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2018 | AWR | AWR
#Welcome, everyone, and thank you for joining us today.
I will begin with some highlights for the quarter.
<UNK> will then discuss some first quarter details, and then I'll wrap it up with some updates on various regulatory filings, ASUS and dividends.
And then we'll take your questions.
As we look at the first few months of the year, we continued our capital investments, spending more at the regulated utility than the first quarter of last year.
In addition, the cost of capital proceeding was resolved.
Continued progress was made on the water and electric rate cases, and our A+ credit rating with stable outlook was affirmed by Standard & Poor's global ratings for both American States Water and Golden State Water despite the loss of bonus depreciation in the change in the tax law.
Looking ahead, we'll bring our 11th military base on board this year, continuing our strong execution from our contracted services business.
We are well positioned with both our regulated water and electric segments as well as our contracted services business and continue to focus on providing excellent, safe and reliable service to our customers.
For the quarter, our diluted earnings were $0.29 per share as compared to $0.34 per share for the same period last year due to a decrease in our water utility segment's earning.
Included in last year's results was a onetime $0.02 per share gain related to the CPUC's approval of incremental drought-related costs for the water segment.
Further impacting the comparability of the 2 periods were investment losses from market conditions in the first quarter of 2018 and a lower adopted rate of return at our water segment due to the CPUC's cost of capital decision issued in March of this year.
We expect the third year of water rate increases, while partially offset by the effect from the cost of capital decision, will still contribute to 2018's earnings.
Golden State Water Company, our utility subsidiary, continued to invest in the reliability of our water and electric systems.
We estimate our capital expenditures will be approximately $110 million to $120 million for the year, about 3x our expected annual depreciation expense.
ASUS continues to work with the U.S. government to transition operations of the water and wastewater systems at Fort Riley, a U.S. Army installation in Kansas awarded to ASUS in 2017.
We expect to begin operations at Fort Riley midyear, bringing the total number of military bases we serve to 11, including 4 of the largest military installations in the United States: Fort Bragg, Fort Bliss, Eglin Air Force Base and Fort Riley, as well as a very high-profile contract at joint base Andrews.
I'll now turn the call over to <UNK> to review the financial results for the quarter.
Thank you, Bob.
Hello, everyone.
I'll begin with an overview of our financial results on Slide 7.
Diluted earnings for the quarter were $0.29 per share compared to $0.32 per share for the same period in 2017, adjusting for the onetime recovery of drought-related costs of $0.02 per share from the first quarter of 2017.
Moving on to Slide 8.
The operating income for 2017 on this slide has, again, been adjusted for the recovery of drought-related items approved by the CPUC in Q1 of last year.
In addition, there were downward adjustments to revenue recorded for the first quarter of 2018 to reflect the CPUC March decision on the cost of capital as well as the effects of the tax reform.
We expect a lower adopted return on the cost of capital decision to reduce 2018 annual adopted revenue by approximately $3.6 million.
The tax reform lowered the federal corporate income tax rate from 35% to 21%.
Accordingly, consolidated revenues for the first 3 months of '18 were adjusted lower, with a corresponding decrease in income tax expense resulting in no material impact to our earnings.
We expect to return the tax savings to our utility customers through lower rates.
Despite the loss of Ojai water system in June of 2017, third year rate increases will add approximately $4.5 million to the 2018 full year adopted water gross margin, which were partially offset by the impact of the lower return.
Lower revenues also resulted from customers' reduced electric usage as well as lower construction activity at our Contracted Services segment.
Our Water and Electric supply costs were $19.5 million as compared to $18.4 million for the same period in '17.
Any changes in supply costs for both the Water and Electric segments as compared to the adopted supply costs are tracked in balancing accounts.
Looking at operating expenses.
Excluding supply costs and adjustments for 2017's recovery of drought-related items, consolidated expenses decreased overall by $458,000 for the quarter.
This was driven by a decrease in ASUS construction expense due to lower construction activity during the first quarter and the cessation of Ojai water operations in June of 2017.
We anticipate overall ASUS construction activity will increase during the remainder of the year and be higher than 2017.
These decreases were partially offset by an increase in water treatment costs, public water system fees and maintenance expenses.
Turning to Slide 9.
Let me provide a brief update on the tax reform impact.
The provision of this major tax reform were generally effective January 1, 2018, with the most significant being reduction to the federal corporate tax rate to 21% and the elimination of bonus depreciation for utilities.
As a result, the impact of the tax reform during the first quarter of 2018 resulted in lower revenue of $3.1 million at our regulated utility, reflecting amounts expected to be refunded to customers, primarily due to the reduction in the tax rate, which was offset by a decrease in income tax expenses.
Therefore, no impact to earnings.
Furthermore, property-related deferred tax liability, reduces Golden State Water's rate base.
Therefore, as new plants [in] placed in service, the lower federal corporate tax rate and the elimination of bonus depreciation are expected to increase rate base of earnings for the same level of expected capital expenditures.
This increase is expected to be partially offset by higher financing costs arising from a greater need [of] fund capital expenditures through the issuance of debt and/or equity due to lower cash flow from operating activity.
So we don't expect to have to issue equity in the near term.
Slide 10 shows the EPS bridge, comparing the first quarter of 2018 with the first quarter of last year.
I will briefly discuss our liquidity on Slide 11.
Net cash provided by operating activities for the first quarter of 2018 increased to $35.7 million due to the timing of cash receipts related to accounts receivable and other receivables, as well as an increase in cash received due to CPUC-approved rate increases and surcharges.
Cash flow used for investing activities were $30.2 million for 2018 as compared to $24 million for the same period in 2017.
As Bob mentioned earlier, we expect to invest $110 million to $120 million in capital projects at Golden State Water during 2018.
Over the next few weeks, we expect to renew our existing $150 million credit facility.
In addition, we have $40 million of senior notes, which become in ---+ become due in March of 2019.
We expect to issue additional long-term debt to repay the notes next year.
Again, at this time, we do not intend to issue additional equity.
With that, I'll turn the call back to Bob.
Thank you, <UNK>.
I'd like to provide an update on our recent regulatory activity.
In April 2017, Golden State Water filed its water cost of capital application with the CPUC.
In March 2018, the CPUC issued a final decision in the cost of capital proceeding for Golden State Water and 3 other investor-owned water utilities that serve California.
The final results were significantly improved from a very difficult proposed decision that was issued in early February of this year.
Among other things, the final decision adopts, for Golden State Water, a return on equity of 8.9%, a cost of debt of 6.6%, a capital structure with 57% equity and 43% debt, a return on rate base of 7.91% and a continuation of the water cost of capital adjustment mechanism.
Golden State Water's prior authorized cost of capital for its water segment included a return on equity of 9.43%, cost of debt is 6.99%, a capital structure of 55% equity and 45% debt and a return on rate base of 8.34%.
The lower return is expected to decrease Golden State Water's 2018 adopted annual revenue requirement by approximately $3.6 million or about $0.07 per share.
The final decision trued up Golden State Water's embedded debt costs, which are included in the authorized return on rate base of 7.91%.
The reduced debt costs contributed approximately 18 basis points to the 43 basis point drop in the authorized return on rate base from 8.34% to 7.91%.
We have pending general rate cases for both our water and electric segments with the CPUC.
Our water rate case, filed in July 2017, will set rates for the years 2019 through 2021.
We are currently engaging in settlement discussions with ORA on the water rate case, and I, of course, cannot share details of those discussions.
I can tell you that the start of hearings has been postponed from May 14 to May 21 to allow more time for settlement.
Our electric rate case, filed in May 2017, will set rates for years 2018 through 2021.
We are also engaging in settlement discussions with ORA on the electric rate case.
Hearings are scheduled to begin the last week of May for the electric case.
As a result of the Tax Act, in April of this year, Golden State Water filed revised revenue requirements and rate base for both of these pending general rate cases.
We are hopeful to have final decisions issued for both of these cases by year-end.
Let's move on to ASUS on Slide 13.
As I mentioned, ASUS continues to work with the government to transition the operations of Fort Riley and will start operating the base later this year.
The initial value of this contract is $601 million.
While we do not anticipate a significant contribution from the new base in 2018, we expect the contract to contribute $0.03 to $0.05 per share on an annualized basis beginning in 2019, the first full year of operations.
We are also involved in various stages of the proposed ---+ of the proposal process at a number of other bases considering privatization.
This is a key focus for us as the U.S. government is expected to release additional bases for bidding over the next several years.
Due to our strong relationship with the U.S. government and expertise and experience in managing bases, we are well positioned to compete for these new contracts.
Turning to ASUS' first quarter performance.
Management fee revenues increased as a result of successful price adjustment filings completed last year as well as the revenues generated from Eglin Air Force Base upon the commencement of the operation of its water and wastewater systems in June 2017 and transition revenues for Fort Riley.
Our overall construction activity decreased this quarter compared to the first quarter of last year, largely due to timing.
But as <UNK> mentioned earlier, we anticipate overall construction activity for 2018 to be higher than 2017.
We affirm ASUS' earnings estimate for 2018 to be between $0.38 and $0.42 per share.
Finally, I'd like to turn our attention to dividends outlined on Slide 14.
On April 30, our Board of Directors approved a second quarter dividend of $0.255 per share on the common shares of the company.
The dividend reflects the board's confidence in the sustainability of the company's earnings at both our Golden State Water and ASUS subsidiaries as well as the prospects for our future.
Our calendar year dividend has grown at a compound annual growth rate of 9.4% for the 5 years ended 2017.
American States Water has paid dividends every year since 1931 and has increased dividends paid to shareholders every calendar year for 63 consecutive years.
Given our earnings growth prospects, there's room to grow the dividend in the future.
I'd like to thank you for your interest in American States Water, and we'll now turn the call over to the operator for questions.
Okay.
Be happy to.
We believe that, though our existing 50-year contracts do not specifically address changes in pricing resulting from the impact of the Tax Act and the change in the federal income tax rate, we believe the government will request an adjustment in pricing of the contracts that may be retroactive to January 1, 2018.
So it's a little bit of a wait-and-see approach, but we believe the government will be looking to make it retroactive to January 1, 2018.
And the impact to the first quarter was not material.
And <UNK>, the federal tax rate is still ---+ is now 21%, right.
And the state tax rate is still a reduction to the 21% when we calculate the federal tax rate.
Each state has a different state rate, so the blended rate may be impacted by each base's pretax income.
I don't know if that helps with your question.
Well, for the most part, <UNK>, we do not handle the ---+ actually, the water quality aspect of water that we deliver, the base will contract with an outside party for the water, and then we'll deliver the water through our pipes.
So this issue hasn't been a big issue for us that you brought up.
Are there opportunities for us.
Probably.
And we're always looking to do more construction work on the bases we serve.
So it's possible that this could be an area that we could delve into.
But right now, it hasn't been very high on our radar screen, to be honest.
Yes.
It's possible.
But we haven't seen this problem at this point.
So I don't know how big a mover it's going to be down the road.
Yes.
We expect them to put forth that approach.
Whether it completely turns out that way, it's really hard to say.
I mean, it will be a subject to negotiation.
But we do recognize the fact that, because we have a great desire to continue to expand that business that ---+ and they're the customer, that we'll have to work out something that works for both parties.
Yes.
I mean, there seems to be a desire by both parties to settle a lot of the issues, and the hearing dates have been pushed back a week.
And so we're working hard to work with ORA and trying to get as many things resolved as we can.
Well, I mean, it's ---+ we're working through that.
It's never done till it's done.
But you'll recall, in the last rate case, we did take the entire capital budget to hearings.
And we're not afraid to do that, of course.
It's just it does cost money whenever you do that, as you know.
Right.
We're optimistic we can get a final decision by year-end.
Well, yes.
As you suspected, I'm probably not going to tell you very much about that.
It's been very interesting.
I will tell you this, that our company's Board of Directors and the management team believe we have very good plans in place for the businesses that we operate, and we think we can generate substantial shareholder value just by continuing to execute our plans.
I think that's ---+ I probably should just stop there.
Thank you, Brian.
I just want to close by just, again, thanking everyone for their participation today.
And let you know I look ---+ <UNK> and I both look forward to speaking with you next quarter.
So thank you.
Thank you.
| 2018_AWR |
2016 | JCP | JCP
#What I was saying on the apparel side in the quarter, I mean in women's apparel ---+ I mean we were really light across the board.
The only really bright spot was active wear was significantly up.
And we are pleased with that and we are very pleased with our private brand Xersion as well as our great partnership with Nike, it really helped to drive that.
As it relates to Home, all of our initiatives are in our 2016 capital plan.
I mean we strategically allocated capital in case the pilot results were good.
And so I wouldn't call it capital light or capital heavy, but I would say the capital is appropriate but, most important, we are not holding inventory.
So it is a low risk strategic investment for us.
We are going to roll out appliances and the average store will have between 120 to 230 actual appliances in the store and will have over 1,200 online starting next week.
But we will own no inventory in any distribution center.
The same with Ashley's, we are going to own only what is in the store, we are going to have the product pulled from their distribution centers and they have a best-in-class logistics infrastructure.
And Empire is the same way, sample product, no inventory.
So on the financial arrangements for appliances it's pretty straightforward, we sell the product, we make the revenue.
For the other categories of furniture and flooring it is a pilot.
So we are still working through what makes the most sense for us and our supplier partners.
So more to come on that.
And windows obviously is a category that we have had great history in, we just want to regain it and we think we can.
We were pleased with the Mother's Day selling season.
I mean, that is something that actually gave us confidence at least coming out of the first quarter to hold our sales guidance for the year.
We continue to work each day each week, but for that entire selling season, Mother's Day, we feel good about the progress we made.
Well, <UNK>, obviously you can imagine we spent a lot of time on this.
And it really came down to the simple fact that we didn't believe that one quarter was significant enough to bring the entire year down, especially based on the fact that we were opening 60 Sephoras.
We were rolling out center core to one-third of our stores, and the early rollouts have been successful, in addition to accelerating the rollout of appliances to 500 stores.
So as we thought about the new initiatives, we really felt good about the second half of the year because we knew that we'd have these initiatives kicking in.
And I didn't ---+ I failed to mention the windows in the 500 stores, which in our pilot location has been very successful.
So we had some very tangible things that we felt great about that we believed would give us incremental sales growth in the back half of the year.
So that was part of the equation.
The other part was when we look at apparel and just look at what happened in the first quarter, we do believe a lot of it was driven by weather.
And we think some was driven by just a shift in consumer sentiment.
We don't believe that is a permanent shift, but we believe that it is something that we'll be able to recover from to get to that 3% to 4%.
We also understand that we are going to be in a much better position heading into back-to-school, which is a critical season for us and other retailers.
And we just felt it would not have been prudent to make a assumption on sales coming out for the entire year based on one quarter.
Having said that, we have enormous discipline around managing inventory.
And we are going to look at it on a daily/weekly basis and if we see our trend not performing to the level that it should, we will make the necessary course corrections.
So we are not swinging for the fences here.
We understand what we have to do; we understand what our forecasts our and our receipts will reflect that, and we will make the adjustments along the way.
But it is really based on the confidence of our initiatives, it is based on the current trend and how the trend improved coming out of early April, and we are hoping that trend continues.
Sure, <UNK>, this is <UNK>.
I will take that.
I think first quarter was predominantly impacted by our over penetration of clearance.
Our margin on clearance was actually substantially better than it was last year; we just sold a lot more clearance.
We came into the year with a little more fall than we probably wanted, but we expected it to be a cold February and expected to be able to sell that, and frankly sell it before it got to clearance.
And we did not sell it in February.
The customer wanted spring in February.
And as we got into March and April, the customer ---+ the weather got cooler than seasonal, and the customer didn't want spring anymore ---+ they didn't want spring and they weren't going to buy a coat in March or April.
So we ended up having to mark that stuff down.
Now clearance was up for the quarter, but the over penetration of clearance was what predominantly hit our margin.
As we move forward we feel really good about our initiatives to drive additional margin.
Obviously we feel good about the content of the inventory go forward.
I would tell you that almost all of our increase in inventory is in basic goods.
So we feel good that we don't have an overhang on markdowns going into Q2.
And then when you look at the efficiencies we have as we continue to look at our supply-chain initiative, the pricing analytics team we are just launching, we feel good about the margin opportunities we have.
And again, the predominant reason for lowering the margin guidance is around appliances rolling out and the impact it is going to have particularly in the third and fourth quarter on our margins.
Well, I think as a reminder, we have a new supply-chain leader that we brought in in 2015.
And really what is happening is more network optimization and just being more efficient on [cube] utilization.
There are some very specific initiatives that Mike Robbins, our head of supply-chain, and team put in place that is really driving cost down that we think will be significant for the balance of the year.
Just one real example, we were one of the only retailers in the US that were shipping garments hanging in the physical truck.
And what I learned years ago running a supply chain is that the most expensive thing to ship is air and we were shipping a lot of air.
And so from that Mike worked with Joe McFarland and the store operations team and the merchants to really come up with a more efficient way to cube out a truck to take those transportation costs down and improve the fill rate and the (inaudible) of goods that is delivered to the store.
We have been extremely pleased with the results of that and it is something that we will continue to benefit on.
Mike has also brought in some outside help and some technology to help us with the optimization of the network, making sure that we have the right DC locations, we are using the right over the road lanes and that we are understanding the efficiencies of how we get product from the port.
So, those are just examples but those examples are meaningful.
And for every dollar we can take out of our supply-chain expense is accretive to gross margin.
And that is a big deal to us.
And so, I look forward, hopefully in the next call, but definitely later this year, to outlining some very specific supply-chain initiatives that we are pleased with that we think will reap big benefits in the future.
The short answer is we are very pleased with the change.
We are seeing incremental traffic growth, we are actually seeing better revenue.
And surprisingly what we didn't anticipate is that we are seeing a higher quality of associate.
It is so much easier for us to recruit high-quality stylists with an existing clientele and book of business come and work for that InStyle brand of salon than a traditional JCPenney salon.
We are still learning.
We are going to roll out a little less than 100 locations this year for sure.
We are making tweaks throughout and we are also excited about a new online scheduling system that we are rolling out companywide that will modernize the way a customer can make an appointment and update that appointment.
So all those things are on the way.
But so far we are very pleased and we think this will be a game changer for us as we figure out what their perfect model is.
Okay, I will take the e-commerce question and I will let <UNK> take the inventory question.
I mean we are very pleased with our e-commerce growth and, as we mentioned in the call, part of that is just aggressive SKU expansion.
When I arrived at JCPenney during the turnaround efforts e-commerce was dramatically impact and really we had a philosophy that e-commerce should just reflect what we had in the store, just extended sizes and colors.
And as I mentioned, we brought Mike Amend on board and he has recruited some great talent and really inherited some talented leaders and they've really accelerated e-commerce in a big way.
We are pleased with the mobile strategy; we are going to be launching a new mobile app here in the next couple of weeks that we think will be a game changer for us, it is in beta and it is performing exceptionally well.
We are going to be rolling out Buy Online Pickup in Store same day within the next couple months.
And as I mentioned, the pilot results have been exceptional.
Anytime you get a 40% attach rate with customers coming in that is exceptional.
We are very pleased with the navigation, we are pleased with the fact that we have increased our suppliers by 20% and our SKUs by 50%.
So e-commerce is really working well for us.
We are still behind and we know that.
But I will ask everyone to go online next week and look at our new appliance site that will give you a view of the talent and the skill level of our e-commerce team because they built that site from scratch.
And we're going to be nationwide selling appliances online starting next week.
And so I think that gives you a glimpse into our confidence in that team and how we believe that will be a continued integral part of our future.
In addition, we are excited about creating true fulfillment locations from our stores.
Today our stores are basically in the save to sell mode, meaning if we are out of stock in a dot.com DC the order reverses to a store to pick it and ship it.
And we are in the process of identifying stores and they will be the primary fulfillment location, which we think will allow us to save delivery costs and also give us the ability to ship same day and next day and some examples.
And that is how we want to leverage 1,000 stores to really be a more efficient retailer.
So, we are very pleased.
The growth has been an incredibly strong and is maintaining and we see it only getting better.
So, I will hand it over to <UNK> to answer your question regarding inventory.
Yes, with regards to spring seasonal, we feel like we are in really good shape.
Our inventory growth, as I said earlier, is predominately in basics and in the initiatives like active, Center Core and shoes.
So when you adjust for that our spring go-forward inventory in the non-initiative area is really flat to down.
So we feel like we are in really good shape as we head into Q2.
So, on the expense cuts, I think it is all about being operationally disciplined.
Joe McFarland came in to run store operations and really the story team.
And one of the first things he wanted to do was create efficiency in how we used our store payroll.
Meaning what percent of our payroll are we using for service and selling and what percent are we using to do things that don't impact the customer.
And within the first quarter he and his team identified over 0.5 million hours that we were spending that had nothing to do with customer service, just totally inefficient.
And with the implementation of improved systems and processes we are able to reduce 0.5 million hours, over 0.5 million hours in Q1 just based on efficiency.
And it made no impact to the top line, it made no impact to degradating sales, it was simply back office activity that we modernized and put technology in place to supplement.
Now as <UNK> mentioned, we are not expecting to replicate our Q1 SG&A savings throughout the year, but I think what we proved in Q1 is that we have a lot of efficiencies remaining that we can go and we can capture and that is just one example of an area that we think is opportunity rich.
And as we look around the entire Company and we implement technology we know what technology will allow us to reduce expense because we'll gain efficiency.
So a lot more to come.
And again, I am not going to apologize that we are going to be relentless on taking our cost because we owe it to the shareholders.
And for our revenue base we can be a more efficient and having a lower expense base and we can do that without putting any of our top-line sales at risk.
So I will let <UNK> take the second part of your question.
Sure, regarding debt, refi ---+ as we have said, we continue to keep an eye on the market.
In the last I don't know, six weeks, eight weeks markets have continued to improve.
So, we feel they are pretty constructive right now, so we'll continue to take a really hard look at that.
And hopefully we will have more to say about that at the end of Q2.
It is really a great question.
I don't have the data in front of me, but I can just give you at a high level.
We know for a fact that when we put a new Sephora into a store we will get an overall sales lift, we will see the customer shop in more places than a Sephora location.
And as I mentioned in my prepared remarks, what we are most pleased with is that early on in our Sephora relationship we had a belief that we could not put that environment in a rural market or a smaller footprint store.
And we decided to test that theory and we have been incredibly pleased that that brand works wherever we put it.
And as I mentioned, our best performance in the history of our relationship from early sales per location is occurring this year in the face of a very difficult top-line environment.
And so, I don't have the data in front of me, but our pilot results and our early results will tell us that the Center Core locations are working because we do a test versus control.
And we know in those stores that received that new environment sales are up relative to their peer group.
And we believe we are going to see the exact same thing to happen with appliances and we believe we are going to see the exact same thing happen with our update for windows.
So, no data in front of me, but anecdotally and at a high level we know that these environment changes are making a difference.
Well, I don't know that the comparison exists other than the fact that Home Depot is a world-class retailer and we are striving every day to become a world-class retailer.
But what I can say, I have been incredibly impressed with the merchant team and incredibly impressed with their depth of knowledge of our assortments and how it connects to the customer.
As I mentioned, John Tighe, who has been our Chief Merchant since the fall of last year, has taken the lead in really going through our own version of category management and just asking a very simple question, what is the role and intent of every single category we have in our store.
And you can't do that unless you truly understand your customer.
And so Mary Beth West, our Head of Marketing and Chief Customer Officer, and her team have done a really nice job of working with John and the merchant team to bringing clarity to who is our customer.
One of the key reasons why we changed our branding platform was because we felt that our old brand platform was not addressing the true needs of our customer because we didn't know who the customer was.
Now we have a very clear understanding.
So John and his team are taking the necessary steps of looking at the data, by looking at our existing categories, looking at consumers' current and future spending and buying patterns and asking the simple question, what do we grow, what do we add and what do we eliminate.
And so, that work is underway and we are excited about the possibilities, but we are very confident that John and his team will help us to understand what works for JCPenney.
So more to come; we will keep you all updated on the progress.
Well, I think for us it all starts with the experience in the store.
We rolled out a new service training program led by Joe McFarland and his team and we have retrained every single associate in the store and that training is driven by the general manager.
And we just completed that.
And the good news is we have seen service scores go up on a weekly basis in the store based on the training and based on how it is resonating.
So the experience in the store matters.
For us it really comes down to a couple fundamental things.
We want to be the number one choice for customers looking for style, quality and value.
And we think that we can do that by increasing our private brand penetration.
We think we can do that by continuing to expand Sephora inside JCPenney, create an experience with salon and, more importantly, allow the customer to come in and beautify her home with our new vision of our Home department.
And so style, quality, value is our goal for our customers and we want to be the preferred choice when they want to come in to buy anything.
Well, great question.
On credit, because the quarter was down, I mean we still are very pleased with the progress that we are making on the number of applications, new accounts, all were up and penetration was up.
So again we are excited about that.
We are also pleased with the approval rates and everything.
So we are all headed in the right direction.
So penetration up roughly 240 basis points in a tough top-line quarter, we are very pleased with that.
Regarding loyalty, we launched a new program in the first quarter, it's still early days, but we hope to have a more detailed view of the data.
But early reads is that it's resonating and it is a much more receptive program for customers than the previous program.
But again, it's still early and I look forward to updating you more in the future.
And regarding appliances, one of the key learnings from the appliance pilot is the number of customers that made a purchase with their JCPenney card and the number of new customers that joined us to acquire credit to make an appliance purchase.
It is one of the reasons why we did accelerate it because, look, without question our penetration still remains significantly lower than our competitors.
So we have a huge opportunity to get our penetration up.
That being said, we think appliances will play a key role in not only driving up the penetration but also getting our average ticket up dramatically and driving gross profit dollars per square foot in an area that desperately needs it.
So more to come, but we are committed to credit and we know that credit will be a significant benefit not only from an SG&A standpoint but from a customer loyalty and from a top-line revenue.
Well, I think one of the key changes is the expiration of points.
In the past our program was very confusing, we didn't leverage the data real well, our points expired and the customers didn't really embrace it.
So it was an expensive program to operate, it was a confusing program to articulate and that is a bad equation for any retailer to have with a consumer base.
The other part that we changed was we wanted to gain more benefit to our credit customers.
So if you are a credit customer we wanted you to have a greater portfolio of benefits which is also very important.
And candidly, we are piloting different programs around the country just to continue to get a read on it.
That is one of the reasons why I am hesitant to get into a ton of detail because we are still trying to understand which component works and which does not work.
But overall the biggest change is points not expiring and dramatically more benefits for our credit customers so we can incent them to use credit.
But more to come and, again, we are pleased with the early results, but we want to make sure that we design a program that will really resonate well with our consumer.
Thank you.
Again, thank you for the questions.
We look forward to updating you on the continued performance of our business on our next earnings call.
| 2016_JCP |
2016 | AHL | AHL
#Thank you and good morning.
On today's call we have Chris O'Kane, Chief Executive Officer; and <UNK> <UNK>, Chief Financial Officer.
Last night we issued our press release announcing Aspen's financial results for the third quarter of 2016.
This press release as well as corresponding supplementary financial information and slide presentation can be found on our website at www.aspen.co. Today's presentation contains and Aspen may make from time to time written or oral forward-looking statements within the meaning under and pursuant to the Safe Harbor Provision of US Federal Securities Laws. While forward-looking statements have a number of assumptions concerning future events that are subject to a number of uncertainties and other factors. For more detailed descriptions of these uncertainties and other factors please see the risk factor section in Aspen's annual report on Form 10-K filed with the SEC and posted on our website. Today's presentation also contains non-GAAP financial measures which we believe are meaningful in evaluating Aspen's performance. For a detailed disclosure on non-GAAP financials please refer to the supplementary financial data and our earnings release posted on the Aspen website. With that I'll turn the call over to Chris O'Kane
Thank you, <UNK>.
Good morning everyone.
Aspen delivered very good results this quarter which are reflected in operating earnings per diluted share of $0.97 and operating ROE of 8%.
We ended the quarter with a book value per share $50.49, an increase of 10% from the end of 2015.
Our performance includes strong underwriting results from both our operating segments.
The accident year ex-cat loss ratio for the group improved by 150 basis points from a year ago with reinsurance and insurance improving to 58.2% and 59.1% respectively.
Aspen Re had another impressive quarter with combined ratio of 88%.
Gross written premiums increased by 16% due to the inclusion of AgriLogic.
Excluding AgriLogic, Aspen Re premiums were down 17%.
This reduction is not a reflection of the underlying business as on a year-to-date basis excluding AgriLogic, our top line is similar to a year ago.
Aspen Re continues to maintain and improve its market position due to its strong analytical skills and client relationships.
Because our clients rely on us as helpful advisor, attractive opportunities continue to be brought to us despite the market environment.
The pace of rate reductions in reinsurance continues to slow.
In fact there are even some areas where we are achieving rate increases, although so far these tend to be solely in response to loss activity.
We have achieved these rate increases in the US following some small natural catastrophe losses.
We have also achieve some good rate increases in the Middle East following a degree of market disruption.
Turning now to our insurance business we are very pleased with the direction in which this book is moving.
Year-to-date top line is up approximately 2% while in the quarter it was down by similar amount as we continue to proactively manage our diversified insurance business lines and selectively reduce exposure in areas where rates are under pressure.
While our process is ongoing we continue to see attractive opportunities in areas that are aligned with our strategy where rates are less pressured and experience less volatile.
This transformation is showing results with growth and improved profitability in targeted areas.
Please note that our global accident health business continue to fall nicely along with surety and with cyber.
In marine aviation and energy we saw growth for the first time in many quarters.
Over the last couple of years we've repositioned much of our marine and energy business and it is pleasing to see this area now delivering favorable results.
However we remain cautious is a lot of marine energy business continues to experience pressurized rates.
In property and casualty our UK P&C business continued a strong track right of profitability and we generally good growth from our railroad business, one of our new global lines.
As you may recall David Cohen joined us last year as the Chief Underwriting Officer of Aspen insurance.
David and his team have strengthened our offensive line and reviewed each portfolio.
We suspect the benefits from this effort will improve the loss ratio and decrease volatility in the income statement in 2017 and more significantly in 2018 and beyond.
In the first nine months we have generated $416 million in new insurance business representing a 10% growth in this metric over 2015.
However as the new teams review the existing books, we have chosen not to renew some business in favor of other opportunities with more attractive perspective margins.
Now I would like to turn it over to <UNK> <UNK> and then I will make some further remarks.
Thank you, Chris, and good morning everybody.
In the third quarter of 2016 we achieved an annualized operating return on equity of 8% and a combined ratio of 93.8%.
Diluted book value per share grew by 10% from the year end 2015 to $50.49 due to strong underwriting and investment results.
Gross written premiums for the group was $764 million, an increase of 6% compared with the third quarter last year primarily due to the inclusion of a AgriLogic.
Seeded written premiums increased 82% to $125 million this quarter.
This increase is partially due to AgriLogic and the timing of some of our renewals, but is primarily driven by a greater use of quota share reinsurance.
From our point of view this will optimize capital efficiency and reduce net retained volatility while our acquisition ratio benefits from seeding commissions as they run through.
The loss ratio of 57.2% for the group was in line with Q3 last year.
We recorded $25 million of net cat losses primarily from weather-related events in the US and a hailstorm in the Netherlands.
This compares to total net cat losses of $19 million in Q3 last year.
Our accident year, ex-cat loss ratio, for the quarter improved by 150 basis points to 58.7% from a year ago and improved by almost 200 basis points for the nine months.
Total reserve releases for the group were $35 million of which $20 million was in reinsurance and $15 million from insurance.
For the nine months of the year we recorded $78 million of releases with $52 million from reinsurance and $26 from insurance.
Turning now to the results for our segments.
Firstly, reinsurance.
Gross written premiums for Aspen Re were $366 million, an increase of 16% from last year with AgriLogic contributing $103 million in the quarter.
Excluding AgriLogic, gross written premiums went down in the quarter due largely to the timing of some cat related renewals we mentioned last quarter.
However the underlying gross written premiums for the nine months were largely in line with the same period last year.
Aspen Re delivered underwriting income of $37 million on a combined ratio of 88.3% in the quarter compared with $15 million of underwriting income and a combined ratio of 94.7% in the prior year.
The accident year ex-cat loss ratio improved to 58.2% from 59.5% a year ago.
Drilling down a little further, excluding AgriLogic the accident year ex-cat loss ratio was 51%.
Up marginally from 50% last year after adjusting for Tianjin.
However for the nine months the ratio has improved from 48.7% to 48.3%.
Turning now to insurance, gross written premiums for insurance were down about 2% compared to the prior-year.
However, we have shifted the mix towards financial and professional lines where we have seen some profitable opportunities to grow the business in addition to some areas of growth in marine, aviation and energy.
Aspen Insurance reported underwriting income of $18 million and a combined ratio of 95% compared with $42 million of underwriting income and a combined ratio of 88.3% in the prior year.
These increase in the combined ratio is primarily attributable to higher cat losses and some one-off adjustments impacting our acquisition ratio.
The accident year ex-cat loss ratio improved to 59.1% compared with 60.8% in the year ago period due to fatal loss experience in our financial and professional lines and marine, aviation and energy sub segments.
Turning now to expenses for the group, the total expense ratio was 36.6% this quarter compared with 36.3% last year.
Although the expense ratio is broadly flat, we have seen a shift between acquisition costs and G&A expenses.
The acquisition ratio in the quarter reduced to 19.2% compared with 20.6% in the third quarter last year.
The reduction is driven by a decline in Aspen Re's acquisition ratio due to the reinsurance we purchased for AgriLogic.
In insurance the acquisition ratio has increased to 21.4% from 18.9%.
There are some one-off's in the quarter and as a result it is best to look at the year-to-date ratio which has increased from 18.9% to 19.9%.
The increase is largely to the shift in business mix towards financial and professional lines where we have seen some attractive and profitable opportunities for growth however these lines do attract high levels of commission.
The G&A ratio for the group was 17.4% for the quarter compared with 15.7% last year.
The higher ratio was due to the increase in seeded earned premiums in addition to the investment in our insurance segment.
Looking ahead to Q4 we still expect to see the full-year G&A ratio to be broadly in line with last year's ratio.
However as always, the expense ratio will be affected by the general performance of the business and the impact that has on performance related compensation.
Going forward you'll begin to see the impact of the higher seeded reinsurance spend on our overall expense ratio.
A greater pro rata reinsurance spend will reduce the acquisition ratio while increasing the operating expense ratio.
However as seeding commissions earn through, we anticipate this will have a positive impact on our overall expense ratio.
I'll now move on to investments.
Net investment income was $46 million in the third quarter up 3% from the prior-year.
The increase is due to higher income from both our equity and fixed income investments.
Total return on the aggregate investment portfolio was 50 basis points in the quarter and the total return was 4% for the nine months of the year.
The fixed-income yield was unchanged from the end of 2015 2.5% and the duration of fixed income portfolio is largely unchanged from the year end 2015 at 3.6 years.
Lastly I'll make a couple of comments about capital.
We repurchased approximately $7 million of ordinary shares in the quarter bringing our total buybacks to $50 million for the year-to-date.
The window for share buybacks was limited by our preferenced share issuance.
However our approach toward share repurchases has not changed and we will return excess capital to shareholders when that is financially more attractive than deploying it elsewhere.
During the third quarter we took advantage of favorable rate environment and issued $250 million of preference shares with a dividend of 5.625%.
We intend to use the proceeds of this issue to redeem our existing 7.401% and 7.25% preference shares in 2017.
With that I'll now turn the call back to Chris.
Thanks, <UNK>.
Once again we have been busy this quarter building our reinsurance platform.
We continued to make progress on our global and regional product strategy building on products and geographies to further strengthen our portfolio businesses.
For example we recently announced the renewal rights agreement in the UK regional P&C area for the business of another carrier.
That book represents approximately $50 million premiums and our initial view is that we will retain at least 50%.
This business is highly complimentary to our own very profitable business and the agreement provides us with options to expand regionally.
We continue to see good growth potential for our UK regional P&C business.
We also continue to build out our global [accident] and health operation, appointing a head for the business in the US where we see an opportunity to expand our [presence in accident] insurance offering.
We also added head of US crisis [management], who is developing a new product contamination recall capability which will provide diversification to our existing lines.
Lastly we expanded our US footprint opening an office in Dallas that will eventually focus on the excess cash casualty market although we expect to leverage our presence to offer other products over time.
In our reinsurance business we have successfully integrated AgriLogic and are delighted with this growth trajectory.
The third quarter is typically the largest for AgriLogic top line and premiums are growing nicely.
We expect healthy growth across all states where we already have an established strong presence and at this stage indications are that 2016 should be a good year in terms of the underwriting experience for the industry.
AgriLogic's intelligence and expertise is evidenced by the many clients who seek its consulting services.
We believe it is this intelligence and expertise that allows the team to differentiate itself in the market.
Also in the quarter, following Thomas Lillelund's appointment to CEO of Aspen Re, we have promoted Phil Hough as Managing Director for the Asia-Pacific region.
Phil is one of our most seasoned international executives and in his previous role has made significant contributions to the growth and profitability of our operations in continental Europe.
So in conclusion our reinsurance team has not faltered for the last 10 years and the same underwriting philosophy, analytical skills, customer relations combined with problem-solving ingenuity makes me feel very confident that Aspen Re has the ability to continue to outperform its peers.
However, the really exciting changes are taking place in our insurance operation.
Our leadership and underwriting teams are the strongest we've ever had supported by broad and growing range of products, strong distribution networks and excellent client relationships Aspen Insurance is extraordinarily well-positioned to create exceptional shareholder value over the next few years.
With that we are happy to take your questions.
Good morning, <UNK>.
I can't give you a number this morning, it's just too early for that.
But, first of all, there was impact in Haiti where we have pretty much no exposure.
After that, Bahamas, where I would say we have minimal exposure.
We're just not very fond of Caribbean wind exposures because they clash with US wind exposures.
And then, fortunately for everybody, it kind of missed Florida and it went further north.
We will pick up a few losses.
At this stage it seems to be on the residential side, mainly on the Reinsurance side.
We haven't found any major risk losses.
There is nothing ---+ none of the big industrial clients have reported anything there.
So, putting it all together, I mean the best I could say is we really are not worried about it.
It is well within our cat load for the quarter and it's not troubling us in any way.
I don't think we publish that these days.
I think we stopped a couple of years ago on it.
Given everything that went on in the quarter, I think we're, broadly speaking, pretty happy with what happened in the quarter.
But I think our business in a steady-state ought to be able to do a bit better than that, quite a bit better than that.
So as I indicated on the call, we have made, the last 12 months or so, some new investments, especially in the US in the Insurance platform.
Some of those investments are actually around the world in places like Dublin, London, Singapore as well.
And the first thing that happens when you do those things is you spend the money, the expense line is hit.
Those guys are looking at the books of business and are responsible for.
They are making some small changes here and there.
I wouldn't say anything is terribly radical.
Maybe the US primary casualty area is the area we are stepping back from most, and that we have been doing anyway because it's one of the most competitive areas in terms of pricing.
But they are also putting new business on the books and that is going to start some earning and feeding through in the course of 2017.
I think by 2018 the expenditure is done.
Clearly, paying people's salaries, we'll carry on doing that but the cost of new offices and acquiring people, et cetera, is over.
So I would look for expenses to stabilize and top line to begin to grow again.
This year, the top line is up a little.
It is up very little, maybe 2%, but we are going to do better than that I think in 2017 and 2018, and that should lead to little better ROE.
That's hard to say.
Any given quarter depends on loss experience and I think as we talked on the call last time about what represented reasonable return.
We have a strong view of our cost to capital and I think the hurdle that I am interested in is beating the cost to capital, which we're certainly doing at present and we'll increase the margin over the cost of capital next year and the year after.
Thanks, <UNK>.
<UNK> here.
With regards to buybacks, we pulled back about $50 million year to date.
In regard to our approach, there is no change in our approach.
If ---+ we are going to return that capital to shareholders if we can't deploy it in the business.
I can't really give you any sort of guidance on that buyback position but we're certainly not changing our overall approach.
Thank you very much, <UNK>.
<UNK>, good morning.
Thanks for your question.
We have indeed talked about it before and I will concede that scale matters.
But I will not concede because I don't believe that scale in and of itself is the driver of great performance.
I think it would be invidious to name competitors, but you look at some of the biggest players in the world and you don't look at some of the best players in the world.
You look at some of the smaller companies and you find them some of the best-rated companies of all.
So what is going on here.
Underwriting expertise.
Knowing how to price complex risks, knowing how to design solutions, work through the brokers.
The brokers are doing a lot of the heavy lifting.
The reinsurers are saying: Have you thought about this, have you tried this.
Having the reputation for helping the brokers solve their clients' problems is the key to success.
The way you do it matters.
Some reinsurers give service with a smile.
They say: There's no limit to the number of quotes that we can give you; if you need it tonight we're going to try to get it tonight if not tomorrow morning.
Others take the view that you'll wait in line and when everything else is processed we will attend to you.
They don't get back to you.
So that kind of service orientation matters.
Your attitude to claims.
Fundamentally, do you pay them.
Or do you start asking unnecessary questions and delaying them.
We monitor our position in speed to paying claims and, for reinsurance, the two primary areas for us would be Bermuda and the London market, but also in the US domestic market, also in New York and Singapore.
And to the extent we get specifics from our brokers or from market, we are always in the top handful of people to speed the settlement.
When a client, especially a small client, is out of pocket, they really do appreciate being made whole as quickly as possible.
I think these are the things that matter.
Yes, you need a balance sheet of a certain size and I think people probably look at the claims-paying ability.
You've got to be at least A-, and A is better than A-.
They look at that more than the actual size.
So, I think that's what matters.
Practically for us in the quarter, again, won't mention client names.
There was one big deal that went down, Aspen Re was in there helping shape the terms and conditions, helping set the price and had one of the larger shares.
It was a deal with about six players in it and not as big as some of those we had a couple years ago.
But again this says to me when the world is rich in reinsurance to choose from, they keep coming to Aspen Re for the biggest and most interesting deals.
I think expense control is absolutely a part of solution.
I think if expense control comes, that the price is sacrificing the future and I think it is a false economy.
We are not running this business to produce a nice result in the next quarter.
We run this business to produce significant shareholder value over a period of time.
Think about that period of time as being, let's say, three years or something like that, actually we would think even longer term in some ways.
So, I think you want to look at your T&E.
You want to look at your procurement.
You want to look at efficiency of staff.
You want to look at your office rent, absolutely.
But when there is an opportunity to launch a new product, to hire good people, to build your expertise ---+ for example, in the cyber area, we've hired probably 10 underwriters in cyber in the last year.
That is a cost, but I think that is the ---+ (inaudible) is the most rapid growing area of P&C.
It may be the only growing area of P&C.
I think we need to understand and we need to get it right and we are going to make a lot in value, so there I would say cost-cutting not hiring people would be a false economy.
Does that help <UNK>.
Thanks.
Good morning, <UNK>.
Hey, <UNK>, it's <UNK> here.
I guess I'll take that in reverse order perhaps.
The profits are definitely skewed towards the second half of the year.
It's Q3, Q4.
So that's the way you should think about that.
In terms of what we book it at, it is a crop business, we tend to book broadly in line with where you would expect us to be and where the peer group is.
It certainly attracts a higher loss ratio than other areas within our Reinsurance segment.
I think we are seeing some decent news coming out of the crop business this year.
Yields look to be in pretty decent shape and the commodity prices, too, seem to be holding up.
I don't think we would be willing to release too much out of that at this point and will wait to see where we end up at the end of the year.
How do you mean.
Are you talking about a combined ratio or are you talking about a loss ratio.
Yes.
On a combined ratio basis, sure.
I think that's where we're ultimately going to be targeting but given this is our first year, there is a bit of investment drag in there from our perspective.
But we expect AgriLogic to be a solid contributor next year in 2017 and then incrementally in good shape in 2018 go forward.
Thanks, <UNK>.
<UNK>, we can hear you.
Good morning.
(Laughter)
A little bit too quiet for us earlier.
Yes.
Hey, <UNK>.
It was actually more in the acquisition line.
There was a one-off sitting in the Insurance numbers.
It's a ceding commission adjustment that was at its one-off and that's what caused the bump up to 21 this quarter.
Yes.
That is spot on, <UNK>.
Actually, the way the mix works because it does attract a higher loss ratio, it will skew that so you will see a little bit of elevation there.
Thank you, <UNK>.
Thanks, <UNK>.
So I'm going to say thanks to everyone for listening this morning and wish you having ---+ have a good day.
| 2016_AHL |
2017 | BKS | BKS
#The last one is easy.
The new stores are doing very, very well, and they are showing a promise beyond that, which they are doing.
So, we are learning from them.
We are on the eve of having ---+ from the tests that we put out there ---+ I'm going to call this phase testing a prototype to having a prototype that we think will carry well into the future, so we are pretty pleased with that.
Obviously, we have the ---+ we will have the task, if we are sure of what we see is working, we will have the task of opening more stores and actually changing, relocating stores perhaps within the same market.
So, what we may be doing is closing one and opening one in the same marketplace, which we know how to do, and has long been our practice.
Regarding the CEO, what can I tell you.
I'm happy I'm doing what I'm doing.
I've worked harder for the past six or nine months than in the past 20 years.
I have been the chairman of several companies for many years, and now I'm all-in with Barnes & Noble.
We have ---+ regarding our search, we have a spectacular new Chief Operating Officer in Demos Parneros.
He is intelligent.
He is vastly experienced in retail.
He's run more than 3,000 stores for Staples.
He is a lifetime retailer.
He's very smart.
He has taken to this job.
He is all-in.
He certainly is a top candidate for the CEO position.
The board will be considering and I will be considering where we go with the search.
I have to say that I'm still committed to the Company no matter what so that, when we do put in a CEO, I will stay, at least for some period, remain at least for some period as the Chairman.
Al and Mary.
Yes, the markdowns affected the margins for the quarter, as we called out.
It was really to move merchandise following the holiday sales shortfall.
The coloring book products were at higher margins than the prior year, so that does affect our mix a bit.
And you also have the pressures of the comps, and what it does, because we put our occupancy up in the margin section, so you're also fighting that.
But other than that, there wasn't any seismic shifts in our product lines that would have caused any product mix.
Obviously, the less devices you sell, those are at lower margins, that does help your mix as well.
Great.
Thank you operator, and thank you, everyone, for joining us on today's call and for your interest in Barnes & Noble.
Our year-end release will be released on or about June 22.
Have a good day everyone.
| 2017_BKS |
2016 | CMO | CMO
#Good morning.
Welcome everyone.
Before we get started, I wanted to express on behalf of management and our employees our gratitude to the many contributions made by Andy Jacobs, our former President and CEO over his past 28 years with Capstead.
As you may know Andy resigned on July 14 and pursuant to a consulting arrangement has made himself available to us through year-end to help ensure a smooth transition.
Respecting Andy's privacy, we do not intend to discuss his departure further on this call or otherwise other than to note that this leadership change in no way foreshadows any significant change in Capstead's short duration agency ARM investment strategy.
I refer you to the Company's press release also dated the 14th and our subsequent Form 8-K filing for all public information available on this subject.
Now, if I may, a few quick comments on market conditions and our second quarter earnings.
The markets that we deal in have been fairly volatile thus far in 2016.
Most critically our earnings ---+ most critical to our earnings this year's 80 basis point decline in the 10-year US treasury rate to 1.47% at quarter-end has led to yet another mortgage refinancing wave.
And our second quarter earnings were negatively impacted by higher investment premium amortization charges caused by higher mortgage prepayment levels.
While mortgage prepayment levels are heavily influenced by the available mortgage financing at attractive terms, prepayments are also influenced by the overall health of the housing market and seasonal factors, not the least of which is the summer selling season.
Given currently available mortgage rates, a healthy housing market and seasonality, we are anticipating that mortgage prepayment levels will increase further during the third quarter before declining in the fourth quarter.
In the meantime, we continue to enjoy incrementally higher cash yields on mortgage loans underlying our portfolio as they continue resetting higher rate based on higher prevailing six and 12-month interest rate indices and borrowing conditions also remain constructive, particularly with the Fed appearing to be on hold for the time being.
Given current market fundamentals, we remain comfortable replacing portfolio run-off with additional agency ARM securities and anticipate maintaining portfolio leverage near present levels.
With that, I will open the call up to questions.
Sure, our runoff is running around $250 million to $300 million a month.
So a $1 billion or so a quarter right in this area of the year.
We look at how the ---+ redeploying the capital in the portfolio whether that makes sense, these are other options for the capital and we do have a $100 million buyback authorization from our Board and that we would certainly use that buyback authorization, if that was a better use of capital than redeploying into the portfolio.
We continue to believe that the ARM market is a great way to play the residential mortgage finance business and being a levered player in this space and see the long-term advantages to running a large short duration ARM portfolio and don't anticipate expanding our purview beyond the short duration space.
Well, generically [back to security to] ARM security similar to ours, I would say speeds were up 8% to 9% which equates to couple of CPR something like that.
Yes, <UNK>, I will take that.
We're not seeing any pressure on repo rate.
I think a lot of the movement up in LIBOR has to do with European funding cost pots Brexit, whether it'd be commercial paper or what European banks are having to take their money.
At the same time, you get this money market reform that should make once it's implemented agency repo a very attractive alternative for those domestic money market mutual funds.
And so what we're seeing which is ---+ this is kind of helping to offset some of the negatives on the prepayments side, we're seeing LIBOR go up which helps our indexes and it also helps us receiving on the SLOB stock, but we're not (technical difficulty) if the rates go up.
And so we're still repaying around 65 basis points which is where we were before with [the life along] one month where we're receiving, if that's 49 basis points.
And so that spread only about 16 where it has been running closer to 20.
So that helps us.
And also to your point about reset just since June 30th, if you look at one year and six months LIBOR, they're up 17 basis points and then when you're seeing [fees up 10].
And so net just looking at our Fannie, Freddie short resets that's a bulk of 15 basis points.
And so if you look at on page 82, we show our fully indexed WAC that's now going to be about 15 basis points higher, if rates stay where they are right now.
So that helps to offset some of the prepayment pressure.
Now on the other hand, (inaudible) resetting higher and so they might have a little more incentive to refinance, so that's going to be somewhat offset by prepayments, but net of net LIBOR going up is a good for us.
It's dislocated a little bit on LIBOR recently.
Yes, sure we really do, the first quarter had an adjustment of prior year accruals.
And we would certainly (technical difficulty) one of the top two or three in terms of operating efficiency going forward except one point.
Yes, we're going to put a new CFO in place within the next few months I imagine and so we won't have a gigantic change.
Andy's elements will drop off and we will be adding that.
ARM pricing and book values quarter to-date; is that what you're asking.
I am sorry, are you asking since what ---+ since quarter end.
Yes, I would say generically seasoned post resets are more or less unchanged in price and longer resets kind of in the (inaudible) so not a lot of movement.
No, I don't see that.
Replacing ARM securities with treasury securities.
No, that's probably not going to happen.
I mean if you look at prepays there a little higher than they were on the ARM's segment than they were in 2015 where we were at similar fixed rate levels.
On the curve, we were flat, so probably going to see the peak and speed a little higher this year than it was last year, but we're not expecting that to be materially higher.
| 2016_CMO |
2016 | WM | WM
#We do get a little bit of help from working capital in Q4.
I'd agree with that.
That's right, <UNK>.
There's two things really that are potential headwinds for us.
And then we overcome those with the growth of the business.
Those two things, as you mentioned, one is cash taxes, the other is CapEx.
Right now looks like CapEx for 2017 could be higher.
We had a couple projects that we originally had in 2016.
That's why our range has come down a little bit.
We were originally $1.4 billion to $1.5 billion.
We're now $1.4 billion $1.45 billion.
We brought the top end of the range down by $50 million.
That's just simply because a couple of the projects that we had originally thought would show up in 2016 look like they will show up in 2017.
So none of it do we feel like we can't overcome.
But those are the two things that work against us a little bit in 2017.
<UNK> and I kind of manage the capital committee pretty ---+ along those lines.
And we look at bonus depreciation, we look at how do we kind of smooth CapEx a little bit.
And so as we think about CapEx, though, really maybe to answer your question this way.
We've said all along that we thought CapEx should fall in the 9% to 10% of revenue range.
In 2014 it was below that.
It was in the 8%s.
2015 it was just above 9%, kind of like 9.1%.
And 2016 it's going to be closer to 10%.
But we still think in 2017 and on a go-forward basis that range of 9% to 10% is a healthy range.
It's a good range for us.
Keep in mind that if you look at things like fleet purchases, in 2012, 2013, I think 2012 we bought around 900 to 950 vehicles.
We're going to buy 1,300 vehicles this year.
So when we think about OpEx, and we talked about it a little earlier, eventually that has to start affecting our maintenance cost as we increase the number of trucks that we buy by almost 40%.
Hopefully that answers your questions.
<UNK>, I'd just add one other thing to that.
<UNK>though we have the last few years moved a few dollars of capital into the current year, the one thing that <UNK> and I are very focused on, and that's making sure we support the business and the growth.
We're not doing that other than to support growth, where could we add value by moving trucks forward or backward or any other capital project.
It's got to align with where the opportunity is and how we want to grow our business.
(Multiple speakers).
We've talked about is talking to individual area managers and vice presidents, and saying look, here's what your capital requests have done over the last three years and here's what your earnings have done.
So when we think about return on invested capital, maybe you're doing well, maybe you're not.
But we're having those individual conversations.
I completely agree with that.
We've seen, to your point, in the restaurant sector we've seen weight come down slightly.
But we haven't seen service levels change.
And so we continue to see service increases outpace service decreases.
For us, that's really on the commercial side, that's the leading indicator that we look at.
And we still see that very strong.
CPI transition.
Yes.
As we look at it, I think the number that we've always said it's about 25% to 35% of our customers are on some type of modified index, whether it's a particularized index for us or a government index like the wastewater and sewage.
That's one where, like a lot of things we do, you have to have sort of an industry backing.
Look, too many times we see ---+ I'll go back to the recycling business.
Too many times we saw a lot of people bid rational contracts like we do.
And then one party comes in and says, we'll do it under the old type of contract.
And before you know it, they're winning business and losing money.
I would tell you, we haven't seen as much sort of industry acceptance of a different CPI-based residential or franchise type model.
We have not seen widespread enough acceptance to move the needle.
When bidders go in and say, we're going to bid on a modified CPI.
And then the fourth bidder comes in and says, we'll take whatever you have on the table, it's hard to see things change.
And so we've had better success in our large franchise areas, like California.
But I think that's going to be a long, slow slug that we just have to ---+ there's only one thing we can do at Waste Management, and that's stiffen our backbone and say, we're not going to bid these contracts when it's not good for our business.
We've proven that on the recycling side.
We need to continue to have that type of firm backbone on the residential and franchise side.
<UNK>, you've seen that.
That's why our residential volume has stayed negative, is that we have lost some volume.
But we look at it, as Dave said, on the long-term basis with return on invested capital as a real focus.
And we're just not going to take business long term that doesn't give us the ability to manage our cost structure but also get some margin improvement.
The last report I saw, which was last week I think, showed rig counts across the US in the shale plays up 11, which is very small on a percentage basis.
And the majority of those were in the Permian Basin where we don't have a presence.
But we are starting to see a little bit of indication that maybe some of those shale plays where we do have a presence are thinking about drilling next year, which is a change from the past two years, for sure.
But nothing yet.
<UNK>, in the real business we're still down versus prior year.
We're getting closer to anniversarying that reduction.
But it's still not anywhere close to the previous level.
And without significant movement forward, but we see signs of it.
Thank you.
<UNK>l right.
Well, thank you all for joining us.
As we move into the holiday season, we wish you all the best as we move toward the end of the year.
And hopefully everyone on the phone gets a little chance to spend some time with the families and live what the holidays are about.
So we'll see when we release next quarter.
Thank you.
| 2016_WM |
2018 | ROCK | ROCK
#Good morning, everyone, and thank you for joining us.
If you have not received a copy of the earnings press release that was issued this morning, you can find it in the Investor Info section of the Gibraltar website: gibraltar1.com.
During the prepared remarks today, management will be referring to presentation slides that summarize the Company's first-quarter performance.
These slides also are posted to the Company's website.
Please turn to slide 2 in the presentation.
The Company's earnings press release and slide presentation contain forward-looking statements about future financial results.
The Company's actual results may differ materially from the anticipated events, performance, or results expressed or implied by these forward-looking statements.
Gibraltar advises you to read the risk factors detailed in its SEC filings, which can also be accessed through the Company's website.
Additionally, Gibraltar's earnings press release and remarks this morning contain adjusted financial measures.
Reconciliation of GAAP to adjusted financial measures have been appended to the earnings release and slides.
On our call this morning are Gibraltar's Chief Executive Officer <UNK> <UNK> and Chief Financial Officer <UNK> <UNK>.
At this point, I will turn the call over to <UNK> and please turn to slide 3.
Thanks, <UNK>.
Good morning, everyone, and thank you for joining us on our call today.
We began the year with a strong first-quarter performance.
We achieved financial results in line with our expectations and continue to benefit from the success of our four-pillar strategy.
Our first-quarter revenues of $215 million were up 4% year over year.
We achieved GAAP earnings of $0.26, exceeding our guidance and more than double the earnings from our first quarter 2017.
Our adjusted earnings were also $0.26, at the upper end of our guidance range and 30% higher than prior year.
The steel and aluminum tariffs that took effect during the quarter created uncertainty in the market and impacted material costs across our segments, as expected.
Market prices for steel and aluminum were up 40% and 30%, respectively, versus prior year.
That said, we are having success in mitigating the impact of these cost increases from tariffs through pricing actions by market, by segment, and by customer type.
And at the same time, we continue to work collaboratively with our customers on this issue to ensure that they remain competitive as well.
From an end market perspective, we achieved a 10% increase in sales in our Renewable Energy & Conservation segment and an 8% increase in our Industrial & Infrastructure Products segment, giving us confidence that this segment has truly turned the corner.
Revenues in our Residential Products segment were essentially flat year over year, as weather conditions impacted demand for our roofing-related ventilation products.
During the quarter, we continued to execute on our four-pillar strategy and benefited from our operational excellence programs and our innovative product initiatives.
In short, in the first quarter we achieved the financial and operational results we had laid out at the beginning of the year.
At this early point in 2018, we are on track to deliver our annual commitment to make more money at a higher rate of return with a more efficient use of capital.
I will speak more about our progress on each of our strategic pillars and provide guidance after <UNK> reviews our financials.
<UNK>.
Thank you, <UNK>, and good morning, everyone.
Let\
Thank you, <UNK>.
During the first quarter, our four-pillar strategy continued to gain traction and deliver results.
In "Operational Excellence", our first pillar, we focus on reducing complexity, adjusting costs, and simplifying our product offering through the 80/20 initiatives across the organization.
We continued to advance key projects during the quarter.
These include in-lining and market rate of demand replenishment initiatives that will improve our operating conditions as well as outsourcing initiatives for our "B" products across our businesses.
We continue to expect to realize the benefit from these projects in the latter half of 2018.
Our next step in operational excellence is to focus on trade focus selling and marketing strategies.
The trade focus process was the focus of our recently completed leadership meeting where we brought together approximately 90 leaders from across our businesses to refine the use of these tools.
Our teams are kicking off targeted projects throughout our segments to drive organic growth by developing new and innovative products that respond to our customers\
You know, not a huge impact in either.
A little bit more material in Residential.
But of the 250 basis points, maybe 1% on material (costs) in Residential.
And in Renewables, we're off 80 basis points as prices increased, closer to 30 bps on price-material.
And as we think about it going forward, we continue to work with our customers to mitigate the impact.
So we feel like we are in good shape to mitigate those impacts as we move forward.
I think overall, Dan, the information I've seen from our supply chain group across the portfolio is that they expect to fully recover all cost increases over the course of the year.
And so far after the first quarter, are well along that path.
And to be quite honest, don't get a lot of pushback from the marketplace as it's a common problem across all segments and all customers and all end markets.
So it's really just a question of the implementation schedules with the various segments, and our people are doing a nice job with it.
So don't see it as ---+ it's something we have to manage, as everybody does, but it's ---+ we are well along that path.
And we don't expect it to have a significant impact from an earnings perspective.
Yes, I will give a couple high-level comments.
And then if <UNK> wants to jump in.
The migration ---+ the overall ---+ number one, we participate in the small-end community solar, both whether it is fixed tilt or whether it is tracker.
There is a general perception that at the large scale or larger scale side that there is a rapid migration from fixed tilt to tracker that's ---+ we would probably support that.
We don't see that at the smaller scale.
And at the smaller scale, it is very much site-specific.
It's where it's located from a sun exposure perspective, ground conditions, wind load, snow loads as to whether or not the smaller scale opportunities really drive the economic returns for the increased cost of the more complicated tracker installation.
And obviously it has ongoing OEM costs, more material than a fixed tilt solution.
So we don't see that manifest itself in demand.
I think <UNK> would say later that our demand for fixed tilt is similar to prior years.
And we have a select group of people we continue to work with as we work and launch our tracker solution and vet out some of the refinements of engineering and installation that the guys are working through.
So it's been incremental.
From a market activity perspective relative to tariffs, and now they are debating about reversing that if they have the opportunity because Suniva basically is being sold off as parts now.
So at the top end, there may be a reduction in market opportunity in large-scale utility because of that.
We don't participate in that, so any new sale in the small-scale community solar piece that may relate to the tracker is new and different revenue and share for us.
So at this point, all that commentary, right <UNK>, manifests itself into various backlogs that show our business growing.
Yes, I mean, we are in strong demand for fixed tilt.
We have increasing customer interest in our tracker.
So while we hear those comments, we don't see it across our customer base.
So it may be relevant to a larger market and to the larger utility scale space, but that's not where we participate.
So we are not seeing that movement.
And I'd say, Dan, when <UNK> says a rising interest, it's not just a rising interest.
It's an increase in actual booked orders and backlog.
So that's where we are from a factual perspective on those related issues, I guess.
So let me address the seasonality first.
I think if you look last year in the fourth quarter, we were surprised on the upside.
We guided down and we actually came in a lot (higher).
We don't expect that to recur.
We don't ---+
Yes, I think the solar business and the residential business, both ---+ the building season got extended.
So we overachieved in both those from our expectations in the fourth quarter from when we gave guidance.
So we think we got a benefit from some of that in the fourth, which we didn't build into our model, into our forecasts.
And <UNK>, I think it's important to highlight <UNK>'s point there.
It was really that the construction season got extended as opposed to particular tactical strategic issues within either one of those segments.
I mean, both those businesses ---+ if the season gets extended and contractors get in on site, whether they are installing a solar racking system, fixed, or tracker is no different than whether or not a roofer wants to work in four feet of snow or not.
So when that season got extended, people were able to build longer.
And that was kind of, I guess, the overachievement in that quarter versus any particular tactical product or customer issue that took place in those quarters.
I think that's how you've got it laid out for the year to date.
Yes, that's what we are guiding.
So that's not fair to say up 4, up more, continue on.
We don't look at it that way.
Less than 50% of our sales represents material costs.
In that, there are components.
There's purchased products that make up a component of that.
But of the raw material we buy, about 70% is steel.
But it's not 70% of 50%; it would be bad math.
But for competitive reasons, <UNK>, I can't give you ---+
I think unlike prior years, people looked at this year as 'boy, this is really going to be difficult'.
The years ---+ every year in business you deal with raw material inputs, price recovery, and some people look at it from a margin recovery (perspective).
And the most difficult times (are) when you get rapid material changes in a short period of time, whether they go up or they go down.
I think the most challenging environments are when it's unique to you.
In this case, it is not unique to us or (our competitors) ---+ it affects everybody.
So when you go to customers, customers understand that the world has changed across the board.
And whether we are in first in line or we are number 26 in line, there are 26 people knocking on everybody's door and saying 'listen, you know what.
' The value of products all the way through the price waterfall from the user to the channel to the manufacturer, these have to go up because the cost inputs are material and significant and nobody in that anywhere in the waterfall can uniquely absorb them.
So to your opening point is the market is a lot more receptive to dealing with it and dealing with it in a timely and efficient manner.
Because it really references not just the profitability, but the sustainability of the whole supply chain all the way to the end user who is going to swing the hammer.
So I think that's been a big part.
Nobody out in the industry is an outlier asking for price increases for whatever they have done for in the past.
And then we've got a fairly sophisticated sales and marketing group that is close to their customers and I think they've done an exceptional job.
And to be quite honest, have in the past.
And we are out in front of a lot of this.
These conversations, some can take place and be enacted on the next day, some take 120 days because of relationship contracts and things like that, in various forms.
I would say that we've got a little bit ---+ 30 to a quarter ---+ a 90-day head start on the year to make sure we are well positioned, as we said in our prior calls.
So I think to date, we feel as we go through the details of that math by product, by customer type, we feel pretty confident as we rolled up and re-forecasted Q2 and maintained our guidance for full year.
Now, the other side of that is you don't know what you don't know.
As everybody knows, it's been tremendously volatile, but we think we've captured the bulk of that volatility that would be expected going forward.
So the perimeter security initiative is we've described it as really probably the path forward for our industrial group.
It's an attractive end market domestically; it's probably a $1-billion-plus opportunity.
And we are hardly participating in it today.
We are increasing our participation.
We think that over a two- or three-year period, it could transform that business and incrementally, as we move through that process.
We've historically, going back 15 years, sold product that is on the existing border fences.
I think somewhere around 50-plus miles around a couple border cities.
So it could provide upside this year, but we don't view it as something that will go from $0 to $50 million in a 3-month period.
We think that it is a two- to three-year period to penetrate the market to really build a business that is a full product line/business of meaningful size to the Corporation around it.
But it's really what we are trying to grow.
We have all the assets in place to manufacture.
We spent last year doing development work, patented systems, and started getting out in the marketplace building a pipeline of projects that we could bid on.
And that's translating into a growing backlog.
And now sort of at the end of the fourth quarter or throughout the fourth quarter, we actually saw the activity levels increase and we saw that continue in the first quarter.
So we are encouraged by growth.
But it is small today, but it carries a different margin profile because it's really an engineered solution sale.
We are not selling a truckload of material to a steel wholesaler.
We are selling a finished perimeter security system either to a property owner, whether that's a transportation authority, a train depot, an electric utility.
Or we are selling it to the contractor who has got the project ---+ who has the work to expand and do some work at one of those facilities.
Yes.
And I would say as we continue to demonstrate traction in the area, the perimeter security, the fencing piece, for a lack of a better term, is one component of that $1 billion opportunity.
There are associated products that go into an installation, whether they be bollards or gates, primarily as sort of hard materials.
And then there is monitoring equipment, detection equipment, surveillance equipment that also gets all wrapped up into a high-end security installation from a hardening-up perspective.
So we play in one piece of that value proposition today on a more direct basis than we've ever done before.
And as we continue to demonstrate traction with this new product, which is being very well received by both the buyers, the developers of the project, the electrical utility companies, and some of the other examples <UNK> gave.
But more importantly, the ease of installation by the contractors who have to do the work.
Whether it's the replacing of the poles and the fencing and the integrated wiring systems, we've designed our installation to take time out from a contractor's perspective because we saw that that was where all the pain was.
And as I highlighted in my recent ---+ in our call, I did visit a couple shows.
One at the end of last year, late December in the South and then a Vegas show just recently.
And in both cases, I spent time talking to about a dozen contractors, half of who had already done installations.
And the feedback was is that 'boy, if I used to spend two weeks doing this, I'm spending less than half my time doing this (now).
I can get on and off the site in a lot more timely way'.
So for the fencing piece, which is what we are focused in on, we think we've got the right type of solution.
We will see where it goes over the course of the year as to whether or not there's a way we can accelerate it from an acquisition perspective.
Yes.
Let me start and I will let <UNK> give you the numbers.
I would say that mix was a key issue.
If you look at where we landed, we probably did a little less in the Residential Building Products group as it related to ventilation products and the Postal group versus the prior year.
And they tend to carry high rates of return and high margins.
And they were offset by the Renewable Energy & Conservation group and the Industrial & Infrastructure group.
And not necessarily because they carry ---+ they do carry on an annualized basis lower margins, but just by historical seasonality perspective, their worst time of year on a margin profile perspective just on a volume-related basis tends to be the first quarter.
So when you put those two together, that was probably the number one.
The lag in price-raw material was probably, <UNK>, number two behind that.
Yes.
And I would say, Walt, it's like two-thirds mix, one-third price.
Is that the math.
That's about the math, yes.
I think on both points, mix becomes more normalized.
And I think obviously we begin to ---+ the issue of price, if there is a lag, that obviously becomes minimized as well as we go forward.
And that's how we arrived at our Q2 guidance, is making sure that we see that traction and we do.
You know, so between 2% and 4%, there is not a lot of growth.
But you know ---+ and we are early in the year.
But right now, I would say probably we are looking at it half volume, half price.
And it's going to vary by customer and product and project and everything else.
So there's probably going to be different businesses that have a different mix, but I think in total, we think it's about half and half as we roll through the year.
And if you look at that and you say, well, that math would suggest you are only going to be up if it was up ---+ if you were going to be up 4% on organic growth unit volume, you know, and half of that is price, then really what you are seeing is coming into the lower end of your guidance on the growth side for the core business in the absence of price.
I think that would be ---+ you could view that as conservative, I guess, because that would be the lower end of what we said.
But we had some pricing.
I mean, so I just think ---+
You had price in your original guidance.
So I just look at it as it's still early in the year, we came out of a strong first quarter, we like the way the second quarter and rest of the year looks, but we just finished April.
Yes.
And I think to our earlier comment ---+ I can't remember if it was <UNK> or Dan ---+ we are certainly not counting on the same extended season in the fourth quarter.
We are kind of forecasting a more typical fourth quarter in terms of how long the season lasts.
If that repeats itself, like 2017, then obviously we will have an opportunity to sell more product to more people before the close of the year.
But we haven't counted on that in our current guidance.
It seems good to us, Walt.
We saw order volumes return to more normalized level in April.
And it really ---+ so if you think about the weather pattern in the country, it was sort of cold and rainy in the South and the West, and maybe mid-March that started to clear.
And so we saw those regions pick up first, which normally might've been a month and a half, a month earlier.
And then now, I mean, we even have spring in Buffalo today.
So as the year progresses, we think that maybe that, call it a longer or late winter, hopefully is behind us and we are seeing the activity levels return to normal.
So we feel pretty good about that.
Demand from customers has been strong.
I think the thing that I think about on the ventilation and the roofing accessories side is always the unknown of labor.
We think there is a lot of demand out there for repair and remodel.
The question will be how much and how quickly can it be addressed, given the lack of labor maybe in some markets.
Thank you for participating in the call.
We look forward to catching up to you next quarter.
Thank you.
| 2018_ROCK |
2018 | MKTX | MKTX
#Good morning, and thank you for joining us to discuss our first quarter 2018 results.
This morning, we reported first quarter results, driven by record trading volume of $465 billion, up 18% compared to Q1 2017.
Additionally, volume records were set this quarter across each of our 4 core products.
Our estimated U.S. high-grade market share also reached a record of 18% this quarter, up from 15.9%.
On the back of strong trading volumes, first quarter revenues were a record $115 million, up 11% compared to Q1 2017.
Operating income for the quarter was $60 million, up 9% from a year ago.
And diluted EPS was up 14% to a new high of $1.27.
Expenses of $54.5 million were up 14%, including $1.7 million in duplicate rent expense for Hudson Yards.
After the double rent charge, EPS would have been up 17% year-over-year.
Open Trading adoption continues to accelerate and reach record volume of $81 billion, up 38%.
Additionally, trading volume with international clients reached a record $130 billion this quarter, representing an increase of 30%.
Slide 4 provides an update on market conditions.
Overall, secondary trading conditions improved modestly in the first quarter.
Interest rates moved higher, and volatility improved in both interest rates and credit spreads.
Overall, trades high-grade market volumes in Q1 were relatively flat year-on-year, while high-yield trades volumes were down 4%.
As a result, our trading volume and revenue growth was driven primarily by market share gains.
New Issuance was down 13% versus last year's first quarter.
U.S. credit mutual fund inflows continue to be strong.
We are pleased with our results in the context of the market environment and remain confident in the secular trend towards greater electronic trading in global credit markets.
Slide 5 provides an update on Open Trading.
Open Trading volumes were $81 billion in the first quarter, with average daily volume of $1.3 billion, up 40% from the same period last year.
Open Trading represented 17.5% of our volume in Q1, up from 15% last year.
Approximately 204,000 Open Trading transactions were completed in the first quarter, up from 147,000 in Q1 2017.
Liquidity providers or price makers on the platform drove 820,000 price responses, representing a 71% increase in activity in the first quarter.
Liquidity takers saved an estimated $32 million in transactions and costs through Open Trading on the system, up 28% from the first quarter last year.
Participants benefited from average transaction cost savings of approximately 2.4 basis points in yield when they completed a U.S. high-grade transaction through Open Trading protocols.
In a recent Greenwich Associates survey, investment managers cited price improvement and all-to-all trading as the 2 most important factors for selecting a trading venue.
Slide 6 provides an update on our international progress and MiFID II.
The momentum in our international business continued in the first quarter.
MiFID II implementation contributed to growth in European client trading volumes and post-trade revenue.
European client volume was up 29% year-over-year, led by a 52% increase in emerging market volume and a 22% increase in Eurobond volume.
In addition, Trax post-trade services revenue increased by $2.1 million in Q1, primarily due to MiFID II regulatory reporting services and nonrecurring MiFID II implementation fees.
European data revenues were up 25%.
In Asia, client onboarding is accelerating with our new regulated trading venue in Singapore.
To date, over 35 dealers and 80 investor clients are engaged on the RMO.
Our Emerging Markets business continues its strong growth trajectory with first quarter record trading volume of $105 billion, up 33%.
Approximately 940 firms are now active in global EM trading on the system.
In addition to EM external debt trading, we are encouraged by the progress we are making in local currency bonds.
Trading volume in the 25 local EM markets available on the system grew by 43% during the quarter, with further progress in block trades.
Volume from international clients now represents 28% of global volume, up from 18% 3 years ago.
Now let me turn the call over to Tony for more detail on the financial results.
Thank you, Rick.
Please turn to Slide 7 for a summary of our trading volume across product categories.
U.S. High-Grade volumes were $251 billion for the quarter, up 14% year-over-year.
Higher estimated market share accounted for the vast majority of the volume gain as U.S. high-grade trades market volume was up an estimated 1%.
We completed approximately 6,600 block trades during the first quarter, almost double the number from just 2 years ago.
And our estimated market share of U.S. High-Grade trades over $5 million in trade size was 10.9% during the first quarter and is a big contributor to the 2.1 percentage point increase in overall market share.
Volumes in the other credit category were up 25% year-over-year as our emerging markets, high-yield and Eurobond trading volume all hit records during the quarter.
Similar to U.S. high-grade, market share gains were the main driver behind the emerging markets, high-yield and Eurobond volume growth.
April has seen a reversion to 2017 tight market conditions with a decline in volatility and credit spreads.
Aggregate estimated market volumes for our 4 core products are down around 14% from the first quarter levels.
With 4 important trading days remaining in April, estimated U.S. high-grade and high-yield market share is running below first quarter levels but similar to share posted in January.
On Slide 8, we provide a summary of our quarterly earnings performance.
Overall, revenue was up 11% year-over-year.
The increase in trading volume drove commissions 9% higher.
The uplift in post-trade services revenue is due to a combination of new customers and MiFID II services and the impact of the weaker U.S. dollar versus the pound sterling.
Operating expenses were up 14% year-over-year, leading to a 9% increase in operating income.
Excluding duplicate rent expense recognized during the build-out phase of the company's new corporate offices in New York City, operating income was up 12%.
The effective tax rate was 21.4% in the first quarter and reflects the reduction in the Federal income tax rate and other changes associated with the Tax Cuts and Jobs Act and $1.8 million in excess tax benefits related to share-based compensation awards.
As mentioned on the January earnings call, we expect the effective tax rate for the next 3 quarters will be roughly 25%.
Our diluted EPS was $1.27 on a fairly stable diluted share count of 37.9 million shares.
On Slide 9, we've laid out our commission revenue, trading volumes and fees per million.
Total variable transaction fees were up 3% year-over-year as the 18% increase in trading volume was offset by a mix shift within certain products and the impact of our new high-yield fee plan implemented in the third quarter of 2017.
U.S. high-grade fee capture was down both sequentially from the fourth quarter of 2017 and year-over-year.
There are 3 primary reasons our U.S. high-grade fee capture varies from period-to-period.
First, our fee plan is tier based on ticket size; second, the fees we earn are dependent on bond duration; and third, we give dealers a choice of fee plans.
The sequential decline in high-grade fees per million reflects a higher percentage of volume traded in larger sized buckets and lower duration caused by a decline in years to maturity.
Our other credit category fee capture was down $11 on a sequential basis.
Approximately half of the variance was due to Eurobond fee schedule changes implemented effective January 1.
We also experienced the typical swings resulting from mix shifts namely a higher percentage of emerging market volumes in sovereign bonds.
Slide 10 provides you with the expense detail.
Sequentially, expenses were up 10%, largely due to higher compensation and benefits cost.
The variable bonus accrual was $3.7 million higher, and employment taxes and benefits were up, reflecting the typical first quarter seasonality.
The sequential increase in occupancy cost is due to the duplicate rents expense of $1.7 million.
On a year-over-year basis, expenses were up 14%.
Excluding the duplicate rent expense and the impact of foreign currency movement from the weaker dollar, the year-over-year increase in total expenses was approximately 7%.
A roughly 10% increase in average headcount drove the $1.6 million uplift in compensation and benefits cost.
On Slide 11, we provide balance sheet information.
Cash and investments as of March 31 were $400 million compared to $407 million at year-end 2017.
During the first quarter, we paid out our year-end employee bonuses and related taxes of roughly $32 million and the quarterly cash dividend of $16 million.
We also repurchased 72,000 shares in total during the quarter, including 31,000 under our share buyback program and 41,000 associated with tax obligation netdowns upon vesting of employee stock awards.
As of March 31, approximately $88 million was available for future repurchases under the share buyback program.
Based on the first quarter results, our board has approved a $0.42 regular quarterly dividend.
Now let me turn the call back to Rick for some closing comments.
Thank you, Tony.
We are pleased to see the improvement in the secondary market environment leading to record volumes and market share in the quarter.
MiFID II implementation has created additional momentum in our European and international business.
Adoption of Open Trading is accelerating, leading to important transaction cost savings for our clients.
Now I would be happy to open the line for your questions.
Sure, happy to take that one, Chris.
There has been a significant increase in algo-generated price responses over the last 2 years.
As far as where we are, I'd say probably fourth or fifth inning.
We are seeing new dealers come on with algos virtually every quarter.
Most of the trade sizes are sub-$1 million, and even more specifically, probably sub-$500,000.
But I think what you're seeing is a transformation of odd lot trading, where dealers increasingly are responding through algos.
And client adoption of auto-execution is picking up as well, whereby when certain parameters are met with the price responses they receive, they execute that trade without manual intervention as well.
I think this is a really important development for the market.
You are all aware that nearly 90% of tickets reported to trades are under $1 million.
So this is another way that we can significantly increase the efficiency of trading smaller tickets and lower costs for both dealer and investor clients.
Sure, happy to take that one as well.
It was a great quarter for us for block trading.
The big story starting the year was the increase in economic activity in the world, some uptick in inflation numbers and growing expectation that the Federal will move rates up more quickly than people had anticipated.
On the back of that, it led to quite a bit of shorthand activity.
