ACE you mentioned that you're looking at 12 potential acquisitions.
Should we think about these as kind of PTC's that are expired, kind of like your prior acquisitions.
You made some remaining contract life and is there any opportunity for refurbishments of these potential targets.
Yes, hi <UNK>, this is Bob.
Yes, In terms of the profile of those acquisitions they would be very similar to the acquisition that we've done historically.
So they could have PTC life left in them, several years typically, but coming to the end of the 10-year life, we would certainly look for refurbishment opportunities, in fact some of the ones that we're looking at currently have that opportunity.
And so yes, and in terms of returns, you didn't ask about returns, but returns are expected to be very consistent with the types of deals we've done in the past.
Do you have an inventory of refurbishment eligible parts or are those already earmarked for the 3 projects you're doing.
They're earmarked for the existing projects we're doing.
But you would still secure more and be eligible for the 80% tax credit, correct.
Yes, <UNK>, ACE has turbine supply arrangements with a couple of providers.
So there is that opportunity going forward.
So Chris, this is Bob.
No it's very much 1 of the 4 planks of our strategy that we talked about, in addition to of course, the PTC strategy that we have.
We've been looking at acquisitions, and with a dozen projects there is quite a bit of activity there, so.
We've been at this level for a while.
Yes, we do.
Well, yes, of course.
This business does better with warmer weather, generally speaking.
And so to the extent that warm weather patterns continue, as they have over the last couple of years, we would expect that that would create some potential upside for the company and all things considered, weather would be on plan, so to speak.
Not necessarily so.
But I would expected that that would be the case as the years unfold here 2019 and 2020.
Yes, no concerns there.
So Liz, this is Bob.
Let me give you a bit of a picture, but actually both in '18 and '19, where we have a DRIP program, which is our dividend reinvestment program.
And typically in a given year, we are issuing between $15 million and $20 million a year.
So that's going to be the limit of any equity in '18 and then again in '19 except for the case where we do additional projects at ALLETE Clean Energy or an acquisition at U.S. Water, a larger one.
Well, we've got ---+ some significant headroom left with regard to our ability to grow the nonreg, we believe.
Of course, as you know we ---+ the ratings ---+ our credit ratings are important to us, maintaining a strong investment grade rating is important.
So we've got some headroom for that growth.
And as I stated over time to the extent that there is more growth in the nonreg than regulated and that mix starts to become higher than we like, we will be searching for other regulated opportunities to grow earnings there as well.
Yes, that is correct, <UNK>.
That's correct.
Yes, there is a little bit of unrecovered costs, but it's not significant.
Yes, yes, I think that's about right.
Just a clarification on <UNK>'s question.
Is that 8.25% consolidated utility or just Minnesota Power.
It's just Minnesota Power.
Well, Steve, Bob, and I thank you once again for being with us this morning.
Thanks for your investment in ALLETE, and we'll see you all on the road as we get out here in the spring, summer and fall.
Thank you very much and have a good day.
| 2018_ALE |
2017 | ILMN | ILMN
#Thank you, <UNK>
As <UNK> mentioned, Q4 revenue grew 5% year-over-year to $619 million, consistent with our preliminary estimates on January 9. Fourth quarter consumable revenue represented 66% of total revenue or $407 million, an increase of 18% compared to the fourth quarter of 2015. Sequencing consumable revenue grew 20% year-over-year to $331 million
As a result of growth in our installed base, increased HiSeq X utilization and gains in NextSeq pull-through, which again reached the top end of our $100,000 or $150,000 guidance range
MiSeq pull-through was in our projected range of $40,000 to $45,000 and MiniSeq utilization equaled $24,000. We ended the year with 370 active MiniSeq instruments, which we now forecast will generate annual consumables of $20,000 to $25,000 per box
HiSeq and HiSeq X utilization were within their respective guidance ranges of $300,000 to $350,000 and $625,000 to $725,000. Going forward, we plan to report a combined pull-through figure for this family of instruments, which is expected to decline as customers use fewer HiSeq consumables or fully decommissioned instruments
Utilization on the HiSeq family of instruments will depend upon the rate of adoption of the new platform
Services and other revenue equaled $94 million
Strength in genotyping services and sequencing instrument maintenance contracts was offset by an expected decline in NIPT service revenue, as customers migrated to in-house testing
Turning now to gross margin and operating expenses, I will highlight our adjusted non-GAAP results, which exclude non-cash stock compensation expense and other items
I encourage you to review the GAAP reconciliation of non-GAAP measures, which can be found in today's earnings release and presentation
Please note that all subsequent references to net income and earnings per share refer to the results attributable to Illumina stockholders
Our adjusted gross margin for the fourth quarter was 69.9%, lower sequentially by 260 basis points, including 150 basis points of product transition reserves associated with the end-of-life of NeoPrep as well as the HiSeq family
In addition, we have scaled manufacturing operations
Given this investment is to support future growth, it will take several quarters to be more fully absorbed
Finally, the variable compensation accrual benefits we saw in Q3 contributed to the sequential decline
As a result of these last two factors, as well as the introduction of a new platform, which historically depresses gross margins, we are forecasting margins to be roughly flat sequentially, but growing later in the year
Adjusted research and development expenses in Q4 were $121 million, or 19.5% of revenue, an increase of $7 million over Q3, and adjusted SG&A expenses for the quarter equaled $130 million, or 20.9% of revenue, an increase of $13 million sequentially
Adjusted operating margins were 29.5% compared to 34.4% in the third quarter, lower primarily due to the variable compensation accrual benefits we saw in Q3, as well as Q4 gross margin impacts previously discussed and head count addition
Operating margin was lower compared to the 33.4% reported in the fourth quarter of last year due to increased investments in manufacturing, head count, GRAIL and Helix
Excluding GRAIL and Helix, operating margin was 33.9%, a sequential decrease of 430 basis points, again, related to the gross margin impact and variable compensation accrual benefits we saw in Q3. Stock-based compensation expense equaled $27 million, down sequentially from $35 million and lower than expected due primarily to the timing of executive departures and appointments
In 2017, stock-based compensation is expected to be 6% of revenue on average and, going forward, we will report gross margin, R&D, SG&A and operating margin including the respective allocations of this charge
This is consistent with the treatment of the expense in our non-GAAP diluted earnings per share figures
We reported fourth quarter GAAP net income of $124 million and EPS of $0.84 per diluted share
Non-GAAP net income was $126 million or $0.85 of EPS with GRAIL and Helix dilution of $0.05 and $0.03, respectively
This led to 2016 non-GAAP EPS of $3.33, including GRAIL and Helix dilution of $0.27 and $0.09, respectively
Cash flow from operations equaled $280 million, reduced by 100% of the GRAIL and Helix cash burn of $33 million this quarter
Q4 DSO totaled 56 days, down slightly compared to 57 days last quarter, due to the benefit of higher revenue and strong collections
Capital expenditures in Q4 were $82 million, and we reported an additional $25 million increase in property and equipment recorded under build-to-suit lease accounting, where such expenses were paid for by the landlord
Consequently, Q4 free cash flow was $199 million
We ended the quarter with approximately $1.6 billion in cash and short-term investments, including the consolidated cash balances of GRAIL and Helix
During the quarter, we repurchased 1 million shares under our previously announced buyback programs at an average price of $129, leaving us with approximately $100 million of remaining authorization
Moving now to guidance, we are projecting Q1 revenue of $580 million to $595 million with the low-end of our range reflecting an ability to manufacture and recognize a dozen NovaSeqs and the upper end two dozen instruments
We believe high throughput customers will choose to wait to purchase the NovaSeq platform and, as a result, expect to ship approximately 10 HiSeq instruments in the first quarter, including HiSeq X
Additionally, as we work through the transition from HiSeq to NovaSeq, customers will pause experiments, work down consumables on hand, place fewer inventory buys, and take time to validate their new workflow
Hence, consumable sales will also be impacted as a result of this transition leading to decelerating sequencing consumable growth versus prior year for a number of quarters and flat to slightly down sequencing consumables sequentially
As we previously shared, total company revenue is expected to grow 10% to 12% in 2017, including less than 1% revenue contribution from each of GRAIL and Helix, as well as a 100 basis point currency headwind versus the prior year, given current rates
We are forecasting Q1 GAAP earnings per diluted share of $0.51 to $0.56 and non-GAAP earnings per diluted share of $0.60 to $0.65. For the full year, GAAP earnings per diluted share is expected to be $3.25 to $3.35 and non-GAAP EPS is expected to be $3.60 to $3.70. Our GAAP and non-GAAP EPS guidance assumes no meaningful impact to tax expense from the new stock-based compensation pronouncement
We will report GAAP results that reflect the impact of this guidance and our non-GAAP results will exclude the impact on our effective tax rate due to the potential volatility and so that our results are comparable to prior periods
Our Q1 and full year EPS guidance does not include any one-time items associated with the close of the GRAIL Series B, which we have assumed is completed by the end of Q1. We have included $0.08 of dilution from the consolidation of GRAIL's financial results in the first quarter only and $0.18 of Helix dilution for the full year
Thank you for your time
We will now move to the Q&A session
To allow full participation, please ask one question and rejoin the queue if you have additional question
Operator, we'll now open the line
Question-and-Answer Session
And a combined number, just to clarify, for HiSeq and HiSeq X
And when we eventually have a good sense of what the NovaSeq pull-through looks like, we will probably give a range for that at that point
And I would say the change in the agencies that we're talking about, there's nothing – no reason for us to assume that's not going to continue under the new approach that they've adopted
We don't see an end in sight to that
I'm happy to handle that
Obviously, the array business grew very well in 2016 and fueled largely by the consumer business, but also a couple other areas that we cited in the call
And so, we are expecting growth in 2017, but it will be lower than the growth for the company overall
On the services question, <UNK>, I think it will have an impact obviously as customers decommission or stop using or stop renewing their services contracts on existing legacy HiSeq instruments
But with the kind of rollout being more of a ramp throughout the year and mostly the instruments will be shipped in Q2 and the decommissioning will – Q2 and beyond and the decommissioning will tend to lag that
I think it's a fairly marginal impact and it's included in our guidance to the extent it's going to happen this year
And then once you get past the first year of NovaSeq, you start to charge instrument contracts for that as well
So, it tends to offset
On the share repurchase, we completed $100 million in Q4, as I mentioned, and currently have $100 million left on our authorization and we'll evaluate it going forward
One of the point, don't forget that any gain on the GRAIL has a tax impact on it too, so make sure you take that into account
Well, you might – it depends
I mean, it depends on a lot of factors
And have you saw a restocking effect, then you wouldn't necessarily want to extrapolate a restocking
But really the best way to think about consumables, I like to think about it as, it's really driven first and foremost by samples
And so, if you believe that more samples will get sequenced sequentially quarter after quarter, time over time, then ultimately it translates to consumables whether you get a lumpiness due to a stocking buy or a customer buying every six months instead of every quarter, you'll see those effects
But over time, it's just correlated to the number of samples that get sequenced and the price per sample that we put out there, and the elasticity that we're creating with new instruments
And bear in mind you, you wouldn't be getting updates from us on GRAIL on for Series B closes, just like you don't on any other of our customers
| 2017_ILMN |
2017 | QEP | QEP
#Thank you.
Thank you all for calling in this morning.
We appreciate your interest in QEP and we look forward to seeing you at a number of conferences that will be coming up over the next few weeks.
Have a good day.
| 2017_QEP |
2015 | SPG | SPG
#Sure.
No worries.
Well, I think the retailers, as they bring in the omnichannel world to their physical stores, will certainly apply it to the outlet world as well.
Again there are all at different degrees of that integration.
But I don't think outlets would be ignored on that front at all.
So, I would expect that to be part of it.
Well, look, put it this way, I'm not surprised by Land and Buildings and Orange's ---+ that they might pursue something like this, or others.
But as you can see from their proxy materials, we are not participating or providing any financial support in their proxy.
But I'm not surprised that someone like them would take up this particular issue.
But again, we're not ---+ this is not us; this is them.
And I said to you, you can see it from their preliminary proxy stuff that we are not supporting or involved in that at all.
As a shareholder, we will wait and see what happens.
Well, look, that's up for Macerich to respond to.
I mean I can only tell you what I told you earlier, which is I think we put a hell of a deal on the table, and I was looking to engage with Art.
I consider Art a peer.
We've had a good relationship.
People say hostile offer.
I don't ---+ let me give you my thinking on this.
Any time somebody offers a lot of money to somebody, I never consider that hostile.
Okay.
Now it may not be ---+ it may be unsolicited.
But it ain't hostile.
Okay.
It ain't hostile.
So I hope Art and the Board realizes that I didn't view it as hostile.
I view it ---+ sure, it was unsolicited, but it was a hell of an offer done in the spirit of trying to negotiate a deal at a big number.
And I'll leave it at that.
It's yesterday's news.
But I'll leave it at that.
But it was not hostile.
Unsolicited, absolutely.
But again anytime I think ---+ I'm a simpleton when it comes to this ---+ but anytime you offer a big number to somebody I don't view that as hostile.
I just view that as the way of the world, I guess.
All right.
No worries.
All right, thank you, everyone, and take care and we will talk to you soon.
| 2015_SPG |
2016 | SCSC | SCSC
#Thank you and welcome to ScanSource's earnings conference call for the quarter ended March 31, 2016.
With me today are <UNK> <UNK>, our CEO, and <UNK> <UNK>, our CFO.
We will review operating results for the quarter and then take your questions.
A slide presentation that accompanies our comments and webcast is posted in the investor relations section of our website.
Certain statements made on this call will be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.
These statements are subject to risks and uncertainties that could cause actual results to differ materially from such statements.
These risks and uncertainties include, but are not limited to, those factors identified in the release and in ScanSource's SEC filings.
Any forward-looking statements represent our views only as of today and should not be relied upon as representing our views as of any subsequent date.
ScanSource undertakes no duty to update any forward-looking statements to actual results or changes in expectations.
We will be discussing both GAAP and non-GAAP results during our call and have provided reconciliations between these amounts in our slide presentation and in our press release.
These reconciliations can be found on our website and have also been filed with our Form 8-K.
<UNK> <UNK> will now begin our discussion with an overview of our results.
Thanks, <UNK>, and thank you for joining us today.
As you can see on slide 3, we increased net sales 5% year over year and non-GAAP EPS 23% year over year.
For the quarter, we delivered non-GAAP EPS of $0.64, within our expected range, while our net sales of $798 million fell below our expected range.
The biggest miss in our sales forecast was the lower volume of big deals throughout most of our business.
Lower big deals than expected resulted in higher gross margins, which is what we would normally expect to see.
Overall, we had a higher seasonal sales decline for the March quarter versus December, which is historically down around 10% quarter over quarter.
However, this year it was a 20% decline, led by weakness in Europe and more seasonality for KBZ.
For the June quarter, we anticipate big deals more in line with our typical trends, with gross margins reflecting that expectation.
We were very pleased with the financial performance and strategic contribution of our three acquisitions, Imago, Network1, and KBZ, which we completed during the last 19 months.
We still believe that these acquisitions will continue to be key areas of growth for ScanSource.
With that, I will now turn the call over to <UNK> to discuss our financial results in more detail and our outlook for next quarter.
Thanks, <UNK>.
Turning to slides 4 and 5, net sales for the current quarter increased $798 million, compared to $763 million a year ago.
The dollar impact on sales due to foreign currency translation was a negative $23 million.
Net sales in constant currency, excluding acquisitions, declined slightly year over year for the quarter or organic growth of 2.3% for the nine-month period.
Our third-quarter 2016 gross profit was $84.5 million, or 10.6% of net sales, compared to $80 million, or 10.5% of net sales, a year ago.
As shown on slides 6 and 7, both segments experienced an increase in gross margins year over year, due to a more favorable sales mix.
SG&A expenses, excluding amortization of intangible assets and acquisition costs, were $59.2 million, or 7.4% of net sales, compared to $55.8 million, or 7.3% of net sales, in the prior-year quarter.
SG&A expenses were higher year over year due primarily to the addition of the KBZ acquisition and higher bad-debt expense than a year ago.
Additionally, for the quarter we recorded an estimated sales tax assessment of $700,000 related to 2012 and 2013.
Our third-quarter 2016 non-GAAP operating income was $25.3 million, or 3.2% of net sales, compared to $24.2 million or 3.2% in the prior-year quarter, reflecting a 5% year-over-year increase.
Non-GAAP operating margins for both segments increased 10 basis points year over year, due to higher gross margins.
Our effective tax rate was 34.2% for third-quarter 2016 and 34.7% for the prior-year period.
For the nine-month period, our effective tax rate totaled 34.5%.
Third-quarter 2016 non-GAAP net income was $16.5 million or $0.64 per diluted share, compared to $14.9 million or $0.52 per diluted share for the third quarter 2015.
GAAP EPS increased 20% and non-GAAP EPS increased 23% year over year.
Total shares outstanding as of March 31, 2016, were 25.7 million, a decrease of approximately 10% from a year ago from share repurchases.
Average diluted shares for the third quarter 2016 totaled 26 million, down 10% from the year-earlier period as a result of share repurchases.
Now shifting to the balance sheet and capital allocation plan, we generated $65 million of operating cash flow during the March quarter, which is typically a strong cash flow quarter, and $72 million for the trailing 12-month period.
Our working capital measures are referenced on slide 8 in our presentation.
Our DSO at 59 days are higher than our typical range.
There has been no change in our underwriting standards and the higher DSO reflects the lower sales for the quarter.
Inventory turns are lower than our typical range, from strategic inventory purchases and lower-than-expected sales for the current quarter.
Likewise, paid for inventory days were on the high end of our range.
We believe that our inventory levels are appropriate, given our sales forecast for the June quarter.
Turning to slide 9, at March 31, 2016, we had cash and cash equivalents of $41 million and debt of $80 million for net debt of $39 million.
We used $27 million of cash for share repurchases during the quarter ending March 31, 2016.
Our leverage totaled approximately 0.31 times trailing 12-month EBITDA.
Our balance sheet remains strong.
We continue to execute our capital allocation plan, investing in growth areas of our organic businesses, as well as remain disciplined and focused on acquisition opportunities that are strategic, accretive to EPS, and increase ROIC.
Our return on invested capital totaled 12.3% for the quarter and 14.5% year to date.
As of March 31, 2016, we have repurchased over 3.3 million shares for approximately $117 million and executed over 97% of our $120 million authorization as part of our planned capital allocation strategy.
We have now repurchased over 11% of our outstanding shares.
Now turning to our forecast on slide 10, we expect net sales for the quarter ended June 30, 2016, to range from $900 million to $950 million and non-GAAP diluted earnings per share to range from $0.70 to $0.74.
We expect foreign currency headwinds to slow down, with foreign currency translation to negatively impact sales by less than $10 million.
The foreign exchange rates used in our forecast are summarized in our presentation slides.
I would now like to turn the call back over to <UNK>.
Thanks, <UNK>.
We have two reporting segments and I will start with worldwide barcode and security, which represents 67% of overall sales.
Net sales of $533 million increased 10% year over year, including the addition of KBZ.
It was a strong quarter for big deals for our POS and barcode business in North America.
This was one business where we had higher big deals than expected and we had good sales growth over the prior year.
We had another record quarter for our payments terminal business and related key injection services.
Our payments business growth would have been even better, but there is a backlog in the SMB point-of-sale software companies getting their EMV, which is our chip and PIN program, certifications as EMV adoption expands from large enterprises to smaller businesses.
Turning to Europe, our net sales in our barcode business was disappointing, with fewer big deals closed than expected and we saw sales decline year over year.
Our team is working on incentive programs to grow our SMB business so that we are less dependent on big deals.
We will be expanding our local sales teams to reach more customers.
For example, we have announced the opening of new sales offices in Poland and Spain.
Our Latin America POS and barcode business had good sales growth, but fell short of their plan.
A key growth strategy for the region is to increase the run rate business and to add more sales resources in the key countries of Colombia, Mexico, and Chile.
In Brazil, net sales increased 10% year over year in local currency, but declined 18% when translated into US dollars.
In our POS business, new solutions continue to drive growth from the fiscal printer transition.
A significant amount of our products are imported and purchased based on US dollar pricing.
These imported products have continued to become more expensive and certain customers are postponing purchasing decisions there.
Our business in Brazil, however, is doing remarkably well, despite the general uncertainty from the country's political and economic challenges.
Our networking and security business in North America had good video surveillance camera growth.
Our team was recently named distributor of the year by Samsung and Sony.
We had lower sales than expected for our wireless networking business, which has been a strong growth area for many quarters.
We believe the lower sales were from delays in product upgrades, delays in E-rate spending, and some market-share losses as we face more competition.
As a top provider of video, voice, and data for Cisco, our KBZ team performed well this quarter, with good growth with collaboration products and continued success with our ZCare services offerings.
As we mentioned earlier, we had fewer large deals this quarter than expected and we are still learning how to forecast the KBZ business.
Now to our second segment, worldwide communications and services, which represents 33% of our overall sales.
Net sales of $266 million decreased 5% from a year ago.
Overall, sales in North America and Europe declined slightly year over year, while we had good growth in Brazil in local currency.
In North America, we had solid growth with our top customers, who are focused primarily on enterprise customers.
We did lose market share with certain lower-value product lines, due to competitive pricing pressure.
We increased sales focus on recruitment and enablement of new resellers for unified communications and collaboration vendors.
We believe Mitel's recently announced acquisition of Polycom can be a positive for us, as it may bring additional revenue opportunities in the future.
Turning to Europe, our integration across the businesses is now largely complete and we have extended our vendors' offerings to our additional offices.
We are expanding the ScanSource cloud solutions there, including new as-a-service voice and video offerings.
In Brazil, Network1 had good local currency growth with another strong SMB and service provider quarter.
Network1 does well with some vendors, which we have established uniquely in Brazil, such as Microsoft and Dell, and we sell these solutions with value-added margins.
It was a challenging quarter for our enterprise business there, with large users delaying purchases, given the uncertain political environment and foreign exchange volatility.
In Latin America, we continue to make good progress with our unified communication vendors.
We will now open it up for your questions.
Yes, so let me talk about the segments there.
So it was pretty equal, <UNK>, the segments on the miss to forecast.
I think those were pretty equal there, so no one segment more than the other.
And as far as the guidance for the revenue, as <UNK> alluded to in his comments, we were expecting the big deals to normalize in the June quarter, so in the forecast we are showing an increase in sales year over year, with a slightly positive organic growth in those numbers.
Yes, that is correct.
In the quarter on the forecast miss, KBZ was part of that, of which you are right.
We ---+ just learning to forecast them more, due to their larger deal volume that they have and larger dollar deals, yes.
<UNK>, it is <UNK>.
I think historically we have always said that we want to sell based on our value add and we are willing to sell at lower margins if we deliver lower value-added services.
So, gross margin has always been a barometer for where our investments in SG&A are.
And if someone is trying to buy a discrete product from us and not a solution, and all they want is price, then many times we have a floor under which we won't compete.
Now our vendors know this, so our vendors understand where we need to be from a profit margin on product lines, and if we feel like the vendors and the market are at too low of a margin, we will walk away from that business.
So in some cases, though, we have got some new competitors in some of our markets.
Some of this is due to some of the vendor consolidation that has been going on for a couple years, and some of those new distributor competitors might act irrationally, if you will, when they are new with a vendor to show that they can sell volume.
And so, our history has been that we would rather wait that out, let ---+ certainly we will complain about it.
We would expect the vendors to respond and make sure that if we are creating demand and providing value that we get appropriate margins.
Yes, so that really hasn't changed.
Our priorities are investing in the growth areas of our organic business, making the strategic acquisitions, and then, finally, the share repurchase program.
So, it was very much opportunistic buys in the quarter that we executed on and we're pretty close to having completed that.
Yes, I think ---+ this is <UNK>, <UNK>.
We have seen weakness in Europe for us for a few quarters, so I think it is somewhat of an execution issue on our side, and what we have learned, and we learned some of this, frankly, after we acquired Imago, is that our customers and our vendors have always preferred that we have more business local than not.
We have historically done really well with the larger VARs and resellers in Europe.
They're willing to buy from us from Brussels and have a relationship with us where we are not always in their country.
But as we tried to grow our base of business with SMB smaller customers, they really have preferred local distributors.
So if you remember, in Europe we still have many distributor competitors, many more than in the US.
So with each of our vendors, there are distributors still in every country, and what we are learning is that we have not been able to take some market share in those areas.
And matter of fact, we have lost some market share.
So we announced a few weeks ago in a press release, I believe it was locally to Europe, and I mentioned it today, that we are opening an office in Poland and Spain to put some sales people in the countries where we see growth that we are not getting today.
So we really think that is something that is more on us than it is different.
There has been certainly weakness from currency, from macro, and we saw the price increase on products last year this time and we saw some changes maybe in some buying behavior, but we took all that in consideration and still believe we can do better.
Yes, this would be additional bodies to what we have today.
So we would have people already today, for example, in Brussels who serve Poland customers, but this would be additional bodies in country and they would still use the central distribution center that we have in Belgium.
We still have our back-office shared services approach, so yes.
This is salespeople.
There might be one or two other type of functions, such as ---+ dependent on the country, the size of the market, there might be some additional resources, maybe business development, as we call it, which would be more field-based salespeople than just someone inside.
Yes, that's correct.
That would be the expectation.
Yes, you know, <UNK>, we have not had our team tell us anything positive about additional spend from the Olympics.
And, frankly, we didn't get a lot of spend out of the World Cup.
I think where we are focused, our teams and our markets down there, we're not getting access to a lot of that business.
Typically, it comes from government spending and we have some of that, more on the Network1 side than we do on our barcode CDC side, so I would say we see a little bit of that from our network vendors, but not moving the needle, to your point, beyond the already challenged issues with political and economic and all that.
So we are finding ways to grow, but definitely it is challenging.
Yes, isn't it amazing.
You got to remember, everybody forgets how many different retail organizations there are and how many of those companies are small businesses, and they are not going to purchase new gear until they have to.
So there is a long tail to these businesses when you try to upgrade them over time.
You bet.
I am surprised they took a credit card where you live.
Yes, I think you will.
I think most of the small retailers that our channel services ---+ it's not the Targets and the Wal-Marts and all those guys, and so the smaller guy says, what thief wants to steal access to my few customers.
And so, most of them are going to roll the dice for as long as they can.
And so, what we are seeing happening is it really is ---+ and what I tried to reference today was even if some of the smaller retailers are ready, the small retailers use software that is smaller companies and they are not ready.
They are not ready to implement the EMV.
They have to get certified by this banking group before they can implement the EMV.
So, there is ---+ again, this long tail to this cycle that is going to play out for many years to come.
Well, I think what we're learning is that the VAR channel that we have historically did not service all of those customers.
It was done by banks through their independent sales organizations and other channels.
But I think what's happening is this requires such an integration with their point-of-sale software than the old systems did that our channel is more engaged now than they were years ago.
So it is a new opportunity for most of our customers.
That's right, and my guess is we will have credit cards or some form of payment other than cash forever, and so once you sell a terminal and some systems, you will get that recurring purchase again when those technologies are obsoleted or replaced, yes.
So we see it as a good ---+ that's why we invested money for the last couple of years in our infrastructure to support this EMV system and we are seeing the benefit of that.
<UNK>, let me ---+ I'm not sure I understand the question.
Could you repeat it again.
You are talking about the March quarter.
What we are ---+ what we have looked at is really the big deals that just did not come through as expected, and so, and as <UNK> pointed out, that was through most of the business that had these large deals that just did not materialize.
And <UNK>, to that point, they typically do happen ---+ more of the large deals happen late in the quarter.
You are right about that because the customers are trying to either try to get a better discount, better deal, and it depends on the vendors to how they try to incent the behavior, right, on those large deals.
So, yes, they are generally late in the quarter, so you don't have visibility early, so when we are giving you guys guidance, which we gave February, whatever date that was, that is before you have almost any large deals already booked ---+ or back-end loaded.