And we were pleased to see many block lists come into the MarketAxess system and receive great pricing, leading to our record numbers in blocks and our record share.
As Tony mentioned, it was a quarter where more of those block trades and block lists were at the shorter end of the curve, which was one of the factors that reduced the fee capture in high-grade during the quarter.
We have seen improvement out the curve as well, but this quarter, the majority of the activity was in---+ within block trades 3 years and under in maturity.
Well, BlackRock has been a very important partner for us.
And with their full support and activity, we have made great progress with Open Trading in the U.S., increasing momentum in Europe, and this is the third leg to really promote Open Trading throughout the Asia region.
So as I've mentioned before, there are lots of components of that partnership with BlackRock.
One is, they fully support the move toward all-to-all trading with their trading activity.
We get excellent advice from them on protocols and things they believe would work well in the market.
And the piece that's also an important part for both of us is the integration with the Aladdin client network.
So all those parts are in motion with the extension of our joint venture with BlackRock into the Asia region.
Rich, we can, and I flagged 3 big items in the prepared remarks around trade size, duration and the dealer choice on a fee plan.
At times, we've given some guidance or rule of thumb on how to look at those, how to look at those variables in.
And you just put it in a perspective, the yield movement is probably the least important of those 3 items.
So if you had a, for example, a 1 percentage point change across the yield curve, that could equate to something like $10 or $15 per million.
And all else equal, that would give you a rule of thumb or sensitivity around the yield change.
When I say the bigger pieces, they're probably around maturity and even the dealer mix has a big influence.
On the maturity side, we did see some of that impact in the first quarter where years to maturity came in almost one year versus the fourth quarter.
Every year to maturity could be $10 to $15 per million as well, so you have some influence there.
I would tell you this, though, on a longer-term basis, if you look at the high watermark per fee per million for high-grade, which was a little over $200 per million, by far and away, the largest impact has to do with the dealer mix or the dealer choice of plan.
Today, we have 33 dealers on the distribution fee plan.
When we hit that high watermark of $205 per million, we had 22 dealers on the plan.
So you'll recall, there's just a geography switch then where we have more and more fees coming through distribution fees and lower fees coming through variable fees.
So longer term, it's the dealer choice influences the outcome significantly.
Shorter term, you see those mixes around duration and around trade size as well.
It's tough to predict what the dealers are going to do.
We do provide choices, in particular, in the U.S. high-grade and high-yield.
It's tough to predict what dealers are doing.
They're responding to their own forecasts and projections.
They're responding to the economics of our fee plan.
So it's tough to predict.
Every time we say we're not tracking any dealers who are going to migrate up, we get 1 or 2.
But right now, we have 33 on that distribution fee plan and another 40 or so on the variable plan.
So there is a potential for some movement, but right now, we're not tracking anything.
Rich, by not saying anything on the expense guidance, you can figure out that we're still expecting 2018 expenses to fall within that range.
And there's still some swing factors that we have going forward.
I'd tell you, headcount is one of those swing factors, which I'll comment on in a second.
But where we come out on headcount could move the expenses up or down.
You know the variable bonus accrual is tied to performance, so that's the swing factor there.
And I'd give you one more, which is just on the foreign exchange movement, where we have around GBP 45 million in expenses, and that FX movement could influence where we come out.
But right now, we're expecting to be within the range.
If you look at Q1 versus the expectation for the rest of the year, we do expect headcount to go up.
We've been pretty good at forecasting headcount the last several years.
We do expect headcount from this point forward to go up by about 10%.
So you figure another 40 or 45 bodies we expect to add by the end of the year.
And with that one, almost half of those positions are already filled.
So between new hires starting in April and May, we have an analyst program that ---+ where those new hires come in later in the summer.
We've got half of the bodies sitting in ---+ committed already.
So you would expect compensation to go up.
And the other one that I would tell you, just if you're isolating line items you'd expect to go up on the marketing and advertising line.
It is dependent on advertising campaigns.
It's dependent on trade show participation.
What you saw in the first quarter is not indicative of what you're going to see in Q2, 3 and 4.
You will see an increase in that line item going forward.
Sure, <UNK>.
So you saw we reported was about $2.1 million increase year-over-year in post-trade, and 3/4 of that, that is new customers and new services related to MiFID II.
So the largest chunk is, we do believe, is repeatable.
There were some implementation fees that was around $300,000, so I would take that out.
That's more onetime and nonrecurring.
We also had the same foreign exchange impact, and that would have been maybe around $400,000 or so.
If you're looking, going out the next several quarters, and that's probably as good as we're going to get in terms of projecting out, we would expect revenue to be in that $4 million to $4.5 million per quarter.
So you see the ---+ for the step function to increase from last year to this year, that is MiFID II driven.
Going forward, it's going to be dependent on our ability to bring new customers online, to add new services.
But looking at what we have as sort of a crystal ball right now for the next several quarters, I'd narrow that to that range of $4 million to $4.5 million per quarter.
So <UNK>, good news on the market share.
We had market share gains across all size buckets.
So it wasn't that it was isolated to block trading.
If you looked at $100,000 to $1 million, $1 million to $5 million in trade size, over $5 million in trade size, there were pretty robust gains across the board.
And yes, so it's probably half of the gain was from the block trading.
On the fee capture, it's a harder one to answer.
On the block trading piece, it does vary from period-to-period.
It is dependent on duration as well.
But if you were looking at over $10 million in trade size, remember, our fee plan doesn't exactly match up with the trade block designation.
But if you looked at over $10 million in trade size, it's somewhere between $50 to $60 per million.
We are seeing good uptake, and it's a result of introducing new protocols for European Open Trading <UNK>, so we're pleased with the progress that we are starting to make there.
There's more work to be done because of the challenges with price-based protocol that you mentioned.
But we have introduced some new protocols over the last 3 or 4 months, and it is clearly making a difference.
Let me just follow up on <UNK>'s question, obviously another good quarter for Open Trading.
Just longer term, as this business continues to grow, how should we think about this impacting your balance sheet flexibility.
And then I just wanted to get your thoughts on how we should be thinking about the prospects for maybe a larger role for clearing in this product, say, 5 years out.
Just be curious how you think this product works in 2023, for example.
You want to take the second.
I'll take the one on balance sheet.
Go ahead, you start.
So on the balance sheet side, <UNK>, the nature of our Open Trading business today is matched principal trading using a clearing agent.
It really does not influence our regulatory capital requirement.
Having said that, we are consciously holding excess capital in our regulated entities.
So if you looked at end of March, we had somewhere around $100 million of excess capital in the regulated entities and that's to support Open Trading.
I guess when counterparties opt to trade through us, if we looked at estimated credit losses based on historical default models and even if we use a stressed environment, the output is significantly lower than the capital that's residing in the businesses right now.
So we're comfortable with the balance sheet position today.
Even if we ---+ and we will, Open Trading will continue to grow.
Even at multiples of what we're trading today, we still feel that we have a healthy capital position does get, helps get counterparties comfortable with our credit.
So no change in that in the immediate view around the excess capital, where we're retaining in the regulated entities.
On the longer-term outlook for settlements, I would expect that we would see positive progress in the industry as a whole in continuing to reduce settlement periods, so the capital at risk will decline with shorter settlement periods.
And we have a huge benefit in real-time, digital, post-trade messages that are going to our dealer-investor clients.
And as electronic trading continues to grow, we believe there is further opportunity to use those digital messages to reduce the settlement time from the current 2 days in corporate bonds.
And I think as our activity grows, we are working on long-term solutions.
We are, as you know, working with a settlement partner today.
We would expect at some time to examine more carefully the pros and cons of self-clearing.
But we would also expect to be part of industry initiatives around how to improve the efficiency of trade settlement overall.
And this is where I think you'll see the most progress.
And we would be big supporters of that, clearly, because we think that would be yet another benefit of greater electronic trading in the credit markets.
That's really helpful color.
And then I know you have been pretty clear that one of the drags on your market share gains in 2017 was some of the [ETFR] traders had really pulled back from the market.
The stats I'm remembering, I think it was 40% of volume at peak, and it was down to more like 20% last year.
Just curious how much of a pickup in volume you saw from these players given a resumption of some volatility in 1Q.
It is absolutely better year-to-date than where we were, especially through the last 2 or 3 quarters of last year.
And my own view is that we are starting to see the very beginning of global quantitative easing unwinding, and that is going to move more quickly over the next 3 or 4 quarters.
I believe this is a significant change in the market environment versus where we have been over the last 8 or 9 years with consistent bond buying in all 3 regions from quantitative easing.
And you see a very different posture from the Fed.
You see important changes taking place with the ECB.
And the Bank of Japan also wondering whether they need to keep up this level of stimulus.
That to me is a very, very important change for the market that is likely to lead to higher rates and more volatility.
And with volatility comes more [ETFR] activity.
So in my opinion, the odds are greater that we're on a positive path there with participation from that client segment.
And then just maybe one clarification for me, Tony, the 14% decline number you mentioned, was that in reference to the industry or your volumes.
The 14%, what I referenced, was market volume.
So what we're seeing coming through trades, what we're seeing coming through our Trax business across U.S. high-grade, high-yield, emerging markets and Eurobonds, we're seeing about a 14% decline in market volumes versus the first quarter.
I would just add to that, until about a week ago, the direction of interest rates had reversed.
The first couple of months of the year, Treasury 10-year yields went up about 40 basis points.
And then beginning in around mid-March, when the trade war discussions really heated up, Treasury yields went the other way, and credit spreads did as well.
So we had a short-term shift in the market environment, which also created a pause in some of the short and block activity that we have seen in Q1.
Obviously, over the last week, the direction of rates has reversed yet again, and rates are moving higher.
So the situation is pretty fluid, but we did have about a 3-week period there where the market environment was different than it had been through most of the first quarter.
There has been a new issue technology broadly utilized by the dealer community for many years, and much of that is on Ipreo today, Patrick.
So what we've seen in the media is all we know and it sounds like it's similar to what you're seeing, which is that some dealers have a different view of what that technology should look like and what the protocol should be.
But we have been peacefully coexisting with new-issue syndicate technology for the entire existence of MarketAxess beginning in 2000.
And there really isn't any overlap in the technology solution that's at work for underwriting in syndicate and the technology that we have invested heavily in for secondary trading.
So I really don't see that as any significant change in the landscape between new issue technology and what we do.
Yes, a lot of it is around the new obligations that investment managers have for regulatory reporting.
And I'd say in the near term, that has been the biggest change, was the source of the client expansion that we mentioned in our prepared remarks.
It's a pretty big change, right, because previously, with MiFID I, the nonequity reporting requirements resided purely with the dealers.
Now they include investment managers.
But a lot of that work, as you know, was going on throughout 2017, so that everyone would be prepared to comply beginning 2018.
But it is a significant change for investment managers in terms of the reg reporting regime with MiFID II.
The other part of it is around demonstrating analytical measurements for best execution.
This opens up new data sales opportunities for us, which is one of the reasons that we're seeing consistent growth in data sales in Europe.
The third part is the prevailing view in Europe now is that any low market impact trade is better off on a regulated trading venue where the regulatory reporting obligations shift to the venue.
So we think that has had an impact on trading behavior for low market impact trades, resulting in the volume increases that we reported earlier.
Patrick, there's so much at work and so many different levers that impact fee capture, and we're talking specifically about U.S. high-grade here.
We could go back and look at longer-term trends and look at the yield curve compared to our fixed-rate fee capture as opposed to floating rate, no-fee capture.
You're going to see that when the yield curve is flatter, clients are tending to trade shorter day paper, you're going to see the fee capture comes in a little bit.
But I caution because you have lots of other factors at work.
And I gave the sort of rule of thumb before on what movement and yield mean to us.
And to get much more granular and isolate that, we can do it, but it's probably not telling the whole story.
Even in the short term, Patrick, this month is a good example of all the different moving parts being fairly complicated to predict fee capture.
Because while the Treasury curve is flattened, our fee capture is actually up due to fewer block trading programs being in the market versus what we saw earlier in the year.
So there are a lot of moving parts, and the best we can do is be fully transparent with you on how our fee model works and report on a regular basis on how they're impacting average fee capture.
But it is very difficult to predict one month to the next.
So peak and fee capture, I mentioned this a little bit earlier.
But third quarter 2010, our U.S. high-grade fee capture was at $205 per million.
At that time, the years to maturity was about 9 years.
And the 10-year Treasury yield was about 2.9 percentage points, so not much change in the 10-year yield versus where we were in the first quarter.
Years to maturity were about 1.5 years longer, so that did influence fee capture when we reported the $205 per million.
We ---+ the other difference would have been around our tiered fee plan where the first quarter this year, we had more trading occurring in larger trade sizes.
But as I mentioned before, by far and away, the biggest difference between the peak and where we are today, which would be a postcrisis trough, but by far and away, the largest impact was dealer choice on the fee plan that they were on.
And just to put it in perspective, if we were at $205 million in third quarter of 2010, we just reported $154 per million in the first quarter of 2018, $51 million difference, $35 per million has to do with the choice of plan that the dealers were on.
And we've given a rule of thumb before.
For every dealer that moves from the variable plan to the distribution fee plan at today's volume, it reduces the fee capture by about $3 per million.
So you're looking at today, about $35 per million.
That decline was because of the dealer choice of plan.
And I'll just mention just briefly on sort of the precrisis trough, the biggest difference on the precrisis trough where we were down, if we adjust for the variable fee plan, we were down at something like $120 per million.
The biggest difference there was 30% of our business at the time was floating rate notes, 30%.
If you look at it today, it's 5% of our business floating rate notes, very short duration, the fee capture is appreciably lower.
That is a big difference in fee capture.
And the years to maturity were 5.5 years, and today we're at 7.5 years.
So it's a different environment, and again, lots of moving pieces here.
But today, it is different than 8 years ago when we reported the $205 million, and it's different than 12 years ago when we reported something appreciably lower than where we are today.
We don't really have any changes in mind there, <UNK>.
We like more dealers on the distribution fee plan because in our view, it gives them further motivation to have more of their trading conducted electronically on MarketAxess.
So we are happy with the way that plan works.
I think it creates good alignment between MarketAxess and the dealers.
And we don't currently have any plans to change the distribution fee plan.
Sure, sure, <UNK>.
So we did make some changes effective January 1.
And you know that the Eurobond space and Eurobond specifically, it is a competitive space.
So we did reevaluate our pricing schedules in light of the increased transparency post-MiFID II, so we have a lot more visibility on where fees are in the market.
So we did make some adjustments to put us in line with the market.
And as Rick said, we don't want fees to be an obstacle to growing our business, and we don't want it to be an obstacle to growing our Eurobond business.
There's lots of momentum with European clients.
You saw the numbers we posted, it was $1.9 billion a day in average daily volume.
The volume is up almost 30%.
So you have to remember that, also that more than half of the volume from our European client is from emerging markets and U.S. credit.
So it is a diverse set of bonds that they're trading.
Very specifically on where we're coming out now on fee capture and we're 4 months into the changes we put in place January 1, we're in that $110 to $125 per million range.
And ---+ but even there, I caution a little bit because it is maturity-based.
It is size-based.
We have different fees for European high-yield than we do for investment-grade.
So I do caution.
But the first 4 months here, the range have been about $110 to $120 per million.
Okay.
Yes.
And so, <UNK>, probably we covered this in prior calls.
I don't remember right now.
But we have emerging market corporates and emerging market sovereigns, and that'll be the 2 big great points on fees.
So typically, for emerging market corporates, it's $400 per million.
And again, regardless of size, regardless of maturity, $400 per million.
And then if you look at emerging market sovereign bonds, including most of what we do in local markets is the sovereign bond, it's $150 per million.
And I tell you, we're completely transparent on this.
We have posted our fee schedules under the new MTF rules.
It is posted on our website.
So you'll see that $400 for corporates, $150 for sovereign, that's how the fee plan works right now.
And most local market trading is sovereign bonds.
Thank you for joining us this morning.
Enjoy the spring and we look forward to talking to you next quarter.
| 2018_MKTX |
2018 | MLM | MLM
#Thank you, <UNK>, and thank you all for joining today\
The first is just on guidance.
Could you give a little bit more color in terms of important drivers for assumptions, including rising diesel cost and the ability to make up for those lost volumes in 2017 from storms.
Sure, <UNK>.
We're happy to do that.
Number one, we see volume better in every major market in which we operate.
So if we you look across our states, we don't see volume down anywhere.
If we look at the elite 8 states in which we operate, meaning Texas, Colorado, North Carolina, South Carolina, Georgia, Florida, Indiana and Iowa, we see all those states up pretty markedly, and we don't just see them up in one area.
We see infrastructure being better.
We see nonres better, and we see residential being better to answer your question very directly.
With respect to energy itself, look, we do see diesel going up year-over-year, based on the guidance that we've put out, at least baked into our guidance.
It's not called out specifically.
We are seeing that diesel for the year would be up around $0.44 per gallon in '18 versus where it was in '17, but quick math is going to tell you that's going to be plus/minus an incremental $20 million.
And in case you're wondering, we used about 44.8 million gallons of diesel fuel last year, so that's how we work up to those numbers.
I hope that's helpful, <UNK>.
Yes.
No.
That's helpful.
And I assume or are you assuming that you will or won't make up for those total lost volumes from the storm.
Yes.
What we're assuming is that we will make up some of them.
We're not assuming that we'll make up all of them.
And again, we'll just see how that flows through.
But at least at this point, that's how we bake that in, <UNK>.
Okay.
Given a little choppy end to the quarter, there were some parts of the ---+ there were many parts in the U.<UNK> that did really quite well, but there were certain ones, including Texas, where they just can\
Sure.
No.
I'll try to do that.
<UNK>, if you go back over the last 2 years, what we've seen in both '16 and '17 were actually pretty mild Q1s, so we've seen better Q1s on a compare basis the last 2 years than we would have seen historically in the company.
So here's what I'll tell you.
If we go back and look at the last couple of years, and I'm looking at these percentages as a percentage of the year, so we would have seen revenues in Q1 in '16 and '17 of around 21%.
We would have seen gross profit in Q1 in '17 around 16% and EBITDA about 15% of full year.
Now if we go back and say, okay, really, what does it look like over a longer period of time and take a look at what that snapshot looks like, it looks more like revenues, 17%.
It looks more like a gross profit of 8% and an EBITDA of around 8%.
One thing that I'll remind you, and we talk a lot about this, but it's important to remember at this time of year, in particular.
Typically the first quarter is made or broken in the last 2 weeks of March.
I mean, that's what we've seen forever.
That's usually when the construction season starts in earnest.
So what I would encourage you to think about, <UNK>, is a more typical cadence to the year.
And what I've just given you, at least relative to Q1 the last couple of years but more likely Q1 over a longer term, is the way that I would think about it.
So I hope that helps.
That does help.
And then finally on fly ash.
We've been watching shortages of synthetic gypsum and also fly ash throughout the U.<UNK> impacting different industries, and we definitely noticed a tightness in ability to get fly ash in the state of Texas, in particular.
Is this something that you're also seeing.
And also clarify how that may or may not impact your cement operations.
Well, the short answer is, yes.
We're seeing it, and I think it will provide some choppiness for ready mixed producers in parts of the United States.
Keep in mind, we're the largest producer of cement in Texas.
So do I think it can provide some choppiness for people for, let's call it, 6, 7, 8 weeks.
I think it certainly could.
From a cement supplier's perspective, look, if there's not fly ash, we're happy to fill that void with cement.
And I think we can do that just fine.
So I think we're sitting in a pretty good place from that perspective, <UNK>.
You know what, it certainly is.
There are 2 things that I would tell you are in that, and it's hard to tease it all out with specificity, <UNK>.
But I do think you're going to see more infrastructure work this year than last year.
I think you're going to see more new infrastructure work than last year.
That does mean that you're going to have more base product going out.
And that's clearly, on average, about 30% lower ASP as opposed to clean stone that's going directly into ready mixed or into asphalt.
So I think that is going to matter.
The other thing that I think we've called out fairly clearly is we think growth on a relative basis is going to be more robust in portions of the West.
So again, if we're looking at places like Texas and Colorado, those markets are still, let's call it, 70% of a corporate average.
So there's clearly some of that.
So when we're looking at the 3% to 5%, you could probably take that up half a turn-ish or so as we look at what pricing would be if you are really looking same on same.
And the other thing that I would tell you is there were a couple of things last year, too, that are important to remember relative to the pricing that we reported.
Number one, we did see some product mix issues in Texas in 2017 because I want you to remember we did finish some large energy-related projects at the end of '16 that were principally using clean stone.
If we really do a same on same, then you probably would have seen another percentage, maybe a little bit more than that up just in the Southwest division all by itself.
And we also had some excess fill product, in many respects what's almost a waste product that we sold, for fill on a bypass job in North Carolina.
And we sold about 1 million tons of that at $1.76 last year.
I give you all that background, number one, as a reminder that those were in last year's number; and two, just to give you a sense of how constructive we think that piece of the business continues to work overall last year and what we feel like is a very attractive outlook for this year.
It can come relatively quickly depending on the nature of the project, so it could be anywhere from 2 to 6 months would not be unusual lag times, again depending on the time of the year.
And you make a very good point.
If base stone is going down, the day and the hour is going to come that asphalt or concrete is going to go on top of that base stone.
So it's important to recognize when we're having a conversation with you around more base stone, from where we sit, that's a very good sign.
And it goes back to the comments that I gave in the prepared remarks relative to this being an extended cycle, and those were some of the very few reasons that we think the cycle will be extended.
Well, here's what I would say.
The process with DOJ is going exactly as we thought it would, so there have been no surprises there.
As you may recall, we spoke last time about entering into a timing arrangement with them.
So we continued to work in a fashion that we think is really constructive.
We are not seeing anything from that process that makes us think about this transaction any differently than we did the day that we announced this transaction.
So to the extent that there are divestitures, the divestitures will not be such that they're value-destructive to the transaction, so again exactly the way that we thought of it.
We have also not changed the way financially that we think about this deal.
It will be accretive on EPS and cash flow during the first full year.
We'll obviously talk to you more about that in granular detail once we own it.
Since we don't own those assets yet today, we still have to be careful about what we say in public that we haven't already.
But again, we're excited about that deal.
We like the fact that we're picking it up when places like Georgia are 20% below mid-cycle.
We're seeing literally billions of dollars worth of work coming in Maryland.
We think we're the right owner.
Those are the right geographies.
It's got a very bright future.
And we're very comfortable with where we are in the DOJ process, and our timing has not changed on the transaction.
<UNK>, thanks for the question.
I guess a couple of things that I would say.
Number one, I think if we generally spoke to people who were looking at their businesses at a granular level back in October and November and said, "How did you feel then.
And how do you feel now.
" I think, generally speaking, people feel better today than they did then.
And your question is why.
I think for several reasons.
One, if we talk to our customers and we\
Well, I guess there are couple of things that happened there.
Did we have good pricing.
We did.
Did we have good cost control.
And did we put some more inventories on the ground anticipating a busy 2018.
We did some of that, too.
I don't want to completely overshadow the fine performance that the team did.
But yes, I would highlight there were some inventory builds out there, but the majority of it was the pricing and what we're doing from an efficiency perspective, but you did have that one-off.
I mean, you had incrementals with a 100 in front of it, and that's not usual for a Q4.
But still, it was a performance that we are justifiably very proud of.
No, sure.
Happy to do that, <UNK>.
Keep in mind, we are the cement volume leader in Texas, and we got 2 plants there, so one in Midlothian in North Texas; one at Hunter, just outside of San Antonio.
I guess a couple of things.
One, we saw a good finish to 2017.
We think that really set the stage for a positive 2018.
Q4 volumes were positive in both North and South Texas, and we have an expectation that we'll see volume and pricing increases in 2018 as well.
We think there continued to be very strong underlying economic conditions in that state.
We think we're going to see a better DOT this year.
I mean, we're seeing that DOT delta up from a $6.2 billion last year, TxDOT, to $7.9 billion this year, so that's $1.7 billion more just in that all by itself.
We also have a new yard in New Caney outside Houston.
We also have some material we're going to be supplying a little bit in Western Texas as well.
And really, that's more focused just on the south end of it.
We also think what we're going to see in North Texas this year is going to be a very exciting, very full, very dynamic market.
So as we're looking at that marketplace with more volumes and we're looking for some price increases there that are probably going to be around that $6 a ton range, probably a little bit better in the North than it is in the South.
And you take those and put them together, we think it's going to be a pretty attractive place.
The other thing that I'll bring your attention to is if you look at our share by quarter in 2017, we had 21.4% in Q1, 20.9% in Q2, 19.1% in Q3 at the nadir, that's when we spoke last, and 20.2% by year-end, you started seeing us capture some of the share back that we had lost in many respects because we had been resilient on pricing.
We think our strategy is working in that marketplace, and we will continue to be very thoughtful about how we capture a bit more share in the overall Texas marketplace.
But, <UNK>, hopefully, that gives you a good drive-by on what we see in Texas cement.
Ward, can you talk to us about what you're seeing for your shale-related shipments.
How did the year end up.
What's your anticipation of the ramp in '18 for that part of the business as you speak to your customers.
And can you just calibrate us on a run rate basis how diversified is this business by shale play.
No.
Happy to do that, <UNK>.
And what I\
And, Ward, just the cadence.
You mentioned you're exiting the year up 43% year-over-year in this business.
The comps should be equally easy through the first half of the year, so I know we're talking about the law of small numbers here.
But is that the kind of ramp that you expect based on what you're hearing from your customers similar ---+ through the first half of the year in that mid-40s exit rate.
Yes.
And again, I think you could certainly see that type of build again.
I would expect more of that to start in Q2, simply because of the weather issues that are inherent in Q1.
And keep in mind, if you're selling into a Marcellus or a Niobrara, that's a very different Q1 than is an Eagle Ford, for example.
So I think a lot of it's going depend on the where.
I will say this from a percentage perspective, the 3 areas that did get the most better in Q4 would have been Barnett at 38% up, Eagle Ford at 130% up and Haynesville at 51% up.
So that gives you a snapshot of at least where the action is and hopefully what the time will look and feel like.
I appreciate the color.
And then separately, from a pricing standpoint, I know we've got moving pieces in terms of which regions are driving growth for you folks in '18 versus '17.
As you look across your markets, how do you expect the magnitude of price increases on January 1 and April 1 of this year to compare to what we saw last year and any differences in terms of parts of the footprint where you're going earlier or later in the construction season with your planned price increases this year.
You know what, it varies a lot, <UNK>.
I'd rather not go into very specific markets and talk about dollars and cents in any given market, but here's what I'll say.
Clearly, there are some markets that will see increases and have seen increases on January 1.
There are others that will go as late as April 1, so you're not ---+ we're not seeing things past April 1.
The one thing that's worth reflecting on and I mentioned early in the conversation some of the diesel costs.
Diesel in a rising cost circumstance has clearly been something that has continued to at least prop up in the past what had been some mid-year price increases.
We'll have to see how the year shapes out on that and have to see what happens with diesel.
But again, from a pricing perspective, many in January, some in March, a few in April is the way that I would encourage you to think about that, <UNK>.
Yes.
And thank you for the question, Phil.
I think the big issue there is going to be on the where.
So if we go back to the guidance and really think about what is in the guidance itself and how it rolls up, I mean, if we're looking at the low end of that guidance, what the low end of that guidance would assume is that you've got flat Mid-Atlantic volumes and Southeast just up mid-single digits versus our forecast of high mid-single digits.
The short answer is if you've got Virginia and North Carolina and South Carolina going at greater rates than that, it's clearly going to be a friend to the incremental margins.
So it's really going to be more of a story on the where.
And one of the nice ---+ actually, the Secretary of Transportation here in North Carolina who I was referring to a little while ago who's got the high-class problem of having several billion dollars worth of work that he needs to get out the door.
So we're certainly hoping we see that.
We haven't necessarily built a budget around that.
But to give you a sense of it, that's really more your driver than anything else because those are obviously our highest-priced, highest-margin areas that we think have very bright futures, we're just ---+ we're a little bit cautious right now on exactly when that future shows up, but we like what we see.
I don't see a big risk on the construction season this year.
Again, I think it's important to go back to the answer I'd given a little while ago relative to the cadence because I do think, historically, people have tended to put more weight on a Q1 than a Q1 really deserves as I said, really it's those last couple of weeks in March that at least in the 20-plus years that I've been around this industry tend to either make the quarter work or not, and I would just hate to make a year bet based on the last 2 weeks in March.
I don't see anything relative to the state budget, so the federal budget, that gives us any notable concern as we're looking at what we believe the construction season is going to look like when the season arrives in earnest.
Yes.
I guess a couple of things.
I\
I think it probably picks up with the normal construction season in March.
I mean, if we just go through and look broadly at those big 8 or those elite 8 states that we spoke of before, I mean, TxDOT has a letting plan of $7.9 billion this year versus $6.2 billion last year.
I think we feel positive in Georgia as we feel like the House Bill 170 dollars will start to begin to have a much more notable effect.
And we talked about the fact that North Carolina, we believe, has the positive outlook, and we're seeing an accelerating letting schedule here.
I think if we look at South Carolina and we say they've done something that really is not typical for South Carolina, they raised their gas tax over a 6-year period, I think we'll clearly start to see more work there.
And Indiana has done the same thing.
Florida is at a near-record budget at $10 billion.
And part of what we're liking in Colorado right now, which has been just a really strong robust state for us is we continue to see big jobs let in that state.
And here's part of the difference that we're seeing there.
These are big, complicated jobs that are going.
So if we're looking at 2 large TIFIA projects and C-470 is one of them, that's underway.
And I-70 will start in 2018, and that's about $1.7 billion worth of total investment.
And part of the trick on those jobs is we think aggregates will well be tight in that marketplace, and we think contractors are appropriately going to be focused on making sure they have aggregate suppliers and partners going into those jobs who can actually meet their needs.
So again, I think we're going to see a normal rhythm and cadence to it.
I do think we need to get past March 15 because in many states under DOT specifications, you can't even really go full-bore on those projects until then, which goes back, <UNK>, to the earlier comment that I had that oftentimes those last 2 weeks in the first quarter oddly enough make it or break it.
So I think we see a fairly normal, consistent rhythm and cadence to public work as we go into 2018.
Sorry for the long answer.
I'll tell you, we don't see many in our footprint that feel that way.
And as we look at a lot of the nonresidential forecasting that comes out, I think most of them would continue to concur on that.
If we look at the South and the Southeast, those areas continued to have expectations of pretty heavy growth.
About the only places that we see any degree of contraction, at least from third-party forecasters, are really in markets where we're not.
So we're seeing at least people forecast something that's going to feel a little bit more like a pullback in portions of the Northeastern United States.
But again, if we're looking at those states that matter disproportionately to us, what I would suggest to you is I don't see anybody who feels like they're peaky and they're about to go to over that peak.
And we continue to see a lot of cities and among them places like Atlanta and Raleigh and Charlotte and others that we think are still pretty early in the cycle.
And as you know from following us for years, those are cities that tend to be disproportionately important to us.
Quick question.
We're talking about the elongated cycle.
And certainly, you guys got some benefit from the tax plan.
Does it change how you think about leverage over the near term.
And I ask that kind of post-Bluegrass and the dead deal you're looking at kind of mid- to high 2s sorts of level, which is very reasonable, I think, kind of where we are.
But I would love to hear your thoughts whether additional M&A, buybacks kind of where your head's at in terms of all of that.
<UNK>, it's Jim.
I'll take the question.
There's no change to our capital priorities.
So the right deal, we'll move on that if it makes sense as has been the case for years.
But as it relates to your question around debt and its relative attractiveness, well, with the new tax law, it's obviously less attractive than it used to be, but it's still obviously more attractive than equity issuances.
So we really don't change too much from that perspective, either.
The tax law change does obviously give us more cash flow going forward and a greater ability to, a, either delever; or b, pursue more acquisitions or share buyback at the right point.
So it just gives us more free cash flow to work with, but I would say foundationally there's no difference in our approach to capital allocation.
Perfect.
Then one housekeeping.
On the cement pricing, the $6.
Is that ---+ are you assuming kind of a mid-year price increase in that.
Or is the market not requiring that at this point.
No.
We have ---+ we started talking last year about cement price increases, so we think we're pretty much set with that.
Right.
Some in third ---+ I mean, some in four, yes.
Well, I guess what I ---+ let's go back to the why first, then we can go back to what the margin looked like.
I guess what I would tell you if we look at it from a practical matter, <UNK>, there are parts in the Midwest, in particular, where we wanted to make sure we had adequate inventories on the ground because cranking up in that corner of the world is a bit of a challenge.
So that's why you would go ahead and do that.
Now back to your point, incrementals based on some of the inventory build were 100-plus percent, they probably would have been more in line, maybe slightly ahead of our targets had we not done that.
So you would have seen a very attractive incremental margin in Q4.
The inventory just made it look phenomenally attractive, so just in the spirit of transparency.
Well, I guess what I would say is this: I want to say unemployment in parts of Indianapolis are about 1.8%.
Typically, people would say 2% is full employment, so that's pretty constrained right now.
But here is the issue that we're running into.
We're not constrained from our perspective.
In some instances, contractors have been constrained in some markets.
But the observation that I would make to you is this, <UNK>.
When contractors need to move on jobs, either because they're concerned about liquidated damages or they want to get an incentive bonus for finishing early, my observation is they are able to meet those deadlines when they need to.
I think contractors, the more we see talk and the more we see action on an enhanced infrastructure project, I think they can hire in these markets.
I think in many respects, they have chosen not to hire in these markets.
And I think as we come into 2018, they're going to be able to meet what the demand is and probably start positioning themselves for what we've indicated we believe is going to be an extended cycle.
CSX is working their way through what has been an extraordinary period of time.
I mean, so they clearly had a change in CEOs twice, one with Michael Ward's retirement and then, sadly, with the death of Hunter Harrison.
They clearly have had a change in their strategy.
They went from really largely unit trains to more precision railroading, which means in their terminology manifest service.
I mean what that meant for portions of last year, again in the spirit of transparency, they did have some longer cycle times.
They did struggle at times with rail congestion.
And I think, on occasion, they were resource limited.
What I would tell you is we have had very constructive conversations with CSX.
They have been good partners to us and continue to be good partners to us.
And we're seeing their performance improve over the last several months in terms of cycle times and fulfillment.
So am I going to tell you that it's perfect exactly the way that we would like to see it.
No.
I don't think I can say that.
Can I tell you that it's considerably better.
I can.
And can I affirm to you that we expect it to continue to get better through the year.
Yes.
And have we, in many respects, built those notions into what we put out as our guidance.
Yes, we have as well.
I think we are seeing an improved circumstance in North Carolina, and my expectation is based on some of the dialogue that it will continue to get better.
We're going to bring a little bit of show-me to North Carolina ---+ we're going to ---+ or Missouri to North Carolina.
We're going to wait for a little bit more show on that.
But right now, the outlook is good.
North Carolina has a very good secretary of transportation, and he's a visionary, thoughtful leader.
And I think he will do great things with DOT in this state.
<UNK>, we\
That ---+ <UNK>, that's certainly the right way to think about that.
I mean, I would never expect under normal circumstance with the normal January and February and early March to have the types of incrementals that we talked about through a cycle across the enterprise.
So the short answer is yes.
I think you will ---+ you should typically expect to see a build on those through the year.
In a normal time, what I would tell you is you should typically expect to probably see them peak in late 3, Q3 or early Q4.
And part of what happened this year, <UNK>, is candidly October showed up in November.
The short answer is I think a lot of people were looking at a wet October, which is usually the busiest month of the year in the aggregates industry, and it wasn't because of weather.
And then November ended up being a very strong November.
So yes, the way you're thinking about incrementals is the right way.
We're not seeing anything notable that happened, that's happening in that respect, certainly not in North Texas.
Obviously, you've got some activity at the port in Houston and in South Texas.
But again, the competitive issues that are underway in that state have all been taken into account in the forecast that we put out, <UNK>.
Thank you again for joining our fourth quarter and full year 2017 earnings conference call.
Our team's disciplined execution of our strategic plan and demonstrated record performance continue to provide a firm foundation to enhancing long-term shareholder value and underscores our confidence in <UNK> Marietta's long-term outlook.
We very much look forward to discussing our first quarter 2018 results in April.
Until then, thank you for your time and your continued support of <UNK> Marietta.
| 2018_MLM |
2015 | MMM | MMM
#First of all, the Capital Safety is, in our view, a perfect fit for 3M.
Fall protection, which is the segment, is among the fastest-growing and most profitable segments in the PP industry.
Capital Safety is recognized as a leader in fall protection.
So you take those things together, there is high complementary synergy to 3M's global business in personal safety, which is a heartland division.
So Capital Safety, if think about it, it provides accretive growth to us and also margins, both for safety and graphics and for overall 3M.
You saw the slide again for safety and graphics which is very, very good, and have as I said earlier, is the business group that I thought will have the real break-out as we go.
I think it is a very valued and good acquisition to us.
The component annual sales growth had been over 10% for the four last years and EBITDA margins is approaching 40%.
You have all those types of things that you lay them back to the portfolio work we did where you say, how can we build out our businesses and make sure that we get more relevance with our customers as we move ahead and drive synergies.
What I think about it in totality, and the figures you are quoting there is correct, is actually 12x based on five-year run rate synergies.
I think this is for us a terrific acquisition that is building out our position.
Certainly, <UNK>.
We're looking at return on capital and looking at the time it takes us to bring this back to a return on capital.
For us that's in the fifth or sixth year that we see this meeting, on a cash basis, our cost of capital.
On the margin front, just to clarify, of that 150 basis points about 60 of those basis points are coming from our price growth, and 90 basis points from our raw material reductions.
As far as the sustainability of price, we're at a 1% price increase on average through the first half of the year.
We see that trend sustaining through the second half of the year.
On our existing portfolio.
I would add the color that if you look at all of our price growth, the fact that we keep refreshing our product line with our investments that we're making in research and development, that does enable us, through the value we are creating for our customers, to be able to sustain pricing growth.
But the other part of our price growth in the second quarter and for the year is also driven by movements related to FX.
If I look at second-quarter standalone, of our total price growth, we estimate 25% of that total price growth is coming from pricing based on the value we are creating for our customers, and 75% based on movements we're taking directly or indirectly related to FX movements.
Part of our portfolio prioritization is we know the assets we want to buy.
We know where we can drive the most value.
As we look at this business integrated with our personal safety business, we do see cost synergies that we'll be deriving.
We see sales synergies, both of those contributing to get that result.
What you're seeing here, <UNK>, is a result of us having a clear vision of what we wanted to add to our portfolio, and also an asset that we could see bringing a good financial return to 3M.
Also to that it is not necessary, <UNK>.
I think you have to look upon this ---+ first look upon this acquisition first of all, clearly strategic in terms of the outcome of the portfolio work, right.
I think that's an important element.
There are certain pieces of the business that can be integrated and where we can drive synergy, others cannot.
The reason for that is that there's a high element of regulation and education in that fall protection.
We need to continue to invest in that and make sure that we do everything that is right.
There's two elements into it.
Some pieces from the commercialization perspective where we can drive a lot of synergy, and we will.
And the other piece, I think we still need to figure out how we can accelerate that to get the return even faster.
It's a highly regulated business, as you know.
And then by that, the advantage of that, the barrier to enter is very high.
You have to think about it, you get it integrated and as you move on it, you have to make sure that you can drive more synergy.
The answer to your question, necessarily not.
This was a specific case.
This is a very important strategic move for us in order to build out our position here, and it is a high-class asset.
It is a high-class asset that is very similar to 3M in terms of margins, returns and growth and so forth.
So we can always ---+
The other thing here, <UNK>, if you look upon the other acquisitions we have done from Sumitomo to Ceradyne, et cetera, we are not even close to this.
I will say that, we can always argue day out and day in, of the valuation.
Did you pay too much or whatever.
This is a strategic fantastic move for us.
We have a world-class asset.
I'm pleased with that piece and now it is up to us to drive the return even faster back to us.
<UNK>, we see modest gross margin expansion opportunities there.
We probably see more of our cost synergy benefits coming from the back office SG&A front than on the gross margin front.
You're right, <UNK>, that we had a small presence in that segment.
We were very, very small.
And one thing that I have learned over the years I've done business, if you do not have a reasonable good market share position, you will over time lose out.
I've been in businesses over time where you think that a couple of percentage market share will take you to a better position.
Is a very, very tough, so you need to come into a leading position.
That was one.
Yes, we were there.
We were, in my view, not relevant enough for the industry.
So very opportunistic.
Now let's go back to your comment relative to why now.
I talked about it in my speech before, but I have to go back to it because I think this is an important element.
If you don't have a clear picture of where you would like to go in the future with your portfolio, you could have a tendency to try to be part of auctions of most things that are becoming available.
If you are part of bidding on more things that are becoming available, you maybe do not really know if this is a real important strategic imperative for you, and you should go for it.
I would say, I was not part of 2008 and 2010, whatever, when there was bids on that asset.
But maybe at that point in time it was not clear enough relative to the portfolio where we should invest for the future.
This time, it was very, very clear for me where we should go.
That's the answer for me.
Mexico has now been growing for almost two years, doing very, very well.
It's, I would say, a combination of both domestic market growing well there, but also the overall Mexican economy in terms of exports, specifically into the United States.
We have a very good portfolio balance in Mexico.
As you know, we've been there for a long time and we're able to capitalize on that.
I don't know exactly if I can give you the ---+ No, no, his question is about the outlook for the year in Mexico.
I think our growth rate here today is around 15% and I don't expect for the rest of the year that would slow down.
All businesses doing well there and specifically industrial is growing very, very fast.
I think that, first of all, I believe that health care will continue.
What a good quarter in health care.
Health care will continue and consumer will improve specifically.
I also think that the industrial business, that is a sizable business for us there, will improve slightly as we go for the year.
When you think about our portfolio, we get industrial slightly better.
We get consumer up a little bit, which we will.
And then health care continuing.
That will take us there.
I don't comment on electronics because, as you know, electronics is that kind of business that is on a regional base.
Sometimes Japan is doing better than China and so forth.
Let's see how much that will be executed in China.
I think there's still a time here that we have to see the adjustment in the Chinese market.
But those three businesses specifically will improve for us slightly as we go for the rest of the year.
Yes, that is what we are counting on.
We cannot count on anything else.
That is what we are counting on.
Yes.
Yes, our industrial adhesives and tape business within industrial, that's one of the businesses that was flat.
That contributed to bringing the total organic growth down.
Abrasives is another business that was down.
Exactly.
Including, in the case of abrasives, there's some oil and gas exposure there.
<UNK>, yes, we've said that for the first 12 months we expect this to be dilutive to GAAP EPS by $0.04.
We expect this to close in the third quarter, in the middle of the third quarter, and our guidance is not yet including the impact of either the Capital Safety or the completion of the Polypore acquisition.
Yes, it is updated.
And similar to what I said in April where we see ourselves now at the high end of the range of $0.25 benefit on raw materials benefits as well as the margin impact I talked about earlier, that's reflecting where we are most recently with commodity prices.
So yes, it is reflecting that, <UNK>.
Yes, the existing game plan is adapting to what we are seeing.
There's no change from that thinking at that point in time.
As you know, if you think about the five-year plan, we are three years into it.
There's always some changes going in and out in the plan, in terms of all metrics.
At this point in time ---+ of course from an execution perspective on where you invest for manufacturing and so forth, there are some differences now versus what they were three years ago, or where will you invest in international, or will you do it in the United States.
I think that's a business call on a day-to-day business.
At this point time there's no change from the overall plan, and our play-book is working.
Our play-book is working.
Okay, <UNK>, just to clarify, you're talking about total Company.
And our 2.5% to 4% I can't say we're seeing a noticeable difference between third and fourth quarter, if you're looking for some color on that, <UNK>.
On the low end of the range it would be a continuation of the growth rate that we've seen in the first half, that continues into both the third and fourth quarter.
If we're a shade towards the middle or the high end of the range, we would expect to start to see that occurring in the third quarter and not all in the fourth quarter.
When we look on this on a sales per billing day, we saw virtually no change in our trends between the three months of the second quarter.
To the extent that there's a portion of that 1% related to FX over time, I see that fading, but not in the second half of the year.
If it does fade, it will be minimal.
The logical extension is we see some fading of that in 2016, not a material amount of fading in the second half of 2015.
You would assume it would be, but I think one of the advantage for us is that often our product is adding some additional profitability and productivity to our customers.
So I would say, yes, a little tougher.
But as long as you are focused on new product that's adding value into the end market, you are able to demand a slightly higher price.
I would say that I think it will be cleared out, early Q3 is my view.
I think when you listen to the results for the industrial and many businesses did well.
There's a capital business that I will describe more as they're not spec-in, or designing, they're more in the consumable side like abrasives and tape and so forth.
That's where we had a little bit of temper and I think that then holding to the channels.
I'm more optimistic as we move forward relative to that front for industrial.
The other businesses there, if you think about aerospace and commercial and transportation at another 10% growth, purification another 10%, automotive OEM, as <UNK> said, has 6%.
So many businesses there are doing very well.
There were two divisions that had an impact for the quarter and it was very much what I would describe as consumables into industrial tapes and adhesives and abrasives.
<UNK>, there's a few things at play here.
First of all, when we pay our cash taxes there is some timing, and second quarter happened to be heavier weighted.
That will moderate for the total year.
Second quarter was also a quarter of higher than normal amount of our total pension contribution occurring in the second quarter.
And then the last piece is we did see some increases in our working capital and we expect that also to moderate in the second half of the year, all of the three of those contributing to improvement in our working capital into the second half.
Those are what I'd adjust for.
We have normal adjustments where, for instance for compensation, that always has a noticeable improvement in our free cash flow conversion in the second half of the year versus the first half of the year.
<UNK> will give you some comment on the balance sheet.
Let me address the comment relative to the, let's say, business groups.
First of all, there is a very robust pipeline of new products in each an individual business groups.
I don't see, from that perspective, a difference in between them.
But when I look upon it, we have some businesses here that is ---+ industrial is 33% of our portfolio, and very strong.
And we are now adding, even, an acquisition into that moving forward.
And I think that what I call a design or spec-in there is a very strong credible business.
I think it will be strong.
I think, as I said earlier, safety and graphics, I talked about that for over a year now, that I believe that safety and graphics is the next breakout business group for us, as electronics and energy came earlier.
The margin has expanded quite a bit there and I predict that safety and graphics will follow, and maybe do even better due to the fact of the portfolio there.
I'm confident that will happen.
And you see our health care business.
Health care business is usually the fastest growing, highest margin for us.
And 80% of that portfolio is in the developed world, meaning only 20% in the developing, and that way a lot of growth for us is coming.
Again, I would say, yes, when I look upon it and try to be objective, you see the performance of our consumer business.
Again, with a very good growth I would say, and margin expansion and a very strong brand equity.
So I would say for the future for what we're doing here, I'm optimistic.
And it's been a lot of work on the portfolio side, get more efficiency and organization, try to reduce unnecessary variables internally.
And as we say here at 3M, that the productivity is important and complexity is the biggest enemy of productivity.
And the whole team is working on that big time.
I would not make a distinction in between there.
We are in a good position everywhere.
<UNK>, just a follow-up close on the last piece, you were asking about the balance sheet.
Our strategy with our balance sheet, as far as our capital structure and our allocation of capital, we see our strategy there robust enough to encompass a number of business models, including a lower growth scenario.
On the margin, what would change, and again, this would the volatile of exactly why we're seeing a lower growth world.
But for example, CapEx, our capital allocation strategy, I think it would be natural to assume there would be less of our capital going into our CapEx capacity building.
In terms of M&A, that would depend on our view of the valuation of the opportunities.
It could have an impact where things become more attractive to us, but that's highly driven by the opportunities that we see presenting at that time.
<UNK>, this is <UNK>.
We wouldn't see anything changing in terms of organic growth being the primary way in which we grow.
We obviously dial CapEx to whatever levels of growth we're seeing, but it doesn't fundamentally change the way we think about growth, acquisition versus M&A.
Thank you very much for participating this morning.
We look forward to seeing you very soon.
Goodbye.
| 2015_MMM |
2015 | SMG | SMG
#Sure.
So over the last couple of years, we've said we would like to stay in a range of 2 to 2.5 times leverage.
When we spoke at the Analyst Day in Boca Raton a few months ago, we said given the operational soundness of our business and the predictability, we are comfortable going 2 to 3 times on, call it, an everyday basis normal run rate.
We also said depending on the deal, if it's the right strategic fit at the right price, we would be willing to go well above that on a temporary basis, knowing that over time we would want to be back to that 2 to 3 times range.
So from conversations with our banks, we feel like if we need to, there's more money out there at a good price right now.
So that's not a concern.
And we even just have enough capacity given our existing capital structure with our credit facility that we can borrow quite a bit more money without even having to go back to the credit markets or banks.
So that's not necessarily a concern, but again we prefer to be in the 2 to 3 times range over time.
But right deal, right price, right fit, we would go above that and not be concerned in the short-term.
I would just add to that that, again, we just had our board meeting.
We basically played a little bit of chess with the board, showing them various opportunities that we believe are out there, and none of the leverage numbers look particularly scary, that if you said like maybe one turn on top of three on a temporary basis, and a commitment to management to work its way down.
And that's if everything we wanted to happen happened.
So the numbers did not look scary, and it's a management team that has operated with leverage before.
We have a nice consistent cash flow.
So we feel that it's really ---+ the question is how important are the strategic opportunities that are placed in front of us and how did the sort of board and the management team feel about it.
So I don't think that we felt that this was irresponsible.
So just sort of talking ---+ we're talking like an additional turn, that's all.
I don't know.
If you listen to the sellers, it's a zillion people.
Private equity, they're going public.
I would say who knows the truth.
I think that a lot of times we feel like we are the strategic out there.
So I think we are realistic about it, but if you listen to the sellers, it's a super competitive world out there.
I do think ---+ multiples are still like kind of crazy, I think.
But some of these are pretty strategic for us, but whether it's sort of ---+ if you just look at historic deals, Hydro sort of rodenticides, we are paying pretty fair money for the stuff.
So it is not like the stuff is super cheap, and I think that does get back a little bit to the competition is that I don't think they would begin these kind of multiples if there was no competition.
So from a customer point of view, there's really not a mix component.
From a product mix component, we have seen a little bit of a headwind in the quarter.
If you recall back to last year, we ended our fiscal year with higher inventories than we have in the past.
So we've been doing a build of mulch and growing media products this year more aggressively than in the past.
And we shipped that in earlier in March than we would have typically done in the past to avoid any kind of distribution hiccups that we had a year ago.
But that's going really well for us, but it did provide a little bit of a mix headwind for us in the quarter on a year-to-date basis but not remarkably so.
Thank you, Shelley.
One point of clarification.
I apparently misspoke at the beginning of the call.
<UNK> and I will be at the BMO conference on May 21, and we will put a press release out related to that next week.
If there are follow-up questions for anybody, feel free to call me directly today.
I am at 937-578-5622.
Other than that, thanks for joining us today, and have a great day.
Goodbye.
| 2015_SMG |
2016 | DKS | DKS
#Thank you.
So you can look at it as a favorable backdrop to last year, but I think the consumer is fine.
The consumer, as a couple of other retailers have indicated, has kind of cycled out into some other categories right now and so I think that's a bit of an issue at traditional retail.
We're taking a look at what's happening in the hunt business still, based on the recent trends that we've had and we feel that this is the guidance we are comfortable giving right now.
The other component of this, too, is that we feel they'll be some pressure from the TSA closings in this first quarter, second quarter, I don't know how far they'll go.
Longer term, I think it will be a net positive for us, but the TSA closings and the promotional activity could have an impact.
In those stores, I suspect that they're closing and running some going out of business sales, they'll move merchandise from other stores in there to try to clear it out.
If they have a liquidator, a liquidator will bring in some additional merchandise to try to clean out of there.
So there's going to be some competitive pressure in this first quarter with the TSA closings, we suspect.
That's not entirely true.
We did have outerwear that, post the end of the fiscal, we were still clearing true.
So it was kind of a mix of things.
As Ed said, we managed our orders, we did promotion which carried through into part of the first quarter and then we had the vendor agreements as well as the packaway.
And then we do have some of the ramp-up of the investments that we talked about, so some of those will start to hit the first quarter and will impact that.
No.
We're relocating some stores, but we don't have any real ---+ it's a gross number.
There's not much.
Yes, we haven't been specific quarter by quarter other than to indicate that the way the variety of factors will fall, we do expect the first quarter and the third quarter to be below prior year.
And then the second half we will start to see, particularly in the fourth quarter, better progress.
Well, in the fourth quarter we will have, from an overall earnings standpoint, I was talking.
So there will be peaks of spending.
So for example, as Ed mentioned, in the third quarter that's where the bulk of the Olympics spending will be, which is why we expect that quarter to be below prior year.
The footwear investments and the store environment investments will be more pro rata, slightly less in the fourth quarter, so you start to get some slowdown in the fourth quarter.
We don't talk about category by category specifically, but the team sports area, we think it's still going to ---+ is an important business for us, it's a growing business for us.
And the longer term would be with the TSA Sports closings, that business should get even better for us longer term.
Sure.
That's really more a function of the nature of the lease terms.
And so as we do more, and it's really to non-cash accounting kind of effect as opposed to a cash effect, so it really is a function of moving more toward a reverse build to suit, where we take on some accelerated timing of the recognition of rent, which then reverses itself over the remaining term of the rent.
So as we have, particularly with our combo store format, that tends to be more in that kind of lease structure and so that's where you're seeing the elevation.
I just want to be clear, the $90 million is not all being returned to vendors, it is split between that and packaway.
And it's through a broad range of vendors that we've cooperated with that have cooperated with us.
I wouldn't call out any one or two vendors that is the majority of it.
Correct.
We didn't say there was no benefit.
We said there may not be any net benefit this year.
There could be pressure as they go through the liquidation and then as we get to the back half of the year, we could be picking up some market share.
Net net, it could be neutral this year.
We expect it to be positive next year.
No.
We're reacting to what they have disclosed, which is 140 stores.
If it's more than that, then we'll go after ---+ we will take a look at what those stores are and will try to go after those stores also.
But right now, (technical difficulty) they've announced 140, that's all we know.
There's a host of other brands that will be supporting this also and we're going through the process right now and we'll let you know next quarter how many we think we will get done for this year.
Well, there's some things that have changed.
So what the pressure is going to be with TSA right now, what the opportunity will be with TSA going forward with what's happening with some other competitors, so we'll try to come back to you with some more information over the next couple of quarters, but there's just too much uncertainty in the marketplace right now to talk very meaningfully about that.
Thanks.
I'd like to thank everyone for joining us today as we discussed our fourth-quarter call and we look forward to talking about our first-quarter call in a couple of months.
Thank you.
| 2016_DKS |
2016 | CNSL | CNSL
#Thank you, operator and good morning, everyone.
We appreciate you joining us today for our second quarter earnings call.
At the end of the prepared remarks, we will open the call up for questions.
Joining me on the call today are <UNK> <UNK>, President and Chief Executive Officer, and <UNK> <UNK>, Chief Financial Officer.
Please review the Safe Harbor provisions in our press release and in our SEC filings for information about forward-looking statements and related risk factors.
This call may contain forward-looking statements within the meaning of the Federal Securities laws.
Such forward-looking statements reflect, among other things, management's current expectations, plans and strategies and anticipated financial results, all of which are subject to known and unknown risks, uncertainties and factors that may cause the actual results to differ materially from those expressed or implied by these forward-looking statements.
In addition, today's discussion will include certain non-GAAP financial measures.
Our earnings release for this quarter's results, which has been posted to the Investor Relations section of our website, contains reconciliations of these measures to their nearest GAAP equivalent.
I will now turn the call over to <UNK> to provide an overview of our second quarter results.
<UNK> will then provide a more detailed review of the financials.
<UNK>.
Thanks, <UNK> and good morning, everyone.
I appreciate you joining us today.
I will provide some highlights for the second quarter and then turn it over to <UNK> for a more detailed review of the financials.
We've had a solid first half of the year with consistent financial results and the announcement of two transactions which were the acquisition of fiber-based Champaign Telephone Company and the sales of our ILEC in rural Iowa.
The second quarter results reflect our continued focus on our strategic objectives.
Total revenues were $186.9 million and adjusted EBITDA was $78 million.
Revenues were led by a year-over-year increase of 5.2% in commercial and carrier, data and transport services.
Growth in our metro Ethernet circuits was a strong 19% and our overall data connections increased by 3,000.
We're pleased with this performance during what has historically been a seasonally soft quarter.
Our overall business and broadband revenues moved higher to 81% of total revenues.
The dividend payout ratio for the quarter was 73.4% and the year-to-date ratio to 66.9% is on target with our plans.
Now let me turn to some more specifics for the quarter.
Commercial and carrier revenues increased by 1.8% compared to the second quarter of last year.
We are continuing to place more investments in resources towards the strategic area as we extend our fiber network connecting to new buildings and towers.
During the quarter, we added nearly 200 new fiber-lit buildings with anchor tenants and 50 new fiber to the tower sites under contract.
With respect to our equipment sales, revenue in the quarter was lower than expected at $10.4 million.
As you know, this revenue can fluctuate quite a bit given the nature of the hardware sales cycles and the revenues are primarily driven from reselling Cisco equipment as a Gold Certified Partner.
Our strategy is incrementally shifting with a larger focus on the professional service and maintenance portion which are among the more recurring revenue in nature and carry higher margins.
On the consumer side, our strategy continues to focus on securing the broadband pipe into the home with competitively price speed options and enhancing our position as the service provider choice for home networking needs.
We call this our connected home strategy where we can help consumers with support for all of their devices and security.
We developed a self-served user friendly portal that all customers can utilize to do such things as monitor their own bandwidth usage, view how much they are using from each device and see how much bandwidth is available at their home if higher speeds are needed.
This portal has been a very successful support and retention tool as well as a way to reduce operating costs.
Now let me touch on CapEx.
Our guidance of $125 million to $130 million for 2016 has not changed.
We have a disciplined approach to our investment decisions with new builds and expansion efforts requiring minimal internal rate of return thresholds and payback targets.
CapEx side, the video is declining as we advance our strategic shift to emphasize product profitability and over-the-top video for our customers.
This also allows us to allocate the video CapEx to higher margin commercial and carrier growth opportunities.
The benefits from these capital investments of course produced better quality revenue over time.
Overall, we continue to operate with about two-thirds of our total CapEx as success based investments providing significant flexibility in our capital plans.
Finally, before turning the call over to <UNK>, let me discuss both the acquisition and asset sale we announced in the second quarter.
We continued fiber-based expansion strategy with the acquisition we made in Champaign, Illinois, which closed on July 1.
This transaction added 275 route miles of fiber and over 300 fiber-lit buildings.
We are excited about the pipeline of opportunities and we plan to use the scale and resources of our larger Company to expand and grow in this market.
Also in the second quarter, and consistent with our strategic focus, we announced the sale of our rural ILEC in Northeast Iowa for which we expect to receive approximately $20 million in cash proceeds.
We are working through the final regulatory approvals and expect to close this transaction in the third quarter.
So in summary, I'm pleased with the consistent results we've delivered throughout the first half of the year and our employees are engaged and committed to winning in the marketplace.
We have the infrastructure in place to continue to capitalize on the data explosion and deliver on our strategic objectives, including providing our shareholders with a comfortable dividend payout ratio.
With that, I'll turn the call over to <UNK> for the financial review.
<UNK>.
Thanks, <UNK>.
Good morning, everyone.
Today, I'll review our financial results for the quarter compared to the results for the same quarter last year, followed that by reiterating our our 2016 guidance.
So starting with revenues.
Operating revenue for the second quarter was $186.9 million as compared to $201 million last year.
Revenues from equipment sales were down $9 million in the second quarter of last year, included approximately $1 million in revenue from the Enventis billing company that we sold last October.
Excluding these items, revenues declined by $4.1 million, primarily due to continued erosion in legacy voice services and network access as well as the scheduled step-downs from CAF II and Texas USF.
These declines were partially offset by our overall 1.8% year-over-year growth in commercial carrier revenues.
Total operating expenses, exclusive of depreciation and amortization, were $120.4 million compared to $129.7 million for the same quarter last year.
The $9.3 million reduction in operating expenses is primarily tied to lower equipment sales and continued efficiency improvements.
These were partially offset by accelerated advertising, service costs related to storms in Texas as well as a non-cash impairment charge for the sale of the Iowa ILEC as outlined in our release.
Net interest expense for the quarter was $19.1 million, which was a $1.3 million improvement to the second quarter last year.
As a reminder, we significantly improved our cost of debt capital structure with the successful refinancing redemption of our 10-7/8% senior notes that we executed in June last year.
Other income debt was $8.6 million compared to $9 million for the same period last year.
Cash distributions from our Verizon Wireless partnerships in the quarter were $7.8 million and $7.1 million for the second quarter of 2015.
Weighing all these factors and adjusting for certain items as outlined in the table in our press release, adjusted net income was $10 million and adjusted net income per share was $0.20.
This compares to $11.9 million and $0.24 per share respectively for the same period last year.
Adjusted EBITDA was $78 million in the quarter compared to $80.3 million for the second quarter last year.
Capital expenditures for the quarter were $33.6 million.
From a liquidity standpoint, we ended the quarter with approximately $24.6 million in cash and $65 million available in our revolver.
For the quarter, our total net leverage ratio, as calculated in our earnings release, was 4.2 times.
Cash available to dividends was $26.7 million resulting in a comfortable dividend payout ratio of 73.4% for the quarter.
Now let me reiterate the 2016 guidance we provided last quarter.
Capital expenditures are expected to be in the range of $125 million to $130 million.
Cash interest costs are expected to be in the range of $73 to $75 million.
And cash income taxes are expected to be in the range of $1 to $3 million.
With respect to our dividend, our Board of Directors have declared the next quarterly dividend of approximately $0.39 per common share payable on November 1, 2016 to shareholders of record on October 14, 2016.
This will represent our 45th consecutive quarterly dividend.
With that, I'll now turn it back over to <UNK> for closing remarks.
<UNK>.
Thanks, <UNK>.
So the first half of 2016 continued our path of delivering on our strategic initiatives.
We will maintain our focus on investing for the future, expanding the fiber footprint and growing our strategic revenues, all of which provide long-term benefits to our customers and shareholders.
So with that, I'd like to open it up for questions.
Operator.
All right, <UNK> thanks for the question.
Let me take, of course the EIS question first.
We're seeing strong metro Ethernet demand from our network customers, and while the equipment business has been a good pull-through with over two-thirds of the equipment customers taking a network service from us, actually upwards towards 80%, the real issue there is we've seen a softening in decisions, partially because of the economy and maybe election year, but they're slower than previous years in large equipment big box purchases.
And that's partially, I think related to the shift to the cloud.
We're seeing a good ramp in our pipeline for cloud services, and Cisco in particular, shifting their strategy with more focus on supplying hardware and network equipment for cloud service providers.
So I can't comment specifically on their long-term strategy, I can't say we are seeing those trend lines and that's affected our equipment business, but not our network business.
It continues to be robust with metro Ethernet, the lead product and value-added services like cloud helping us solve problems for our customers.
With related to the set-top box and the FCC proceeding there, we're on both sides of that issue but mostly in favor of seeing the FCC regulate less and let the market work through the transitions over the top.
We don't see that negatively impacting our business although we understand the plight of both the content providers and the large cable guys we happen to be aligned on wanting less regulation when it comes to the set-top boxes.
But I remind you, our strategy is primarily focused on the broadband pipe and adding value and making sense out of how our customers use that pipe and over-the-top video consumption is something we're investing in, our unified port for consumers makes it easier for them to digest and to get content where they want, when they want it.
And we see that as a more profitable forward path for us.
The growth Metro Ethernet region is coming from both.
We're seeing a tempering on the fiber to the tower.
But as you've heard across the industry, those extensions to new towers largely out of our service territory have given us the cost to build fiber network past commercial and enterprise opportunities.
The metro Ethernet growth that we see is predominantly in the 500 to 600 and up per month customer range with some of that moving a little bit lower than that monthly recurring revenue on those customers that are expecting growth.
So overall, it's the mix, with I think the trend shifting towards more of the enterprise customer.
Okay, <UNK>, thanks for the questions.
Yes, relative to the closing of the Champaign acquisition that we did close in July 1, so we've talked about that in the past to be $10 million in revenue.
So we will have a full quarter for that, I'm not prepared to give guidance on the margin for that, but you will see a little pick up on that acquisition, again, we think it really fits into our strategy, whilst the fiber focus, I think it's a template for what a tuck-in type acquisition should look like for us going forward.
Relative to your second question, with Verizon and on their cash distributions and the different ways they're factoring or looking at the questions on the wireless, it's probably too early for us to tell that.
Since they went to the hedge program the last couple years or last several quarters, let me say that way, cash flow has been a little bit (inaudible) volatile, it fluctuated more than normal.
With that we have ---+ we don't think we're quite caught up with that in the first half of the year, but I will say that past ---+ for the last several years, our distributions the last half of the year are always larger than what they'd been in our first half of the year on run rate.
So as you know, <UNK> sits on those Boards for those partnerships and again, we're still searching for information on what the distributions will be going forward relative to whether they're factoring securitizing or how they're trying to accelerate the cash flow piece.
And finally on the broadband question, I think your question is just ---+ you're seeing some up and downs on the ---+ if you look at the table in the press release, the consumer broadband number kind of up and down and I think if you look at second quarter of 2015, that's probably tied to when ---+ when we tied it to our price increases.
And then also first quarter of 2016 is when we re-implement ---+ or there's some additional price increases.
We're doing a lot better job and being a lot more aggressive in passing some of the video content increases in that.
So I mean, it's sort of like price increases, and then maybe as you mentioned, the video churn, the video subscriber accounts being down over time.
So again we still think we have the right focus and the right balance on video profitability and growing broadband, as <UNK> mentioned, with an emphasis on fatter, faster pipes than just what we used to sell.
So we feel pretty good about that strategy that we're executing on right now.
<UNK>, that's a great question, I would say that 90% of that's going to be in the business and broadband side.
It's not 100%, it's going to be (inaudible).
There is no commercial ---+ there's no consumer video piece of that, we (inaudible) whatever, so it's primarily commercially focused.
Hi <UNK>, good to hear your voice.
When you look at the strategy, that was really opportunistic.
The neighboring providers approached us, we're not actively looking to divest our network assets, but it is distant from our core Minnesota and Central North asset.
And so when we look at that and the opportunity of Champaign Tel as an example to extend our fiber foot print in a contiguous way, and our capital, very disciplined capital investment strategy, it just seems like a logical transaction to pursue.
So going forward, we're going to be looking at assets like Champaign Tel, it's a tuck-in, it makes a lot of sense.
Something not contiguous with ---+ be $100 million in revenue or greater, and give us a beachhead for new expansions, but I wouldn't expect to see many divestitures, that's not part of our core strategy.
Hey <UNK>, this is <UNK>.
Just to add on to that, to your question on ---+ to help you with the model, I think about it maybe $8 million books in revenue and probably the EBITA from the way we're thinking about, give or take, I think these aren't large transactions on either side of them that largely offset into the Champaign Telephone Company business, again just as <UNK> articulated, Iowa debt ---+ the rural ILEC nature of that property didn't fit our long-term strategy which Champaign acquisition does.
I think we announced that is ---+ $13 million was the purchase price for Champaign.
Yes, <UNK>, I'll remind you two years ago we made the comment that we were going to evaluate that business long term and the revenue stream is primarily driven by the resale of Cisco hardware and was given access to that resource that has helped us launch our cloud roll out, our cloud services and the four services we rolled out.
So we see the value beyond the hardware sales.
But that said, we don't like the volatility of that business and we'll continue to evaluate how it fits for us as a whole.
Based on results through June, and what we see in revenue recognition for July, the sales funnel and full-year results are more likely to be in the mid $40 million range versus what we previously thought would be the $50 million to $55 million range.
<UNK>, I don't ---+ I guess looking at the ---+ I would just ---+ we're thinking about that as basically the current trend we're seeing, we're trying to protect the special access, additional minutes of use on a switch, I would say is probably going to be the same trends you're seeing going down, maybe 10% a quarter or something's probably the way to think about it.
And that's all part of the CAF ---+ and you add that to the CAF II agreement we made with the FCC last year, that's a predictable step down that we've been offsetting with the long-term benefits of the metro Ethernet and broadband growth.
So it's not a surprise to us, that part's been predictable, and overall the EBITDA and cash flow characteristics of our business are consistent with our plan for this year.
Thank you all for joining us today.
I continue to feel good about our strategic position, and I'm very excited about the future.
We hope you would join us again in next quarter and hope you all have a great day.
| 2016_CNSL |
2017 | DAKT | DAKT
#Thank you Latoya.
Good morning everyone.
Thank you for participating in the third-quarter earnings conference call.
I would like to review our disclosure cautioning investors (technical difficulty) that, in addition to statements of historical fact, we will be discussing forward-looking statements reflecting our expectations and plans about our future financial performance and future business opportunities.
All forward-looking statements involve risks and uncertainties which may be out of our control and may cause actual results to differ materially.
Such risks include changes in economic conditions, changes in the competitive and market landscape, management of growth, timing and magnitude of (technical difficulty) contracts, fluctuations in margins, introduction of new product and technology, and other important factors as noted in detail in our 10-K and 10-Q SEC filings.
At this time, I would like to turn the call over to <UNK> <UNK>, our Chairman, President and CEO, for a few comments.
Thanks <UNK>.
Good morning everyone.
As highlighted in our press release, order volume was strong for the third quarter, and we noted a couple of great quarter events for the quarter.
This supports the success of our commitment to serve customers, and maximize their business with our products, engineering and service capability.
Some highlights of unique project includes the replacement of the entire surface of Piccadilly Circus (technical difficulty) its iconic location in London.
The new display will replace all current video signage with one (technical difficulty) system.
While one surface, Piccadilly operators will have great flexibility in using this canvas to create actual and informative imagery as either a single 4K screen or as many different displays.
We continue to see growth in both the size and usage of video screens worldwide.
During the quarter, we completed installation for Qudos Bank Arena, our largest center-hung LED video system in the Southern Hemisphere.
This trend is also reflected in our High School Park and Recreation business unit with greater numbers of larger systems.
We installed the largest video display in a Wisconsin high school and have had success in many different ---+ in many parts of the country this year in providing video systems in high schools.
The order for Nevada Department of Transportation Project NEON includes multiple, large, full-color displays that extend across six lanes of traffic and includes dynamic messaging capability to show incident and speed information.
We continue to have success in our commercial business unit with an 8.9% increase in orders for the quarter and a 20.2% increase on a year-to-date basis.
Spectacular niche in commercial predominantly led to improved order volume year-to-date.
We are seeing greater quoting activity in this market and more customers are moving forward on decisions this year as compared to last.
The billboard niche has also seen some improvement on a year-to-date basis.
On-premise orders have increased from digital technology adoption and addition of orders from in-store digital media solutions sold through ADFLOW, the company we acquired last year during the fourth quarter.
Our defense business unit orders were up for the quarter but remain down on a year-to-date basis.
Minor League Baseball facilities orders led to third-quarter order improvement compared to last year during the same quarter.
We believe overall market activity to be down in this unit through the first three quarters of FY2017.
We booked one project over $5 million this year when generally more than a handful are available in the market.
While unusual for this time of year, the outlook and activity in the market remains strong.
As an example, we have been awarded two large projects in the fourth quarter, one for the Milwaukee Bucks and one with the Detroit Lions at Ford Field.
The Bucks display will be the largest center-hung in basketball and enhanced fan engagement during the games.
The Lion's new products will also elevate their fans' game day experience and increase even presentations to another level.
For more details on the financial results, I'll turn it back to <UNK>.
Thank you <UNK>.
Orders increased 22.6% for the quarter for reasons <UNK> highlighted.
For the year, order volume has increased 4.3%.
While orders were strong, our buildable backlog available in the third quarter was lower as compared to last year, causing the 6.5% decline in sales.
Decreases occurred in Live Events, Transportation and International business units.
Buildable backlog is defined as contracted orders with customer design approvals and site readiness as aligned with optimizing our factory production level.
It's not unusual to have lower buildable backlog during the third quarter due to the sports seasonality of our business, two holidays impacting production work days, and a slowdown in construction activity in the winter months.
Gross profit improved to 20.1% during the third quarter of fiscal 2017 as compared to 17.8% in the third quarter of fiscal 2016.
Gross margins percentages were favorably impacted by lower warranty costs as a percentage of sales, improved productivity, and favorable sales mix.
Total warranty as a percent of sales was 2.9% for the quarter as compared to 4% last year.
We continue to serve customers impacted by the warranty items discussed during fiscal year 2016 and monitor those reserves.
Operating expenses increased $2.7 million, or 9.7%, to $30.3 million for the quarter.
Selling expenses increased $0.9 million, primarily due to the addition of ADFLOW's costs in comparison to last year, and increases in personnel costs and other selling areas.
General and administrative expenses increased $0.7 million due to a rise in personnel costs and increases in professional fees.
Signage development increased $1.1 million due to additional resources allocated to our product development functions to increase velocity of solution development.
Our overall tax rate benefit was 27.9% as compared to the benefit of 64% last year during the same quarter.
The United States research and development credits reinstatement last year during our third-quarter caused that large catch up in benefits during the quarter.
We forecast the forward-looking effective annual rate to be approximately 30% to 32%.
Our effective rates can fluctuate depending on changes in tax legislation and the global mix of taxable income.
Taking it all into account, we experienced a loss during the third quarter primarily due to that increase in sales for reasons noted and the different situation in our tax provision as compared to last year.
While the loss is undesirable, we continue to monitor and manage our cost infrastructure to the opportunities we foresee and continue our focus on serving customers with industry-leading solutions while generating profitable growth.
Our cash and marketable securities position was $76.6 million at the end of the quarter.
We reported positive free cash flow of $38.8 million on a year-to-date basis as compared to negative free cash flow last year of $10.8 million for the same period.
The increase in free cash flow was primarily due to improved profits for the year, improved operating net inflows due to the timing of receivables and project cash receipts net of payments up for inventory due to the decrease in inventory and due to reduced capital spending.
We expensed $6.7 million for capital expenditures for the year as compared to $13.4 million at the same time last year.
We expect our capital usage to be less than $15 million for fiscal 2017.
Primary uses of capital include manufacturing equipment for new or enhanced production, product development testing equipment and facilities, demonstration equipment for new products, and information technology infrastructure.
We made no repurchases of stock during this past quarter.
Looking ahead to the fourth quarter, we have a strong backlog and pipeline.
We expect to work through the $170 million backlog over the coming quarters.
For the fourth quarter, we expect a slight sales improvement and slight increase in operating expenses as compared to the fourth quarter of fiscal 2016.
For gross margins, we estimate improvements over the third quarter due to the increased sales volume and improved rates over the fourth quarter of last year due to the warranty issue experienced last year.
With that, I'll turn it back to <UNK> for additional comments on our outlook.
Thank you <UNK>.
Our outlook remains similar to past discussions.
All indications for market activity and estimates from industry research point to an expanding digital marketplace.
Our international business unit has already exceeded the entire fiscal 2016 order volume at the end of the third quarter.
International orders are challenging to predict due to many global factors, but, over the long term, we expect to grow both in this market and in our market share in this business unit.
High school park and recreation started the year at a great pace, and we expect to see a strong market here of larger orders due to the adoption of video systems.
We expect live event sales to continue to be similar to past years' levels based on anticipated activity within this customer base but predict orders to be slightly down for the year.
Transportation has room to grow with the demand picture.
There appears to be stability in federal funding and we have success in winning statewide procurement projects and other infrastructure road projects.
In our commercial business unit, our spectacular segment has many opportunities in our pipeline that position us for an increase year-over-year and into the future.
In our billboard segment, we expect similar to slightly improved volumes based on overall activity we see in the national and local third-party advertisers, demand for replacement and new digital billboard deployment.
In our on-premise segment, we are actively promoting our indoor network solutions and new product lines and expect increases in this business.
We have some progress on increasing product development velocity and expect to continue this into the future.
While these efforts will increase development expenses, we believe this investment is necessary to drive forward new solutions to meet customer needs and to expand our global market share.
Rollouts of products and new control solutions are expected through the coming year.
While the path will not always be smooth, the growing market and our industry leading solutions position us to generate long-term profitable growth.
With that, I would ask the operator to open it up for any questions.
I think we had expected very similar to slightly down coming into the quarter, and it really just went to the timing of order bookings as well as the production schedule.
So, it's nothing alarming, just differences to our prediction.
There wasn't anything material that was in that expectation besides what you stated at the beginning where our revenues were down a bit, which caused us not to have the ability to cover some of our fixed costs.
And we had maybe a few hundred thousand dollars of additional warranty charges, so warranty as a percent of sales was up a little bit, 2.9%, which reflected the 2% or less.
So that had a little bit of an impact as well.
Our revenues may not quite reach those at the beginning of the first part of the year, so that would challenge the gross margin a bit (multiple speakers) the same level.
In the commercial area, the change was really in our spectaculars segment.
So the order of growth in that area, we saw performance in all areas, but the main growth area was in spectaculars.
In our international business, it was ---+ I don't think any one segment stands out.
We had good performance in all of our different segments internationally.
And I don't ---+ I'm trying to think regionally if there was one region that was ---+ they are both doing quite well, APAC and EMEA.
On the MLB side, there wasn't really a significant project left in Q3 for this spring.
So, as we look forward into next year, I think some of the comments we made in our call is that we think, the spectaculars business, there still appears to be a lot of activity in that business.
Our on-premise, especially with the addition of the ADFLOW acquisition, we think there's optimism there.
Our international business is much harder to predict, but, in general, our market share is much lower internationally than it is in the US.
So we would see that as an area for growth.
Even though all of these tend to be not smooth, many small orders, it's lumpy with a few large orders every quarter.
We continue to evaluate that on a quarter-by-quarter basis with our Board of Directors, so we don't have any real guidance to give on whether we would have activity there in the next quarter.
Thank you, everybody, for attendance this morning.
I hope you have a great spring.
We look forward to talking again in June.
Thank you.
| 2017_DAKT |
2015 | LMAT | LMAT
#Thank you, Jasmine.
Good afternoon and thank you for joining us on our Q2 2015 conference call.
Joining me on today's call is our Chairman and CEO, <UNK> <UNK> and our President, <UNK> <UNK>.
Before we begin I will read our Safe Harbor statement.
Today we will make 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, forecast and similar expressions.
Our forward-looking statements are based on our estimates and assumptions as of today July 28, 2015, 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.
Any 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.<UNK>.com.
I will now turn the call over to <UNK> <UNK>.
Thanks, J.
J.
Q2 2015 was another productive quarter.
I will focus on three headlines.
First, sales momentum continued as we posted record sales of $19.9 million, up 12% organically.
Second, we generated record operating profit of $2.8 million, up 41%.
Third, Valvulotome sales grew 14% in Q2 due to the Hydro launch.
As for our first deadline, Q2 sales increased 12% organically to $19.9 million.
This was our third consecutive quarter of record sales and we beat Q1 by $1 million.
There were several growth drivers in Q2.
By geography, the Americas and Europe continued to perform well.
Organically, the Americas grew 11% while Europe grew 24%.
By product, our two largest product lines posted impressive growth.
Valvulotomes grew 14% and XenoSure grew 24%.
Remarkably, Q2 was XenoSure's 25th consecutive quarterly sales record.
As to our second headline, we generated record operating profits of $2.8 million in Q2, up 41% versus Q2 2014.
Strong sales and restrained operating expenses drove the bottom line.
Operating expenses decreased 1%, SG&A expenses were flat and R&D expenses grew 17%.