That is something we have never been able to predict well, so what we did this quarter was we asked our teams, forecast your big deals.
Don't ---+ like you normally would, don't try to convince people, hey, was there something you missed that you might get again.
We did not bake into our forecast deals from last quarter and this quarter, so we are not doubling up on them.
We're assuming that whatever happened last quarter is not being pulled into ---+ pushed into this quarter.
We are not assuming that.
Right.
We think over history that's a better way for us to plan, and if they come in, that's great.
We don't think that forecast is necessarily that much higher than historical.
We looked at that exact stat.
It's what have we normally seen from March to June and is that the case.
What's new for us.
And this is what we referenced in our call is KBZ is still the wild card.
KBZ for us is ---+ December, as you know, we had one very large deal that for us historically is ---+ can move the numbers.
And so, we're still learning, and frankly, they are learning being part of ScanSource, is how confident can they be in forecasting their large deals.
So I would say the question mark, if anything, would be on why we feel confident is we like the business that KBZ with their Cisco business is doing.
We think it is well regarded in the marketplace.
That's why we bought the company, and so we feel good about their forecast, but there is some ---+ there is a chance that they are still not perfect on that and that some of those deals ---+ because, remember, a lot of the KBZ business is through the government ---+ to the government.
And so, those things can move on the reseller because of government agencies pausing or delaying or waiting to get a better deal.
So, that's probably the X factor for us, <UNK>, is KBZ in that forecast.
Thank you for joining us today.
We expect to hold our next conference call to discuss our June 30 quarterly and year-end earnings results on Thursday, August 18, 2016.
| 2016_SCSC |
2017 | RAVN | RAVN
#Thank you, <UNK>, and welcome everyone.
We're very pleased with the progress made and performance achieved throughout fiscal year 2017.
<UNK>th Applied Technology and Engineered Films continue to drive improved sales and profitability, and Aerostar returned to profitability in the fourth quarter, following several quarters of operating losses.
Our financial performance continues to be driven by strong growth and profitability improvements in both Applied Technology and Engineered Films.
These divisions have continued to accelerate growth in sales relative to the prior year and achieved significant growth in the fourth quarter.
As we have discussed during the year, ATD's new product introductions and market share gains are enabling the division to outperform the market.
EFD's superior product quality and investment in new production capabilities, coupled with an improvement in geomembrane demand, is driving growth for the division.
While Aerostar sales declined slightly in the fourth quarter, cost reductions throughout the year and more focused business development efforts are positively impacting the division.
Our commitment to our long-term strategic plan, despite the end market challenges faced over the last few years, have led to our improved financial returns, and we remain steadfast in executing our strategy for sustained long-term growth in fiscal year 2018.
I'll now discuss the progress made on our long-term plans during the fourth quarter and then turn the call over to <UNK> for a review of the financial statement.
Beginning with Applied Technology.
The division's performance was outstanding, and it continues to strengthen.
During fiscal year 2017, we announced expanded relationships with both CNH Industrial and John Deere, which leverage our sustained new product development investment.
Through these continued investments to advance our product offering, while building broader and deeper relationships with our core customer base, we are expanding our market share position and driving growth.
In addition to the significant sales growth from our core application control, ATD also benefited from higher demand for its direct injection systems in the fourth quarter.
The division developed this core technology many years ago in an effort to make spraying less complicated for sprayer operators.
We have continued to refine and improve the direct injection product lines, realizing that this spraying method offered strong value in certain circumstances.
ATD's industry-leading injection technology enables operators to more efficiently comply with evolving environmental regulations, while also improving stewardship and making retailer and grower operations more efficient.
As a result, the marketplace response has been very strong, driving significant growth in this product line.
With strong sales in ATD, we have driven substantial growth in division operating profit in the fourth quarter.
Incremental margins in this division are exceptionally strong.
Fixed cost leverage within manufacturing, coupled with operating expense discipline, resulted in incremental margins in line with our expectations.
Moving to Engineered Films.
Growth in both sales and division operating profit also accelerated.
Year-over-year growth in revenues improved from 4% in the third quarter to nearly 36% in the current quarter.
Like ATD, EFD's incremental margins were quite strong making progress towards our long-term profitability expectation.
Growth for the division was well balanced.
Geomembrane sales more than doubled year-over-year on the improved demand in the energy submarket, and industrial and construction both achieved notable growth.
EFD has also done a very good job expanding its market share position by leveraging past investments in both R&D and CapEx.
These investments are driving growth and have further strengthened the division's reputation as a manufacturer of high-value innovative specialty films.
We continue to make strategic investments in EFD.
In February, the division acquired a production facility in Pleasanton, Texas, which is located near key gulf ports.
This facility expands the division's geographic footprint and will enable us to service geomembrane customers in the Eagle Ford basin.
The Eagle Ford basin is one of the largest oil-producing basins in Texas and will lead to incremental growth opportunity for the division starting later this year.
Moving to Aerostar.
The division's overall financial performance improved relative to prior quarters.
Although sales declined slightly relative to the prior year, the division was profitable in the fourth quarter.
During the past year, Aerostar has prudently reduced its cost structure and strategically refocused its business development efforts on key stratospheric balloon opportunities.
Subsequent to the end of the fourth quarter, the division was awarded a new $4 million stratospheric balloon contract with a new customer.
In addition, Aerostar saw an increase in the activity with Project Loon in the second half of the year and sales to Google in the fourth quarter increased at a double-digit pace year-over-over.
Project Loon continues to make advancements, and we are pleased with the progress.
With that, I'll now turn the call over to <UNK> for our financial review.
Thanks, Dan.
On a consolidated basis, sales were $68.9 million in the fourth quarter, up 30.5% versus the fourth quarter of last year.
Applied Technology and Engineered Films both achieved growth year-over-year increasing sales 40.4% and 35.8%, respectively.
For Aerostar, sales declined 2.5% year-over-over.
Operating income improved significantly in the fourth quarter of fiscal 2017, increasing nearly $6 million from $0.6 million in the fourth quarter of last year to $6.3 million in this year's fourth quarter.
Significant operating leverage on volume gains, coupled with restrained growth in operating expenses, drove the improvement year-over-year.
Correspondingly, operating margin increased 800 basis points versus the fourth quarter of last year, increasing from 1.1% to 9.1%.
Corporate expenses increased $1.9 million versus the fourth quarter of the prior year.
The increase was primarily the result of higher incentive compensation accruals and approximately $600,000 of expenses associated with the restatement process and remediation actions.
Net income for the fourth quarter of fiscal 2017 was $4.4 million or $0.12 per diluted share versus $1.9 million or $0.05 per diluted share in last year's fourth quarter.
The increase in fourth quarter earnings per share was primarily driven by the significantly improved operating performance of both Applied Technology and Engineered Films.
For Applied Technology, fourth quarter sales were $25.9 million, up $7.5 million year-over-year.
The growth in sales was driven by market share gains from the sale of new products and progress in key international markets.
Geographically, domestic sales were up 44% year-over-year and international sales were up 30% year-over-year.
Division operating income for Applied Technology was $6.4 million, up 184% versus the fourth quarter of fiscal 2016.
Increase in operating income was driven primarily by higher sales volume and lower manufacture costs versus the previous year.
Operating margin for the division increased substantially versus the prior year from 12.1% to 24.6%.
Increase in operating margin was driven by fixed manufacturing cost leverage on the higher volume and operating expense discipline.
For Engineered Films, fourth quarter sales were $34.5 million, up $9 million or 36% versus the fourth quarter of fiscal 2016.
Volume as measured by pounds sold increased 34% year-over-year.
Division operating income for Engineered Films in the fourth quarter was up substantially versus the prior year from $1.9 million to $5.3 million.
The year-over-year increase in operating income was driven principally by higher sales volumes and lower operating expenses.
Division profit margin increased 780 basis points year-over-year from 7.5% to 15.3%.
For Aerostar, fourth quarter net sales were $8.8 million, down $0.2 million or 2.5% year-over-year.
The decline in sales was driven primarily by lower Aerostat sales partially offset by an increase in sales for stratospheric balloons and services to Google versus the prior year.
Division operating income for Aerostar was $200,000 flat year-over-year.
Turning to the balance sheet.
We ended the fourth quarter with $50.6 million in cash, up $4.3 million versus the previous quarter.
Increase in cash was largely driven by free cash flow generation as a result of improved profitability.
Net working capital as a percentage of annualized net sales improved 9 percentage points year-over-year, declining from 36.9% in the fourth quarter of last year to 27.9% this year.
The improved net working capital efficiency was primarily the result of managing to lower inventory levels and an increase in payables balances as a result of improved timing of payments to suppliers.
Ongoing net working capital improvements are expected in fiscal 2018.
Cash flow from operations was $10 million in the fourth quarter of fiscal 2017 versus $8.8 million in the previous year's fourth quarter.
Capital expenditures were $900,000 in this year's fourth quarter, down $1.4 million versus the fourth quarter of the prior year.
For fiscal year 2017, capital expenditures were $4.8 million, down $8.2 million year-over-year.
For fiscal 2018, we expect capital expenditures between $10 million and $12 million.
With that, I'd like to turn the call back to Dan for our outlook going forward.
Thank <UNK>.
As we look forward to fiscal year 2018 and beyond, we are optimistic.
We have weathered some very challenging conditions in the recent past, but we have remained steadfast in the execution of our strategy.
We've reduced the cost structure of the company, but not to the detriment of sustaining long-term growth.
The capital allocation choices we have made over the last several years in research and development as well as strategic acquisitions and capital spending have put us in a much more favorable position today and positioned the company for growth in fiscal year '18.
For Applied Technology, the ag market is expected to remain subdued, but we'll focus on capitalizing on our new products and strong customer relationships to drive additional market share gains.
In addition, our direct injection system, which is industry-leading technology is poised for growth this year.
Regarding Engineered Films, the geomembrane market, which includes energy, is rebounding from trough levels in fiscal year 2016, and momentum continues to build in the industrial market.
Market share gains and success in selling the capacity of our recent strategic investments in new production lines are driving sales growth in this market.
With Aerostar cost controls that were implemented throughout fiscal year '17 and refocused business development efforts helped the division better positioned for improved financial performance.
Overall, we are optimistic about the future and expect to make continued progress on our long-term goal to sustain 10% annualized earnings growth, while also generating strong relative return on equity and assets.
We have a solid strategic plan that emphasizes the investment for growth encompassing both organic development and acquisition.
We will continue to invest our research and development dollars to support new product introduction, not just for the next year, but for the intermediate and long-term horizons as well.
With that, we will open up the call for questions.
Yes.
John, its <UNK>.
Just kind of go back to your first question.
I think $6 million to $7 million CapEx probably is earmarked for EFD, got $2 million to $3 million for ATD and around $1 million probably for Aerostar, including the EFD CapEx, is the approximately $2 million that we spent on the new production facility in Texas.
And currently, Eagle Ford basin is not a basin where we have a big presence.
We don't service that basin out of our Midland locations today.
And so that does represent incremental growth opportunity for the division, and we do expect to start up production here in the second quarter.
Yes.
I think we're confident that the investments we're making for growth in the division are going to translate into incremental sales and incremental volume and capacity utilization.
So line 14 was put into production first quarter of fiscal '17, and we continue to see strong growth in the industrial market, and it was up substantially in the fourth quarter, we continue to see progress there in selling our capabilities.
Sure.
Specifically, we've had good success in Latin America and Europe and Australia.
For the full year, Canada was a strong international market for us in FY '17, and we expect to continue to realize good opportunities in those markets.
Long-term growth in the international ag markets is exceptionally important to us.
We have a great presence domestically and do well here.
We have strong OEM relationships here, but we have a lot of opportunity abroad that we need to continue to capitalize on.
And you'll see us more and more active in those particular markets, including Eastern Europe as well as Western Europe.
Let's say, there ---+ it's not great out there.
I know you cover ag companies.
And I would say, it's improving at a real fundamental level of getting used to commodity prices in this country where they are and where they have been for, what seems like, several years now.
So I think the sentiment among the growers and the ag retailers is still cautious.
We plan on laying in a lot of inventory in our aftermarket channel.
So what we're seeing in growth is really what's moving through.
For the OEMs, you can listen to their earnings calls, but I think that there is an expectation that the fundamental ag market is not going to be our friend in calendar '17.
But that there is a growing necessity for fleet replacement and upgrades as we continue to move through this long, low element of the typical ag cycle.
That is an important point is that we have focused over the last 3 years on expense controls and focusing our R&D on our core and the results that we've been able to obtain in 2017 and what we believe will do in 2018 are only because of that and they are direct result of being prudent on all other expenses and being laser-focused and generous with our R&D investments where we believe the best opportunities were.
So to answer your first question, there were no one-time events that drove the improvement.
We've just continued to collaborate well with that customer, and they continue to realize progress.
So what we're seeing is that, its progression, sequential improvements, and we hope and expect for that to continue.
As far as Aerostar, our expectation now is that Aerostar will be profitable throughout the year for FY '18.
And as of we sit here today, we have every reason to believe that's going to be the case.
Thank you.
One thing that I want to close on and comment on, even though it wasn't a question, is that we're really pleased with our FY '17 performance of $0.56 a share.
But we do need to keep that in the proper context of what this company has been able to do in the past.
And while $0.56 on $0.40 is great growth, $0.40 as our adjusted earnings, it's a long ways from where we've been historically.
I just want our owners and our investors to know that we are focused on that long-term return to our expected growth rate for the 10%, and we had made progress.
But in the larger context, we still have a long ways to go, and we look forward to continue to make progress on that challenge.
The conditions were very different when we reached our peak several years ago.
We had very favorable ag market conditions, we had oil trading at $110 or $120 a barrel, we had plenty of incentives for ag producers, and those conditions are very different now.
We also had around $80 million in contract manufacturing revenue that we strategically moved away from.
So we have a different set of circumstances.
We're making good progress on our long-term growth objectives, and we'll expect to continue to make good progress on that throughout the coming year.
And we did in one of these calls, it seems like just a month ago, and here we are at the end of March, and, I guess, we'll be talking to you all again in mid-May as we close out our first quarter at the end of April.
So we look forward to updating you on our progress in Q1 on our long-term goals, and we'll do that sometime in mid to late May.
| 2017_RAVN |
2016 | NTRI | NTRI
#Thank you.
Yes, certainly.
We're still in over 400 Walmart stores in the Northeast, and the testing, as we've said before, goes through May of 2017.
There's definite demand for the product, but we need to see if the one-day kit configuration is the right approach.
So we'll be watching this product closely in Q1 when the demand for low-calorie, healthy meals is high.
So we'll keep you posted on that.
In addition, one of our grocery channels has also decided to take the one-day kit for diet season, so we'll also have a second read on that.
Okay, thank you.
Sure.
So I would expect Q4 gross margin to be down slightly versus Q3, primarily as the retail business is projected to be a slightly larger percentage of sales than in Q3, and the seasonality of the business you get a little bit less leverage out of the fixed cost.
Kind of going forward I want to stay away from giving guidance for 2017, but I can say a lot of the improvements that we've made around pricing, getting more efficient with our expanded warehouse distribution and some of the cost savings we've been able to take out of the business we feel generally are sustainable over the long term.
I think your second question just on South Beach, we'll be able to give more specifics around margin profile and contribution to South Beach on the fourth quarter call.
Our overall goal is to have both products be comparable in terms of margins over the long term.
But in the nearer term and the impact on 2017 we'll talk a little bit more about that on the fourth quarter call.
So in the second year we're going to get flow-through revenue from the customers we acquire in 2017, so you get what we call on-program revenue.
So that's orders after the first, the second order, the third order, so on and so forth in the initial diet cycle.
And we also get the benefit of reactivation revenue, so starting to bring back those consumers that we acquire in the initial year.
So you'll remember when you look at the Nutrisystem brand, reactivation revenue is around 25% of our total revenues.
So over time the way our business model works, because we'll spend our media dollars to acquire customers against lifetime value, that starts to improve once we get those additional revenue streams come through for the on-program and reactivation.
So our expectation is, that's why when we specifically talked about in year one as we're kind of building South Beach from scratch and acquiring customers, we'll front-load those marketing expense.
That puts a little bit of pressure on the overall initial margins, but once you get those additional revenue streams after you build the customer database the margins start to improve from that point on.
And remember, <UNK>, there's no marketing expense or very limited marketing expense put against those reactivation and on-program revenue streams.
So it all goes against the initial first order.
So it's all part of the normal ---+ of our normal startup and the way that our business model fills and works.
So, again, upfront revenue and then the profit has a little bit of a tail to catch up as the database builds.
But, again, consistent with what we've said in the past, the profit will be accretive next year.
Well, it's throughout the whole year.
You have to think about it.
We'll be acquiring new customers throughout the whole year.
So for the first ---+ those new customers are going to be driving the majority of the revenues as we go throughout all of 2017.
And then the following year is when you have those reactivation revenues come on and more on-program orders.
But as the pool is being built, there is more ---+ it takes a while for those pools to build over time.
But we don't just acquire, and, as you've seen with Nutrisystem, where we continue to build the customer base quarter after quarter after quarter after quarter, you'll see the same thing happening with South Beach, so again ---+ but, again, the skew is weighted differently for South Beach, because all of it is new to start, because we're starting with a brand new brand and building it from scratch.
We don't disclose the customer acquisition cost, but we're pleased with the results that we've seen.
You're welcome.
Okay, thank you for your time this afternoon.
To close, we're excited for diet season 2017 for Nutrisystem.
We're excited about South Beach.
And we believe we will be able to continue to deliver go-forward shareholder value.
I look forward to sharing these outcomes with you on our next call.
Thanks today for your time.
| 2016_NTRI |
2017 | ADM | ADM
#Thanks, <UNK>
Slide 4 provides some financial highlights for the quarter
Adjusted EPS for the quarter was $0.60, up from the $0.42 last year
Excluding specified items, adjusted segment operating profit was $678 million, up $105 million from the year-ago quarter
The effective tax rate for the first quarter was 26% compared to 25% in the first quarter of the prior year
The slight increase in our tax rate is primarily due to the expiration of U.S
tax credits including the biodiesel tax credit, partially offset by changes in the forecast geographic mix of earnings
Our trailing four-quarter-average adjusted ROIC of 6.4% is unchanged from the end of the first quarter last year
Our ROIC has continued to improve for the third consecutive quarter following the challenging operating conditions that we experienced during the first half of 2016. For 2017, we have established our annual weighted average cost of capital at 6.0% following a detailed review of interest rates, equity risk premiums and betas in our cost of capital model
Similarly, our long-term WACC has been updated to 7.0% based upon our review of assumptions and benchmarks
On chart 18 in the appendix, you can see the reconciliation of a, reported quarterly earnings of $0.59 per share to the adjusted earnings of $0.60 per share
For this quarter, we had a $0.01 per share charge related to asset impairments and restructurings; a $0.01 per share LIFO gain; and certain discrete tax items of $0.01 per share
Slide 5 provides an operating profit summary and the components of our corporate line
In Ag Services, we had approximately $7 million in impairment and restructuring charges primarily related to our restructuring efforts in the global trade desk
In Corn and Oilseeds, we had small impairments and restructuring charges
In the Corporate Lines, net interest expense was up approximately $11 million due to higher short-term interest rates and our overall mix of short- and long-term debt the following the issuance of new fixed rate debt in August of last year
Unallocated corporate of $132 million was up versus the prior year due to a higher people cost, including benefit accruals as well as our increased investments in innovation, IT and business transformation, yet modestly below our $140 million per quarter guidance for fiscal year 2017 that we provided at the last earnings call
Minority interest and other charges improved to $20 million, primarily due to improved results from our equity investment in CIP
Turning to the cash flow statement on slide 6, we generate about $508 million from operations before working capital changes during the period, down slightly from the prior-year period
Total capital spending for the period was $200 million, about similar to the prior year
Acquisitions of $90 million in the first quarter were primarily related to Crosswind Industries, a pet treat manufacturer
The other investing activities line up the cash flow statement includes the incremental investments we made in Wilmar, bringing our total ownership stake to approximately 24.3%
During the quarter, we spent about $248 million to repurchase shares, consistent with our prior guidance of $1 billion to $1.5 billion for the year subject to strategic capital requirements
Our average share count for the quarter is 579 million diluted shares outstanding, down 18 million from the time one year ago
At the end of the quarter, we had 577 million shares outstanding on a fully diluted basis
Our total return of capital to shareholders, including dividends, was more than $400 million for the quarter
Slide 7 shows the highlights of our balance sheet as of March 31, 2017, and March 31, 2016. In summary, our balance sheet remains strong
Our operating working capital of $7.4 billion was down $280 million from the year-ago period
Total debt was $7.2 billion, resulting in a net debt balance that is debt less cash of $6.5 billion
Our leverage position remains comfortable with a net debt-to-total capital ratio of about 27%
Our shareholders' equity of $17.1 billion was slightly down from the $17.9 billion level last year, due to returns of capital and changes in the cumulative translation account
We had $5.1 billion global credit capacity at the end of March
If you add available cash, we had access to $5.8 billion of short-term liquidity
Next, <UNK> will take us through a review of business performance
Good morning, <UNK>
Good morning, <UNK>
<UNK>, if you recall last year, 2016, two major factors dragged down Oilseeds results
One, the Wilmar equity earnings; and two, the lack of volumes in South America in terms of origination
Now, those two factors, as we look into 2017, should not be negative factors
And you've seen the strength in terms of the Wilmar equity earnings that translate into our results in the first quarter
And then with the large crop in Brazil, particularly what's expected to be a significantly improved corn crop, origination volumes in South America should be significantly higher, which will contribute towards an overall positive delta in 2017 versus 2016. So again, we expect 2017 to be a lot better than 2016. Again, we don't expect it to approach the 2015 levels
But nevertheless, 2017 for Oilseeds will be a far better year than 2016.
Morning, <UNK>
I think 1 million tonnes
Yeah, and we are seeing this year an extra 10%, that's as of first quarter growing
So that's kind of the pace, if you will
To the extent that it's adding cost, it's adding cost that is included in this $8 to $10 per tonne
So we shouldn't double-count that extra cost, I will say
So I think you should think about adding earnings from the destination marketing volume that is growing and hopefully picking up something like $6 per tonne versus our original FOB trade
And then you have another source of earnings, which is a slight reduction of structural cost in the global trade desk as we improve our footprint there, as we optimize our footprint there
So those will be basically the two numbers you keep in your head
<UNK> <UNK> - Credit Suisse Securities (USA) LLC Okay
Morning
Good morning, <UNK>
<UNK>, we've reviewed basically the underlying cost of capital model over the past several quarters
And so, we took a hard look at long-term interest rates, equity risk premiums, betas in our model
If you recall, when we established the 8% long-term WACC, that was done back in 2012, 2013, and looking back historically over 20 years
And so, some of those assumptions, frankly, were outdated as we kind of look through these assumptions, we did some benchmarking
And so, once we kind of update our model for, like long-term interest rates, recent long-term interest rates, recent equity risk premiums, we determined that it made sense to update the long-term WACC to 7% from 8%
And a big driver of that was really equity risk premiums, which have come down over time
In terms of what it means, our long-term objective still remains 200 basis points over long-term WACC
So, that – the spread has not changed in terms of how we're targeting the organization for results
In terms of your comment on Ag Services, I mean, naturally, when we set projects and when we look at projects that we're evaluating across all the businesses; there's clearly a spread above even the 200 basis points over the long-term WACC
So, our hurdle rates remain significantly higher in the double-digit areas
And we, frankly – we are not going to really adjust those hurdle rates because, we still believe it makes sense to really drive all the businesses to achieve strong earnings and strong returns
But at least from our perspective, as we kind of think about longer term, what makes sense for our company over a cycle, we do believe like 7%-plus the 200 basis points spread gets you to 9% that over a cycle, we should be achieving about a 9% type of return for this company
No, we haven't changed our assessment in terms of long-term earnings for the company
And so from our perspective, we still believe that it is important for us to kind of drive this 200 basis point spread over our long-term cost of capital
Good morning, Ken
Yeah, a significant part of the increase in terms of unallocated corporate on the management line is related to our investments in IT, the business transformation and R&D and innovation
We've indicated that these are – we view those as related investments
Although again from a GAAP perspective, we classify that as expense
But it's a fairly significant investment
I mean, as you are going to appreciate, one of our priorities is to improve our business processes
And so, we launched this program a couple years ago
And frankly, the run rate of spending as we head into 2017 is actually a fairly significant run rate right now in terms of investments
And so, I think, Rob, that this is actually a very, very important part in terms of our commitment, our investments, in terms of making this company better, particularly in the area of processes
In the area of innovation, frankly, for a company our size, we were under spending in terms of R&D and innovation
And I think what we're doing right now is actually devoting the more of our spending in that area
So WILD Flavors acquisition was actually very, very important because from that acquisition, we actually acquired a lot of innovation centers around the world
And that type of expense actually goes into this line called unallocated corporate as well
When you actually take a look at what I call core central staff costs, and when I say core, I mean this is excluding IT, excluding business transformation, excluding R&D
Our core central staff costs actually are still running at what we call the 2012 levels
I mean, if you recall back in 2012, we went through a restructuring of our central staffs
And so we've actually set our budgets and our cost plans based upon ensuring that our, what I call core central staffs, do not exceed the 2012 levels
And, so, I think it's important to kind of understand that in what I call like true corporate central staff cost, like the functions themselves, like accounting and HR, et cetera, et cetera, we've actually kept a lid on all those costs, where as we have we actually spent more money in terms what I call investments, particularly in business transformation, R&D and innovation
That's where we've seen the increase in
And we think that this is important for this company to make these types of investments at this point in time in order to allow us to be a better company in the future
<UNK> <UNK> - Credit Suisse Securities (USA) LLC Thanks for the color <UNK>
And the $50 million in run-rate cost savings that you highlight; is that net of this incremental spending in any way or is it just kind of a separate metric?
That's separate
I mean, that's really related to our operational excellence initiatives there
<UNK> <UNK> - Credit Suisse Securities (USA) LLC Thank you
| 2017_ADM |
2018 | NLS | NLS
#Thank you, <UNK>.
Good afternoon, everyone, and thank you for joining our call today.
I'd like to start by providing a general overview of our first quarter, and then we'll turn it over to Sid <UNK> to review our financials in more detail.
Bill <UNK> will then provide updates on the business segments as well as on product activity and expected introductions for the remainder of this year.
Finally, I'd like to provide some closing remarks, including an update on our outlook for 2018, and then we'll open up the call for questions.
First quarter 2018 revenue and operating income exceeded our guidance.
The performance increases were driven primarily by strong growth in the mass retail channel of distribution within the Retail segment.
Other channels of our business performed as expected, with modest growth in the specialty commercial channel and a decline in the Direct segment due to the phase-down of the mature TreadClimber line.
Increased operating expense leverage was achieved in the quarter versus prior year, despite stepped-up investments in product development and the multifaceted operating improvement plan we outlined in the previous earnings call.
I will provide an update on the progress of this plan in my summary comments.
Because of our operating model and performance during the quarter, we also continued to strengthen our balance sheet.
We ended the quarter with approximately $93 million in cash and marketable securities, and further reduced debt to $44 million.
In addition, we repurchased $2.7 million of stock in the open market as part of our previously announced stock repurchase program.
As we look forward into 2018, new products planned to be launched this year are tracking as scheduled, as Bill will describe shortly.
They are being very positively received in both formal market launches at industry shows as well as with end users in field tests.
Now I'd like to turn it over ---+ turn the call over to Sid.
Sid.
Thanks, <UNK>.
Good afternoon, everyone.
I'd like to review the details of our financial results for the first quarter of 2018.
Net sales for the first quarter totaled $114.8 million, an increase of 1.4% as compared to the same period in the prior year, reflecting strong growth in the retail channels, partially offset by lower sales in the direct channel.