But unlike a year ago, there were no special charges in Q2.
Our 14% operating margin in Q2 was our second best ever.
Net income increased 39% to $1.8 million, our third best ever.
EBITDA increased 31% to a record $3.7 million and finally, EPS increased 25% to $0.10 a share, our second highest ever.
As to our third headline, Valvulotome sales grew 14% in Q2 due to the continued success of the Hydro launch.
This product features a hydrophilic coating, a smaller diameter and a higher hospital price.
Now nine months into the launch, the Hydro represented 87% of all Valvulotome dollar sales in Q2.
We continue to rollout the Hydro globally with 18 of our 20 direct-to-hospital countries on board as of July 1.
In Q2, we also received regulatory approval for the Hydro in Brazil.
Beyond these headlines I would like to provide a brief update on our sales force and product line additions.
We continued to expand the geographic reach of our sales force in Q2.
On June 1, we went direct in New Zealand replacing our distributor with an Auckland-based sales rep and during the quarter we also reached agreement to buy out our finished distributor and plan to go direct there on <UNK>uary 1.
Worldwide we are targeting 89 to 90 sales reps by year-end.
We also continue to expand product lines.
On May 15, we acquired rights to the true in size Valvulotome for sale outside the US.
LTM sales were approximately $300,000.
We also completed the first in man of our internally developed Long AnastoClip long and clip two weeks ago and we expect the first in man of our Smart Shunt in Q4.
Stepping back for a moment, <UNK>'s financial objectives are simple, 10% sales growth and 20% profit growth.
We achieved both of these objectives in Q1 and in Q2.
I will also note we were added to the Russell 2000 Index in June underscoring our growth and contributing to increased visibility for the stock.
Thanks, <UNK>.
We continue to be pleased with our ability to generate operating income.
In the last four quarters, we have produced operating income of $9.7 million representing an operating margin of 13%.
We recorded a gross margin of 66% in Q2, down from 68.1% in Q2 2014.
The decrease was driven by a stronger dollar and increased sales of lower margin products, specifically Omniflow, Angioscope and the Hydro.
We believe however that our gross margin will recover in Q3 and Q4 as cost reduction efforts on our XenoSure manufacturing line take hold.
We now expect our gross margin to be 69% in Q3 and 68.5% for the full-year 2015.
Of course our entire 2015 P&L is impacted by the strengthening dollar.
Approximately 40% of our sales and expenses are transacted in non-dollar currencies.
In Q2 2015, we estimated that the strong dollar decreased our revenues by $1.7 million and our operating income was similarly reduced by approximately $800,000.
For the full-year 2015, we estimate that the strong dollar will decreased sales by approximately $5.3 million, gross margin by 170 basis points and reduce operating income by $2.4 million.
Our guidance includes these effects.
Cash in Q2 2015 increased $2.4 million to $19.4 million.
Cash from operations was $3.9 million while cash outlays included $1.1 million related to the Tru-Incise acquisition, $700,000 of dividends, and $470,000 of capital expenditures.
Looking towards Q3, we recently sold assets related to the UnBalloon product line which we discontinued a year ago.
We netted $360,000 of cash from this transaction.
Turning to guidance, in Q3 2015, we expect sales of $18.8 million, a reported increase of 7% versus Q3 2014.
Excluding currency effects, this represents 15% sales growth and excluding currency effects on acquisitions, this represents 10% organic growth.
We also expect Q3 2015 gross margin of 69% from Q3 2015 operating income of $2.2 million, a 12% operating margin.
For the full-year 2015, we have increased our sales guidance to $77.3 million, a reported increase of 9% versus 2014.
Excluding currency effects, this represents 16% sales growth and excluding currency effects on acquisitions, this represents 11% organic sales growth.
We also expect a 2015 gross margin of 68.5% and are increasing our 2015 operating income guidance to $9.4 million, a 12% operating margin and an increase of 48% from the prior year.
Before opening up the call to Q&A, I would like to welcome Charlie Jones of Dougherty to our list of six covering analysts.
In addition, please note we are now holding Analyst Day the morning of Thursday, December 3, in New York City.
And finally ,we are pleased to be presenting at a few upcoming conferences including the Investment Conference in Minneapolis on August 5; Canaccord in Boston on August 12; an IDEAS Conference in Chicago on August 26; the Barrington Conference in Chicago on September 1; and at Sidoti in New York City on September 2.
With that I will turn it back over to Jasmine for Q&A.
So yes, I think you see there the implied sales tick up a little bit and then the operating income sort of flat and around the same area in the low 2s.
We have said a few things.
One is that we are going to get from our current 81 reps to high 80s, 90 reps by year end and I think there will be some investment spending there that will increase operating expenses.
In addition, we will be hiring a VP of sales over the next period of time and that will increase operating expenses as well.
And there are some areas around the firm where we have sort of added investment bodies into the mix.
And so I think generally what you are seeing is an uptick in operating expenses to get you from here to there and hopefully that sets us up properly for a good next year in terms of having the folks to do what we need to do.
Most of the answer, <UNK>, is in our XenoSure line.
So one of the topics this past quarter Q2 was XenoSure inefficiencies but really the reality is the XenoSure line had started producing XenoSure product at a much lower cost than we have seen historically a little bit ago it just hasn't come through the P&L.
And we are pretty sure that that is going to come through the PL in Q3 and Q4 so we are going to see some nice improvement there.
It is a substantial number sequentially so I think that gives us confidence of going from the 66% to the 69%.
So that may be one piece also in Q3, maybe there is a little less China sales and/or export sales to geographies where there are lower gross margins but we will see how that goes.
Thirdly, we had some purchased accounting related to the Omniflow acquisition that has gone away and so that should help the gross margin as well.
<UNK>, it is <UNK>.
Thanks for the question.
Yes, so we just finished a small tuck-in acquisition in Q2 which J.
J.
mentioned and of course as usual, we have a pipeline.
There are numerous opportunities.
I usually sort of say a lot of words but don't say very much at this point.
We have done five acquisitions in the last two to three years, all drop ins, sort of niche but we are out there continuing to look with the same set of criteria.
And I hope that at some point I will be able to announce another acquisition and it will do well for the Company.
But I don't have any specific news at this time.
Sure.
So we acquired a very small product line with less than $300,000 in sales.
It was called the truant size device.
It is a lower-priced Valvulotome and we acquired the rights in Europe to this device.
It basically gives another product line for vascular surgeons to use.
Some surgeons just prefer one device over another in this gives us sort of a lower price offering for our bag over there.
A big part of this frankly was there was a big base of business of this particular device in Finland and that really allowed us to go direct there and so that was an important consideration for us.
But even beyond Finland, what is important about acquiring this device is we picked up a list of customers and were able to cross sell our other 14 or 15 product lines to those customers.
So sort of out of <UNK>'s play book although this one arguably smaller than others.
So in fact, <UNK>, this is <UNK>.
Good to talk to you.
There was an impact and it was a negative impact.
We sold up out $600,000 in Q2 2014 and we have only sold $163,000 in Q2 2015.
So you had China kind of pulling down this whole number.
We are always saying this is very lumpy in China and we still are awaiting the approvals sort of two notable approvals around this TRIVEX system.
You know that we have a five year $7.8 million distribution agreement that gets triggered the second we get these approvals and we have kind of been sitting here waiting.
I think our old guidance was we will get them in Q2.
It feels like they are getting close and I would say it would be odd if we didn't get them in Q3 and or Q4.
So that is a big piece of the China play.
We also just hired a new general manager in China.
I think everyone on the call knows we sort of stubbed our toe.
We hired a general manager and she quit five months later in this <UNK>uary.
We have now got a new general manager in her care in Shanghai.
Her name is [Ying] and she just started in June so we are sort of restarting the engine over there.
Concurrently we also hired a marketing fellow who sits in that office and a regulatory woman who is up in Beijing.
So we now have three Chinese employees.
The revenue is incredibly lumpy over there but that is sort of where we are at in China.
Still very excited.
I think in your question you have kind of gotten the answer right already.
But I will just repeat what we feel which is that the Hydro is a finite type of thing.
I think in the old days if you will, pre-Hydro, we were doing price hikes in the order of around 6% or 7% or 8% annually.
You could expect that to continue on starting in December of this year but this switch to the Hydro we do feel like we have done a pretty good job taking advantage of a major advancement in the device but effectively it has been to our shareholders, it looks like just an enormous price hike.
We did have 24% organic growth for the Hydro in H1 and also in both Q1 and Q2.
So if you strip out the euro collapsing over these two quarters, it was an extraordinary price hike but to continue on to your question, it feels like since it has been a rolling hard switch, <UNK>, and not just done one time discreetly, it feels like you still have two or three more quarters of enjoyment there.
It is not going to necessarily stop one day because these other items are rolling over.
I think Tokyo won't be fully converted until <UNK>uary 1.
France won't be until <UNK>uary 1.
So you still have a couple of things going on even into 2016.
But you are right that is a discreet thing and maybe it is six quarters and maybe we are three quarters of the way through it.
As it relates to XenoSure, some nice things have gone on this quarter.
It sort of bounced up a little bit.
If you strip out the currency effects, XenoSure grew 34% organically in Q2 and why is that.
Simply in Europe it continues to just set the world on fire.
I think organic growth was 48% in Europe and I'm getting a nod here.
So I'm going to say 48% and we will come back, it is either that in 38% in Europe and also in the US, we have had a nice thing happen which is the main competitor which is Baxter Biosurgery, it used to be Cenovus, they have sort of stumbled on a packaging change which then led them into some back orders.
So we have gotten a little bit of a bump for Xenosure in the Americas that we weren't exactly expecting.
So the short answer to that is it continues to just move along here and it is all good right now.
<UNK>, this is <UNK>.
Thanks for your question.
It feels to me like we are right on plan with the European group and it feels like there is about seven folks coming in, six or seven folks coming in in all these big cities we have talked about before.
The summer obviously slows down so you won't see as much hiring activity in August over there as you would in the US.
So I feel like you are going to see a little bit of this in the Q3 expenses and then you are going to see the full brunt of it in the Q4 expenses as J.
J.
was referring to previously.
In the US it feels like you're going to see bunch of hires, maybe one a month for the next five months so we are saying 89 to 90 but you could conceivably see us going up even a little bit higher than that by the end of the year.
We are real excited about getting them on board so that they can hopefully impact 2016.
We always have these annual sales meetings in <UNK>uary and we bring all the reps to these sales meetings and it is nice to have a larger team at those sales meetings.
They seem to get a lot out of them.
So there is a little bit of as you run up to those sales meetings, there is a little bit of a crunch to get the reps onto the payroll right before the sales meeting and the sales meeting is <UNK>uary 3 this year.
The constant question about <UNK> is always endovascular, right.
But we see the same endovascular things going on.
It does seem as though ---+ we have seen some charts recently that indicate that the excessive growth of endovascular is slowing down and it is a little bit more asymptotic towards what is sort of a flat of the open surgery businesses.
So it seems like those things, the switch is slowing down a little bit but there is plenty of endovascular business here.
I'm going to pass it over to <UNK> here who has a couple of cents to add to this, <UNK>.
Yes, <UNK>, good question.
I would just add that on let's say five or 10 years ago, vascular surgeons didn't all necessarily know how to perform endovascular procedures and so there was a big training component for endovascular.
And today I would say all vascular surgeons know how to perform endovascular procedures and all vascular surgeons virtually are performing endovascular procedures.
So in a funny way the distinction is broken down a little bit because endovascular is just another type of procedure that vascular surgeons are performing.
There is no big training barrier that is incumbent upon a medical device company to show surgeons how to use a stent graft for a stent atherectomy device or something like that.
So I think that makes the endovascular segment of our market more accessible to a company like <UNK>.
To your point I would say the bulk of the products in <UNK> Vascular's bag currently are used in open vascular surgery but because all vascular surgeons know how to do endovascular procedures, I would say we are open for business looking at products in endovascular surgery as well.
Some products that are more interventional in nature may be used more by an interventional cardiologist or perhaps an interventional radiologist.
So we would be maybe at the margin more interested in one that would be used by a vascular surgeon.
But we are looking at both open and endovascular procedures.
I think the key for us is markets where there is a little bit less rivalry where we feel like we could have a winning hand.
To add onto this a little bit for some color, it does feel like what is going on over in Europe for us does show me ---+ and there has been a renaissance in the US as well, the 24% organic growth in Europe, those are numbers that any endovascular company would die to have right now.
So the business plan of <UNK> has been hey, there's a lot of fun left in open vascular surgery and I think what keeps happening over in Europe ---+ I don't know what the fact running around was the last 15 quarters, we have done double digits over in Europe or something like that ---+ but I think that does show you that there is still a lot of excitement and market growth available for a company like <UNK> in open vascular surgery.
And you know as <UNK> is mentioning, our portfolio is largely open vascular but it is growing 24% organically in Q2 and I think in Q1 if I have a numbers right, it was something like 18% or so in Europe as well.
And then of course in the US, we have had this balance where we got 11% for Q1 and 12% for Q2.
So there is something going on that is really good with these open vascular products but we agree endovascular is exciting as well.
Thanks <UNK>.
A man of few words.
I appreciate it.
Sure.
This is <UNK>.
Thank you for the question.
And then other products, catheters or AnastoClip, they are sort of at different times powering the growth of the company.
There are some product lines that we don't talk about very much and in a funny way I would say the divestiture criteria is sort of the opposite of the acquisition criteria.
So if a product line is small, if it is growing, if it is off call point, if it absorbs a lot of rep time but doesn't provide a lot of return for that, those are all factors that get weighed in if there is not a lot of cross-selling between that device and others in the bag.
So there are criteria.
We have a process we've set up where we are managing our portfolio proactively and I would say we will look at other divestitures over time and you may see that here and there.
Of course if a product is just sitting in the bag and it's generating cash flow and profit then we may leave it there but we certainly are well and are considering other divestitures.
But we have to be prudent about it of course.
Good question.
Thanks a lot.
I feel as though we have been adding five or six for a long time every year and maybe we could think of it that way although we don't like to guide into 2016 on anything.
And so I would say I hesitate to guide into 2016 but that has been our past activity.
In terms of other countries, it feels to me as though we have a lot of filling in to do in China so we just got into Finland and New Zealand this past quarter.
And I would say China is probably going to absorb a lot of our energy over the next year or two.
So maybe not so many new countries but again I don't want to guide into 2016.
I always find when I try to guide too far ahead I get myself wrong so we don't know but I would say China is a good place to put bodies going forward.
| 2015_LMAT |
2016 | MDT | MDT
#We'll take two more callers, please.
Next question.
Well, given that it is consistent with what all the hospitals are reporting, I've got to say that the overall healthcare demand if you like in the US, is something that is on an upward trajectory.
That's got to be the fundamental reason and it's probably ---+ some of it is just natural demographics which provides this.
The other is probably we're seeing some of the impact of the Affordable Care Act and all of the initial pieces of increased coverage might have been more upstream in nature in diagnostics and so on.
Some of these will lead to more procedures.
Those are the only things that I can sort of intelligently talk about.
Other than that, just what we experienced.
It is not something that is easy to predict to be fair and we look at all kinds of different factors and then do the best we can.
We have leading indicators.
We talk to people and we get a sense for it, but everything else that I just said was close to conjecture on my part.
I would say the same.
It's very difficult even to get ---+ you've got to go to different data points and triangulate just to get a sense for what's happening to the volumes to go deeper level than that and understand why it's difficult to make assumptions.
It's very difficult to pinpoint the specific reason.
The other thing I would reference beyond just the increase in overall volume, the other thing that we're seeing is a mix shift, a much greater growth in the MIS procedures versus open.
And this is pretty consistent when I look at other players in the marketplace and I look at their revenue growth in the quarter.
So I'm really happy about that and truthfully, that's probably the bigger opportunity, a small uptick in surgical volumes in the US versus a real change in mix shift to MIS.
I'll go with the mix shift to MIS all day long.
And that's pretty consistent, again, with what we've seen, what our reps are telling us, and what we're seeing from other companies that are playing in the same space.
That to me is really the story.
Sure.
We detailed some of that in the commentary.
I'll let <UNK> comment on that directly.
So go ahead, <UNK>.
Sure.
So hitting the Mazor deal, we are very excited about that.
That is I'll call it one leg of a multi-pronged strategy around what we call surgical synergies.
And we feel as we move out into the future, these surgical synergies will be in Spine, our calling card.
We've got very strong enabling technology platforms in navigation and imaging.
We're excited about the partnership in robotics with Mazor.
And then integrating these platforms as we move forward, to provide a differ ---+ to differentiate spine procedures, both economically and clinically and the surgeon experience, low radiation, just an easier surgical procedures, et cetera.
We think is going to differentiate our Spine business.
And so as you move forward, and this is not ---+ this isn't five years from now.
This is going to take place quarter-over-quarter as we continue to emphasize this.
So this is something we're very excited about.
And as we move forward, outside of surgical synergies, we do have a number of products.
Starting in our FY14, FY15, our Spine business put a lot of effort into revamping the product portfolio.
And the products that are hitting the market now, our Elevate cage for example, Voyager's another one, and this quarter launching our new OLIF procedures, I'm calling them our second-generation OLIF procedures, we're getting a terrific uptick in these things.
My only regret is that two quarters ago when we were planning, we didn't plan aggressively enough.
Because I think we're hitting our maximum with sets and if we had more sets we'd even see more growth.
That's something that we're take factoring into our planning going forward is to be a little bit more aggressive.
But both from a product standpoint and from what we call surgical synergies standpoint, things are looking very good for our Spine business right now.
As you pointed out, every quarter we've improved over the last five quarters.
And it's a big shift, takes a little bit of time to change the direction and you should continue to see continued improvement quarter-over-quarter.
Thanks, <UNK>.
We'll go to one more caller, please.
No, actually it's not isolating Spine.
The other way around, actually.
There's a couple ---+ <UNK>, there's a couple changes going on and we'll get into this next week.
Just summary, one, moving into these different reporting divisions is really putting the businesses, organizing them by disease state or condition versus technology.
And the example I'll give is Neuromodulation.
That was a business largely held together based on technology and planable stimulator.
And from whether it be gastro euro, which we're now calling pelvic health, or whether it be DBS, or pain stim, they're all calling on different physicians, specialities and we really felt we would get more traction if we organized by disease state versus by technology.
So, that's going to help us one, focus on the physicians appropriately and two, innovate.
Because when we're innovating, we're looking across the disease state and across the care continuum, rather.
That's one change.
And the other change that <UNK> mentioned in the commentary was moving to this general manager structure.
So that gets to more execution.
And this is something that CBG has done over the last four years, five years, where you're having GM's ---+ general managers, that are 100% focused on the individual therapy segment that they serve and those products within that therapy segment.
And so making your businesses more smaller, more focused and granular.
So that's another component of that.
And then along with this, we have fairly sweeping leadership changes across RTG.
And many of the leaders that are you now running the group are top performers from other parts of Medtronic.
And so combined with the different structure and its disease state, organization with this GM structure to drive innovation and new players, proven players, from other areas in Medtronic, we feel very good as we hit FY17.
And again, to clarify the Spine comment, look, there's a specific Spine customer.
The only thing that we did was remove interventional from it and that is not the same customer.
It made a lot more sense to group that together with Pain where we have a lot of associated therapies and we were missing the big picture look at Pain by splitting up all the different very significant non-opioid therapies that we had.
This was really a disease-based look and a look at our customers and that will drive innovation and it will drive a clearer picture of how we go to market with our sales force.
And then, it finally leads to value-based healthcare, driving for outcomes, that's the only way in which you're going to do it.
Another thing on Spine, regarding surgical synergies, as you know the enabling technology platforms sit in what we historically call the surgical technologies, which that component of it is now in our Brain business, so NAV and imaging.
We actually built a small surgical synergy team, which is a bridge between that business and our Spine business and looking at an integrated technology road map by procedure as we move out.
And that also works for DBS as well.
So before, we had two separate businesses that weren't linked quite close enough in my humble opinion to drive the surgical synergy benefit.
So we put a small team that includes marketing as well as engineering talent to drive that integrated technology road map and that value proposition.
So just in Q4 alone, we had 15 new combined capital equipment Spine core metal deals, which is significantly more than we've had in the prior three quarters combined.
And this is something that is a result of that.
And as we move forward, you'll see the technology road map more integrated.
So we've actually built a little bit of a bridge between Spine and our capital equipment business.
Absolutely.
Sure.
Hello, <UNK>.
Look, we continue to be excited about and focused on our type 2 business.
This is a new business unit that we put in place a little over a year ago and we'll talk to you about the product road map next week at the Investor Day session, so you'll get more insight there.
But suffice it to say that our focus within type 2, first, the type 2 population is 90% of all patients with diabetes.
So it's a huge market opportunity.
When you take a look at those 90% of the patients, what we have decided to focus on is really monitoring those 90%.
We could have gone the route of insulin delivery because that's also a core competency, but insulin delivery within that type 2 population only addresses about 10% of that 90%.
The broader opportunity is within monitoring.
And what you see with Qualcomm Life, what you're seeing with iPro 2 and our new pattern snapshot capabilities are really our efforts to bring more and more advanced monitoring solutions to those type 2 patients.
And at the end, our goal isn't just to deliver a sensor to those patients or just the product, it's really to deliver an integrated solution to those patients where we bring not just a technology, but capability through analytics and insights that can give those patients actionable information so that they can better manage their disease and also to do the same thing for physicians who are managing those patients.
So we're really excited about the opportunity.
As you said, we're just getting started, but we think there's a tremendous amount of runway in this business.
Thank you.
Okay.
It's time to close the call out here and I'd like to remind you that we plan to host our Investor Day next Monday, June 6, in New York City.
We look forward to having more detailed discussions with you on our plans to deliver on these strategies that we outlined today.
And I'd also like to note that we anticipate holding our Q1 earnings call on Thursday, August 25.
And finally, in conclusion, as we've noted, we continue to focus on delivering consistent mid single-digit constant currency growth, strong EPS leverage and returning a minimum of 50% of free cash flow to our shareholders.
FY16 was indeed a successful and transformative year for our Company and looking ahead, we feel we're well positioned to participate and lead in the transformation to value-based healthcare, which can ultimately create long-term dependable value for our shareholders.
And with that, and on behalf of our entire management team, I'd like to thank you again for your continued support and interest in Medtronic.
Thank you and all of you please have a great day.
Thanks.
| 2016_MDT |
2016 | RNR | RNR
#Still strong interest, but not a great opportunity to deploy.
And, <UNK>, the gross losses on the Fort McMurray wildfire and the Texas weather events across Cat Specialty and Lloyd's was about $77 million.
So net negative impact [41], the gross losses across all three platforms or all three segments was $77 million.
Thanks, <UNK>.
Sure.
What I meant to highlight there is a reduction in economics is a reduction in economics.
The difference between the two is the ceding commission is fixed and known definitively at time zero where you need to monitor books very carefully and it takes awhile to figure out whether underlying rates are moving up or moving down.
Our concern now is that there could be rate pressure coming in on the underlying books and we're spending a lot more time monitoring those reductions because they are less transparent than an increase in ceding commission.
Either one has the same net effect on the overall returns on the margins on the business, it's just one is harder to figure out than the other.
For the growth, the vast majority of the growth is coming from the mortgage business.
We do have some renewals in there for the trade credit stuff, but I have been thinking about the growth, the vast majority of it is coming out of the mortgage markets.
I would say broadly it is really a function what's available in the market and whether you can add that to your portfolio and improve net returns.
We don't have a bias at this point to try to increase or reduce sessions and I would say the opportunity from now to year end certainly for increased sessions is pretty minimal.
Looking at next year, the only ---+ the place that we ---+ let me just divide the world between casualty, specialty, and property cat.
Property cat, the net risk we retain and the sessions that we apply to get there change the level of capital committed to the business.
Within casualty and specialty it really is around optimizing the risk profile and the risk return/fee return we are getting on the business, but it doesn't necessarily change capital.
So it's two different philosophies for the different books, but there will be no change in the way we are thinking about our ceded between now and year end and probably limited to opportunity to increase the sessions.
For ceded or for ---+.
I think the sessions that we have in 2016 compared to the sessions we had in 2015 are more favorable to us, but that's really ---+ I think as people become more comfortable with us as underwriters and being partners of ours they generally will share more of the economics back to the cedant.
I wouldn't say broadly we're seeing a material change the economic benefit of sessions between last year and this year though.
I think that's normal marks of behavior is what I'm commenting on.
Thank you.
I did not listen to that call this morning, so I'm not familiar exactly what the commentary is.
I think looking at it, I think I don't have an answer to your questions as to whether it was high or low relative to the worldwide cat expectations of our competitors, but I think what we tried to comment on is it was a big loss in Canada.
The Canadian market is protected differently than the US market.
A lot of that will come to the reinsurance community.
And the Texas events, even though discussed as Texas convective storm, it really was 10 events.
I don't think it certainly showed that there was an increase in convective storm activity in the United States, but was pretty bad for Texas and for Texas companies.
Yes, I think it depends on ---+ it's kind of by company within Canada but, in general, our view is to where the most likely estimate of loss is that we could see continued increase in primary loss and increase in reinsurance losses, the analysis that we did was, as we normally do, bottom up and top down.
We did a much more granular bottom-up analysis and we feel pretty comfortable with our estimate even at a larger than what is discussed industry loss.
Thanks, <UNK>.
Thanks, <UNK> Thank you, everybody.
We appreciate you tuning in for the call and we appreciate all the questions and look forward to speaking to you with Bob next quarter.
| 2016_RNR |
2015 | ESE | ESE
#Hey, <UNK>.
Thanks, <UNK>.
That's correct.
As we have in the past, <UNK>, our fourth quarter is always our strongest, and so looking at the sequential step from Q2 to Q3, we see that 20%-plus move in EBIT dollars, and then, obviously, sequentially from Q3 to Q4, you'll get a pretty meaningful pop there as well driven by sales growth across the platform.
Yes, we're in pretty decent shape.
I mean, we were just down there a couple weeks ago and met with the guys, went through it on a detailed basis, and there are a couple of ---+ everything that we need is either in backlog or currently being negotiated, so unless these negotiations drag on for a significant amount of time, we should be fine with those opportunities.
And in fact, what we'll do, because these are the bigger opportunities and the bigger projects that we're negotiating now with customers that we've done a lot of work with, so we would go ahead and start building that product to ensure that we'll be able to make those deliveries.
It's not a ---+ there's always risk, but it's not a significant amount at this point.
Yes, it's doing real good.
The Middle East project is going well.
We hope to get a re-up of that before too long for the next 12 months.
We're also seeing good strength in Mexico and South Africa.
Okay.
Sure.
Some of the things we've been doing, we've ---+ some of it's basically blocking and tackling.
I mean, we've worked hard on the overtime, on the planning process to make sure that we have the factory level loads so we don't have to work overtime.
We've been working hard on the freight side of it, which doesn't seem like a big deal, but when you're shipping product around the world, it's a big deal.
We did have a reduction in force last week, both here in the US and Europe, so there are a number of things like that that we've been working.
I would say there's nothing out of the ordinary.
It's really just good business sense, and we're just trying to get some of the things cleaned up to make sure that we're in a position to get those margins up to a reasonable place in the last half of this year, and then going into next year, I think we'll be in a much better position.
Everything we've seen ---+ we studied that a good bit and talked to a number of people and done some research, and while that always comes up, I think the reality is we don't see that changing.
I mean, if you think about what the airlines have or what Boeing Air must have in backlog, they have multiple years of backlog in place, so let's say something did happen and some of that went away.
It would not impact us in the near term, first of all.
Second of all, people talk a good bit about the fuel prices, but the reality is even with the lower fuel price, people want to have a lighter aircraft, they want to have the newer engines, and so they're committed to do that.
So if they pull out of the queue and say ---+ okay, I'm going to push this off for a while, they're probably pushing acquisitions of those aircraft off by five or six years, and I don't think anybody's really willing to do that.
So there's a lot of discussion around that, but we've seen no indication that that's really going to happen.
And if it does happen, I think it would be in a very minor way with some of the smaller aircraft ---+ or some of the smaller airlines.
Yes, the big one is the A350, and I would say that the overall program is delayed from what the original schedule was ---+ not as a result of anything that we've done, I would say.
It's just these new programs always seem to take longer than originally anticipated.
But we have a pretty good ramp starting really in 2016 and 2017, and then I think it just goes into full production in 2018.
I'll add one thing to that, <UNK>.
I think just from an order perspective on these new platforms, as we try to lay out the timeframe on when you're going to get these orders for the OEM stuff that's going into production, I'd say we're about ---+ on the order side, we're about $4 million to $5 million ahead of where we thought we would be at the halfway point relative to new orders, and so now it's just a matter of when do those translate into the P&L.
It's not a 30-day turn, obviously, but I'd say what it gives us is a tremendous amount of confidence in the back half of the year relative to any delivery schedules that we have on the OEM side of the business and then gives us continued strength as we enter 2016.
So it's really an order ---+ it's the order side of the business that's coming in way ahead of plan.
Yes, we're not counting on any acceleration there now, but that program is projected out for the next eight or ten years, so I don't anticipate there being any change to that.
I mean, if you have to be in the defense business, I'd say the submarine side is probably a great place to be because there's a low rate of production, but it's very predictable and it's all well-funded and there's such a capable weapons system, both from an offensive and defensive perspective, that if something is going to get funded, I'm pretty sure it's going to be the submarine.
So we don't have a lot of concern about that.
In fact, we have our orders for the next several years as we sit here today.
Yes, I think one thing to add to that, <UNK>, is the ---+ even when you see the materials coming out of electric boat and that sort of thing on how they're stepping up to one and a half boats and that sort of thing, our product is such long lead-time stuff, we're way out ahead of that, so the things that we're delivering today or in the fourth quarter here, those aren't for the boats that are today being launched.
We're probably a year to 15 months ahead of when that boat would be launched, because we're basically ---+ our product is attached into the core of the submarine, so we're an early build addition, and therefore our product has to be in the shipyard well in advance of when the hull is being constructed.
So we don't get the immediate pop of ---+ when you see the one and a half boats, we don't ---+ ours isn't going to go up one and a half boats this year.
But it's a cumulative effect situation that, over the next five years, I think you'll see continued strength in that as well as the position that we're getting on the Ohio-class boats as well.
That's going to be a nice opportunity for us over the next five to ten years.
Thank you.
So to wrap up, I'm very pleased with our second quarter and year-to-date results, and I'm comfortable that our three-year financial goals remain on track.
I'm optimistic about our growth prospects, both short term and longer term.
Our priorities remain simple and straightforward ---+ execute and deliver our commitments in the core business, maintain our focus on new product development, supporting organic growth, and supplement our existing plan with accretive acquisitions around our core business.
Thank you, everyone, and I look forward to talking to you on our next call.
| 2015_ESE |
2016 | IVC | IVC
#Thank you, <UNK>, and good morning.
I'd like to begin today's call by reviewing the consolidated results for the company's second quarter ended June 30, 2016.
During the quarter, we continued to execute our transformation from being a generalist durable medical equipment company to one more focused on solutions for clinically complex and post-acute care.
Primarily as a result of this focus and excluding the impact of the divested rentals businesses, consolidated gross margin as a percentage of net sales improved by 1.2 percentage points and constant currency net sales decreased by 1.6% compared to the second quarter last year.
This result is in line with our expectations as we move away from lower-margin less-differentiated products.
Our short-term metric for assessing the success of our transformation is gross margin improvement as a percentage of net sales.
For the third consecutive quarter the North America/HME segment, where the most significant turnaround work is occurring improved gross margin as a percentage of net sales by 2.5 percentage points compared to the second quarter last year.
This improvement was driven by net sales increases in mobility and seating products, which comprise the majority of our clinically complex portfolio.
Excluding the impact of the divested rentals businesses, consolidated gross profit dollars also increased compared to second quarter last year, largely driven by the Europe segment with contributions from the Asia/Pacific and North America/HME segments.
In the second quarter, SG&A expense decreased by 4.0% to $79.3 million.
Excluding the impacts of the divested rentals businesses and foreign currency translation, SG&A expense increased $2.5 million or 3.2%, compared to the second quarter last year primarily related to increased employment and product liability costs.
The company incurred net interest expense of $3.8 million in the second quarter of 2016 compared to $0.5 million in the second quarter of last year.
The net increase of $3.3 million was primarily due to the convertible debt issuance in the first quarter of 2016.
The increase in interest expense is primarily reflected in the North America/HME segment.
Lower net sales, increased warranty expense, and higher interest expense for our issuance of convertible debt in the first quarter of 2016 led to an adjusted net loss per share of $0.33 in the second quarter of 2016, compared to adjusted net loss per share of $0.25 in the second quarter last year.
Operating loss was $6.3 million compared to a loss of $5.9 million in the second quarter last year.
In the second quarter of 2016, free cash flow was negative $17.4 million driven by the net loss in the period, the final payment of $10.6 million related to a previously disclosed tax liability, and increases in both accounts receivable and inventory.
To give investors a more accurate comparison of free cash flow between the periods, in the release we compare free cash flow in the first six months of 2016 to 2015, which eliminates certain timing differences between the quarters.
Excluding a few discrete items that we note in the release free cash flow for the first six months was negative $45.1 million in 2016 and negative $28.6 million in 2015.
I'll now turn the call over to <UNK> <UNK>, our CFO to discuss the performance of the segments and additional financial results from the quarter.
Thanks, <UNK>.
For the second quarter of 2016, European constant currency net sales increased 5.5% compared to the second quarter last year.
The improvement in constant currency net sales was driven by increases in lifestyle, and the mobility and seating products, partially offset by decreases in respiratory products.
For the second quarter, earnings before income taxes increased by $0.7 million compared to the second quarter last year.
This increase in earnings was primarily due to increased net sales and favorable sales mix partially offset by increased warranty expense and SG&A expense related to employment costs.
Gross margin as a percentage of net sales and gross profit dollars increased in the quarter compared to the second quarter last year.
For the second quarter of 2016, North America/HME constant currency net sales decreased 7.6% compared to the second quarter last year.
The decrease in constant currency net sales was driven by declines in lifestyle and respiratory products partially offset by increases in mobility and seating products.
Loss before income taxes increased by $3.6 million compared to the second quarter last year.
This increase in loss was a result of reduced net sales, increased interest expense, and higher warranty expense partially offset by stronger gross margin as a result of favorable sales mix.
During the quarter, gross margin as a percentage of net sales increased and gross profit dollars were marginally positive to the second quarter last year.
Excluding the net sales impact of the divested rentals businesses constant currency net sales in the IPG segment decreased by 20.2%.
During the second quarter of 2016, the IPG leadership team enhanced its focus on building a post-acute care sales force, including investments in clinical sales training, assessment of customer call points, and recruitment.
Transforming the post-acute care business, principally in the IPG segment, is the second phase of the company's transformation.
Earnings before income taxes compared to the second quarter of last year decreased by $0.8 million.
This decrease in earnings was largely due to reduced net sales and a lower gross margin related to increased warranty costs, partially offset by reduced SG&A expense related to employment costs.
In addition to pressure on gross margin as a percentage of net sales during the quarter, gross profit dollars were down compared to the second quarter of last year.
For the second quarter of 2016, Asia Pacific constant currency net sales increased 13.2%.
The improvement was due to net sales increases in the Australian distribution business and the company's subsidiary that produces microprocessor controllers.
For the second quarter, loss before income taxes decreased by $0.6 million compared to the second quarter last year.
The decrease in loss was largely due to favorable gross margin related to reduced manufacturing and freight cost.
Gross margin as percentage of net sales and gross profit dollars increased in the quarter compared to the second quarter last year.
Total debts outstanding as of June 30, 2016 was $197.5 million.
The company's total debt outstanding consisted of $163.4 million in convertible debt and $34.1 million of other debt, principally lease liabilities.
The company has zero drawn on its revolving credit facilities as of June 30, 2016.
The company's cash balances were $125.3 million as of June 30, 2016, compared to $144.7 million on March 31, 2016 and $60.1 million as of December 31, 2015.
Cash balances declined in the second quarter of 2016 compared to the first quarter of 2016, primarily due to negative free cash flow.
The increase in cash balances compared to December 31, 2015 was the result of the net proceeds received from the issuance of convertible debt during the first quarter of 2016.
As of the end of the second quarter, days sales outstanding were 46 days, up from 42 days as of December 31, 2015 and down from 49 days as of June 30, 2015.
At the end of the second quarter, inventory turns were 4.7, as compared to 5.0 as of December 31, 2015 and 4.7 as of June 30, 2015.
I will now turn the call back over to <UNK> for few closing comments.
We can then address questions.
Thank you, <UNK>.
We're pleased with the company's performance in Europe and the Asia Pacific segment and the progress based in the North America/HME segment.
We have more to do in the IPG.
In our recent investor conferences and presentations, we shared our strategic expectation that our North America/HME net sales would continue to decline.
We expected growth margin as a percentage of net sales to improve.
We believe we're on the right track as the segment second quarter financial results continue to be in line with our expectations.
This 2015, we've been transforming our North America/HME business to focus on more clinically complex care with the ability of rehabilitation to sales force, trained to provide clinical solutions with our mobility and seating product portfolio, including increase in access to related products from our subsidiaries.
This will be an ongoing effort of investment and training.
With the North America/HME transformation underway, we have initiated the second phase of the change, which is the enhancement of our post-acute care business affecting principally the IPG segment.
Post-acute care can be provided in a variety of clinical selling outside of hospital.
Over the past quarter, we've began developing our specialized post-acute care sales force with investments in clinical sales training of certain customer call points, and recruitment.
As we continue to pursue our turnaround with additional investments, we expect increase consolidated gross profit dollars over time in addition to the gross margin percentage.
While we are executing this transformation, we will be managing through external uncertainty, including foreign currency fluctuations, as well as continued reimbursement pressures particularly on the ongoing rollout of National Competitive Bidding in the United States.
As we can see more transformation, we remain committed to our number one priority by establishing a quality culture.
As noted in our Form 8-K filing on June 9, 2016, we received feedback from FDA on steps required to proceed with the consent decree.
Our team continues to work on design history file remediation and broader deployment of quality systems improvement, quality will remain at the center of what we do as a company and unfazed to the teams' progress.
I'd also like to share some organizational changes.
Today we announced on Form 8-K that Gordon Sutherland, our Senior Vice President and General Manager of Europe has resigned to take any role.
Gordon joined the Invacare Europe team in 2012 and has led the business segments to deliver consistent results.
I appreciate Gordon's leadership, I wish him good luck in his role.
We're fortunate to have a strong leadership team across the Europe segment and we expect the transition to be smooth.
Also, this morning, we announced upcoming changes from our Board of Directors.
General <UNK> Jones, who joined the board in 2010, has decided to step down effective August 26, 2015.
As a result of the increasing global responsibilities and travel for this other two roles.
In addition, after 30-years of service Michael Delaney has expressed his intend, not sustained for reelection with his terms from the 2017 Annual Meeting.
It has been very helpful for me to come to this company with such deep experience in place on the board.
General Jones with his insights into government and international affairs, as well as his guidance on culture based on his years of leadership with the United States government, has been a great resource.
Mike Delaney has given the company invaluable insight into the consumers of our products from his personal experiences, as well as those from his careered with the Paralyzed Veterans of America.
On behalf of Invacare, I want to thank both of them for their contributions and commitments.
This is an exciting time for Invacare, the remaining opportunities ahead of us and we are proud our machine to provide clinical solutions to the growing number of people and need of our products.
As the markets for our solutions expand, we're transforming our companies to be able to advance to that opportunity.
Thank you for your time and attention on today's call.
We will now open the phone lines for questions.
Holly, let's open the phone lines for questions.
Hi, <UNK>.
Good morning.
Sure, <UNK>.
We've been talking about this for number of quarters to really selectively focus on things that provide distinguished and differentiated care on our solutions.
And we call a number of elements of the business that we are doing lots of Aids for Daily Living.
It's difficult for us to put a precise number on that, because part of the differentiation is not only the product, but deciding on which those are sold.
As we've discussed in our investor relations presentations, as customers in certain segments continue to look for highly durable robust products.
We continue to meet them at a price point, that we've recommended, the intersection where Invacare plays very well in some channels.
The set is more for single use products where our products aren't just well positioned, because we are about robust long-term design conclusions.
We've ---+ and that has changed to critically complex selling and customer engagements really, since July of last year, and I think for three quarters now this being the third, we have in the results of the decline in that business in the first quarter that part of the business was down quite substantially more so than the second quarter.
Second quarter, we see continued decline, but to a lesser extent.
And we assume at some point, we will inverse into more normal levels of sales of ongoing customers and products.
Well, we don't looking guidance for the back half of the year, but you are right, seasonally the business has typically been cash consummated in the first-half.
And cash accretive in the second half.
I think, last year it uses a comparison of which we had some one-time costs of retirement payments in sales we expect.
Our free cash flow in the first half was an consumption of $22 million and for the full year, last year, we generated over $13 million, so we were offsetting that in the second half.
So we expect that the same external factors generally are applying this year.
And we look forward to improvements in the second half, which you're right.
We're also making investments and when we make those investments in the commercial teams, which are in the form of payroll kind of expenses for new sales reps who are not yet accretive, but all the equipment demonstration units expand and things for them, to get out in the effective.
It can be six to 12 months before they have a full book of business really trying to kind of results we expect.
We're pleased with the uptick in effectiveness of our sales transformation, our new sales associates.
But it's still pretty early in that transformation.
So we'll expect their affectivity to improve over the next couple of few quarters.
^ <UNK>, the only thing I'd add to that is just put a little more color on the prior year.
Now that we don't include restructuring the first half was about $28.6 million in terms of the drain.
And for the full year, we generated $11.9 million, and I think <UNK>'s exactly on the point, which is the second half is positive.
And what I've done there, I mean, covered separately is I pulled out all the impacts from the retirement payments and the sale-leaseback from last year, because that's really a better indicator of where the business went.
So again, we did it in a release for the first-half of 2015 of $28.6 million in the back half let us have a positive $11.9 million, but again at this point we're really not talking about 2016.
Every quarter, we obviously accumulate all the transactions that make up the quarter, so we can't exactly say where they are.
But that's ---+ I think the last two quarters of performance and margin shift reflect a fundamental shift in the type of transactions that we're doing to serve customers very well with our complex rehabilitation product.
They come at higher gross margin, because they're highly customized and they deliver more value for our customers.
And I think that is a fundamental shift that can continue in future quarters.
we're really ---+ the analogy is we're really paying interest on the construction loan before we've occupied the house.
We've incurred SG&A increases, which we're mindful of.
We've got to make good returns on those.
Our substantive sales force increases in personnel, really occurred at the beginning of second quarter, and it's early in their tenure to be accretive yet, so that's the gap that we're seeing right now.
Thanks, <UNK>.
Okay.
Timing and gross margins in the future, so I would layer a few rows of thinking on top of a calendar to talk about the timing.
So if you'll remember ---+ our listeners may remember from second and third quarter last year, we talked about the investment beginning to be made in the incumbent sales force in terms of assessments, skills training, clinical training, quota development with the new portfolio of products.
So I think we're relatively well seeded in terms of building affectivity of the incumbent sales force.
And those have been the large drivers of the mixed shift in gross margin improvement in quarters four, one, and two.
We talked about the increase in the sales force and further developments, and the increase in sales force of new personnel really began in the second quarter 2016 and those folks go through many weeks of training getting out into their new territory, starting to build a book of business.
I view those sales folks to be effective over a six to 12 month period.
So the second row of ---+ layering of timing is kind of six to 12 months that begins let's say beginning of first ---+ sorry, beginning of second quarter of this year.
And then, I think, if you look at the commercial changes, we really saw the big step down in sales of our Aids for Daily Living business to begin in the first quarter of this year principally in the HME segment.
And at some point you anniversary into a years' worth of those kind of changes.
So you might take a 12 month row and say, these are kind of the sales winnowing that happened in that segment beginning in first quarter of this year.
So those are kind of the three layers I think about affecting North America/HME segment.
And then, we are staggering the same kind of transformation in the IPG segment and that's really begun in the second quarter of this year.
And you'll see probably a similar multi-period pattern.
The second part of your question was about gross margin in the future, and I think, in our investor presentation and in some of the discussions we've had, we've been able to describe the historic market in which we play, which had a relatively normal shaped bell curve of product profitability tenured around the Company's reported average.
And historically, that's been a little tighter distribution, where we were able to make good gross margin in the full range of products.
Over the last few years of national competitive bidding with other external pressures, the left hand less profitable side of that curve has gone down into the lower gross margin dollar segment, but we still have a half of a bell curve of profit by product that's above average.
And we're really trying to focus on our skills, which are bringing great customized products and products that deliver demonstrably different clinical care.
And those are typically above average in gross margin, which reflects the value that we bring to the marketplace.
So that is the kind of gross margin shift that we should be able to see over the medium and long term.
Sure.
IPG, as folks may know, is more of a B2B capital sale.
We do make smaller transactions for replacement and small changes that operators make.
But the folks who operate these post-acute long-term care facilities are typically buying on a fleet basis maybe for a larger renovation product, their long cycle projects and our selling cycle is the capital cycle to a large extent.
What we had in the second quarter of this year was a stack up of couple of things that both went negative.
The one that we knew would happen would be the decline in the sales teams effectiveness as we took them out of the marketplace, did selling, the skills assessment, the kind of things we had done in complex rehab a year period.
The thing that we were unable to predict exactly was the lumpiness of the timing of the things that work out in size and timing of projects, or things that get delayed or the bids that we lose, and we just had both of those go the same negative way this quarter.
I don't think that's a consistent expectation going on, but we continue to evaluate that business as we transform it.
Yes.
We continued to have a constructive engagement with the FDA.
And as I've mentioned, boy, we're all about quality and not just to tick and tie the tactics to solve the problem with a consent decree, but really to drive meaningful results in the culture and operation, and processes, because we want this to be not only in improvement, because we get beyond the consent decree, but it's got to be a sustainable competitive difference that Invacare has for its customers that over the long term has to lead to better customer engagements, share growth, and other positive economic factors that benefit shareholders.
And we are all about that.
The consent decree is sort of updated from the feedback the FDA gave us at the beginning of June in terms of the related next steps that we have to undertake principally around design history file remediation as a means to demonstrate our processes for executing the design control part of the federal requirement, Section A 2030.
Those are relatively straightforward and we have the opportunity now to go back and very clearly document the improvements in our design history files and our processes, so we can demonstrate to the FDA.
Once that's done, we can move into the third section.
But I think as we've really demonstrated now for three quarters in a row, the Company isn't about the consent decree.
And I'm really pleased that the response we've gotten from the investors in market, that see that we're able to do a tremendous amount to deliver better economic returns to our customers in spite of the consent decree.
We are really not about the consent decree.
We have a tremendous amount of value to offer.
Quality is our priority and the consent decree is (inaudible) activity in Cleveland.
But I'll tell you, it's sort of a two-part discussion, where we take the FDA's requirements very seriously.
I take quality culture extremely seriously and we're deploying that.
But at the same time that can't be an excuse for anybody in the Company to underperform.
So while we're tackling the consent decree and doing all the right things, we're driving the business to improve, and we're now in the third quarter showing we can do that.
Thanks, Bob.
We can, <UNK>.
Good morning.
Yes, we actually announced at the beginning of the call, Laure mentioned it, but I'm happy to re-cover it.
We're going to stop on both free cash flow where we used to take restructuring activities, cash spend on restructuring activities.
We used to use that as an add-back for free cash flow.
We're not going to do that any longer.
So we've made that adjustment.
I think it's cleaner, <UNK>, to be honest.
Additionally, we made a change on the adjusted earnings, the restructuring charges we used to be an add-back, but we're going to leave that in as an expense.
This is something we have to manage.
So again, I think it will be cleaner both on the adjusted earnings and on free cash flow.
But you're right we did make adjustments on both of those.
You know, I think it's two-fold, Bob, ideally we're going to do the right thing.
So we're not going to not pursue restructuring.
It's the right thing to do.
But at the same time I think you have -.
when we have restructuring that occurs in some measure every quarter, adding that back, I think at some point it doesn't make a lot of sense.
So I think it's more a way of looking at it than necessarily an indication we're going to do more or less restructuring.
And, <UNK>, this is <UNK>.
I guess, I'd add to <UNK>'s comments, and I want to drive a culture internally where we are talking about the same things that shareholders see and that's real cash at the end of the day, real earnings at the end of the day and we've got to make restructuring fit into our programs.
We're really in a business that's going to have long-term renovation and we have to get used to accommodating those in the way we talk about our progress.
There is not a precise way to estimate it, but I'll give you some ways we look at it.
It's not a trivial exercise like you might see in an international operation that can be done within a week.
That can happen.
I think in this case, if you look at last year, the FDA had inspectors here for five months.
So it's of let's say a similar scope.
It was the Cert 1 and Cert 2 consent decree.
This will be Cert 3.
So our best guess is it could be five months, it could be nine months, it could be longer, it could be shorter, but I don't think it could be extremely short.
And there is no real way to tell.
When we look at other Company's experience, there too many other factors to make those comparable estimates.
So we kind of look at last year as the best median indicator.
Yes, it's an interesting question to answer, given all the moving parts we have in our limited guidance.
So our operating mechanism on a strategic basis and then what we do weekly and monthly to manage is really to look at where the business needs to go in terms of fundamental improvement in meeting customer needs that are clinically complex because that's where the Company can get the best return for its investment in resources and expertise in building highly unique customized solutions and things that really make a difference.
We are a medical device patient-centered company.
This isn't an economic transformation.
It's really a patient-centric transformation that has positive solid sustainable long-term economic gains for shareholders.
So as we go through that process, we look at what we can do in terms of gross margin to make our engineering work more sustainable in terms of delivering results.
And I think what you see in the last three quarters is indicative of where we can go in the future and the market certainly can sustain that, because the market of patients who need that kind of care globally is very robust.
The amount of SG&A that we spend is determined by how gross margin dollars shift within a month.
So we strive for gross margin percent improvements in the short-term.
We look at how customer contracts had allowed it to anniversary in a particular month.
We look at the dollars that will be contributed from the gross margin line and we modulate our spending in SG&A accordingly.
I think the level of SG&A spending now is enabling us to build the sales force that we need and make the right kinds of investments.
Depending on where the appreciation lays, but clearly in terms of a cash flow, we also meter CapEx spending that same way.
Historically the company ---+ in recent history, the Company has had relatively suppressed CapEx spending.
In 2015, for example, it was less than 0.7% of sales.
CapEx needs to probably come up a little bit ---+ 1% of sales or 2%.
We don't have catch-up CapEx spending to get to, but we'll asymptotically come up to a more reasonable level.
And we modulate that also monthly based on our contribution margins.
Another way people can look at the kind of the long-term efficacy of the income generation of the Company is to look at our European segment, which is really a version of unfettered access of our products in a very competitive marketplace, where we continue to see sales gains and good earnings contribution in a competitive marketplace.
So that's kind of the way I would triangulate.
Okay.
Thank you, <UNK>.
Well, as I stated in my closing comments.
It is an exciting time for Invacare, because we're well positioned in this marketplace to advantage of the -.
being at the destination of the transformation of healthcare spending out of acute care space into the places where we succeed.
We do have a wonderful portfolio of differentiated products that can contribute positively on behalf of shareholders and we look forward to taking advantage of that.
Thanks for your time and attention today.
We'll be available for calls.
| 2016_IVC |
2016 | MCK | MCK
#Well, you may recall that when we talked about generic inflation in the past, we've talked about the fact that it is driven by a small number of molecules from a small number of manufacturers that have inflated to a very high degree.
I'd say our current experience is that some of those outlier increases have diminished significantly.
But overall, if you think about the portfolio over time, it has been in more of a deflationary mode.
When we talk about inflation, we're really talking about the net effect of inflation on our business driven by those molecules, not the overall portfolio inflating or deflating, because that typically deflates.
We think that it's ---+ we're in a period now where we are going to have modest inflation.
That's what we have been experiencing.
That's what we talked about on July ---+ excuse me, January 11.
That's what we anticipate for the rest of this fiscal year and into next fiscal year, is modest generic inflation.
Well, clearly we have made significant progress in helping our customers secure generics more effectively, and use our distribution channel to bring them to their stores in a more cost-effective way as well.
I think we have seen progress.
You mentioned Ahold and Albertson's-Safeway.
Many of our independent customers have continued to join us in the generic procurement side, and have become more and more reliant on McKesson's ability to help them reduce their cost and improve their performance.
Our Health Mart stores are now above 4,500 stores.
That program has been extremely successful in driving generics.
Our proprietary generics programs are still growing in healthy double-digit ranges.
Overall, I think we continue to make progress.
Some of our largest customers still procure some or all their generics on their own, through their own distribution network, and do their own sourcing activities.
We continue to have conversations with those customers about the value of using McKesson's combined power with theirs to do an even better job.
Those conversations obviously are important to us as we think about the relationship with these customers.
It would be premature for me to talk about specifically which customers we think might provide the most opportunity, but I don't think ---+ the table isn't run yet relative to opportunity for us.
I would say the opportunity is not insignificant.
Many of you have talked to us about specific customers that you know are continuing to procure a large majority of their generics on their own.
I think it's not an immaterial impact in front of us, if we're able to persuade these customers with the data we have that our procurement activity would be beneficial to them.
I'm hesitant to describe it in innings.
Clearly in customer count, we've got a lot of customers using us today; but in customer value based on the size of their generic spend, there's significant opportunity left for us.
Our initial expectation was that the regulatory process would be extended and follow a pattern that we've seen before in these countries.
I think we remain extremely optimistic that when these transactions are examined through their process that we will stand a very good chance of accomplishing the acquisitions in largely the form that we had expected when we announced them.
In answer to your earlier question, also, <UNK> relative to procurement, I might also point out that the opportunities for us extend beyond just the US.
Many times customers look ---+ or you look at customers that you know of in the US that are buying on their own but there are also customers buying on their own in other important markets for us, where we and they are able to dispense a generic that we sourc3ed together and we remain optimistic that our global activity and our procurement programs will continue to grow.
Well, it's difficult to ever comment on pricing, because it's in the lens of where we are currently doing business, or where we're competing for business.
I would say that overall the business remains competitive but stable.
I don't see a lot of customer changes that would drive one to believe that there's something going on materially different from a pricing perspective out in the market place.
I can speak for McKesson's strategy, and that is that we continue to focus heavily on our selling efforts within our existing customer base, trying to find ways to add more value to those relationships.
Through that value-added, create a relationship that has more stability, but it also provides better profit for our customers and better profit for McKesson as we evolve these partnerships.
I think our principal focus is in the area of expanding our footprint with existing customers, and helping them perform better.
First of all, we own around 76% of Celesio.
For the other 24 points or so of the ownership, they have a put to us where we do not have a call on those shares outstanding.
As to the news these past few days related to a suit that Magnetar had brought that we had previously seen dismissed at the local court level, if you will, back in December of 2014, that decision was appealed by Magnetar.
It did get overturned just a few days ago.
We're planning to appeal that decision.
I would expect that process to play out over a year or more.
Given the issues specific to this case, I think it is unlikely that McKesson will be required to pay what some have been extrapolating as a potential liability.
The case at hand related quite narrowly to a few shares that had been put to us.
The court decision related to around EUR260,000 total.
We see in extrapolations from that figure up into the EUR370-million range.
I would not expect, given the specifics of the case and the process around German law, that we would be looking at that sort of payment.
I might also point out that this obviously, has no effect on the operating control we've already established with Celesio, and really no effect on our financial statements, other than this potential cash liability.
But we've consolidated the earnings.
We operate the Company, and to <UNK>' point, these outstanding shares remain outstanding, and can be put to us when they decide they want to put them to us.
First off, I would remind folks that on ---+ in early January I made a comment about this business we believe will be retained by McKesson in its current form through late in our FY17 numbers.
With the guidance we've given you for FY17, that range includes that we would ---+ or assumes we would continue to enjoy the Rite Aid business in relative, the same relative form through the end of that period.
Obviously, we could be off plus or minus depending on what your view is of the process by which Walgreens will complete the transaction and how that may actually take shape.
I would say that we're reluctant to ever comment on what a customer might do when the decision is in their hands.
I would say, however, that you've seen certain customers of ours value the incumbent relationship, and continue to enjoy a relationship with McKesson going forward like you do at Target and Omnicare, where the relationship changed from a mix perspective, but we were able to retain at least a portion of the business.
I would not take that speculation and apply it necessarily to Walgreens, but I'd just point that out as certainly an alternative that has some possibility.
Other than that, not much else I can say on it, <UNK>.
Well, I have been pleased with the operating margin trends in Technology Solutions in recent quarters.
I think it very much reflects the work that the team there has been doing to re-orient our focus to specific businesses around our payer solutions, around our transactional-type offerings, and also our imaging business, as well as our revenue cycle management businesses.
We've really shifted the focus to those areas where we think we have nice growth opportunities and we have solid margins.
That has flowed through in combination with good cost control to allow us to record much stronger margins, with the comment that we think for the full year we'll be in the low 20%s.
About one point of that margin benefit, of course, remember comes from the sale of our care management business a couple of quarters or so ago.
That's really the story on the technology margins.
Overall, in constant currency, the margin number itself is 20.5%.
I don't think we would be interested in buying the stores.
To the extent stores are divested, we would not be interested in buying them.
That's not the business we're in, in the US.
Well, I read the whole thing several times and highlighted the areas of most interest to me.
Obviously, it's still very early to understand all of the implications and to understand the ability of the states to implement this rule.
I think that it's likely to be pretty limited in the states that have already largely moved to a managed Medicaid program in recent years.
This really is a state Medicaid fee-for-service kind of an application.
I guess our initial assessment is that we expect it to have a fairly limited impact in the supply chain as we see it today.
Well, I'm reluctant to make an industry call.
You guys are, and others, are well positioned to do that.
Clearly, part of what you have to look at is the amount of generic launches that come out, what kind of price inflation you're going to get on the branded launches, what kind of specialty drugs might hit and when.
There's lots of complexity.
I guess what I was attempting to describe was that the relative higher rate that we had in advance of this quarter was driven by some specific customer wins that happened to flow through our P&L.
That lapping effect of that success by that customer is the comparative that we're chatting about.
That make sense to you, <UNK>.
No, we really haven't seen any change of any significance in the branded side.
I'd say that the results are in line with our expectations.
Well, also it's difficult to speculate on what the drivers are when we are not the ones making the decision on the generic or the branded side relative to inflation.
I would say that political discourse that's taking place, and the Congressional inquiries relative to pricing practices, I think are obviously, going to have people at least pausing perhaps to consider whether now is the right time to take a price increase.
There obviously are other circumstances related to pricing associated with a supply disruption availability, new product launches.
There's all kinds of things that probably play into the calculus there.
I would say that I think the political discussion certainly clearly, and the media discussion probably has some impact; but to speculate on how much would be difficult.
Well, I believe that performance of branded pharmaceutical companies is probably easier to forecast given that it has been less volatile in the last decade than perhaps the generic industry, where we've seen more volatility.
That volatility certainly is partially driven by supply and disruption.
I would say that if you could forecast what supply disruptions might occur in the future, then you might have the ability to at least have some inclination as to what happens with branded price, or generic price inflation.
But I'm really reluctant to speculate on how things may play out.
We clearly have given you guidance for the rest of this fiscal year on that dimension of inflation, both branded and generic.
We've given you our thoughts relative to FY17 guidance on those two dimensions.
I think we stand by our current speculation on that; but those views are amongst other views we have to take every year on what might happen throughout the year.
We just want to be transparent with you about what we're thinking.
I think that's probably the most I can say about it.
You're welcome.
I understand we don't have any additional questions in the queue.
I know we hit a lot of these subjects in early January, and I appreciate all of the attention you've paid to these matters and others, and for your time on the call today.
As we enter the final few months of our fiscal year, and I look to the future, I'm excited about the opportunities I see for us to continue our lead from an innovation perspective, and how we can help our customers meet the many challenges that they face.
The fundamental strength of McKesson has long been our ability to constantly adapt and grow during times of change, and by staying focused on our customers, and true to our core values.
I'll hand the call over to <UNK> for her to review upcoming events for the financial community.
<UNK>.
Thank you, <UNK>.
On February 10 we will present at the Leerink Partners Global Health Care Conference in New York.
We will release our fourth-quarter earnings results in May.
Thank you, and have a good evening.
| 2016_MCK |
2016 | PLT | PLT
#Thanks, Erin and welcome everyone to Plantronics' third-quarter FY16 financial results conference call.
Joining me today are <UNK> <UNK>, Plantronics' President and CEO; and <UNK> <UNK>, Plantronics' Senior Vice President and CFO.
The information presented and discussed today includes forward-looking statements, which are made under the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995.
The risks and uncertainties related to such statements are detailed in our most recent 10-Q and 10-K and today's press release.
For the remainder of today's call, we will be providing only non-GAAP metrics related to gross margin, operating expenses, operating income, net income, and earnings per share.
We've reconciled these measures in our earnings press release and in our quarterly analyst metrics sheet, both of which are available on the Investor Relations page of our website.
We've also reconciled constant currency in the investor presentation, and after the conclusion of today's call, the recording of the call will be available with information on our website.
Plantronics' third-quarter FY16 net revenues were $225.7 million.
Plantronics' GAAP diluted earnings per share for the third quarter was $0.52 compared with $0.71 in the prior year.
Non-GAAP diluted earnings per share was $0.83 compared with $0.79 in the third quarter of FY15.
The differences between GAAP and non-GAAP earnings per share for the third quarter consist of charges for stock-based compensation, restructuring charges, and purchase accounting amortization, all of which are net of the associated tax impact and tax benefits in the release of tax reserves.
Please refer to the full reconciliation of GAAP to non-GAAP in our earnings release.
With that, we would like to open the call to questions.
Sure, I will try.
And thanks for the question.
It's really a combination.
I mean just to outline this obviously, we have seen a significant reduction in the Mono Bluetooth market, particularly in the US.
We had gained a lot of market share in that business, which had masked some of that decrease.
But over this past year, what we had really seen is that although we gained a tiny bit of market share, we're really about at the limit.
And there were in fact some people exiting the low end of that business, and that gave other people an opportunity to increase.
But what we found was the retailers really did not want to have any more of the market share concentrated with us.
They still wanted to have a little bit of a selection, so we think we've kind of hit somewhere near a peak in terms of our market share opportunity there.
While we expect the stereo business to grow and do believe that we will come in the course of probably towards the end of this year a point that the stereo growth will exceed the Mono decline, nonetheless, it doesn't give us a growth engine on that side.
So then we're looking at a fairly choppy macroeconomic environment, and the FX hits being pretty substantial.
We did not want to ignore that impact on our business model.
We felt that we are in a really good strategic position and that we could in fact continue to be effective and industry leading with a reduction in our cost structure.
So looking at both the Mono Bluetooth looking at our competitive position, looking at the impact on FX, we did want to take a step in the direction of improving our cost structure.
Am I answering your question well enough.
Yes, so this is a specific response.
We are continuously reducing SKUs, but in fairness, we are also continuously adding SKUs.
So we do try to make sure we're doing enough house cleaning there to be cost efficient while at the same time adding innovation on the front-end side.
We are absolutely continuing many programs and operations including taking advantage of the incredibly low-cost position and significant facility that we already have as a fixed cost in Mexico to reduce supply chain costs.
This was separate from those initiatives.
Sure, so there were a few questions, and I will try to remember them all, but if I missed something, just let me know.
So first of all, the stereo business has clearly grown as a portion of the total consumer business, and at this point in time, actually the mono business is less than half of our total consumer business.
And now there's a little bit that's gaming as well.
We had a terrific response to some of our portfolio this year, but more to the point, and we had growth this year obviously, but more to the point, the portfolio that we showed at the Consumer Electronics Show or CES in Las Vegas was really extremely well received.
I think one of the concerns that we've had as Plantronics is we are known and we are a communication brand, and the depth of value add that we can provide in communications is truly unparalleled.
As we were moving into the stereo space, we knew that some of these products were consumption-first, or music-first types of products where communications would be secondary.
And so we were worried about our permission to play in these segments and the reception we would get from some of the key channels.
And very clearly, what we heard at the CES show was ---+ your products have been fantastic, our sales reps are already telling us these are the best products, that the return rates are lower.
Word of mouth is very positive, very positive reviews on the websites.
So we may not be able to compete with the marketing brands or the budgets of some of our competitors, but the authenticity of the experience is very, very high and the enthusiasm we had for the specific models we showed that will launch over the course of the year was very, very high.
So we feel very good about our potential and the ability to compete in that segment.
Now, again you asked a number of questions, and I'm not sure if I remembered them all.
So if I missed one, please tell me.
So guidance for Q4, we are expecting an increase of 2%.
Most of that is going to be driven by the enterprise business and UC in particular.
Year over year for Q4, we're expecting a little bit of a decline in consumer driven primarily by declines in the Mono Bluetooth market.
So UC will be the primary growth driver there, offsetting declines in Mono Bluetooth.
I will just talk briefly.
On the consumer side, clearly we will expect some good progress on the stereo side of the business, but not in terms of this quarter because we don't really have the benefit of the new launches this quarter.
Thank you.
So first I will talk about the gross margin changes year over year in our Q3 results.
They did come down by over 300 basis points, 120 basis points of that was due to currency impacts.
And we also had 70 points from some customer mix and product mix.
There's also about ---+ sorry, about 80 points from some pricing changes that we made in order to stay competitive in our international geographies.
We are forecasting some additional pricing impacts in Q4, but our gross margin for our guidance is somewhere between 51% and 52%.
So that gives you some idea.
I don't know if that was in the range that you were looking at, but that's what---+
Let me clarify that.
So due to the timing of our restructuring activities that are happening during Q4, we aren't going to see all of the savings in Q4 that we would expect.
So there is a quarter-over-quarter increase in our expectation of operating expense.
And some of that has to do with variable compensation.
In Q3, we saw a benefit of about $2 million from reducing our variable compensation as a catch up adjustment reducing Q1 and Q2 accruals.
So we aren't going to see that benefit again.
Also sorry, the bigger impact there going from Q3 to Q4 is really the 14th week.
Due to the way our fiscal year calendar falls, we have an unusual 14th week in our Q4 this year.
It's typically 13 weeks, so that adds about ---+ that adds over $4 million in operating expense just in the 14th week.
Well, we can give you a little bit of color on this.
So the UC business on a constant currency base was up about 8% for the year, which is a little bit lower than we hoped, but nonetheless positive.
The big decline was in the Mono Bluetooth business in the US, which was off about $8 million year over year.
All right, so everything you said is correct, <UNK>.
Let me give you what the concerns are and what the pros are.
We are certainly hearing a very good response to our new portfolio, and I would say globally.
At the same time, it's early January that we have assembled this forecast, and it's been at best a choppy start to the year from a macroeconomic standpoint.
I would say some sectors of the both global and US economy have been very affected.
And so just talking US economy, very clearly the oil and gas industry has taken a significant hit.
And that for us is a very, very good sector of the market.
We'd seen some hits also from the defense contractors, aerospace sector.
And I would say that US exporters such as ourselves who are affected by the dollar ---+ I mean some, of course, are able to price in dollars overseas, but those who have to price in local currency, this has been a significant impact for them.
So I think some of those sectors of the economy have been affected, and I think others have been concerned by macroeconomic events.
We usually find this is still early in the quarter to really understand what we're going to see in the course of the year.
And so we will pick up more of that intelligence as we go to enterprise connect and get more feedback.
But so far what we've heard has been relatively positive, but it's ---+ in my mind there's a certain tentativeness just because of macroeconomic concerns, the downgrading of expected GDP growth rates.
From a global basis, we actually saw a pretty good quarter from a constant currency standpoint from Europe.
I think that ---+ never minding the translation, I think that there's actually some room for hope that the position is getting better.
On the other hand, some of the emerging markets had been very hard hit, and some of them were hit before and it's gotten worse.
So if I look at areas such as Russia, Brazil, South Africa, China having slowed down, very clearly the oil producing regions and as well as big companies within countries.
So if you look at PEMEX or something like that, Petrobras, which are oil companies in diversified economies, these are also weak.
So we've got some of those on the negative side.
So we feel very, very good about the portfolio, the value proposition it provides and the reaction we're hearing.
And at the same time, if I look out longer, I think there is a risk of macroeconomic headwinds on the negative.
Sure, let me comment on that a little bit.
That's probably the smallest of all of the factors in terms of gross margin, and what I would say there is there's two elements of it.
One is we sometimes sell in dollars, but we're really in local currency competition.
And so that's part of it, and the other part is there were some ---+ even on the enterprise areas where we had a little bit of price competition in Europe.
The much bigger effect on the pricing was on the consumer side and then product mix and FX.
So this was a fairly small one.
So I believe the year-over-year increase I was referring to was actually looking at Q4 guidance.
If we look at the full-year FY17, we are going to have cost increases.
We've taken $15 million to $16 million out of our annual cost, but one of the big challenges we have is variable compensation that comes back to 100%.
We're much lower than that this year, and that's a big chunk, $15 million or more in costs that are going to be coming back as a result of the bonuses.
We also have---+
Depending of course on our performance relative to the plan, which has not yet been set for next year.
Sure, right.
The plan is not yet finalized.
We also have merit increases and healthcare costs and other things in there that traditionally go up year over year.
We haven't actually set guidance for Q1 of next year.
All we provided is guidance for Q4, which admittedly is not giving you a perfect understanding of this cost reduction action because obviously it's occurring February 1.
Not all of it will take effect for the whole of this quarter.
So the full effect of that benefit will be in the next quarter, but we've not yet come up with guidance for the June quarter at this time.
That is the case, yes.
But again, a lot of that is the variable incentive compensation coming back.
We haven't put together an actual detail expense as yet for the June quarter.
The way I would think of it is that there was a benefit of $2 million in Q3 operating expenses as a result of the adjustment.
So let me talk partly to it and then I will let <UNK> give you more correct and detailed information.
First of all, some of this absolutely cuts across all categories.
Foreign exchange cuts across all categories.
The lower volumes in the plant which affects our fixed absorption may be due primarily to the drop off in the Mono Bluetooth business, but that affects our total business and it affects our total gross margins.
Some of the higher logistics costs we had were due to the consumer side of the business where we had much greater volume.
On the mix side, we had product mix issues that were really very specific to particular products.
It was probably a little bit more on the consumer side than it was on the business side, and more of the pricing was probably on the consumer side than on the business side.
But that's the flavor I would give you.
<UNK>, do you want to correct anything.
No, I will not correct anything.
I will add one thing though.
The discount or the pricing impact to enterprise was all international due to international pricing.
So the pricing impacts were much more significant on consumer globally, but when you think about the enterprise, it was international pressures.
Well, so I think what you just said is reasonable, but let me just say also, part of the reason we only forecast one quarter is that our accuracy is not very perfect.
So you're asking for when will it get to that inflection point where the drop off in the mono category stops hurting us more than the gains in the stereo.
And we don't know for sure ourselves, just to be clear.
In all honesty, we were surprised that the Mono Bluetooth category's decline accelerated this year in the US.
We were certainly prepared for some decline, but it actually went down much faster than we had expected.
So we don't know for sure how much growth the stereo category will have.
We don't know for sure how much decline the mono category would have.
That means that it's pretty hard for us to estimate for sure where the crossover will be.
Having said that, we do think it's reasonable that within a year as we start to get the traction on all of our new product launches that we will be at or around that zone.
You've made one error, and that is the variable compensation coming back into Q1 is much larger than the $5 million impact over the 14th week.
Let me explain one thing.
So there were two elements that in <UNK>'s comment about the $2 million credit in Q3 I believe.
One is that we had a credit for reversal of prior quarters' accrued compensation, but the other one is our accrual for that period was well below 100% accrual.
So when we go back to a regular quarter, we would be assuming we are on plan, accruing on the basis of 100%.
So that's why those numbers didn't quite add up.
Yes, that was a quarterly number.
It includes AIP as well as merit increases and healthcare.
There's a few other small numbers.
A year ago, we had I think a litigation receipt that reduced our OpEx.
We don't have that this year.
There's a few other little things.
So I think that we are encouraged by the new products from our partners.
I think that it always takes a certain amount of time, having said that, for the market to trial accept them for any issues in the offerings to get smoothed out by the customer base.
And so it's just not been the case that we typically get an instant lift off from new offerings.
However, I do think there is, if anything, continued growing enthusiasm.
I continue to wish that it took off a little bit more like a rocket ship and less look a barge.
But at the end of the day, are we confident there's growth.
Yes.
These offerings are better, faster, cheaper than existing solutions.
They can meaningfully help organizations operate better, more flexibly, embrace mobility in their workforces, do it at lower cost.
Some of the new offerings extend the cost savings opportunities to corporations while extending the capabilities and better supporting both cloud and hybrid architectures that people are very interested in.
So I think we feel positive about that, but again, I've learned that it doesn't always mean that we're going to get an instant acceleration of business.
I would say one other thing ---+ I think that Microsoft is also very interested converting a lot of the people who have adopted their UC solutions currently primarily for IM and presence into using more of the license, and that would also be encouraging.
The current forecast is somewhere between $1 million and $2 million in expense in Q4.
Thanks, Erin.
Thanks everyone for joining us today.
If you have any additional follow-up questions, we will be around this afternoon.
| 2016_PLT |
2018 | WRLD | WRLD
#Great.
Good morning, and welcome to World Acceptance Corporation's Fourth Quarter Earnings Call.
Again, my name is Jim <UNK>.
I'm joined here with 2 members of my management team for this call and to participate in the Q&A session.
Just a couple of introductory remarks before we get started on the Q&A.
As is customary, we've published our fourth quarter earnings press release this morning, along with our earnings call script.
The 2 purposes of these documents are: number one, to provide summary data on our results; and then secondly, to display some various components of increase, decrease with some granularity within that script.
World is one of the largest small-dollar installment loan providers.
What I'd say, despite what could easily be described as mischaracterizations from certain segments of the media, but our website, customers, industry associations we deal with, regulators, many legislators, all display and know what installment loans are, as well as the differences between us and other loan types offered within the personal finance and lending industries.
Among a host of other metrics provided, you can see that installment loan portfolio has increased yet again this quarter.
We acknowledge the contributions from our seasoned field or operations and sales organizations, top-to-bottom, for this continuing momentum.
It's their enthusiasm and tenacity in embracing and driving a combination of ideas and changes into our branches, working closely with our headquarter's functions in Greenville, which have led us to bank those improvements and data-driven activities we worked on for some time.
By converting those ideas from our customers, implementing the improvement initiatives, system upgrades, all of the other things we've been working on for some time, along with our customer service-based selling, we've produced yet another quarter of continuing positive results.
So thanks to all of our employees and associates.
As I indicated, on this earnings call with me this morning our Chief Financial Officer, <UNK>ny <UNK>; and Senior VP of Analytics and Strategy, <UNK> <UNK>.
And at this time, we're pleased to accept questions about our fourth quarter results.
Yes.
So it was just under 16%, which is consistent ---+ slightly down from the same quarter last year.
Sure.
So the gross loan portfolio in the payroll deduct business is $50.1 million gross loans.
After ---+ so ---+ and $25.1 million net loans.
And then after allowance, we have an exposure of $13.3 million left in that payroll deduct loan portfolio.
So the run-off in Mexico is concentrated in that portion of the business, in the payroll deduct business and that the advanced pay or traditional loan business is up year-over-year.
That's right.
I will also say we closed actually 36 on the year, but 33 in the quarter, and those 33 in the quarter were the ---+ all in the payroll deduct business.
There was a slight improvement in the traditional Mexican business from a delinquency standpoint.
So yes, all the issues are concentrated in the payroll deduct business.
I can ---+ <UNK> can handle some of the more detailed questions.
But the decrease for the quarter is just the seasonal decrease, the seasonal run-off we have every year, right, which is aligned with the tax return season.
That's right, sequential.
Correct.
I think 31.8% is the effective tax rate, ex the transition tax.
<UNK>, this is <UNK>.
So between those different levels, the performance has been fairly consistent over the past couple of years, improving slightly for new customers and former customers especially.
But over the last couple of years, the originations for new and former customers have increased in volume.
So as that payroll deduct business continues to roll off, I expect the allowance to loan percent ratio to come down with that, given that a lot of that ---+ the weakness and the delinquencies are in that portfolio.
So that'll ---+ we haven't shared that in the past and we'll share Mexico in total, sharing the ---+ in the 10-K.
And we can consider breaking out more information there around the payroll deduct business as well.
Yes, sure.
Yes, so those branches are solely tied to the payroll deduct business.
In Mexico, there's ---+ we don't sort of co-mingle the businesses in one branch.
So the [avance] traditional loan business has still been expanding their branch network.
So we've stopped originating in that portfolio.
So the expectation is that portfolio winds down over time.
So in Q4, that's up a little over 30%.
There are a couple of things contributing to that.
There's been some changes in our marketing campaign volume and also the channels that we use.
We've shown what we think are pretty impressive results in Q4 as far as increases in new customers and former customers.
Secondly, we're also in the middle of phasing in a centralization of some of our mail that was previously sent from the branches.
And so you're going to see some of those expensive ---+ expenses move from the branches to the central advertising budget.
So you'll probably see that continue to increase over the next couple of quarters.
But it's quite positive, we don't expect 30% increases in our marketing budget next year.
We do expect some increases to that budget, which we think is reasonable given that some of the success we've had in marketing recently.
So it's hard to know exactly what is going on in the market.
But we certainly have made a lot of internal changes to our practices and procedures regarding marketing over the last 1.5 years to 2 years.
So we certainly attribute a lot of that success to the changes we made here.
And those things have led to a higher-quality customer as well and some of those things have obviously helped in charge-offs down the road.
Yes.
So we actually like we've had the success, despite pulling back on lending to the lower credit scores in our segment.
And at the same time, decreasing our cost acquisition.
Sure.
Those negotiations are ongoing.
And we don't expect any issues with extending that kind of facility this spring.
Yes, great.
So thanks for everybody's time this morning and interest.
And I'm sure we'll be talking some more with the other disclosures coming up with 10-K, et cetera.
Thanks for your time and interest.
| 2018_WRLD |
2017 | TREX | TREX
#Yes.
On a stick lumber, the prices you see on Random Length Lumber, I believe that most of that has already been priced into the market.
With regard to treated lumber, we have not seen a significant movement in treated lumber.
It's been relatively stable.
The demand in the first quarter was pretty well represented across the board.
The do-it-yourself channel was probably more influenced on a greater level of composite sales versus lumber sales.
So we believe, based on what we see across the board, that we're seeing an expansion there.
With regard to the margins, the margins were not significantly impacted by either channel growth.
Or product lines either.
Well, I'll give you a little bit background.
Trex worked on ways to cool decks a number of years ago.
And we were very successful in those tests to develop decks that could reduce the temperature of the decks.
At the end of the day, our findings were they did not reduce the temperature of the decks sufficiently that it was an advantage to the consumer.
We have not tested any products that reduce the temperature of a deck significantly that you would want to spend any extra money on it.
Our tests with consumers has indicated, at the price we believed we'd need to charge, they were uninterested in paying that extra amount.
By far, the lines here are still going to be the domestic market and is a good indicator ---+ gauge for this marketplace.
<UNK>, the conversion from wood is something that we ---+ based on all of the sources we've seen, we're clearly seeing movement on.
It's pretty difficult this time of year to judge share gains because, in the first quarter, most of the sales that occur in the first quarter are load-in to the distributors and into the dealers.
So until you get that sell-through, you really don't know for sure what's happening with regards to taking share from other composite manufacturers.
We have not seen anything on that.
And I think that that's scheduled to come out later in the spring, late spring, early summer.