First quarter gross margins decreased by 250 basis points in the Direct segment to 63%, and were down 80 basis points in the Retail segment to 31.2%, when compared to the same quarter last year.
Direct margins were primarily impacted by a shift in product mix to lower-margin products, while Retail margins were impacted by higher product costs, reflecting unfavorable changes in foreign exchange currency exchange rates.
On an overall basis, total company gross margins for the first quarter 2018 decreased by 320 basis points to 51.3% versus the same period prior year, reflecting the lower gross margin rate in Direct and a shift in channel mix to an increased percentage of Retail segment revenues.
Total operating expenses for the first quarter of 2018, as a percentage of net sales, decreased to 42% from 43.3% in the same period last year, primarily reflecting decreased sales and marketing expense, partially offset by higher R&D expense.
Sales and marketing expense for the first quarter of 2018 was $36.8 million or 32% of net sales as compared to $37.7 million or 33.3% of net sales in the same period last year.
The decreased dollar spending reflected a non-recurrence of a $1.2 million reserve recorded in the same period of the prior year, along with lower financing fees of $1.6 million.
These decreases were partially offset by a $1.3 million increase in media costs, reflecting lower ROIs on our advertising spend.
The decrease in sales and marketing expense as a percentage of sales reflects the same factors.
General and administrative expenses were $6.9 million or 6% of net sales for the first quarter of 2018, which compares to $7.5 million or 6.6% of net sales in the same period last year.
The decreased dollar spending in G&A primarily reflects lower litigation costs.
Research and development costs in the first quarter of 2018 were $4.5 million or 3.9% of net sales compared to $3.9 million or 3.5% of net sales in the same period last year.
The dollar increase reflects increased investment in the engineering and digital platform resources required to continue to innovate and broaden our product portfolio.
Operating income for the first quarter of 2018 decreased to $10.7 million as compared to operating income of $12.7 million in the same quarter of last year.
The decrease reflects the decline in gross margin rates, partially offset by the decrease in operating expenses.
Operating margin for the first quarter of 2018 decreased to 9.3% compared to 11.2% for the same period last year.
Income from continuing operations for the first quarter of 2018 was $8.1 million or $0.27 per diluted share as compared to $8.2 million or $0.26 per diluted share for the same period last year.
EBITDA from continuing operations in the first quarter of 2018 decreased to $13.1 million versus $14.9 million for the same quarter of the prior year.
The effective tax rate for the first quarter of 2018 was 23.7% compared to 33.6% in the same period last year.
The reduced tax rate reflects the impact on the quarter of the recently enacted Tax Cuts and Jobs Act.
We anticipate the full year effective rate to be in the 24% to 25% range.
Total net income, including discontinued operations, for the first quarter of 2018 was $8.1 million or $0.26 per diluted share, which includes a $0.1 million loss, net of taxes, from discontinued operations.
This compares to the first quarter last year where we reported total net income, including discontinued operations, of $7.1 million or $0.23 per diluted share, which included a net loss from discontinued operations of $1.1 million.
Discontinued operations in the prior year included a $1.2 million charge related to the final settlement of a long-standing lawsuit with Biosig Instruments.
Turning now to our segment results.
Net sales in the Direct business totaled $71.2 million in the first quarter of 2018, a 4.7% decrease over the same quarter last year.
Direct segment sales were impacted by the continued decline in TreadClimber sales and marginally lower Max Trainer sales.
However, sales increases in the Bowflex Results Series and HVT product lines helped to partially offset those declines.
Gross margin for the Direct business declined to 63% for the first quarter of 2018 compared to 65.5% in the same quarter of last year due to a shift in product mix to more lower-margin HVT and Bowflex Results Series product.
Operating income for the first quarter of 2018 in our Direct business was $11.3 million compared to $15.3 million in the same quarter prior year.
Operating income was negatively impacted by the lower net sales and gross margins in the first quarter of 2018.
Net sales in our Retail segment for the first quarter of 2018 were $43 million, an increase of 13.7% compared to $37.8 million in the first quarter of last year.
The increase in Retail net sales reflects strong growth across a variety of product lines as well as sales growth in specialty retail and commercial customers.
Gross margins for the Retail business decreased by 80 basis points to 31.2% in the first quarter of 2018 as compared to 32% for the prior period, primarily due to higher product costs related to unfavorable foreign exchange rates.
In the first quarter of 2018, operating income for the Retail business totaled $3.9 million as compared to $2.2 million in the same period of last year.
The increase is attributable to the higher revenue, coupled with a non-recurrence of a $1.2 million reserve recorded in the same period of the prior year.
Now turning to the consolidated balance sheet.
Cash and investments totaled $92.7 million as of March 31, 2018, with $44 million of debt.
This compares to $85.2 million in cash, and debt of $48 million at December 31, 2017.
During the first quarter, the company purchased $2.7 million of stock in the open market as part of its previously announced stock repurchase program.
Inventories were $37.7 million as of March 31, 2018, compared to $53.4 million at December 31, 2017, and $34.3 million at March 31, 2017.
The decrease in inventory versus year-end 2017 relates to the seasonality of the business.
Trade payables were $41.7 million as of March 31, 2018, compared to $66.9 million at the end of 2017, again, reflecting seasonality of purchases.
Capital expenditures totaled $1.3 million for the 3 months ended March 31, 2018, with spending primarily on systems integration, product, equipment and tooling.
We anticipate full year CapEx to be in the range of $8.5 million to $10.5 million, reflecting increased spend on systems integration, digital platform enhancements and warehouse consolidation initiatives.
At this time, I'd like to turn it over to Bill <UNK>, our Chief Operating Officer, who will provide additional insights into our business and key products.
Bill.
Thank you, Bill.
I'd like to make a few final comments before we open up the call for questions.
We are pleased with the first quarter results and remain confident in our ability to return to full year top line growth for both Retail and Direct segments this year.
While it is still early in the year, we believe we are well positioned to deliver results per our full year guidance given the trajectory of the baseline business in conjunction with the breadth of truly innovative new product introductions still coming that Bill referred to earlier.
Equally important is that the multifaceted operational improvement plan, which we discussed in the previous call, is tracking as scheduled, and we expect those initiatives to be mostly completed later this year.
As a reminder, the operational improvement plan includes systems integration, consolidation of warehouse facilities, supply base realignment, and restructuring of our international sales and support teams.
These initiatives are anticipated to strengthen our infrastructure and support our growth initiatives, including new product introductions and improved margins beginning in 2019.
As far as 2018 guidance, the full year outlook remains the same as communicated on our previous call in March.
On a full year basis for 2018, we continue to expect revenues between $428 million and $437 million, with operating income in the range of $42 million to $45 million.
This is inclusive of the estimated expenses and investments related to the business model improvements we mentioned.
Even though we exceeded the first quarter guidance and have started the year well, we feel it is not prudent at this time to change the full year guidance given ongoing product cost pressures and the phasing of investment expenditures to support the key initiatives that remain ahead of us for the balance of this year.
While full year expenses and capital expenditures related to the key initiatives are tracking as planned, we now do expect to see heavier concentration of these expenses in the second and third quarters of this year.
In closing, I'd like to thank all of our dedicated employees, who are instrumental in our successes and help the company become stronger every quarter as a result of their efforts and initiatives.
That concludes our prepared remarks.
Now I'd like to open up the call for questions.
Operator.
I'll let ---+ it's a couple of things, but I think the biggest part of it is that, remember that for the last 2 years, because of a lot of the M&A activity that was occurring in the specialty side of commercial specialty, those stores that were being acquired and consolidated, that seems to have stabilized.
We saw some stabilization in the first quarter, I could say, bottoming out.
But we do feel that, that is ---+ that part of the specialty and commercial channel could actually hold its own.
It's kind of what we've considered this year not necessarily growing, but at least holding its own versus prior year, on a full year basis.
And then, we have, of course, the MTX that Bill alluded to, coming in, in the back half.
And all indications are that ---+ the feedback has been very strong, as we said, both in the shows globally, not just in the U.S., but also from an end-user visits and where we're putting it in the gyms.
Thanks, Steve.
Yes ---+ no, in terms of the capital deployment plan, sort of the priorities remain unchanged.
I think we are ---+ I would say, we're still in the market for an appropriate acquisition, but I think as we've laid out on past calls, it would have to be the right filters and the right asset before we went ahead and did it.
But we are on ---+ certainly in the market, looking for appropriate assets that could accelerate our strategic initiatives that we've outlined here.
We'll continue to be in the market opportunistically on the stock buyback program, as we were in Q1.
Yes.
Thank you all for your interest today in Nautilus and joining our call.
We look forward to providing another update on the business on our second quarter earnings call in a few months.
Hope everyone has a great rest of the day.
Thank you.
| 2018_NLS |
2015 | MSI | MSI
#Sure.
The FX impact on pricing, it depends on regional specifics.
There's some impact in Latin America on pricing.
We haven't really seen any margin erosion or ASP reductions, so we've been containing the FX pressure, at least on pricing.
With respect to the FX impact in budgets, I think, was the second question.
Obviously interrelated, both questions.
What we've said in the past is that we expected an EPS impact of about $0.05 to $0.10 for the year with respect to currency movement with FX impacting BGM, or reducing the $175 million reduction, year over year, in cost.
Approximately a third of that is a result of the stronger dollar.
If we look at our BGM profile, about 40% of it right now is denominated in something other than USD.
So, in conjunction with the Services business and our efforts around moving to low cost centers, we've built in a hedge for FX movement, so it really doesn't impact the bottom line as much as it does the top line.
I think that, on the revenue FX impact, it's about $50 million in Q2.
We anticipate it being about $50 million in Q3.
And on the full year, given the spot rate, it's about $190 million.
I think that the only other thing I'd comment is, I think the more pronounced FX pressure have been a contributory factor to the compressed results in Latin America in particular.
But we're managing it accordingly and it's incorporated into the overall guidance we're providing.
And along that line, is we continue to monitor pricing.
ASPs have been holding, as <UNK> indicated.
So we really haven't seen it affect product pricing so to say, as <UNK> mentioned, just really the buying power because of Latin America being US dollar denominated for our projects and the impact of the currency there locally.
I think that ---+ good question, thank you.
As we said in February, we're emphasizing Smart Public Safety Solutions as well as Services, and I think the Silver Lake partnership is right in the sweet spot of extending and accelerating our existing strategy in this regard.
I think they bring significant expertise in technology products and information solutions.
They're smart, they're savvy.
I think they'll help us on surgical M&A, as well, both in terms of looking at the funnel of opportunity and executing on good deals potentially to supplement and complement what we already have there.
We have been acquiring already.
We did an analytics company a few months ago.
We did a command and control software company with emergency call works, that's gone very well.
We did a push-to-talk interoperable software company with Twisted Pair.
So I think Silver Lake will ---+ I think of them as accelerating and extending what we already have.
We're bringing in new talent into the Company.
We have a new CIO and many of the people in IT are new.
Tom Guthrie, who runs Smart Public Safety Solutions, has come in through an acquisition with Twisted Pair.
I feel very good about the relationship, the capacity, and the technology savvy that I think will be complementary to what we're doing already.
I think that's probably fair, but I would say that if there's something more material, and it's compelling and accretive, we'll consider that too.
So, exciting times for what we're doing going forward.
Just to make sure I understood, was your question around video.
Yes, I think video is a very compelling opportunity for us in many ways.
I mean, you see front and center all of the rhetoric and narrative around body cameras and capturing video information at an incident with first responders combining it with their communications.
Video is one of the critical components in our Smart Public Safety Solutions strategy.
Not just the edge devices that may capture it, but the analytics, aggregation, dissemination, and pushing of that the data and the high-bandwidth video into a first responder to a full-fledged complementary converged device.
So I think video is very important to what we're doing going forward.
I see it as growing in importance and I think that will be also front and center with the value proposition that we engage Silver Lake on.
I think the ---+ on the cost side first, I think I would characterize the $175 million of cost reductions this year as probably in the seventh or eighth inning of our journey on cost reductions.
Clearly, the majority of them are behind us.
And I think the team has done a really good job not just cutting expense but restructuring the business in a more thoughtful and simple way ---+ doing things that we don't need to do after selling the enterprise business, getting after footprint capacity requirement, duplication, there might be a little bit more there.
Going forward, we'll always be prudent on looking at the cost structure.
But as we pivot now, and especially with today's announcement with Silver Lake, I think of this Company's trajectory going forward more about growth, more about investment, and more about expansion.
<UNK>, this is <UNK>.
On the device versus infrastructure, devices in Q2 contracted slightly and infrastructure was up, Systems were up.
Importantly, though, devices in North America were up.
The contraction's really due to Latin America and the other geographies, not North America.
Yes.
I don't think that's a fair statement.
I think our focus has always been on growing the business and adding capacity and competency.
I think, <UNK>, it's a logical extension of the path that we've outlined, which is optimizing our balance sheet, which is a big part of today; improving the operating and the financial performance of the Company, which is also a big part of today; building backlog, which gives us momentum for growth.
So I look at this as a continuation of what's been my focus and management's focus, which is growing this Company.
Yes.
On FirstNet, I think we continue to work very closely with them.
We're actively participating and engaging with them through the draft RFP process.
By their own articulation, I think this will carry forward into an RFP ---+ another RFP, by the end of the year or early next year.
And I think that their whole initiative will be a very measured and elongated, and we're staying closely in touch with them along the way.
As a sidebar, in terms of LA-RICS and that public safety LTE deployment, I think we remain on track.
And Bob Schassler and his team have done a nice job accelerating what we need to get implemented by the requisite deadlines of that contract.
In terms of your last point on voice-over LTE, we've been specific in pointing out that there's voice-over LTE and then there's mission-critical voice-over LTE.
And we believe that mission-critical voice communications that are embedded in these private networks for LMR have a long, long life.
And public safety LTE, if you will, and instantiations therein, are additive to the LMR business, both domestically and internationally.
So, we feel good about our position and we'll monitor it going forward.
<UNK>, this is <UNK>.
On the margin question, our expectation for margin in Q3 and in Q4 is in line with what we've seen in prior ---+ certainly last year and in prior periods.
And I think on seasonality, I believe that our expectations on the second half of this year are generally comparable with last year.
On the tender, as <UNK> mentioned earlier, we'll see how it shakes out and after the tender closes out, there will be the opportunity for us to enter into, after the tender is completed, in an open market capacity, as we evaluate that accordingly.
Yes.
No change to the capital allocation framework that we outlined.
It's 10 business days, <UNK>.
Hi, <UNK>, this is <UNK>.
Actually, the strength has been across the board.
As we mentioned earlier, we've been getting strength in the systems business as well as the device business.
The PCR business last quarter was relatively flat, but it had been growing prior to that.
And again, if you think about overall North America, growth has been 4%, 6%, and 5% in the last three quarters.
So a little stronger than what ---+ or it's certainly at the high end of our expectations.
The federal business has also grown the last two quarters.
And we expect it to grow again in the second half and to have modest growth again for the full year.
So, I don't want to declare victory yet, but as we said, we thought that the narrow-banding effect had worn off.
And it looks like North America, even given, when we talk about North America, they're facing some FX headwinds of about $20 million in Canada.
But, across the board, seems to be good growth and solid, if you will, pipeline for where we're looking at the future.
I don't think, <UNK>, I don't they're new business opportunities.
I think the Silver Lake deal is more about bringing additional capacity for us to go achieve them and go seize them.
As somebody mentioned earlier, this is exactly consistent what we outlined in our financial Analyst Day in February.
So this is all about doubling down on software and services, more specifically Smart Public Safety Software and our Services business.
I don't think it's new.
I think it's a reaffirmation of our commitment and an acceleration therein.
In the guide ---+ so it's important to note, and as I said earlier the $2.5 billion and what we guided to for the year, and now it's $3.5 billion.
But it's also important to note that, from an accounting perspective, the Silver Lake investment, the shares represented in that investment, will also be included in EPS.
Thanks.
We made a number of forward-looking statements during the call that's included statements relating to the investment by Silver Lake and the use of proceeds and benefits thereof, the intent to commence a tender offer, our intent to maintain liquidity and investment grade, outlooks relating to sales, EPS, cost savings, operating leverage, operating cash flow and free cash flow as well as gross margins, effective in cash tax rates, currency, Public Safety LTE sales, regional growth, acquisitions, and capital returned share repurchases, as well as backlog.
Thanks for joining us today and we'll talk to you soon.
| 2015_MSI |
2015 | LABL | LABL
#Thank you.
| 2015_LABL |
2016 | CL | CL
#The online is interesting because what you see online often is that the share composition is very different.
So for example, in the US, we are the brand share leader online but for example, our Tom's of Maine business has a disproportionately elevated share online, which may trace to the demographics of the consumer.
So you see our shares profiling strongly but sometimes the composition of those shares is very different to what you would see in a brick and mortar account.
Relative to this pricing notion, our price was greater than our volume in this the second quarter for the reasons that I have mentioned.
You will remember our volume is a dollar weighted volume.
So mix is not a factor in the discussion and to repeat what we said to <UNK>, it is our planning, but for this year in total, our growth which will be within the 4% to 7% range, we have been guiding will be more driven towards volume than price on a relative basis to last year.
I am not sure the pricing situation in Europe is unique to us.
If you talk about North America, oftentimes, this traces here to the couponing that you use to put behind your new innovation.
We all have our thoughts and plans in terms of innovation flows which vary by company, but our pricing in North America, we think overall, we get a good organic growth out of it.
It really does trace more to the innovation flow and the couponing that builds trial behind the innovation flow.
Hey, <UNK>.
We simply ---+ no there is not a change.
We simply got behind ourselves.
So for the year, we are still talking about a gross buyback of $1.2 billion to $1.3 billion.
We fell behind frankly in the second quarter, which is the net result of what you see.
Therefore, what you are going to see over the balance of the year is that share repurchase pick up and on a gross basis, it is going to be between $300 million and $400 million a quarter so that we realize the $1.2 billion, $1.3 billion range for the full year.
So we're still holding for the full year and therefore there will be an uptick in the second half of the year to compensate.
Exactly.
Is this Jon or <UNK>.
Thanks, <UNK>.
Latin America is an interesting part of the world.
The shopping consumer in Latin America is perhaps one of the most educated on the planet in terms of the vagaries of foreign-exchange and what that means for a shopping basket.
The steps that we take are entirely driven by the currency, and if you talk qualitatively with consumers in Brazil, for example, they can almost tell you what the price of the goods that they buy are going to be based on the foreign-exchange moves.
I guess the good way to think about it is that our kinds of products, yes you are talking taking pricing, but you are talking taking pricing on an everyday product and at relatively modest levels on top of that.
So it does not affect their loyalty to the brand over time.
They have opportunities in the terms of different sizes that we have to buy at different price points and therefore mitigate the cost impact from a cash outlay point of view which indeed they do do.
But interestingly, they don't even trade down within our portfolio.
So if they are buying the premium end of the Colgate portfolio, they keep buying that.
They don't trade down to perhaps what you might say is a more economical option within our portfolio.
So our kinds of products at the time these economies are going through what they are going through become the affordable luxuries that people continue to put in their shopping basket.
That is the way I would answer it, Jon.
Mix is in.
We have a dollar weighted volume.
So it is in the volume.
It is not separate.
She was looking for a separate contribution, that was our point.
We will get both.
The volume will recover and it will not all be trade up.
Hey, <UNK>.
I was going to ask you to repeat the question because I like hearing 190.
If we just do the traditional roll forward, the prior year gross profit was 58.3%.
We got the benefit of 110 basis points of the pricing.
We had between funding the growth and restructuring, restructuring modest in gross product as you know, 190 basis points favorable.
Material prices were a headwind of 110 basis points.
Nothing in [other] and that gets you to the 60.2% which is the 190 basis points.
Now as we think about that for the balance of the year, first, pleasingly, although these pleasing moments are quickly behind you, but pleasingly, this is the second back-to-back quarter now we have been above 60 in gross margin which as you know was a company goal.
Indeed the second edged slightly up on the first.
But if you look at our gross profit for the first half of the year, it is up 150 basis points.
One and a half points.
As we, as you think about the balance of the year, I guess what we would say is our expectation is that our gross margin increase for the second half of the year will be around the same level as the first half, maybe even a little bit higher.
And the primary driver of that of course is, transaction headwinds will start to lessen as the foreign-exchange comparisons, barring another event in our world, improve year upon year.
We think it is a great idea.
Hey, <UNK>.
I don't think so.
I think whatever we do on Hill's, whatever we have done on Hill's, we are always extremely focused as a matter of strategy on the nutrition the diets provide.
It does not matter whether it is a prescription product, a science product, or even our Ideal Balance product.
I think the thing you might want to read into it is that after we introduced Ideal Balance, we have been through an extensive process of changing the formula composition of our Science Diet product, this the one not recommended or prescribed by a vet, to change the composition of the ingredients in those products to lead with protein and other ingredients that buyers of natural products value.
Thereby, no longer providing them with a reason to walk away from the nutrition of Science Diet because Science Diet doesn't offer them a formula composition that they are looking for.
And that was a significant change that we made to make that piece of the business less vulnerable to a naturals pure play.
Ideal balance is doing okay.
But I would say our major shift has been to make sure from a dietary composition point of view that our core Science Diet business is competitive.
And of course in making that change, have validated the fact that the nutritional benefit that the pet is provided is completely unchanged in making that formula adjustment.
I guess that is the way I would think about it.
And all of the innovation that <UNK> talked about on the perception diet side of you've seen with the weight products, we translate that science, if you will, across Science Diet and even bring it to Ideal Balance, although we would market it in different ways given the different positionings of each of those three segments of the business.
Hey, Steve.
Well, thank you for the simple question.
I think the mix benefit clearly is picked up in gross margin, and I would say it would be between pricing and cost in the gross margin calculation.
Base cost.
Well, thank you ever so much.
Thank you for your interest in the company in these turbulent times and we look forward to updating you all as the year unfolds, and we take the opportunity to thank all of the Colgate folk that work so hard to make this happen.
Thank you very much.
| 2016_CL |
2015 | PTEN | PTEN
#Well let me frame it up this way, we're really focused on margin as a Company.
We're not chasing share.
Our target is to stay EBITDA positive but also including maintenance capital that's required to run this business.
So we want to stay positive cash flow in the Pressure Pumping business.
It's unfortunate that we've had to stack already a third of the equipment, but I think that's just really a sign of where the industry is going in terms of overall utilization and that is putting a significant amount of pricing pressure in that sector.
Sure, I mean it really shows you the quality of the fleet, the quality of the operations, the quality of the people that we have in the Company and that's reflected in the term contracts that we were holding as we entered this down cycle.
And a majority of those were APEX rigs which are at a higher day rate than the other electrics and mechanicals that we have in the fleet.
And as our rigs that were on spot or well to well were released as we moved into the down cycle.
Then the mix shifted to the higher speck ---+ higher day rate rigs that were under term contract.
And so therefore the revenue per day and the margin per day came up in Q1.
Well these are long-term customers that we have, and these are customers that have technical requirements in looking for some specific technical capabilities on the rigs.
And so we've got a very exciting rig in our APEX-XK and we're able to do some modifications for some specific customers and that's what we continue to build this year.
<UNK>, that's a great question.
I would really like to say that we're seeing that, but I just don't think we're quite there in the cycle.
I think we're still going to see our rig count come down and that's what we explained in the numbers we gave you earlier.
And I think we will see that kind of upgrading happen, but I think it's just still a little bit early in the cycle.
That's a good question about turn key.
We were in that business at one time, but frankly, we just haven't had any discussions with any customers regarding turn key for ourselves, and we're just not hearing any discussions of turn key either.
It's quite possible there could be some small contractors out there doing that, maybe <UNK> Texas, maybe Niobrara, but we're not involve in those discussions.
Yes and the challenge is that it's basically probably ---+ it's in all the regions.
You've got ---+ the utilization has come down so quickly in that sector, even though you see rig count holding up in the northeast and that bodes well for completion activity in the northeast, you've got operators up there that are working in several different plays.
And so they're working hard to renegotiate terms everywhere.
Our plans for international outside of US, outside of Canada are long-term plans, and so there may be some countries that are doing some pullback on their rig activity, but that doesn't really affect our plans and what we're trying to do organically in setting up the structure to be able to work internationally.
So no I'd say, no, there's no real change in that.
There's some countries that are going to hold steady in their activity at the same time as well.
In fact, in Canada we are very excited that we have an APEX rig heading up there.
That's a really positive thing for us.
We have really good operations in Canada.
And the story there is over the years in the US, it was just always a better return on the rigs in the US and an opportunity in Canada came up and to get the kind of returns and the days that we were looking for in the contract and we're just very excited about that.
That's a fair assessment.
We've been able to get these costs and price concessions from these suppliers across all of our regions.
And I can give you a little bit of color on what some of that will ---+ in terms of sand, we've seen anywhere from 15% to 35% improvement in the pricing of sand for sand trucking.
The cost of the trucking has come down around 35%.
When you look at components to repair pumps and fluid ends, it's in a range of 15% to 20% savings on those as well.
Well that's a good question and I think it's a mix of exactly what you just described.
I think that some of them will be tight on cash, some of them may have to close up.
We've seen a little bit of that already.
Fortunately for us our balance sheet is very healthy, and we're doing what we can to protect the margins going forward.
I think it's just hard to know right now.
It's hard to predict what the recovery looks like in completion just because if you look at the rig count, we just don't think we're quite at the bottom on the rig count yet.
So we see challenges in trying to forecast what the end of the cycle looks like in drilling and then completions is likely to lag that a little bit as well.
Hard to know at this point.
I'd very much like to say that we're going to trough at 110, but I think it's just too early to know that.
I think we're going to have to get a little bit further into the second quarter to see how comfortable the E&Ps are getting with commodity prices where they are and also see what commodity prices do going into the summer.
I think there's just still some uncertainty, so it's hard to know what will happen coming out of the second quarter right now.
Well, even from where we are today, unfortunately if we were to have to, we could certainly continue to scale the Company to make sure that we're sized correctly for any changes in the activity if it were continue to decline.
And I think you've seen historically from the Company that we've been able to scale up coming out of these cycles as well.
And we'll be able to put the people back to work, we'll be able to put our training programs back into effect, we have inventory to start building some new rigs if that's the case.
I'm not worried about us being able to scale coming out.
Do you think even if it's a, say a prolonged downturn, does that delay your ability to scale back up if it's not a quick recovery even it stays depressed for a few quarters, does that impact that at all.
Hey, <UNK>, it's <UNK>.
You've watched a lot of these cycles and I think as you know when we scale down like this, which is what we need to do, scaling back up, we're very capable of doing it.
But it does create a restraint on rig supply which has a tendency to speed the recovery, help pricing, things like that.
But over a period of months and quarters, we can scale the rig count back up to where we've been in the past.
Well just to clarify what I was saying earlier when we were talking about scaling, we were really talking about more of the macro of the business in terms of headcount and overhead support structure and things like that and also working with suppliers.
In terms of the daily cost, there could be some opportunity, but I think we're getting close.
Two-thirds of our cost in Drilling is related to the personnel costs, and we haven't rolled back people's wages at the positions that they're working in, and we've chosen not to do that.
We want to know that we're in some kind of extended downturn before we make that type of decision for the people that work in our Company.
And so with two-thirds of that being personnel and one-third having to do with spare parts, maintenance, things like that there could be some more we could do with suppliers if it's an extended downturn or if we see some further declines.
But when we talk about scaling more on the macro, when you get into the cost per day, there's about a third of that that we have to work with there right now.
I actually think it's both.
I don't think it's necessarily one or the other.
I mean certainly there's some drilled but uncompleted wells out there and there's some inventory and that bodes well for Pressure Pumping if we get into that situation.
But we also have customers that are going to be looking for rigs if we see commodity prices move upwards or if we see that if an E&P has extra cash towards the end of the year, there are those types of plans.
But that being said, we still see our rig count going down in Q2 right now, and not sure exactly where that's going to bottom out yet.