Yes.
So the same issues with capacity utilization and our manufacturing improvements, is it doesn't reflect the financials of the company, particularly while using that as an indicator.
We did indicate last year that we were over 50%.
You can see where our sales growth is.
We're running at a higher level this year, but it still doesn't model the company at, whereas the incremental margin guidance, because of those additional efficiencies that we have in our operations, from a rate and yield perspective, provide a better capability to model the company.
<UNK>, as you're well aware, over the years, we've put a number of processes in place that actually expand our throughput and, therefore, our capacity available.
I think that level is not possible without certain expansions of certain bottlenecks.
We have a number of active programs in place that would assist us in overcoming that.
But the biggest problem any manufacturer has is dealing with the peak season, which, basically, is from May through July.
And at that point, if you didn't have the inventory or that expanded capacity, that'd be somewhat of a bottleneck.
We model that on a regular basis to make a judgment because, obviously, if you need a new plant, you've got to plan that several years in advance.
And we do not have any new plans at this point for construction of a new facility.
We believe our existing capacity is more than adequate to cover the next several years, at least, without any changes or improvements in our processes.
We're not really seeing a change in the ---+ if we're addressing poly specifically, a change in the price in the marketplace, but more so of the sourcing strategy, the types of materials we're going after.
We've mentioned before that we see that poly market being relatively stable from a price perspective.
So now it's more on the capability of our sourcing team to be finding the right materials and becoming more efficient as we go forward.
Other raw material supplies have been relatively stable as well, but what's more important are the cost-reduction initiatives that we continue to work on and the team is executing.
One of the things we have seen, as you're probably aware, Trex uses recycled polyethylene.
Over the last year, we have, in fact, seen a ---+ an increase in virgin polyethylene prices, both for linear low density, which is what we use and also high-density polyethylene.
With the off-spec resin, which some people use to fill in their demand, that has been relatively stable and quite attractive, but you can't buy your whole source from that.
So we do see a little bit of pressure on some of our competitors from a cost standpoint.
We're very comfortable with where the channel is at this point.
As Jim mentioned, first quarter is primarily a sell-in quarter.
And we look at it on a year-over-year basis.
We work with our distributors, understand what they have moving into the season.
And we're very comfortable moving into the second quarter.
Well, our distributors are focused on being able to service the market when the weather breaks.
They began taking material in, in December and that was relatively undisrupted.
The weather conditions we saw Northeast, you had the one snowfall that came in late that did slow the Northeast market a bit.
And also, you remarked on the wet weather out West, that certainly did have a temporary impact on the California and the Pac Northwest.
That seems to have picked up the shortfall by now, and that's pretty much behind us.
Let me take the pricing first.
We didn't take any pricing going into this year.
And any new pricing, we would communicate to the channel.
So that gain that you're seeing is all volume.
As we talked about last year, we do have 1 competitor who is putting aberrant programs out of there that as they try and disrupt the market and gain share back, they have been essentially ineffective with that.
It creates more distress by the people that they're trying to recruit than wins their hearts.
So we haven't seen any fallout from that.
Thank you to everyone for participating in today's call.
We look forward to seeing you at the upcoming conferences and investor meetings.
Have a good weekend.
| 2017_TREX |
2016 | EXP | EXP
#Thank you.
Good morning to all and welcome to Eagle Materials' conference call for the second quarter of fiscal year 2017.
We are glad that you could be with us bright and early this morning.
Joining me today are <UNK> <UNK>, our Chief Financial Officer and Michael Haack, our Chief Operating Officer.
There will be a short slide presentation made in connection with this call.
To access it, please go to Eagle Materials and click on the link to the webcast.
While you are accessing the slides, please note that the first slide covers our cautionary disclosures regarding forward-looking statements made during the call.
These statements are subject to risk and uncertainties that could cause results to differ from those discussed during the call.
For further information, please refer to the disclosure, which is also included at the end of our press release.
I would like to begin today with some perspectives on our gypsum wallboard, our cement and our proppants businesses and then <UNK> will walk us through our second-quarter financial results.
Gypsum wallboard demand continues to grow.
Industry shipments were up nearly 7% versus prior year.
Household formations are increasing and we believe housing has room to run.
Accordingly, we anticipate demand for wallboard to be up consistent with the outlook for housing starts.
We have announced a January 2017 wallboard price increase and we look forward to sharing the results of that increase with you early next year.
Our cement business performed well, but was affected by weather, especially in Illinois, Missouri and Oklahoma.
We believe that strong underlying demand fundamentals are intact and evident.
We anticipate trend improvement in our cement business consistent with our improved outlook for infrastructure, residential and nonresidential construction spend.
We believe that our oil well cement and our proppants businesses are in the bottoming process.
It is also our expectations that we will experience significant growth in demand for oil well cement and proppants over the next several years.
In short, all of our businesses are positioned to enjoy improved fundamentals and earnings performance going forward.
I also want to take a moment to highlight our announcement last month that we entered into a definitive agreement to acquire Cemex's cement plant in Fairborn, Ohio.
The transaction is expected to close in December.
All of our criteria boxes have been checked with this investment.
It's a low production cost, high margin plant.
It's geographically close to its market and it's complementary with Eagle's existing cement assets and its distance from imports.
This plant will increase our annual cement capacity to nearly 6 million tons and provide an immediate and meaningful contribution to cash flow and earnings.
We are very excited about this opportunity to grow Eagle with some truly outstanding assets, as well as welcome a talented group of new employees to Eagle.
Now, let me turn it over to <UNK> to review our second-quarter results.
Thank you, <UNK>.
Eagle's second-quarter revenues were a record $333 million and improved 1% from the prior year.
Our second-quarter earnings per share increased 112% to $1.25 per diluted share as our cement business reported record second-quarter results.
A 3% increase in our average net cement sales price, along with improved sales volumes in our aggregates business were the primary drivers of the increase in Eagle's quarterly comparative of cement and concrete and aggregates revenues.
Operating earnings from our cement and concrete and aggregates businesses improved 6% to a record $55.5 million, reflecting improved pricing and good cost control.
Increased wallboard and paperboard sales volumes drove a 6% increase in our quarterly comparative wallboard and paperboard revenues.
Operating earnings in our wallboard and paperboard business increased 8% to $51.9 million for the second quarter.
Eagle's oil and gas proppants financial results continue to reflect the difficult business conditions in the oil and gas sector.
The second-quarter operating loss of $4.1 million includes depreciation and amortization of $4.3 million.
While business conditions in the frac sand business remain at low levels, as <UNK> mentioned, we believe we have bottomed out and volumes are anticipated to improve.
Cash flow generation during the quarter was exceptional and cash flow from operations increased 22% to $106.1 million.
Excess cash flow was used to pay dividends, repurchase shares and reduce outstanding borrowings.
Second-quarter capital spending of $9.3 million was down from the prior year reflecting sustaining capital levels.
Also during the second quarter, nearly $26 million of cash flow was returned to shareholders in the form of share buybacks and dividends.
We have repurchased nearly 2.7 million shares of our stock since the buyback authorization was increased in 2015.
As this last slide reflects, the cash flow generation results of our highly-competitive, low-cost position, our net debt-to-cap ratio was 27% at September 30, 2016.
In August, we successfully completed Eagle's inaugural public debt offering, which consisted of 10- year, $350 million senior unsecured notes with an interest rate of 4.5%.
Proceeds from the offering were used to pay down outstanding borrowings under our $500 million unsecured revolver providing us with ample liquidity to fund the acquisition of the Fairborn cement plant from Cemex.
Thank you for attending today's call.
We will now move to the question-and-answer session.
Well, our cement volumes were really affected by just two operations in Oklahoma and Missouri and that makes the entire extent of it.
The other markets performed just well.
First of all, it's a very good market and the projections going forward are to be up at least as much as the national average.
We like the market because all the customers and volumes are nearby the plant and the pricing is very favorable in the market, at least at this point.
Well, there's a few synergies.
We currently sell slag in the market and I think having a product offering of slag cement and regular cement is going to help us.
They also have a very good packaging facility there that's a good little business and we think we can grow that a little bit over time.
Sure, <UNK>.
So we probably saw the majority of our volumes associated with the oil and gas sector fall off in calendar 2015, so here in calendar 2016, we have some pretty good comparables year-over-year.
And where we are positioned in Texas, the weather was pretty well normal.
Yes.
It was basically Northern California and Austin.
Both markets report very, very strong sales.
We are always looking for opportunities and we don't really comment on any future MMA activities, but we are looking at a few things.
There was a slight geographic mix.
Southeast at this point has a little lower mill net than some of our other regions, but I would attribute some of it to that and a little bit of price movement over the quarter, very small, however.
Thanks, <UNK>.
That plant continues to remain sold out and in fact the Texas market continues to remain sold out.
And so as we talked about over the last several quarters, as we shifted towards more construction-grade cement, we've backed off a little bit on the purchased product that was necessary in calendar 2015.
That's a little lower margin sale product for us.
So going more to more manufactured tons.
But as we also said, as you switch over from producing oil well cement to construction-grade cement, that's a lower-cost manufacturing and so that's why you continue to see a very strong margin profile with that business.
Well, right now, our customers are telling us that they expect increased demand for sand over the next 12 to 18 months and that's based on many of the customers' beliefs that oil prices will be going up modestly over the next several years.
They really don't.
Actually, we are in very strong markets in the Sun Belt, so we think we have a little advantage going forward.
The most recent housing starts that came out this week were actually somewhat pleasing to me.
Even though they were down a little bit, the single-family housing starts were up over 8% and as we all know, single-family housing starts consume 3 to 4 times the amount of wallboard as a multi-family housing start does.
So when you put the math to it, even though the numbers were down a little bit, the housing starts that were reported are going to require more gypsum wallboard.
Then if you look at the permits, the permits were up over 6% to 1.2 million.
So we are actually pretty pleased by the housing start numbers that came out last week.
The numbers that we reported are just plant-level EBITDA.
There will be a process that Cemex will go through for the carveout financial statements, but similar to our existing assets and how we run our Company, we would expect very low overhead structure associated with that plant.
It's already a very robust margin plant adding, as <UNK> mentioned earlier, some outstanding new employees to Eagle and there's not a lot of overhead required there.
Thank you for participating in our call and we look forward to talking with you early next year.
| 2016_EXP |
2016 | CNK | CNK
#I can't speak to when AMC or Regal first spoke to Screening Room.
I know that we spoke to Screening Room very early in the process.
We analyzed it, we looked at it, had multiple conversations both in person and over the phone with these people.
As we analyzed it, it didn't seem to be a good economic decision for Cinemark to move forward and to support.
That is the way we went.
It wasn't a matter of not having a seat at the table.
In fact, I think we may have had one of the first seats at the table and did a very thoughtful analysis and chose to not proceed because we didn't think it was in the interest of our shareholders.
<UNK>, that is a very difficult question to answer in the way that is formatted because we're open to looking at any and all business proposals.
There's no categorical no way, but it is detailed, it is complicated, so I really cannot speak to it in a somewhat hypothetical situation like this.
Let me just say, we're not categorically opposed to any business proposition and we will look very carefully at any proposition that is put before us.
The only other thing I would add too, is we believe these are conversations best had between ourselves and our content providers.
So the concept of a third-party in the middle of that is something that was not favorable to us.
But as <UNK> said, these are conversations we actively have, we believe we'll actively have ongoing with our studio partners.
Pricing is something that we pay particular attention to.
Like we did in 2015, we will look for opportunities to increase price where we think we can do so without impacting attendance.
And again, we did that last year.
When we were approaching this year and looking at the perceived relative strength of the 2016 box office, it is something where we have that on the mind.
We have not so far taken significant price increases in any of our recliner theaters.
It is something that we are contemplating as we look at the demand for those theaters.
So there is some potential there.
We have not yet implemented any type of tax on top concept which some of our other peers have.
Is something we are evaluating, so there may be some opportunity there.
It is something we'll be very prudent about.
But again, our underlying philosophy domestically has been to ideally slightly trail inflation over the long haul, but look for momentary opportunities really driven by strength of content to boost prices or strength of demand in marketplace.
I guess I would say I think there are some pockets of opportunity, but we're just going to be careful as we go forward and do that because we don't want to impact attendance when all is said and done.
We remain bullish on our ability to continue to drive per caps in food and beverage.
We see it with the variety of offerings that we have.
We see it in the layout of our concession stands and modernizing those.
And we also see it as we continue to rollout recliners, we see increases in food and beverage consumption when the recliners are put in.
Part of that I think is reserved seating and it allows the customer to not be under any pressure to get a seat.
So all of those things I think are going to continue to help drive our food and beverage in the coming quarters and years.
That is correct on the local concession per cap in constant currency and the amount of the reclass was about $6 million from film rental and advertising to utilities and other.
It is about 2.5% of our overall film rental and advertising expense.
Really it is the math of foreign exchange and the profile.
Some of it's mix of countries, where the strength is driven.
But our overall benefit in ---+ I'm sorry.
You're talking per cap or overall concession.
Our per cap in constant currency was up about 11.4%.
Our raw concession revenues dollars were up about 30% in constant currency.
It is really predominately driven by screen add increase associated with attendance.
We also had the benefit of some events, promotional events that took place in the quarter connected to Star Wars and some faith-based opportunities.
So those were really the key drivers of other revenues.
What are you referring to.
Competitive changes.
I don't think there is anything material that is going to change there.
Yes, we have some overlap, but it is not that significant.
It is just a matter of having a competitor with Carmike and now we have a competitor that AMC has acquired.
I think what one of the biggest things that has changed in the last several years is the ability from the studios to provide forward-looking tent pole movies into not only the remainder of this year but there was a time when basically release schedules were 12 months out.
Now you have studios literally putting tent poles down 24, 36 and sometimes even 48 months out because they want to reserve the real estate for that particular release date.
I think that is probably the biggest change that has taken place as we look forward.
Clearly, those tent pole movies have become more and more important and in doing so, studios are spending more both on the production side and the ad pub side.
So it is important for them to put the flag in the ground and it is for us it is very advantageous because it allows better planning and we can be more transparent as we look forward of what our earnings potential are going to be.
Yes, because we have confidence in the product flow for not only 2016 and 2017, but we've got a pretty good look into 2018 and even 2019.
James Cameron, <UNK> Cameron, it was really quite interesting.
At Fox's presentation at CinemaCon, <UNK> Gianopulos pulled the classic oh, and one more thing and out walks <UNK> Cameron.
And <UNK> says, Avatar with two movies just wasn't enough and I have decided three.
Then he goes, and you know what.
We laid out the conference room and there is just too much material.
We're going to do four and he basically announced the next four Avatars.
That is incredibly important to us.
These are the types of things that we have experienced over time, both domestically and internationally.
I would say we would look to offset that with price over time where we could.
We would continue to look for ways to increase our productivity through more efficient operations where possible.
Generally, we like to think that overall increases in minimum wage also help us from a patronage point of view, because people have increased disposable income and they will use that to make additional visits to our theater.
So hopefully we would recapture some of that that way.
But those are the types of things we would aim to do.
Like any other cost pressure we might experience, we look to price and productivity as ways to offset it.
I will take the second one.
The first question was about concessions and can we add some more color to what made up the concession increase.
I'll do the second question first and let <UNK> do the first.
Relative to our desire to do acquisitions outside of the United States, our first priority is definitely Latin America because we have got such an established footprint throughout Latin America.
So going deeper within our existing territories would be priority number one.
That does not preclude us from looking at potential opportunities outside of Latin America, especially as it relates to Europe.
Relative to what has happened with tax inversion, that is really not a major consideration of ours.
First and foremost, what we would look at on any potential acquisitions outside of the US, let's just, wherever that might be, would be the quality of the circuit and the potential return on that particular investment.
We would not make an investment driven off of tax benefits.
I apologize.
On your first part of your question, was that particular to the drivers of our US concession per cap.
More about Latin America.
Really the drivers for our Latin America per caps are comparable to the US.
I'd say the bulk of the driver is just strength of volume.
A lot of that was connected to some promotional activities we had associated with some of the blockbuster releases in the marketplace.
Another big piece is inflation.
We continue ---+ in the case of concessions in the case of international, our general approach is to try to slightly exceed inflation.
It is a little bit of a different tactic than in the US, but our aim is to slightly exceed inflation.
We were able to do that internationally.
We've gotten better conversion with our per caps in volume based on the different initiatives we have talked about, whether it be more variety, promotions, strategic floor designs.
But then also a big component is inflation.
Probably about half of the increase is inflation that you are seeing in our concession per cap growth.
The answer to that is yes.
In particular, when movies open on opening weekend, Friday and Saturday nights, since we have effectively reduced capacity in many of these theaters by as much as 50%, yes, we do see sellouts on a particularly regular basis.
And that is why we will be considering and looking at price increases, especially for those high demand time periods once the recliners have been fully established in the marketplace.
We have both.
We have some IMAX in our circuit and of course, we have a significant dedication to XD.
We position XD as a full premium experience from both the visual perspective, to seating and the sound.
It is a full premium experience for us.
Thank you very much for joining us this morning.
We look forward to speaking with you all again following our second quarter.
Thanks everyone.
Bye.
| 2016_CNK |
2018 | INCY | INCY
#Thank you, Kevin.
Good morning, and welcome to Incyte's First Quarter 2018 Earnings Conference Call and Webcast.
The slides used today are available for download on the investor section of incyte.com.
I'm joined on the call today by <UNK>, <UNK>, <UNK>, Dave and <UNK>.
Before we begin, we would like to remind you that some of the statements made during the call today are forward-looking statements, including statements regarding our expectations for 2018 guidance, the commercialization of our products and the development plans for the compounds in our pipeline, as well as the development plans of our collaboration partners.
These forward-looking statements are subject to a number of risks and uncertainties that may cause our actual results to differ materially, including those described in our 10-K for the year ended December 31, 2017, and from time-to-time in our other SEC documents.
I'd now like to pass the call over to <UNK> for his introductory remarks.
Thank you, Mike, and good morning, everyone.
So there is much to be excited about for the future of Incyte with our fast-growing revenue line, the late-stage pipeline of compounds that could lead to new marketed products in the next several years and an earlier-stage portfolio offering multiple opportunities for the longer term.
That said, it's definitely been a tough few weeks from a newsflow standpoint, and I would like to briefly share my perspective as we begin today's call.
Epacadostat, was a pioneering development program and what is true in the biology did not translate into a benefit in patients with advanced melanoma.
We have been working efficiently with investigators and our partners to downsize the ECHO program, while still allowing us to ask the right scientific questions, but in a much smaller program.
<UNK> will detail these changes later in the presentation, and these changes should allow us to recalibrate our R&D spending going forward.
Next, let me quickly address baricitinib.
Last week, the FDA convened an AdComm to discuss a resubmission of the baricitinib NDA for rheumatoid arthritis, which voted in favor of the benefit/risk profile of the 2-milligram daily dose.
The FDA action date for baricitinib is in June 2018.
Looking forward, the next steps for Incyte are very clear.
We will continue to grow our top line and from the new R&D and SG&A guidance we published this morning, I believe that we are now on a clear trajectory towards sustained profitability.
We also have an obligation to deliver on the promise of our exciting portfolio of development projects, and Slide 4 illustrates the depth and breadth of our product pipeline.
We have 5 molecules in later-stage clinical trials, and it is updates from these that we expect to drive our near-term newsflow.
We plan to announce results from the first pivotal trial of Jakafi in GVHD before the middle of the year, and initial data from our FGFR inhibitor program in cholangiocarcinoma are expected in the second half of 2018.
We continue to recruit patients into the delta program in NHLs and into the JAK1 program in GVHD, and we anticipate opening a number of single agent and combination cohorts with our PD-1 antagonist during this year.
We look forward to highlighting these programs and other candidates within the Incyte portfolio at our Investor and Analyst Event on June 21, where we also expect to dig a little deeper into Jakafi commercialization trends and future market dynamics.
Revenue from Jakafi in the U.S. continues to be strong, and Iclusig in Europe is now becoming a contributor to our top line growth.
Royalties from Jakavi grew by over 40% this quarter, and we expect royalties from Olumiant will become significant in time.
As shown on the right-hand side of Slide 5, we also have multiple opportunities to drive additional revenue growth in the future.
New indications may be achieved for Jakafi, and we also have a number of new molecular entities that could be submitted for global approval over the coming years.
With that, I will turn the call over to <UNK> for an update on Jakafi.
Thank you, <UNK>, and good morning, everyone.
Net product revenue for Jakafi in the first quarter of 2018 grew by 25% over the same period last year.
Sales continue to be driven by robust prescription demand, and we saw a year-on-year increase of approximately 17% in total patients being treated with Jakafi.
We exited Q1 2018 with normal levels of inventory and take the opportunity today to reiterate our Jakafi net product revenue guidance for the full year of 2018, which is in the range of $1.35 billion to $1.4 billion.
Slide 8 illustrates the estimated penetration of Jakafi into its 2 approved indications.
We believe that there are approximately 16,000 MF patients and up to 25,000 PV patients that are eligible for Jakafi therapy, and we continue to work to bring Jakafi to more of these patients.
We see, therefore, a significant potential growth in both indications.
And this potential is augmented because as a proportion of PV in the patient mix rises, so does the average duration of therapy.
As you recall, in July last year, Jakafi was included as a recommended treatment for PV in the NCCN Guidelines.
We believe that there is now a greater awareness of those guidelines among the prescribing community, and also that as more physicians become familiar with the PV guidelines that usage of Jakafi may increase.
I will now pass the call over to <UNK> for an update on our portfolio.
Thanks, <UNK>, and good morning, everyone.
As you can see on Slide 10, we're making some important changes to the ECHO program following the recently announced results of ECHO-301, which clearly demonstrated that adding epacadostat to pembro did not add efficacy over pembro monotherapy in patients with advanced or metastatic melanoma.
We've also moved very swiftly and with significant cooperation from the investigators from Merck and the conference organizing committee to bring the ECHO-301 data to ASCO next month.
We think it's very important to share these data as soon as possible.
We want to assess the IDO plus PD-1 combination in another tumor type as well as assessing it in combination with chemotherapy.
We can achieve both of these objectives by changing the 2 ongoing lung studies with pembro into randomized Phase II trials.
Specifically, we'll be looking at the IDO plus PD-1 combination in tumor proportional score high, non-small cell lung cancer versus pembro alone and thus performing the randomized Phase II test in a second histology after melanoma.
And we would look at the IDO, PD-1 plus chemotherapy combination versus pembro plus chemotherapy in an all-comer non-small cell lung cancer population, thereby also asking the chemotherapy combination question in a lung cancer population.
Enrollment in all of the other pivotal studies in the ECHO program has been stopped.
And each of these studies will be amended to enable patients and their positions to consider alternative therapeutic options.
The proposed pivotal study with durva will not be initiated.
We will continue to investigate the potential utility of IDO1 inhibition in a variety of clinical settings, but these will be conducted in small proof-of-concept trials and where we believe the biology and translational data are compelling.
The lower half of the slide describes these updates in more detail.
On Slide 11, we summarize our commitment to finding the safe and effective treatment for graft-versus-host disease.
The incidence of graft-versus-host disease has been growing due to the increase in the number of allogeneic transplants.
Unfortunately, approximately 50% of these transplant patients develop graft-versus-host disease, and mortality rates in GVHD patients can be very high.
In the first year, mortality rates can be between 25% and 75% depending on the grade of the graft-versus-host disease.
So the unmet need here is very clear.
The result of the REACH1 trial evaluating ruxolitinib in patients with steroid-refractory acute graft-versus-host disease is expected this quarter.
And I can confirm that data emerging from this open-label pivotal trial continue to support our intention to submit a supplemental NDA in the second half of 2018.
REACH2 and REACH3, the pivotal trials being run in collaboration with Novartis, are ongoing.
We plan to enroll more than 300 patients in each of these.
GRAVITAS is a pivotal program for our JAK1 selective inhibitor itacitinib in patients with treatment-na\xefve graft-versus-host disease.
GRAVITAS-301 is expected to enroll more than 400 patients.
And we anticipate the top line results may be available as early as next year.
I'll finish my section by reminding you that we're expecting to announce initial data from the trial evaluating '54828 in patients with advanced or unresectable cholangiocarcinoma later this year.
The trial is expected to enroll a total of 100 patients with FGFR2 translocations.
20 additional patients with other FGF or FGFR alterations and 20 patients without any FGF or FGFR alterations for a total of 140 patients.
The primary endpoint will be the overall response rate in patients with FGFR2 translocations.
If the trial is successful, it could lead to an NDA submission as we seek to bring a new therapy to patients with cholangiocarcinoma, which is an orphan indication and represents a significant unmet need.
In the second-line setting post first-line chemotherapy, overall response rates to second-line therapy in cholangiocarcinoma only approximately 10% with a short 2-month progression-free survival.
We are also evaluating '54828 in patients with metastatic or surgically unresectable bladder cancer.
As described in the lower half of Slide 12, this trial will focus on the efficacy of FGFR inhibition in bladder cancer patients with FGFR3 mutations or fusions.
With that, I'll pass the call to Dave for the financial update.
Thanks, <UNK>, and good morning, everyone.
The financial update this morning will include GAAP and non-GAAP numbers.
For full reconciliation of GAAP to non-GAAP, please refer to our press release.
In the first quarter, we recorded $382 million of total revenue on both the GAAP and non-GAAP basis.
This is comprised of $314 million in Jakafi net product revenue, $21 million in Iclusig net product revenue, $41 million in Jakavi royalties from Novartis, and $6 million in Olumiant royalties from Lilly.
First quarter, Jakafi net sales of $314 million represents 25% growth over the same period last year.
At first quarter, Jakavi royalties of $41 million represents 43% growth over the same period last year.
Remember that despite significant growth in underlying Novartis sales of Jakavi, the royalties received in the first quarter of 2018 are slightly lower than the fourth quarter of 2017 because the royalty tiers reset each calendar year.
And we begin each year in the lowest tier.
Our gross to net adjustment for the quarter was approximately 16%.
This is driven primarily by Jakafi.
And as with similar oral oncology drugs, our gross to net adjustment is higher in the first quarter of the year than the rest of the year, primarily because of our share of the donut hole for the Medicare Part D patients.
We expect that our gross to net adjustment for full year 2018 will be approximately 14%.
Our cost of product revenue for the quarter was $13 million on non-GAAP basis.
This includes cost of goods sold for Jakafi, Iclusig and the payment of royalties from Novartis on U.S. Jakafi net sales.
Our R&D expense for the quarter was $266 million on a non-GAAP basis, primarily driven by clinical development programs.
Our SG&A expense for the quarter was $109 million on a non-GAAP basis.
This includes an increase in our donations to independent charitable foundations, which are typically higher in the first quarter and lower as the year progresses.
Moving on to non-operating items.
We recorded GAAP to non-GAAP net interest income of $4 million in the first quarter.
In the first quarter, we recorded a net loss of $3 million on a non-GAAP basis.
Slide 16 provides a summary of reconciliation from GAAP to non-GAAP metrics.
And as I mentioned, a more detailed reconciliation is provided in this morning's press release.
The next 2 slides provide a summary of our updated guidance.
We have made no changes to revenue or cost of product revenue guidance.
As we adjust our epacadostat development programs, our GAAP R&D guidance will change to a new range of $1.15 billion to $1.25 billion, which is a reduction of $50 million from our previous guidance.
Looking further out and compared to our prior plan, we also expect that R&D expenses related to epacadostat will be significantly lower in 2019 and 2020.
In addition, in April, we paid BMS a $15 million fee to exercise our option to purchase a nonexclusive license related to PD-1 intellectual property.
This amount will be excluded from our non-GAAP earnings in the second quarter.
Given the recent news of our epacadostat development program, we're updating our GAAP SG&A expense guidance to a range of $390 million to $410 million.
This now excludes $125 million of epacadostat pre-launch expenses that were included in our previous SG&A guidance.
Finishing with the balance sheet, we ended the first quarter with $1.2 billion in cash and marketable securities, and we expect to end the year with a similar level of cash and marketable securities.
To summarize, we delivered strong product revenue growth for the first quarter.
We believe we are well positioned from a revenue and cash perspective.
And despite the ECHO-301 disappointment, we continue to make advancements on our clinical development programs, which we strongly believe have the potential to deliver long-term shareholder value.
Operator, that concludes our prepared remarks.
Please give your instructions and open up the Q&A.
Thank you.
<UNK>, hi it's <UNK>.
Thanks for your question.
So for MacroGenics PD-1, in many ways, it was independent of IDO.
We needed that compound internally for upwards of 7 combinations to be done.
But if you look at the compound at a high level, in terms of monotherapy, we'll be pursuing registration strategies likely in the niche tumor initially and then potentially exploring elsewhere thereafter in bigger tumor types.
So just to reiterate, it will have a monotherapy strategy attached to it as well as numerous internal combinations that need to be done for proof-of-concept work.
In terms of AACR and perspectiveson what is the potential best to way to select patients for immunotherapy in general and checkpoints, we're following all of what you mentioned, including PD-L1, tumor proportional scores, tumor mutational burden, et cetera.
We haven't yet outlined which way we would potentially enrich.
But all of the above are interesting.
We'll also obviously be examining our own data from ECHO-301 to see in that program what biomarkers may or may not help us.
<UNK>, it's <UNK>.
I'll do the first part of your question and then somebody else will opine on the second.
You're right.
The single agents ---+ well, excuse me, combination of chemotherapy response rates are around 10% with very short progression-free survival of approximately 2 months in the setting.
So for us, something north of that, that is durable.
So response rates 20% to 30% range that are durable would be, for us, a reasonable consideration for an accelerated approval in that setting that's combined with a reasonable progression-free survival.
You do have to couple that additionally with the likelihood that a single agent targeted therapy is likely to be a lot more tolerable than combination chemotherapy.
So for all of those reasons, should the trial deliver the results we expect, we think we'll have a viable option for a submission there.
In terms of the market opportunity, I'll pass it to <UNK>.
Sure, remember this is a subset of patients with cholangiocarcinoma that have FGFR2 translocations that we're looking at.
So in the United States, we believe the opportunity is about 1,000 patients with this disease and the translocation in worldwide about 3,000 patients.
<UNK>, it's <UNK>, again.
It is a single agent ---+ a single-arm study in FGFR3 patients with bladder cancer.
So again, should it deliver a response rate that's durable, it would certainly be considered for an accelerated approval opportunity in the U.S. In terms of ex-U.
S.
that would be a matter for regulators to consider, but we may need randomized data additionally for that.
So <UNK>, it's Dave.
I'll answer the first part of your question.
In terms of the R&D that is a percent of what is IDO in 2018, we don't break that out separately, but obviously it's going to come down.
As we mentioned that will come down in our prepared remarks by about ---+ the overall R&D expense will come down by about $50 million.
And obviously in 2019 and 2020, it will become very insignificant.
There will still be some, but it will be far smaller than we originally thought it would be.
Yes, regarding baricitinib, I mean the ---+ frankly, the opt-in option that we have is always open.
And we look at it by indication.
So there is no really direct correlation between that decision for new indications and what could happen in RA, but there is a connection in the sense that it has an impact on the royalty and the amount of royalties that we will be receiving.
So it's far far too early for us today to make speculation about which way it will go.
I think we have a month and a half now, up to June to see how the discussion are going with FDA, and then we will have all the opportunities to make decisions based on that one.
<UNK>, it's <UNK>.
So for ECHO-301 itself, as I said in my prepared remarks, we've been able to secure an oral presentation at ASCO on Sunday morning.
So the data will be presented there.
It is early from the biomarker point of view as we said repeatedly before and on calls.
The biomarker data only comes in through the second half of this year.
So at this junction, I can't tell whether or not that presentation will have biomarker data within it.
In terms of sort of readthrough to lung and why lung.
So firstly, we step back, we consider IDO a pre proof-of-concept asset now.
And with Merck, we'll be doing randomized Phase II tests in the lung cancer setting ---+ in the 2 settings.
So in the tumor proportional score high by the Merck definition of 50% or above, it's a very clean study of pembro monotherapy versus pembro plus IDO and isolates the potential effect of IDO very cleanly in the randomized Phase II setting.
There's no other enrichment at the current time or any learning that we've read through to that.
In terms of the second study, again, a different MoA being explored with chemotherapy in an all-comer lung setting and again, a very clean study of pembro chemo IDO ---+ the combination with IDO alone that then allows us to isolate the IDO versus pembro + chemo.
So pembro + chemo + IDO versus pembro + chemo that then allows us to potentially isolate the IDO effect very cleanly there.
And again, at this junction, no important biomarker stratification at this point in time.
In terms of the checkpoint blockade doublet, we ---+ as I outlined, our principles are pretty clear.
We want to test one other histology to sort of rule out a false-negative, if you will, randomized Phase II's and then the chemotherapy MoA.
In terms of beyond that, in terms of other biology, I'll ask <UNK> to answer your question.
Yes, this is <UNK>.
So we remain ---+ and I think the field remains interested in IDO1 and maybe the most appropriate place to evaluate an inhibitor.
And so in situations where we think that scientific data, preclinical or translational are strong, and we have a clear way to isolate treatment effects to evaluate the molecule in a clinical setting, we look to pursue those.
They'll likely be in smaller Phase I/II studies, perhaps in randomized Phase II studies like <UNK> just described that we're going to conduct with Merck in lung cancer.
But I think our thinking around IDO1 is evolving given the 301 data.
But we do absolutely look to study the mechanism in other places such as with vaccines, perhaps with other immune stimulatory mechanisms, and I think the details on the early-stage program for epacadostat will evolve over the coming months.
So <UNK>, it's <UNK>.
I will start off and then <UNK> will talk about the commercial opportunity.
So if you step back and look at graft-versus-host disease in its entire spectrum, you're dealing with multiple entities.
So there's a steroid-refractory setting, which is where we started with the REACH1 study and that's a single-arm study that will be delivering data first half of this year looking at ruxolitinib monotherapy in a single-arm study with the 28-day endpoint in steroid-refractory acute graft-versus-host disease.
To back up that study and with Novartis also to get approval ex-U.
S.
is REACH2, which is a randomized study of ruxolitinib in the same setting, steroid-refractory acute versus best available therapy.
And then, there is a completely different clinical entity, chronic graft-versus-host disease, which occurs more than 100 days post transplantation, has a different clinical phenotype in terms of it being more fibrotic disease and more skin manifestations.
And you're right, ibrutinib has an approval there in that chronic graft-versus-host disease setting.
Our randomized Phase III study, REACH3, is ruxolitinib versus best available therapy, which could include ibrutinib in that setting.
And the primary endpoint is response rate at month 6.
So that's the spectrum of the steroid-refractory setting.
And then there is a completely different entity, which is upfront steroid-na\xefve graft-versus-host disease, so before high-dose dexamethasone use.
And if you remember, our proof-of-concept data with itacitinib, our JAK1 inhibitor was strongest in this setting.
And that's where we're conducting GRAVITAS-301, which is in steroid-na\xefve graft-versus-host disease in the acute setting, 436 patients.
It's a randomized study versus placebo in that setting with steroids to 28-day response rate.
If that study is ultimately successful, then itacitinib will be used upfront in the steroid-na\xefve setting and that's the compound that's wholly owned by Incyte and is globally ours.
And then rux will find its way more in the steroid-refractory setting as outlined above.
I will also ask <UNK> to opine on the epidemiology.
Yes, <UNK> here.
So before <UNK> speaks about the U.S. just to give you the perspective of the potential for us.
So the first program is ruxolitinib, where obviously it is Incyte commercializing in the U.S. and our partner, Novartis, outside in steroid-refractory GVHD.
And that is a number of patients that has been estimated as shown on Slide 11, it's around 3,500 new cases of acute GVHD in the U.S. There is around 3,500 new cases of chronic GVHD also in the U.S. So that's the first thing where we do the work with Novartis, we will commercialize it in the U.S. and that's steroid-refractory setting.
In the steroid-na\xefve GVHD where itacitinib is developed, we estimate north of 10,000 new cases of acute GVHD between U.S. Europe and Japan.
And it's important because it's a project where Incyte will be commercializing itacitinib across the U.S. Europe and Japan.
So <UNK>, unless you want to speak a little bit about the specific U.S. short-term opportunities.
Well, so I think <UNK> has pointed out the epidemiology for both acute and chronic GVHD in the U.S. I think you asked the question about IMBRUVICA and obviously it's approved in the chronic GVHD setting.
We think that there's an opportunity for both drugs there.
We actually don't see the uptake in IMBRUVICA to be that great so far in chronic GVHD, and we think our profile will serve patients well there.
Yes, thanks, <UNK> for the question.
So we've said this a number of times, I think, about persistency and ---+ in the commercial setting how sometimes it's difficult to actually follow patients as they switch insurance and so forth.
So the best evidence is to turn to our trials.
If you look at the response trial, for example, more than 80% of patients are still on the therapy at 2 years.
And if you look at the COMFORT trials, you have more than 50% of patients are on therapy at 3 years.
So that's sort of our guidepost.
There is actually information from our response trial from ASH, and there will be update at ESH, European Society of Hematology, where we've shown their response data that patients ---+ 66% of patients are still either on therapy or have completed at least 5 years of therapy.
So the duration of therapy in PV is clearly longer than MF, but MF patients stay on therapy for long time as well.
Dave.
<UNK> here on the R&D and the profit question.
We have said ---+ I mean, it is a series of decisions and choices that are made on the project-by-project basis.
So the paradox of what happened with 301 is that by downsizing fairly drastically our epacadostat program as we just discussed.
In fact, we are improving the profitability for this year.
But obviously, it was not the goal.
I mean, the goal was certainly to develop it in multiple indications very quickly.
And it's interesting to look back at this as sort of an example.
We have a project here that has a clear safety profile that was very well established.
It's a program where we have good biology, we have early clinical data.
And where from the cost and the strategic standpoint, it makes a lot of sense to test it in a larger scale as we did.
If you look at the cost of 301, so the studies that were led ---+ the first Phase III study that led to the reduction we discussed over the past months.
So total cost of that study for Incyte was around $50 million over 2 years.
So it's the case ---+ because we have a partner that was sharing the cost because we have the supply also from the partnership, et cetera.
So when you look at it from that standpoint, to say it makes total sense in the world to do that investment that would put us ahead of the curve from the competitive standpoint and gives us a clear advantage.
So we will continue to look at research programs that way where we look at them as does it make sense to invest in the program based on the science and the safety and the biology and the efficacy that we are seeing and then, of course, on the competitive position.
Overall, when you look at the portfolio as a whole the top line continues to grow very dynamically.
It's 25% in the U.S. a little bit more outside from the royalties we are receiving.
So you can imagine that over time, as we've said, there is ---+ the lines are going to cross or have crossed over the past quarter depending on some of the events.
And what we are seeing today is that with the downsizing of epacadostat, it's clearly a situation that will go in that direction.
It doesn't mean that if there is a case that requires resources to be fully realized, we would not do it.
It's just looking at the trends and trying to project from the existing trends that we are seeing over the past quarter.
Concerning the epacadostat program.
Well, obviously, the first 2 quarters of this year will still carry the cost of the larger studies that we had ongoing.
So don't expect Q2 to be certainly dropping very quickly.
I think you will see most of the effect in Q3, Q4 and certainly in '19 and '20.
So just to be very clear, by shutting down or stopping some of the studies in the middle of the quarter, you end up carrying all the costs of the closure.
So that's what the perspective looks like.
I believe having a robust R&D spending for a company like us is the right thing if the science is good.
And I think we'll be following that science as we go.
At the same time, I also believe that because we have this growth of our top line that we will be emerging in sustainable profitability over the next quarters just ---+ as we have always planned for.
So that was always the plan in the way we were looking at the numbers.
And specifically on the ratio of fixed cost and variable cost to emerge into sustainable profitability at some point, the fact that the IDO program has been more or less put back into proof-of-concept stage or very much a smaller investment is just making it happen a little bit earlier.
Yes.
I think ---+ I mean, you know we have been always open to acquiring assets.
So you can see that over the past 3 years, it has been fairly selective.
It has been targeted to some scientific questions that we were interested in and you can go back to arginase or it has been based on portfolio needs like the MacroGenics PD-1.
And then there are some small scientific early-stage research programs like Merus and Syros.
So you can see the appetite for partnership has always been there.
I think the portfolio we have today is very full of sort of near-term opportunities.
We spoke about them, but there are like 4 molecules that are at the stage of starting on being in the middle of pivotal studies.
So we don't lack opportunities to launch new products over the next few years.
And at the same time, if we see opportunities that would strengthen that, we will look at them, but we would not look at them at any price.
I think it would have to be something that fits with the portfolio and something that is in the price range that is reasonable.
We have $1.2 billion in cash.
So that gives us some flexibility to do that if we see the right opportunity.
And that's really the way we look at it.
It's always the goal.
There is no objective of not being profitable obviously.
So it has always been the goal.
It is always the goal.
What we see today, because of the technical reduction of our R&D spend with the epacadostat downsizing, that is, in fact, happening in the short term.
It should take the guidance we just gave.
Maybe Dave, if you can describe it.
Sure.
What <UNK> is mentioning, if you take the guidance we just gave, we reduced the SG&A guidance and reduced the R&D guidance.
Of course, we don't give guidance on milestones, but you assumed what the consensus is on milestones of Jakavi royalties of $200 million and $40 million in Olumiant, because that consensus, we're going to end up with non-GAAP profits of between $200 million to $250 million this year.
So we are ---+ as <UNK> has mentioned, we're well on our way to that sustained profitability number, and we hope over time that will get better on a yearly basis.
So, maybe, just transitioning to the early pipeline and your checkpoint strategy here.
You've completed these dose escalation studies for OX40 and GITR.
Could you just comment on what you're looking to combine these with going forward.
And it looks like the TIM-3 and LAG-3 studies are progressing to clinic.
So how are you prioritizing the relative targets particularly given competitive feedback.
<UNK>, it's <UNK>.
I will start.
So for the agonist for OX40 and GITR, they've been in the clinic, the longest GITR is slightly before OX40.
And as you pointed out, we've got 2 recommended Phase II doses for the monotherapy.
They're likely both combination drugs should they continue to go forward.
They neither the rational competitors that have demonstrated to date any large amount of monotherapy activity nor was it expected.
And currently with checkpoint blockade, we hope over the ensuing next half of this year/early next year to get to the ability to discern whether or not there is proof-of-concept with these agonists in combination with checkpoints.
In terms of TIM-3 and LAG-3, they are on track to go through their INDs this year and getting to the clinic.
They're antagonists.
The field as a whole is probably a little more bullish about the antagonist.
And again, they're not likely to have a large amount of monotherapy activity based on what we've seen from competitors.
So they will be combination products.
One thing we can do, when we're not first is learn hopefully a great deal from our competitors and see where they go and where they potentially get proof-of-concept and then jump on that quickly.
But as I said, it's very early with those programs, and they're only about to go into the clinic.
And then, just I'll remind you that we are taking another compound as we speak into the clinic that's also has a biomechanism to it and that's our AXL/MER inhibitor, and we'll be taking that very carefully into the clinic as we speak.
And that will round out our current immunotherapy portfolio.
Great.
And then just following up.
You had first-in-man data in December for both the bromodomain and the PIM programs.
What are the next steps there.
So ---+ again, those targets, you're right.
We have completed the early part of the work in terms of getting towards a dose.
But for the bromodomain/BET program, we selected the backup compound to go forward with because it had a better PK profile than the lead compound.
And we're busy looking at that very carefully to see if there is a route forward in terms of a proof-of-concept to work with.
It does have on-target toxicity in terms of and we showed this publicly in our presentations, thrombocytopenia.
So that will ---+ we have to work very carefully for it.
For PIM, again, a program that we've been cautious with.
There are not many competitors left.
We have a dose, and again, we're looking at where are the paths forward there in heme malignancies and in combination.
Both of them by the way have really good combination data with rux in myelofibrosis.
So it's part of our rux combination work in MF.
But they are still early programs and can't declare yet where we'd be going and haven't reached proof-of-concept yet.
<UNK>, it's <UNK>.
So I will try to answer your question is that for acute GVHD, we have to see the final results of the REACH1 study, to see what ---+ how long patients stay on therapy.
We think ---+ we believe that in chronic GVHD, the potential could be much greater for persistency and for the provided a long-term benefit they have.
But remember, patients even with acute GVHD can get retreated with the same product, or they can go on to get chronic GVHD.
So overall, we think that the opportunity for both acute and chronic GVHD could be quite good.
We also see the duration of treatment has been much shorter than what you observe in MF and PV.
It's a good question.
The way we organize the expansion, and we are happy we did it that way now was to make it proportional to the existing portfolio.
So the way we organize it in the U.S. is basically, there is a team working on Jakafi.
They have a very fast-growing top line and all of that is doing well from the commercial standpoint.
In Europe, in fact, you can see ---+ you should look at the number on ponatinib in Europe, Iclusig.
Because in fact, the commercial team in Europe is ---+ in fact, it is sustained ---+ self-sustained with the growth of ponatinib in Europe.
So the fact that we have a delay for our first launch after Iclusig or Jakafi is in fact not changing the strategy on the efforts there.
We have a team also working on development of our new pipeline in Europe.
So the GRAVITAS study, the FGFR studies, the delta studies, they are all running in European centers.
So all of that is very stable.
Obviously, there is a delay in the hyper growth of the top line because of epacadostat moving back to proof-of-concept, but there is no change in the plan.
And concerning Japan, we did the same thing, which is we have a development team there we started with development.
It's a group of around 10 people today.
They are working also on GRAVITAS and the other programs.
And in spite of the delay on epacadostat, that is not changing.
And the goal for Japan would be the same as for Europe and U.S. is that when we have a product that becomes viable for commercialization is when we will do the scale-up of the commercial team.
So there is no ---+ I mean obviously, as the plans have been modified, but there is no change in the direction for each of these geographies.
Ren, it's <UNK>.
Thanks for your questions.
So it is very interesting.
It actually came from external investigator initiated research from a group of investigators in Germany led by Zeiser who showed in their study, which had approximately 60/70 patients in, 70%/ 80% response rates.
[It's] not a classic sponsored study with tight controls and how you measure endpoints, et cetera.
But very, very encouraging proof-of-concept data.
And then we worked to get the rights back to run our graft-versus-host disease program with rux.
Now remember, I also teed up the large unmet need here.
There's approximately 10,000/ 11,000 allogeneic transplants that occur with more than half of them getting graft-versus-host disease and then if they aren't steroid responsive, which is about half the patients, they have an extreme morbidity and high mortality rates as I outlined to you.
We got breakthrough designation here.
We're able with the agency to run a single-arm study in steroid-refractory acute and where we would like to see the response rate is in the 50%-plus territory that's a durable.
We think if we could meet that under the conditions that I just outlined, then we'll have a submission of supplemental NDA in The United States.
The Europeans may also be interested in that single-arm data by the way if in that territory that I mentioned, but we have a randomized study REACH2 as well to go to if need be.
So hopefully that answers your questions on how we got there on steroid-refractory acute.
So, yes, thank you for your question on our PI3k-delta inhibitor '50465.
So in many ways, we did take a time here in that we stepped back and looked at the class in general, and say, we have a second-generation compound that seems to have eliminated, for the most part, the liver toxicity seen with the first-generation compounds like idelalisib.
But there's still long-term toxicities probably from chronic B-cell suppression like colitis.
We knew we had a very active compound.
We presented this data 2/3 times already.
It has very high activity in B-cell malignancies, particularly in follicular, mantle and marginal zone lymphomas.
But we also knew with time we were going to see some of the long-term toxicity.
So what we did is dose through sort of an induction paradigm to get to the efficacy endpoint you want and most people respond by the time of the first scans at 8/9 weeks.
And then, change thereafter to a different dosing schedule and see what ameliorating ---+ or changing that dosing schedule, we were able to ameliorate the toxicity profile.
And data, we showed at ASH last year, again, small numbers and many caveats, that we're able for the most part to ameliorate the toxicity profile.
So we think we're in a very good place with a highly active compound and we're able to change the tolerability profile with the dosing scheduling changes.
So now we have ongoing efforts in the all the B-cell malignancies, diffuse large B-cell lymphoma, follicular lymphoma, mantle cell and marginal.
The class as a whole is more active outside of diffuse large.
It tends to have more activity in the follicular, mantles and marginal zones.
We're conducting those studies this calendar year into early next year and hopefully have data next year.
If they again meet the required high response rate that's durable, then there are potential accelerated approval strategies in those settings.
So that's where we stand with the program.
We are proud of what we did in trying to change the profile.
We look like we've been able to, and now we have to execute the studies to show both the efficacy and tolerability.
We will have to follow all of that work with the combinations.
In many other settings, you require CD20 antibodies or other compounds.
But the initial strategy is monotherapy and then we will begin safety with various combinations.
We are looking at '50465 in combination with rux in myelofibrosis because there's very good preclinical rationale for that.
The pathway is up regulated in myelofibrosis and we're conducting that study now.
And then, you alluded to a very early data set that was in AACR with a lower dose of delta '50465 to try and change the tumor microenvironment of the PD-1 inhibitor that we're also looking at currently, and there's some early data that there may be some activity with that doublet as well.
<UNK>, it's <UNK>.
I'll try to answer your question first and <UNK> alluded to this because we don't have the final data yet.
Our expectation is that in acute is once you have the data set and show what the duration of response is, that physicians will use the compound to get control of the graft-versus-host disease to then eliminate the steroids and then eventually potentially eliminate the JAK inhibitors as well once they know patients are controlled.
I don't know what that duration will ultimately be.
But it's probably of the order of somewhere around anything between 3 to 9 months approximately, not knowing the data.
For chronic, as <UNK> said, it may be a slightly different paradigm.
These patients phenotypically have a different disease.
They tend to have a lot of skin toxicities, and it's a longer endpoint.
It's a 6-month response rate endpoint.
So we feel there that the likelihood, as <UNK> said, is there will be a longer use pattern of the JAK inhibitor in that setting and then people ---+ once they have control of the various organ systems, we'll look at weaning them off the therapy.
For itacitinib, it's steroid na\xefve, but it's in combination with steroids.
So it's an add-on therapy.
You have to use the steroids as well.
So it's not versus steroids.
It's itacitinib plus steroids versus steroids in steroid na\xefve.
So I hope that's clear in terms of the schema of the study.
Yes, Chris, this is <UNK>.
And so the arginase inhibitor program, we in-licensed and are co-developing with Calithera.
We've completed ---+ or are completing now the Phase I dose escalation and expansion studies.
The mechanism, as you pointed out, does have some similarities to IDO1 and the compound, epacadostat.
But there's actually some very important differences as well, not the least of which is the cell types that express the enzyme and the types of immune complexities of those patients may have, which are actually quite a bit different than those that are IDO1 positive.
So I don't think there is any direct readthrough ---+ to arginase from a mechanistic standpoint.
Clearly, the epacadostat experience will color the kind of stepwise de-risking that we take to pursue the arginase inhibitor program.
And the studies that the clinical team are working on now include both translational studies to look at effects of the molecule on the immune microenvironment as well as the initial thinking around safety studies to move the agent probably first in the combination with the PD-1 antagonist.
But right now, it's a pre proof-of-concept mechanism and the translational data we generate over the coming months will be important to any next steps that we make.
Yes.
Again, so the translational work with the ECHO-301 include PD-L1 status, IDO1 status, tumor mutational burden and RNA-Seq.
To the extent that there are learnings from those trials, it's probably going to apply more to more to the PD-1 doublet setting and certainly to melanoma.
So I think there is a potential for some information content upload to arginase.
But as I mentioned earlier, the types of patients that we believe are likely to have a dependency on the arginase biology are probably not those that you would normally think of as being inflamed tumor types like melanoma.
So in short, probably some read through, but not very much.
Okay.
Thank you.
Thank you for your time today for your questions.
So we look forward to seeing you at some of the investor and medical conferences, but also at the 21st of June meeting, we're organizing where we will do a full company update.
But for now, thank you again for your participation in the call today, and goodbye.
| 2018_INCY |
2018 | UTHR | UTHR
#Good morning.
It is my pleasure to welcome you to the United Therapeutics Corporation First Quarter 2018 Earnings Call.
Accompanying me today on the call are Dr.
<UNK> <UNK>, our Chairman and Chief Executive Officer; and Mr.
<UNK> <UNK>, our President and Chief Operating Officer.
Remarks today will include forward-looking statements representing our expectations or beliefs regarding future events.
These statements involve risks and uncertainties that may cause actual results to differ materially.
Our latest SEC filings, including Form 10-K and 10-Q, contain additional information on these risks and uncertainties.
We assume no obligation to update forward-looking statements.
Today's remarks may also include financial measures that are not prepared in accordance with U.S. Generally Accepted Accounting Principles.
Reconciliations of non-GAAP financial measures to the most directly comparable GAAP financial measures can be found on our earnings release available on our website at www.unither.com.
Today's remarks may discuss the progress and results of clinical trials or other developments with respect to our products.
These remarks are intended to solely educate investors and are not intended to serve as the basis for medical decision making or to suggest that the products are safe and effective for any unapproved or investigational uses.
Full prescribing information for the products is available on our website.
Now I want to turn the call over to Dr.
<UNK> for an overview of the first quarter 2018 business activity of United Therapeutics.
Thank you, <UNK>.
Good morning, everyone.
As <UNK> mentioned, I'm glad to also be joined on this earnings call for the first time, Mike <UNK>, our President and Chief Operating Officer.
After my introductory remarks, we'll open up the call to any questions.
And if there are questions of a financial nature, I will ask that they be answered by <UNK>, our CFO.
If there are questions of a commercial nature, I'll ask that they be answered by Mike <UNK> as our President.
And if there are questions of a clinical development type of nature, then I will handle those myself.
Starting with our top line financial results.
For the first quarter of 2018, our quarterly revenues totaled $389 million, an increase of 5% year-over-year.
Orenitram posted a fourth consecutive quarter of greater than 20% revenue growth on a year-over-year basis.
In addition, we continue to treat an increasing number of pulmonary arterial hypertension patients with our prostacyclin product franchise, which consists of Orenitram, Remodulin and Tyvaso, confirming our belief in the organic growth opportunity for these proven therapies.
The sequential drop in our total revenues from the fourth quarter of 2017 reflects consistent historical patterns as our first quarter revenues tend to be either down or virtually flat when compared to the prior year fourth quarter.
This pattern reflects distributor purchases that are typically placed once a month based on current utilization trends and contractual minimum inventory requirements.
As a result, quarterly sales of Remodulin, Tyvaso and Orenitram can vary depending on the timing and magnitude of these orders and do not precisely reflect changes in underlying patient demand.
So let's now transition to our pipeline, which currently has over 20 investigational programs, including therapies for PH and other forms of pulmonary hypertension, drug delivery devices, gene therapy, oncology and technologies to ultimately create an unlimited supply of tolerable, transplantable manufactured organs for those who suffer from end-stage organ disease.
The first of our near-term and medium-term pipeline products is the Implantable System for Remodulin, or ISR.
Excitement and anticipation from both physicians and patients continues to build around potential FDA approval of the ISR.
This should be a game-changing technology for PH patients, and we continue to believe that thousands of patients will eventually use the ISR.
I am reminded through videos and e-mails directly from ISR clinical trial patients of the numerous ways that the ISR has impacted their lives, even for some of the most basic activities that many of us just take for granted.
Activities like sleeping, showering and swimming become more straightforward for patients using the ISR.
The ISR also has the potential to address complications currently associated with the use of external microinfusion pumps, including the serious risk of external catheter-related infections, like sepsis, while returning to patients the lost several hours of pump management and therapy preparation time each day to productive use.
From a regulatory perspective, the FDA approved Medtronic's PMA for the ISR in December 2017, which is 1/2 of the regulatory process.
We then resubmitted our NDA for use of Remodulin in the ISR, which has been accepted as a Class II resubmission for a 6-month review.
We anticipate FDA action on our NDA by July 30, 2018.
Although no FDA process is free from doubt, we remain confident that the FDA will approve the ISR in 2018.
We are approaching the ISR launch with our partner, Medtronic, with precision and care to ensure that implant surgeons, refill centers, reimbursement pathways and other healthcare service organizations are all in place and properly trained and ready for commercial launch by early 2019.
Our expectation that it will be ultimately used by thousands of patients is a longer-term goal as launching a surgically impacted device needs to be done carefully, thoughtfully and systematically.
Yet another next-generation drug delivery system we are advancing is RemUnity, a small, lightweight external subcutaneous pump we are developing under an exclusive agreement with DEKA Research & Development Corp.
The RemUnity system uses acoustic volume-sensing technology to deliver Remodulin with a high degree of precision, representing a significant advance in microinfusion technology.
In February 2018, DEKA filed RemUnity with the FDA under a 510(k) submission that was accepted for review by the FD<UNK>
Let me now provide you an update on 4 of our 7 ongoing Phase III clinical trials.
FREEDOM-EV.
FREEDOM-EV is a Phase III clinical trial using Orenitram in combination with a single ETRA or PDE-5 background therapy for PAH WHO Group I patients.
This trial has a primary endpoint of time to clinical worsening.
FREEDOM-EV enrolled nearly 700 patients.
And we have now accumulated enough events needed to meet the required 205 adjudicated clinical worsening events that's required to unblind the study, which are expecting to do later this year.
It is also worth noting that Orenitram is the only true oral prostacyclin analog which could be dosed to therapeutic benefit.
Based on patient and physician feedback, I believe that we will see continued Orenitram growth, further accelerated in the event that a possible FREEDOM-EV readout, providing the Orenitram label with a morbidity, mortality endpoint supported by good clinical trial data in use of combination therapy.
Another major and exciting event we anticipate by year end 2018 is the unblinding of our BEAT combination therapy clinical trial for PAH WHO Group I patients.
This is a unique clinical trial that has never been tried in PAH before combining Tyvaso, our inhaled treprostinil therapy to treat PAH where the alveoli meet the pulmonary arterials, with Tysuberprost, and orally administered therapy to treat PAH systemically, where the blood flows from the right side of the heart into the pulmonary arteries all the way down to the pulmonary arterials.
Our data demonstrates that attacking the disease in these 2 different ways may yield better results.
And similar to FREEDOM-EV, the BEAT clinical trial has a primary endpoint of time to clinical worsening.
To illustrate how we are endeavoring to create new Blue Ocean market opportunities in pulmonary hypertension WHO Group III, where we think we can have a significant and positive impact on patients with unmet medical needs, I would like to now discuss 2 additional Phase III clinical trials.
Our INCREASE trial is examining the effect of Tyvaso for WHO Group III PH associated with interstitial lung disease.
Currently, this Phase III study is about 50% enrolled.
There are no approved therapies for this indication.
And in fact, systemic drugs like our own tablets and parenteral therapies, as well as those of our competitors, are contraindicated for this condition.
Next, I would like to move to another subset of WHO Group III PH associated with chronic obstructive pulmonary disease, or COPD, in our PERFECT Phase III clinical trial.
No therapy has ever been approved by the FDA for pulmonary hypertension incident to so many of these COPD patients.
And I really want to salute Dr.
Waxman and his great team up at Boston who have brought this unmet medical need to our attention.
Finally, I would like to talk about UT's revenue growth strategy, particularly as we are facing increasing generic competition.
As previously discussed, we expect our 2018 revenues to decrease compared to 2017 primarily due to the impact of anticipated generic competition for Adcirca beginning in mid-2018 as well as generic Remodulin, which could be launched as early as June '18.
Our strategy to take advantage of the existing organic growth opportunity we have within the treated PAH patient with our existing prostacyclin product franchise including Remodulin, Tyvaso and Orenitram and to combine this with our new and improved formulations and delivery devices that I described earlier to enable us to resume revenue growth by the end of 2019.
Now I'd like to walk you through how we expect to drive this growth.
First, we believe that Remodulin will continue to be a steady performer, but it will look very different from the Remodulin you see today.
It will be delivered through multiple next-generation drug delivery systems intended to enhance safety, tolerability and convenience, including the ISR and RemUnity which I previously mentioned.
In addition, we are developing RemoPro, a prodrug version of treprostinil expected to reduce or eliminate site pain associated with the subcutaneous Remodulin.
We expect to file an IND for RemoPro later this year as we begin Phase I clinical studies.
On Monday, we also announced an agreement to acquire SteadyMed Limited.
Assuming that deal closes later this year, their pipeline product, Trevyent, will sit well within UT's next generation of innovative drug-delivery systems for PAH patients.
Second, we will continue to believe in the organic growth opportunity of the treated PAH population, which we believe currently underutilizes prostacyclin therapy.
Unlike other therapies on the market, UT's prostacyclin analogs can be titrated to therapeutic benefit as PAH progresses, therefore offering patients the opportunity to transition between Remodulin, Tyvaso and Orenitram as each contains the same proven active ingredient, treprostinil.
This is our continuum of care advantage.
Third, we expect to grow through the introduction of new products and new indications.
We currently have 6 Phase III studies in PH and 1 Phase III study in oncology.
Let me itemize what these are.
Two clinical trials, FREEDOM-EV and BEAT in PAH, are expected to unblinded in 2018.
Three clinical trials, INCREASE, PERFECT and SOUTHPAW in PH, are currently enrolling patients and remain on track to launch commercially within the timelines currently provided in our website.
These 3 clinical trials for PH are in indications which we do not have any approved therapies in place today.
Three, our SAPPHIRE gene therapy study for PAH.
And lastly, our DISTINCT study of dinutuximab in small cell lung cancer.
These and other R&D programs are designed to provide revenue growth in the near and medium term while additional R&D programs are underway to develop technologies in organ manufacturing over the longer term.
In closing, at United Therapeutics, we are focused on the development and commercialization of innovative products to address the unmet medical needs of patients to deliver long-term revenue growth to our stakeholders.
We continue to advance numerous pipeline priorities to help keep patients alive, and in effect, building bridges for them as we pursue new technologies to create an unlimited supply of tolerable, transplantable manufactured organs.
Thank you for joining us on the call today.
Operator, I would like now to open the call to questions.
Yes, <UNK>.
Good to actually hear you on the phone, so that\
Yes, thanks, Geoff.
Great question.
Because that's really a kind of a commercial operations question in terms of who would be the patients that would most likely form the growing number of Orenitram patients.
As you heard, we're doing quarter after quarter after quarter of strong revenue growth on that, over 20% up every time year-over-year.
But all that is great tribute to the med affairs and the reimbursement.
There's global supply chain management.
And last but not least, the sales and marketing force that is under Mike <UNK>.
So Mike, could you answer Geoff's question.
Sure.
Thanks, <UNK>.
Thanks for the question.
Yes, I think the ---+ what we're seeing in the marketplace right now is the typical Orenitram patient tend to be your earlier-diagnosed patients or patients that are earlier on in their disease state because they need the time to start on therapy, titrate up.
And what we have found is starting those patients earlier, when they have time to titrate up on therapy, they're able to manage the side effects better, and they just have, just generally, a better experience with the drug.
And I think even without the clinical worsening label, we feel like we're getting a good share of those patients in relation to what J&J is seeing with Uptravi.
I think the label ---+ the benefit of the clinical worsening label will put us on par with Uptravi, and I think, will allow us to capture even a greater portion of those patients because we'll now have the same clinical worsening benefit on our label in addition to being, really, a true prostacyclin.
And then having the ability to put patients on that prostacyclin earlier, titrate them up, and then as <UNK> talked about in her comments, as the disease progresses, easily transition them over to Tyvaso or Remodulin as they continue in their disease.
Excellent, Mike.
Excellent, excellent.
Thank you, <UNK>.
Great, great question.
So let\
Thanks, <UNK> ---+ I mean, thanks, Liana.
Sorry about that.
Yes.
So let me, like, back up.
Whatever I said in the last call, I still think is good.
So I'm not changing anything from the last call.
The pump is a really fascinating piece of machinery, Liana.
And the more I see it in operation, the more just kind of completely blown away I am by it.
It's got virtually no moving parts.
In fact, actually the pump itself has no moving parts.
And I think it's a kind of like a Tesla of pumps.
Like a regular car has something like thousands of moving parts, and a Tesla, I think they advertised it as 20 or 25 moving parts.
So of course, regular infusion pumps don't have thousands of parts, but they got a lot of parts.
And just ask the poor patients who have to put all the pieces together every day or 2 on their table, takes up like half a dining room table.
But with the DEKA unity pump, there are no moving parts due to the inventive geniuses of those folks.
So this is going to be a super cool device.
Of course, we will ship it to the patient with the drug already supplied to eliminate the need for the patients to have any errors in the process of drug fill.
And also to buy back for the patient a very, very valuable hours of their time, which is otherwise spent on refilling these pumps.
We also have the rights, Liana, to use this pump technology for additional drugs for other [orphan] diseases.
And we have now begun a program in Parkinson's disease based on using the same pump technology, the same pumps, actually.
So it's really a super exciting program.
Of course, and as I mentioned in my introductory remarks, nobody can predict the FDA exactly.
And the FDA is going to make the decision.
And I've been right sometimes, been wrong sometimes, I'm not going to ---+ like, I don't make any more bets on the these things.
But I will say this, that you were looking at a sponsor, DEKA, that has successfully obtained FDA approvals for every product that they have taken through the FDA, including some truly revolutionary products, such as bioelectronic prosthetic arms, Class III medical devices.
I mean, very, very challenging approval.
Dialysis machines for Baxter, multiple generations of those.
So this is an organization that definitely has, to my knowledge, 100% success record at the FD<UNK>
And I'm confident that they will take this through.
And wow, these are not ---+ United Therapeutics also has 100% success record at the FDA, because Remodulin, Tyvaso, Orenitram, Unituxin.
So I believe, between the 2 of us, I could not be more confident, Liana, that we will be able to successfully launch this RemUnity pump.
Exactly which month, who knows.
It's up to the FD<UNK>
But I stand by everything I've said before.
Thanks, Liana.
And operator, if you could please do your wrap up comments.
| 2018_UTHR |
2015 | LKQ | LKQ
#Two things on the Netherlands, Bill, that are probably worth noting.
We had a really strong Q2.
It was a very mild spring on the continent.
And we believe a lot of that repair work may have been pushed from Q3 into Q2.
And the other thing that we're doing is obviously with the heavy acquisitions we're doing from three-step to two-step, there's a lot of revenue moving as we acquire new businesses we're cannibalizing from other locations.
So it may be shifting from an older location that was comping to a newer location that we didn't get the benefit of the organic growth.
So we do think that's going to start to level out again and we.
ll be back to where we think we should be, which is mid single-digits of organic growth.
Most of it related to FX items.
Yes, mostly noncash items, Bill.
Again nothing material.
No, the FX goes along with where the currencies are swinging and the like.
So we would never kind of plan on that being a recurring item.
Hi, <UNK>.
In the US, we get quarterly updates, but it's really moving.
But it's in that 36% to 37% range.
And in the UK, we're closer to 9% plus.
The last figure we got from Slager at the time.
Up from 7%, we got in the business, <UNK>, in 2012.
We do play in that performance side of the business, <UNK>.
That is one of the segments we are in.
We certainly would look at anything that we could obviously lever.
They do have ---+ both of those companies have a strong e-commerce presence, which is attractive to us.
But at this point, we're just looking at all of the opportunities.
And since they are in that segment, we certainly would be interested in that business.
The 6.2% comp.
We've been told the market is growing circa GDP, so 2%-ish.
Thanks, <UNK>.
Good morning.
Again, if FX rates stay where they are today, again, probably a little bit less than $0.005.
On the scrap side, figure $0.02 relative to last year.
I mean we continue to chunk down.
And the scrap prices really didn't start to come in meaningfully until early Q1 of this year.
So we won't get the real benefit.
You should assume for the year that we'll be at the 34.75%.
That's our best estimate at this point in time.
Sure.
<UNK>, on State Farm, the bumpers, the ones that they are writing in the aftermarket were up 16.6% year-over-year, so really impressive growth.
We now have 467 certified parts available just in the bumper line, so very pleased with that.
We talk to State Farm all the time, nothing more than that.
On Australia, we keep moving forward with the partnership there.
And it's a slow, steady race, but growing our top-line very nicely and expect to do a little bit more here in the coming quarters in terms of potential acquisitions and more product entry.
Thanks.
It's a competitive marketplace.
We're now in a position to really control that last mile of distribution.
So we do still have some wholesale customers as well.
So we're kind of playing in both of the markets.
The car park is growing there.
And it presents a great opportunity.
We think that our small entry into France, we have three locations in France, provides another opportunity to keep growing the business.
So we think it's a great opportunity to really grow the business in all segments of the markets we operate, the Benelux, as well as the France markets as well.
We certainly believe that now that we're pretty much where we need to be in terms of the three-step to two-step, we're in a great position because our inventory is strong.
We can leverage not only our existing inventory in the Netherlands, but we have backup in the UK as well.
So we think we're in a great position.
Remember the Coast business and our accessory business really isn't tied to collisions.
It's more tied to the upgrading of the vehicle or accessorizing of the vehicle.
So it's really tied to the SAAR rate.
As new car sales and new RV sales continue, people are more likely to accessorize their vehicle at time of purchase.
So we think we're in a great position on all side of the accessory business because of that strong SAAR rate.
People are going to do this, most likely upgrade their vehicle at the time of purchase.
The other thing that's attractive about that is the dealerships often finance those type of upgrades.
So they roll right into the note.
So we're pretty optimistic.
As long as the SAAR rate stays strong, we've got a nice tailwind there.
Thanks, Devon.
Thank you, everyone, for your time this morning.
And we look forward to speaking with you in February when we report our fourth quarter and full year 2015 results.
Have a great day.
| 2015_LKQ |
2016 | LYV | LYV
#The Big Concerts again would be just what we have been doing for many years in the major cities around the world that are now becoming ongoing regular places for the big artists to tour.
We want to make sure that we have a local office so we can capture all of the revenue and economics when that tour comes to town.
So Big Concerts in South Africa or Cape Town has been the leader, forever been one of our partners and now we are able to do a deal where we can put our proper base Live Nation business there and now build out the stool of ticketing and sponsorship.
So you have seen that happen over the years, you will see that continue to happen where we look for the leading promoter number one or two in that market and then use our scale to accelerate that business and make an accretive acquisition.
Tickethour is almost an acqu-hire in the sense it brought some advanced tickets sport software to our international business, same economics as over here in America but servicing obviously the soccer leagues versus the pro sports here.
And we were a little void in our software in terms of sports over there so this helped us plug a hole and provide us a better overall solution for our soccer leagues in Europe.
I mean I will do on-site, without giving you the guidance exactly this year but I think we have said out loud from our different presentations that we think on-site is a huge opportunity.
We have been underdeveloped versus the best in the league.
We looked at the sports companies and different venues we have shown in the past.
We think that we have huge opportunity to keep growing our per head revenue business or CM business annually for the next many years to come because we think we are probably at the lower end on a per head versus most of the sports leagues here and in Europe.
And as we invest in higher end lines, better products, grab and go, stores that we have now on-site, better VIP hospitality, we are seeing that continually kick into that $2.00 that we reported today.
So we think growth will continue for multiple years on on-site CM as we excel our offering.
Digital, you and I have talked, <UNK>, about the digital overall.
The digital is just a continual expansion of the ad unit for our business and the reason we have been able to continually grow our core advertising sponsorship business for the last multiple years is we want to keep offering our sponsors a wide variety of on-site to kind of online offering.
So having more originally, I think it was Yahoo! when we started, having more ways that we are distributing content on a digital basis, from Snapchat to Hulu to VR, using all of the different distribution arms as us kind of the publisher of that live experience, we think that will be a key foundational ad unit to keep giving our double-digit growth in our core sponsorship advertising business.
Specifically to your VR, listen, we believe at the core why our business is growing and is going to have a long runway of growth is experiential on-site is the magic.
So the 22-year-old that is going to Lollapalooza this weekend or the 52-year-old going to Guns N' Roses reunion this weekend is a magical moment.
And it is much like going on vacation is a lot better than watching the video.
So we do believe that the moat around the castle and the most advantaged kind of offering we have is our scale in live and live experiential, on-site ---+ where you get the goose bumps, the experience with your friends and make those Kodak moments has huge opportunity forward for us.
Now of course when virtual VR comes, can we do better ways of bringing the Guns N' Roses show to you in your living room in a more dynamic mechanism than a DVD or a current TV.
Sure, and we think those would be great ways to distribute that show, make it into some content and help us deliver some advertising.
But I have not ever been a big proponent that it is going to convince you in any way we are going to take that Guns N' Roses and have a big upsell on at home pay-per-view or selling that to our show no matter how dynamic it is on its own.
I think it is great content to extend the show.
First and foremost the biggest advantage to us is it helps us sell more tickets to the later shows and it delivers us some advertising reach and scale beyond the on-site.
So I think it is great, think it is great for the industry, will be incredible ad unit, will be an incredible way to sell the concert experience but most of the monetization is always going to be connected to the on-site.
To finish off that, I would say where our core kind of strategy that needed to be worked on was just the staffing of the skill set.
So when we brought over Tom See from Disney, we kind of created an upper-end division that is focusing on as we kind of call it.
We do a good job of getting 70 million people into the venue but just like first-class has come back on airlines, we needed to have a dedicated unit innovatively best in practice, thinking about the high-end part of the business and bringing better products, creating new products, packages, bundles, travel packages, tequilas, etc.
So first we needed to spend more time on the right skill set and this summer we are very excited about a bunch of the programs we are testing.
We think we have been making strong measured progress in our mission.
Our mission is when you have 25,000 shows and all of these festivals occurring, can you create content and distribute it and publish it to the growing distribution platforms, one to drive your core business and two, to achieve some new ad units.
And we think we have been making great progress with lots of different partners.
You will continue to see announcements that say we are going to stream these 20 shows on this platform or do VR on that platform or create some behind scenes document commentary online to Facebooks, to Twitters, etc.
So I think you will see more of the same.
I think the progress we have made is that we are very credible now with most distributors.
Most distributors want to meet with us and talk about can we bring that great live content to our platform with either being in a live stream or behind the scenes or live documentaries or artist interviews, access behind the scenes at festivals.
So I think we have been moving very nicely, we are very pleased with our progress and we will continue to do more content and more platforms to drive more advertising.
<UNK>, just to jump on that, I always like to remind people the vast majority of shows we promote are not in our venues so the difference between when we own the amphitheater or festival and our internal security protocols and how we make sure we have metal detectors and etc.
versus when we are promoting a show in someone else's venue, we have less of the if you want to call it the security capital risk cost associated with that.
So a majority of the shows, the high percentage of the 25,000 shows are not within our venue network so we have two very different strategies, one you can control and one you can't.
I think we will have ---+ venues will continue to elevate.
We have seen lots of them doing a good job but the good news is that is not our cost to bear.
It is just our choice to decide where to put the artist.
I will answer the second first and I will go backwards.
On our international ticketing, we actually have the most important market in international is the UK and Australia and Canada.
They have always been and are on the host platforms.
They are on the business.
That is where at the end of the day most of our business is centered and where we want to share and extrapolate all of our costs and product development.
When you get to decisions like Spain where you are running a separate platform which is a very small piece of your business, those urgency to get on one platform are not on our list right now.
They are running local currency.
Most of the Europeans are on still a retail system where you are buying tickets at the bank or the shopping mall, a very retail oriented ---+ years behind kind of where we are today.
So our priority has always been the big markets like the UK, Canada, Australia to leverage our product development which we have been doing.
We've had great growth in the UK over the last few years.
And most important was the priority was to make sure we excelled at secondary in the European markets.
Unlike Ticketmaster in its prior life here who waited too long and then we had to play catch up.
So our biggest priority in international was when we acquired Seatwave and with our Get Me In product which integrates secondary in now nine plus countries where we are now the market leader in the secondary business over there and are very proud of that.
So our strategy is in the big markets internationally.
They are sharing product innovation and are aligned to our current strategy around primary and secondary.
The smaller markets over time we will look to integrate them into a global platform but those would be minimal upside from a cost advantage in the near term.
No.
International is like a concert business.
Right now international is always going to be one or two people that are already the leaders so you may acquire somebody not because you are so much interested in their platform but you are just acquiring the cost of the contracts and the customers.
So historically when we have looked into expansion, we may acquire a company just if that is the quickest way to get scale and ticket inventory.
We can roll out ---+ our current platform can roll out into a new market today.
We don't typically though right now look at a new market and enter with our new platform if we don't have ticket scale behind it.
So our short-term strategy in international when we took over continues to be Ticketmaster was in ---+ I think when we took over 14, 15 markets.
Our goal was to get into the European markets where we had scale and start matching up concerts inventory with Ticketmaster platform.
And then step two, grow market share in those markets and that is where we have been and that is where we will see the fruit kind of bear from the tree for the next few years on growing our market share in Spain, and Italy and France and Germany where we have already got content versus obsessing whether we are in a new market or not right now.
| 2016_LYV |
2017 | SSTK | SSTK
#Thanks, <UNK>, and thanks, everyone, for joining us today for Shutterstock's first quarter 2017 earnings call.
We had a solid start to the year and remain focused executing against our long-term vision.
In the first quarter of 2017, on a constant currency and year-over-year basis, we grew revenue 14% and adjusted EBITDA 4%, as we continued to deliver strong growth across each of our key metrics.
On a year-over-year basis, during the quarter, we grew our customer base by 13% to 1.7 million customers.
We grew paid downloads by 6% to $43.5 million.
We grew revenue per download by 7% on a constant-currency basis.
We expanded our image library by 63% to 132 million images and we increased our video library by 64% to 6.9 million clips.
We are pleased with our first quarter financial results and continued operational momentum.
Over the past several years, we've been successfully diversifying and expanding our offerings, including providing customers with additional content type beyond stock images and more innovative search tools.
Offering localized products so that we can increase our relevancy to customers globally, and providing best-in-class functionality to help our customers more efficiently and effectively utilize and manage their content asset.
By building a broader product, we continue to differentiate our business from the competition and attract an increasing number of customers and contributors to Shutterstock.
As we continue to focus on growing and enhancing our current business, we also have our sight set on bigger goals that we believe will propel us to further grow shareholder value.
This means continuing our transition from a stock image marketplace to a broader platform that provides individual's enterprises with the various content types and tools needed to collaboratively design, build and distribute their creative projects.
We believe that execution on this vision will result in expansion of our market leadership in a large and growing addressable market, translating into consistent growth for our business.
On today's call, I want to share a little bit about how we are organizing ourselves to successfully execute against this vision.
We'll start with our technology platform.
Over the past couple of years, as we continue to scale Shutterstock, it became clear that our legacy tech stack needed an upgrade to accommodate features, functionalities and products that were being developed and which we had acquired.
Therefore, as we have previously discussed, we've spent considerable resources over the past 18 months on this effort.
The work that we do in this area will enable our face of innovation to be sustained far into the future, and provide us with the ability to launch more and better products with a more personalized and localized customer and contributor experience.
We believe our technology is now set for where this business is going, not where it came from.
We are also ensuring that we continue to be well positioned for international growth.
We currently offer our products in 20 languages and generate approximately 2/3 of our revenue from customers outside the United States.
International growth continues to be a big opportunity for us, and just like in the U.S, we are assembling a significant amount of data that will allow us to customize our product offerings and ensure that our customers, globally, are having a best-in-class experience on Shutterstock.
As we looked at our technology systems and saw the need for an upgrade, we also looked at how our organization was structured.
Over the past 2 years, we were functionally organized.
Teams were grouped according to a similar set of rules or tasks.
This worked well when the business was primarily an image marketplace.
But it was something we needed to improve on as we scaled into new areas.
Over the past quarter, we have organized ourselves to align more deliberately with our customers.
We now have 5 customer-centric teams, including e-commerce images; enterprise, which is focused on teams and large organizations; motion, which includes our video and music offerings; editorial, including news, entertainment and sports content; and WebDAM, which delivers digital asset management and workforce solutions.