So there's been a lot of discussion about refracs, there's been various notes that are out there that we've seen and people talking about potential for refracs.
We've done refracs, it's something that fits within our technical capabilities.
We have a fiber diverter technology that we use that is similar to what some of the big guys have.
And so we're certainly in that market and we have done that.
But it's still relatively small.
And for us it's still hard to really understand what that potential market looks like.
Just to give you an example, there was a recent technical paper that was out in the petroleum engineering world that was referencing the performance of some of the refracs.
And they were looking at a pool of wells in the study, but the pool of wells was only 38 wells.
And of that pool after the refracs, seven of them actually went down in net value with the cost of the refrac.
So there's still some risks, they're still trying to understand the well choice for your refrac which are your best candidates for refrac, so there's still some work that has to be done technically in understanding that on the technical side.
And then back to the potential market because of the technical challenges that are still out there and the risks and understanding which wells you're going to refrac and which ones you're not, which ones you're going to get value out of, it's really kind of hard right now to understand what that overall market looks like.
But back to what I said earlier, we have the technology to be able to do refracs, we've done refracs, so if there's an increase, then I expect that our teams will be part of that as well.
It is a very similar level of service intensity along with understanding not just the diverter technology but how to pump the diverter technology, how to back circulate the diverter technology and how to do the flow backs.
So there is some ---+ there's the chemical component and there's the technical operational component, but it's relatively the same horsepower intensity.
We were in those negotiations in the first quarter.
And if you remember early in the first quarter, even the first couple of weeks of January, I don't think that the sand suppliers fully appreciated the magnitude of the downturn that we were entering.
And so we were completing those negotiations with the sand suppliers towards the end of Q1, if that helps you understand the timing.
Yes, it is a challenging market.
Activity levels continue to decline, overall industry utilization will decline further going into the second quarter.
We're still a very scalable Company and we'll be able to manage that.
What we're attempting to do is maintain positive cash, so in other words positive EBITDA plus cash to cover maintenance CapEx, et cetera, and the risk in running the operations and that's our objective.
We decided to stack fleets as opposed to taking margins that we considered extremely low.
If we get into an extended downturn, as you mentioned, then we might have to adjust what we consider is extremely low.
But we're going to do our best to stay cash flow positive in that business.
In terms of share we stacked a third of our fleets, but I don't have the impression yet that we're actually losing any share or that we would have to work to regain any, because I think overall utilization in the industry is coming down, certainly into Q2.
Certainly we have the benefit of scale and with our size at almost a million horsepower and frac horsepower in total, only in Texas and only in the northeast, it gives us that negotiating scale with the suppliers whether it's sand or trucking or chemicals or pump parts or fluid ends.
And I think if we get into an extended downturn we'll likely see some further concessions from these suppliers as well, plus we'll do other things to scale the structure of the business if that's what we have to do.
<UNK>, that's a good question.
I'm just ---+ there's really not a spot market out there.
We're still seeing our rig count come down in Q2.
We think the industry rig count continues to come down in Q2, and it's just ---+ there's just not a spot market that you can judge.
There's just not a trade right now out there.
Our rig count continues to come down in Q2.
Thanks, <UNK>.
| 2015_PTEN |
2015 | NSP | NSP
#Thank you, Doug.
Thank you everyone for joining us.
Today I will address the following topics.
First I will comment on the outstanding results from Q1, and provide some color around the drivers of this substantial outperformance.
Second, I will address the positive trends we are experiencing, and the ongoing initiatives we are implementing that are driving the upward revision to our adjusted EBITDA over the balance of 2015.
And third, I will comment on our competitive advantages driving the long-term prospects for growth and profitability of Insperity.
From a big picture perspective, this is the third quarter in a row that we have significantly outperformed our expectations, as we are gaining traction and momentum from our broad growth platform.
Our persistence in implementing this improved business model is paying off.
The first quarter financial results were directly driven by the successful year-end transition fueled by the new platform.
Improvements in sales, retention and client selection led to the combination of new accounts enrolled, renewing accounts that were repriced, and direct cost benefit from terminated accounts to produce better results than expected.
We had a 23% reduction in client attrition, which is largely attributable to providing more service alternatives for mid market accounts, and continued excellent service results in our core small business client base.
The availability of two co-employment options, coupled with our ability to customize a solution for mid market accounts with additional business performance solutions, are direct outcomes from the strategy we employed several years ago to broaden our array of services.
This improvement resulted in less than 10% of our worksite employee base churning in Q1, which produced better pricing from the resulting mix of new and renewed accounts.
New accounts are priced more aggressively than renewing accounts, so the mix affects the allocations for the per employee elements of our pricing, like health insurance and HR service fees.
So the bottom line to the first quarter financial results was the higher than expected allocations were the result of solid execution and client retention, and lower than expected medical costs were the result of deliberate client selection and efforts to reduce COBRA-related risks.
During the quarter, we also experienced an expected ramp up of our year-over-year unit growth rate from 8% to 10%, in spite of lower than expected net new hires from the client base.
This growth momentum is expected to continue as we expect 10% to 11% year-over-year growth in Q2.
Our confidence is high due to recent sales success and impressive improvement in key metrics.
Our core sales team produced a 41% year-over-year increase in new sales, which was 103% of a significantly higher forecast for Q1 compared to last year.
Sales efficiency increased 37%, driven by a 12% increase in obtaining business profiles from discovery calls, and an 18% improvement in the closing ratio.
Discovery calls were up 25%, and business profiles increased by 39%, resulting in the 41% increase in sales year-over-year.
This was accomplished by a sales team of 311 trained business performance advisors, which was only up 4 from the number we had in Q1 of 2014.
This team is hitting their stride, as over 60% now have a tenure greater than 18 months.
We previously announced, and have began to ramp up of new BPAs, averaging 330 total hired BPAs in the quarter, and ending at 340.
We intend to reach 390 to 400 in the latter part of this year, with a trained BPA count of 350 by year end.
The sales team also made progress in selling additional business performance solutions, bundled with workforce optimization and on a standalone basis.
In Q1 this team achieved a 34% increase in the sales of these additional solutions, designed to increase client retention and to expand our customer base more rapidly.
We also made important progress in the first quarter in the development of our mid market sales and service initiatives.
We trained nine of our core market business performance advisors to fill the role of co-employment consultants on specific mid market prospect engagements.
This quickly expanded our capability to handle more mid market leads.
At the same time, we aligned incentives across the entire sales team, which immediately increased the number of sales leads for these larger accounts.
The result is a much stronger pipeline for potential mid market accounts, and the ability to take these prospects through an improvement process to arrive at an appropriate customized solution.
Another key initiative completed in Q1 was the definition and clarification of our project-based outcome-driven strategic HR services that distinguish workforce optimization from workforce synchronization.
These projects are now available on a standalone basis or coupled with other traditional employment services, creating a new revenue stream for the Company with excellent potential margins.
One other important trend from the last three quarters I would like to highlight for investors is the management of our operating expenses and the resulting operating leverage.
As a service company, the primary driver of cost is the number of corporate employees we have.
We ended the quarter with the Company 10% larger than one year ago and only 14 more corporate employees, a 0.6% increase.
In the service areas specifically, many initiatives have been pursued to create operational efficiency gains while elevating customer service.
These include improvements in onboarding processes, leveraging technology to streamline manual processes, and optimizing by ensuring clients are in the most efficient service model to meet their needs.
This resulted in a 13% improvement from one year ago in our ratio of the number of worksite employees per direct service personnel.
An additional key contributor to the operating leverage is shifting the balance of our marketing spend from brand and product positioning to direct lead production activities.
In Q1, we experienced a 40% increase in workforce optimization leads, a [16]% increase in other business performance solutions leads, and a 23% increase in unique visitors to the Insperity.com site on a 25% reduction in advertising spend.
Based on the first quarter financial results of these positive growth and cost trends we are experiencing, we are substantially increasing our guidance for adjusted EBITDA growth for 2015.
In addition to the $8 million beat from Q1, we have built in approximately $2 million more of additional gross profit, and another $2 million from lower operating costs from the original forecast.
The last topic I would like to discuss today is the competitive advantage we believe we have driving the momentum we are currently experiencing.
Insperity's position as the premium HR services provider in the marketplace, offering high touch services on a robust high-tech platform.
This premium service positioning helps us win in the marketplace, really due to three drivers, the breadth of services, the depth of service, and the level of care.
Each of these elements yield higher value for the customer and higher pricing for us, as it distinguishes our services in the marketplace.
The breadth of services of our broad platform allows us to meet the needs of a higher percentage of prospects we call on.
We now casting a wider net to bring in more new customers from the same sales activity.
This wide array of services has provided the opportunity for creative packaging of service bundles, and the capability to customize a solution for each client.
We are able to deliver value commensurate with the client need and the price they are willing to pay.
Our breadth of services establishes Insperity as an advisor that can bring solutions to bear over the life cycle of our client's business.
The customer for life model we have in place is leading to higher retention and more cross-selling opportunities.
The depth of our service capability is unmatched in the marketplace, allowing for the higher sharing of risk, and greater value from the peace of mind we provide to the business owners we serve.
Our deep expertise across all areas of employment combined with our deep understanding of what it takes for businesses to succeed offers lower risk and speed of execution, two highly valued advantages in today's marketplace.
It is important to understand our risk-based growth model.
We're growing at a targeted rate, adding the right risk profile clients creates more value for shareholders than growing faster without the capability to manage the risk.
In the PEO model, each new worksite employee is a unit of revenue and profitability, but also a unit of risk for costly employment-related claims.
The third distinguishing factor across our service platform is the level of care delivered by Insperity employees.
The quality, expertise and service mentality of our staff has been described by clients often as caring about their business and their people.
This level of care will always be valued and worth a higher price point in the marketplace.
These three competitive advantages are foundational for our long-term plan for growth and profitability, and they are driving the demand and momentum we are seeing in the business today.
One last item I would like to discuss from Q1 is our efforts to be responsive to investor input.
As you know, Starboard Value became our largest shareholder in January, and we have worked expeditiously to develop a constructive process to work together.
We've added one new Board member from Starboard, and two independent directors from several candidates they provided.
We have formed an independent advisory committee that's already working, reviewing the business to develop recommendations for the full Board to consider.
We are hopeful this effort will build upon the excellent momentum we are seeing here at Insperity today.
At this point, I like to pass the call back to Doug to provide guidance for Q2, and update the full year.
Thanks, <UNK>.
Now before we open up the call for questions, I would like to provide our financial guidance for the second quarter and an update to our full-year 2015 forecast.
We expect to continue the acceleration in average paid worksite employees from a 9% year-over-year increase in Q1 to a range of 10% to 11% in the second quarter.
As for the full year, we continue to expect a 10% to 12% increase in average paid worksite employees over 2014.
We are forecasting significantly higher adjusted EBITDA from our initial guidance, based upon the strong first-quarter results, and from further improvement in gross profit and operating leverage over the remainder of the year.
So we are now forecasting an increase in adjusted EBITDA of 33% to 38% over 2014, to a range of $112 million to $116 million.
As for Q2, we are forecasting adjusted EBITDA of $20 million to $22 million, which is down sequentially from Q1 of this year, due to the typical seasonality in our gross profit, however, is a 38% to 52% increase over Q2 of 2014.
We are forecasting 2015 adjusted EPS of $2.15 to $2.24, an increase of 48% to 54% over 2014.
The Q2 adjusted EPS is projected in a range of $0.36 to $0.40, or an increase of 71% to 90% over Q2 over the prior year.
In conclusion, we are very encouraged by our strong start to 2015 and we look forward to updating you on our further progress throughout the year.
So at this time I would like to open up the call for questions.
Sure.
We can think about it a couple different ways, but obviously because of the ---+ as <UNK> mentioned our business, the customers that renewed at the end of the year, the pricing of those customers added about ---+ contributed about 35% of the improved gross profit results and the benefits-cost center.
And the other 65% would be based on lower utilization which translates from lower Cobra participation, because of the changes that we made in the fall of 2013, and continuing offering customers better options in the healthcare exchanges.
And so, if you think about that 35/65.
I think that's probably a good way to really talk about it.
I guess, last but not least, our client selection.
Because of our customer-for-life philosophy now, and the way that we deliver the services and the suite of services that we have, it really allows us to take the right kind of customers, and move them out of one solution into another that benefits both them and us.
And in the fall of 2014 that's exactly what we did.
So the combination of all of those efforts will continue to produce really good trends for 2015 on the healthcare side.
No.
I think we said ---+ at this stage of the ball game, when we talk to our carriers about what they are seeing in their trend increases for 2015, plus the fact that we can continue to, as I said to move customers out of one option into another, if they are not contributing at our targets at the gross profit line, we do see a very nice trend.
And we've actually reduced our forecast for 2015, from about a 2% year-over-year trend in the cost, down to about 1%
Yes, well impairment was taken upon, placing ---+ entering into a formal brokering agreement to place the aircraft up for sale.
So the accounting guidance, under that is you do market to fair-market value, so we obtain an appraisal at that point, and marked the planes to fair-market value.
The planes are on the market to be sold, but have not been sold currently.
Sure.
Obviously, Starboard made their investment in January.
We were well past the year-end transition by that point.
It took another couple months to negotiate and come to an agreement on how we would move forward together.
So it would be very premature to think that there's anything in these results that would be the result of our working together.
We are hopeful that are working together will build upon the momentum we have.
But this is three quarters in a row, as I mentioned that we've significantly outperformed even our own expectations.
And it is because the platform for growth that we put into place ---+ it took longer than we thought it was going to, but felt very strongly about once it is in place, that the synergistic effect was going to be strong.
And frankly, we are just now getting a glimpse of it.
And so, we are really excited about the platform that's in place, and actually the timing of having a new large shareholder come in, and bring some additional perspective to the Board, we think can be a very good thing.
And that's what we are hopeful about.
It actually started in the fall of last year, and has continued through the customers that renewed at the end of the year, and it will be continuing throughout 2015.
Yes, it is a small number.
You would hardly recognize it in our client count.
Yes, it is a small number of accounts that can have a big impact.
But <UNK> made a very good point earlier, that it is the new ability for us to put the customer in the right solution, that really is driving that ability to optimize for us and the customer.
And so, that's going to pay dividends on an ongoing basis.
Sure, absolutely.
We ended the quarter I believe at 340 hired BPAs, and we are going to grow that to 390 to 400 over the rest of the year.
And our target is to be at 350 trained BPAs later this year.
Sure.
Thank you.
We have really cracked the code in my opinion, on both selling and serving mid-market customers.
They are relatively complex accounts, because of the number of influencers and buyers involved.
And the process is that, they go through at the other end, in terms of due diligence and approval processes.
So it is a complex world to sell into.
It is also a complex world to serve, because once again you have multiple constituencies to set and exceed expectations.
But we have really figured out on both fronts, how to connect with the team-selling approach, to bring on more customers that have 150 to 2,000 or 3,000 employees.
We also now have a proactive process as customers grow, to put them into a new model that connects at those multiple points in their organization and ours, to improve the value proposition for them, and obviously their satisfaction level.
So that was a part of the retention story, going 23% improvement in reduction, actually in client attrition, and that played a big part of that.
So your comment about self-funding options, the whole idea with mid market is they want some flexibility, they want a customized model that suits their needs.
And the fact that we now have a broad array of services that ---+ our service model for each mid-market customer feels very customized.
Because there's a tremendous amount of analysis to figure out where their most important needs are at a time when we first engaged.
But it is also the ongoing process of reevaluating that service package if you will, and changing it, maybe taking some things out, putting other things in, over the course of that relationship, what we refer to as our customer-for-life strategy.
That's where I think we have quite a competitive advantage, and we've improved that, what we used to call our success penalty.
Now you still have that happen when customers leave, because there has been a transaction and that has been ---+ these great results have been in spite of high activity level and M&A activity.
But that also helps us some on the other side of the fence, on the sales side.
So that whole segment for our business we feel very strongly about.
We are also making a very concerted effort toward the private equity community, and have several channel-based activities going in that area, and we think that's going to fuel both mid-market and even our core business.
Well, that's one of the things we will work through together to decide, what is the best, what are the best metrics.
What are the best, what's the best way to communicate, where the business is going from an operating standpoint.
So there's work to be done before recommendations are made to the full Board.
And then, once, and whatever is adopted, we will certainly communicate to the street at that point.
Thanks a lot, <UNK>, for the update.
Yes, sure, again, we're slightly above budget
Well, I would just say, we were like 130% of our budget for the first quarter on the sales side of the business.
And I mentioned the dramatic improvement in some of the key metrics in the sales organization.
But we also ---+ we have 60% of the BPAs that are now, that now have 18 months or more of tenure.
And as you all know that have been around the model for a while, there is a real nice efficiency gain when sales staff get half that point.
We also had a very successful fall campaign which means, that you had a lot of reps, repetitions throughout that period, and then success in actually converting, and closing business.
That success breeds success in sales, and momentum is really important.
And so, we are starting the year with a strong team.
We had a great sales convention in the first quarter, in the month of February.
It was very focused.
There's not a lot of new stuff to be introducing.
It is basically improving skills, the blocking and tackling of getting in front of customers, and bringing them onboard in the right solutions that fits their needs.
So we are at a point now, where it is back to what we've done really, really well for 29 years, which is getting out in the marketplace, and meeting business owners and figuring out how we can help their businesses succeed.
And now we have more ways than ever to do that, and we are expecting that synergy to continue to really be beneficial.
I understand the desire to get in the kitchen, and see what's going into the mix.
But I think what we are trying to focus on with our shareholders are the key metrics, growth of worksite employees.
And even ---+ I know everybody puts revenue numbers out there, but the revenue number itself is not meaningful to models, the growth in the number of worksite employees, and what adjusted EBITDA we get out of that.
Gross profits obviously an important part of that mix.
Well, sure, sure.
And it always has been.
Well, I understand that.
But the key is that, for all these years, some in every quarter, some things go pretty well, some things don't go very well, and it all mixes together.
And then, we manage the operating expenses, to make sure we do as good as we can, in each given quarter.
And that's kind of where we want to go, is we want to be focusing on what we end up with at the bottom line to grow the business that some ---+ we believe we have a model that can grow the adjusted EBITDA line very strongly, for a long period to come.
And that's where we believe we are going to drive shareholder value.
We are not try to hide anything, obviously, we've been super transparent with all the numbers are in our filings.
But in this quarter, I think it was clear what took place on the gross profit side.
I don't know, Rich, if you want to answer any more deeply into that, I don't know if that's what you want to do.
No, I mean, we talked about the trends and all that kind of stuff, and what we are seeing.
We already talked about the fact that we are seeing lower healthcare cost trends.
That will translate into the effective amount of pricing and allocations.
From our workers comp program, it was right in line with what we budgeted for the quarter.
Employer-related payroll taxes were a little bit better than expected.
And then, our contribution from our strategic business units was also up from last year.
Let's see, yes, in terms of ---+ on a per worksite employee per month, it was up about $2 on the strategic business units.
On a per worksite employee per month for last year.
They were actually, down more in the first quarter than in the fourth quarter.
Yes, in the 3% range, yes.
Well, it would be sustainable if you consider the fact that the things that we have done to help, we've drive that cost down, is about the proper kind of client selection that we have.
The pricing of those customers, and the fact that the Affordable Care Act has continued to allow us to give customers options, especially COBRA participants an option to go into a public exchange, as opposed to our very expensive COBRA plan.
So as you all know, and we've talked about for years, a COBRA participant's costs are about 2 times that of a regular participant's cost.
So when you can offer an option to a person who is now unemployed, and go in on COBRA, and it is a lower cost, and they get the basically the same kind of coverage, why wouldn't they take that, and leave our plan.
Yes, <UNK>, one other thing I would add on that is, because is if your question, are we expecting another 3% lower in the second quarter sequentially.
No, we wouldn't.
But of course, once you get through the year-end transition period, you then have your starting point, for the year on the mix of business that you have.
And which customers you retain, and which ones left, what the pricing is.
So obviously the pricing components baked in now on that group.
And then the cost side, becomes kind of a new starting point for the year for the base of business that you have.
So to that degree it's certainly sustainable, and then the things that the team are working on to continue to improve the book of business ---+ well, they will have less an effect in the second quarter, because you don't have as many new and renewing accounts, in the second, third and fourth quarters as you do in the first.
I think in answering your first question, on the gross profit per employee, but probably the better way to look at it is ---+ I think you've seen the updated guidance for the full year versus our initial guidance.
On the EBITDA side.
So it's an extra $12 million or so, I think.
You can see where we beat the first quarter by about $8 million.
So the incremental, going from $8 million to the $12 million, is pretty much equal between further improvement in gross profit over the remaining three quarters, and lower OpEx over the remaining three quarters.
Hopefully, that should give you some help, as to what's contributing to the improved guidance for the full year.
Yes.
Yes, as far as the aircraft, I think it's an answer to an earlier question.
The aircraft are now ---+ have been placed for sale.
We've got a broker agreement out there, that we just implemented.
The guidance itself, would consider some form of travel, as it relates to either utilizing the corporate aircraft or utilizing some alternative means in the expense.
And so ---+ and obviously the one piece that does go away is depreciation on the aircraft again, as it is put on ---+ as it is held for resale at this point.
But the OpEx guidance will consider some travel costs still associated with moving corporate executives, and other employees that utilize travel going forward.
Well, once again, thank you everyone for participating today, and we look forward to updating you again next quarter, and continue the strong momentum that we are seeing in the business.
So thank you again, and we will see you out on the road.
| 2015_NSP |
2016 | ASB | ASB
#Sure <UNK>, this is <UNK> <UNK>.
Despite the fact that we have moved through and seen a number of charge-offs in the portfolio, we are still seeing a number of customers under stress and going into bankruptcy.
So that in itself has not abated.
So some of these customers moving into the bankruptcy role, although we still feel we are well secured we nevertheless do move those into nonaccrual.
This is still <UNK>.
The two loans where we've taken most significant charges had unique characteristics.
I don't want to get too technical, but there was a heavy reliance on non operated working interest collateral.
In both of those cases we had relatively weak operators that went bankrupt.
Both of those loans and the collateral backing them went through a liquidation process at very low prices.
That generated a lot of losses.
Needless to say, we've gone through the rest of the book.
We don't have loans that have those exact same characteristics, nor of course are we making loans like that anymore.
They are going to need it.
Lambeau isn't too far away.
Sure.
The pipeline for our commercial real estate has been quite robust for literally years.
If you look at our year-to-date production, it's pretty well-balanced across our various offices around the Midwest, so our Illinois teams have generated probably about 45% of the loan production followed by Minnesota and Wisconsin.
And then high single digits from Ohio, Missouri, Texas et cetera.
Actually multi-family has not dominated our new production this year.
It is the second category, retail has actually led.
But we have had good balance from retail, multi-family, industrial office, et cetera.
So it's been well-balanced.
As a number of banks are starting to bump up or get concerned about the OCC guidance on real estate concentrations, competition is starting to lessen a little bit.
Pricing continues to firm.
These structures are pretty attractive, we happen to have plenty of room as we sit here today to take advantage of those dynamics.
No.
We had good growth in the first half of the year and from what I can tell from reading industry information and seeing what some other banks are reporting, a number of banks are reporting slower general commercial loan activity in the third quarter.
I don't know exactly what to attribute that to, but there is nothing that we know of that is a big concern.
Yes we did see ---+ following Brexit, or right at the end of June we started to see an increase in the prepayments going through July, stepping up dramatically in August and further into September, and obviously that trend ---+ we know it because we already see the prepayment factors for what we're going to get hit with in October ---+ will continue to be an increasing prepayment.
That combined with the fact that yields were lower during the quarter contributed to our lower net interest margin for the quarter.
And what we have been buying, as you are well aware, have been the Ginnie Mae plain vanilla and [BF] securities and the yields on that, despite the fact that they are a zero risk weight and have all the right dynamics, have also been attractive to others.
So actually yields have not only fallen because the market felt soft, but because the entire market seems to be buying that product, and so we have seen the attractiveness of that investment portfolio option fall precipitously over the course of the quarter.
While that remains sort of our strategy that we had in place, we are sitting here frankly looking forward and saying: does that still makes sense as a platform.
And we are reevaluating alternatives.
I don't think that means we're going to do any of the stuff that we haven't done per se, in this investment portfolio, but it means we are thinking the allocation of the investment portfolio going forward.
Look, we've got an ongoing process where you're riding the markets as they go.
Obviously if rates backed up again, or as a result of the Fed hike in December they started to pick up again, we probably would jump in with both feet.
But as we sit here today, it's tough at these yields to put into portfolio stuff that we know is going to be both diluted to the margin and diluted for ability to earn ---+ have positive earnings over time.
No.
They weren't all in risk and compliance by any means.
I think we just call those out as maybe ---+ I'm guessing maybe there was a dozen of them or something.
There were other people picked up here and there.
We did not add 60 people in risk and compliance.
We have plenty.
As we sit here today, it is the same grind that we've been on.
So we have been slowly increasing revenues, and we been keeping expenses flat.
And so we are slowly grinding the efficiency ratio to a better number.
I like the 63% this quarter too, but don't fall in love with it.
Yes.
There's a couple of drivers of that.
There's the syndication business, which in our case is largely commercial real estate driven.
And we have built a very good commercial real estate business, and we are very active underwriters and then sellers of commercial real estate loans.
So that pipeline continues to look good.
The other piece is the [derivatives] business.
That is more dependent upon what our customers' rate outlook is and how much they want to lock in their interest rate exposures.
So that one is a little harder to predict.
And <UNK>, just for clarity it was $3 million quarter over quarter from the second quarter, $5 million year over year ---+ $4.8 million year over year.
Sure the answer is yes, they were all residential, and essentially it's two factors, I think that's still thought through the portfolio mix is generally where we want it to be, it hasn't changed much.
Had we not sold we would've change the mix a little bit.
Also we looked at Brexit, we were cognizant and expected prepayments to be a factor moving forward.
And we looked at our overall portfolio, and as you are aware most of our portfolio is in ARM products, principally the 5/1 ARM.
Sort of looked at that mix and thought: how much fixed rate exposure do we want potentially in an environment where prepayments might accelerate.
And we decided to take some chips off the table.
Correct.
There is a very small amount that usually might be there at quarter end.
By and large the trades get done within the quarter, and they are closed out at quarter end on the commercial side.
That pipeline essentially is all residential.
I'm sorry <UNK> I just don't have that in front of me.
It would be a few loans, I'm guessing maybe $50 million.
Those are probably approximately right.
Cost of funding looks pretty stable.
Yield on loans was stable.
Probably stable-ish, maybe a little downward pressure.
Probably securities.
Obviously we're in competition for loans.
But securities were the key drivers of margin compression and again I think as was asked earlier, if we continued our current investment strategy there would be more downward pressure because rates are absolutely lower and prepayments are accelerated.
I think as <UNK> intimated we are taking a hard look at that right now.
This is probably a decent assumption.
I would like to believe that we learned some things from what we did last year.
So the outcome might slightly be more positive.
That really had no impact at all in the fourth quarter, and the carry-over into the first quarter, we saw some lift on the gross yield and margin but we also do a lot of renewals in our book in the first quarter.
And it appears that essentially the competitive dynamic traded away some of the lift we saw with new lower rates on the renewals.
And what we ended up with was compression from the cost of funds.
I will tell you that I think that our cost of funds position as we finish the year here is looking relatively strong, and I think we have learned something about managing that a little better.
But that will remain to be seen in the first quarter and how the renewal effects weigh against any yield uptick in the 1-Month LIBOR.
At this point in time, don't expect it to have any impact for Q4.
Might be a modest positive going into Q1.
Thanks.
So, just in closing our loan deposits, fee and expense trends were all steady to positive for the quarter and our credit metrics outside of energy remain very strong.
We look forward to talking with you again next quarter, and if you have any questions in the meantime, give us a call.
Thanks again for your trust in Associated.
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