By organizing ourselves this way, we are able to focus our product engineering and marketing efforts according to customer needs and demands, and ultimately, respond more quickly to market dynamics.
In our e-commerce image business, we are focused on optimizing our current customer acquisition funnel and extending customer lifetime value.
We're doing this by taking a hard data-driven look at how we are acquiring customers.
Our pricing and packaging and also by ensuring that we have the right set of innovative products that are geographically relevant and personalized according to specific customer segments.
There's a lot of testing and turning of the dial taking place, but we are already beginning to see significant benefit to this approach.
In addition to these improvements, we're also continuing to develop Editor, and continue to see increased usage engagement from customers who use editor as part of their e-commerce experience.
In our enterprise business, the team is focused on continuing to scale our global sales force and improving our enterprise product to better meet the needs of these customers.
Our enterprise business has seen significant growth, and in Q1, represents 32% of our total revenue as compared to 29% in the first quarter of 2016.
To keep that momentum going, we hired sales leaders for Europe and Asia last year.
We also continued to improve our sales through rated video, music and editorial, expanding the usage of our enterprise customers, and very importantly, we are continuing development of feature-rich workflow platform to make it easier and more efficient for enterprises to manage the entirety of the creative projects on Shutterstock.
In our motion business, which includes video and music, we are market leader and continue to focus on customer acquisition by having the best-in-class library and products experience across both of these asset types.
We now have roughly 7 million video clips, and a paired video with an exclusive curated collection over 20,000 music tracks across genres.
This combination is proving very powerful as we continuously get positive feedback from our customers.
More important than the number of clips and tracks we offer is, that organizing ourselves to align with our customer needs enables us to have dedicated and streamlined resources from product, technology and market to deliver a best-in-class customer experience.
Our editorial business is just getting started, but it's a big opportunity for us.
Over the past year, we have built an incredible library of news, sports and entertainment content, which is seeing the sales channel and growing our customer base.
Content partners want to work with Shutterstock and editorial and we are capitalizing on the expanded content that we have in place.
We also believe we have an opportunity to take editorial prior to a level that hasn't been seen yet in the industry and we look forward to showing you the features and functions we are working on in the future.
Finally, we have a growing offering in enterprise workflow around our WebDAM brand.
In addition to WebDAM's flagship digital asset management offering, we launched our brand management tool in 2016, and earlier this year, created a collaboration and project management tool named Workstream.
With WebDAM, we are busy building a comprehensive suite of services with various enterprise customers that come to us for the creative needs.
As you can see, we are taking actions to organize ourselves for future growth across our business, and in time, we plan to provide more details around progress in each area.
In summary, we had a solid quarter, and we are taking the right steps to continue acquiring content for our customer base and provide valuable solutions for customers.
All of which, we will believe will deliver long-term shareholder value.
We have an organization of framework, for where we see our business heading into future and how to differentiate a set of assets and tools that we believe will enable us to create significant value for our customers, contributors, employees and shareholders.
I will now turn the call over to <UNK> to go into more detail on the drivers of our financial performance this past quarter.
Thanks, Jon, and thank you, everyone for joining us today.
Before I discuss our performance, I want to let you know that we have posted a brief presentation deck on our website, which contains supporting materials for our quarterly results, as well as other items discussed on today's call.
As Jon highlighted, Shutterstock had a solid start to 2017, and continued to deliver profitable growth and operating momentum.
Continued growth across our business, translated into revenue growth in the first quarter of 2017 on a reported basis of 12% and an adjusted EBITDA margin of 18%.
On a constant currency basis, revenue growth was 14% and adjusted EBITDA growth was 4%.
We continue to see growth trends across our key metrics as we attract the new customers across our multiple product offerings and increase engagement and customer lifetime value.
This past quarter, our customer base expended 13% to 1.7 million customers as compared to the prior year's first quarter, we saw a 6% increase in paid downloads, driven by growth in new customers as well as increased activity across our existing user base.
We also saw revenue per download increased 5% on a reported basis or 7% on a constant-currency basis, primarily driven by continued growth in our enterprise and motion businesses, which operate at higher price points than our traditional e-commerce images offering.
As Jon mentioned, international expansion and localization continues to be a core part of our long-term growth strategy.
In the first quarter of 2017, on the approximately 64% of our revenues is from customers outside United States, approximately half of this customers in Europe, with the balance from Asia-Pacific and Latin America.
Excluding the impact of foreign currency movements, revenue from all of our regions grew at double-digit rates in the first of quarter 2017, as compared to the same quarter of 2016.
Shifting to the cost side of the business.
We continue to align our expenses against revenue opportunities in a focus on long-term profitable growth in cash flow.
For the first quarter of 2017, operating expenses increased 13% versus the first quarter of 2016, driven primarily by higher contributor royalty payments associated with our growing revenue and an increase in sales and marketing spending year-over-year.
Contributor royalty payments were approximately 28% of revenue in the first quarter of 2017, which was consistent with the second half of 2016.
Now we will discuss some of the major expense categories.
For each of the categories discussed, my comments and the numbers referenced exclude stock-based compensation expense.
Our sales and marketing expense increased 21% versus the first quarter, a year ago.
It's important to note that on year-over-year basis, our sales and marketing spend is compared to the first quarter of 2016, in which our sales ---+ in which such spend was a lower than normal level as a percentage of revenue.
In the first part of this year, our sales and marketing spend represent the 24% of revenue, which is consistent with 2015 as well as the full year of 2016 spend.
Overall, the cost of acquiring a new customer remain steady and our customer lifetime value remains consistent due to steady retention and repurchase rates.
Additionally, as we continue to build our enterprise sales engine, we've been able to keep sales rep productivity and ramp rates consistent with historical levels.
Product and development costs increased 8% in the first quarter of 2017 versus the first quarter last year, primarily due to higher personnel and consulting cost related to building a more expansive platform, which will ---+ which was partially Offset by the capitalization of labor of approximately $5 million.
General and administrative expenses increased by 30% versus the first quarter last year, driven primarily by higher personnel cost and consulting expenses related to implementations of the applications Workday and salesforce.com.
Overall, our revenue growth in the first quarter, along with our consistent focus on managing our cost, translated into the adjusted EBITDA growth of 4% on a constant-currency basis.
GAAP net income grew ---+ in the quarter grew 8% to $6.6 million or $0.19 per diluted share.
This increase was driven primarily by improved operating performance, lower tax expense and a decreased year-over-year in our diluted shares, resulting primarily from our stock buyback program.
Adjusted net income was $11 million or $0.31 per share for the first quarter of 2017.
As a reminder, we acquired PremiumBeat in March of 2015 and we have seen positive results from the acquisition.
In the first quarter, we paid the final contingent consideration payment related to this acquisition, and as a result, free cash flow was reduced by $6.3 million, and $3 million of which was for the first quarter.
We finished the quarter with approximately $250 million of cash, cash equivalents and short-term investments.
Finally, we want to provide an update on our stock buyback program.
This past quarter, we repurchased roughly $23 million worth of stock, reducing our share count by approximately 450,000 shares.
Through the end of the first quarter, we have utilized approximately $100 million of the total $200 million that has been approved and authorized by our Board of Directors.
Looking to the remainder of 2017, we remain encouraged by the momentum across our businesses and on leaving our full year guidance unchanged.
For the full year and first quarter of 2017, we provided detailed guidance in our press release.
Headline financial guidance is as follows.
Revenue of $545 million to $560 million, and adjusted EBITDA of $105 million to $110 million.
In closing, and as Jon has highlighted earlier in his comments, we are confident in the fundamentals of our business.
We are growing both our e-commerce and enterprise customer bases, increasing engagement on our platform with tools like Editor and to our full suite of content options, like images, video, music and editorial, and we are continuing to invest in our product and technology to position us well for long-term profitable growth.
We thank you for your time today, and now Jon, and I would be happy to answer any questions you may have.
Emily, please prompt the call participants for questions.
Just a couple of questions.
If I just look at e-commerce growth and show it to kind of mid-single digits.
And Jon, just putting that in context with your remarks about things that you're doing to basically drive better engagement, do you think e-commerce can, again, come back into a double-digit growth.
And then I had a follow-up question on the enterprise.
Yes, I'll start.
Yes, I think that the core part of our business can grow again.
And we are focused every day on coming into this office and working together to do that.
Part of the reorganization we went through where we organized the company into GM verticals is really going to help us do this.
We are in new tech stack, we have a lot of great ideas.
We know the market is really large.
We sell to businesses.
Businesses use our images every day to sell their products and service.
We have 1.7 million of these customers today and we know there is tens of millions of more customers out there that need these assets to sell their products, to sell their services.
As we've talked about the web in prior calls, we, in 2016, moved our tech stack to update it after many years of kind of not bringing into if you were the next generation.
So that we believe, based on that, we'll improved the ability of our launching of features and functionality to improve the customer experience and so we clearly have done that with the expectation of reacceleration of the growth in e-commerce business.
Okay.
And then on the enterprise side.
It looks like it's doing very well, going on 25% or so.
How much of that is driven by growth in calendar versus penetration of existing calendar you might have.
And can you just also touch upon the opportunity within enterprise outside the U.S.
What do you see there and where you are at, currently.
So the split between expansion within existing customers and new is about 50-50.
And so we're seeing our continued retention and spend from our existing customers as well as the attraction and spend from new enterprise customers.
It ---+ that's primarily in the image business.
We see opportunities in video, editorial and music, both domestically as well as outside the U.S. So that's really a global opportunity as those products become more greater utilization in from stock providers.
In addition, we ---+ our strategy and as we've indicated in our remarks, we've put a senior sales leader in Singapore, because of the significant opportunities in the Asia-Pacific region.
About a year ago, we put a senior sales leader in Europe to further expand our presence and our opportunities there.
And so we continue to see significant opportunities globally.
Despite the fact that 2/3 of our revenue come from customers outside the U.S., we believe that the opportunities continue to be material.
Okay.
And then the 2/3 comment also applies to enterprise, so 2/3 of enterprise there in is also from non-U.
S.
No, it's 2/3 of overall.
But still, remember, as you know, in the lifecycle of a customer, it's often that a customer will be in our e-commerce business, and then either evolve to or come to our enterprise business.
So we look at the 2/3 as a total number.
That's the best, because that's what it is mathematically, but that's the best way to evaluate it.
Yes, it's early days for all of our workflow tools.
We know that people that use editor stay with us longer.
We can see that they're more engaged.
We see that they're using the tools, we're adding features and functionalities to Editor every month.
And I see a pretty big future for Editor as it's only available on our core product.
We eventually want it to be available on our enterprise product and even for other asset types as we start to build that out.
We have an entire team working on machine learning and artificial intelligence type features that will be implemented more and more in our search results and even could be part of our editor product in the future.
So there's a lot of stuff we're working on that hasn't reached the customer yet that will be very exciting when it does.
I'll start on the platform.
So through the history of Shutterstock, we fought hard to build and grow fast through individual [file] load asset types, and that worked for a while.
Until around 2013 or '14, when we decided to agree on a common tech stack and bring all of our asset types and platforms, whether we organically built this or we acquired this onto a single tech stack.
We are well through that process.
There's always going to be pieces of the platform that we're upgrading.
There's always going to be tech stack we're working our way out of.
But we're going to a place now where we have an agreed upon platform throughout the company that we all build on.
And we are moving the remaining pieces of those acquisitions and organic pieces that we grew on to this new platform.
That will enable us to move faster, cross-sell between products, understand who customers are between all of our products, and our customers that allow us to do things like focus on reaccelerating growth in the quarter, for instance.
As it relates to the LTV metrics, what I would tell you is that we're looking at overall conversion rate.
We look a total overall volume, and we look at retention.
And so when we take the combination of these across all of our products, we are seeing very good results.
We don't share specific results by product, but what we can tell you is that we believe that our offerings are finding the customers, they are attractive to customers and on an overall basis, we believe that as we have done in the past, will continue to iterate to make sure that we are meeting the needs of customers globally, and it's a dynamic customer base and we'll continue to serve their needs, but we feel very good about where we are at this time.
The retention rate.
Yes, 92%.
Yes, I'll just refer back to the last answer I gave in terms of ---+ what we are seeing is that we have ---+ we recognize that there are everything from project-oriented users, there are small and medium-size businesses that utilize images and other assets, music video and so on a more regular basis.
There are freelancers and then there are, if you would, large enterprises that are utilizing huge numbers of assets over by ---+ on a daily basis.
And what we are doing is, we're making sure that from our small medium-size business products, our enterprise products, our team subscriptions, as well as our individual users, that we are providing them with the pricing and packaging that meets their needs on a fair value basis, and so we're not ever trying to be the lowest price.
We're trying to be the best value for the work and the projects that they're doing, and when we do that, we see high long-term values existing with our return on investments that we've had historically.
So I would start with a couple of things.
One is, in terms of ---+ if you think about the history that we've gone through in terms of the legacy business of just traditional 25 a day images, now that being a multi-asset platform with tools for users to modify their assets into, to create assets that are customized for their particular need.
When we think about that, whether it be the editorial business with Rex where we really utilize that as the basis of our platform to build out our editorial business.
And then signed deals with PMC and associated ---+ Penske Media, Associated Press, Billy Farrell.
We recently had, for the second year in a row, the exclusive of the Met Gala, inside.
We've done numerous events on a global basis that we hadn't.
So using that, we've lots of customers who want to actually acquired both editorial, as well as commercial that is creative assets that are, if you would, the traditional images that we've sold.
So that enables us to cross-sell primarily to enterprise, but also some more and medium-size and some individual customers, so that's significant.
As we think about music and video, when you ---+ there are upcoming movies and upcoming commercials in which we have typically sold, for instance, to studios and the productions arena images who are now using our video product in major feature films, where that had been, I'd say, less common in the past, it's now not just more common, it's actually a place where creative talent in terms of videographers and cinematographers and directors will come to Shutterstock as a first stop for that type of content.
And the same is true for music.
So it's becoming a much more ---+ as those assets are easier to use, as the technology has become easier to incorporate stock content into their productions, we're seeing cross-platform activity once again, from all venues, with all customer type segments, whether it be on a production side or on creatives in major corporations or a even small medium-size businesses.
Yes.
I mean, if you look at our pages, they change all the time.
We constantly updating them.
If you look at the even the responsiveness of our core site, speed is way up.
The site will feel snappier from page to page.
That is our new platform at work.
And we plan to get better and better at things like site speed globally as we start to move that could to the edge in a more cloud-based environment.
Thanks very much for your time today.
We appreciate it and we'll talk to you in the next quarter.
| 2017_SSTK |
2016 | FAF | FAF
#Fourth quarter of last year in the title segment, we had kind of a reversal in 401(k) match.
Fourth quarter of this year we are booking at basically a higher rate just based on the improved margins of the Company.
Net net that is about a $7 million swing from Q4 of last year to Q4 of this year so that is one of the primary drivers.
I would think the run rate would be a little bit less.
I mean our 401(k) match was about $8 million in Q4.
I think it would be $1 million or $2 million less than that going forward.
It is hard to say.
I mean typically if you look at our closed orders in commercial, they are flat and what really drives the growth in our commercial revenue and premiums is really the growth in our average fees per file.
This year our commercial revenue for the full-year grew 17% over last year.
Almost all of that was driven by higher average fees per file.
So it is just difficult to say.
But as <UNK> mentioned before, we do think that will moderate in 2016.
No, you know, it is funny.
We saw something similar in the winter months last year and when you look at the first seven business days in February, our purchase orders are down 2% versus last February.
So our growth rates sort of have moderated here in the winter but they did the same thing last year.
There is nothing explicitly that we could point to geographically or otherwise that would explain it.
<UNK>, I would say that we are optimistic going into the spring buying season that we will see continued momentum in purchase growth like we saw in 2015.
Pretty happy with where we are right now.
We've got a 10.2 for the year, right in line with what we expected and that is based on the current market environment.
So kind of how we look at it, if the market improves from a purchase perspective and commercial continues to grow and we get the benefit from refinance, we are going to look for continued operating leverage in this business so we will continue to drive improved operating leverage going forward if the markets continue to improve.
You know, typically the agent business lagged our direct business by about a quarter.
I mean it is not perfect but that is kind of a rule of thumb.
The direct business in Q4 we thought there was going to be an impact, there really wasn't an impact because of TRID.
It sort of caught up by the end of the quarter as we mentioned in our remarks.
So looking in Q1, we wouldn't expect a material impact because of that lag on our agency revenue in Q1 because of TRID.
It is a combination.
I mean refi and commercial there is a lot more refi in commercial than there is in residential simply because you have got the five- and seven-year loan.
You don't have 30-year mortgages out there.
So we get paid about the same though for a purchase in a refi so the nature of the transaction on the commercial side whether it is a purchase or refi, it is not as important to us as it is on the residential side where we get paid more than twice as much for a purchase than refi.
And so for a while we used to track purchase and refi commercial orders and then we just stopped doing that because the refi wasn't a significant driver so I wouldn't say it is a material measure for us.
I think what we are going to see in 2016, we have started to see it already and that is weakness in the Houston market, both in residential and commercial and that is the primary residential market that we think we will see weakness from the energy issue.
Sure, on inflow and other, there is a few positives and a few negatives that really drove that.
On the positive side, we sell a lot of search products and uninsured products just in connection with the settlement process.
That business was up 11%, very similar to the growth trend that we saw on our premiums.
Our data businesses within info and other were also up 5% so those are the positive.
On the negative side, we talked about the fact that our default business continued to decline.
It was down 21% and also our international business we suffered I guess from foreign currency translation adjustments.
So our international business on a constant currency basis was basically flat but because the US dollar strengthened so much during the period, our international revenue in that line item was actually down 10%.
So those are some things that were ---+ there are ups and downs but overall the info and other was down 2% for the quarter.
Yes, we are comfortable with the product suite and I think the trends will continue, we will continue to see softness in the default offerings and I think we will continue to see opportunities for growth in the information products and some of the data products.
And I think the commercial trends will continue.
So again, feel comfortable with them and I think the trends will continue into 2016.
| 2016_FAF |
2015 | WRB | WRB
#Okay.
Let me take those one at a time.
Basically, to make a long story short, presumably, as you'd expect, the change between the first quarter and the fourth quarter is the loss activity quieted down dramatically.
And as we had suggested when we had the fourth-quarter call, while there are no guarantees, we thought we had certainly looked under most stones and felt as though we were well on our way to getting our arms around it.
Now, obviously, we continue to make sure that we have gotten our arms around it fully.
And it's possible that there could be a bit more noise coming through during the second quarter when we have the discussion about that.
But again, it was just reduced loss activity.
And sorry, what was the second question.
You were breaking up a bit.
I think the answer is, as we suggested, we feel as though we've identified the cornerstone issues and that we are getting our arms around it.
And we think we are well on our way to where we need to be.
We think there may be some investment losses still.
But it's not anything like the magnitude of the $22 million.
Probably, at this point, our best guess is $5 million from the energy funds losses.
But we're not 100% certain at the moment.
Arbitrage number for the quarter was $9 million.
Just to be clear, in the release, we just give the core portfolio; so that is not just fixed income.
We're not that clever.
We couldn't be that clever because you are not recommending our stock, <UNK>.
If we were really that clever, you would be.
So the answer is, you make swaps to pick up dividends.
You do all kinds of things.
And there's no question in that quarter, we were able to pick up some return by doing a couple of things.
So that was a particularly good return.
But I think that if you look at our base level of return, it continues.
And arbitrage does go up and down a little more than other parts.
Well, we just did some.
And we're going to, next month, pay off $200 million at that point.
As we always do, we look at our balance sheet, and look at what our opportunities are and what we can do, and try to figure out what opportunities may present themselves.
So it's something we look at all the time.
Thank you.
We don't do that on the conference call.
You are welcome to give <UNK> a call and chat with him.
Again, if you want to talk about the specifics of reserve of leases, you really need to talk to <UNK>.
We'll be cautious and see how the year folds out.
We tend to look at the first quarter cautiously.
And if we see it developing more favorably than we expect, we'll recognize it as time passes.
I think, as I said in my comments, I also was a little more pessimistic about rising inflation that seems to have turned out.
So if that ends up being the case, we may find that we were more cautious than we needed to be.
<UNK>, do you want to ---+
Yes, just following on that, as we've discussed in the past, our view is that when we come up with our initial picks, we are probably more likely than not going to err on the side of caution.
And certainly a component of that would be the assumption around inflation over the duration of that potential liability.
So the initial loss pick, again, there are no guarantees.
But our historic experience and our expectation will prove to be more on the side of caution than optimism.
I think generally, we were originally anticipating more inflation and increasing rates by the end of the year.
I think we're less certain of that view at the moment.
And we're more cautious, I think, that where we look today is more like flat to very slightly increasing rates, and very, very little increase in inflation.
So we are looking further out.
I think that the balance, which to us was inflation and slightly higher rates more likely by the end of the year is now probably even to slightly ---+ I would guess even would be the best thing.
And we don't see that happening.
We think that China is, in fact, slowing down.
We do think that they're really not gunning Europe.
Europe is not getting going at any accelerated pace, and the US can't carry the world.
I'm pausing ---+ not that I don't understand your question.
I understand it very well.
I'm trying to decide whether it's in the best interest of our shareholders for us to be talking about something of that nature.
Here's the best way I can answer it without answering it.
I think that we feel as though the California market provides, again, not across the board ---+ I'm painting with a broad brush ---+ but generally speaking, a reasonable opportunity to make a reasonable return.
What the rating bureau does out there, I'm not familiar with their data sets or their formulas or intimately familiar with their actuarial analysis.
But certainly our view is that the California market today is much healthier than it was a few years ago.
Having said that, our view is that there is certainly opportunity for it to become a bit healthier.
The reality is, it would be common sense for us not to want to tell people our perception of an area that we compete in actively.
So we're trying to do the best we can without probably helping our competitors.
Anything of that nature, you'll have to talk to <UNK> off the phone.
<UNK>, I have a picture of that same volcano.
And I was there, 1971, with my first independent director.
Yes, it was erupting when I was there.
It was changed.
Yes.
That's a part of it.
It's probably close to the magnitude of the cats themselves.
<UNK>, this is <UNK>.
I would think that a reasonable estimate to use would be, if you look at the cat number, multiply it by 2, and that's going to give you a weather-related number-ish.
I don't know.
<UNK>, is that right.
Correct.
No.
Modest ---+ it's favorable, but very modest.
(laughter) I'm sorry.
I had a comment in my quote about it.
And they all argued that nobody cared.
So thank you, Michael.
I appreciate it.
The answer is, I think that it will have no impact at all.
If anything, if you've actually looked at the end of the quarter to now, it's gone the other way.
Yes, but this time, I'm laughing with you not at you.
(laughter)
<UNK>, this is <UNK>.
I think there are a couple of drivers there.
But to get to the root of your question, our expectation would be that the growth rate is going to float between plus 5% and maybe low double-digit, if you will, sort of 10% or 11%.
And that can ebb and flow, depending on the quarter.
There was no one-off, if you will, that reduced the growth rate.
Certainly, a component of it is that the rate increases have slowed a bit compared to what they were over the past few years.
So that's 200 basis points of growth right there.
In addition to that, there are certainly some sectors that have been driving the growth over the past many quarters that are not enjoying the same opportunity, energy being an example of that.
But overall, I think to expect the business ---+ as far as the Domestic insurance business ---+ to grow at a rate somewhere between 5% and 10% wouldn't be a bad assumption at this stage, knowing what we know today.
We manage this Company in a way that we think is in the best interest of the shareholders always.
Always have; always will.
For us, that means if the right opportunity comes along, we will seize it.
We think there are several things that are different now.
Number one, we think a number of people deceive themselves that thinking scale of capital is an important competitive advantage.
We think quite to the contrary.
We think the world is full of capital; and if you have skilled underwriting talent, you'll be able to get all of the capital you want.
Therefore, getting more capital, as some people think is the object of putting two pieces together, is a bad decision.
We think it doesn't help your shareholders.
In fact, it ultimately dilutes their return.
So we should start by saying just acquiring something to get bigger, to add to your capital count, is certainly nothing that we would consider.
We always have the interest of finding ways to add expertise, finding people, finding something that gives us a competitive advantage.
And we are always in the market for that.
And if people want to talk to us, we are always willing to talk to them.
But it really has to do something that we think is terrific for our shareholders.
I think consolidation will continue because there are a lot of people who found getting in the reinsurance business was an easy way to make money.
And it's going to be a lot tougher way of making money as people who have pools of capital that is not theirs get together with expertise.
So I think consolidations will continue.
Smaller and intermediate size players will get acquired, and there will probably be opportunities.
And many things that have been done, we've looked at, we've talked about and, for some reason or another, haven't participated.
There are always opportunities.
We are a known quantity.
We understand how to organize and set up new ventures built around teams of people.
And a week doesn't go by that some team of people or another doesn't knock on our door, and we talk to them.
But we have a view that they have to provide something that is worthwhile, and the opportunity to generate the kinds of returns we think our shareholders need to achieve.
In some cases, it is; in some cases, it isn't.
I think that at the moment ---+ and this changes all the time ---+ the hindrance for capital going out of the business is the fact that managements and boards don't want to let go of their positions.
Capital can't move without their consent.
I think that some of these things will, in fact, take place.
And you will find some of these people effectively going out of the business.
So I think that's going to evolve, and that will happen at some point in time in the next 12 or 18 months.
Okay.
Thank you all very much.
I know this is a time with lots of calls.
We appreciate you being on the call, and thank you all very much.
Have a great day.
| 2015_WRB |
2015 | MGM | MGM
#I will take the first part and turn it over to any number of the other folks.
That's <UNK> <UNK> to my right and <UNK> <UNK> to my left.
Yes.
I think the word growth was intentional in a few respects.
One is, we think it can grow beyond its current asset base.
But within its asset base, we see growth.
There's no surprise to you that we are viewing Monte <UNK> with a very optimistic lens.
The fact that it has 3000 rooms, next to CityCenter, embracing a $400 million arena, $100 million Park, right on the center strip.
Means a clearly can be something more than it is today.
We believe that it will be.
And it will be called something else, and it will be positioned differently.
And it will grow its cash flows by virtue of putting in strategic capital into that property.
I would have to say, there are other great opportunities that we're looking at as well.
<UNK> <UNK> has a team looking at Excalibur, and recognizing the fact that we have a very underperforming corner of Tropicana and the Las Vegas Blvd.
And why would we do at others have done so successfully, and draw mid-scale retail into that corner, and therefore drawing traffic into Excalibur.
We know from our convention dialogues, I've had a meeting as recently last week.
<UNK> and <UNK>, with convention people this week, that if we had more convention space for the association business, and if we had more concrete space, which is relatively inexpensive to build, we could dramatically increase the cash flows of Luxor, as an example.
The list goes on and on.
We don't view our portfolio properties that we are contributing in as a mature properties.
We view them as properties with stable and strong cash flows, that were up 33% year-on-year in the current quarter.
But that each and individual one have their own growth trajectory.
So, what this allows us to do, is over the next few months, evaluate our portfolio in a very specific way.
Looking at return on investment, as the criteria.
And where do we deploy capital in the highest ROI way.
As it relates to Bellagio versus MGM do you want to take that.
Circus Circus is a really exciting and intriguing longer-term, but intriguing opportunity we believe for MGM Resorts.
It sits on 100 acres.
Can you imagine that.
100 acres.
We have a young management team there that is just crushing it right now.
You can see it in the results.
They're enthused, they're having fun, they're innovating.
They're a big part of our profit growth plan.
Eric Fitzgerald, who runs that property has been a leader on some corporate initiatives.
And we feel like, it's a smaller property in term of cash flows, but it's punching above its weight.
And it has a lot of potential.
And yes, clearly, there's an awful lot of opportunity that could go around there.
When we did the Rockin' Music Festival, we saw a nice bump.
That's the future of Las Vegas as you know.
We're a leader in that area bringing music festivals, whether it's EDC or live music.
We will be doing more of that.
So, yes it's not an major contributor of cash flows to MGM Resorts, but it is a major contributor of ideas and innovation.
And it is certainly is out there as it relates to growth potential.
On daily fantasy sports, <UNK> <UNK> nudged me about three or four times in my ribs here.
I will turn it over to <UNK>.
Because you don't want to know what I think.
(laughter)
Obviously, with a lot of people it's something we've all followed with great interest.
We will continue to do so, we absolutely want to see if the states rights issue to be clear, its a program that we, because we do other things in social gaming.
At some point we would like to participate.
But the states need to apply non-direct consumer protections, in setting it up so a company like ours can participate.
Right now is obviously, it's in a gray area.
And over time, and we hope relatively quickly, because there has been a lot of attention on the space.
There will be some clarity around with states like Massachusetts, Illinois and others that we're in want to do with it.
We're actively engaged in the story, AGA is engaged in the story and following it.
And we'd like to participative and helpful, because we think it's meaningful in the long run.
And I like sports too <UNK>.
Thank you everyone for joining for any follow-up questions, please reach out to my office.
And we will get back to any and all of you as quickly as we can today.
Thank you.
| 2015_MGM |
2016 | ZION | ZION
#This is <UNK> <UNK>, I'm the Chief Credit Officer.
I will comment on that briefly.
The term commercial real estate growth that we saw in Q2 was driven partly by slower pay downs, some conversion of construction-to-term loan, and other value-add transactions in the income property space, all of which are well underwritten, safe DCRs, well-defined and lower LTBs, equity and transactions.
It was a little bit unusual but we are very satisfied with the credit quality of that particular portion of the loan growth in CRE.
Jeff, this is <UNK> I would also note that geographically there was really nice dispersion across California, Arizona, Nevada and Washington, with a small, modest amount of growth in Texas on the term side, but the term has been pretty well-balanced across the portfolio.
I will comment briefly on that as well.
The capital markets have backed up a little bit in CMBS.
Borrowers are finding it a little tougher to place CRE terms so, in response the line bankers and the business units facilitating CRE have upped the pricing of the overall coupon.
<UNK>, this is <UNK>, and yes, I think our initiatives are showing nice progress.
Our treasury management activities are still ---+ it's our largest fee income stream, it's about 30% and it is growing in the mid-to-high single-digit rates, which is really good for that business.
Our other bank card products, business card, consumer card are growing at high single-digit rates which we've talked about repeatedly over the last couple of years, basically trying to get the same sort of penetration in our other markets that we currently achieve for those products in Zions First National Bank, our bank in Utah.
And then wealth management, which we've been concentrating on, is growing high single digits.
Mortgage, the fee income component is not growing even though our volume, origination volume was up 30% last year.
Our origination volume will be up about 30% this year, but we are keeping more of that on the books and consequently it's not having the fee-income benefit that we thought it would.
But those would be just some things I would highlight.
It was a modest purchase with a really strong correspondent that we have a lot of respect for.
We are, as you know, still significantly under-weighted on exposure to One to Four Family, and even though we are originating really nice volumes with our mortgage initiative, we thought at least having this as an alternate source is a good thing.
The yields are significantly higher than what we could buy into our investment portfolio, and the credit statistics are on par with our own originations, with yields principally on par with our own originations.
It is just a real nice relationship and we will probably continue it at a very modest pace, but it's clearly not a key driver of our results.
We are going to continue to work that down as we invest.
Obviously deposit ebbs and flows are going to impact that.
It is hard for me to give you a precise number although I will say that despite the very good loan growth we have had in the first half of the year, we continue to be on track with respect to our investment portfolio targets, which is purchasing another $1.5 billion or so over the next two quarters.
If the question is about the cash balance I would expect to continue to whittle that down.
Ultimately as I said in my prepared remarks, I do expect for us to get into a position where we are going to incrementally go out and need to fund loan growth.
When that happens then you can assume that our cash balance has reached sort of its low point and the point that we are most comfortable with.
That's been kind of the focus of a very specific campaign to ---+ that's been focused on home equity lines of credit, so I think you are seeing the results of that kind of marketing push.
This is <UNK>.
Basically, what we said was $1.58 billion for this year, slightly increasing in 2017.
And I think fundamentally we feel we are going to be able to stay fairly close to the $1.58 billion next year as well, so we are continuing to find new ways to reduce expense in light of ---+ and fund those areas that are growing.
I expect we'll have a little more to say about it as we get closer towards the end of the year.
I would agree with what <UNK> just said.
To the extent that it is north of $1.58 billion, it won't be much in excess of that.
Maybe better than it, but I think it's a little early still.
I think it would principally be because we are finding more opportunities to simplify how we do business, and those opportunities we're digging into literally every day.
We have been.
The adoption of common practices and back office activities and middle office activities is just continuing to show us opportunities to reduce cost.
So it will be more related to that than any kind of cresting of previous activities.
Are you asking about the incremental yield of the bonds we're putting on.
There are a couple of things there, one is rate and one is volume.
And I think you can probably look at MBS rates in the marketplace or the 5-year treasury and kind of come up with an estimate of that differential in yield between what we're buying then and what we're buying now.
The other thing I would point out though, and I am sure you have noticed, is that we bought a lot of bonds in the second half of last year.
We did okay in the first quarter.
In the second quarter we really slowed that down.
And we slowed it down because of the shape of the curve.
I think we have been pretty clear about telegraphing our intentions, while we need to continue to put money to work we are going to try to be thoughtful around the timing of those purchases, and I think your question points specifically to any incremental value we may have created there.
So I can't give you a specific dollar amount, <UNK>, but I think it is probably pretty easy to triangulate on when you look at the change in the market and the volume of what we bought over the course of the last year.
We have a very long and successful history in dealing with municipalities and providing credit to the local markets.
This is critically important to what we do as a very locally-oriented bank.
I think we are successful across our footprint, have been for a very long time, decades, and continue to be.
So I think that what you're seeing there, <UNK>, is just a continuation of the success that we've had as an organization.
I would add that it is something that we are very focused on trying to step up somewhat and do more of this, particularly with smaller municipalities where we think the risk reward trade-off is quite nice and where, as <UNK> indicates, we have a very long solid track record, so there's some focus there.
The growth you are seeing isn't primarily a result of that push yet, but I'm hoping over the next couple of years you will start to see more of that.
I think the first thing I would say is, clearly the world has changed a lot from the days when you had free rein.
You are posing a hypothetical, I guess I would say clearly we would use everything we've done in building capabilities to stress test in the model to think about risk, particularly in a downturn, to inform how we think about capital.
There are a lot of things we have built risk management-wise here in the last five or six or seven years that I think are actually really useful tools.
I think we would agree that we've got more capital, and we are at the north end of where our peers are.
I would note, that we will always want to be probably, kind of to the strong side so long as we have somewhat higher exposures of commercial real estate and energy.
We know that those are both segments where you can see maybe a little more cyclicality than some other things.
If you took all of the limits off, this wouldn't be a race to the bottom, if you will, in terms of draining the capital.
But we want to thoughtfully try to right-size our capital and grow into it and I think it gives us a lot of flexibility in terms of what we can do.
I hope that is helpful.
We know that we have more preferred than we probably need right now.
That is something we have talked about and that we continue to opportunistically deal with, but on the common equity too we are heavy and that is something that increasingly I think you'll see us working at, it is very much on our minds.
I would say our goal is over the next couple of years to get it up around 10%, and we think that that is doable.
There is some additional reduction in preferred that will help, obviously the cost of preferred is a drag on the ROE.
I would expect that as we continue to see better results through CCAR, that we'll be able to be a little more aggressive in our capital repatriation ask.
And then there is still a lot of operating leverage.
I think it is really important to focus on what we are accomplishing.
If you look at pre-provision net revenue as operating leverage that you see playing out over the last few quarters, it takes not a whole lot of additional work in that area to start to make a real difference.
Finally, I would say that as we get through the energy cycle, and we have got a very strong reserve, we do think that that ---+ I expect we're going to be able to start to lessen the provision as we said earlier, and as we come out the other end, I think short of real deterioration, significant deterioration in the rest of the economy, the other credit metrics around here are very strong, our absolute reserves are strong, and I think one of the competitive advantages we are going to have that will feed into ROEs is going to be a provision when we get through the energy cycle, that is likely to be pretty low and will also help with ROE while we continue to build this operating leverage that I'm talking about.
I would just add to that, the reason we focus so much attention and communication about the positive operating leverage is that we really do believe the basic assumptions about loan growth, redeploying cash, fee income growth, holding expenses flat, the resulting positive operating leverage that we model moves us a long way over a three-year period to a much more representative ROE.
And then depending on what assumptions you want to make about our ability to reduce capital or trim capital, we believe we can get back to the levels <UNK> described with the plan we have in place.
I'd also just note, too, we've clearly been taking some asset sensitivity off the table, but there is still a fair amount there.
In this rate environment, I personally find myself asking, scratching my head and saying is a 775 basis point premium to a risk-free rate, should it continue to go north of that, beyond the 10% to 12% or something like that.
I think ought to all worry about an industry where the expectations ---+ in an industry where you've sort of doubled the common equity over the last decade, a 12% ROE is what used to be a 24% ROE.
That could involve stretching beyond the point that is actually prudent.
That's how I think about it.
Jumbos.
Sure, Brad.
Happy to respond to that.
The other thing that I would note, we don't comment about it enough, but natural gas prices also have rallied significantly since early March.
Recall that they declined quite a bit in the fourth quarter of last year and through the middle of March, oil prices really declined January/February and the first part of March, and then both have really made a very nice recovery since then.
I only note that because recall that in our reserve-based lending activity about 50% of the reserve is ---+ I mean, of the borrowing basis is our natural gas reserves.
You really kind of have to focus on both.
What I would say is that the underwriting that we did in our spring redetermination generally had oil prices around kind of in the mid-to-high $30s, and the sensitivity would have been down in the high $20s, $30-ish.
And so, prices retreated here back to the high $30s, I don't think that would really impact our reserve.
If we saw prices go down into the low $30s, high $20s, then it might change how we would think about it.
But I think there is a lot of room between where we are and that kind of really negative environment because fundamentally, the supply-and-demand curves have improved since six months ago, and that is fundamentally driving the price changes.
That would be my comment.
I think we feel really pretty good about the reserve-based portion of our portfolio, the deficiencies that we experienced in the spring redetermination all have very firm repayment processes associated with them, so we didn't have any big surprises on the reserve-based side in the spring redetermination.
It really is just an oil field service question fundamentally, and how long that will go on, and we believe it will go on into next year even if prices continue to improve.
This is <UNK> again.
We have very well-defined concentration limits by asset class and asset types, and there are some historic assets that have proven not to do so well and we obviously have low concentration limits set for those.
We are not doing anything necessarily to stimulate production in any one of those categories.
We think we might be a little heavy on multi-family so we are tempering production there, both construction and term.
I hope that answers your question.
Selectively, any transaction that has really strong metrics, a solid sponsor, guarantor support, good market, deeper MSA that can prove as a worthy takeout source.
Could be ---+ retail is obviously ---+ the online sales has tempered our belief and we aren't too excited about putting on a lot of new retail.
Industrial is an asset class that is in favor right now to us, especially in the markets that we serve.
Hospitality, we have historically deemphasized, but we do select hospitality transactions.
I would say anything that is horizontal development like A&D, land, lots that aren't associated with homebuilder production And vertical construction are something ---+ is an asset class we are definitely steering away from.
Historically it was in our mix, but today and going forward, it is a relatively small piece of the book.
<UNK>, this is <UNK>, what I tried to convey in my remarks is that we've got some countervailing influences.
One, as I described, is sort of the ongoing grinding of margins that we see and that obviously adversely impacts the net interest margin.
In our case though we are helped by the fact that we continue to deploy cash into our highly liquid investment portfolio, and the result of that obviously is no increase in earning assets, the denominator, but an increase in net interest income.
So net-net that is helpful to the margin.
As I tried to say in the prepared remarks, we are looking at maybe a couple of basis points, we think, over the next couple of quarters, but as you know as an experienced observer of banks that can be pretty hard to predict sometimes.
Sure, <UNK>, this is <UNK>.
We had said $75 million to a $100 million area.
We commented on $125 million today and as you noted our energy net charge-offs were about $75 million through the first half of the year, and we are simply saying we think they will start to go down.
We think they will be less in the second half of the year, but it's very hard to know.
We don't have a clear line of sight right now to those second half of the year charge-offs.
We can see about half of them, and then we are assuming others will materialize so there is an opportunity for a favorable performance relative to the $125 million.
The other comment that I think is really important is how does this fit, as both <UNK> and <UNK> noted in their comments, how does this fit in terms of our overall thoughts about net charge-offs this year.
You recall we guided to 30 to 35 basis points, $125 million to $150 million in net charge-offs, and clearly our energy charge-offs are going to be larger than what we thought, but we've only had $1 million in net charge-offs on the other 94% of the loan portfolio through six months, and we are clearly going to have less charge-offs than we anticipated there.
So we continue to anticipate the same consolidated net charge-off experience that we've guided to, it is just going to be a little more weighted to energy.
I'd just also add, I think, from my perspective anyway, this is <UNK>, the most encouraging thing that I'm seeing is we are not seeing new names popping up.
The list of deals where we expected that we might see some fraying basically a year ago hasn't really fundamentally changed.
Some of the timing and to some extent perhaps even the magnitude in some of these deals has been a little different, but we are not seeing new names coming out of the woodwork and I think that is a big plus in our thinking about it.
It is.
And I would also note that because the vast majority of our charge-offs on the energy side are coming from the oil field service piece, recall that we have significant private equity sponsorship with our 70-some-odd service-based companies, our larger service-based companies that we finance.
To date, last year and through six months this year, they have injected about $250 million of capital into our borrowers.
Just back of the envelope, that would be 15% to 25% in increased equity to those existing deals which generally were 50% equity, 50% debt.
I'm using some broad generalizations here.
We have seen really strong performance from the private-equity funds when you think of 15% to 25% equity injections in an 18-month period.
And with strengthening pricing in oil and gas commodity prices, we believe that will continue.
That's precisely correct, not only are we buying new bonds, which is helpful, but the bonds that we do have are prepaying faster.
There is premium attached to those bonds that's decreasing the yields and that happens as you know, and so there is a little headwind there that we are dealing with, in addition to ongoing grinding tighter of credit spreads.
I think what we are fundamentally referring to there is we have an incentive plan that covers top roughly 450 or so officers in the Company.
That is effectively very closely linked to how we do in terms of cost control and continuing to develop operating leverage, et cetera.
Cost control is kind of a central theme in how we think about payouts under that plan.
Some of you have heard me say before, but I tell all of our people here that every nickel they spend is not coming out of shareholders' money, it is coming out of the wallets of the top 450 people in the Company.
Because to the extent that we don't hit those targets, the funding for that incentive plan is reduced to the point that we do, so there is a very, very tight linkage in that respect.
I just want to thank all of you for your time and for your interest, and we look forward to talking to you the next time we see you or next quarter.
Thanks so much.
| 2016_ZION |
2016 | ABM | ABM
#Sure, <UNK>.
So for tag if you look at it in two components the big drivers were janitorial and our facility services on the janitorial side.
And overall we had about an $8 million increase year over year or roughly 12%.
On janitorial we saw continued growth and <UNK> can allude to the specifics but we saw some continued growth in janitorial tag.
And on the facility services, which growth in tag is truly pass-through so from a margin perspective it's not going to have the same impact as it does in janitorial, but we saw continued growth in tag on the AFS side.
Yes, and what I would add, <UNK>, is typically in the first quarter we see good tag sales because we have the holidays baked into that but I think also there is a change in the firm.
People understand that there's typically higher margins associated with tag.
So as we focus on our EBITDA margins we are placing more emphasis on selling through tag.
I hope this trend continues but again optimistic what we saw in the first quarter.
Yes, I will take the first half of that question.
So excluding tag our growth was right in line with our expectation from an enterprise perspective.
And tag, as <UNK> alluded to we had good growth in tag but tag is a component of our overall revenue.
So we don't strip it out when we look at organic in totality.
So from an enterprise perspective our growth was right in line.
We saw good growth in some of the segments and tag contributed proportionally to that growth.
As you can imagine, <UNK>, with our 2020 transformation and redesigning this organization there's a lot of work being done by our key people.
And really doing double duty, right.
Because we still have to execute on your day job and put a lot of effort into how we're going to plan the organization going forward.
And probably what I'm most proud of is that we're able to execute during the quarter in this period of transformation.
So we don't see any headwinds as relating to the effort and the work that people have put in.
And I would say our organization is completely aligned to this new structure.
There's a lot of enthusiasm around it.
And we're not getting a lot of complaints from people about how hard they are working.
As a matter of fact, people are pretty excited about what the future is looking like.
And as we go through this in month-after-month passes you can see the finish line ahead.
And like I said we're excited about where we are today.
Yes, absolutely.
So let me take that.
So the way we're looking at it is if you normalize last year for the margin as it relates to the insurance rates that we're charging the business currently and those rates we feel really confident and comfortable with those being the right insurance rate from a current-year expense standpoint.
So if you look at where those rates would have been impacting the margin from last year we would've been roughly 2.6% give or take on an EBITDA margin.
We provided somewhat of a bridge in the deck.
We ended this quarter with a 3.4% EBITDA margin, so when you think about the 80 basis points it comes in a number of different components.
Roughly 50 basis points is operational driven based on the factors we just discussed.
2020 had a small impact, roughly 10, 13 basis points of impact and the rest is really going to be due to timing.
We had some certain one-time items come in through the quarter from a benefit standpoint.
We've delayed some investments that we were making.
So that I would say is more of a timing issue.
So we're really proud of what the organization was able to deliver from a margin perspective given the headwinds on insurance particularly.
On the out-of-period insurance, as you recall late last year we did mention we're going to have a second review done primarily for our captive insurance.
As part of that review we rolled forward the third quarter of last year's actuarial report.
And based on the data we continue to see some unfavorable trends in the prior years and we've made an adjustment appropriately for those unfavorable trends and we will continue to monitor that going forward.
But what we're comfortable with is the rate that we have for this year is the right rate and the business is operating with that total cost of risk.
And we don't expect that current year to be adjusted this year or going forward.
Let me answer the WOTC.
So WOTC as you articulated there's a cumulative impact and then there's a full-year impact.
The cumulative impact is the $0.20 that we've guided towards.
In the quarter we had two components.
One was a catch-up of 2015 which added roughly $0.09 to the quarter and then there's $0.02 related to 2016 WOTC which will continue to accrue for the balance of the year.
So roughly the $0.20 is where we're seeing the guidance from WOTC being updated.
Yes, on the buckets we don't see any major changes to the drivers.
But we still feel pretty comfortable with what we articulated in terms of the headwinds being insurance and the benefits being 2020 in the operational.
So we feel pretty good with those.
Yes, look, we're always trying to strike a balance between growth and margin rate.
Our focus and what we're putting out there is margin enhancement as one of the primary drivers of 2020 vision.
But that's part and parcel to revenue growth.
And what we're finding is we're just seeing a lot of collaboration in our firm for cross-selling.
And I think what we're seeing now, especially when you saw the margin increase, is that is that message is resonating within the firm and as that resonates, with it is coming sales growth.
So we're really proud we have 3.7% organic revenue growth and we're looking at our pipeline going forward.
We'll feeling really good about the balance and how we're handling our forward really strategic approach towards picking up new business.
But I don't think we ever really said 2020 vision was about how we exit big amounts of business.
It's really about how we grow going forward.
And let me add a little color to that as well.
If you look at our healthcare business which has had, very small component of the business, had some challenges.
And we exited a contract subsequent to Q1 that will improve the comps going forward for that business.
So we are still taking a hard look at existing business on a renewal basis to make sure it makes sense.
But to <UNK>'s point, this is not about culling revenue for the sake of culling revenue but where there's opportunities for us to improve the margin we will.
And if it doesn't meet the margin profile on those renewals or there is not a glide path for that margin profile then we're taking a harder look at that business.
Yes, so if you look at BSG and as we kind of articulated at the balance last year was BSG was a second-half story last year.
So first two quarters last year we had some tough comps but they overdelivered in the second half.
And that overdelivery is translating into a good pipeline and good bookings continuing in the quarter and we expect that for the ongoing quarter.
If you do a comparison from Q3, Q4 of last year to what we expect the full year to be Q3 and Q4 will be more normalized.
But overall we see good growth in our technical services business in particular.
I was just going to also add if you look at Air Serv this quarter 15%-plus in organic revenue growth.
So I think as we start shaping these industry group focuses or verticals you are going to see acceleration.
We haven't put out exact guidelines yet because we are still going through the process but really the motivator for 2020 vision is to get focused by industry and really accelerate our growth.
So we don't see any, I mean I think the summary is we don't see any wholesale headwinds in any of our businesses from a growth perspective.
Could the growth taper in one and accelerate in the other.
Absolutely, but at this point we feel pretty comfortable for the full year.
We experienced some localized issues in Air Serv and some one-offs.
The localized issues were specific to a particular region and the team there is keenly focusing on operationalizing it and getting back on track.
They have a plan for that.
So for full-year outlook from an operating profit percentage we're probably going to be in that 3.3% to 3.4% range.
And that's really going to be a number of factors.
Last year we had outside growth from our UK portion of Air Serv.
It's going to be normalized.
That portion has a much higher EBITDA and operating margin contribution.
The US business has good or fantastic top-line growth but they had these one-off items that impacted the quarter and as I just mentioned, they have a plan in place to get back on track.
So overall nothing systemic but something that we're obviously keenly focused on.
Sure.
So overall if you think about SG&A there is a lot of costs related to our items impacting comparability.
So it's difficult to look at it in totality given the pluses and minuses quarter over quarter and year over year.
The way I would look at SG&A is obviously as part of 2020 some of the savings that are going to come out of or most of the savings are going to come out of the SG&A line that we'll be operating savings as well as it relates to the organizational design.
So the way I would characterize it is the savings that we have both from an SG&A perspective impact from 2020 plus the operating perspective is going to get us to that $10 million to $20 million realized savings.
So it's a little bit challenging given a year of transformation and the puts and takes to get to an exact number.
But as we move on throughout the year we will provide additional clarity.
Yes, so we're right on track with our plan.
So many of the actions that we took from an organization standpoint happened late in the quarter.
So from a run rate basis we're approximately at the end of the quarter roughly $11 million on a run rate basis.
What actually translated into the quarter was the 13 basis, roughly 13 basis points that I articulated or $2 million plus or minus.
As the actions in the organization get further defined through Q2 we will be able to provide an update.
But we're well on our way with realized savings that we articulated and we feel really good about it.
Yes, for us it's all about whether or not we're hitting our internal targets for milestones both in terms of the process and moving the process along as well as the savings.
And we're just so happy to report that we are on track.
Yes, so it's not because of the vertical approach because we really haven't gotten into these verticals because we're still planning the organization.
So you won't start seeing the movement towards vertical operations until the second half of the year.
In terms of sustainability, again Q1 is typically strong because you have the holiday sales in there.
But again I do believe because of the focus on margin enhancement by our team you'll see continued focus there.
How sustainable the actual increases are that we put on the quarter over quarter we don't know yet, but again we're encouraged by what we're seeing and more importantly what we're hearing across the organization in terms of focus.
Sure.
So tag really has an impact on two business lines, facilities services and janitorial.
On the facilities services side it's a pass-through, so from a margin perspective there's really not a lot of margin uplift.
Good sales and we can penetrate it additionally and we expect the growth to be in line with historical averages.
Janitorial, obviously the margin profile from tag sales is much higher.
And back to <UNK>'s point, we have a Q1 uplift due to the holiday season and the focus from the operational standpoint given the margin focus is going to be driving the tag.
So I think that's going to be continuing to be a focus area.
We don't provide annual guidance on tag but it is a focus area and one we're going to continue to look at going forward.
I don't think we have ever given janitorial at its peak or where we are today.
But what I can say it's roughly $180 million to $200 million give or take on an annual basis.
Tag, how they come in and how they translate is going to obviously be contingent on the time of year and certain events.
So it's a little bit out of our control in terms of the timing.
We just feel like it's a pretty good indicator of the focus on margin and an early indicator from an operational standpoint of where we want to be.
And the one thing I would say, <UNK>, is you read about a lot of headwinds in the economy and I can tell you just from talking to our people and getting out and traveling to the different regions, we are not seeing any headwinds from our clients yet in terms of pulling back or grabbing us for conversations about how we cut costs right now.
So we don't see any reason why our tag performance should deteriorate over the course of this year.
Look, we have our internal targets that we don't necessarily disclose, right.
But our hope is that if 2020 vision is successful we will be able to accelerate the compensation.
We have very defined targets that we've put out and our internal people know about it.
And so we're optimistic that if everything triggers the right way our people will be well compensated and really have a tight link between how they perform, how they perform and how they get compensated, the whole kind of pay for performance.
That is the culture that we are driving in the firm.
Yes, it's a redistribution.
The targets have changed.
Our objectives have changed.
And to <UNK>'s point if we overachieve our objectives similar to prior years there would be an overachievement but from an overall bonus pool its apples to apples.
We haven't changed the dollars amount allocated based on the objectives we've set.
Yes, so let me break that down into two components.
So for this fiscal year, we've aligned compensation to the main drivers that we're looking for, both short term and long term, and that's margin growth, revenue growth and safety and risk drivers.
As it relates to the cross-selling initiatives we have programs in place, they are more commission-based programs in place, so that's not really the bonus program.
And as we move forward into 2017 and 2018, the localized programs which in this current year are enterprise-wide will become much more focused on driving the behaviors and driving the performance at the vertical level.
So you'll see more of the verticalization cross-selling and I think that's what you're alluding to as part of next year's compensation plan.
Not as part of this year's compensation plan because we're not operating in that framework today.
And I think the other way you could think about it in our current format we're more organized by service line.
If you have a janitorial contract you're motivated to cross-sell some services but you're motivated on a commission basis.
When we move to a vertical-based organization you're responsible for the customer, you're not just responsible for janitorial.
So when you're controlling that customer, when you're controlling that P&L, you're much more motivated to bring services in and really have an end-to-end experience for that client.
And that's how we're going to be measuring people's performance.
So it's going to be a very different paradigm at ABM in really 2017.
Yes, so I would look at this in a couple of different ways.
First of all, we have a really good group of people that understand customers, understand our services.
But as part of any transformation you bring in talent from the outside and we are bringing in people from the outside.
We just brought in a really strong performer, a gentleman named Dave Carpenter who's going to be running our education vertical and has a terrific background in that area.
So it's always good to bring in new talent.
But the third leg of this besides the existing people and bringing in new people is the training.
And as part of 2020 vision we have a whole other work stream on training and talent development and you're going to see new people coming into the organization to fill that area.
So we're real excited about that because we know part of the transformation includes structural change to the organization.
But the other piece of it is developing the tools to help acceleration.
And if you look at how we've messaged way back to even Investor Day we said there are a number of different phases to this transformation.
The first phase is developing the structure and the organization and putting people into seats.
But the second phase that we're going into in April is about creating the tools, creating the business plans, creating everything around accelerating the business once the organization is structured.
So you bring up a great point and it's something that is one of our key work streams.
So energy has been one of the huge focuses of the firm over the last two or three years and you've seen some of our acquisitions in the ABES.
One of our latest acquisitions, CTS, is all about energy and power, working in data centers, working on smart grids.
And we have a gentleman on the West Coast named Tom Bowen who's very focused on the energy sector.
So we see this as a trend that's continuing.
And we think our glide path in this area is playing right into where the whole energy movement is heading.
So we're excited about our trajectory in that space.
Yes, so <UNK>, we're not breaking this out necessarily separately.
But I will tell you that baked into our estimates in organizational savings includes net investments.
So this isn't just about taking cost out.
So when we've talked externally about our cost savings targets they are always met targets, so we factor them in.
We have timing and cadence for everything and we're taking it one step at a time.
So this will not be a setback at all.
It won't be a setback at all.
It's all part of the milestones that we set out for this project.
And <UNK> I think if you look at the organizational design there may be certain areas where we're not going to be filling the position immediately.
As we build out the organization there's going to be gaps in that organizational design.
We're targeting the $30 million-plus of half the savings coming out of the organization plus some of the procurement savings from a cost perspective.
Those are firm numbers.
So you may actually see it appear to be that we're and ahead of where we anticipate because those investments haven't been made in necessary lockstep with the cost out.
But again we're committed to what we've articulated as our goal on 2020 from a cost perspective and we're well on our way.
Yes.
So there are two components.
One was an isolated settlement of some certain tax audits that we had in the business which we don't anticipate occurring going forward.
The other is the conversion of managed versus leased properties in the quarter.
And as you know, leased properties come with higher risk and reward and in the quarter the leases underperformed.
So we will continue to monitor the performance of the properties as it relates to leased.
We don't expect it to continue at the same level of conversions from managed to lease that we experienced in Q4, Q1.
But that will be something that we continue to look at going forward and that's one where it's going to increase the risk of our profitability based on the exposure to leases.
And don't forget insurance also plays a big component of the margin decrease year over year.
So thanks everyone for participating.
We appreciate the questions and as I said we're encouraged at the start.
We still have a long way to go but we are on the road.
And we have a highly motivated management team and a highly motivated organization that's excited about where we're heading.
So thank you for the time and we look forward to messaging back in the second quarter.
| 2016_ABM |
2017 | NEWM | NEWM
#Hello <UNK>, this is <UNK>, on the unit volume which is the underlying subscribers for circulation, we're down in the mid- to high-single digits, as a percentage.
And, as I called out, on the financial side we're actually up in the low single digits; we were up 2.8% and so we see a continuation of those trends as we look forward.
You got all of those correct.
We expect it to still be a pretty unstable category going forward.
There's just a lot of trouble as you know in the major brick and mortar retail sector, so while we had maybe a little bit of a better trend in the fourth quarter, we are not confident enough to say that is here to stay.
So I think our normal assumptions of down 10% for the total traditional category is probably safe.
Thank you.
Yes, over the last three years, that is true, <UNK>.
We don't feel confident enough to feel good.
Preprint has had a pretty stable run for quite a few years, but the status of the bricks and mortar retailers both regional and national has us feeling unsecure enough that we're putting it in traditional not in a stable category.
Sure, <UNK>.
On the 48% of our revenue comes from the traditional category and we expect that to decline about 10%.
So call that $55 million and then the 52 % of our revenue, the biggest one is circulation at $420 million that we think will grow about 2%, so call that $8 million plus.
Propel is a $53 million revenue category that we think will continue to grow at 70% or 75%.
And then we have our events business which we think is a double from 7% to 15% and then a few other smaller things like our business publications division.
So when you take the pluses that we have in each of the revenue categories, in our 52% of stable to growing revenue, you come up with more than $55 million that we expect the decline to be on the traditional print side.
Thank you, <UNK>.
| 2017_NEWM |
2016 | ALOG | ALOG
#Good afternoon around welcome to the Analogic Corporation second-quarter conference call for FY16.
The following corporate officers are present: Mr.
<UNK> <UNK>, President and CEO; Mr.
<UNK> <UNK>, Senior Vice President, CFO, and Treasurer; and Mr.
John Fry, Senior Vice President, General Counsel.
I'd like to remind everyone that a supplementary presentation will be used during today's call.
If you have not already downloaded that presentation, you can do so at any time at investor.
analogic.com.
That presentation will remain available until April 3, 2016.
Now I'd like to turn the call over to Mr.
<UNK> <UNK>, Head of Investor Relations.
Good afternoon, everyone.
Welcome to Analogic's second-quarter conference call for FY16.
Earlier today after the market closed, we issued a press release describing our financial results for our second fiscal quarter.
If you have not yet downloaded the press release, you can do so via our website at investor.
Analogic.com.
Before we review the quarter, I would like to remind everyone that today's call may include forward-looking statements such as comments about our plans, expectations, and projections.
For more information on risks and other factors that could cause our actual results to differ significantly from our forward-looking statements, please refer to our most recent Form 10-K and 10-Q reports on file with the SEC.
Also on today's call, we would be discussing certain financial measures not prepared in accordance with generally accepted accounting principles, or GAAP.
We believe that using non-GAAP metrics provide investors a more thorough understanding of our business.
An explanation and a reconciliation of our non-GAAP financial measures are provided at the end of the presentation materials and in our second-quarter press release.
And now I'd like to turn the call over to <UNK> <UNK>.
Thanks, <UNK>.
Good afternoon, everybody.
Let's move to slide 4 of the presentation, please.
You can see that our overall strengthening mix drove a very profitable quarter, in spite of significant challenges in the security and detection market.
Revenue came in at $128 million; that's down 5% from last year and down 4% on a constant currency basis.
Gross margin was 46%; that's up 3 points from last year and includes a currency impact of 0.5 point.
Non-GAAP operating margin was a strong 15%, up 2 points, and non-GAAP earnings per share was $1.18; that's up $0.10 from last year.
Our GAAP EPS was negative $0.24, down $1.02, and it includes a $13.3 million charge in connection with the BK Medical inquiry.
We're moving closer to a resolution in this matter, and of course, we look forward to putting it behinds us.
And also there's a $3.1 million accrual, which was about $0.25 from the previously announced restructuring.
Moving on to slide 5, we'll take a look at the segment highlights.
Medical imaging revenue was flat versus prior year.
CT subsystems saw some softness on timing of shipments in the quarter.
We saw an improving mix on our growing movement toward private label CT shipments in China, and mammography continued double-digit growth driven by new OEM customers.
Ultrasound continues to outperform, with revenue increasing 5% on a constant currency basis, and 2% as reported.
Ultrasound direct increased 11% on constant currency basis, impacted by the expected reduction in OEM probes.
North America, Europe, and China were all up on a constant currency basis.
We saw initial production shipments of our ---+ to our technology partner, Carestream for general imaging, and are excited to see our first commercial order for our breakthrough Sonic Window product, which is initially targeted to kidney dialysis.
Security and detection was down 39% in the quarter versus prior year.
As you may have heard from others in the aviation detection space, the international airport purchasing delays are causing delays in high-speed shipments.
Medium speed TSA shipment demand softened in the quarter, and Rapid DNA ---+ the continued payment delays impacted revenue recognition in the quarter.
Now I'll turn it over to <UNK> <UNK>, our CFO, to get more detail on the financials.
<UNK>.
Thanks, <UNK>.
Good afternoon, evening, everyone.
I'll start on slide 6 of our quarterly performance.
The quarter, for the most part, met our financial expectations, as ultrasound grew 5% on a constant currency basis and medical imaging was flat.
The one exception, as <UNK> noted, was our security segment experienced delay issues leading to a 39% revenue decline, which was the primary cause of the overall 5% revenue drop, or 4% on a constant currency basis.
The positive news within the quarter was strong gross margin improvement of 3 points, driven by favorable product mix and continued cost reductions offset lower revenue volume.
Gross margin expansion led to a 2-point improvement on overall non-GAAP operating margin.
Now, we believe a significant portion of the gross margin improvement is sustainable, but some of the mix benefit may not continue in the second half.
Now I'll turn to slide 7 and quarter two financial results.
We were able to overcome, from a non-GAAP perspective, the revenue reduction through higher gross margin and lower operating expense, which led to an 11% improvement in operating income and a 9% increase in EPS, or $0.10 higher from the previous year.
On the GAAP financial side, the major item that reduced GAAP EPS was an increase in our accrual pertaining to the BK Medical matter.
Further color is we are engaged in discussions was the SEC, DOJ and the Danish government concerning a final resolution of these matters.
In the second quarter, we accrued a charge of $13.3 million, of which $10.1 million was classified as general and administrative expense and $3.2 million was classified as other expense.
This is in addition to the $1.6 million charge that we accrued in the fourth quarter of FY15.
Any resolution of these matters and the terms of and the amounts payable in connection with any such resolution is subject to negotiation and approval of agreements with each of the SEC, the DOJ, and the Danish government.
Now, within the quarter, we also incurred $3.1 million, or $0.25, of EPS and restructuring cost.
Without the BK charge of $1.07 per share and restructuring, we would have delivered positive GAAP EPS.
Now a further important point was our GAAP statutory tax rate differed materially from prior year and the past quarter, primarily due to nondeductible and reserve items related to the BK Medical matter.
For FY16, on a non-GAAP basis, we now expect our effective rate to be in the 20%s.
I'll move to slide 8 and year-to-date results.
For the most part, similar quarterly comments pertain to the year-to-date results with one further point: that revenue is impacted by 1% for FX and we have absorbed in the half 50 basis points as well from FX at the gross margin line.
Now I'll turn to our operating performance by segment on slide 9.
Medical imaging revenues were $74 million, a sequential increase of $9 million from quarter one and flat versus prior year.
Revenue results reflect a double-digit growth in mammography, offset by CT softness.
Non-GAAP operating margin, as compared to quarter two FY15, improved substantially by approximately 6 points, driven by stronger mix and reduced cost.
As indicated earlier, we do anticipate continued operating margin improvement, but unlikely at the levels shown within the quarter because of our expectations on product mix.
In ultrasound, revenue increased 5% in constant currency terms and 2% reported, despite a significant drop in OEM probes.
When looking at our direct system sales, we saw an increase of 11% on a constant currency basis.
Operating margin improved by 1 point, including absorbing almost 2 points at the gross margin line from FX.
Security and detection revenues declined 39% in the quarter across all areas, caused primarily by timing delays.
Non-GAAP operating margin decreased by 9 points because of the lower revenue volume.
So I'll move to working capital and cash flow on slide 10.
We generated $5 million in operating cash, with $3.5 million of free cash, returned approximately $5 million of cash to shareholders through dividends and stock repurchases.
Now total cash and investments declined $10 million, reflecting both the Oncura Partners acquisition of $8 million and $2 million of fixed asset investment.
Inventory levels increased from the prior quarter, reflecting primarily security shipment delays.
I'll now turn the call back over to <UNK> for the 2016 outlook.
Thanks, <UNK>.
Let's move to slide 11, look at the summary.
As suggested on our last quarter's call, we continue to expect strong growth in ultrasound and a solid performance in medical imaging.
However, challenges in the aviation threat detection markets are impacting our year in security revenues.
Looking to the reportable segments, our medical imaging business is picking up in the second half, and we expect overall revenue flat for the year.
MRI subsystems are stable and the CT mix is shifting to higher level content, private label systems in China.
Mammography is strengthening on new OEM customers.
Ultrasound total revenue is expected to be up double digits in the second half.
This is in spite of the drag from our legacy OEM probes.
So for the full year, we expect upper single-digit revenue growth in the ultrasound segment.
North American sales is growing at double digits in the second half.
Augmenting this new growth, the bk3500 for point-of-care call points starts shipping here in our Q3.
Sonic Window commercially launched with modest sales expected here in the second half.
We acquired Oncura, which provides additional revenue growth and its cloud-based telehealth technology supports our strategy of enabling high acuity procedures in low cost settings, as we leverage the Oncura platform in our human healthcare markets.
Sales to our technology partner Carestream is now in production and will accelerate solid growth in the second half.
Security and detection is expected to be down significantly compared to a strong prior year.
US TSA replacement on medium speed remains challenged in this year.
The international market is struggling with fits and starts with tender delays impacting high speed shipments in this year.
And though we still have high hopes for Rapid DNA, regulatory approvals are delaying market adoption and the customer payment delays are impacting our revenue here in this year.
In closing, for the second half, we see strong ultrasound growth and solid medical imaging impacted by security declines.
For the year, we expect revenue down mid single digits, low single digits on a constant currency basis, with favorable mix and cost focus driving ---+ and our focus on cost driving continued non-GAAP operating margin expansion of over 1 point.
Thank you very much and now we'll open up the line for questions.
Ladies and gentlemen, the floor is now opened for questions.
(Operator Instructions) The first question comes from <UNK> <UNK> with CJS Securities.
Good afternoon.
Hi, <UNK>.
Just on the mix issue and the margins were obviously much better than expected, and it sounds like certainly a portion of it is sustainable.
And I gather that would be, with this ongoing restructuring, you're starting to see some benefits of that.
Just in terms of the mix, is it the majority of that on the ---+ fair to say the private label systems in China is what's really was benefiting you this quarter or are there other things ---+ else besides that.
Well, you saw a very nice positive mix both in our medical imaging business, which drove very strong operating margins, but you also saw it on ultrasound.
With ultrasound, much of our ---+ as I said, much of our run rate spend is already baked into the business, and now we're starting to see the growth provide very nice operating drop down.
Our ultrasound products are by far our highest gross margin products, so the operating leverage there is dramatic.
So you saw that improvement in ultrasound, clearly that's a big part of it.
But also the improvement in medical imaging side, where paying attention to the spend and making sure that as we continue to optimize the business, and there you did see some improvement, additional improvement in areas like mammography and the CT mix also looking good.
So I think really paying attention to the spend and the growth in those two areas really gives very nice operating drop down and helps offset the lumpy situation that we have on the security side of the business.
And then just on the medical imaging, 21%, you guys have never done, I think, greater than like a 16%.
I realize quarters are ---+ they're lumpy and Q2 and Q4 are certainly the best.
But it sounds like some of this is sustainable, right.
It's not all just a ---+
Certainly ---+
It's hard to bucket it.
I'm trying to figure out what portion is the one-timish or lumpiness versus sustainability.
On medical imaging, we've been working to continue to keep that in the teens or even into the high teens.
As we're in the teens or a little better, that's kind of our target.
21% is certainly I would say a bit of an outlier, and maybe would have to have some one-time effect associated with it.
So I wouldn't expect to maintain 21%.
I'd love to be able to say that, but I think that's a little outside of what we would expect.
But as we're sitting in the teens, we certainly could see some continued motion upward and some continued improvement in that area, but not to that level.
The way I think about it is, you put it all together, the direct business in ultrasound is ---+ it's really where we're having dramatic growth.
It does somewhat get hidden by the reduction on the probe side.
We've said that the legacy probes we would expect to somewhere around 10% of the total segment revenue.
That's going the other way by about 5 points of that segment, so that's a pretty heavy headwind.
But we're seeing growth way substantially more than that to be able to talk about growth net in the upper single digits.
And it is a combination of a number ---+ all these new things rolling in.
You take all the investment we made with the new product launches, you have the Carestream product starting to layer in.
You have the other newer products, the bk3500, it launches now.
That will be layering in, in the second half.
Oncura will be helping out some also, as that starts to fold into the business and as we start to leverage some of that ---+ some of those service offerings more across our business, that will start to come in over time.
And the hand-held, that's another ---+ even though it starts off as a small number, that's completely incremental and starts to layer in.
A lot of great things happening here in the second half in our ultrasound business, and they're all compiling, piling up to help keep moving that growth curve in a positive direction.
The one thing that we've all seen is some of the players in that space have had substantial push outs of what they were expecting for shipments in this year, and we all know who some ---+ what they've said publicly.
They're seeing ---+ so that's basically the market as we see it.
The market is ---+ it's big, chunky stuff; it can tend to delay because you've got big airport authorities making decisions and then their sites aren't ready.
So we still think it's a great overall market.
There's a lot of sockets out there.
The regulations are requiring the adoption to higher levels of detection.
So then it just becomes a matter of how long does it take for them ---+ the different airports to pop in and lay out their demand.
The US has been a little bit of a disappointment.
It was down a little bit this quarter.
This year we're expecting it to be down a little bit from last year.
But we do think overall, as we look to that and as we talk with the TSA and such, that there is ---+ it should be stabilizing here.
But again, in this year, we do think it's going to be a little bit of a headwind for us.
You talked about, as originally with Rapid DNA, we still have some very high hopes there.
The bills are making their way through the governmental bodies for the regulatory.
We think the testing is ---+ we'll start to hear about the testing here pretty soon from the FBI.
We're still hanging on with that, that that's going to be an opportunity.
We've already made all the investments, so it's not like we're worried about any write-downs or anything there.
But we're ready.
As that market develops, we will turn it on.
So I think that's pretty much where we are with it.
It's a bit of a perfect storm here with security this quarter.
This year's not looking so great.
But the good news is what's really coming in, the things that we control and the acceleration in our direct ultrasound are by far best mix of products.
It's going to start to really overtake a lot of other issues, and really that's where we see the big value creation.
And our medical imaging business, it's a big part of our business and it's in very good shape and you see it delivering.
Absolutely.
Great.
Thank you, <UNK>.
Appreciate it.
Thanks, <UNK>.
Hi, thanks for taking the question.
You just mentioned on Rapid DNA, you mentioned these bills and testing results.
Any indication on when or a time line for this.
We've struggled with timing, with government decisions like that.
They tend to ---+ the one thing we learned is they tend to delay more than you'd expect.
It's kind of hard to call, other than indications or the FBI's happy with the products.
There's a lot of support for it, and they do have to get through their formal process of indication ---+ of indicating certification.
And then secondary to that, for the US market for law enforcement to really take off, there are the Rapid DNA X that need to get through Congress.
And again, there, a lot of positive support for it.
Big backlog of DNA kits that need to be tested, but lot of reasons for it to happen.
But very hard to call timing on it.
We're positioned for it as it starts to develop.
Okay.
And again, on Rapid DNA, would you expect steady or would you expect some big leap in growth, like when it does come through.
It's anybody's, guess first of all.
Whenever there's a high risk, high potential upside business ---+ product like this, it could delay.
Something could always happen that impacts the adoption of the market there.
So far, it's really been fed only by sales to various military agencies that are using the product overseas with groups like special forces and such.
The big opportunity is, if and when it gets through the hurdles for regular law enforcement, again, it's just almost impossible to say when that happens.
And there's always a risk that something comes along and it doesn't happen.
We recognize that.
On medical imaging.
No, there's no question; we feel like the medical imaging market is stable now and starting to tip upward a little.
We hear certainly from our customers, we look out at the big OEMs who we generally sell through, that the hospital CEOs, CFOs are actively replacing products as they get older.
They know they need to invest in infrastructure.
So we think the US has stabilized, and it's moving toward a more normal type of expectation of procedures driving demand for equipment.
Europe has remained fairly stable, but Europe, as you know is still ---+ it's going to bill be impacted or challenged by the euro.
I think we're going to ---+ depending on where the dollar goes, that's been a bit of an issue.
That's kind of settled in and annualized.
China has slowed growth, but China is still a big market and it's still growing, especially in more of the mid-segment of the technologies.
We're working with many of those companies that we think are going to be winners in China to address those middle performance levels.
Thank you.
The next question comes from Robert Ferris with Harvey Partners.
Hi, <UNK>, it's <UNK>my for Rob.
Hi, guys.
Hi, question.
Just can you go over the opportunity at the checkpoint, which it's not really a this-year story.
But it just seems like a big story and really not ---+ it seems like it's almost inevitable that it's going to happen at some point.
Just want to understand that opportunity.
And also just in security in general, obviously disappointing near term, but also that seems like an inevitable long-term story.
Maybe just talk about ---+ I assume you guys aren't losing share because it seems like everyone's struggling, but at some point, the replacement becomes that much stronger when it happens.
Those are great questions, and I would never use the word inevitable personally, though I like it.
It sounds great.
We certainly think more positive right now than we ever did about automation and CT at the checkpoint.
We've published that ---+ and actually at [skip hole] and in London's Luten Airport, we've published that with our technology using automation and CT at the checkpoint, that we're able to more than double the throughput, which means ---+ that means a lot as far as efficiency of getting a better service to the traveling public and a safer service.
We also think the US is now much more interested in this kind of technology.
We see much more global interest in starting to see this start to be adopted.
We're in a great position with it.
We think we're the only ones that really have a viable product.
When that happens, there's more people who jump in.
We know there's going to be other big players who want to be in this market, and we'll look and make overall decisions on whether ---+ how much we want to do ourselves there or how much we might want to team with somebody; maybe some incumbents in some of these spaces where it makes sense to also take advantage of where there's incumbents that will help us draw our technology and take advantage of this market as it develops.
So the bottom line is we're bullish on it that there's ---+ again, I wouldn't say inevitable, but we think that now's the best ever as far as interest in that space.
And we think we'll start to see some development over the next couple years.
And just ---+
On checked baggage, you asked about checked baggage, again, the demand is there.
It's developing.
The sockets need to be upgraded.
They need to go to higher levels of technology.
It's a competitive market.
I can't say that we're going to have more or less share of that market as it develops.
I can say, we think we're well positioned and our technology is outstanding.
We do the traditional bedrock rotating CT, which is the fundamentals of computer tomography.
Certainly other technologies might get some headway into some of these areas.
We expect a lot of competition where there's a lot of business, but those markets are going to develop.
There's going to be demand for it, and we think we're in a good position for it.
And just in terms of market opportunity, is it like 7,000 lanes at ---+ what's the ASP, just paint the market.
I've said publicly that we think it's in that late neighborhood of ---+ if you were to look at the total potential market, that there's somewhere in the neighborhood of 6,000 to 7,000, maybe 8,000 lanes.
It's anybody's guess as to what percentage of those would go to full automation.
I've said in the past, the end-user pricing in that space, that's somewhere around $200,000 was kind of the expectation for end-user selling price for a product that we think would be compelling in that market, in that space.
Thanks a lot, <UNK>.
Well, thank you, everybody.
Thanks for your interest in Analogic and I'll invite you to call in again in June when we review our third-quarter FY16 results.
Thanks again.
Have a good evening.
| 2016_ALOG |
2016 | KELYA | KELYA
#Thank you, <UNK>.
Good morning, everyone.
Welcome to Kelly Services' 2016 first-quarter conference call.
With me on today's call is <UNK> <UNK>, our CFO; and <UNK> <UNK>, our COO.
Let me remind you that any comments made during this call, including the Q&A, may include forward-looking statements about our expectations for future performance.
Actual results could differ materially from those suggested by our comments and we have no obligation to update the statements made on this call.
Please refer to our SEC filings for a description of the risk factors that could influence the Company's actual future performance.
Before we look at Q1 results, let me note as we announced in our press release earlier this morning that Kelly's Board of Directors has declared a 50% cash dividend increase for our stockholders.
We are very pleased that our strong sustained operating results in 2015 have given us the ability to deliver this increase and to enhance shareholder value.
As we look at our first-quarter 2016 results, let me point out that the year-over-year comparisons are represented in constant currency due to ongoing volatility in foreign currency exchange rates, with the exception of our year-over-year earnings from operations comparisons, which are represented in nominal currency.
As additional resource to help you navigate our Q1 results, we have once again published a slide deck on the investor relations page of our public website summarizing our key financial performance indicators.
Now turning to Kelly's first-quarter results.
I'm pleased to report that Kelly delivered solid year-over-year growth on both the top and bottom lines.
Revenue for the quarter was $1.3 billion, up roughly 5% year over year.
We achieved earnings from operations of $15 million for the quarter, a 22% increase compared to the $12 million delivered in the first quarter last year.
Kelly's first-quarter earnings from continuing operations in nominal currency were $0.29 per share compared to earnings of $0.10 per share for the same period last year.
Without the favorable impact of work opportunity credits, we grew year-over-year earnings per share by more than 100% in the first quarter.
All told, we are pleased with Kelly's ability to deliver solid increases in revenue and earnings for the quarter.
Now let's take a closer look at the performance in each of our business segments, starting with the Americas.
Let me point out that all of today's comparisons to Americas' Q4 revenue will exclude the impact of the 53rd week of operations we had last quarter.
Americas staffing had a strong first quarter, with year-over-year revenue growth of 3% and earnings growth of 17% compared to the same period last year, leading to incremental leverage of 56%.
In Americas commercial, revenue was up 3% year over year for the quarter, an improvement from the 1% decrease we reported last quarter.
Americas PT revenue for the first quarter grew 2% year over year, consistent with the 2% growth we reported in the fourth quarter.
As has been our practice on our earnings call, we'll separately review the result of two service delivery models in our Americas staffing operations.
In the account service through our local US branch network, commercial staffing revenue was up 7% year over year in the first quarter compared to the 3% increase we reported last quarter.
Kelly Educational Staffing continues to report strong growth, with a 22% year-over-year revenue increase this quarter.
Excluding KES, Q1 commercial revenue in our US branch network increased 4% year over year as compared to flat revenue growth we reported last quarter.
In our branch network PT business, revenue increased 11% compared to the same period last year.
We are pleased with the continued double-digit growth in this segment.
Looking at our centrally delivered large customer model, commercial revenue decreased 3% year over year in the first quarter, a significant improvement from the 10% decline we reported last quarter.
This improvement was driven by an increased demand in a number of accounts outside of the natural resources vertical, coupled with the anniversary of our decision to exit several customer accounts due to pricing discipline.
In our centralized PT business, Q1 revenue was flat with last year, an improvement from the 2% decline we reported last quarter.
Looking more closely at our core PT specialties in the Americas, growth was once again led by our finance and segment specialties, both of which delivered nice year-over-year revenue improvements.
Perm fees in the Americas were up 24% in the first quarter compared to the same period last year, tripling the 8% growth we reported last quarter.
Commercial fees were up 4% for the first quarter, while PT perm fees delivered a healthy 43% increase year over year.
Americas Q1 gross profit dollars increased 6% year over year and our GP rate was 16.2%, up 60 basis points from a year ago.
The improved rate is due to effective management of our temporary employee payroll tax and benefits cost, coupled with the impact of the increased perm fee revenue.
These were somewhat offset by unfavorable customer mix and higher workers compensation costs compared to last year.
Americas expenses for the first quarter were up 4% year over year.
The region delivered a strong 56% leverage in the first quarter and we will continue to monitor and adjust cost as necessary.
All told, Americas delivered $27 million of operating profit this quarter and again, this is 17% growth compared to last year.
We are pleased with this segment's strong start in 2016.
Now let's turn to our staffing operations outside the Americas, starting with EMEA, where I'm pleased to report the EMEA region delivered a significant improvement in first-quarter operating profit.
Revenue in EMEA was up 4% in the first quarter compared to last year.
This compares to a 6% increase in revenue, excluding the 53rd week we reported last quarter.
For the quarter, commercial revenue was up 3%, with solid growth in the majority of markets, partially offset by year-over-year declines in Russia and Switzerland.
PT revenue grew 7% year over year, primarily due to strong growth in Western Europe, partially offset by declines in the Nordics, where we are more exposed to the oil and gas industry.
Fee-based income for the quarter was up 5% year over year, with PT up 10% and commercial up 2%.
Americas GP rate for the first quarter was 14.9% compared to 15.2% for the same period last year.
The GP decline is primarily due to unfavorable customer and business mix, primarily in the UK.
Total expenses were down 5% as we continue to see the benefits from effective cost control and headquarters expense.
Netting it all out, we are pleased with EMEA's operating profit of $2 million compared to a loss of $200,000 last year.
We'll now turn to the first-quarter results for our APAC segment, where I'm pleased to report a 19% year-over-year increase in operating profit for the region.
Revenue for APAC grew 4% year over year in the first quarter, driven by commercial.
Temporary staffing growth continued to hold strong, and large accounts in Singapore, India, and Indonesia.
Perm fees declined by 8% compared to the prior year, an improvement over the 27% decline in Q4, primarily driven by stronger fee performance in Australia.
The GP rate of 16.9% was up 80 basis points ---+ was up 40 basis points over the same period last year, primarily the result of wage credits in Singapore, partially offset by declining perm fees and customer mix.
Total expenses were down 1% compared to the prior year as a result of continued cost control and productivity improvement.
The APAC region ended the quarter with an operating profit of $4.4 million, up $600,000 compared to the same period last year.
As you know, last month, we announced that Kelly Services and Temp Holdings are expanding our current joint venture to cover all of Asia and the Pacific.
The new joint venture, TS Kelly Asia Pacific, is expected to be the largest workforce solutions company in the Asia-Pacific region.
By expanding its scope from four geographies to 12, the new JV is positioned to be the leading player in the region's growing workforce solutions market.
Our core OCG entities in the APAC region are not included in this transaction.
Recruitment process outsourcing ---+ RPO ---+ and contingent workforce outsourcing ---+ CWO ---+ will not move to the JV and will continue to operate under the solo ownership of Kelly.
We will continue to invest in OCG's capabilities in APAC as we strengthen our role as the talent supply chain provider to multinational companies in the region.
<UNK> will provide further details about this transaction in his upcoming financial review and I'll provide additional color in my closing comments.
Now we'll turn from our staffing results to the performance of our outsourcing and consulting segment, OCG.
OCG delivered an operating profit of $5.4 million for the first quarter, a 90% increase over the same period last year.
For the quarter, revenue grew by 13% compared to last year, and gross profit increased by 20%.
The sales increase was driven mainly by growth in business process outsourcing ---+ BPO ---+ and contingent workforce outsourcing ---+ CWO.
BPO revenue grew 14% for the quarter and gross profit increased by 18% due mainly to strong results in our STEM business.
At CWO, revenue increased 13% for the quarter and gross profit increased 15% year over year.
And these results reflect growth in our program management fees as well as growth in our payroll process outsourcing business.
In addition to improved customer mix, the volume growth came from both existing and new customers.
Turning to our RPO practice, after several quarters of revenue decline, RPO revenue increased 2% year over year in the first quarter and gross profit increased by 31%.
The gross profit increase was primarily due to a shift in business mix.
Overall, OCG's gross profit rate was 25.1% for the quarter due to favorable customer and practice area mix, an increase over last year's rate of 23.8%.
Expenses in OCG were up 14% year over year on a 20% gross profit dollar increase, the increase in expenses due mainly to performance-based compensation, and servicing costs associated with the expansion of existing customer programs.
All told, OCG's operating profit of $5.4 million for the first quarter was up 90% from last year's operating profit.
We are pleased with the progress we're making in this important segment.
And now I'll turn the call over to <UNK>, who will cover our quarterly results for the entire Company.
Thank you, <UNK>.
Revenue totaled $1.3 billion, up 4.6% in constant currency compared to the first quarter last year.
And even as we anniversary the strengthening of the US dollar, which began in late 2014, our nominal currency revenue continues to be impacted by global currencies.
Although the affect's impact has moderated, it still had a 240-basis-points impact on our year-over-year reported revenue growth rate in Q1.
Now, consistent with <UNK>, the remainder of my year-over-year comments are represented in constant currency.
Staffing placement fees were up 7% year over year as the solid fee growth we saw in the Americas and a continued positive fee trend in EMEA in Q1 are partially offset by declines in APAC.
In constant currency, overall gross profit was up $17 million, nearly 8%.
Our gross profit rate was 17.3%, up 60 basis points when compared to the first quarter last year.
Our OCG rate reflects an improving GP rate in our US staffing business as a result of effective management of temporary employee payroll tax and benefit expenses, and to a lesser extent, improvement in perm fees coupled with an improving GP rate in our OCG business.
SG&A expenses were up 6.7% year over year.
Approximately half of the increase was related to one-time costs and unfavorable phasing of expenses for benefit programs that are a component of corporate expenses.
In our operating units, expense increase were in line with GP growth and leverage expectations.
Excluding the unfavorable impact of corporate benefit expenses, the level of expense growth is consistent with our Q1 guidance.
Q1 operating leverage is historically lower than other quarters, given the lower seasonal volume.
We'll continue to remain vigilant about expense control, and we'll manage expenses in line with GP growth for the full year.
Earnings from operation were $14.7 million in the first quarter compared with 2015 earnings of $12.1 million.
These results reflect a conversion rate or return on gross profit of 6.3% compared to 5.5% for Q1 2015, a healthy improvement year over year.
Income tax expense for the first quarter was $2.7 million compared to an income tax expense of $5.9 million reported in 2015.
The overall lower year-over-year quarterly tax expense is primarily driven by the work opportunity credit and improving results outside the US.
The work opportunity credit was reinstated at the end of 2015.
As a result, quarterly 2015 income tax expense did not reflect the impact of the work opportunity credit until the fourth quarter of last year.
Our first-quarter earnings per share reflected a $0.07 improvement related to reinstatement of the work opportunity credit.
And finally, diluted earnings per share for the first quarter of 2016 totaled $0.29 per share compared to $0.10 in 2015, up nearly 200%.
Now, as we look ahead to the rest of the year, as <UNK> mentioned, we announced that we are expanding our joint venture in APAC.
As a result, our APAC staffing operations will not be included in Kelly's consolidated financial results after the closing of the transaction.
In addition, a small portion of our APAC OCG business that was closely aligned with the staffing-based permanent placement business will also be transferred to the JV.
After the transaction is closed, Kelly 49% interest in TS Kelly Asia Pacific will be accounted for as an equity method investment and the related income from this investment will be reported on the income statement below earnings from operations.
Once the transaction is closed, our guidance will be updated to reflect the JV formation.
The guidance provided on today's call does not reflect the JV expansion.
For the second quarter, we expect constant currency revenue to be up 3% to 4%.
We expect the gross profit rate to be up 70 basis points to 90 basis points year over year.
And finally, we expect SG&A expense to be up 4% to 5%, which will keep us on track to deliver good full-year operating leverage.
For the full year, our expectations are in line with our last earnings call.
We expect revenue growth to be up 3.5% to 4.5%.
We expect the gross profit rate to be up 30 basis points to 50 basis points on a year-over-year basis.
And finally, we expect our SG&A expense to be up 3% to 4%.
The SG&A expense increase is in line with our expectation to deliver operating leverage, offset in part by expense to support growth areas of the business.
Our 2016 annual income tax rate is expected to be in the low 20% range, including the impact of the work opportunity credit.
And one other item of note as we look forward: the completion of the JV transaction will also likely result in a change in how we allocate resources and analyze performance, and may result in change to our segment reporting at that time.
Now, moving to the balance sheet, cash totaled $46 million compared to $42 million at year-end 2015.
Accounts receivable totaled $1.2 billion and increased 2.6% compared to year-end 2015.
Global DSO was 55 days, two days better than the same quarter last year, but up one day from Q4 2015 as a result of seasonal fluctuations.
Accounts payable and accrued payroll and related taxes totaled $715 million, up 6% compared to year-end 2015.
At quarter end, debt stood at $39 million, down $16 million from year-end 2015 and down $41 million from a year ago.
Debt total capital was 4.1%, down from 5.8% at year-end 2015.
In our cash flow, year to date, we generated $19 million of free cash flow compared to using $19 million of free cash flow last year.
The change was due mainly to lower growth in trade accounts receivable due in part to improved DSO as well as improving net earnings.
For more information on our performance, please review the first-quarter slide deck available on our website.
I'll now turn it back over to <UNK> for his concluding thoughts.
Thank you, <UNK>.
When we closed out 2015, we said that Kelly had set its sights on becoming an even more competitive, consultative, and profitable company.
I think today's quarterly report demonstrates that we are actively reshaping our business to make that vision a reality.
Our investments in higher-margin PT and OCG are yielding results, and we are delivering on a strategic plan that aligns with market trends and positions Kelly as a leader in the global workforce solutions market.
Accounts serviced through our US branch network ushered in the new year with strong sustained growth in our PT specialties as our PT sales and recruiting teams continued to excel in our new operating model, efficiently connecting our US customers with specialized talent.
And after a year of tough challenging headwinds, our centrally delivered account portfolio was building on signs of improved performance we saw at the end of 2015 and we'll continue to adjust our centralized account structure to respond to trends in this segment.
As existing large customers transition their PT business to a competitive source model, it creates new opportunities in Kelly's talent supply chain management strategy.
And we are responding to this market shift by aggressively pursuing growth in our CWO, RPO, and BPO businesses.
In our international segments, we are pleased with the EMEA region's continued ability to deliver effective cost control while driving solid revenue growth, yielding strong improvements in operating earnings.
And in APAC, our expanded joint venture is a step forward in the evolution of Kelly's strategy for the region.
Not only will we be forming the largest workforce solutions company in Asia-Pacific, the JV provides us with accelerated growth opportunities and enhanced competitive positioning across the dynamic region.
As we mentioned when we first announced the JV, as a sign of our commitment to ongoing growth, we are also forming a joint cooperation committee consisting of executives from both Kelly Services and Temp Holdings to collaborate on future initiatives.
Again, I will note that OCG's CWO and RPO practices are not included in the JV.
OCG is already recognized as a leader in the outsourcing and consulting space in APAC and we will accelerate our investments in OCG's capability in the region as we strengthen our role as a talent supply chain provider to multinational companies.
But of course, OCG's growth is not limited to APAC.
Around the world, our OCG segment continues to deliver solid performance as more clients adopt our talent supply chain management approach.
In our RPO practice, we were pleased to see signs of improved revenue and profitability in the quarter.
Our BPO and CWO specialties are continuing to deliver solid results as existing accounts expand and new customers enter the portfolio.
And we expect to see continued double digit GP growth in OCG.
As a whole, we are pleased with Kelly's first-quarter performance and our sustained revenue and earnings growth.
Our new operating models are firmly in place and we are continually rebalancing our resources to align with our goals, intentionally designing a workforce that is fully equipped to drive increased revenue and GP for the Company.
With a strategy for growth guiding us and a proven ability to execute that strategy, we are moving forward.
Our sights are set on capturing the opportunities in the dynamic workforce solutions market and delivering with the excellence and integrity for which Kelly has always been known.
<UNK> and I will now be happy to answer your questions, along with <UNK> <UNK>, our COO.
<UNK>, the call can now be opened.
So what I would tell you is with some rare exceptions that come from specific industries, like oil and gas, when I look at our large customers, I think ---+ I view what our discussions with them and where they are going is what I would call stable.
They are not looking into ---+ they don't have large projects that they are telling us looking forward: get ready, we are adding 4,000 people.
And they don't have the opposite, which is: get ready, we are going to get rid of 1,000 people.
It's been a pretty steady environment.
And with those large customers, they would also tell you that their cadence in moving towards solutions continues.
And so we continue to see high activity around bid and proposal activity for things like our MSP services in OCG, RPO, and the like.
So they continue to move their business more towards the solution and spend.
On the smaller customer base, they are pretty healthy right now.
They continue ---+ we continue to see growth opportunities and good demand.
The issue that's going to come in there is in the employment side of the market, we are starting to see that it's getting ---+ recruiting is getting tighter, particularly when you get into the more credentialed areas, we see that it's getting harder to fill those orders and more expensive to try to find the people.
But even in some of the more entry-level blue-collar kinds of things, it's getting harder now to fill those orders as well.
, which you would expect as the unemployment rate has been coming down.
So you've got that ---+ we are at that time in the marketplace where it's starting to get harder to find people.
But the demand is I would call steady.
As the ---+ if you're asking about what we ---+ often the traditional red flags going, we are not there yet, if that's what you're asking, <UNK>.
What I would say is that's what we've been doing over the last year is really changing.
So there's a couple things going on inside those large centers, okay.
One is the volatility is always going to be there, and with our oil and gas customers, there's just volatility in the demand.
So we are not losing market share, but things are going on in that perspective.
As I said earlier, we continue to see this cadence from master vendor to vendor-neutral solutions.
That gets at the core of what you're talking about, which is we have to get better at delivering on the vendor-neutral space because more of the ---+ especially more of the PT business in that area is going to not come through master vendor contracts, but that move is going to continue.
That behooves us to get much more efficient in the way that we manage and there was going to be always in those large customers, there's margin pressure.
And so what I would tell you is we are continuing to shift our model there as we move forward.
But the volatility will not go away.
And that volatility can go both ways.
If we get $70 barrel of oil price, you'll see that volatility move in a very different way.
You mean for the remaining of the year.
Yes, I mean, it should be.
I mean, difficult always to know what is next, but I think now we are at about 200 basis points, 250 basis points impact.
The main driver now is probably more like Latin America a little bit year on year, but more now APAC.
So yes, I would say something around 200 basis points, 250 basis points should be what we could expect for the remaining of the year.
Great.
Thank you, <UNK>.
Thank you all on the call.
| 2016_KELYA |
2018 | RAVN | RAVN
#Thank you, <UNK>.
Good morning, and thank you for joining us today.
Fiscal year 2019 is off to a great start for Raven Industries, and we're pleased with the financial performance of all 3 operating divisions.
Organic growth continues on top of the significant gains made in the prior year, driven by market share gains in our core markets.
Profitability across all 3 operating divisions is up versus the prior year.
Adjusting for all the unusual onetime items, which <UNK> will elaborate in more detail later in the call, we grew pretax profits more than 20% year-over-year.
In addition to a strong financial performance, we were also able to enhance our focus on our core markets by successfully divesting 2 noncore assets, our minority interest in Site-Specific Technology and Aerostar's client private business, with each generating a gain on sale.
While we are quite pleased with our financial performance in the first quarter, we are even more pleased with the balance we continue to maintain between the short and the long term.
During the first quarter, we grew sales and profits while also continuing to invest in key projects for sustained long-term growth.
In Applied Technology, we opened our new Latin American headquarters in Brazil during the first quarter.
Momentum in this key geographic region is accelerating.
We're building out our network of distributors and developing relationships with key industry participants.
We are establishing a world-class sales and service center to provide consistent customer value in that region.
Additionally, we continue to fully invest in R&D in Applied Technology to drive next-generation innovations.
In Engineered Films, we are on schedule with the planned manufacturing capacity expansion, a project we are calling Line 15.
Line 15 will be a new state-of-the-art blown film extrusion line, capable of producing 16 million pounds of film per year.
Line 15 will further enhance our capabilities to service customers in the industrial and geomembrane markets.
The division's market share capture and demand from current customers required additional manufacturing capacity be put in place.
In Aerostar, we continue to focus on our stratospheric balloon platform, as evidenced by the divestiture of our client private business in the first quarter.
Interest in and sales of our radar products and services is also growing.
Investment in R&D to build upon our industry-leading capabilities to advance access to the stratosphere is leading to expanded interests with our key customer partners.
The division is successfully building a market for its unique stratospheric balloon technology, and we are really excited about the future of this platform.
And for all of Raven, we are investing heavily in our next-generation ERP platform.
We started with Engineered Films and expect to go live at the end of this year.
This is a key investment we are making to improve the nimbleness of the organization, the efficiency of operations and the long-term scalability of the enterprise.
This year, we will spend approximately $4 million to implement Phase 1 of this project and launch Engineered Films.
The project team is heavily engaged, and this gives us a lot of confidence.
Each division performed well in the first quarter.
We'll take a closer look at each, starting with Applied Technology.
The division did a very good job sustaining the significant growth achieved in the prior year, especially given the lack of any meaningful improvement in commodity prices.
At the same time, division profit margin increased significantly year-over-year, driven primarily by lower warranty expense and favorable legal recoveries.
The division continues to invest heavily in R&D efforts and the pipeline development of new products.
Additionally, ATD made a significant investment to go all-in in Brazil to leverage its proven technology portfolio to a new region in region sales and customer support center.
The division's Latin America general manager was previously leading the global sales function for the division.
He has robust knowledge of our precision ag technology portfolio and is a champion of customer service.
Turning to Engineered Films.
The division's strong financial performance continues.
Sales growth and profit margin expansion continue as a result of market share gains, enhancements to the division's geomembrane market capabilities and improved energy market fundamentals.
On an organic basis, excluding the impact of hurricane recovery sales, Engineered Films grew the top line more than 5% year-over-year in the first quarter.
At the same time, division profit margins expanded to 22%.
The division has done a tremendous job in driving incremental margins on volume growth.
Through excellent operational discipline, the division is effectively managing the price and raw material dynamics in the marketplace, integrating the CLI acquisition and continuing to innovate to capture market share.
Lastly, for Aerostar, the division had fantastic results in the first quarter.
Adjusting for the sale of the client private business, sales were up more than 30% year-over-year for the division.
<UNK>th lighter-than-air and Radar product lines achieved strong growth year-over-year.
Fixed cost leverage from the improved sales volumes, combined with continued expense discipline and favorable sales mix, resulted in the division doubling division profit versus the prior year.
The financial benefits of focusing on the core are clearly paying off for the division.
With that, I'd like to turn the call over to <UNK> for a more detailed review of our financials.
Thanks, <UNK>.
We're off to a tremendous start to the year.
What a terrific start it's been.
I couldn't be more proud of the team members of Raven Industries.
They're leveraging our dimension for competition, service, quality, innovation and peak performance to drive results across the enterprise.
Looking forward, we're excited about the path we're on.
We have the right strategy, we have the right vision and our business model is proven.
We intentionally serve a diverse group of markets with attractive long-term growth potential, and we're proactively investing in our capabilities to continue to capture opportunities and achieve long-term sustainable growth.
As I step back and look at the underlying fundamentals of the company's 3 operating divisions, I'm very proud of the market position each division has created and the investments they are making to further strengthen their positions in the future.
For Applied Technology, the industry continues to endure a sustained downturn in commodity grain prices and, correspondingly, farmer incomes.
At this point in the year, we don't see end market conditions improving any time soon.
However, our strategy is not to wait for end market conditions to improve, rather it's to invest in the development of new products and next-generation capabilities to further enhance our product portfolio and the value it provides to our core customers, the ag retailers.
We will also look to aggressively grow in international markets, and we will invest in the resources required to drive success, particularly in Brazil.
Our pipeline of potential acquisition targets continues to grow, and we're continuously cultivating and generating new ideas.
Market multiples are at the upper end of the traditional range, but we still feel there's deals to be done while maintaining prudence.
All things considered, Applied Technology is in a strong market position and investing in the right area to generate both long-term growth and improved division profit margins.
For Engineered Films, the division continues to capitalize on past investments and successfully drive organic growth and division profit margin expansion.
The division has strong market positions in the niche markets they serve with a robust portfolio of value-added specialty films.
Customers associate Raven with premium quality and performance.
We will continue to invest in the division to further enhance our specialty product and service offerings through new unique manufacturing capabilities, research and development on new products and acquisition.
Regarding last year's acquisition of CLI, the integration has gone very well.
We're clearly in a stronger position today to capitalize on the growth opportunities present in the geomembrane market as a result of making this strategic acquisition.
From a market perspective, we continue to see growth opportunities in each, but particularly within the industrial and geomembrane markets.
We have seen oil prices advance into the low $70s recently.
If sustained, we would expect this to favorably impact sales growth in this market too.
With respect to Aerostar, we've moved beyond optimism to confidence.
The strategic shift that we've implemented over the last 2 years back to our core stratospheric balloon platform and radar processing systems has heightened our focus and led to multiple successes in landing new customers.
We're very proud of the significant improvement in financial results the division has achieved, and we're investing in the right areas to continue to drive long-term profitable growth in this division.
The future is very bright for our stratospheric balloon platform, and the potential uses of our technology are garnering increased interest.
We are the industry pioneer and market leader with capabilities to make the stratosphere affordably accessible now.
In closing, the company is off a strong start to the year.
Underlying organic growth and consolidated net sales and operating income were approximately 5% and 20%, respectively.
Each of the divisions is well positioned in its markets, and we expect our positive momentum to continue.
With that, we'll take your questions.
Yes, <UNK>.
This is <UNK>.
So in the first quarter, we launched our Brazilian operations and headquarters, and obviously, we had some expenses associated with that.
We've also been busy hiring sales and service professionals in Brazil.
I think we're at 12 as of the end of Q1, and we're expecting to have 20 people in Brazil by the end of the fiscal year.
So we had several hundred thousand dollars of expenses associated with that in the first quarter.
Very little revenue impact from those resource adds at this point in time, but the momentum is building and we expect significant improvement in the growth trends in Brazil as a result of the investment.
Separately from that though, the Brazilian market's a very strong market for us, grew double digits in the first quarter, and a lot of that groundwork was laid in the prior year so we would expect sales momentum to continue to build through the year as these resources are in place and ramp up.
Well, included in that SG&A, obviously, is the back ---+ you have to back out the SDSU investment, and we also had Project Atlas in there for about $1 million in the first quarter.
And depending on how you're looking at the financials, R&D might be included in the SG&A as well.
We've ramped up our R&D spend, investment, particularly within Applied Technology, in the first quarter and we expect that to continue.
And in terms of our underlying growth rates, we would expect, over the long term, 10% compound annual growth rate in our revenues and get some leverage through the balance ---+ through the income statement and grow our bottom line a little bit faster than that.
<UNK>, this is Dan.
Thanks for the question.
And we intend to grow ATD throughout this year.
Despite the market conditions being what they are and the tough comps, we've got new products in the pipeline and new products that were introduced last year that we expect are going to help us grow.
We've got ---+ we are investing in Brazil, and we do expect some growth out of Brazil this coming year, the year that we're in.
So while it's still tough out there, we're not expecting and planning for a flat performance out of ATD, not at the revenue line and particularly not at the division profit line.
We expect we can grow division profits this year.
Sure, thanks.
Thanks for your questions, <UNK>, and thanks to all of you who dialed in.
We are off to a great start.
The underlying business is performing exceptionally well.
And we do have ---+ we have strong expectations for this year and the out-years, and I just feel great about the path the company's on.
We entered the year well positioned, and we're executing on those opportunities in front of us.
So we look forward to updating you again in August.
Thanks.
| 2018_RAVN |
2016 | KEYS | KEYS
#We talked about a $25-million cost reduction program that was announced at the end of Q2 last year, and we said that was a two-year program, and we are materially ---+ it's not totally complete, but we are well on our way to having fully realized that $25 million worth of savings.
And then there was another $20 million of cost-related synergies that come out from Anite, and it was those synergies that are pretty heavily back-end loaded.
So we're very much on track with Anite to deliver those synergies, but given some of the work that had to be done, that was going to be back-end loaded.
So that was a $20-million run rate at the two-year anniversary of the Anite acquisition.
Both are on track.
Well, we cannot make any specific comments with regards to M&A.
The one big question that was asked before was gee, Keysight is a good operator, as you have seen what we have done in Agilent.
And the question was can we also do that effectively with M&A on inorganic activities.
I think we've shown that we can integrate companies very, very effectively.
We could retain the key management people, and we could generate orders and accretion.
Of course, we would not do an acquisition if we couldn't get to at least 15% return on invested capital.
I think this is another proof point, beside some of the smaller proof points that we don't talk about, that shows that we can be very effective at creating value through organic or inorganic activities.
Yes, <UNK>, this is <UNK> <UNK>; I will take that.
Overall, the communications ecosystem is soft.
If we look at it from a manufacturing capacity standpoint, I think there's plenty of capacity there for devices.
The same thing is true, a lot of digestion that had to happen in the supply chain, and then certainly we've ---+ virtually every week, every month you see more consolidation and restructuring, particularly in the chipset area.
So those are the factors that are keeping it on the soft side.
Really on more of a positive note, I have seen a very disciplined capital allocation model coming from most companies, where a lot lower emphasis is being put, you might call it a muted investment in 4G and LTE, and more emphasis and increased investment in 5G, as well as high-performance wireless LAN wireless technologies.
The back end of the ecosystem is very strong and healthy data centers, optical network connections.
Other things, so just R&D is strong across the board, good strength in China, and we've great partnerships with key players all around the world throughout the entire ecosystem.
And that's leading to a lot of very strategic design wins for us.
I would just add that if you look at where we are now versus where we were at this time it in the 4G cycle, we are much better positioned than we were before.
We are much more focused at working to bring the right solutions to market.
We're confident in our progress, and our operating model is intact and we know how to turn that into cash.
<UNK>, this is <UNK> again.
We're really still in the early days.
This is prestandard phase of 5G.
Most of the engagements are very strategic, working with customers, trying to understand their most challenging problems associated with the new millimeter-wave frequency.
So it's going to be ---+ we really thought 5G was going to hit mainstream in 2019, 2020.
We've definitely seen that accelerate.
I think it could start to become more significant for us in maybe 2018.
But between now and then, it's more about strategic wins and alignment with key customers, so you're viewed as a solution provider of choice.
On the one hand, you're correct; the warranty doesn't reverse, but it was a one-time entry to adjust the overall size of our warranty accrual, which is now lower because of our improving quality of our instruments.
So just generally speaking, our warranty costs are less than expected.
And so you will see a benefit going forward, but there was a one-time benefit in Q3 to adjust the size of the warranty liability.
Going forward, as we look forward to next quarter, so the sequential deterioration is really due to that.
We believe our gross margin performance continues to be very strong.
We continued to see a larger and larger portion of our revenue come from R&D solutions and from software solutions, which tend to have higher gross margin.
So we're very pleased with the trajectory of gross margins within the business.
The core communications orders were flat for the quarter, and I'll let <UNK> talk a little bit about the trends.
Revenue was flat within communications for the quarter, not orders.
I think we've covered a lot of the trends.
We have talked about the overall market remaining soft.
I highlighted a few areas of supply chain issues, consolidation, restructuring.
I think the big strength we're seeing is in the R&D phase.
It's all about new technologies, very selective investments by customers in various 5G technologies, high-performance wireless LAN technologies, data center technologies, optical technologies.
So, those are the areas where we are seeing strength.
There is big investment in the China chipset companies, and we've got partnerships with a lot of those companies that ended up playing into the communications ecosystem, as well.
You asked ---+ the second part of your question was about semi conductor, and I think we're really seeing strength in a couple of areas there.
First of all, there's a broad effort within China to go after the semi-conductor markets spaces, big investments that are happening in China that are driving strength in our parametric test business and across some of our other solutions that fill into semi conductor, as well.
And then just generally speaking, across the foundries, there is a migration to smaller and smaller chip architectures.
As they migrate to those chip architectures, they can drive demand for our products, as well.
We have sized our software business.
About a year ago it was north of $300 million prior to the acquisition of Anite, and Anite added an additional $100 million to our software business.
So that gives you an idea of the portion of our business that is coming from software.
The only thing we've said publicly about the proportion of our manufacturing versus R&D business is that we have jumped the threshold where R&D is now the larger portion of our business, greater than 50% and we did that a little over a year ago, as well.
It continued to make progress in that area, so that it doesn't move terribly quickly but we continue to migrate more and more toward software solutions.
I would also note that the Anite business, which we acquired a year ago this week actually, was almost exclusively sold into R&D-type application.
So that helped to drive that balance, as well.
And Charles, our overall strategy is really played out in the numbers <UNK> was just talking about.
Our overall strategy is to move from hardware-centric products to software-centric solutions.
So in doing that, we're seeing the percentage of our software business.
We'll be driving that up further and further.
Second, we'll be moving to more solutions, which includes not only software, but includes a lot of services from John Page's groups.
But on top of that we are migrating and migrating as quickly as we can from manufacturing to R&D.
That is something that we stated back as early as 2013, and we have made great progress on that where R&D is our number one market, as <UNK> had pointed out.
This is <UNK>.
Definitely we have had one of our successes with Anite, the leverage of the sales channel that we have in Keysight and driving some of the key products into broader customer sets.
Aerospace defense is one, but it's more generic than this.
Anite came with a nice portfolio of solutions.
One is the channel emulation solution where they are leading, in fact, and we have been able to start purporting this to a number of customers as we go.
And clearly it has helped.
But more work is happening and I'm pretty bullish for this type of technology going forward.
Let me address some of those questions.
First of all, with regard to the back half of calendar year 2016 and beyond, obviously, we only provide guidance one quarter out, and so you can see what we provided there.
If you take a look at the mid-point of our guidance, that implies about a 3% decline in our total business for the year, which we actually think is better than what the total market is achieving.
We think the total market this year was down mid-single digits.
As we look forward, we talked about the softness we're seeing in communications and what we're seeing in Europe.
With regard to aerospace defense, we're relatively ---+ we expect to see normal cyclicality with regard to the aerospace defense business in the US, which tends to peak around government fiscal year end in September.
We have seen some softness in our offshore aerospace defense clients.
I think over the longer term, I'd point back to the next-generation technologies where we are seeing continued and rapid growth.
We believe we're well-positioned to win in those markets, and those are the markets that are going to drive overall growth in the business when the broader market recovers.
So we believe we're well-positioned and we have an operating model that enables us to deliver strong profitability in a variety of economic conditions that's evidenced by the 20% operating margins that we developed this quarter.
I think our Op Ex trends are more or less in line.
We basically have been maintaining our R&D investment on a dollars basis.
You can see, as our top line has been moving around, our R&D investments have been pretty stable, and that's intent with us maintaining our investments for the future, and basically not over-reacting to short-term perturbations in our market but making sure that we're making the investments that we need to make to stride growth in the future.
And similarly on the SG&A lines, I think you shouldn't expect any material change here.
Hi <UNK>.
You were very astute; that's exactly what we saw.
If you look at our forecast, and we do a monthly forecast, actually we do a roll up every couple of weeks.
But if you take a look at the forecast month by month for the sales organization, we were on the first month of the quarter on the second month of the quarter and off by $20 million in July.
So that really adds up to what we're seeing.
It's not all Brexit.
We see Russia and Russia being weak in aerospace defense and a general malaise in Europe.
And as I did point out earlier, every region grew in orders with the exception of Europe.
We feel very good about our business and our competitive position, but we do deal with the economic situations that do exist around the world.
But this will not stop us from investing and making sure that we're leading for the next wave of 5G.
I'm going to ask <UNK> to see if he wants to make any other comments about Europe.
On Europe, I think <UNK> did most of the summary.
Clearly it has ---+ we have seen the impact in July, and this came after the announcement of Brexit, but also Russia was weaker.
Across the board in the rest of the world, we must say that we grew all this in all the other regions, and clearly, America was stable or at steady aerospace defense from prime contractors on major programs that we're winning, so America is stable.
Japan was steady with broad industries good successes, and then Asia was strong.
We had very solid growth of our business in China, for instance, on the semiconductor solutions that <UNK> mentioned earlier, but also optical and 5G.
So that's a broader perspective of what's happened, and I believe we are very well-positioned in the market with our solutions, especially for our next-generation technologies.
We don't comment on markets further out, but I just will make a couple of qualitative comments.
Obviously, you remember everything in 2009, and then we saw a big bounce back of over 20% growth in 2010 and 2011.
And we're not in that situation at all.
We do see at times in R&D where there is a pent-up demand where business is soft and people are holding off on the capital equipment, and capital equipment can pop back a bit.
But we do not forecast that further out.
But as you know, our markets are cyclical and we have seen them come back at times.
I do think on the manufacturing side that the actual cost per test has reduced, as we have all talked about for manufacturing smartphones.
We saw that in 2011 ---+ 2012.
We walked away from a major supplier at that point, and it turned out to be a pretty smart move that was a very profitable deal for us.
And I think in the future it would have been slightly different.
But as far as when the market will bounce back, we do not predict that.
<UNK>, are there any other comments that you'd like to add.
Yes, I would just point you back to some of the numbers that we've put out there, right, that we think the market in 2016 is down mid-single digits.
We don't ---+ we're not going to call and uptick until we see it.
That being said, as we look forward, where we see the softness in coms, the softness in Europe.
We're incorporating that into our market outlook, but it's hard to know when things are going to turn around.
We've built a business model that is designed to deliver strong profitability, whether ---+ recognizing that our markets move in a plus to minus 10% band.
And you see that in the profitability that we're generating today.
And looking over the long term, we do see pockets of the market focused around next-generation technologies that are growing very well.
5G, the new semiconductor processes,100-gigabit, looking forward to 400 gigabit.
And we really like the way we are positioned in those next-generation technologies.
So when markets recover, again, we like the hand we have and we like where we're positioned.
The warranty benefit was spread across the other businesses, all businesses, and no one business disproportionately benefited from that.
I think you're seeing basically the favorable mix of products that was sold in that business on a business that had a pretty strong revenue performance for the quarter, as well.
If you look at historical financials for that business, which are available on the website, you'll see there is some volatility around profits, but there been several quarters over the past couple of years where the profits have ticked up to this kind of level, driven by top-line, driven by mix.
<UNK>, I'd just like to make one last comment.
You can see our operating margin of 20% at this revenue level.
I think we have done a pretty decent job of managing to a solid operating model.
And if the revenue goes up, our incrementals look pretty darn good.
And as we've commented that they're 40% when our growth rate is above 40%.
4%.
Thank you, Christine, and thank you all for joining us today.
We look forward to seeing many of you at the upcoming investor conferences that I mentioned at the top of the call, and I wish you all a good day.
Thank you.
| 2016_KEYS |
2016 | JLL | JLL
#Thanks, <UNK>.
Thank you, Operator.
With no further questions, we will end today's call.
Thanks to everyone for participating and for your continued interest in JLL.
And we look forward to speaking with you again at the end of the first quarter.
Have a good day.
Thank you.
| 2016_JLL |
2018 | AEGN | AEGN
#Thank you, <UNK> and good morning to everyone joining us on the call today.
For those following along with the slides we posted this morning, let's start on Slide 3 of the presentation.
Aegion delivered first quarter adjusted EPS of $0.13, which was overall aligned with both The Street and our internal projections.
As we said in our call in March, the first quarter is typically a low period for construction activity in many parts of our business due to weather and a slower pace for working uses from customers at the start of the new fiscal year.
Weather conditions were more severe than what we've experienced in recent years and persisted for much of the quarter into early April.
This impacted our Infrastructure Solution segment the hardest, specifically our North America CIPP business, where we estimate the negative impact to be approximately $10 million in revenues and more than $3 million in adjusted operating income or $0.08 per share.
Offsetting this impact, we saw favorable results in both our Energy Services and corrosion protection segments and benefited from discrete tax items that lowered our adjusted effective tax rate for the quarter, which <UNK> will discuss more fully in a few minutes.
Our core markets remain intact as well.
North America wastewater rehabilitation orders remain strong.
And in the broader energy markets, improved oil prices provide additional tailwinds for our linings and coating businesses in Corrosion Protection.
We also secured new business in our Energy Services segment, where we are now embedded in 14 of the top 17 refineries in California and Washington.
These positive market forces contributed to an 8% year-over-year increase in our contract backlog ending March 31, excluding backlog for the large pipe corrugated installation project, which was substantially completed in 2017.
All in all, I'm pleased with our start for the year and feel good about our position as we head into our seasonally stronger quarters.
We remain confident in our outlook for adjusted EPS growth of more than 30% this year.
I'll review each of the segment results and outlook in a bit more detail, beginning with infrastructure solutions on Slide 4.
New orders in the first quarter declined 5%, primarily driven by the exit of our Fyfe North America structural contracting business.
Order intake in North America CIPP remains strong, and we saw an increase in both orders and revenues for our fusible PVC products, which is a positive indicator as we seek to further penetrate the North American pressure pipe market.
Backlog levels as of March 31st increased 10% from the prior year period driven by a 16% increase in our North America CIPP business.
Although part of this increase is due to weather-driven delays that reduced our revenue burn in the quarter, we are well-positioned as we seek to recover volumes for the remainder of the year.
Also in North America CIPP, our current crew count was up year-over-year as we continue to further expand our reach with underserved markets.
While the additional capacity was contributed to top line growth, we were unable to operate crews at full productivity due to approximately 10% loss of ---+ of lost installation footage from severe weather impacts.
This drove unfavorable margins due to the lower absorption of fixed costs, and was the main driver for a performance below our expectations.
The teams are working aggressively on volume recovery plans and our size and scale should help our efforts to offset these impacts later in the year.
The restructuring activities within our Fyfe North American and Australia operations are largely behind us, and results from those businesses improved significantly from prior year levels.
Our Denmark operations continue to be challenged, primarily with workable backlog.
But we feel good about the market potential and remain focused on creating an optimal business model to support our broader European CIPP strategy.
For the full year 2018, we are maintaining our infrastructure solutions segment outlook for revenue growth in the low to mid-single-digit range and operating margin improvement of 100 to 200 basis points over 2017 levels.
The team has work to do to recover from unfavorable first quarter impacts.
Additionally, we are experiencing a tighter labor market across North America, which we expect to become more challenging as we enter the strongest portion of the construction season in the upcoming months.
However, we have strong backlogs and are putting in place aggressive recovery plans to work towards achievement of our 2018 infrastructure solutions targets.
Shifting to corrosion protection on Slide 5.
Backlog as of March 31 increased 12% from the prior year, excluding the large deepwater project, driven primarily by the field joint coatings projects in the Middle East.
Project execution to-date has been strong and the timing for the projects is now expected to extend into late 2018 or early 2019, with minimal impact to overall 2018 operating income results.
New orders in the quarter were largely in line with the prior year, and we have line of sight to multiple international project opportunities within our industrial coatings and linings businesses to support second half performance.
In addition to the successful execution of the international field joint coating projects, improved performance in the cathodic protection business is a key catalyst for achieving our 2018 targets.
The first quarter is seasonally the weakest for this business, and this year was no different in regard.
However, we continue to see positive momentum in the North America business, following our 2017 restructuring efforts in Canada and the significant focus on operational and leadership improvements within the U.S. business.
These improvements resulted in nearly a 300 basis point increase in adjusted gross margins for the cathodic protection business year-over-year, despite lower volumes.
If we can sustain the positive momentum in operations, combined with additional top line growth, our cathodic protection business will deliver significant year-over-year improvement in the second half of 2018.
For the full year 2018 outlook.
We expect Corrosion Protection segment revenues to decline 10% to 15% reflecting the lost contribution from the deepwater project.
Excluding the project, revenues are projected to increase 15% to 20%.
Our projections now include Bayou results for the second quarter of 2018, which doesn't result in a meaningful change to our overall outlook.
The Bayou sales process remains intact, and we expect to complete a transition ---+ transaction by the end of the second quarter.
Adjusted operating margins are expected in the 3% to 4% range, based on improvements from our cathodic protection businesses and the successful execution of the international field joint coating projects.
Shifting to Energy Services on Slide 6.
Record quarterly new orders growth drove backlog at March 31 nearly 5% higher than the prior year-over-year period, despite the roll-off of approximately $8 million in revenues associated with long-term contracts up for renewal later this year.
The favorable growth was driven by a stronger-than-expected Q1 turnaround season and new project awards within the construction services segment.
The successful repositioning of this segment to serve the less volatile downstream markets, combined with exceptional performance from the team, continues to drive meaningful improvements in operating income contribution for Aegion.
For the full year, we still expect Energy Services segment to see middle single-digit revenue growth with operating margin improvement of 75 to 150 basis points.
We are encouraged by the strong performance to start the year but remain cautious on our outlook for turnaround activity in the back half of 2018.
That wraps the review of the markets and outlooks for each of the segments.
Despite the first quarter weakness in our Infrastructure Solutions segment, the strength of our diversified portfolio positions us well to deliver the significant improvement we are targeting in 2018.
There have been a number of leadership transitions in the organization over the last few years, and I'm very pleased to have in place tenured industry experts leading each of our platforms with the vision and leadership necessary to drive improvements, both this year and going forward as we advance our organic growth strategy.
I'm also excited to have recently named <UNK> Morse as our new CFO.
<UNK>'s significant industry and company knowledge, financial acumen and leadership position him well for this role.
I believe his strategic vision and aggressive focus on disciplined forecasting and execution will drive significant value as we look to strengthen our financial organization.
With that, I'm happy to turn the call over to <UNK> for his perspective on Q1 results and additional commentary for the remainder of 2018.
<UNK>.
Thank you, Chuck and good morning to everyone on the call.
Looking more at the first quarter's results.
Let's move to Slide 7.
Aegion delivered adjusted diluted earnings per share of $0.13 in the first quarter compared to $0.18 in Q1 '17.
Positive income drivers for the quarter included contributions from our international field joint coating projects within Corrosion Protection, higher Energy Services results and lower corporate spending as a result of ongoing cost reduction initiatives.
Additionally, we benefited from a lower adjusted effective tax rate of 2% compared to 22% in Q1 '17, driven by certain favorable tax items, including the impacts of employee stock incentive awards that vested during the quarter.
These favorable results were unable to overcome the impact of lower contributions from the large deepwater project within Corrosion Protection that benefited 2017 and the severe weather impacts within Infrastructure Solutions that Chuck discussed previously.
At the top line, revenues for the quarter were on par with Q1 '17, largely driven by increases within Energy Services that substantially mitigated the impact of lower revenues within Corrosion Protection.
However, adjusted gross margin performance was down year-over-year primarily due to weather and isolated project challenges in the Infrastructure Solutions platform.
Our adjusted operating expenses were largely flat with Q1 '17 at just over 16% of consolidated revenues.
Within this total, we saw lower operating spend in Infrastructure Solutions primarily due to restructuring savings, which were partly offset by an increase in operating expense in Energy Services due to increased spending to support turnaround activities and the refinery workforce transitions as well as the favorable impact during Q1 '17 of a legal reserve reversal.
With flat operating expenses, Aegion's total adjusted operating margin declined 180 basis points, primarily driven by the weaker infrastructure solutions results and lost contribution from the deepwater project.
Looking more closely at Infrastructure Solutions on Slide 8.
Revenues increased by 4% year-over-year or by nearly $6 million, primarily driven by higher international volumes in both our CIPP and Fyfe FRP businesses in Asia.
Additionally, we saw increased demand for our fusible PVC products, as we look to grow our position in the North America pressure pipe market.
Despite the weather impacts that hampered volumes in certain parts of the U.S. and Canada, revenues in our North America CIPP business were up due to additional crews added during the second and third quarters of 2017 to reach underserved regions.
Unfortunately, notwithstanding the top line growth, adjusted margin performance was disappointed ---+ disappointing, driven by more than 400 basis points adjusted gross margin decline in North America due to weather impacts, isolated project challenges in the Midwest and the benefit of favorable project closeouts in Q1 '17.
Our North America business is a key driver for results within the overall AGM portfolio.
But when volumes are impacted by whether or project challenges, the inability to cover fixed costs can significantly impact margins.
Fortunately, when volumes pick up, crews can realize significant efficiencies.
We are targeting this improvement for the remainder of the year as we move into seasonally higher production quarters.
Outside of North America CIPP business, margins were further impacted by continued weakness in Denmark and isolated project challenges in the Netherlands.
Partially offsetting these issues, we saw margin improvement within our recently restructured Fyfe North America and Australia businesses, and look for these trends to continue going forward.
Now let's turn to Corrosion Protection on Slide 9.
Revenues declined 21% or $25 million primarily due to a more than $40 million decline from the large deepwater project, which was substantially completed in 2017.
Excluding this impact, revenues increased more than 20%, largely driven by the large international field joint coating projects as well as international lining projects.
We saw a modest revenue decline in our global cathodic protection business due to weather as well as a result of higher third product ---+ product sales during Q1 '17.
Corrosion Protection adjusted gross margins increased 130 basis points due to favorable contributions from the large field joint coating projects in the Middle East, which generate higher margins compared to our overall portfolio.
Cathodic protection adjusted margins increased 200 basis points from Q1 '17 due to operational improvements within the U.S. and recently restructured Canadian businesses.
This is notable, considering the revenue decline from Q1 '17 to Q1 '18, adjusted operating margins were unfavorable to Q1 '17, primarily due to relatively flat overhead expenses for the segment, despite the top line declines.
I'll wrap up the operating discussion with Energy Services on line 10.
Revenues for the first quarter increased 27% or $19 million over to Q1 '17, driven by growth in all 3 key service lines of maintenance, construction and turnarounds.
In particular, we were awarded and executed significantly more turnaround work during the quarter than we previously expected.
The majority of this favorable performance is expected to be timing and not incremental to full-year results based on current expectations for turnaround activity during the second half of the year.
Gross margins and operating margins increased 100 basis points and 110 basis points, respectively, compared to Q1 '17.
improvements continue to be driven by increased labor utilization and a greater mix towards higher margin services.
We are encouraged by the ongoing and sustained improvements in profitability within the segment with significantly more leverage today in the historically less volatile downstream market.
That wraps our review of each of the segments.
Now let's review our cash performance on Slide 11.
We generated cash flow from operating activities of $1.3 million in the first quarter, which is notable considering the first quarter generally results in cash usage, due to seasonally weaker results combined with the timing of cash payments for incentive bonuses and certain payroll tax liability.
Our favorable results were driven by improvements within working capital, including strong cash collections on large international projects.
On the cash usage side, we spent nearly $14 million for share repurchases, which included open market purchases of nearly 354,000 shares for $8.4 million and an additional $5.3 million spent to acquire 218,000 shares related to employee tax obligations in connection with divesting of employee equity compensation awards.
Additionally, we spent $5.2 million on capital expenditures and funded net debt repayments of more than $2 million.
We ended the quarter with just under $90 million in cash, which we believe is a healthy level to support the business.
We expect cash flows to improve as we enter seasonally stronger periods for the business.
On this slide, we've also reiterated our priorities for cash usage this year, which include debt repayments, funding of capital investments and executing against our share repurchase program as our top focus areas.
Turning to Slide 12, we are reaffirming the full year outlook components previously laid out in our March call, including our expectation for adjusted earnings per share growth of more than 30% in 2018.
Overall, the phasing of our earnings remains largely intact with our previous guidance.
Though more earnings may shift into the second half of the year as we work to recover lost weather volumes, continue to improve our cathodic protection operations and adjust for the timing extension on the large offshore field joint coating projects.
We continue to expect total revenues to be essentially flat with 2017's record results, offsetting the absent ---+ absence in 2018 of more than $90 million in revenues in 2017 from the large deepwater project.
We expect total adjusted gross margin and adjusted operating margin improvements of between 50 and 100 basis points, primarily driven by improvements in the restructured businesses and in the U.S. cathodic protection business, partially offset by the loss of margin contribution from the large deepwater project.
As previously discussed, severe weather negatively impacted the infrastructure solutions platform in the first quarter, but we will be working to recover lost profitability in the remainder of the year.
Operational spend as a percentage of revenue is expected to remain in line with 2017 levels at approximately 16%.
We are evaluating additional opportunities to streamline our fixed overhead base to improve income margins and reduce overall operational spending as a percent of revenue to closer to 15% over the next 12 to 24 months.
Interest expense is expected to be in the $13.5 million to $14.5 million range, declining from 2017 levels, primarily due to lower expected levels of debt that more than offset the impact of rising interest rates.
Our interest rate exposure is limited by a fixed rate on 75% of our term loan debt through interest rate swaps.
Income attributable to noncontrolling interests is expected to be in the $2 million to $2.5 million range, driven primarily by expected earnings from our joint ventures in the Middle East and Asia.
Our adjusted effective tax rate is expected to be between 23% and 24%, despite the favorable discrete tax benefits we saw in the first quarter.
Our full year outlook remains unchanged due to the timing of certain discrete items as well as our expected taxable earnings mix for the remainder of the year.
We expect to substantially complete the restructuring activities we announced last year during the second quarter of 2018.
We have incurred $115 million in charges to-date, inclusive of $86 million in impairment charges and expect total restructuring and related impairment charges to be between $117 million and $120 million.
Total cost reductions from the 2017 restructuring initiatives are expected to be in excess of $20 million.
Looking forward, we are reviewing options to simplify our operating and tax organizational structure under the new U.S. tax laws.
We may incur additional restructuring charges related to changes to our legal entity structure and related intercompany transactions.
But believe a simplified organizational structure will facilitate business across Aegion and further reduce operating expenses.
We expect these activities to take place between now and the end of the year and we'll provide updates regarding these activities as they progress.
That wraps a review of our first quarter results and outlook for the remainder of the year.
As Chuck mentioned, our performance was in line with our expectations despite the weather-related headwinds through the first 4 months of the year.
Looking forward, continued market strength and operational improvements give us confidence in our ability to achieve our 2018 targets and to continue making progress on our long-term goals.
With that, operator, at this time we would be pleased to take questions.
We've picked up a couple of refineries over the last 12 months, where we now have the leading outsourced maintenance position.
And certainly, those were added into backlog compared to where we were a year ago.
I'm sorry.
Would you repeat that <UNK>.
You broke up saying that.
Well, so what we look at, we typically have about 6 months visibility to turnarounds.
And we had a stronger Q1 than we anticipated, with the ---+ with turnarounds.
Most of our turnarounds, as you probably know, are in the first quarter and in the fourth quarter.
The refineries typically don't do them in the summertime when they're busy making gasoline.
As we look at the fourth quarter now, we're ---+ we like the way we're positioned at the different refineries.
But from what we can see, we're being ---+ I think, we're being careful with our forecast for Q4.
It's not that we're going to lose market share or anything like that.
It's just really the activity that we see coming up and that we're aware of as we go into the rest of the year.
So we've had ---+ as I look at the year so far, we've had many orders for fusible PVC.
And I think a lot of that is that we had a bit of turnover early last year in the sales force.
The new team has just done a remarkable job coming up to speed.
I think that that's part of it.
We've also ---+ the economy is obviously good.
That helps us.
And on CIPP, we just recently received several very nice orders that position us really well to hit our goals for the year on the CIPP side.
So overall, that's been a focus area for us.
It's good to see some of the results starting to come in.
A lot of work to do.
We still have a lot of work to do to get to the market position we want to have.
But I would say, both on the CIPP side and on the fusible PVC side, we certainly are carrying a lot of momentum into the rest of the year.
So I think what we ---+ when we talked about new projects, I was talking about coatings and linings, field joint coatings and linings.
And certainly we're seeing more activity than we've seen in the last couple years.
What I expect to happen, we have a very nice backlog of business on the field joint coatings side, particularly in the Middle East.
What we see a lot of ---+ we're seeing a lot of opportunity for linings in the upstream oil and gas market.
We would expect to see ---+ based on what we see in the funnel, we would expect to have pretty nice orders growth in the second half of the year.
Some of the execution of that work, particularly on the linings side, could spill into 2019.
But it's really, really nice to see the market coming back.
From a mix standpoint, those ---+ both those product lines, linings and the field joint coatings, carry nice margins.
No I think we have had ---+ we had a ---+ we've had what I'd call solid orders in Q1.
That business is always a little bit slow out of the gate.
They tend to ---+ the customers tend to have annual budgets.
They spend them in December.
November, December is typically a very busy time for us.
And then it takes a while for work to get released as we get into the new year.
And when we combine that with weather, and remember, a good portion of that businesses is in Canada.
But when we combine that with some of the weather issues we had, our volume was down, our revenue was down.
I think backlog is in pretty good shape.
But we are seeing a lot of opportunity with the funnels.
I don't think there is any kind of market issue there.
We are being very selective as we bid construction projects.
We're being very careful to bid those appropriately.
We've struggled with some of those in the past.
But I think, as we go forward, we see good momentum in the business.
And what was really exciting for us was that, that business, overall, had almost a 300 basis point improvement in gross margins, even though the revenue for the quarter was down.
And that's ---+ that was a nice accomplishment for that team.
If they continue that with what is normally a pretty nice revenue pick up in the rest of the year, they're going to have a very nice year, which is certainly what we expect.
That's about right.
Yes, yes.
I guess, subject to the additional part that we're looking at, our operating and tax structure.
There may be additional charges to come out of that.
But at this point, we don't have a feel for what that would be.
I don't expect it'd be a large number, but that may increase the total a little bit.
Yes.
As Chuck said, we estimated it to be about $10 million in revenue, about $3 million, $3.2 million in operating income but about 400 basis points in terms of gross margins.
(inaudible)
That's correct.
Yes.
We haven't disclosed that yet.
And we're certainly well into discussions.
But we haven't disclosed the price yet.
Yes.
And at this point, we're operating under a letter of intent with the prospective buyer.
And we would expect the simultaneous signing and closing of a definitive agreement, as Chuck said, hopefully before the end of the quarter.
With the amendment to our credit facility, the first portion of proceeds needs to go to extend ---+ extinguish the amount that we have outstanding on our line of credit, which as of right now is $43 million.
I would expect $5 million of that $43 million would be paid off before the closing, which would take us down to $38 million, which was our line of credit borrowing as of 12/31.
And then after that, any net proceeds would be for general corporate purposes which could also fund share repurchases.
So what we have targeted is to bring the business back to where it was several years ago over the course of the year.
And we would ---+ and based on the first quarter, we feel like we're on track to do that over the course of 2018.
So really, we have about 75% of our business, I want to reiterate this, about 75% of our business is on existing pipelines, where we're doing rehab and doing assessment of the condition of the pipelines.
About 25% of our business is related to new pipelines.
There is certainly ---+ that market has been good over the last couple of years.
And I think we forecast it to be good over the next several years, particularly in the U.
S.
So that's always been part of our business and we continue to do work on new pipelines, although 75% of the overall cathodic protection business is on existing pipelines.
So we're very pleased with what we've seen in Australia.
That team down there has done a nice job.
They were very close to breakeven for the quarter.
And so if we look at that versus where they were in 2017, it's a very nice improvement, year-over-year.
They're executing well.
And so we just continue to evaluate, long term, what makes most sense for us in Australia.
But the team performed well and they had a solid Q1.
So we had ---+ the projects that we had in Midwest were really 2 tubes on 1 project.
It was a complicated project.
We struggled with them.
We thought we had reserved enough at the end of the year.
We ended up having to go in and take a tube out and reinstall it in sort of the March time frame.
The very isolated ---+ a very isolated situation there.
Both those projects are in now, I think.
I don't know if we're completely done with some of the lateral work and those things.
But in terms of the main line, the lining is all done and we've moved on.
We also had a challenge with a couple projects in the Netherlands that we struggled with.
I think we understand what happened there and we've addressed it and wouldn't expect those kind of problems to continue to persist.
I would characterize both the problems in the Midwest and the problems in the Netherlands to be isolated.
I don't there ---+ there's no indication that those are going to be ongoing issues for us.
The impact of those 2 projects, we said that we had about a $4 million gross margin impact ---+ or, I'm sorry, $3.2 million gross margin impact.
The impact from the projects was probably in the $1.5 million to $2 million range of the impact that we had from the projects in the Netherlands and the Midwest.
Although, the margin degradation as a result of weather was the 400 basis points.
This additional amount for the project issues would have been on top of the 400 basis points.
Thank you.
We remain confident in our outlook for significant earnings growth in 2018.
We see tailwinds in our core markets, combined with strong backlog across all segments as we move into our seasonally stronger months of the year.
We are focused on driving operational excellence to deliver improved profitability this year and to position the company for long-term value creation.
Thank you for joining us today and your continued support of Aegion.
We look forward to providing additional updates next quarter.
| 2018_AEGN |
2015 | MPWR | MPWR
#I think ---+ I don't have the numbers to quantify exactly which is which.
Overall, the growth is some modules business and some other newer products.
These are releases of products ---+ these products release about a couple of years ago, and as you know, the consumer's always ---+ you can gain revenue very quickly.
This time, we're a lot more pickier and these are revenues that we make sure these are sustainable revenues, and sustainable with the module.
We've also been looking at our revenues.
Consumer revenues as a high-value market, and what we saw is a lot of strength in the high-value market.
We also saw pretty good performance in the rest of the more traditional consumer products, as well.
So we saw growth in both.
I'll first qualify my answer by saying that we don't have as granular view by all the different end markets as we do when we reach the end of the quarter.
But, I can tell you that right now, we expect to see growth in most of the market.
We don't see, at this time, we don't see any difference in all the market segments, MPS percentages very small.
There's a lot of opportunity for us to grow, although we can deviate from an impact from a macro market.
We are very cautious, and we're very optimistic.
In this particular market, we are very optimistic.
We released the products, we have a future [cashing], and I think this product we do very well.
In terms of numbers, we have a lot of design options, a lot of ---+ a lot more design win activities than before.
That's including VR 12.5 and VR 13.
Let me answer this way, first.
Consumer modules always comes in faster.
Their product cycles' about a year or two or so.
Industrial, automotive always comes later.
This year, we see a lot more activity than in the same period of last year in the industrial and automotive market segments.
On the telecom side, we're still very new.
If I can tell you, we have a lot of design win activities.
Somewhat even slower than automotive.
But very much encouraged by all the design activities from last year and this year.
Infrastructure side, yes.
We are too small to say anything.
All I see is opportunity.
We have some revenues and we picked up customers, picked up the projects.
Really, our customers would appreciate our technology.
Yes.
Currently, our exposure to the notebook side is definitely less than 5%.
Last years cycle, et cetera, we just played in the market very opportunistically.
More excited about opportunities this year, as <UNK> said earlier.
BCD 4, we still lead by our competitor by a wide margin.
The BCD 5, I can tell you this.
Stay tuned, now.
Our product is about in production.
With regard to BCD 3 and 4, I'd say it's approaching 70% of revenue at this point.
Industrial.
I would say, industrial, we saw strength in power sources, in automotive, and smart meters.
This is a market where ---+ I mean ---+ we saw strength in those, and security, which had been on a tear for several quarters, was a little softer, I think, in one quarter.
I think it's more a question of customers having bought ahead.
Industrial, overall, could also do very well for us in 2015.
We've been continuing to utilize the test facility in Chengdu very extensively, and we also have some testing done outside, so that there is no limit on our test capacity.
We've also taken ---+ we're also in the process of expanding our foundry capacity by signing on an additional foundry.
As you see some of the expenses in bringing up this capacity come on, starting late in Q2 and more into Q3, Q4.
In terms of a percentage, we have 600 products and growing.
The utilization and particularly from a percentage of inside and outside, it's typical for us to manage ---+ spend more money to manage ---+ spend more money to calculate the percentage than just leaving it as is.
All the product ---+ all the products in the pipeline or just released, they are much higher than corporate average, corporate margin.
However, I'll say this: the gross margin is in our models.
In this period of time, we should concentrate on the top line growth and the bottom line growth.
The modules revenue, we've seen increased revenue every quarter.
Right now, it's still a small percentage of our revenue.
In terms of revenue, we will be seeing revenue come from more modules as we go in.
We're announcing the revenue from the first few modules that were released over a year ago.
So, I think we already have released something like 12 modules, and then we have a few more that we'll be releasing.
So, as more and more of these modules get released, we also see more design wins coming from them, which will set us up for good revenue growth in the quarters ahead.
Most in the US.
Some ODM.
Rest of the year, yes.
For the VR 12.5, and the VR 13 obviously hasn't really started yet.
Next year pattern could change it a little bit.
I'd like to thank you all for joining us for this conference call, and look forward to talking to you again in July at our second quarter conference call.
Thank you, and have a nice day.
| 2015_MPWR |
2017 | SLB | SLB
#Thank you, <UNK>
So next let’s turn to the oil market where a sustained growth and demand continues to provide a much needed foundation for the outlook leaving little reason for concern over this part of the oil market equation
The supply side however is far more complex with market nervousness and investors speculation generally overshadowing facts and physical fundamentals leading to unpredictable movement in oil prices inspite of a third year of global under investment
The status of the global oil supply is best described by splitting the production base into three main block
First, Russia and the OPEC Gulf countries, second U.S
lands and third the rest of the world
The OPEC Gulf countries and Russia which combine make or close to 40% of global oil production remain fully committed to sound and consistent stewardship of their resource base
This is reflected in a steady increase in oil selectivity over the past three years as the world’s best well at economics easily absorbed the significant drop in oil prices
These countries are also actively supporting the rebalancing of the global oil market by taking a procative role in moderating the current production levels
The other two blocks of supply are currently pursuing diametrically post directions to both investments and resource management driven by the respective stakeholders
The production level from the U.S
land E&P companies which currently represent around 8% of global oil supply is largely driven by the U.S
equity investors who are encouraging, enabling and rewarding short term production growth inspite of marginal project economics
The fast barrels from U.S
land are facilitated by a factory approach to both drilling and production and supported by a rapidly scalable supplier industry with a low barrier to entry
In this market the pursuit of equity appreciation outweighs the lack of free cash flow, net income and return on capital employed for both E&P companies and the service industry
And although the fast barrels from U.S
land have already cooled the oil price sentiments as well as the evaluation of the equity investments themselves, this has yet to limit the investment appetite for additional production growth
The last book of producers making up the rest of the world today represents over 50% of global oil production and covers a broad and diverse group of IOCs, NOCs, and independent operators
In aggregate, this group is for the third successive year highly focussed on meeting the cash return expectations of their shareholders whether these are equity investors or governance
The operators meet these requirements by striving to keep production flat by producing their existing outlets part of their normal and by limiting investments to what provides short term contributions to production at the expense of increasing deflection rates
These producers have also benefited from a production tailwind of 500,000 barrels to 700,000 barrels per day in each of the past three years coming from new projects where the majority of the investments were made in previous years
And with a low rate of new projects being sanctioned since 2014 this tailwind will taper off in the coming years
This harvesting approach is not uncommon for conventional oilfields that are in their last years of life prior to being shut in
However, this investment in stewardship model is sustainable for a vast resource space that is both expected and required to provide a substantial part of global oil production for decades to come
Needless to say, the longer the current under investment carries on, the more severe the cliff like decline trend will likely be when the producers run out of short term options to maintain production
And given the size of the production base, it would be difficult for the rest of the global producers to compensate for this pending supply challenge
So, how does this supply and demand situation translate into the current status of the oil market? Following the extension of the OPEC and non-OPEC production cuts agreed in late May, the oil markets and also included, we are expecting to see clear reductions in global inventory levels in the second quarter leading to a more positive sentiments in the oil market
Instead, oil prices and market sentiments became unexpectedly more negative driven largely by fear of oversupply from the growing production from U.S
land where investments and activity is booming
This increasingly negative sentiment is reflected in the oil markets interpretation of the latest industry data points
First the fact that oil to the inventories are coming down so much slower than expected is currently a major concern for the market, although inventories are still coming down and the drills are expected to accelerate in the second half of this year
And second, the fact that production from Libya and Nigeria has increased in recent months it is also a major concern for the market even though these countries were excluded from the production cuts because their production levels were low at the time of the agreement
What we are currently witnessing is that the U.S
equity investors and E&P companies have spooked the oil market investors into believing that the fast barrels from U.S
land will flood the markets and leave inventory levels elevated for the foreseeable future
Therefore their pursuit of short term equity returns from the U.S
land E&P stocks is actually preventing the recovery of the oil market and sending oil prices further down thereby eliminating any equity appreciation that the investments set out to create in the first place
So what does this mean for the outlook for oil prices and E&P investments? The latest developments in the oil markets has created more uncertainty around the shape and timing of the global industry recovery
However, the near to medium term market evolution will continue to be dictated by the following three factors
First, with the moderation and the investment appetite towards the fast but marginal barrels from U.S
land leading to a stronger focus on E&P financial returns and the need to operate within free cash flow
Second, with the key OPEC and non-OPEC countries extends the production cuts beyond the current nine month agreement
And third, with the emerging trend of a gradual investment increase in the rest of the world accelerate, develop mitigate or at least dampen the pending medium-term supply challenges
These three factors are somewhat interdependent and forecasting the forward part from the current market situation is at present difficult given the unpredictable and at times irrational behavior of the broader oil market
Still it remains clear to us that the current underinvestment in the rest of the world with increasing certainty create a mounting supply challenge over the coming years which will require a significant increase and acceleration in global E&P spend
At present we are seeing the first small signs of increasing investments in the rest of the world
However, the further evolution of this emerging trend will still be governed by the actions of the OPEC Gulf countries and Russia on one side and the U.S
equity investors and E&P companies on the other
New fund moderation from the U.S
producers combined with continued moderation from the OPEC Gulf countries and Russia should pave the way for a steady increase in oil prices
This in turn will provide an investment platform that will allow all three supplier groups to increase E&P spend to jointly help mitigate the pending supply issues
On the other hand, an absence of moderation from both sides could lead to further drop in oil prices which in turn would both accelerate and amplify the pending supply issues
In this market we continue to focus on serving our customers and driving on business forward by broadening our technology portfolio and increasing our addressable market by further streamlining our execution machine and by pursuing new and more collaborative ways of working with our customers
And in doing so we are maintaining a balanced coverage of the global oil and gas industry allowing us to effectively address current and future customer activity
This includes U.S
land where we today are seeing strong growth in both activity and service pricing
The OPEC Gulf countries and Russia already continue to see strong activity and a broad uptake of our entire technology offering, as well as the rest of the world which in spite of record low activity levels still represent over 50% of global oil production and we’ll at some stage need to return to considerably higher investment levels even to just uphold current production
As part of our global focus we yesterday announced our intention to acquire a majority stake in the Eurasia drilling company in Russia
This extents the success for long-term relationship we have enjoyed with EDC through this strategic alliance we sign in 2011 which has enabled the deployment of a broad range of our drilling and well engineering services to our customers in Russia land
The pending EDC transaction together with our recent investment in a land rig manufacturing facility in Kaliningrad will further broaden our present infrastructure and capabilities used to serve the conventional Russian land drilling market
In <UNK>ern Siberia, the land drilling contractors continue to have the leading role in providing integrated drilling services through turnkey models
And as the uptake of horizontal drilling continues to increase the deployment of integrated drilling systems through the EDC platform including our rig of the future, will allow us to bring new levels of drilling efficiency to our existing and new customers in this large market
So we are pleased to have reached this agreement with the EDC shareholders and we are already well advanced in preparing the regulatory filings required to complete this transaction
That concludes our prepared remarks
We will now open up for questions
Question-and-Answer Session
Good morning, <UNK>
Well, I think we talked about this before and this – the overall set up of the U.S
shale business where there hasn’t been positive cash flow or positive free cash flow for what the – the last six, seven years
We have comment on that as that’s being a bit of a surprise already
Now whether it will continue or not, I think its going to come down to two things, whether they can still continue to borrow going into 2018 and whether they continue to hedge
So I think today they still operate beyond cash flow, but I think the situation for the rest of the year is relatively set
So we expect to see steady increase in activity both in Q3 and Q4. What will happen in 2018? I think is a bit early to say
But as of now I think its still likely that we will continue to see strong activity in the U.S
in 2018 whether it will have the same type of growth rate we’ve seen in 2017, that might not be the case
From our standpoint, or from the E&P?
Well, it’s difficult for me to say that
I mean you see a range of so call breakeven costs where some of the transportation premiums, the discounts to the WTI standard, the amortization of the infrastructure and land is not included
So, it is very difficult for me to say, but if you go back and look at both cash flow and profitability for most of the E&Ps in Q1 where the situation actually was quite favorable
There was limited pricing faction from the service industry and the commodity price were still high than what it is today
I think they were probably few of them even at that stage that really generated a profit
So, it's difficult for me to say
From our standpoint like we commented on in the prepared remarks, we are now profitable in all product lines
And we see continued growth in activity going forward in the next couple of quarters
So at least our business is back in the back and we are now obviously actively pursuing market share
Thank you, <UNK>
Well, that was absolutely the plan, <UNK>, that’s the plan
Thank you, <UNK>
Good morning
Clearly, we have mentioned some of the deals here in our earlier remarks and clearly today there is an opportunity in North America for this business model because it is also allowing us to bring the appropriate technology into the shale plays that we have won it or into the tight oil and gas and therefore there is a increasing opportunity set also in North America and for that matter I would say that today we have opportunities in just about every geography around the world
Absolutely
Yes
So we ---+ if you are doing the exit on Q2 I would say that Q3 will be pretty much 1.0 as well
We will continue to deploy at almost exactly the same rate and we expect to have all our total fleets of ideal pressure pumping assets in operation by early Q4. Now after that the startup cost will start to abate
It will come down in Q4 and going into Q1. But Q3 will see the same rate of deployments and unfortunate the same rate of startup costs
But we are very pleased with the progress we’re making here and we have ---+ the rate of deployments that we have now in our pressure pumping business is unprecedented, we’ve never gone at this rate before
Okay
Well, if I first look at the overall the international market in terms of the nature of activity
What we ---+ first of all, what we are seeing in most of the basins around the world takeaway as we say Russia and the OPEC Gulf, we are at unprecedented lows in terms of activity
So I think it’s very natural that activity starts to come back
We were somewhat positively surprised at the rate it came back in Q2. It is not a dramatic increase
But it was more than what we were expecting from seasonality
And if you takeaway Cameron which is three, four quarters behind in the cycle compared to the legacy Schlumberger business
We grew the legacy business 10% sequentially in land, 8% in ECA and 2% in MEA
So these were numbers generally higher than what we were anticipating
So it is a combination I would say of land focus in all of the three reporting areas
But as we commented on this well, there are signs now of offshore project being prepared for FIDs and tendering, we see it in particular through OneSubsea business and a lot of this is tiebacks which basically the nature of that is going to be a lot more short cycle on the offshore business than what we’ve seen in the past
And generally on land it is all short cycle as well
So, the lion share of the activity we’re seeing internationally is short cycle, which is what you would expect where the operators are looking to minimize the time between cash outlays and production coming back
We don’t discuss the details of what their ---+ their decision-making is based on
Other than that we are very actively work with all customers in bringing cost to barrel down, whether this is offshore or on land
And given the fact that I would say a lot of the operators have been producing their assets quite hard over the past two, three years
I think there’s a need to start replenishing reserves and also supporting production with more wells and smaller tiebacks and so forth
So, given the fact that this uptick has happened in the second quarter, but actually saw low oil prices than in the first quarter
I think this is more a general direction of the international production base
Most basins have unprecedented low activity and investment levels, and we seem to be coming off the bottom now
It will obviously supported more by higher oil prices, but there has been movement in the second quarter, which has actually seen a more negative oil price sentiment
I think that’s going to turn in the second half of the year in the terms of sentiments, but the start of growth momentum, although still nascent has happened in the second quarter
Thank you
Good morning, Jim
Well, first of all, I’m not saying that that’s happening
So, I think it’s unlikely that you’ll see a major sort of tectonic movement here
But the fact that the industry in North America land continues to operate way beyond cash flow
I think that’s going to be challenged if oil prices stay where it is
So that could mean for sure that the growth rate would slow
I don't think you’ll see a significant reduction in activity, but I think the growth rate might slow
So I think there is still going to be possibilities both to land and potentially raise more equity, but in the event we continue at the current oil prices
I think the industry is going to be a bit more strain than what we have seen in 2017. Now, how we would manage that? We obviously – we are redeploying very actively our idle frac capacity
These are assets that we own already
And we are hiring people to operate them
And we are in a cyclical business
And it's a matter of adding proactively when you have the opportunity to catch growth and generate incremental
And if there is a headwind then we need to deal with it
No
We’re not
We are very actively working on closing out OneStim JV with Weatherford with the DOJ
There has been some additional information from the DOJ which we are now providing them with
And we are obviously optimistic that we can close this during the second half of the year
And when that’s done, we will have sufficient pressure pumping and a capacity to see us through at least 2018.
Well, we’ve always been I would say focused on sustainability, the impact we have on the environment around us in terms of our operation, but also the positive impact we live in the various communities that we are part of around the world
What we haven’t done up until the last couple of years is to really document this and put this together into something that we can present to governments, as well as to the investor base
And I think that’s the main focus that we’ve had now over the past few years
There’s also a certain report and certain things that we do become part of in order to get certain certifications and rankings in terms of what our efforts are
So over the past couple years we have put that together into the report, which is then available both to local communities, governments and to the investment community where we really summarize and demonstrate what is long-term commitment is all about
And we understand the importance of this for the investment community for instance around what part of the investment community are interested ---+ invested in the company where the focus on sustainability is obviously a key decision criteria
So we’ll see the importance of it
It's not something new that we started off
But we’re taking the effort of putting together our efforts so there are much more transparent in summary
Well, I haven’t looked exactly what our competitors are doing here
What we are doing is something that we believe in and that we’ve done for a long time
And I said the main thing we've done now is to just summarize it, and whether that’s a competitive advantage or not
Maybe it is but we haven’t done it for that reason
We’ve done it because we believe in it and it's something in very worthwhile for us to do
I think in the international markets, I would say whether – I mean ---+ if the growth rate there is higher, it would be ---+ I would say easier to generate higher incrementals
So we have a very good I think handle on the supply chain there
As we have in the U.S
as well, but the rate of inflation in the U.S
is always a lot quicker for significant activity increases
So, I would say that to get incrementals, higher growth rates would be ---+ would make it probably easier to do it provided that we have a good handle on the supply chain
But the key for the 65% incremental, so is that we need to have some pricing
And also those incrementals will kick in when we have kind of transitioned business from part of it basically being still in decline and battling some pricing issues
We need to firmly reach bottom in all aspects of the business and then start recovering from there including pricing
But the so far when we look at incrementals company wide for Q2 around mid-30s is I would say acceptable at this stage
I don’t it's fantastic
And it's something that we have a very strong focus on going forward
And as we start to I would say, complete the last part of the bottom of the cycle, I’ll expect that we get close to these incrementals that we had promised
Thank you
If <UNK> is not there maybe we can skip to the next one
Hi, <UNK>
Well, if you look at Q3 in terms of the business we expect to see continuation of the trends that we saw in the second quarter
So, for North America that means continued solid growth
We expect the rig count to continue to grow in Q3, although likely slow in somewhat in pace
We expect to see additional pricing and share gains in directional drilling and as I mentioned earlier we will continue to activate or reactivate frac capacity at the same rate as we did in Q2. Internationally, we also expecting to see a continuation of these encouraging signs we saw from Q2. We do expect single-digit sequential growth in ECA and MEA and actually most of the deal markets in these two areas will see growth we expect in Q3. But due to activity mix and some completion of projects we likely see a slight drop in Latin America in Q3. So, I would say, combining all of this I believe that the current Street consensus for Q3 is a good starting point
Yes to comment on 2018, I think like you say is still too early
In terms of where we sit at the company and I’ll comment on the overall in a second, but I think if you look at our position in North America land we have never been better positioned to capture growth both in the drilling manufacturing business
And internationally with some of the recent moves that we just announced plus the overall step out we’ve had in total addressable market we are extremely well positioned to capture growth in every corner of the world as the global investment eventually will start to increase right
So, I will say the short term risk from the trends that we are currently seeing I think would be that, that there is still I would say issues around how the markets sees inventory gross
So far in July it’s been very positive in particular in the U.S
and if this continues I think that should bode well for a gradual increase in oil prices in the second half of the year
But as a matter of how fast the U.S
producers are putting barrels on the market and also what’s going to be important is what OPEC and Russia does you know come the end of the 9 month production cut period, right
So I think there is issues around or risks around how they interplay between the U.S
producers on one side and the Russia OPEC producers on the other side, how they play this out over the next I would say year or so, we are very clear in our view that you go 2019 and 2020 we are going to have potentially significant supply challenges
So the fact that global investments will come up in that period I think is very clear
What’s going to happen in the period before we get there is going to come down to the plans of OPEC and Russia on one hand and the U.S
Thank you
Yes, I am disappointed but not going straight international
But I think that some of the very large opportunities that we see here at the moment and we are working on actively at this moment are actually right in North America
Apart from those there are significant projects coming up in discussion in the Middle East that might not strike you as the first place for SPM to take place but also there we have significant opportunities and apart from that it is going to be more of Asia, more of Africa those are the key type of areas that we are looking at the moment
But I don’t think you can underestimate the impact that SPM can have on North America
Well I will say the following that the OneStim JV isn’t focussed on the next couple of quarters
We did this because we have the medium to long term view on the North American land market
There might be challenges overall in terms of the volume of the market but I think there is still going to be a significant core that’s going to withstand you know oil price challenges and still going to be profitable
And I think the combination of scale and efficiency and technology that we will bring and vertical integration is going to make OneStim very very competitive in any kind of market condition
So, obviously if activity was to flatten out for a period of time when you come early into 2018, then we will deploy what makes sense to deploy and the rest we will keep idle and ready for deploying later
So, we are not doing this for the next couple of quarters we are doing this for the medium to long term
I think if we stay in this environment for a long period of time, I think you will unlikely see large infrastructure projects whether it’s a significant gap between cash outlays and cash returns, but I still think that even in deep water there are opportunities for tiebacks and utilization of existing infrastructure tiebacks using you know multiface pumps and so forth, right
So there are opportunities that we are seeing through one SubSea which actually isn’t all concentrated on shallow water
There is a fair bit of deep water projects being considered unprepared for FID as well
So, but I think they are going to be all relatively short cycle in nature and we obviously we have a very bit position to participate in this and support our customers in getting those projects online
All right
So thank you for that final questions
I would now like to summarize the three most important points we have discussed this morning
First, we remain positive on the oil markets inspite of the current negative sentiments that have created more uncertainty around the shape and the timing of the market recovery
We believe that globally E&P investments will need to increase significantly in the coming years to address the pending supply challenges resulting from three years of under investments
And Schlumberger is uniquely positioned to capture growth in all markets as global investments start to recover
Second, we have shown you why we believe in the potential of Schlumberger production management to provide an activity baseline to geomarket operations that also delivered full cycle returns that are highly accretive to our business
And third we are continuing to build out our offering both in terms of technology and geography
The OneStim joint venture with Weatherford add scale and technology to our integrated production services in North America land while our agreement to acquire a majority stake in EDC in Russia offers significant opportunities to expand our presence in the conventional land drilling market in <UNK>ern Siberia
That concludes today’s call
Thank you for participating
| 2017_SLB |
2016 | IOSP | IOSP
#Again, I will go back to three years ago when we presented our strategy and we continue to do that, we said we wanted a balance portfolio.
And if you look at this acquisition and then you take ---+ if oil ---+ when oil returns to the mid-$50s to $60, you have really got a very balanced portfolio, anywhere from $350 million to $400 million in personal care, anywhere from $250 million to $400 million, depending on the market changes in oil field, and a $500 million fuels business.
That is a great balanced portfolio with great technology.
So for us, we don't really need to run out and acquire anymore.
I think we have got very good strategy.
We have got ---+ for us, now it is fund organic growth and technology and look at expansion of the dividend.
If something comes along, I don't think you will see anything to this magnitude.
If it is, it might be a small geographic area where we have a technology or we need growth, inorganic expansion, for instance, something maybe in Saudi.
But, for us, we are really well-positioned now to really not go out and do much acquisitions.
Multiples have come down, but I think what we have seen in the market is what has been for sale has not been a business that really does anything for us long-term.
It might be a consolidation of assets, and we really don't need more assess at this time.
I think for us, we will continue to look at oil field, especially if it is geographic growth.
And I think there probably will be some small either geographic expansions and/or product expansions.
But we are properly positioned in the right growth areas in the US market, specifically.
I think it is more so just general organic growth expansion, whether it is putting more plant capacity in or personnel as we get the business.
That is our focus right now.
Yes, it was both.
Sorry.
Good question.
It was both.
It was not only growth in the US market specific, but again, as we stated in the last Q call that there is a customer that we started to deliver to in South America, and that is part of the growth as well.
And that should continue.
Yes.
Yes, there was.
If you look at the Huntsman business, Huntsman ---+ they run good plants.
They have good people.
They have are very good operators, which is good for us.
We are not picking up a business that has been destroyed or in disarray.
It has been a very stable business for Huntsman.
I think it is going to be a very stable business for us.
The same general competitors are out there.
The good thing is that we don't have to put a lot of money of CapEx for expansion into these plants.
We have got more than enough room, and I think with the additional volume in technology that we are bringing to Europe from the US should help grow that volume in those plants.
So I think overall, as a competitive situation, we sit in a good position, along with all the other competitors.
I think it is a pretty responsible market.
No.
It is apples and oranges.
If you look at that [Palmers] business, it has been like that for the last 15 years up and down.
This is a pretty stable business.
Thank you all for joining us today, and thanks to all our shareholders, customers, and Innospec employees for your interest and support.
If you have any further questions about Innospec or matters discussed on this call, please give us a call.
We look forward to meeting up with you later again this year.
Thank you.
| 2016_IOSP |
2018 | AVA | AVA
#Well, thank you, <UNK>, and good morning, everyone.
We had a good first quarter.
Avista Utilities' earnings benefited from lower resource cost, customer growth and lower-than-expected operating expenses.
The lower natural gas fuel prices were positive as they allowed us to pass on lower natural gas cost to our customers during the winter-heating season.
With regards to regulatory matters, last week, we received an order from the Washington Commission that concluded our 2017 electric and natural gas general rate cases.
The commission's order allowed us the opportunity to earn a fair return in 2018.
We're also pleased to be able to return benefits of about $32 million resulting from federal tax cuts to our customers.
In Idaho, we recently filed a settlement agreement related to federal tax cuts, where we agreed to pass back over [$16 million] to our customers.
During 2018, we've made significant progress in Hydro One transaction ---+ in the Hydro One transaction, and we are continuing to work through the approval processes.
We've been able to reach settlement agreements in Washington, Idaho and Alaska, which are now pending before these state commissions.
We believe that we will be able to work with the commissions, their staff and other parties to receive the required approvals, and we anticipate the transaction closing during the second half of 2018.
Turning back to earnings.
AEL&P had a good first quarter, with earnings that were slightly above our expectations.
At our other businesses, we had a net loss during the quarter due to an impairment on an investment, unanticipated losses on our equity investments and increased expenses associated with the renovation.
We're initiating our 2018 earnings guidance with a consolidated range of $1.90 to $2.10 per diluted share excluding acquisition cost.
<UNK> will provide further details during his commentary, so I'll turn it over to <UNK>.
Thank you, <UNK>.
Good morning, everyone.
With my normal laudatory hockey comment, we are now rooting for Tyler Johnson and the Tampa Bay Lightning, as Tyler Johnson is from Spokane, so we're hoping they go.
For the first quarter of 2018, Avista Utilities contributed $0.84 per diluted share compared to $0.90 in 2017, and the decrease in earnings for the quarter was due to increased O&M expenses and depreciation expense.
Depreciation expense was largely due to continuing to invest the necessary capital in our utility infrastructure, and we continue to expect that Avista Utilities' capital expenditures will total about $405 million in 2018.
Turning to liquidity.
In 2018, we expect to issue $375 million of long-term debt and up to $85 million of equity.
And what we're using those proceeds for are to refinance maturing long-term debt, fund planned capital expenditures and maintain an appropriate capital structure.
For the $85 million of equity, we expect to get that either through the sale of shares through our sale agency agreement or more likely, through an equity contribution from Hydro One upon the consummation of the transaction.
As <UNK> mentioned earlier, we are initiating our 2018 earnings guidance with a consolidated range of $1.90 to $2.10 per diluted share, excluding acquisition cost.
We expect acquisition cost to be in a range of $0.80 to $0.85 per diluted share for 2018.
We expect Avista Utilities to contribute in the range of $1.89 to $2.03 per diluted share for '18, again excluding acquisition costs.
The midpoint of our Avista Utilities guidance range does not include any expense or benefit under the Energy Recovery Mechanism.
Our current expectation for the ERM is a benefit position within the 90% customer, 10% company sharing band, which is expected to add approximately $0.07 per diluted share.
Our outlook for Avista Utilities assumes, among other variables, normal precipitation and temperature, but above-normal hydroelectric generation for the remainder of the year.
For 2018, we expect AEL&P to contribute in the range of $0.10 to $0.14 per diluted share.
And our outlook for AEL&P assumes, among other variables, normal precipitation and hydroelectric generation for the remainder of the year.
We expect our other businesses to be between a loss of $0.09 and a loss of $0.07 per diluted share, which includes the costs associated with exploring strategic opportunities.
This is higher than in the past, but as you saw in the first quarter, we did have approximately $0.07 of loss in the first quarter related to an impairment and some other cost in those other businesses.
Our guidance generally includes only normal operating conditions, does not include unusual items such as settlement transactions or acquisitions and dispositions until the effects of such are known.
I will now turn the call back to <UNK>.
| 2018_AVA |
2017 | NVDA | NVDA
#Thanks, <UNK>.
We had a strong start to the year, highlighting our record first quarter with a near tripling of Datacenter revenue, reflecting surging interest in artificial intelligence.
Overall, quarterly revenue reached $1.94 billion, up 48% from a year earlier, down 11% sequentially and above our outlook of $1.9 billion.
Growth remained broad-based with year-on-year gains in each of our 4 platforms: Gaming, Professional Visualization, Datacenter and Automotive.
From a reporting segment perspective, Q1 GPU revenue grew 45% to $1.56 billion from the year earlier and Tegra processor revenue more than doubled to $332 million.
And we recognized the remaining $43 million in revenue from our Intel agreement.
Let\
Yes, <UNK>, thanks for your question.
So our GPU computing business for Datacenter is growing very fast and it's growing on multiple dimensions.
On the one hand, there's high-performance computing using traditional numerical methods.
We call that HPC.
That's growing.
There is, in enterprise, the virtualization of graphics.
There's a whole lot of desktop PCs running around.
However, more and more people would like to have thinner laptops or they would like to have a different type of computer and still be able to run Windows.
And they would like to virtualize basically their entire PC and put it in the data center.
It's easier to manage.
The total cost of ownership is lower, and mobile employees could enjoy their work wherever they happen to be.
And so the second pillar of that is called GRID and it's basically virtualizing the PC.
And as you can tell, virtualization, mobility, better security, those are all driving forces there.
And then there's the Internet companies.
And the Internet companies, as you mentioned, really has 2 pillars.
There's the Internet service provision part where they're using deep learning for their own applications, whether it's photo tagging or product recommendation or recommending a restaurant or something you should buy or personalizing your webpage, helping you with search, provisioning up the right apps, the right advertisement, language translation, speech recognition, so on and so forth.
I mean, there's a whole bunch of amazing applications that are made possible by deep learning.
And so Internet service providers are using it for internal application development.
And then lastly, what you mentioned is cloud service providers.
And basically, because of the adoption of GPUs and because of the success of CUDA and so many applications are now able to be accelerated on GPUs, so that we can extend the capabilities in <UNK>'s Law so that we can continue to have the benefits of computing acceleration, which in the cloud means reducing cost.
And that's on the serve ---+ cloud service provider side of the Internet companies.
So that would be Amazon Web Services, the Google Compute cloud, Microsoft Azure, the IBM Cloud, Alibaba's Aliyun... (technical difficulty) by Microsoft Azure.
We're starting to see almost every single cloud service around the world standardizing on the NVIDIA architecture.
So we're seeing a lot of growth there as well.
And so I think the nut of it all is that we're seeing data center growth in GPU computing across the board.
Well, PC gaming is growing, I mean, there's no question about that.
The eSports is growing.
The number of players in eSports, the number of people who are enjoying eSports is growing.
Mobile is growing.
I think it's amazing.
It's amazing, the growth of mobile and the latest games.
And of course, the first-party titles, the AAA titles are doing great work.
Battlefield is doing great and I'm looking forward to the new Battlefield.
I'm looking forward to the new Star Wars and I'm looking forward to the first time that Destiny is coming to the PC.
As you know, it was a super hit on console.
But the first-generation Destiny wasn't available on PCs and Destiny 2 is coming to the PC.
So I think the anticipation is pretty great.
So I would say that PC gaming continues to grow and it's hard to imagine people... (technical difficulty) around in another amazing world.
And so I think people are going to be amazed at how long the alternate reality of the video gaming market is going to continue to expand.
Yes, <UNK>, thanks for the question.
First of all, it's really important to understand that the data centers, the cloud service providers, the Internet companies, they all get kind of lumped together in one conversation.
But obviously, the way they use computers are very different.
There are 3 major pillars of computing up in the cloud ---+ or in large data centers.
Hyperscale.
The one pillar is just internal use of computing systems for developing, for training, for advancing artificial intelligence.
That's a high-performance computing problem.
It's a very complicated software problem.
The algorithms are changing all the time.
They're incredibly complicated.
The work that the AI researchers are doing are not trivial, and that's why they're in such great demand.
And it's also the reason why computing resources have to be provisioned to them, so that they can be productive.
Having a scarce AI researcher waiting around for a computer to finish simulation or training is really quite unacceptable.
And so that one ---+ that first pillar is the market that we ---+ is a segment of the... (technical difficulty) or gets strained, once the network is trained, it is put into production.
Like for example, your Alexa speakers has a little tiny network inside.
And so obviously, you can do inferencing on Alexa.
It does voice recognition on the hot keyword.
In the long term, your car will be able to do voice recognition and speech recognition.
Are we okay.
Are we still on.
No, no, <UNK>, I'm just ---+ I was wondering whether the phone line was cut or not.
So anyways, I ---+ the second pillar is inferencing.
And inferencing, inferencing as it turns out, is far, far less complicated than training.
It's 1 trillion times less complicated, 1 billion times ---+ 1 trillion times less complicated.
And so once the network is trained, it can be deployed.
And there are thousands of networks that are going to be running inside these hyperscale data centers, thousands of different networks, not one, thousands of different types.
And they're detecting all kinds of different kinds of things.
They're inferring all kinds of different things, classifying, predicting, all kinds of different things, whether it's photo or voice or videos or searchers or whatnot.
And in that particular case, our advantage ---+ in that particular case, the current incumbent is CPUs.
The CPU is really the only processor at the moment that has the ability to basically run every single network.
And I think that's a real opportunity for us.
And it's a growth opportunity for us.
And one would suggest that FPGA is as well.
One would suggest that ASICs like TPUs ---+ TPUs and ASIC is as well.
And I would urge you to come to the keynote tomorrow and maybe I'll say a few words about that tomorrow as well.
And then the last pillar is cloud service providers, and that's basically the outward public cloud provisioning a computing approach.
It's not about provisioning inferencing.
It's not about provisioning GPUs.
It's really provisioning a computing platform.
And that's one of the reasons why the NVIDIA CUDA platform and all of our software stacks that we've created over time, whether it's for deep learning or molecular dynamics or all kinds of high-performance computing codes or linear algebra or computer graphics, all of our different software stacks make our cloud computing platform valuable.
And that's why it's become the industry standard for GPU computing.
And so those are 3 different pillars of hyperscalers, and it's just important to segment them so that we don't get confused.
The average selling price of the NVIDIA GeForce is about 1/3 of a game console.
That's the way to think about it.
That's the simple math.
People are willing to spend $200, $300, $400, $500 for a new game console.
And the NVIDIA GeForce GPU, the PC gaming card is, on average, far less.
There are people who just absolutely demand the best.
And the reason for that is because they're driving a monitor or they're driving multiple monitors at a refresh rate well beyond the TV.
And so if you have a 4K or you want to run 120 hertz, or some people are even driving at the 2 and 4 ---+ 200 hertz, those kind of displays demand a lot more horsepower to drive than an average television, whether it's 1080p or 4K, at 60 frames per second or 30 frames per second.
And so the amount of horsepower they need is great.
But that's just because they just really love their rig and they're surrounded in it and they just want the best.
But the way to think about that is ultimately, that's the opportunity for us.
I think GeForce is a game console, and the right way to think about that is at an equivalent ASP of some $200, $300, that's probably potentially the opportunity ahead for GeForce.
Well, first of all, GeForce is sold a unit at a time.
And it's sold all over the world and it's a consumer product.
It's a product that I ---+ that is sold both into our installed base as well as growing our installed base.
When we think about GeForce, they're ---+ these are the parameters involved.
How much of our installed base has upgraded to Pascal.
How much of our installed base is growing.
How is Gaming growing overall.
How is ---+ what are the driving dynamics of Gaming, whether it's eSports or mobile or using games for artistic expression.
It's related to the AAA titles that are coming out.
Some years, the games are just incredible.
Some years, the games are less incredible.
These days, the production quality of the games have just become systematically so good that we've had years now of blockbuster hits.
So these are really good dimensions of it.
And then there is ---+ it's overlaid on top of it with some seasonality because people do buy graphics cards and game consoles for Christmas and the holidays and there are international holidays where people are given money as gifts and they save up the money for a new game console or a new game platform.
And so in a lot of ways, our business is driven by games.
So it's not unlike the characteristics of the rest of the gaming industry.
The driving reasons for inventory growth is new products.
And I ---+ that's probably all I had to say for now.
I would come to GTC.
Come to the keynote tomorrow.
I think it will be fun.
Thanks, <UNK>.
Let me think here.
I think 1 year ago, 1 year ago was ---+ maybe it was 2 years ago, maybe it's somewhere between 18 months ago or so when I think Jeff Dean gave a talk where he said that Google was using a lot of GPUs for deep learning.
I think it wasn't much longer ago than that.
And really, really, that was the only public customer that we had in the hyperscale data center.
Fast forward a couple of years, we now have basically everybody.
Every hyperscaler in the world is using NVIDIA for either deep learning, for some announcements that you'll read about in data center deployment, tomorrow hopefully, and then a lot of them have now standardized on provisioning the NVIDIA architecture in the cloud.
And so I guess in the course of 1 or 2 years, we went from basically hyperscale being an insignificant part of our overall business to quite a large part of our business, and as you could see also, the fastest-growing part of the business.
Yes.
Thanks for the question.
We feel good about the guidance that we're providing for Q2.
We wanted to make sure those understood the impact of Intel that's incorporated in there.
It's still too early given that it's just about the same size as what we just finished in Q1 to make comments specifically exactly where we think each one of those businesses will end up.
But again, we do believe Datacenter is a super great opportunity for us.
I think you'll hear more about that tomorrow.
But we don't have any more additional details on our guidance.
But we feel good about the guidance we gave.
Jen-<UNK>, can you talk about the adoption of GPU in the cloud.
At the CES earlier this year, you guys announced GeForce.
Now curious how the adoption of GeForce is going.
Yes, <UNK>, thanks for the question.
GeForce NOW is a really ---+ it's really an exciting platform.
It virtualizes GeForce.
It puts it in the cloud, turns it into a gaming PC as a service ---+ that can be streamed as a service.
And we are ---+ I said at GTC that around this time, that we'll likely open it up for external beta.
We've been running internal beta for some time.
And we'll shortly go to external beta.
And last time I checked, there's many, many, tens of thousands of people who are signed up for external beta trials.
And so I'm looking forward to letting people try it.
But the important thing to realize about that is I ---+ that's still years away from really becoming a major gaming service.
And that's ---+ it's still years away from being able to find the right balance between cost and quality of service and the pervasiveness of virtualizing a gaming PC.
So we've been working on it for several years and these things take a while.
My personal experience is almost every great thing takes about a decade.
And if that's so, then we've got a few more years to go.
Great.
As a follow-up, with your win and success in Nintendo Switch, does that open up the console market with other console makers.
Is that a business that is of interest to you.
Well, consoles is not really a business to us.
It's a business to them.
And we're selected to work on these consoles.
And if it makes sense and the strategic alignment is great and we're in a position to be able to do it ---+ because the opportunity cost of building a game console is quite high.
The number of engineers who knows how to build computing platforms like this ---+ and in the case of the Nintendo Switch, I mean, it's just an incredible console that fits in such a small, small form factor.
And it could both be a mobile computing ---+ mobile gaming device as well as a console gaming device.
It's just really quite amazing.
And they just did an amazing job.
Somebody asked me a few months ago before it was launched how I thought it was going to do.
And of course, without saying anything about it, I said that it delighted me in a way that no game console has done in the last 10, 15 years.
And it's true.
I mean, this is a really, really innovative product and really quite a genius.
And if you ever have a chance to get it in your hands, it's just really, really delightful.
And so in that case ---+ in that case, the opportunity to work on it was just really, really too enticing.
We really wanted to do it.
And ---+ but it always requires deep strategic thought because it took several hundred engineers to work on.
And they could be working on something else like all of the major initiatives we have.
And so we have to be mindful about the strategic opportunity cost that goes along with these.
But in the case of the Nintendo Switch, it's just a home run.
I'm so glad I did it.
And it was a perfect collaboration for us.
I know the second one: easier.
Not ---+ the second one is the revenue contribution is not significant at the time, at this moment.
But I expect it to be high.
And that's why we're working on it.
The 200 developers who are working on the DRIVE PX platform are doing it in a lot of different ways.
And at the core, it's because in the future, every aspect of transportation will be autonomous.
And if you think through what's going on in the world and one of the most important ---+ one of the most powerful effects that's happening right now is the Amazon effect.
We're grabbing our phone.
We're buying something and then we expect it to be delivered to us tomorrow.
Well, in ---+ when you sent up that ---+ those set of electronic instruction, the next thing that has to happen is a whole bunch of trucks has to move around.
And they have to go from trucks to maybe smaller trucks and from smaller trucks to maybe a small van that ultimate delivers it to your house.
And so if you will, transportation is the physical Internet, is the atomic Internet, the molecular Internet of society.
And without it, everything that we're experiencing today would be able to continue to scale.
And so you could imagine everything from autonomous trucks to autonomous cars, surely, and autonomous shuttles and vans and motorcycles and small piece of delivery robots and drones and things like that.
And for a long time, it's going to augment truck drivers and delivery professionals who, quite frankly, we just don't have enough of.
The world is just growing too fast in an instant delivery, delivered to your home, delivered to you right now phenomenon.
And we just don't have enough delivery professionals.
And so I think autonomous capability is going to make it possible for us to take pressure off of that system and reduce the amount of accidents and make it possible for that entire infrastructure to be a lot more productive.
And so that's one of the reasons why you're seeing so much enthusiasm.
It's not just the branded cars.
I think the branded cars get a lot of attention and we are excited about our partnerships there.
And gosh, I love driving autonomous cars.
But in the final analysis, I think the way to think about the autonomous future is every aspect of mobility and transportation and delivery will be ---+ will have autonomous ---+ will be augmented by AI.
Well, let's see here.
There's a ---+ it's a great question and there's a couple of ways to come at it.
First of all, AI is going to infuse all of software.
AI is going to eat software.
And it's going to be in every aspect of software.
Every single software developer has to learn deep learning.
Every single software developer has to apply machine learning.
Every software developer will have to learn AI.
Every single company will use AI.
AI is the automation of automation.
And it's ---+ will likely be the transmission.
We're going to, for the first time, see the transmission of automation, the way we're seeing the transmission and the wireless broadcast of information for the very first time.
And I'm going to be able to send you automation, send you a little automation by e-mail.
And so the ability for AI to transform industry is well understood now.
It's really about automation of everything.
And the implications of it is quite large.
We've been using now deep learning.
We've been in the area of deep learning for about 6 years.
And the rest of the world has been focused on deep learning for about somewhere between 1 to 2.
And some of them are just learning about it.
And almost no companies today use AI in a large way.
So on the one hand, we know now that the technology is of extreme value.
And we under ---+ we're getting a better understanding of how to apply it.
On the other hand, no industry uses it at the moment.
The automotive industry is in the process of being revolutionized because of it.
The manufacturing industry will be.
Everything in transport will be.
Retail, Etail everything will be.
And so I think the impact is going to be large and we just ---+ we're just getting started.
We're just getting started.
Now that's kind of a first inning thing.
The only trouble with the baseball analogy is that in the world of tech, things don't ---+ every inning is not the same.
In the beginning, the first inning feels like ---+ it feels pretty casual and people are enjoying peanuts.
The second inning, for some reason, is shorter.
And the third inning is shorter than that and the fourth inning is shorter than that.
And the reason for is because of exponential growth.
Speed is accelerating.
And so from the bystander who are on the outside looking in, by the time third inning comes along, it's going to feel like people are traveling at the speed of light next to you.
Now if you happen to be on one of the photons, you're going to be okay.
But if you're not on the deep learning train in a couple of 2, 3 innings, it's gone.
And so that's kind of the challenge of that analogy because things aren't moving in linear time.
Things are moving in exponential time.
Yes, <UNK>.
I think there's a couple of ways to think about it.
First of all, we know that this is the ---+ we know that some ---+ the world causes the end of <UNK>'s Law, but it's really the end of 2 dynamics that has happened.
And one dynamic, of course, is the end of processor architecture productive innovation, okay, end of instruction-level parallelism advances.
The second is the end of Dennard scaling.
And the combination of those 2 things makes it look like it's the end of <UNK>'s Law.
The easy way to think about that is ---+ the easy way to think about that is that we can no longer rely ---+ if we want to advance computing performance, we can no longer rely on transistor advances alone.
That's one of the reasons why NVIDIA has never been obsessed about having the latest transistors.
We want the best transistors.
There's no question about it.
But we don't need it to advance.
And the reason for that is because we advance computing on such a multitude of levels all the way from architecture, this architecture we call GPU accelerate computing, to the software stacks on top, to the algorithms on top, to the applications that we work with.
We tune it across the top, from the top to bottom, all the way from bottom to top.
And so as a result, transistors is just one of the 10 things that we use.
And like I said, it's really, really important to us and I want the best.
And TSMC provides us the absolute best that we can get.
And we push along with them as hard as we can.
But in the final analysis, it's one of the tools in the box.
Yes, thanks a lot.
Thanks a lot, Joe.
You answered it right there.
It's both of those.
On the first ---+ the first thing is that we have to develop platforms that are useful per industry.
And so we have a team working with the health care industry.
We have a team that's working with the Internet service providers.
We have a team that's working with the manufacturing industry.
We have a team that's working with the financial services industry.
We have a team that's working with media and entertainment and with enterprise, so ---+ with the automotive industry.
And so we have different verticals.
We call them verticals and we have teams of business development people, developer relations, computational mathematicians that works with each one of the industries to optimize their software for our GPU computing platform.
And so it starts with developing a platform stack.
Of course, one of the most famous examples of that is our Gaming business.
It's just another vertical for us.
And it starts with GameWorks that runs on top of GeForce and then it has its own ecosystem of partners.
And so that's for each one of the verticals and each one of the ecosystems.
And then the second thing that we do is we have, horizontally, partner management teams that work with our partners, the OEM partners and the go-to-market partners so that we could help them succeed.
And then, of course, we rely a great deal on the extended sales force of our partners so they could help to evangelize our computing platform all over the world.
And so there's this mixed approach between dedicated vertical market, business development teams as well as a partnership approach to partnering with our OEM partners that has really made our business scale so fast.
Well, HPC is different than supercomputing.
Supercomputing to us is a collection of ---+ not a collection but is 20 different supercomputing sites around the world.
And some of the famous ones, whether it's Oak Ridge or Blue Water at UCSC, you've got TiTech in Japan, there are supercomputing centers that are either national supercomputing centers or they could be public and open supercomputer centers or open science.
And so we consider those supercomputing centers.
High-performance computing is used by companies who are using simulation approaches to develop products or to, well, to simulate something.
It could be scenarios for predicting equity, or, for example, as you guys know, Wall Street is the home of some of the largest supercomputing center ---+ or high-performance computing centers.
The energy industry, Schlumberger, for example, is a great partner of ours and they have a massive, massive high-performance computing infrastructure.
And Procter & Gamble uses high-performance computers to simulate their products.
And so I think last year, McDonald's was at GTC and I hope they come this year as well.
And so I think high-performance computing, another way of thinking about it is that more and more people really have to use simulation approaches for product discovery and product design and product simulation and stuff to stress the products beyond what is possible in a physical way so that they understand the tolerance of the products to make sure they are as reliable as possible.
Well, it's not that it's not fair.
It's just not right.
It's not correct.
And so in business, who cares about being fair.
And so I wasn't looking for fair.
I was just looking for right.
And so the data has to be correct.
It turns out ---+ and I said earlier that our hyperscale businesses have 3 different pillars.
There's training, which our GPUs are quite good at.
There's cloud service provision, which is a GPU computing architecture opportunity where CUDA is really the reason why people are adopting it and all the applications that have been ---+ that has adopted CUDA over the years.
And then there's inferencing.
And inferencing is a 0 opportunity for us, a 0 business for us at the moment.
I mean, we do 0% of our business in inferencing and it's 100% on CPUs.
And in the case of Google, they did a great thing and built a TPU as an ASIC.
And they compared the TPU against one of our older GPUs.
And so I published a blog.
I wrote a blog to clarify some of the comparisons and you could look that up.
But the way to think about that is our Pascal is probably approximately twice the performance of the TPU, the first generation TPU.
And it's incumbent upon us to continue to drive the performance of inferencing.
This is something that's still kind of new for us.
And tomorrow, I'm probably going to say a few words about inferencing and maybe introduce a few ideas.
But inferencing is new to us.
It's ---+ there are 10 million CPUs in the world in a cloud, and today, many of them are running Hadoop and doing queries and looking up files and things like that.
But in the future, the belief is that the vast majority of the world's cloud queries will be inference queries, will be AI queries.
Every single query that goes into the cloud will likely have some artificial intelligence network that it processes.
And I think that's our opportunity.
We have an opportunity to do inferencing better than anybody in the world and it's up to us to prove it.
At the moment, I think it's safe to say that the P40, the Tesla P40, is the fastest on the planet, period.
And then from here on forward, it's incumbent upon us to continue to lean into that and do a better, better job.
My assessment is that the competitive position is not going to change.
Mitch, yes, I was just talking about that earlier in one of the questions.
It's called GeForce NOW and I announced it at CES.
And I said that right around this time of the year, we're going to open it up for external beta.
We've been running internal beta and closed beta for some time.
And so we're looking forward to opening up the external beta.
My expectation is that it's going to be some time as we scale that out.
It's going to take several years.
I don't think it's something that's going to be an overnight success.
And as you know, overnight successes don't happen overnight.
However, I'm optimistic about the opportunity to extend the GeForce platform beyond the gamers that we currently have in our installed base.
There are several billion gamers on the planet and I believe that every human will be a gamer someday.
And every human will have some way to enjoy an alternative universe some way, someday.
And we would love to be the company that brings it to everybody.
And the only way to really do that on a very, very large-scale basis and reach all those people is over the cloud.
And so I think our PC gaming business is going to continue to be quite vibrant.
It's going to continue to advance.
And then hopefully, we can overlay our cloud reach on top of that over time.
Well, thanks for all the questions today.
I really appreciate it.
We had another record quarter.
We saw growth across our 4 market platforms.
AI is expanding.
Datacenter nearly tripled.
Large ISP, CSP deployments everywhere.
PC gaming is still growing; eSports, AAA gaming titles, fueling our growth there.
And we have great games on the horizon.
Autonomous vehicles, becoming imperative on all sectors of transportation, as we talked about earlier.
We have a great position with our DRIVE AI computing platform.
And as <UNK>'s Law continues to slow, GPU accelerated computing is becoming more important than ever and NVIDIA is at the center of that.
Don't miss tomorrow's GTC keynote.
We'll have exciting news to share, next-generation AI, self-driving cars, exciting partnerships and more.
Thanks, everybody.
| 2017_NVDA |
2016 | AAWW | AAWW
#Sure, <UNK>, great question.
We've talked about this before we have an engine acquisition program.
It's part of our overall continuous implement program.
We've been able to purchase engines for less than it would cost us to perform overhauls in some cases.
In this case we were able to trade in run out engines for engines that were fresh from overhaul.
And so by trading in these old engines it allowed us to reduce the cost of these other engines.
In this case we pool all of our engines together and so therefore even though these engines were run out, the book value of the engines was on a pooled basis.
And so it creates a very big loss and so for adjusted purposes, we back that large loss out.
It's a non-cash item and so that's the nature of the item.
Overall we trade in the engines, we get to select any engines that we want to trade in.
And so in this case we chose these run out engines.
They happened to have a higher book value which creates this loss.
Military level is fine.
Both cargo and passenger is slightly higher than 2015 and consistent with our expectations as we came into the year.
No, I don't have that, sorry, <UNK>, I don't have that at my fingertips.
But if you're asking how the Amazon warrants will impact that, is that what you're asking.
Sure, sure.
It really depends on what happens to our stock price.
Because the warrants will be accounted for under the treasury stock method and so I don't know how much detail you want to know about that but it's an interesting accounting method but it really depends on where the stock is versus where the exercise price is.
It's a funny accounting method and any amount of the warrants that are in the money will impact the dilution.
So it really depends where our stock is.
We have made certain estimates in trying to provide our framework outlook for today but it really will depend on how our stock performs versus the exercise price.
It's not something ---+ we really don't want to tell you where we think we project our stock price will be.
We obviously don't know but of course we had to make certain projections.
But it really depends on where our stock price will be at the end of the year and how that compares to the exercise price.
And I will point out, <UNK>, that the other part of being down a few percentage points are the costs that we're going to incur as we ramp up our pilot, a number of our pilots and some of the other expenses that someone else asked about earlier on the call.
Because we will be starting at the end of the year flying in 2017 but we really do need to begin to hire and train and take on other expenses, necessary expenses in anticipation of the startup.
So it's coming.
Sure.
We will be hiring additional pilots.
We will be hiring some additional maintenance and other staff and we'll be incurring crew training as we ramp up.
No, so we had previously provided our framework for the year and then we've given you a revised guidance.
So you can see what that difference is and you can determine how you want to allocate that between the various items.
But we've given you a before and after.
Yes, <UNK>, I think <UNK> just commented on that.
I think we expect that our military business, both cargo and passenger for the military should be consistent with or slightly better than the prior year.
So as one of our customers in the charter business is military I don't believe it's front-end loaded.
It tends to be kind of smoother than that through the year, <UNK>.
I think, though, that it's worth commenting a bit about the charter market.
The charter market has changed.
A number of passenger carriers in intercontinental operations have reduced their freighter fleets over the last several years.
And so from our perspective it's a bigger commercial charter market than it used to be.
It's not just fourth-quarter seasonal peak with consumer goods and [EGITS] coming into Transpac or Asia Europe, it's global.
We've just completing a great fresh-cut flowers out of Latin America into the US into Europe for Mother's Day and spring generally as well.
So we're operating over 1,000 charter flights a year.
That's multiple charter flights a day.
I think we've got a great charter salesforce and sales team that understands the market well.
And I think what we'll see are smoother charter-type contributions or good charter contributions through the year.
The market has changed over the last couple of years and of course first quarter last year was exceptional because of all the work stoppages, etc.
, that happened out on the West Coast.
But I think it's a different charter market than it's been.
Thanks, Steve.
Well we haven't got a specific schedule from Amazon but we anticipate that the operations or the vast majority of the operations will be within North America.
We'll get that schedule from Amazon as we're moving closer to operation startup.
As <UNK> said we've already secured some of the aircraft with good line of sight on the balance of the aircraft that we need to acquire.
We'll be working with several shops to convert the aircraft from passenger to freighter.
And I think as <UNK> might've said earlier, we feel very confident about our ability to deliver the converted aircraft to Amazon based on the schedule we've agreed with them.
Okay, I think, Amy, you said there weren't any other questions.
So with that, <UNK> and I would like to thank everyone for your interest in Atlas Air Worldwide and for taking time to join us on the call here today.
We look forward to speaking with you again soon and hopefully seeing many of you at our Investor Day which we're going to hold on June 15 in New York at the NASDAQ market site.
So thank you once again.
Thank you.
| 2016_AAWW |
2016 | TDS | TDS
#It's <UNK>.
Let me start with that.
Up until two hours ago, when the markets opened, I felt we were marching right down that path.
I looked at what we produced for the quarter, what we produced relative to our own guidance, what we produced relative to consensus, and I'm real happy with where we started.
The fact that we've got some part of our base that's looking for something different, I can only deliver on what I've kind of set out as our strategy; and our strategy is to continue to improve our local market position, continue to strengthen the company, grow revenues and grow cash flows.
And I don't see anything else on the short-term horizon that's going to either change our strategy or change our trajectory.
<UNK>, this is <UNK>, I will just reiterate what <UNK> said.
We are pleased with progress that US Cellular has been making.
You know, it doesn't come overnight.
We are committed to helping them be successful and at some point, whether the shareholders recognize that are not; we think they will.
You know, we don't have any imminent transactions, engineering-type things that would drive any immediate shareholder excitement, if you will, but we are committed to US Cellular.
<UNK>, great question.
As you so aptly put it, strategic asset.
It's important to us.
It is critical as we continue to evolve our network, and it's critical especially given some of the, I'll call it, games, some of the tower companies are starting to play, in terms of trying to extract more value out of their assets from their perspective of being a landlord.
And so having a large portion of our towers that we own, and not subject to those pressures, is important.
Secondly, we continue to lease out our asset.
I look at it kind of on the same-store basis or comparable basis on a year-over-year basis, our tower rentals were up 10%, about 11% year over year.
And so, we will continue to capture as much value as we can in the marketplace off of those assets, while retaining the strategic control we need so that we can continue to evolve our networks.
It's amazing how we are just finishing out 4G, we are about to embark on Voice over LTE, which will require more modifications, and people are already testing 5G.
Well, that's going to put more strain on those very assets, or increase their value even more in the future.
Yes, <UNK>, I'm going to stick to the old answer to that.
We are committed to our investment strategy of for every three dollars we invest in the business returning one dollar to the shareholders over the long term.
And I think you will see that play out this year as well.
Good morning, <UNK> thanks for the question.
First of all, with respect to VoLTE, yes, it is a pretty well-documented fact that the coverage on the voice side with CDMA is a wonderful, wonderful product.
And when you have built your network with that product and then you then try to overlay Voice over LTE in the same cell sites, there's an initial coverage, what I'll call gap, almost.
And it is something that we saw in the tests that we ran last year, and it's something that our deployment schedule has been built around, in order to eliminate it.
And there are various techniques our engineers are using, such as moving equipment to the top of the towers, which gets back to having control over those towers, so you can move your equipment when and where you need it.
And they are using other engineering tools so that when we do turn on VoLTE, we are able to deliver our customers the same and better services than they are getting now.
So that's why we haven't been rushing to it.
We're going to be very deliberate and proceed with caution, like we have in every other technology change in the past.
Around your A block question, our primary competitors in our markets are Verizon and AT&T, in that order.
And it's based upon, you know, which of them have the original cellular license in that market; which allows us, who have one of them, and Verizon or AT&T that have the other, to really on an economical basis, build out a very vibrant coverage area.
The 700s have some of the very similar characteristics, and so we've heard about other carriers starting to build out their 700s and increase their competitive footprint.
But particular to the question you asked about T-Mobile, they are building out, it's my understanding, the 700 A block.
And we have been successful in most of our markets acquiring that 700 A block.
So if we own it, they don't own it.
So we are seeing them in a couple markets, but for the most part, they are building out in markets around us, near us; and as we get to us turning on VoLTE, looking forward to be able to serve their customers as they roam into our markets.
We have time for one more question, operator.
A couple things.
One, I will look at ---+ I don't have any information as I'm sitting here talking to you now that bridges one or the other, or talks about one component of our revenue or not.
We will look and see what might be in the corners of all of our other analysis, but I have any of that right now.
On the timeframe, there isn't a drop date.
I think <UNK>'s talked about how we are committed to this business.
We've continued to grow the customer base, which is the precursor to growing the revenue.
We also talked about the work we're doing around roaming.
We ---+ not talked about the work we are doing around advertising.
There are many different sticks and logs on the fire that we are all working on to drive revenue, which is the key metric in any long-term business.
But no, I don't have a drop-dead date to give you.
Okay.
Would like to thank everybody for joining us this morning and we're available for questions throughout the day, and we will hopefully see some of you next week.
Thank you.
| 2016_TDS |
2018 | CATY | CATY
#Thank you, <UNK>, and good afternoon.
Welcome to our 2017 Fourth Quarter Earnings Conference Call.
Today, we reported net income of $25.9 million for the fourth quarter of 2017, a 46% decrease when compared to the net income of $48 million for the fourth quarter of 2016.
Diluted earnings per share decreased 46.7% to $0.32 per share for the fourth quarter of 2017 compared to $0.60 per share for the same quarter a year ago.
Fourth quarter results were impacted by the enactment of the Tax Cuts and Jobs Act.
As a result of the new tax law, the bank recorded a onetime revaluation adjustment of $22.3 million to reduce its deferred tax assets and a $2.6 million pretax write-down of low-income housing investment for a net impact of $0.29 per share.
Adjusted for these 2 items, fourth quarter earnings per share was $0.61 per share and were impacted by higher amortization expenses, which <UNK> will discuss in his remarks.
We made significant progress in 2017 from organic growth and from the acquisition of Far East National Bank.
The system conversion of the former Far East National Bank onto Cathay Bank systems is scheduled for April 2018, which will permit completion of the integration of our operations.
In the fourth quarter of 2017, our gross loans, excluding loans held for sale, increased $274.9 million to $12.9 billion, an annualized increase of 8.7%.
Including the acquisition, we grew our loans by $1.7 billion or 14.9% when compared to December 31, 2016.
The increase in loans for the fourth quarter of 2017 resulted primarily from residential mortgages and commercial mortgage loans, which grew by $139.5 million or 19.1% annualized and $107.7 million or 6.8% annualized, respectively.
Commercial loans increased $41.4 million or 6.8% annualized.
We anticipate organic loan growth in 2018 to be around 8%.
For the fourth quarter of 2017, our total deposits increased $128.2 million or 4.1% annualized to $12.7 billion.
Deposit growth for the fourth quarter of 2017 resulted primarily from time deposits, which grew by $234.2 million or 18.2% annualized.
With that, I'll turn the floor over to our Executive Vice President and Chief Financial Officer, <UNK> <UNK>, to discuss the fourth quarter 2017 financials in more detail.
Thank you, <UNK>, and good afternoon, everyone.
For the fourth quarter, we announced net income of $25.9 million or $0.32 per share.
Our net interest margin was 3.65% in the fourth quarter of 2017 as compared to 3.36% in the fourth quarter of 2016 and 3.75% for the third quarter of 2017.
The change in the net interest margin in the fourth quarter was due to interest recoveries and prepayment penalties, which added 7 basis points to the net interest margin compared to 16 basis points for the third quarter of 2017 and 8 basis points for the fourth quarter of 2016.
Noninterest income in the fourth quarter of 2017 increased $2.2 million to $10.2 million when compared to fourth quarter of 2016.
The increase was primarily due to increase in net income from venture capital investments, wealth management commissions and other fees recorded in the fourth quarter.
Noninterest expenses increased $12.9 million or 24.1% to $66.4 million in fourth quarter 2017 when compared to $53.5 million in the same quarter a year ago.
The increase was due to a $5.8 million increase in amortization of low-income housing and alternative energy investments, $3.5 million in salary and employee benefits expenses and a $1.2 million increase in professional expenses ---+ professional services expenses, offset by a decrease in other real estate owned expenses of $2.6 million.
In addition to the $2.6 million write-down of low-income housing investments as a result of the tax credit ---+ Tax Cuts and Jobs Act, the company booked a $1.8 million catch-up adjustment to the amortization of certain older low-income housing investments as a result of the new tax act, $900,000 in solar tax credit impairments as a result of the new tax act and $950,000 in legal settlements.
In addition, there were $844,000 of integration expenses related to Far East National Bank.
As mentioned previously, the Tax Cuts and Jobs Act was enacted into law.
And as a result, during the fourth quarter of 2017, the bank ---+ the company recorded a onetime revaluation adjustment of $22.3 million to reduce its deferred tax assets.
We plan on making new investments in 2018 in solar tax credit investments, which would bring our effective tax rate in 2018 to between 17.5% to 18.5%.
We expect solar tax credit amortization of about $20 million in 2018, most of which will be in the second half of 2018.
At December 31, 2017, our Tier 1 leverage capital ratio decreased to 10.31% as compared to 11.57% at December 31, 2016; our Tier 1 risk-based capital ratio decreased 12.14% (sic) [decreased to 12.14%] from 13.85% at December 31, 2016; and our total risk-based capital ratio decreased to 14.07% from 14.97% at December 31, 2016.
All ratios significantly exceeded well-capitalized minimum ratios under all the regulatory guidelines.
At December 31, 2017, our common equity Tier 1 capital ratio was 12.14%.
Net recoveries through the fourth quarter of 2017 were $1.7 million compared to $1 million in the fourth quarter of 2016.
Our nonaccrual loans, excluding loans held for sale, decreased by $25.3 million or $16.6 million to $48.8 million or 0.4% of period-end loans as compared to the third quarter of 2017.
Thank you, <UNK>.
We will now proceed to the question-and-answer portion of the call.
Wanted to start maybe just with credit costs actually.
Full year 2017 ended up still in the negative with net recoveries.
As we look out to 2018, should we expect that to return to positive provisioning.
And any other color you could provide around that.
Yes, <UNK>, this is <UNK> <UNK>.
We think that our loan growth will be about $1 billion.
And absent any large net charge-offs, our ---+ we probably will try to provide around $10 million for 2018.
At which ---+ it probably would start in Q2 based on what we know right now as to our ---+ all levels.
Okay, great.
And maybe just on the deposits, the growth was good this quarter, but what's kind of the outlook for next year in terms of deposit pricing pressure that you may see.
And did that influence your NIM outlook of kind of gradually increasing throughout the year.
Yes, I think it's a new role for us in terms of the Fed increasing ---+ or the Fed fund futures imply 3 primary increases.
And so far, we've not had to increase our core deposit levels ---+ rates.
But ---+ and for the incremental funding, we've gone to the brokered deposit markets.
I would think at some point, as we would ---+ other banks ---+ us and other banks will start to increase deposit rates, particularly in jumbo CDs and some of the larger money market balances.
So that's ---+ yes, we're not sure, but it's ---+ and that's why I think our guidance is in that range of 3.7 to 3.8.
Yes.
Well, first, on the solar amortization, that looks to be almost all in the second half of the year based on the ramp-up.
Then on low-income housing, we think it will be $5.5 million of expense per quarter, starting in Q1.
And then as to overall expense levels, we ---+ our fourth quarter run rate has just a modest amount of cost saves from Far East.
We think once the system conversion is completed and that during the course of 2018, we would save around $8 million from Far East and with onetime expenses, severance and conversion of $1.5 million to $2 million.
So put all that in there, we're thinking our core expenses, excluding the amortization, will go up around 4% for next year because we are getting the savings from Far East.
Yes, we've switched mainly to a 15-year MBS portfolio.
That was ---+ we're gradually shifting to that, and that tends to not have a lot of prepayments versus 30-year MBS.
And then in terms of the size, we are ---+ we have about $300 million in treasuries at the end of the year, so we're going to move $100 million of the treasuries into MBS.
And in terms of the pace of the investment, for the first half of the year, we're going to invest about $50 million per month.
So that would imply a net growth in the securities portfolio of about $200 million.
And as a result, the cash at the Fed would go down by about $200 million.
Yes, yes, yes.
Yes, yes.
So in terms of the unusual expenses, we have, first, the $2.6 million write-down of low-income housing.
Most banks are on a proportionate amortization for low-income housing.
So that shows up in income tax expense.
We're on the equity method, so that shows up in noninterest expense.
And then we have $1.8 million catch-up adjustment for low-income housing and then $900,000 in solar tax credit investments where we made those investments when they were at 35% federal tax rate.
And if you factor in a 21% federal tax rate, there's an impairment there once again of $900,000.
And then we had a onetime legal settlement in the fourth quarter from some long-standing claims of $950,000.
So those are the general onetime things.
Yes, it's in the income statement on the press release, but it's $844,000.
About 3.3, that ---+ I mean, that's what the Fed fund future is showing, yes.
3.
<UNK> may add in, but I think, first, we think we have pretty good loan growth.
So that's our first priority.
I mean, if we can have higher than 8% loan growth, we ---+ that would be good.
Then the second one is we would increase our dividends probably in second half of the year.
We normally pay out 40% of our earnings.
And with the higher ---+ because the tax rate is lower, our earnings are going to be higher.
And then I think acquisitions are a possibility, but we're focused ---+ we want franchises with true longevity in customer base, particularly in deposits.
And so there aren't that many that would be Chinese.
And then buyback, I think we're probably not going to be buying back our stock at the current levels.
Well, we are always open to possibility of acquisitions.
However, we are very careful picking the target.
We want to make sure that it's a good match for us, synergy accretion to our earnings.
So given all these conditions, that there aren't too many in the marketplace right now.
I think the most promising in terms of growth is still residential mortgage.
We did very well in 2017 and we still have a very good, solid time line.
And another area of growth is the C&I.
We started to see results from our expansion into oil and gas industry.
And also, we're acquiring, recruiting experienced relationship managers.
So we start to see the outcome, the results coming in from those new hires.
I think that it's still very competitive in terms of loan market.
So we see a new squeeze in the net interest margin.
For the new loan coming in, there's many banks bidding on the new loans.
So I would say given the rate rising environment, we'll see some growth in the new ---+ in our loan asset.
But it won't be too significant is our guess, based on the competition.
Yes, I think ---+ sometimes I get involved in loan pricing as well.
But I ---+ one of the good things about our loan base is that so many of the loans are longer-term loans, like residential mortgage.
We haven't seen much ---+ it's a normal pricing that's linked to 5-year treasuries, which is kind of where we land.
And then on CRE, the great bulk of our loans tend to be 5-year or multiyear loans.
So we may see places where there's very competitive pricing on a couple of customers, like for the ---+ we have a big legacy book that will carry pretty good spreads.
So that's ---+ I mean, we want to do what's right for the shareholders in terms of delivering operating leverage and having net interest income continuing to grow.
For residential mortgage, yes, primarily 3/1 and 5/1 ARMs.
We do some fixed ---+ 15-year fixed.
Well, for new single-family residential mortgage, it's probably about 40 basis points.
And then I think C&I, it's probably closer to 1% all in, and the same thing with CRE.
And then construction, it's a little bit higher because of our historical losses.
Well, we have so-called 2 notes.
That's probably the primary driver.
Yes, yes.
One was sold off in November from the East ---+ from our Eastern region.
And the second one, we moved to held for sale.
And that deal ---+ that sale closed a couple weeks ago.
Those are both par deals, so we're happy.
Yes, yes.
They're both from the Eastern regions.
Well, we're ---+ that's ---+ we're using broker CDs that keep our net loan to deposit ratio at 100%.
Because we have such strong loan growth in the ---+ in December, we were ---+ we went a little over 100%.
But the CD market, it's a very broad market.
We black out the 2 main states that we're in, California and New York, and so if we need to, we can generate easily $100 million per month.
But they're at market rates which tend to be treasuries plus 10 basis points or thereabouts.
So far, there's no surprises.
So it's ongoing, and then we will have the systems conversion in April.
Then we'll be able to generate more cost savings.
Yes, and then we also have some ---+ I believe we moved one of the branches last week.
It's right across the street from us.
And then their main branch is in downtown, and they own ---+ it's pretty expensive in terms of operating expense because it's a whole ---+ it's a 4-story office building.
So we moved most of the people out of there and that branch is scheduled to close in the middle of February.
So starting then, we'll report that as ---+ those idle facilities as integration expense.
So you'll get ---+ so investors will get an idea as for the clean run rate.
Thank you for joining us for this call, and we look forward to speaking with you at our next quarterly earnings release date.
| 2018_CATY |
2016 | HZO | HZO
#We haven't quantified the EPS impact in the March quarter.
We did sell and deliver some boats.
I guess you could argue it contributed some, but when you take out the elevated marketing costs and setup of the brand, it would be negligible in the quarter.
It's really more of a future opportunity for the Company and not a massive driver of EPS in 2016, moreso a contributor in 2017 and certainly in 2018.
And an interesting point about Galleon, David, is we do not see it as being cannibalistic to our core brands of Azimut and Sea Ray.
And actually what we're seeing is that the sales that we are making and the boats that are sold that are on order are really hurting the competition.
And so we are taking share from others that had taken it away.
So it's a complementary brand that is in addition to our stores, and I mentioned in the script that it makes it a one-stop shop.
So as people come in we've eliminated some of the competition out there and so they are buying from MarineMax, and so products are different from the Sea Ray or an Azimut, and so as such they are staying with MarineMax and we are taking share as a result of it.
It will show up in the market share reports as they start to come in, in future dates.
I'll take a stab at it, maybe <UNK> can add into it.
What we are taking in on trade ---+ being a new boat dealer you tend to take trades on anything that's in the high 20s or above 30 feet.
And that's true today, it's true last year or the year before.
We are certainly bringing more new people into boating with the introduction of some of the new smaller Sea Rays, which ---+ by definition, someone buying a 19- or 20-foot may be new to boating.
And we're selling a lot of those and taking share, which is good.
And the percentages really haven't changed.
If you look at the larger boats, probably 75-80% are given as a trade.
You look at the smaller boats and it's a much smaller percentage.
As far as average age is concerned of the trades, we are seeing some newer boats that are trading, especially like with Sea Ray, where we have got some hot new models, with the SLXs and the 40-footers and the 45s and, of course, the 59s and 65s.
And so it's bringing some of the people that bought boats two or three years ago back to say, hey, I like this new boat that they've just come out with.
So I don't think we'll have as much of the ageing issue we had where people were trading 15- , 18-year-old notes to us for the last 10 years.
They haven't been trading up until just more recently.
So we are a little more encouraged than we were at this time last year.
And as <UNK> mentioned, we feel very comfortable with our used and the quality that's there.
And we are in a better position than we have been historically.
Thanks, <UNK>, a good question ---+ no, we have not changed the leverage assumptions.
So we typically say we get 15% leverage out of the pretax line.
Of course, that's a range of 12% to 17%.
It can be higher.
We are using more like the 12% range until we get through this June quarter.
So no, we have not modified that at all.
I'd say that if the things that we can control in looking at our Company, we feel pretty optimistic about this year.
But there's so much external that we just don't have the control over.
We are in an election year.
You've got the noise going on with the Feds, etc.
, etc.
And so we just don't want to try to predict the future, based upon what we are seeing and hearing from the customers because it could change pretty rapidly, depending on what happens with all the noise that's on the news and going on in the world and the economy.
But, all in all, we are encouraged by what we're seeing.
We understand we've only delivered a small part of the year, even though it has been very positive.
And we've still got a lot of runway ahead of us and we are ---+ as we mentioned, April is a bigger month than March, and May gets larger and June is our largest month and right in the peak of the season.
So, we've still got some time ahead of us and we've got a bunch of boats to get delivered and see how it goes.
I think, ultimately, when you get through the full year, our inventories should not grow in excess of same store sales.
We should be looking at modestly improving terms throughout the year.
There's very little Galleon in our inventory today.
There's some but very little.
And your commentary around Russo is accurate.
That's a good way to estimate what their inventory levels are.
But the elevated amount ---+ I won't even say elevated.
The amount of inventory we have today ---+ it's really driven by Sea Ray, Azimut and Whaler inventory that we strategically worked with the manufacturers to have in place in time for the season.
So, in the back half of the year, that begins to taper down a little bit as you and our fiscal year.
If you look at 2015, we needed more new product from Sea Ray and Boston Whaler, and so, when we got the ability to build a little bit of an inventory, especially in some of our regions, and didn't see the new inventory last year, we've taken this opportunity to do something.
And so, that's probably the biggest increase as to why the inventory is up is we want to give our other regions and stores the opportunity to sell some of this new product.
To do that, you've got to have it.
My commentary was around the backlog when we started the June quarter, which would obviously include April, May, June.
There is some sales all the way out into the future, going all the way out into January of 2017 in there.
And as a percentage it's much more meaningfully up than what our same-store sales is up, which is a very good sign.
And you see our customer deposits up.
The backlog trend has been tracking higher since 2012, maybe even late 2011.
And so it's definitely good to see.
In terms of brands, and it's really all of our brands are contributing to the backlog.
I hate to be such a generalist like that, but Sea Ray is doing well.
We've got a lot of sold on order in Sea Ray, sold available products, stuff that we have in inventory.
Azimut is doing well, Alexander, Whaler, Galleon ---+ anything that is relatively new is selling well in our backlog.
I don't think in the near term there will be much of a drag.
I think, number one, they run a good business.
We are very glad to have them onboard.
I think in the future you're going to see the ability to expand their topline by selling inventory that we have other places in the country and helping even grow share further, which will then leverage their cost structure more.
There are certainly some synergistic costs along the way, whether it's interest or insurance or things of that nature that we always have.
We always focus more on just that topline growth that we think we can help them with.
But the ability to offer to the good customers and clients that they have in the Boston market, Ocean Alexander and larger Azimuts ---+ that's all a wonderful opportunity and it adds to their business and our business at the same time.
We did not, but it's several hundred thousand dollars.
If you do the Miami boat show display, West Palm Beach project is, some marketing materials ---+
Training.
---+ Yes, training, stuff like that, it would be upwards of $500,000.
Well, you would have sales to offset.
You would have more leverage.
And you are right; you would not have that big of a chunk repeating itself.
So you have both ---+ one, reductions; and then, two, you start having more deliveries coming in.
For the June quarter, yes, I'd say those are pretty good estimates of how the June quarter falls.
It may not be quite 50% anymore at June and I think may pick up a little bit more.
But June is the biggest month.
April would typically be the smallest.
And then it has a crescendo effect just before July 4.
Yes, the earn-out would include increased productivity from us being involved.
They have still got to sell the product, take care of the consumer and do all that stuff with each of the opportunities that we would bring to the table.
And if you look at real synergies and the ability to access to the inventory, both new and used, all across MarineMax for Russo is a huge synergy.
We may have a 42-foot Boston Whaler that is available four to six months earlier than it would be that it would be if they could do as a private dealership.
Obviously, leveraging the brands primarily initially here, the larger Azimuts and (multiple speakers) Ocean Alexander will be huge.
If you look at finance and insurance, we have New Coast Finance as well as the finance and insurance operations within our stores.
And so the ability to get customers financed ---+ we have a real competitive advantage over almost any dealer that's out there in the marketplace today.
And of course, that becomes an advantage for Russo.
I can tell you that they have some business practices and things that they are doing which will be an advantage to all of MarineMax.
There's things that they are doing that we will learn from, and so they will be part of our team.
And as we get our general managers, which are our store managers, and regional presidents together, which is actually occurring in a couple weeks, they will be part of that.
And one plus one equals three when you get good minds together.
So, there's a lot of synergistic opportunities.
And we can't say it enough; there is no culture change that's needed here.
They are very good people.
They take excellent care of your customers.
They understand that boating changes people's lives as well as our team does.
So it's a great addition to the family with almost no hiccups.
We installed our computer system because they were on a different computer system, and that happened prior to the acquisition occurring.
And we had our team in counting inventories and doing that due diligence and training and HR, etc.
, etc.
And it was all part of the family.
So we are very excited.
Moving forward, there's others that we are in discussion with, and similar type cultures and in some great markets.
And when the time is right we will add them to the family as well.
And we could do something almost immediately with a couple of them, but at the end of the day they're in the peak of the season, too.
So we don't want to disrupt business with the transition into being part of the MarineMax family as well.
So we will keep looking at opportunities, and when it makes sense we will deliver.
They are getting to be more meaningfully profitable coming out of the downturn.
That was a crucial thing that had to occur to have more robust discussions with the different levers that we are talking to.
Just like our own earnings have doubled from last year and maybe doubled the year before that, the other dealers are seeing that as well.
So when you start to put a multiple on something there's at least something you can discuss about from a payment perspective, which results in healthier discussions, quite frankly.
And everybody we are talking to believes the future is much brighter than the past.
We all do, with the models that are coming out and with what's going on in the industry.
So there are different discussions around an earnout or some future like an earnout in some of the acquisition discussions that we have going on right now.
But first and foremost, the thing that we look for in an acquisition is the team, the people, because it doesn't work that way.
If you've got the right people with the right culture and it is a good market, it works.
There's acquisitions that we could go and do that wouldn't truly be a merger into MarineMax.
But those can take a long time to fix.
So we're going to stay true to this is about long term, not about short term.
And so if it doesn't make sense we wait a little bit until it does make sense or we look elsewhere.
So we are being very careful because a bad acquisition is not good.
But what we are paying, it's accretive the first year in almost every case.
So we are going to keep doing our due diligence.
And at the end of the day it's about the people more than anything.
And you'll see that with Russo if you were to visit their stores or talked to some of their customers or when <UNK> and I are on roadshows and we're visiting Boston, most everybody we talk to is very familiar with Russo Marine.
And of course now, it's MarineMax Russo Marine.
With Sea Ray, we are probably in the fourth or fifth inning, maybe.
And as far as refresh of the product they are a little further than that.
But availability of that product still has some opportunities but they are coming out with it.
Azimut has been giving us new product all along, and they are well on track with fresh, new products and are really outstanding.
And Boston Whaler ---+ wow ---+ knocked the cover off the ball, and they are ramping up the hot boats.
And they have quite a few, coming out with new models as well.
The same with Scout and Nautique.
I'm an avid water skier every weekend, and my boat is the old fart type of boat where you are out slalom tricking and bare footing.
And that model is being refresh this year.
I haven't seen it yet, but I plus all the other competitive skaters are going to be running to it when it does come out.
So it's new that sells, whether it's Sailfish or Harris or Crest.
And we are getting it from pretty well all of our manufacturers.
And so ---+ a very exciting times because it's really what was missing.
And if you look at the downturn in 2008 and 2009, the thing that we were missing as a company from our primary supplier, Brunswick, was fresh new product.
And it hurt.
If we had had fresh new product during that time, they would have sold even in the downturn.
So, if we have another one or when we have another one, having fresh product at our stores that are hot and fresh and new will serve us well because people are boating and they're going to continue to boat.
Boating is growing.
We are encouraged by what's happening with the manufacturers.
Well, thank you, operator.
And in closing, I'd like to thank all of you for your continued support and interest in MarineMax.
<UNK> and I are available today if you have any additional questions.
Thank you.
| 2016_HZO |
2016 | GHL | GHL
#Thank you.
Hello, <UNK>.
I mean, there's a limit, obviously, to how precise I can be or want to be.
All I can say is that we certainly are ending this year in a more robust way than probably a lot of people thought we would when they thought we were maybe too tied to a couple of key transactions.
It's pretty clear to us that a fair amount of that momentum will carry over into next year.
It's obviously difficult to say what's going to close in Q1 versus Q2.
But we feel reasonably good entering next year that we're going to continue similar momentum to what we've had.
Certainly compare favorably to what was a relatively weak start to 2016 and, but we'll see exactly how it develops as the quarters go on.
Well, if it's the best revenue quarter and non-comp costs are relatively flat, I think that's probably a reasonable assumption, because our non-comp costs are, as I've said, they are best looked at in absolute terms.
We certainly don't expect a huge move in tax rate, or we would be adjusting our tax rate differently for the year to date.
As I've said, you tend to fix that on an estimated basis for the annual.
So, yes.
I think that's a fair assumption you're making there with your math.
I don't have that handy.
I would say this, though, that I think that the kinds of revenue levels we're at now, that's kind of not that much of a relevant question.
I mean, it became a relevant question when we had grown some and, for example, last year had a relatively soft revenue year in part because a lot of things rolled over into this year.
Then, questions like okay, how much comp is really fixed becomes quite important because it can impact your comp ratio.
We're now at the level of revenue run rate and profitability where comp is all about upside and discretionary comp to people as opposed to how much do you contractually need to pay them.
We have about low-70s right now.
I wouldn't want to put a specific number on it for end of next year.
I mean, as I've said, we're quite hopeful of a significant recruiting year next year, including with a maybe even another one or two before this year is out.
So we'll have a few promotes.
I'm sure we'll have a few people either retire or move to senior advisor, whatever the status may be.
So there'll be pluses and minuses, but I certainly expect we'll see significant net growth net year just based on the recruiting pipeline that we're looking at.
All right.
Thank you.
I wouldn't want to try to draw a conclusion so quickly.
I mean, anybody who joined this year, I mean, some of them literally joined in the last several weeks, having committed to join us four or five months ago and then working through their so-called gardening leave or their notice period before they could join.
So we certainly hire people on a long-term basis, not on the expectation that they could agree to join us in April, actually come in July, and produce revenue before the year's over.
I wish it was that easy, but it's not.
And I think last year's recruits are making good progress.
You first measure that will the quality of client dialogs they have.
Then you measure it with the ability to get engagement letters signed with assignments whether or not it leads to a transaction.
Then of course, over time, you want to see those actually turn into assignments and that ultimately to transactions, and that ultimately to completion revenue.
But you have to go through all those steps before revenue actually appears on the income statement.
And so we can say that we're happy with our recent recruits and we think they're doing all the right things and hopefully going to have great success here, but it's not in a way you can measure in revenues real quickly.
Well, I don't want to make a forecast as to what next year's going to be.
We obviously don't do that and we're still working through this year.
We're trying to push this year, obviously, as far as we can and have all of our efforts focused on that.
It's starting to feel like we have a nice pipeline going into next year.
How exactly the year plays out, there are many variables there, but at least as of right now, again, in the US in particular, it feels like the M&A market is reasonable active and we think we're going to get our share of the opportunity.
All right.
Thank you.
And I think that's our last question.
Thanks, everybody, for calling in and we'll speak to you again in three months.
Bye, now.
| 2016_GHL |
2016 | FTK | FTK
#Sure, thanks for the question, <UNK>, and thanks for refreshing our memory.
I think everybody or I would hope everybody on this call understands that in this environment, if you are using a technology that some people have viewed as a like to have versus a have to have, the microscope look on every dollar that is spent is even heightened and the fact that that largest operator in Midland has continued to use CnF on best practices for every well and is increasing its usage speaks to the point of the benefit they can isolate for CnF being involved in the optimization of their completion program as they continue to refine and optimize it.
With respect to the peer-to-peer communication, I think there really is a change in the industry that a lot of, as you say, keep your cards close to your vest by many of these operators has changed.
I think everybody understands they are in this together.
A lot of the leases have been secured in the Permian.
Some people are even swapping leases with each other to be able to affect different operators having more lateral length to be able to drill with.
It's a level of cooperation that I have certainly not seen in many years, and so people are being a little bit more free with how they are going about their completions and drilling programs, which I think is overall very good for the industry.
And we are ---+ we like to point out that folks have a little different experience when they involve Flotek, and it is great that those operators are sharing that to the other people that are, in many cases, just across the fence line from them.
But we certainly, as you recognize, see a dynamic changing in the industry from what most of us have been used to for the last couple of decades.
Does that help.
Sure, so the adjusted EBITDA calculation for purposes of the bank covenants is EBITDA plus stock comp expense.
In the first quarter, stock comp expense was $2.4 million.
It was a little lower than normal because of how we settled the year-end stock comp expense for our executives.
Going forward, that number usually runs about $3.4 million per quarter.
Yes, that's the only addback, the stock comp expense.
That is two quarters, so at September 30, we will combine the second and third quarter adjusted EBITDA to achieve the $8.4 million that is required by the covenant.
Right, so if we bridge from the first quarter to what we would end up with in the third quarter for the trailing two quarters, we feel like the cost reductions that we have already taken and what we have near term, clear line of sight to, is going to be adequate to get us over that covenant level.
Now, the business obviously, as you are inferring, can continue to deteriorate and that will probably be manifested mostly in our drilling segment, but we feel confident that the opportunities that <UNK> was referring to internationally, as well as the new product line and other things that we have clear and close line of sight to, will be more than enough to offset any additional downturn we might see in the drilling business.
We don't have to have all of those things come in for us to achieve what we anticipate the additional downturn might be in the drilling segment.
So we are comfortable that going forward we will have the coverage that we need in the next couple quarters.
<UNK>, this is <UNK>, and for everyone on the call, I think like all of our brethren before us that have had their earnings call, they're talking about how difficult it is to see through the second quarter, and we want to remind everybody that the second quarter is traditionally a very difficult, unpredictable quarter even in good times, due to the Canadian breakup.
For heaven's sakes, I think there is 37 rigs running up there now, the weather that normally happens through the central part of the United States and the Rockies, but from what we can see, we don't see any type of material degradation in the chemistry activity.
In fact, and maybe we will have a chance to talk a little bit more during the rest of the call, but this PrF technology that we've worked on should really ---+ it's a market penetration story.
Once again, we are very confident of the market's receptivity to it because now we have got a whole series of years that people have trusted our way of customizing chemistry, as opposed to where we were 4-1/2 years ago.
But as comfortable as someone can feel in this environment, we feel okay looking through the second quarter heading into the summer.
Yes, so I will take just the first part of that and then <UNK> can give you the full color.
But we don't want anyone to leave this call feeling that we're concerned about a shortage of the citrus as it pertains in particular to the energy chemistry effort.
And it is really through the proper positioning of the purchasing, the short- and long-term contracts we have, that give us that great assurance that really was a terrific result of the acquisition of Florida Chemical.
But the guy who purchases more citrus oil in the Western Hemisphere than anyone, fortunately, is with us, <UNK>, and he will give you a little more color on that.
Good morning, <UNK>.
When you look at our inventory position, we have to think not only about internal moves, but our external needs of our customers.
And we lay that against what we see coming not only out of Florida, but out of Brazil and Mexico and other places around the globe, to ensure that we have availability for those needs.
That is one of our primary functions to the marketplace.
And in anticipation of Florida's crop being lessened, we went ahead and purchased more materials, accelerated some deliveries from offshore suppliers to make sure that we would be in an adequate position during Q1 to supply the market needs.
That certainly has proven to be a good strategy.
I don't see any shortages or any concerns about availability going forward.
We are well positioned, and when you look at our forward sales on the other side of the equation, we have also had more (inaudible) from the customer base externally that helps justify that increase.
Does that help you, <UNK>.
Okay, I think the folks ---+ and great question.
Again, really to refresh people's memory, I think if you check back over the last couple of earnings calls, I have tried to be pretty consistent that we see Latin America through South America with Argentina not only with chemistry, but also with our downhole technology, which is really increasing more distribution not only with Teledrift, but now Stemulator is down there, motors are there, and there's 100 some odd rigs running in Argentina, three times the amount of Canada, for heaven's sakes, or 4 times.
So, we think that, again, word of caution is everyone, I think, on this call knows international projects take a little bit longer, but Argentina has righted itself with the new government that is more favorable to doing business there, good for us, good for the other service companies that work down there, but the Middle East, as we have consistently said, we have more than a handful of unique research projects underway with the largest oil company in the world, Saudi Aramco, between their research group here and their group over there in Dhahran.
And our business is continuing to increase there as they are trying to figure out with us how to be the most effective in their unconventional completion efforts.
So I would say those two areas certainly have our focus, and stay tuned, and then in the weeks and months ahead we will be able, I think, to give you some additional information as to why we are positive there.
Does that help.
And in terms of the revenue side of things, <UNK> will give you a little bit of clarity on the international portion of our overall business.
About 15% of our total revenue is [being] outside of North America.
Yes, I don't know that we really give that level of specificity, as much as anything for just protecting some of our market penetration strategy.
We will tell you this, that there is a high level of movement, always has been, north of 80% easily when someone does a validation to become a repeatable client, and there is the repetitiveness retention rate of a repeatable client also is well above 80%.
And I think what folks really need to try to keep in perspective is that a lot of the validations that have been done in the fourth quarter and in the first quarter were done with companies that had expectations to have more rigs running now than they do.
So some may have six ---+ had six rigs and are now at two.
Some had four, now at one, but they keep running CnF, and then the opportunity has shrunk somewhat with those that have completed validations, but we have even, surprisingly enough, had commentary from some of those clients that when they pick rigs back up that they are targeting in June and July, they will start right back with CnF, which is really pretty unusual from my experience.
So, I hope that answers your question.
Not trying to be evasive, but trying to protect some market intel for ourselves, just because I think it's the prudent thing to do.
Does that help for you.
That's a great question.
I am sure other folks are thinking about it.
And right now, it is at about, on an average, about 1.2 gallons.
We have several folks that are injecting the CnF at 1.5 gallons and, as we mentioned, one particular validation at 2 gallons per 1,000.
And I think what, again, we need to try to put into perspective is that for years and years and decades, the rule of thumb, no matter what the attitude was, you pump 1 gallon per 1,000, I don't care what you are pumping, and what we are trying to illustrate here is that that is not necessarily the best and most optimum use of your investment.
And then, when it is appropriate to pump more than that, you should.
If it is appropriate to pump something less than that, you should do that as well.
So, moving the industry off of this traditional 1 gallon per 1,000 mindset has really been ---+ has been quite an accomplishment.
And I think it resonates with custom chemistry, but long answer to your question a little bit, but about 1.2 average, 1.2 gallons per 1,000, is the average right now, but it's moving up.
This is <UNK>.
I will take that.
The CapEx, certainly our biggest spend in CapEx right now is the completion of our global Research & Innovation lab.
That should be finished just around the end of the second quarter or early in the third quarter, so most of that spend is going to be finished by that point in time.
The remainder of our CapEx, we have a fair amount of flexibility around whether we pull the trigger on it or not.
So, I think in the last half of the year we certainly have more flexibility in whether we spend it or we don't.
The build in inventory was really ---+ impacted the working capital draw in the first quarter, and that will tend to unwind in the fourth ---+ in the third and fourth quarters of this year.
That really is ---+ that's a great question.
It's kind of a tough one to answer because these wells have such a variability in their volume, based on their lateral length.
But we would say that somewhere around 25% to 30% of that is continued increased penetration.
The rest of it is ramping up more usage, either at a more gallons per 1,000 or on some of our clients are going to longer laterals where they have a higher volume, but it's about a 25% to 30% of that number is with new folks that haven't been exposed to CnF prior to the first quarter.
Does that help you.
Yes, I think what we have consistently said, and we haven't really modified this even though, for heaven's sakes, since that investor day the world has changed in terms of activity, but we felt that exiting 2017 in the fourth quarter, we should be at 3 times the revenue run rate of what we were in the third quarter of 2015.
We don't see anything that makes us feel different about that right now.
And I think one thing just from a personal opinion, I think folks are going to have to recalibrate this whole rig count deal because they get fixated on this number and we all know that 400 rigs can drill more wells than what 400 rigs could do three years ago.
So I think there is going to have to be some kind of understanding that even though we get down in the mouth and all that about the depressing rig count, the efficiency of these rigs, the technology we have introduced and others, like the Stemulator, that you drill these wells faster, you're able to have a higher level of drilling.
So, I think because of that is why we still believe that when we exit 2017 we should have that type of activity.
Does that help you.
Yes, another great question.
There was kind of a storyline that had circulated and it involved us.
It may have involved other companies that deal with both of them, that if they got together, would there be some type of technology that might make it difficult for us.
And the way we've always responded to that is Halliburton has been a very key client for us to distribute our technology to their clients.
Baker Hughes has consistently been a top five or six client for us to distribute to some of their clients, obviously, and for that reason we didn't see much of a change as to what would happen.
So, we believe that the fact that they are now going to be independent won't ---+ shouldn't affect us.
I think there are some opportunities in particular, since you brought it up, with Baker Hughes for us to work with some chemistry with them, but we will see how that plays out.
They have got a big mission on their hand, sort things out as they move forward, but we don't see any change and there hasn't been any change.
The only change has been the reduced activity from both of them as an industry, not regarding us specifically.
Sure, and I hope everybody indulges me for an expanded answer to those questions because they were good ones.
Let me take the last one first, regarding PrF.
So, again, we want everyone to leave the call with a clear understanding.
First, as we mentioned, it is multi-patented and we've spent over two years to develop the technology, which essentially is undoing a 40-year approach to pressure in this industry, and without getting too technical in the weeds, folks pump friction reduction chemistry to reduce the hydraulic horsepower on a frac job, A, to reduce cost and, B, to be able to have the tubulars withstand high rate and higher pressure as they pump these fluids.
And it has been essentially the same technology for 40 years.
And as often the case, the engineers will solve a problem instead of trying to find the best solution and there is a big difference.
So we challenged our own people to reduce the amount of really what is damaging chemistry.
It is called polyacrylamide and the layman's term for that is Saran Wrap.
So when you pump that down to reduce the friction, you are actually putting a damaging chemical into the reservoir, and we challenged our folks to be able to reduce that per gallon and to reduce the overall volume that is needed, and I think that's what really sets Flotek apart is not many companies start out with the mission to sell less of what you are empowered to do, but it's not about selling more.
It is about selling what's right.
So, it really also was designed in conjunction to be enhanced when you have CnF with it.
The chemistry activity between the two additives create a better performing fluid in terms of helping the reservoir than not together.
And it is not in any way that we see a diminishment of CnF activity.
It is an effort for us, again, to take our customized chemistry approach to something that, like I say, has not changed for over 40 years.
On your other question, <UNK>, yes, I think just like any other segments in this industry, the smaller, less capitalized, overleveraged regional chemical companies have ---+ some of them have disappeared.
And I think we don't really see much competition in our segment that we have carved out for ourselves, and that's not to say that we are not always aware of what people are trying to do.
But what is interesting, I think, and we would like to take a little bit of credit for this, but both of those big service companies, I think if everybody looked back four or five years ago in the earnings call, they didn't spend a lot of time talking about chemistry.
And what's happened is that chemistry now has no longer the forgotten part of how do you improve the performance of these wells.
And the more people talk about that, the more that you're going to have the best opportunity to have good chemistry.
And hopefully, that answers your question.
If I can expand just one more thought on that, I think everybody gets caught up in the numbers when you report your earnings and you have a tendency often to miss out that you are really in the middle of a movement.
And for example, five years ago, I don't think people expected the amount of household products could be delivered at your doorstep that Amazon does.
Three years ago, we didn't know the word Uber, much less now that's the way you get cars instead of taxis.
And the amount of people that no longer go to malls, but shop on the Internet on their phone.
Well, as it pertains to us, five years ago folks didn't know what CnF was.
Three years ago, I think custom chemistry was not a familiar term.
A year ago, we opened the virtual Flotek store, and now it is the introduction of PrF.
And so, it is the movement that is changing the industry that is focusing on something that really is important as these folks try to reduce their cost per barrel, but at the same time improve their production.
And hopefully that wasn't too winding of the story, but I think it puts into perspective why we are doing what we are doing, why we are spending the money on research to have that differentiation.
Okay.
Thank you for everyone's interest on our call this morning.
Thank you for the questions.
I am sure they spoke for a lot of people that were listening in, and as always, we appreciate your interest and are pleased you joined us.
We hope everybody has a great Wednesday.
| 2016_FTK |
2016 | BBT | BBT
#Yes, <UNK>.
When we went through the process, you go through and you really evaluate your risk in the Company, you run your stress models.
The CCAR 2015, we actually used up over 100% of our capital, so our capital ratios came down a little bit.
So when we did CCAR 2016, we wanted to make sure our capital ratios stayed above 10% in tangible common Tier 1 which is really what we're targeting.
You will see us slowly accrete, even with the repurchase and dividend increase, a little bit more capital over this next four quarters, probably around 20 basis points or so, which is exactly was we planned for.
If you look at our asset in total in 2016 versus 2015, it's basically 5% higher.
I know we did an extra acquisition and all that, but the actual asset we came in with, came in a little bit higher overall if you don't count the acquisitions.
In our slide, we show you GAAP margin and we show you core margin.
We feel very good that core margin has stabilized.
Most of our assets for the most part have repriced.
With a flatter curve, you're seeing a little bit pressure on some longer assets like security investments there, but we're also still bringing down our deposit costs a little bit.
You saw those come down a couple basis points.
We feel pretty good that core margin will be pretty stable for the foreseeable future.
On the GAAP side, it's basically the difference is purchase accounting.
And you're going to see, if we did no other acquisition whatsoever, GAAP will converge to core over several years.
There will be a trajectory down over time.
I wouldn't say it's going to be steep, but just by definition, it's got to come in and collapse, if don't do any more acquisitions.
Our earning assets are a little bit flat on a linked quarter basis because when we purchased, closed Nat Penn, we pre-bought their securities and sold their security portfolio, so we were a little bit big in the second quarter.
So our securities will right-size this quarter, be around $46 billion, $47 billion in total, so that will come down a little bit.
That will be more than offset in the loan growth side.
You actually get a positive mix change there because you're getting higher yielding assets on the loan side, versus what you're giving up on the security side.
<UNK>, we've not projected on exact time frame, and the reason is because there is no exact time frame.
The fact is, we're going to stay focused on expense management and improving our profitability, and hopefully resulting in improvement in our relative stock price, until it's done.
And people pushed me in a corner.
It's longer than 90 days and less than five years, and that's about as close as I can give you.
I'm not going to try to nail it any closer than that.
I just want our shareholders to understand we are not going to do M&A until we feel good about executing on what we already have invested in.
Recall, we bought $35 billion worth of assets over the last year and-a-half.
We've got plenty of work to do to rationalize that, and get the returns for our shareholders.
So I think that's where we are.
I think that's where we're going to be.
And it's just really that simple.
Yes, <UNK>.
I appreciate it.
It's confusing.
If you recall back to the first quarter, the deferred comp pieces, in the first quarter of every year there's always a piece that goes into net interest income.
That was $15 million.
That only happens once a year, and it's basically a result of the investments done in mutual funds.
So that really balances it out, so it's $15 million in that, then the $55 million and $40 million all balance out.
As far as the insurance business goes, when you bring that in, net-net day one, just their efficiency cost versus the bank is just a little bit higher overall.
But <UNK> and his team are working really hard, and achieving cost saves and synergies.
I don't know if you want to comment.
So on the investment portfolio, you are correct in that the agency securities we've been buying, we've been buying at premiums.
We are very disciplined to try to have a handle of 1.02 or less if at all possible.
We did actually have an advantage.
If you go back to crisis, we got a lot of non-agency securities back then, at discounts.
So we, overall, if you go back quarter after quarter, we've been relatively balanced where the premiums on the higher quality agencies have been offset by the non-agency securities.
This quarter, with the big drop in interest rates, we actually saw a slight benefit, and the guys that were at a discount, the non-agency guys, were prepaying faster, and we were accreting more.
That's that duration adjustment that you saw come you through.
So we actually had a slight benefit in the security yields.
As far as mortgage banking income goes, is that what your other question.
Servicing valuations.
Our servicing valuations really haven't improved.
It's within a couple basis points of what it's been of late.
On a go-forward basis, pricing has expanded.
And as pricing expands, and rates continue to fall, you might see an increase on a prospective basis in valuations.
But right now, you look at our historical numbers, and what we reported, we're pretty much status quo.
The cost saves that we announced was a total of $60 million.
My guess is we're probably a quarter of the way through, probably $10 million or $15 million right now.
I would say a lot-some of it would be in 2Q numbers.
Whenever you announce an acquisition, you don't want it to happen, but people just start looking for other opportunities, and we saw some attrition out of National Penn as it got closer and closer to close.
So you saw some of those cost saves come through a little early.
You did.
And the reason is because when we made the comment last quarter, we were assuming certain projections with regard to the denominator, revenue level, and the revenue level because of the economy's just a little bit softer.
So it just makes it a little bit harder to get to that maybe 57%, 58% level.
I'm hedging a bit, to be honest, because revenues come in strong, we might hit that.
I'm mostly trying to say that this is not that kind of precision ratio that you can project with absolute certainty.
So I'm not saying anything in terms of taking away from our commitment to expenses.
We hit our expense number for the second quarter.
We will be able to do exactly what we say conceptually with regard to expenses for the next several quarters.
And the ratios will pop around, based on what happens to the revenue.
From a general point of view, <UNK>, the receptivity we've had in Philly has been fantastic.
We're a top 10 US bank, and we have very, very good capabilities to help medium size, larger businesses.
And the people there, frankly, like us.
We are very well received in terms of our culture and our style of doing business, and so the receptivity has been very strong.
And keep in mind that with National Penn and Susquehanna, while they have good relationships with a lot of the players in that market, they haven't had the capacity to be able to meet a lot of their needs.
The hardest part in those relationships is developing trust with the leaders of the companies, the CEO and the CFO.
We have that kind of trust and relationship built up for years and years and years through our people out there and all of our people are in place.
Now all we have to do is lever those trusting relationships with our additional capacity.
So early feedback from our people is frankly very, very positive.
<UNK>, I think Pennsylvania obviously is a major growth for us.
But so far as growing tangentially, we're not focused on trying to grow really around our footprint.
The only exception that I would say is, we're now in Ohio, technically through Cincinnati.
We'll certainly spring forward through our corporate banking efforts up into all of the major markets in Ohio.
Frankly, we've been working on that for a while anyway.
As you know, our corporate banking initiative is a national platform anyway.
You're probably talking specifically about retail, and we do not expect any retail movement outside of the existing defined footprint, for a period of time.
We've got a lot of work to do in all the areas we're in, and that's where we will stay focused.
Well, I think digital transformation ---+ that's an insightful question.
As digital transformation continues to occur, there will be the possibility of expanding beyond your footprint, obviously not through branches, but through pure social media and other techniques, with regard to expanding digitally.
That's why, <UNK>, we ---+ last year, we named one of our new executive management members as our Chief Digital Officer.
He's assembled his team.
He's aggressively working on what is our strategy, with regard to expanding digital within our quote, unquote geographical footprint, but much broader than that.
That will be a much broader footprint initiative.
<UNK>, it's good to hear from you.
And obviously I just heard that announcement this morning, as you did.
But I really agree with where they're coming from.
I think that businesses in general, and the banking industry in particular, are doing an injustice, frankly, to the market at large, and to our own shareholders, in terms of trying to be that specific in terms of projecting quarter to quarter.
It just makes no sense.
It's the way it's always been, and so we've kind of fallen into that trap.
As you heard me say over the last year or so, I've been trying to dislodge us from talking about efficiency ratios and things like that, because of exactly what Jamie and them are talking about.
So we will definitely follow along with that momentum.
Yes, I can foresee us not giving guidance.
I really ---+ frankly what I'd like to say to our shareholders is that my pledge to you is that we are going to work really hard to provide a good long-term, growing, steady, less volatile total shareholder return, that will be top-tier type of performance.
That's about as far as I think we ought to give.
And then they measure us over time.
If they like what we do, they buy more stock.
If they don't, they sell.
I think that folks like you that are well respected in the industry can help, and I think the major banks, I'm glad that Jamie's on board, I think if all the major banks would start moving in that direction, I think you would see it move very quickly.
Thank you, Levi, and thanks to everyone for joining us today.
This concludes our call.
If you have further questions, please don't hesitate to contact Investor Relations.
Thank you, and I hope you have a good day.
| 2016_BBT |
2017 | ACHC | ACHC
#That's a tough question.
What we see in the team we have there today is some great leaders, lots of energy, tremendous expertise over there, a can-do attitude.
So, the Priory was the bigger of the transactions, as everyone knows.
And their depth there was stronger, and so, fortunately for us, Ron and <UNK> were able to pick the best of what they thought were the best, and so just a great group.
That's not taking any shots at the group that left.
The group that left with the acquisitions, we wish them well and hope they do well, and Tom Rao is going off to other things, so we have a good team there.
We have the team that we think we need there, and so far it is going well, and they are doing a good job working through the distractions that they have, and they are very good operators.
Sure, <UNK>.
The offices that we have in the UK, we have three different centralized offices that support all of the facilities.
We have a finance office in the North, in Darlington.
We also have HR and IT offices, and I do think that that provides us with the ability to perform those functions at a lower cost.
While we also get excited about in those offices is the retention that we have, and just the teams that are there have been with the Company for a long time, do great work, and we do not tend to see the same types of turnovers that we might see in other parts of the country.
So, definitely a lower cost, and we also have a great team that has been with the Company for a long time.
Well, yes, on a run rate basis.
Obviously, when you take the Management out for the month of December, you only realized one month of that annual run rate, but we are on a run rate.
And I think to answer your question and <UNK>'s question, it is important to recognize here, if we are still talking about $20 million in synergies out of the UK today, that's actually better than what we originally said a year ago, because $20 million takes more pounds than it did a year ago, because the exchange declined.
So, we are basically halfway with the divestiture, and then we will get the remainder benefit of the synergies throughout the 2017 such that when we get to the year, end of the year, $20 million of annualized savings on a run rate basis.
Sure.
Great question, <UNK>, and obviously, we are, foremost is just protecting a lot of the things that we have been, so, the industry has had such success and getting access, getting coverage, parity, essential health benefits.
We did not as an industry receive tremendous impact from ACA, but we want to be very careful that we have a seat at the table, and when they adjust, they repeal and replace, or whatever happens, that we do not lose things that we never really benefited from.
And so our industry association has great leadership.
We are much more recognized.
We do get the face time and the feedback.
We have an annual meeting coming up in the spring, and there will be a lot of grassroots efforts, so again, our industry is positioned well knowing that the critical care, the importance of what we do, but we are spending time just making sure that as lots of discussions around, changes happen that we do not have anything negative occur to our space.
Hey, <UNK>, our estimate for next year is just under $31 million for stock comp.
That is correct.
We do not include transaction expense in our guidance.
We will see some just related to the ongoing divestiture cost, as we realize the remaining synergies and have some employee termination cost.
That should not be significant, but we will plan to see that, and that is excluded from our guidance.
I think you could just allocate it by quarter, 25%.
Is it going to be a little off of that periodically, could be, taxes are very precise.
But it is going to be a lot closer on average to the 25% throughout each of the quarters.
Thanks, <UNK>.
<UNK>, length of stay in our industry has been on the acute side, in the 9 to 10-day range for 25 years now.
This is an industry statistic.
We just don't see, that is not an area that there has been longer lengths of stay.
The UK, by contrast, is months/years, not days, so we do not see a change on overall length of stay to the negative.
We think it's, most providers and professionals in our space are concerned that it is too short now, which really leads to a higher likelihood that the patient comes back into a facility versus the small savings of one or two fewer days that might be garnered.
Sure.
Yes.
What you see in our sort of same facility profile of the revenue per day is really heavily impacted by just the mix of patients, it is not the same every quarter over the prior quarter.
I think if you look at our payer mix and think about roughly in the US, 16% revenues from Medicare, we get a consistent annual cost-of-living increase on the PPS rate there of something in the 1.5% to 2.5% range.
And then Medicaid, obviously our largest total payer group at 40%, but coming from over 44 states, each state is different, but in positive economic times, when the state revenues are doing well, we are going to see small cost-of-living adjustments there, call it 1%, and then our commercial book of business, in the 30%, 35% range.
We focus on local negotiations, and with those payers, and generally focus in on trying to get 5%-plus revenue per diem increase each year from those payers.
Sure.
We roughly have 55% of our debt floats, and 45% is fixed.
I think it is important to note, we have saved over, well over $10 million of annual interest expense last year through a couple of different repricings of our term debt, so we in effect built in some cushion against these increasing rates, and the latest pricing change did not occur until December, so some of that benefit will flow through in 2017.
We have talked, and we have a $650 million of cross currency hedge on our ---+ that helps protect some of the cash flows on the UK.
We do not have currently any fixed or floating to fixed rate swaps in place right now.
But as the market indicates, we continuously look at what is the best fixed to floating structure given the rate environment.
But right now, we are very comfortable with our interest expense and debt profile.
Thanks, <UNK>.
<UNK>, obviously, that is a, and once again, it's another tailwind positive headline, $1 billion allocated to the states for medically-assisted treatment.
In a lot of things, that sort of has figure its way through the states and local areas.
We are very committed to the medically-assisted treatment business, and have a great team there, and they are going that business, so obviously it's a positive.
It's hard to quantify, though, how much and the when, but it is absolutely better than having something cut.
So, that's a tremendous need.
You see more and more just awful stories about the impact of the opioid epidemics, and the impact of that abuse.
So, we are optimistic, but we just don't have the specifics on how that is going to play out for us.
Acquisitions will still be larger than the number of de novo beds that we would be adding to the Company.
We are going through that negotiation process right now.
Around the 2% range, but we are negotiating that as we speak.
No, <UNK>, we do not.
That 25% represents the consolidated Company, the corporate tax rate in the UK has gone down, it is below 20%.
The tax rate in the US, you know is the 35%.
But the consolidated rate is just what represents the consolidated Company and all the other items that impact our tax rate.
<UNK>, repeat that question.
So, that would be 5% to the consolidated rate.
It's 35% UK, 65% US.
Nothing in the next 12 months, nothing in the next 12 months.
However, if somebody wanted ---+ no, nothing in the next 12 months.
(Multiple speakers) Okay.
Good.
No, no, no, no.
You just confused us, <UNK>, because you have asked six follow-up questions.
You must have thought the rule only applied to the original basket.
(Laughter) We just created another <UNK>ism.
(Laughter).
Thank you very much.
Thank you, everyone, for listening in and your questions.
The year is beginning, we have got a lot of hard work to do, but we have got the team that can make that happen.
And I want to thank all the employees of the Company and the people we work with, and we are interested with those patients, and we want to do a great job for them.
So, once again, thank you for your questions, and we will talk to you on the next call.
| 2017_ACHC |
2017 | MAA | MAA
#Thanks, <UNK>.
I'm sorry, <UNK>, you broke up there.
We didn't hear that question.
About $1 million for the year, for the full year.
It'll take final for that program to ramp up and be as fully productive as we expect it to be in 2018 and even going forward, but we got, call it, $1 million addition in 2017.
Broadly speaking, it seems like the economists generally are gathering around an expectation of 150,000, 200,000 jobs added a month.
We continue to believe that our markets in the Southeast, Southwest regions will get a good healthy component of that, so on a macro basis we think that the employment trends in 2017 are pretty consistent to what we've been seeing in 2016.
I also talked about the fact we're trying to create a balanced earnings profile and that the DC market has dynamics associated with it that are different and offer some diversification for us.
So we're going to continue to evaluate that market and meanwhile harvest the opportunity that both those assets that have some redevelopment associated with it and the recovery in that market have to offer, harvest that opportunity for capital over the next couple of years and then we'll evaluate from there.
I would generally tell you that once you get above 10% of the portfolio in a given market, it starts to create some nervousness, at least on my part.
There's no magic to that.
To some degree a 10% or 12% allocation in a given market, you have to also look at how you diversify from a price-point perspective, you have to look at how you're diversified from a sub-market perspective, you have to look at what is the redevelopment opportunity that may or may not exist in that portfolio.
So there's a number of factors that we think about, but once you get to 10%, I really start to challenge our thinking a little bit in terms of why do any more in that market and we have to have enough diversification there to support it.
I would think that for us it's probably a couple years or so to make that transition in Atlanta.
<UNK>most every one of them are a retrade and we still see ---+ there's not as many people in the process as there was, say, a year or two ago, whereas when a product would come to market there would be 12 people in the tent, now there's five or seven.
I can't think of a deal that we've bought for the last two years that wasn't a rebound transaction where the deal had been on a contract before.
We would.
We believe in the merits of Houston long term.
It's a much more diversified market than it has been historically.
Obviously still a lot of oil and gas there, but, yes, we've got capacity to do more in Houston should the opportunities present themselves.
Thanks.
Thanks, <UNK>.
Hey, <UNK>, this is <UNK>.
We really want to protect the strength of our balance sheet, for sure.
We like where are.
It's a big part of our ---+ cost of capital is very important to producing the returns that we need for our investors, so we like that.
So no significant change there.
I will tell you, though, this year if you take the amount of investment from the acquisitions we plan to make, funded with dispositions and with internal capital, we are leveraging up a little bit, call it between 50 and 100 basis points, still well below 35% debt to assets, so it's really a very safe place to be.
I'll tell you as you move into 2018 with development funding likely to decline some, that will probably trickle back down a bit as our internal cash flow and earnings growth, internal cash flow picks up and even grows from there.
Summary of that is, we like where we are.
It may fluctuate a little bit around where we are as we execute our business plan, but no significant changes in that.
The way we look at is from a long-term perspective is what growth rate in the dividend do we believe our business model really supports and right now, the way we think about it, we think that we've got a model and a portfolio in place that will sustain a core 6% earnings growth rate over a long period of time.
It'll fluctuate a little bit year over year, but broadly we think we've got a business model that supports that 6% growth rate and ultimately we think that keeping the payout ratio where it is, then, by definition would mean an annualized 6% growth rate in the dividend.
Now, as a consequence of some of the things that we're doing with this Post portfolio and driving down our cost to capital, we may very well see our growth rate, I hope, start to improve a little bit beyond where it is right now.
But ultimately, the dividend is a more function, and the growth in the dividend on a sustained recurring basis, is more a function of core organic growth rate of earnings of the Company as opposed to we don't think about it so much in terms of payout ratio.
Dallas is one that I probably should have mentioned as far as having supply come on board.
We're a net effective rent shop, so the numbers that we have been giving you on our rents have been inclusive of concessions.
You're seeing some people use them from time to time, half month or a month, something like that, but it is ---+ we've had relatively good results in Dallas thus far.
But that's one that has ---+ will be facing some supply headwind in 2017.
There'll be two areas you may see it come down, <UNK>, in the future.
One is real estate taxes.
If you look at our expenses this year and what our guidance is, all the areas of our expenses other than real estate taxes are well under control.
Taxes, which are about 30%, 35% of our operating expenses, are the one pressure point, really Texas, Georgia, Tennessee in this year continue to be some pressure in those areas.
That's the one thing to consider is that over time hopefully will come down and Texas in particular is very aggressive.
Think about taxes as a backward-looking theme.
2016 was a good year.
There were a lot of transactions that support a very low cap rate, so we expect values to push that.
In the other areas we expect to be pretty modest and under control.
I do think as we move into 2018 and 2019 we will see some capture from the Post side which will hopefully blend.
The other areas, repair and maintenance and some of the other areas down as well.
In general you're correct with taxes and merger success.
Well, I'll take the first one and let <UNK> do the second.
In terms of markets where we may see some expansion, some growth and opportunities present themselves with a market like Charlotte, where we don't have a lot of the exposure to the downtown, more urban-oriented centers of Charlotte.
Most of our locations there are suburban.
A lot of the supply pressure that's taking place in Charlotte right now is more the downtown, fringe downtown areas, so I wouldn't be surprised to see opportunities come out of that market that fit a need that we have.
Somewhat similar story in Raleigh.
Then also, as <UNK> mentioned, Nashville is another market that I feel like offers that opportunity.
A lot of stuff going on in Nashville right now downtown, the Gulch area, where we have no exposure to, and we like the performance dynamics of Nashville long term.
Those are the three that come to mind offhand.
I'll just add the spread for the year is pretty straightforward and simple in our model.
We'd start from March through, say, November of the year pretty even spread (inaudible) something like it, <UNK>.
That there's no science to that other than to spread that evenly as we could, where the activity will likely be.
Then I'll say on the disposition side, that's different.
We have basically two waves that we expect something mid year and something later in the year, similar to what we did this year and that's particularly how we do it.
In 2017 and growing in 2018.
Initially start funding on the line.
We look at our line as the liquidity for us to have flexibility and move as we want to in acquisitions, and then we move tactically throughout the year to ---+ if everything worked perfect from our maturities to our capital plans, we would do one bond deal a year and use our line of credit to manage around that.
That's what we're thinking for 2017.
We did postpone a deal that we were going to do late last year that's moving into 2017, so we'll likely early to mid year be in the market potentially for a fairly large deal to pay down our line of credit and to fund those acquisitions and development.
Broadly, and <UNK> may add some components to it, but broadly what we see in 2017 is because of the components of other income, it's going to grow a little slower than our rent growth, and so that's why what you saw in the fourth quarter we had revenue growth of 3.6%, although we had effective rent growth 3.9%, so some of the components of that, our cable projects, our utility reimbursement program, they don't tend to grow as fast as our rents in some parts of the cycle, and so that's actually taken our revenue (inaudible) just a bit in 2017.
We don't have any further remarks.
Appreciate everybody for joining the call.
| 2017_MAA |
2017 | ALXN | ALXN
#Sure.
With respect to the fourth quarter of 2016 and the SG&A, I don't have all of the numbers in front of me but think of it as essentially all of that increase is associated with the investigation.
There's other as you no one time expenses typically that we have in the fourth quarter, there's items in both the second and fourth quarters as I mentioned earlier if you look at our typical pattern we can get that break out for you later but the significant item that influenced that would have been the investigation.
And then in terms of 1210 headwind duration as we talked about that will also be the annualized impact of the clinical study and the enrollment in those studies in 2018.
So I think there's always going to be some timing variability that's the nature of clinical trials, but for planning purposes, we would expect that headwind would continue through 2018.
Thanks, <UNK>.
Let me start with the view about our overall pipeline.
I mean, I think we've made a very strong commitment as an organization to extend our success and expect to extend our success in the complement franchise well into the next decade.
<UNK> mentioned our intellectual property expectations both are expected new intellectual property for Soliris along with the patents we have for 1210.
And so our goal is to continue to develop both 1210 and Soliris for new indications, there are other complement mediated diseases that go along with some of the other complement inhibitor projects that we have in the pipeline, and <UNK> can comment on those in a minute.
In addition to that it I think we plan to be very active from a business development perspective to identify opportunities that we think fit with our model and with our strategy and bring them in.
And so we aren't committed to a particular area, I think you know the complement franchise I think will continue to be a very important part of our future, we believe the metabolic franchise is positioned to grow for the next several years as well.
We have Samalizumab now under way which could represent yet another diversification of the pipeline and we're very active on the Business Development front looking at other opportunities.
<UNK> can you maybe put some more color on that.
Yes, thank you <UNK> and thanks for the question, <UNK>.
I'll take both questions, a follow-up to some of <UNK>'s comments and specifically on Myasthenia gravis <UNK>, you've mentioned some of the programs as well as having a metabolic franchise now with Strensiq and Kanuma.
We have a number of other programs that we're running outside of complement.
But I would say that it's really important that we continue to have this sharp focus on our complement pipeline not just C5 with obviously Eculizumab and ALXN 1210 but we have a number of other complement inhibitors pre clinically that we're looking to progress against a number of different indications.
So it's very much concentration out-compete ourselves on complement as well as diversifying into other areas such as Samalizumab and the metabolics.
In terms of our programs and preclinical we haven't spoken out they are all lined up against devastating diseases looking for transformative treatments and they go across multiple therapeutic areas.
And then in terms of your specific question on Myasthenia Gravis and the advisory panel, it's too early to say whether the FDA will consider an advisory panel but I would remind you, the decision to file in the US, Europe, and Japan was really based on very positive in person meetings with regulators and all of those authorities we reviewed all with perspectively defined endpoints.
As you know 18 out of 22 of the endpoints were pre-specified analysis and the P-values of less than 0.05 so very positive meetings with regulators we'll wait to hear back on from the FDA particularly in terms of an advisory panel.
Thanks for your question.
Thank you, <UNK>.
Great, why don't we take the first part of the question, <UNK> regarding PNH and future opportunities.
I think you stated we believe that got significant growth ahead of us.
Do you want to give us some color on that one.
<UNK>, thank you for the question.
As we have highlighted in the call, one metric we are looking at is how many patients are we finding in both in PNH as well as in HUS year-over-year, especially in our leading Markets the US and European Markets.
We continue to identify the same number of patients as previously.
And importantly, as it relates to their disease and severity of disease and conversion to treatment, we see a consistent number of patients initiating treatment and so this encourages us in our view that the majority of the opportunity for both PNH and HUS is in front of us.
Good <UNK> do you want to comment on the considerations that went into the impairment charge.
Yes, let me do that and I'll turn it over to <UNK> for the research and the technical side of this.
But it's really for us, obviously, annually, a review of all of our assets and in this case, based upon that evaluation, and driven by increases in both the development in commercial timelines as well as the updated cash flows, that really lead to the accounting and the decision from an accounting perspective to take the impairment.
And <UNK> over to you just in terms of anything you'd want to add from what you've already discussed on this subject.
Yes, thank you.
Thank you, <UNK> and really, <UNK> as part of your question, there in lies the answer.
We are continuing with a study with the patients that are currently on SBC103 and randomized either 5 milligrams or 10 milligrams very keen to look for this correlation between the Heparan sulfate reductions and benefits to neuro cognition and brain structure.
So we'll continue to look at those, but working with <UNK> and looking at just what he said no new patients into that particular study or additional trials until we really see those data.
I hope that makes it clearer <UNK>.
Thanks for your questions.
I think we're wrapped up here is that it.
Thank you all for participating.
We appreciate it.
| 2017_ALXN |
2017 | VRSN | VRSN
#Thank you, Jim
Revenue for the third quarter totaled $292 million, up 1.7% year-over-year and up by 1.3% sequentially
During the quarter, 59% of our revenue was from customers in the United States and 41% was from foreign customers
As it relates to our GAAP results, operating income in the third quarter totaled $181 million, compared with $175 million in the third quarter of 2016. The operating margin in the quarter came to 61.9% compared to 60.8% in the same quarter a year ago
Net income totaled $115 million compared to $114 million a year earlier, which produced diluted earnings per share of $0.93 in the third quarter this year compared to $0.90 for the third quarter last year
As of September 30, 2017, the company maintained total assets of $2.9 billion and total liabilities of $4.1 billion
Assets included $2.4 billion of cash, cash equivalents and marketable securities, of which $757 million were held domestically with the remainder held abroad
I'll now review some additional third quarter financial metrics, which include non-GAAP operating margin, non-GAAP earnings per share, operating cash flow and free cash flow
I will then discuss our 2017 full-year guidance
As it relates to non-GAAP metrics, third quarter operating expense, which excludes $14 million in stock-based compensation totaled $97 million, as compared to $100 million both last quarter and the same quarter a year ago
While non-GAAP operating expenses were lower in the second quarter, we do expect an increase in sales and marketing spending in the fourth quarter
Non-GAAP operating margin for the third quarter was 66.7% compared to 65.3% in the same quarter of 2016. Non-GAAP net income for the third quarter was $124 million, resulting in non-GAAP diluted earnings per share of $1 based on a weighted average diluted share count of 124.1 million shares
This compares to $0.93 in the third quarter of 2016 and $1.05 last quarter, based on 127.7 million and 124.0 million weighted average diluted shares respectively
Operating cash flow for the third quarter was $175 million and free cash flow was $153 million, compared with $171 million and $165 million respectively for the third quarter last year
Free cash flow in the third quarter was lower, partially due to a timing some capital expenditures
Dilution related to convertible debentures was 24 million shares, based on average share price during the third quarter, compared with 20.8 million for the same quarter of 2016 and 22.5 million shares last quarter
The share count was reduced by the full effect of second quarter 2017 repurchase activity and the weighted effect of the 1.5 million shares repurchased during the third quarter
With respect to full year 2017 guidance, revenue for 2017 is now expected to be in the range of $1.161 billion to $1.166 billion, increased and narrowed from the $1.155 billion to $1.165 billion range provided on our prior earnings call
Full year 2017 non-GAAP operating margin is now expected to be between 65% and 65.5% increased and now from the 64.5% to 65.25% range provided on our prior earnings call
Our non-GAAP interest expense and non-GAAP non-operating income net is still expected to be an expense of between $103 million and $110 million
Capital expenditures for the year are now expected to be between $45 million and $55 million, changed from the $40 million to $50 million range provided on the 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, which will allow the cash tax benefits to continue to accrue
In summary, the company continues to demonstrate sound financial performance during the third quarter of 2017. Now, I will turn the call back to Jim for his closing remarks
| 2017_VRSN |
2017 | MCD | MCD
#Thank you, Steve
I appreciate the opportunity to join the call today and update everyone on the state of our U.S
business
continues to demonstrate solid growth, and I'm proud of our system and the progress we're making
As I look ahead to 2018, I'm excited about our pipeline of ideas and the growth potential they offer
For us, the key will be to execute at a really high level across a number of initiatives and we're investing a lot of time and effort right now to get that right
Let me provide more insight into our Q3 performance and then I'll talk about how we're preparing for 2018. During Q3, we grew comp sales 4.1%, resulting in a comp sales gap of 440 basis points versus the QSR sandwich competitors
Importantly, our comp sales growth was supported by positive guest count growth
This is our third consecutive quarter of positive comp sales growth and second consecutive quarter of positive comp guest count growth
For the past three quarters, we have posted a favorable comp gap versus QSR
We're particularly pleased with this performance because we had to overcome the headwinds of a sluggish overall IEO market that currently offers limited traffic growth
Our success can be attributed to several factors
First, we offered compelling consistent value programs across a number of tactics that clearly resonated with our customers
We continued our $1 any size soft drinks program and supplemented it with the return of McPick 2 for $5 that offered some exciting food deals
We're also starting to get real traction with the targeted mobile offers via our app that are tailored to customers' unique buying preferences
Second, we've been able to capitalize on this increased traffic into our restaurants with menu news that drove customers to trade up to premium higher-margin products
In Q2, we launched our Signature Crafted sandwich line available either in beef or chicken, with three flavor combinations, pico guacamole, sweet barbecue bacon and maple bacon Dijon
In August, we rotated in a new Sriracha flavor that gave the sandwich Crafted line an extra kick
In September, we also reintroduced McCafé to the U.S
This meant a new, more modern look for the McCafé brand and new choices, including the reintroduction of our McCafé Espresso line after a significant equipment upgrade across our system
The McCafé Espresso products perform very well, reaffirming our systems confidence that McCafé can be a significant growth platform for us in the future
As we've seen with both Signature Crafted and McCafé, when we improve the taste and quality of our products to meet customers' rising expectations, they reward us with more business
Finally, we're seeing encouraging customer response to our velocity accelerators including delivery, digital and Experience of the Future
Through our partnership with UberEATS, we now offer delivery in 3,700 restaurants and we're on track to reach 5,000 restaurants by year-end
We're learning a lot about delivery and seeing particular success in dense urban metros with high penetration of younger customers, like New York, Boston, Miami and Los Angeles
I truly believe we're just beginning to scratch the surface on this opportunity
We're also continuing to roll out mobile order and pay with a new curbside check-in option
I'm really excited about the potential of curbside to evaluate the convenience of McDonald's to a whole new level for our customers
We now have mobile order and pay in over 6,000 restaurants
And we expect to reach all 14,000 restaurants by the end of the year
And last, we're making good progress with our Experience of the Future projects and we're seeing comp sales lifts consistent with our targets
We currently have Experience of the Future deployed in 13% of restaurants and that number will increase significantly over the next couple of years
As the pace of activity in the U.S
accelerates, it's critical that our restaurants are properly staffed and trained to execute at a high level
Our McOpCo and operator organizations are investing in labor right now to train for initiatives like hot off the grill, hospitality, curbside, delivery
This will have a temporary impact on margins for the next six to 12 months as we work through our deployment calendar
We've seen this before in other markets like Canada, Australia and the UK when they've launched similarly aggressive plans and we feel quite confident about our ability to manage through this short-term situation
At the same time, we're also ramping up our internal project management capabilities to prepare, deploy and maximize each initiative
We've created dedicated Project Management Offices at both the national and regional levels to ensure we anticipate resource bottlenecks and flex organizational capacity as needed
We aim to prove that size and speed do not need to be antithetical to one another
Two years ago, Steve declared that McDonald's needed to run better restaurants and nowhere was that more evident than in the U.S
market
As Steve mentioned, we recently visited a number of U.S
cities, including East St
Louis, Cleveland, Detroit, Salt Lake, Houston and it was really a proud moment for our owner operators to showcase their progress
On almost every dimension, the U.S
is running better restaurants and that's showing up in the business results
At the same time, that pride and confidence in our performance is helping to energize the system to pursue an even more aggressive growth agenda
Almost 100% of U.S
operators have now signed commitment letters in support of a holistic multi-year growth strategy that will update the entire system to EOTF, make important equipment upgrades to deliver better food and ensure we remain competitive on value
We're excited about what's to come in the U.S
, and I look forward to updating you periodically on our progress
Now, back to you, <UNK>
Question-and-Answer Session
Yeah, hi, <UNK>
So certainly, what you're seeing in the trading results that we just posted, you're seeing primarily labor related to the training that I was talking about
There is some commodity inflation, but the biggest drag that we're facing right now is related to the labor investments that are being made
In terms of going forward, I think one of the pieces that remains to be seen for us is just what does the long-term labor inflation look like in the U.S
And so, we have seen with roughly 5% unemployment that labor inflation has been ticking up nationally
In addition, there's local legislation that's going on as well, where minimum wage laws are increasing
So that long-term could be a headwind, which just would require a faster growth rate than what we've historically seen
But I think right now, it's unclear where that goes
I think for us, certainly the investments that we're make right now on training, those are one-time investments that would abate in the next six to 12 months
And I think the longer term, is we just need to keep our eye on labor inflation across the U.S
Sure
Well, one of the things that we have said to our franchisees in the U.S
is we don't have to win on value, but we can't lose on value
And that means we have to be competitive with our investments against a value program
And I think also it's no surprise that over the last, call it, three or four years since we rolled off Dollar Menu, we weren't as competitive as we needed to be on value
And so what you're going to see from us next year is us being really fully competitive with our near-in competitors with a value program there
It's been written about and I don't think it's any surprise that certainly our value program is going to be focused on $1, $2 and $3 price points for an everyday-value piece of it
And then there will also be deals that will pulse in and out throughout the year as a result of that
When you talk about the investment that is being asked of Owner/Operators, one of the things that we talked about is that this plan has to be looked at holistically
And so while there is an investment that's being made on the value side, there are also some significant efficiencies that are being captured on the other side, around particularly marketing and efficiencies that we're getting there, efficiencies that we're getting at the restaurant level
And so when you look at all of it on a blended basis, we think that this is a balanced plan
And I think, most importantly, the fact that our Owner/Operators were at almost 100% signing up for is probably the best testament that they felt comfortable with the value investments being offset by some of the other things in the P&L
Well, I think we're excited about coffee, in part, because it's a huge category
It's a $30 billion business in the U.S
and it's growing mid-to-high-single digits as a category
So we're excited about the category
It's high margin and we're under-penetrated there
So as we built the plan, it was rally about us getting after an opportunity where we think our McCafé brand has a lot of relevance
We're not going get into the specifics of by product line item, how did those compare versus the average comp, but I would just say that, certainly, we saw the benefit in Q3 of really nice growth on our McCafé business
And as we look out over the next few years, we're expecting to use McCafé as really a platform for us to get additional growth
So we're excited about that
We think we have a good opportunity to get after it
It's really been a question of focus for us
We haven't consistently focused on this in the past
And going forward, it's going be a key area for us
Yes, well, so I'd say what we typically see is as we're deploying, whether it's EOTF, some of the menu news, et cetera, we typically do see a slight uptick in service times, call it, on the order of five seconds or so
And then, certainly as the crew in restaurants get more experience in whatever the initiative is, we expect to claw most, if not all, of that back over time
I think it's, for us, when you look at the Experience of the Future, one of the things that makes it difficult to really do the from-to on that is because as we bring in Experience of the Future with curbside, you start introducing all sorts of new ways for the customer to interact with the brand
And so maybe in the past, they would just go through the drive-thru because, frankly, they didn't see going into the restaurant as a great experience
Now, they want to go into the restaurants because it's an updated modernized experience where you can get table service there
And so it's really, I think, what we're seeing with Experience of the Future is that customers are choosing new ways to interact with the brand that makes it difficult for us to compare
I think the more relevant metric really, for us, is we look at customer satisfaction
We look at customer satisfaction prior to EOTF and after EOTF
And what we're seeing there are significant improvements on the order of three to five points improvements in overall customer satisfaction
So for us, that gives us reassurance that they are enjoying the initiatives that we're deploying with EOTF and they're having a better experience
Yes
I think, as you know, with McPick, certainly this year, there was a heavy local element to it
So we had different regions pursuing different McPick strategies, both the price points that they would hit, but, frankly, also the items that they would be selling for
And so it's difficult to do the comparison that you're talking about because it's not just what item at what price point, but it's also where was the starting price point for that
In general, I think the point that you're making, though, is an accurate one, which is we think that we still had an opportunity to get more competitive on value
Again, we're not trying to win on value, but we can't lose on value
And so I think what you're going be seeing from us going forward is really for us consistently to stay competitive on value
And I think the other thing, as I mentioned earlier in the call, is more of that investment now going forward is going be done and driven at the national level than at the local level, which I think plays to our strength from a marketing communications standpoint where we can really drive that message
Well, so one, I think being relatively new to McDonald's, I'd say one of the things that has really been a highlight for me is getting to know our U.S
Owner/Operators
And I'd tell you they're – it's a very impressive group in terms of what they're able to drive
And so you're seeing that in the results here
Our point of view, and certainly all my discussions with the Owner/Operators in the U.S
has been I would love for every single one of them who's currently in the system today to remain in the system
And so there is no, from our vantage point, concerted effort to try to change the franchisee base or have it look different
But that said, we do have expectations around performance
And, as you said, as we said earlier, running better restaurants is the foundation
And we were not consistently running the type of restaurants in the U.S
that we were expecting to
And so step one has been we have really level set what the standard is for performance in the U.S
At the same time, we've outlined a pretty, what we think is exciting and ambitious growth plan, but it is one that's going to require investment
And so as you put those two together, as you put together a performance expectation along with an investment expectation, we are seeing some Owner/Operators are deciding now is a good time to exit the system
And I think for us, while we certainly are sorry to see folks go, we would rather have that conversation where we're all operating from just a very transparent set of expectations
So I think over the next couple of years, we're probably going to continue to see some evolution of this, but by and large I think the U.S
franchise system as you see it today is going be the same one that we're going to be talking about in a few years
And I think just to maybe give a concrete example, I mean, as we laid out 2018, we have a number of initiatives that are going to be hitting the market in 2018. One of the biggest ones, the first one that's going to be coming out is, we call it, hot off the grill
It's sometimes referred to as fresh beef
But right now, we're actually bringing on a number of regions onto this platform as we convert over our supply chain
When we bring on hot off the grill or fresh beef into a market, we actually have a six week training curriculum that the entire restaurant goes through
And it's a very intensive training curriculum that they have to go to, actually starting with the operator
The operator first goes through training, and then we literally take every single one of those crew members with both an offsite and then an in-store training experience
All the time that's spent on training for hot off the grill implementation, all of that counts against your labor and none of it is revenue-producing
But it's the sort of thing that we think is required to really make sure that when we do rollout hot off the grill that we execute it at a really high standard
So that's just one example, but we have a number of other initiatives that have the similar type of training and preparation curriculum that's going with it that obviously puts a short-term burden on what needs to be done at the restaurant
Yes
And so, I think just to build on that, it is a relatively flat market, but I think what we're seeing is that when you're really sharp with your proposition that you're offering the customer, the food that you're offering, the value that you're doing with the experience, when you've really got a compelling proposition to put forth, you can gain significant share
And so, certainly, the comp gap that we've been seeing, our comp gap has been widening over the last three quarters
And I'm very excited about what we've got in the pipeline going forward
I think as I said at the opening of my comments, the absolute key for us is going to be to execute
But I think if we execute and, again, we stay really sharp with the proposition that we're offering customers, I don't see any reason why we couldn't sustain that performance, but it's on us to demonstrate it
Well, so I'd say we are still in the early innings, in honor of the World Series, in the early innings of digital, but we're seeing, I think, a really nice start to it
So we've had almost 30 million downloads
I would say we're roughly 9 million active users, meaning who are in it on a monthly basis that we're seeing there
And we're seeing strong offer momentum, which is really currently the primary benefit that we're delivering through the app
As we're rolling out now mobile order and pay, the power is going be that to then bring together the offer with the ability to do mobile order and pay
Right now, what we're doing mostly in our restaurants with the roll out of mobile order and pay is we're really at this point focused on getting the operations right
So getting, for example, the crew to understand when a curbside order comes up, how do they take that order, how do they go out and bring the food to the customer
So, right now, I'd say we're spending a lot of time on mobile order and pay
Yes, as we're deploying it, but really make sure we've got the operational muscle there, because what will happen then in 2018 is we're going to flip the marketing switch on it and start to drive really much more increased usage
But, certainly, we've learned from some of the other activity out there
We want to make sure that we're ready when we do flip on the marketing switch that we're ready to handle the business with it, but still early innings
We do think that it's a significant opportunity for us and we would expect in the future it becomes a more significant part of the comp
| 2017_MCD |
2016 | SLM | SLM
#So Mike, we have now completed the first three months of a 12 month year.
The quarter was very, very strong, but we do have a three-point range in our EPS guidance, $0.49 to $0.51.
I can be constructive and say that the beat certainly moves us towards the higher end of that range, but I think it is a little premature to alter our guidance.
We are very positive on our outlook for the year and we don't see any hidden trapdoors or pitfalls.
But we think the prudent thing to do is to remain our guidance ---+ maintain our guidance for at least another quarter as we watch our performance here.
So actually what we anticipate happening is for the NIM to remain pretty steady through the second quarter and in the third quarter as we start to build cash to position for our peak season and Jan 17 disbursements, we would expect a little bit of a drag on the NIM as we hold higher cash balances earning a negative carry.
But to answer your question for the average for the year we expect to certainly be 560 or slightly above that.
And to the point that <UNK> was making, if you look at our cash balances from the fourth quarter to first quarter they dropped off over $1.5 billion.
Mike, to be totally honest with you we don't really focus on the loan servicing opportunities that exist out there.
It's not really the business that we are in.
It's not something that we've looked at.
It is not something that we've considered.
My guess is that under the non-compete at this point in time we would not be able to participate in that if we wanted to.
But to <UNK>'s point, it is our concentration to originate and service in good form our customers, and we are in a consumer franchise business.
And as you know with the receivables growing 24% maintaining quality there is in any sort of growth scenario, is always a challenge and that will be our focus.
There's at least three parts that we could talk about in regard to that.
The main piece that we should have in our thinking here is that a large part of the first quarter disbursements are actually related to the prior year's contract and sign-offs, and so a typical scenario would be, you know, student gets accepted by school, they go to freshman year in September and they have a second disbursement in the Spring.
As so as we look at the first quarter, it'd be the first four months of disbursements, there's a significant portion of that is related to what we refer to in the industry as serialization of the pre-existing customer and the pre-existing contract.
And so that makes it a little bit cloudy not knowing others' dynamics in regards to that to estimate the size of the market period, but also any changes in the market.
It is the case of course that we are up 8% and prior models would indicate that for the full year the market will be up some number, 5% or so.
So we think we are in a good range but in the first quarter this mix of prior-year, current year and then sort of life changes as things move along, and so I think it is a little bit hard to estimate the share growth, but I would rather be at 8% than 4%.
Sure.
So the $2.9 billion goes into repayment in two separate chunks.
There is a May/June repay wave of roughly $700 million, and then in November/December there is a $1.5 billion repay wave and then the [cats and dogs] come into repayment across that period.
So we are always provisioning for losses for the next year and of course the life of loan allowance for our TDR portfolio.
So the timing will give you an idea as to when to expect the provision to cover those loans entering repayment.
Over the course of 2016 we expect our provision to remain pretty stable throughout the course of the year with the peaks being in the third quarter of 2016.
No.
As we are looking into product, and we had previewed it with many of our partners at the schools, we think that the pricing is extremely competitive and we think that the servicing associated with it is both better and simpler.
And so in regard to the design of a product we have taken the relative competition into account, and we think we're in a good position.
That is the yields we think we are projecting, we think are very competitive as well as very good for our shareholders.
So, <UNK>, the 560 number that I threw out there, upside from that is basis points, in the single basis points, when we do look at, when we do model, we do model with the yield curve factored in there.
And we would expect that if the Fed does raise rates again, and my personal view is that they probably won't, but we would model in that ---+ the cost of our money market deposits would increase by 85% of whatever the increase in Fed funds was.
And I think it is reasonable.
Nobody was really surprised that sector of the bank deposit market did not react to the first Fed funds rate hike in whatever it was,10 years.
But I would suspect that if there is another there probably would be some pressure on that component of the bank deposit market.
Sure, so we will hold steady to a 60% brokered 40% retail ratio.
We and our regulators are very comfortable with that approach.
We do have in our 2016 plan that we will tap the ABS market.
The ABS market does, as I mentioned earlier, look like it is tightening in.
However, if it doesn't get inside of our hurdle rate we will forgo the ABS market and grow our retail and brokered deposit mix, which we are very confident that we would be able to do in the absence of wholesale funding availability.
I don't want to tip my hand to the ABS market.
I'm sorry.
Well we're talking about points to LIBOR, so it would be way south of 3%.
That's right.
We'll start growing our deposit balance in the third quarter and the cash balances will remain fairly lofty through the January disbursements.
I was going to ask you, were you curious about the reset characteristics of the assets and liabilities on the balance sheet.
The third quarter disbursements happen for the most part in August and September.
So we will be starting to tap the various deposit markets in late June, July, August, September, October and so on and so forth.
So there is not that lengthy of a ramp.
No, not really.
I mean the brokered deposit market is pretty price sensitive.
We know where the market is and we place orders and basically they get filled.
Depending upon the name and the timing and the term, we have some leeway in terms of being 5 or10 basis points under or over the market.
But we typically target longer-term funding, [call it] one, two, three, five year CDs and not a lot of guys are out there in those sectors.
But we will also fill in the holes around the three and the six month deposit market as well.
There is a little bit more of a ramp time in the retail deposit market because we will have to start posting our rates in there.
We typically raise money in the MMDA arena and one and three-year CDs.
But the dynamic is pricing and demand elasticity, it's not quantity purchased.
Thank you all for your attention.
It has been a pleasure to report on what we believe is a very strong quarter.
We are off to a good start on all major parameters for 2016.
We believe that the numbers are starting to illustrate more graphically the strength of the franchise.
Spreads are good, we have steady income, our credit is where we want it to be.
We think there's a very viable base on which to grow the franchise.
As you saw, our major revenue-generating asset is growing at 24% versus last year.
We expect that rate to continue, and so it is a real pleasure to be able to report back on these results which of course are the reflection of all the efforts of our entire team.
So thank you for your attention.
| 2016_SLM |
2015 | CLW | CLW
#Thank you, Ben.
Good afternoon, and thank you for joining Clearwater Paper's first-quarter 2015 earnings conference call.
Joining me on the call today are <UNK> <UNK>, President and Chief Executive Officer; and <UNK> <UNK>, Chief Financial Officer.
Financial results for the first quarter were released shortly after today's market closed.
You will find a presentation of supplemental information, including an updated outlook slide, providing the Company's current expectations and estimates as to certain costs, pricing, shipment, production, and other factors for the second quarter of 2015 posted on the investor relations page of our website at ClearwaterPaper.com.
Additionally, we will be providing certain non-GAAP information in this afternoon's discussion.
A reconciliation of the non-GAAP information to comparable GAAP information is included in the press release or in the supplemental material provided on our website.
I would like to remind you that this presentation contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 as amended.
These forward-looking statements are based on current expectations, estimates, assumptions, and projections that are subject to change, and actual results may differ materially from the forward-looking statements.
Factors that could cause actual results to differ materially include those risks and uncertainties described from time to time in our filings with the Securities and Exchange Commission, including our Form 10-K for the year ended December 31, 2014.
Any forward-looking statements are made only as of this date, and the Company assumes no obligation to update any forward-looking statements.
<UNK> <UNK> will begin today's call with a review of the financial results for the first quarter.
And <UNK> <UNK> will provide an overview of the business environment and our outlook for the second quarter of 2015.
And then we will open up the call for the question-and-answer session.
Now I will turn the call over to <UNK>.
Thank you, <UNK>.
Before I get to our first-quarter 2015 results, I would like to preface my comments that stating that, throughout the rest of my remarks, I will be distinguishing between GAAP and non-GAAP or adjusted results.
The adjusted results exclude certain charges and benefits that we believe are not indicative of our core operating performance.
The reconciliation from GAAP to adjusted results is provided in the supplemental slides posted on our website.
For the first quarter of 2015, those items netted to a $1.7 million cost and include $1.7 million in costs associated with our new Lewiston labor agreement; $600,000 of costs associated with the closed Long Island New, York, facility; offset by $5,000 benefit related to the mark-to-market adjustment to our outstanding directors' common stock units.
So with that, let's get to our results.
Our first-quarter net sales came in at $434 million.
That is down 8.1% versus the fourth quarter.
That is on the high end of the outlook, down 8% to 10% that we provided in our Q4 2014 earnings call.
The decrease was mainly due to the sale of the specialty mills in Q4 of 2014.
That was partially offset by a 10% increase in paper board net sales versus Q4 due to better-than-expected sell-through of consignment inventory and improved conditions at the West Coast shipping ports.
Versus Q1 2014, net sales were down 10.5%, due primarily to the sale of the specialty mills.
First-quarter adjusted gross profit of $46 million, or a 10.7% margin, was down 250 basis points from the fourth quarter, resulting from $15 million of increased maintenance, primarily due to the major maintenance shutdown at the Lewiston, Idaho, pulp and paper board mill and a seasonal increase in payroll-related taxes as well as increased profit-dependent accruals.
Partially offsetting those cost increases was a $5 million reduction in transportation costs as supply chain optimization actions taken in the back half of 2014 lead to improved inventory logistics.
Adjusted SG&A expense was $30 million, or 6.8% of first-quarter net sales, which is down approximately $2 million from Q4 2014, mostly due to the reduction of headcount and administrative costs related to the sale of our specialty mills.
Adjusted corporate expense was $14 million of SG&A spend in the first quarter.
That is up slightly versus Q4.
Adjusted operating income of $17 million, or a 3.9% margin, came in at the midpoint of our outlook of 3% to 5%.
Adjusted EBITDA margin was $38 million, or 8.7% of net sales, and in line with the updated EBITDA outlook of $37 million to $40 million that we provided on March 17.
This compares to $55 million, or 11.5% in Q4, which did not include any major maintenance costs.
First-quarter 2014 adjusted EBITDA margin was 11.3%.
Net interest expense of $7.8 million was consistent with Q4.
Turning to taxes, on an adjusted basis, our Q1 effective tax rate was 24.3% versus 34.2% in the fourth quarter.
The lower rate in Q1 resulted from the release of reserves for uncertain tax positions of approximately $1 million related to statute of limitation expirations on certain federal tax credits.
We still expect the full-year 2015 tax rate to be 36%, plus or minus 2 points.
First-quarter 2015 GAAP net earnings were $5.8 million, or $.
30 per diluted share; and on an adjusted basis, $6.9 million, or $0.36 per diluted share.
That is compared to adjusted net earnings of $15 million, or $.
70 per diluted share, in the fourth quarter, and $14 million, or $0.66 in the first quarter of 2014.
Non-cash expenses in the first quarter of 2015 included $21 million of depreciation and amortization; $1 million of total equity-based compensation; and $3 million of net non-cash pension and retiree medical expense.
Employee headcount at the end of the first quarter was approximately 3,300.
Now I will discuss the segment results.
Consumer products net sales were $235 million for the first quarter of 2015.
That is down 19% compared to the fourth quarter, due to the sale of the specialty mills.
This reflects the 29% reduction in total tissue tons shipped, of which not retail was down 64%.
Total tissue pricing improved 14% to $2,546 per ton, reflecting increased the mix of retail tissue to 77% in Q1 compared to 56% in Q4.
Excluding the impact of the specialty mills from Q4, volumes and pricing were relatively flat and in line with our outlook of flat to up 1%.
Retail case volume was down due to merger distractions at a top-five customer.
However, sales of (inaudible) tons made up the difference.
Price mix was flat versus Q4.
Consumer products adjusted operating income for the first quarter of 2015 was $14 million, or 5.8% of net sales, versus $13 million, or 4.6% in the fourth quarter, which included the specialty mills.
The improvement was primarily due to a $5 million reduction in transportation costs, which reflected a 16% decrease in the distance products traveled from the manufacturing site to the customer.
Those improvements resulted from the supply chain optimization actions taken in the back half of 2014 to reduce the complexity and inventory logistics.
Compared to Q1 2014, which included the specialty mills, adjusted operating margin percentage has nearly doubled from 3% to 5.8%.
CPD adjusted EBITDA of $27 million was down from $29 million in Q4.
The adjusted EBITDA margin improved 144 basis points from 9.9% in Q4 to 11.3% in Q1, and that is on a 19% lower net sales due to the sale of the lower-margin specialty mills and improvements in transportation costs.
Compared to Q1 2014, adjusted EBITDA increased by $3 million, and the margin percentage improved 290 basis points from 8.4% to 11.3%.
Now turning to pulp and paperboard division, net sales of $199 million for the first quarter of 2015 were up 10% versus the fourth quarter, due primarily to 8.6% higher shipment volumes.
Paperboard shipment volumes of 192,000 tons came in above our updated outlook of 1% to 5% as a result of better-than-expected sell-through of consignment inventory and improved conditions at the West Coast shipping ports.
Average pricing of $1,031 per ton was up 1.4%, which was slightly better than our outlook of flat to up 1%, due to a higher mix of extruded products.
Pulp and paperboard adjusted operating income for the first quarter of 2015 was $17 million, or 8.6% of net sales as compared to $31 million, or 17.3% of net sales, in the fourth quarter.
The margin decrease versus Q4 was mainly due to a $15 million increase in maintenance costs, which came in at the high end of our outlook range of up $13 million to $15 million.
Pulp and paperboard's Q1 adjusted EBITDA margin was 12.3%.
Now turning to the balance sheet, capital expenditures were $21 million in the first quarter of 2015, of which $6 million was spent on strategic projects.
Our expected total CapEx for the year is approximately $155 million, of which $85 million is for strategic projects and $70 million is for maintenance.
Long-term debt outstanding at March 31, 2015 remained unchanged at $575 million.
Turning to the stock buyback program, through April 22, we have repurchased approximately 600,000 shares for $37 million under our 100 million dollar share repurchase authorization at an average price of $61.97 per share.
And through 2015, we remain committed to returning at least 50% of discretionary free cash flow to shareholders via share repurchases.
As a reminder, we define discretionary free cash flow as cash flow from operating activities minus maintenance CapEx.
With regard to our liquidity, we ended the first quarter with $41 million of unrestricted cash and short-term investments.
During the first quarter, we generated $28 million of cash from operating activities, or 6.5% of net sales, which is down from $37 million in Q4, due to lower earnings as a result of major maintenance in the quarter.
Regarding master limited partnerships, the IRS has lifted the moratorium on private-letter rulings and has stated that they will be issuing guidance on applicability to other industries such as pulp and paper.
We are awaiting that guidance to determine any further action.
I will now turn the call over to <UNK> <UNK>, who will discuss the Company's outlook.
Thanks, <UNK>.
Hi, everyone.
Thanks for joining us today.
As <UNK> mentioned, the first-quarter results were generally in line with our updated outlook for the quarter.
Our consumer products business is generally performing better than previous quarters.
However, as <UNK> mentioned, our sales volume remains impacted by a top-five customer.
So we have been and are continuing to address the volume reduction.
Our sales team is working hard to gain back that lost volume.
In addition, we have a strong pipeline of new business, which is heavily weighted in the Midwest and East regions that they are accelerating to fill the gap.
In our paperboard business, the bottlenecks at West Coast shipping ports began to clear midway through the first quarter, and backlogs began to pick up as we moved through the quarter.
However, not at the same pace as last year's first quarter.
At this time last year, I talked about our efforts to address the cost structure of our specialty tissue mills and to bring the focus on efficiently managing our logistics, transportation, and supply chain.
At the end of 2014, we made the decision to sell the specialty mills and reallocate that capital into cost structure improvements on the retail side of the business.
We believe the year-over-year, near doubling of the consumer products division adjusted operating margin from 3% to 5.8% validates our decision to divest the specialty mills.
Additionally, in the first quarter of 2015, we see evidence of the supply chain optimization work as improving the cost structure of our consumer business, as we saw $5 million of savings and transportation costs flow through Q1.
We still have more to accomplish, but we are focused on the right priorities, and everyone in the Company is engaged and invested in this effort.
Now I will discuss our view of the market environment and our outlook for each of our business segments, starting with consumer products.
According to IRI data, the total US tissue market as measured in cases was up 2% compared to Q4 2014.
Total private label increased by 2%.
Clearwater Paper was up over 4%, while brands grew 2%.
In line with normal seasonal patterns for the first quarter, retailers shifted their focus away from seasonal holiday promotional items to promotions for everyday consumer staples, including their private-label products.
According to the ad tracking service that we use, brand promotion remained relatively flat quarter over quarter.
That means brand promotional activity remained at the elevated levels seen throughout 2014, and we view this as the new normal.
Sale competitive pressure in tissue remains high.
And we will need to deliver superior quite product quality and excellent customer service to differentiate ourselves from the competition.
Turning to pulp and paperboard, we had some positive news recently that approximately 350,000 tons of North American SPF capacity will be removed from production.
Also, the move away from polystyrene products to alternative paperboard products will benefit SBS.
And this is currently taking hold in quick-service restaurants in cities across the country.
The SBS segment is recovering from the seasonally low fourth quarter, but the rate of recovery in backlogs compared to a year ago is not as robust and is tracking 20% on average below the levels a year ago.
The lower demand for folding carton is being attributed to lower sales of frozen food through retail channels, as restaurant traffic appears to be increasing with the improving economy and lower gas prices.
Now getting to our second-quarter outlook.
For the consumer products business, we are expecting shipment volume to be flat to up 2% compared to Q1, and we expect price mix to remain stable.
We expect pulp costs to decline as we use a higher mix of internal pulp.
Chemical, operating, and packaging supply costs per shipped ton are expected to remain stable in Q2.
We expect to see transportation costs increase due to an increase in line haul rates starting in the second quarter.
Energy costs are expected to remain stable with the first quarter.
Compared to Q1, CPD maintenance is expected to increase due to higher planned maintenance.
And SG&A is forecasted to remain stable through the second quarter.
Turning to the second-quarter outlook for our pulp and paperboard division, we expect to see shipment volumes ranging from flat to up 2% and price mix to be flat.
Most input costs are expected to remain stable except for transportation costs, which are going up due to the increased linehaul rates, and with fiber costs are expected to decline.
Major maintenance spending will decrease $7 million to $9 million versus Q1, as major maintenance costs at the Cyprus Bend mill are expected to be $6 million to $8 million versus the $15 million we spent at Lewiston in Q1.
Looking at the consolidated business for Q2 versus Q1, we expect net sales to be flat to up 2%.
Our consolidated adjusted operating margin to be in the range of 4.9% to 6.1%.
Adjusted SG&A to be flat with Q1.
Adjusted corporate spending to be $13 million to $14 million.
Net interest expense to be about $8 million.
And an adjusted tax rate of 36% plus or minus 2 percentage points.
All of these variables combined are expected to result in a Q2 EBITDA range of $42 million to $48 million.
The key variables we see determining where we landed in that range would be pulp and wood fiber prices, brand promotional activities, any changes in customer and consumer demand, and actual maintenance expenditure in Cyprus Bend.
As we complete the first quarter and look forward to the balance of the year, we currently expect full-year adjusted EBITDA to be in the range of $210 million to $225 million.
I would like to thank our employees for their hard work and dedication to the business and their focus on driving efficiencies throughout our facilities.
Thank you for listening to our prepared remarks.
We will now take your questions.
<UNK>, I would say there is probably going to be just incremental change in that on a go-forward basis.
But you will still see a continued ramp-up in TAD a little bit.
I would say it is very similar to what we have been talking about during 2014.
We saw it through virtually every quarter in 2014.
And I would say, so far in Q1 2015, it looks like we are pretty much at similar levels to what we saw in the fourth quarter.
Well, as we get to the latter part of the year ---+ we talked on our last call about, with the sale of specialty products, that there is some stranded overhead that we are going to address.
And so when we get to the back half of the year, you would expect to see a little reduction.
Great.
Thank you.
We remain excited about the prospects of our business and opportunities to increase operating efficiency across the Company.
We appreciate you joining us today and for your continued interest in Clearwater Paper.
On a final note, we will be at the Goldman Sachs Basic Materials Conference on May 19, and presenting at the Macquarie Basic Materials and Industrial Conference on June 9.
Both of which are in New York, and we hope to see you there.
| 2015_CLW |
2016 | SUPN | SUPN
#Thank you, <UNK>.
Good morning, everyone, and thanks for taking the time to join us as we discuss our 2016 first-quarter results.
During the first quarter, we continued to generate strong year-over-year product prescription and net product sales growth, and we made further progress advancing our product candidates through clinical development.
Let me now focus on some of the key highlights for the first quarter.
Total prescriptions for Trokendi XR and Oxtellar XR combined in the first quarter as recorded by IMS were 114,773, representing an increase of 50% over the first quarter of 2015.
Trokendi XR prescriptions for the first quarter of 2016 totaled 85,987, which is a 56% increase over the same quarter last year, and Oxtellar XR prescriptions for the first quarter of 2016 totaled 28,786, representing an increase of 34% over the same quarter last year.
In March of this year, we reached an all-time high in IMS prescriptions for both Trokendi XR and Oxtellar XR.
For the first time, Trokendi XR exceeded 30,000 prescriptions per month, and Oxtellar XR exceeded 10,000 prescriptions per month.
In addition, based on the most recent weeks in the second quarter, we continued to see solid sequential weekly IMS prescription growth averaging about 7% for Trokendi XR and 5% for Oxtellar XR.
Total net product sales for the first quarter of 2016 were $43 million, an increase of [53%] over $28 million for the same quarter last year.
Regarding our supplemental new drug application requesting approval to expand the indication for Trokendi XR that includes treatment in adults for prophylaxis of migraine, we continue to prepare and be ready to launch the new migraine indication after receiving full FDA approval.
Turning now to our pipeline, we continue to enroll patients into both Phase 3 trials for SPN-810, which is currently in development for impulsive aggression in patients who have ADHD, and we continue to expect data from these Phase 3 trials by mid-2017.
The Phase 2b trial for SPN-812 currently in development for ADHD continues to enroll patients as well, and we continue to expect data from the SPN-812 Phase 2b trial to be available by early 2017.
During our last quarterly call, we shared data with you on the favorable emerging clinical profile of SPN-812 as it relates to adverse events.
In addition to those data, we completed the evaluation of the cardiac effects portion of the single ascending and multiple ascending dose study and are pleased to report that there was no clinical significant change in QT interval and other electrocardiograph ECG parameters.
We believe this additional safety data in adult healthy volunteers, which show a lack of cardiac effects, are very encouraging and further strengthened the depreciation of SPN-812.
Regarding current litigation on Oxtellar XR, in February a federal district court found that (inaudible) Oxtellar XR were valid and that Davis infringed two of them.
Since then, Davis has filed a notice of appeal to the US Court of Appeals for the Federal Circuit.
Regarding Trokendi XR, the court issued its Markman opinion on order in March 2016.
The court adopted Supernus definitions of five of the seven disputed terms and did not adopt any (technical difficulty) definitions.
No date has been set for the trial.
We remain confident in the strength of our intellectual property and continue to vigorously defend the patent protection our innovative products deserve.
Oxtellar XR has five patents and Trokendi XR has six patents that are listed in the orange book.
All these patents provide patent protection that expires no earlier than 2027.
Also, recently Shire announced positive Phase 3 top-line safety and efficacy results for SHP465 in children and adolescents with ADHD.
SHP465 is an oral stimulant medication being evaluated in the US as a potential treatment for ADHD.
The study addresses a key FDA requirement keeping SHP465 on track for resubmission in the fourth quarter of 2016 and a potential launch in the second half of 2017 if approved by the FDA.
SHP465 was originally developed by Shire Laboratories, the former division of Shire, that subsequently became Supernus Pharmaceuticals.
Based on the agreement between Supernus and Shire, Shire will pay single-digit royalties to Supernus on net sales of SHP465.
Finally, we continue to actively look for partnership and corporate development opportunities that strategically fit with our vision in building Supernus to become a leading pharma company.
With that, I will now turn it over to <UNK> to walk you through the details on the financial results.
Thanks, <UNK>, and good morning, everyone.
As I review our financial results, I would like to remind our listeners to refer to the first-quarter 2016 earnings press release issued yesterday after the market closed.
We expect to file a report on Form 10-Q for the three months ended March 31, 2016, by next week.
Net product sales for Trokendi XR for the first quarter of 2016 were $32.3 million, which is 54.5% higher than $20.9 million in the first quarter of 2015.
Net product sales for Oxtellar XR in the first quarter of 2016 were $10.7 million, a 49.3% increase over $7.2 million in the first quarter of 2015.
Product prescription and net product sales growth for Trokendi XR and Oxtellar XR in the first quarter of 2016 were unfavorably impacted by the reset of insurance coverage at the beginning of the year with high deductible and high co-pay programs.
This is consistent with industry trends and consistent with what we observed in the first quarter of last year.
In addition, (technical difficulty) 2016 changes in wholesaler inventory levels and ordering patterns had the effect of reducing net product sales by approximately $3 million.
Product gross margin for the first quarter of 2016 was 95.3% compared to 94.2% for the same quarter last year.
Research and development expenses in the first quarter of 2016 were $10.6 million, as compared to $3.7 million in the same quarter last year.
This increase is primarily due to our ongoing Phase 3 trials for SPN-810, both of which were initiated in the third quarter of 2015 and our ongoing Phase 2b trial of SPN-812, which was initiated in the third quarter of 2015.
We continue to expect research and development expenses to increase in 2016 as clinical (technical difficulty) of both SPN-810 and SPN-812 progresses.
Selling, general, and administrative expenses were $25.2 million for the first quarter of 2016, as compared to $19.4 million in the same period in 2015.
The higher expenses in 2016 reflect a continued increase in our sales and marketing efforts for both Trokendi XR and Oxtellar XR and the efforts in preparing for the launch of the migraine indication for Trokendi XR.
For the first quarter, operating income totaled $5.3 million, an increase of 55% over operating income of $3.4 million in the same period last year.
The improvement in operating income for the first quarter of 2016 compared to the year earlier period is primarily attributable to the 53% [increase] in net product sales.
Net income for the first quarter ended March 31, 2016, was $5 million or $0.08 per diluted share as compared to net income of $0.9 million or $0.02 per diluted share in the first quarter of 2015.
Approximately [51.2] million weighted average diluted common shares were outstanding in the first quarter of 2016 as compared to 44.9 million diluted shares in the same period last year.
As of March 31, 2016, we had $114 million in cash, cash equivalents, marketable securities, and long-term marketable securities as compared to $117.2 million as of December 31, 2015.
As of March 31, 2016, approximately $6.6 million of our six-year, $90 million convertible notes remain outstanding.
Financial guidance for 2016 remains unchanged as compared to guidance issued in March.
Specifically, net product sales will range from $200 million to $210 million, research and development expenses to range from $55 million to $65 million, and operating income to range from $28 million to $35 million.
I will now turn the call back to the operator for questions.
Regarding the migraine indication, as we mentioned before, the PDUFA date is this quarter and depending obviously getting the full approval from the FDA.
As far as the potential upside or potential market for Trokendi XR in migraine, again, as we mentioned before numerous times, that there is still (technical difficulty) for Trokendi XR in migraine.
Clearly, because neurologists know this product very well that (inaudible) molecules, and they have been using it for so many years in that indication.
We, ourselves, obviously, we don't promote for migraine.
We only promote for epilepsy.
However, doctors tend to use it regardless.
As we mentioned also earlier in previous quarters, this year, given that the launch potentially will be either mid this year or whenever it comes, we don't have a lot of upside reflected in our numbers or the results for 2016.
And, therefore, most of the upside, if it does come beyond where we are today, it will be mostly in 2017.
We will be launching for Trokendi XR in migraine as a potentially more or less like a new product launch.
We will be putting a lot of investment and effort behind it because we think there could be an upside that we are not aware or we couldn't even expand the market in the usage of migraine with the topiramate molecule, especially with a much better dosage form that is truly once today, that is truly helping with compliance, which is very important, specifically with topiramate being used on a prophylactic basis for the treatment of migraine.
So now, transferring to your next part of the question, which is regarding the sales force, given that our effort behind Trokendi XR in migraine will be a major effort.
It is fair to say it will be a little bit difficult to put on top of that right away the launch of another product that we could potentially bring from the outside.
So the timing of that, obviously, we will have to see how we can navigate to something like this if we were to execute on the business development transaction that could include a product in the neurology space.
But we will make that decision at that time commensurate with or at the same time when we look at the asset and what the requirement of that asset that we are potentially bringing in.
And if it does require expansion of the sales force, we certainly will be looking at that as well.
And then, finally, regarding some of the therapeutic areas or disease conditions that we would look for, in the neurology space, obviously, hopefully very soon or at some point in the next nine months, 12 months, whatever it is ---+ or quarter, we will become also a migraine company as well in addition to epilepsy.
So the natural fit, obviously, with that sales call point will be any products in their specific specialty and that would cover things that are in the movement disorder specialties such as Parkinson's, MS, obviously additional migraine products and so forth, so that it opens it up for us as far as in neurology.
We also have said before that we are not opposed to getting into the psychiatry space if we can bring an asset that could potentially be launched ahead of SPN-810 or SPN-812 as well by a year, year and a half that would get us into the psychiatry office, allow us to establish ourselves and really pave the way for -810 and -812 later on.
Nothing really that stands out because also, as most of you may remember, for many years, a lot of people kept telling us, how come you finished the Phase 2 study a long time ago, and it took you so long to even start the Phase 3 study.
And we kept saying, during that time, we have been doing a lot of the work for so many of the pieces that will end up going into the NDA.
Example, a lot of the preclinical work, the two-year carcinogenicity studies, a lot of the work on the API, on the CMC, on the scale up, all that work has been in progress, and actually we completed the two-year carcinogenicity study in both species of mice and rats.
So there is a lot of the pieces that are actually being completed while we also started the Phase 3 studies so that when we get the data on the Phase 3 studies, (technical difficulty) and it looks really good, our plan is to go as fast as we can to put the NDA together and file that NDA.
So that we don't have any critical path items that could hold us up.
So that is ---+ and that applies not only to -810, it also applies to -812 at the same time.
We have been doing a lot of work on the ATI, a lot of work on the preclinical toxicology type of work.
Again, as a reminder to a lot of the folks on the call, these two molecules, although they have been on the market either in the US or in Europe, but they are also very old molecules.
And, therefore, a lot of that preclinical type of work had to be updated, up to today's scientific standards, and that is why we have taken the time and the effort to bring all these pieces together up to today's scientific standards.
And all that work has been ongoing and on purpose so that once we get the Phase 3 data from both products, we don't have anything that will hold us up from filing the NDA.
Well, most of the ---+ when you look at the (technical difficulty) 10, nine, and eight, around 80% of them are neurologists, actually.
And a lot of the usage ---+ the heavy usage is in these 3 deciles, and these folks understand these issues very, very well and they know it.
I mean, they tell us themselves.
They compromise ---+ even for epilepsy, they compromise by giving topiramate at night once a day.
Because of the side effects, because a kid in the morning taking topiramate to go to school feeling dizzy, feeling foggy, dopey, and in Topamax ---+ Topamax, whatever they call it, because of these issues, is not ideal for a kid who is going to school to pass an exam or study and focus in class.
And, therefore, they try to compromise by not giving the product as it should be ---+ as it is designed.
I can't make any comments on that, <UNK>, because we haven't published what is our PDUFA date.
We haven't mentioned what that is, and there is really no need for us to say what the exact PDUFA date is at this point for competitive reasons.
So I will ---+ if you don't mind, I don't want to answer that question.
Yes and we have been ready to launch.
Yes.
The first answer is yes, we have evaluated the several areas, including some of the ones you have mentioned.
So the answer is, yes, we have been looking at that and continue to look at that.
I can't make any specific comments regarding discussions with the FDA or what our plans are yet.
Once they are concrete, if there are any specific plans, obviously, we will disclose that.
But the answer is yes.
We are very aware of the potential of oxcarbazepine and other potential indications.
And now that we have hopefully a much, much longer lifecycle for this product, certainly that is something that could warrant additional investment.
If there is anything concrete, absolutely.
We will disclose that.
All right, <UNK>.
The convert actually, when we push it through the fully diluted share calculation, actually has two impacts.
One obviously in terms of the denominator in terms of the fully diluted share count itself, but also in terms of the impact on the net income.
The way the calculation works is, you go back to the start of the quarter and, on a pro forma basis, we eliminate loss on extinguishment of debt and other components associated with the financing.
So it has both affected or reduced the top line or the numerator of the calculation as well as to increase the denominator.
Enhance ---+ and I have had some correspondence from investors, including yourself, that have calculated a different number.
I can assure you that we get our orders all over this number, and it is, in fact, $0.08 per share.
Yes.
I think what you have seen is slightly also a function of not just price increases.
So it is also a function of the slowdown that they have seen on prescriptions across the board for branded companies because of the reset in insurance covered.
So they also (inaudible) monitor prescriptions, and when they see and they expect typically in the first quarter because they have seen it also many times, they tried to adjust their inventory to anything they see in prescriptions.
And more often than not, the reverse doesn't happen quickly enough either.
In other words, they may adjust by, say, the first quarter, the first few weeks is going to be slow.
There is high deductibles.
There is reset in insurance.
We might see some slowdown or softness in the prescription numbers.
So let's make sure we don't over order or order too much.
And when the prescription start picking up again, they are a little bit slower in adjusting to that, and that is why I mentioned earlier, we actually have about a one week on one of the SKUs, and we look at average numbers.
One week that means probably some warehouses don't even have or they are even out of stock on certain SKUs because all these numbers we talk about are just averages.
Some of these wholesalers have more than 50 or 60 distribution centers across the country.
So it is really a function of not just when could a company take a price increase and anticipate that and try to adjust inventories because of that.
It is also a function of the softness of prescriptions in general, in the sector in the pharma industry in general that is happening across the board that they try to adjust their levels to.
I don't have anything to add versus what is public.
But yes, that is correct.
I mean we did mention that before that we have settled with people before, and we are willing to settle with anybody who is willing to work with us on a reasonable setup, and that is what we are working towards.
And if we don't enter into a settlement, we are also willing to go all the way to the court and beat them in the court, and we have very, very strong IP and we continue to build our IP on both products.
So, at this point, I really don't have any addition to that communication.
We will see what happens on May 18 or later than that.
But we are very working very diligently to hopefully take this risk off the table for everyone, including myself, and hopefully stop talking about it at some point.
Yes.
Sure.
And very good question, <UNK>, because you're absolutely right.
Although impulsive aggression is a very, very well known condition ---+ and I need to emphasize that ---+ this is not a new area that people are not aware of.
It is not a new condition that physicians don't (technical difficulty).
Although it is off label ---+ with off label products that don't work or have no data whatsoever to back it, that they actually have any impact on the patients.
Nevertheless, when you introduce a new product with a new indication, obviously for the first time ever to have a product approved for that condition, you have to do a lot of market preparation, education, among physicians, KOLs, and so forth.
And we actually had started that a long time ago and continue to do that.
And among some of the efforts, as data obviously comes up and as we produce more data on -810, the usual things that you will expect from any company preparing for launch of a major product in the market like this would be publications, conferences, KOL training, speaker training, and so forth.
So we are very active in that space, and we continue to do that through 2019 when we expect this product to be launched.
Yes.
As I mentioned earlier regarding the previous question, yes.
I mean, we are working very hard to make sure, once we get the data, if it is positive, that we go full speed ahead with the NDA filing.
And, therefore, we are trying to make sure the checklist for the NDA is really getting smaller and smaller by the day.
So we don't have any ---+ too many items left by the time we get the data.
And also, I will remind everyone, we do have a fast track designation for development of -810.
We don't have fast-track review, but if you have a fast-track development track, you have the opportunity to ask the FDA for a fast-track review.
And that will be something obviously we will look forward to.
The data is positive, and all the interactions with the FDA look pretty good.
We potentially also ask for a fast-track review of our NDA to get the product on the market as soon as possible.
So we have that avenue as well at our disposal and some time later after we see the Phase 3 data and have meetings with the FDA to confirm all that.
Yes.
Let me clarify.
When I meant psych, I don't mean depression.
I don't mean anxiety type of products that are primary care driven.
I mean things which are little bit more of a specialties psychiatry area where we can effectively have a salesforce in the 100 to 200 range.
I mean, we did say, for example, on SPN-810, initially when we launched the product, we are looking at this point to the way we have been sizing the product, the territories and so forth.
We are looking at potentially having 130 reps to launch SPN-810 with.
We will monitor how the launch goes, and we could potentially expand that.
And when we bring in SPN-812, we are looking at potentially adding another 170 reps on top of the 130 to manage both products.
So these are the kind of sales force sizing things that we are looking at from a disease point of view.
We are not looking at a huge area that will require thousands of salespeople to go after the primary care setting.
So definitely, we are not looking at depression or anxiety or things which will require more of a primary care push, but some things which are more driven by psychiatrists themselves.
Yes.
Sure.
I will take the partnership question, and then I will let great comment on the expenses.
Regarding partnerships, at this point, the ones that we talked about ---+ clearly, the new one is SHP465, which will have some royalties that will come through Supernus.
We haven't disclosed the specific royalty other than it is a single digit royalty.
And as Shire has mentioned and they expect if they get approval, clearly, they expect to launch the product in the second half of 2017.
Now, the other royalty that we have talked about historically has been the royalty on the Orenitram, which is the United Therapeutics product, and that royalty will come back to Supernus after investors get a certain predetermined, predefined return on their investment when we sold them a portion of the royalty stream, if you remember, back in 2014 when we sold about $30 million ---+ we got $30 million from these investors, and they bought a portion of that royalty stream.
So once they get their return on that investment, the royalties will start coming back to Supernus.
So, clearly, that is very fluid because it all depends on the performance of Orenitram in the marketplace with the United Therapeutics, but clearly we felt pretty strongly and continue to feel pretty strongly about the potential of that product.
Otherwise, we wouldn't have kept the upside potential for us and retained it for us in the future.
So, in a nutshell, these are the two royalty streams that potentially could come to Supernus at some point.
Great.
And, <UNK>, with respect to your question as regarding R&D, just want to remind everybody on the phone that when we have spoken about profitability on a quarterly basis, we have assiduously reminded everybody that it is going to be lumpy, and while, of course, it is our intent to be profitable every quarter, that level of profitability is going to fluctuate substantially depending on what is going on with respect to activities within the Company and primarily R&D driven.
Now, as far as R&D programs, we have worked hard to configure these into milestone-driven arrangements so that as trials progress, they trigger payments through our CROs and other service providers and that, therefore, depending on how progress goes with each trial, we have talked about in the three trials of one Phase 2 data and the two Phase 3 trials, but there will also be open-label extensions for all of those that they will trigger milestones on a quarterly basis.
Depending on the specific progress for each of those programs, including the open label extensions, it will drive variability in terms of R&D spending.
And I should just add, I missed the answer to your full question, you asked us about milestones.
The other thing ---+ so there are no specific milestones other than what could sometimes come out of the licensees we have across (inaudible).
As everyone knows, we do have some licensees outside the United States.
There might be some milestones sometimes that come in, and that is why sometimes you see in our P&L that they are amortized a lot of times.
At least, we don't talk about them too much.
They are important to us, as important to our partners, but given our revenue scale and so forth from a materiality point of view, they may not be anything that is really very significant.
But I should mention that, just for complete disclosure.
Yes.
Thank you.
In summary, our priorities for the remainder of 2016 are to continue to grow Trokendi XR and Oxtellar XR, advance our pipeline products with the clinical development and vigorously defend our intellectual property.
This (technical difficulty) continues to be active in business development looking for potential assets to strategically complement our portfolio.
We look forward to updating you through the year on our progress, and thanks for everyone joining us this morning.
| 2016_SUPN |
2015 | AZZ | AZZ
#Good morning, <UNK>.
We haven't really disclosed that, but typically that's going to be ---+ let's see, at this point in the year, two-thirds to three-quarters, I would suppose.
Yes, I think the majority of what's been in backlog up until what we just recently booked, we've got four- to six-month cycle times typically.
Obviously when some of the projects ---+ as we've talked about, a lot been around for quite a while.
Fortunately that stuff's clearing, and we anticipate it will continue to clear in the third quarter.
Then they'll be in their normal cycle, which is more like 6 to 12 months.
We're ---+ I'd have to say most of our business units on the electrical side would probably say they have their backlog in hand that they need to achieve their forecast for the year.
There's backlog there.
As <UNK> alluded to, we booked some of that in the second quarter for the third quarter, for our third quarter fall outage season.
We will ---+ we're quoting stuff now for what will be our fourth quarter as we get into after the first of the year.
We're quoting that stuff now, but not booking those things yet.
We'll book that in the third quarter.
Yes, they've got the backlog pretty much that they need for the third quarter.
Then as we've talked about, a lot of what happens to them is they go in, it's a $2-million job, and by the time they're done it's a $4-million or $5-million job once they're on site.
We're very comfortable with the backlog they've got for the third quarter.
Sorry, <UNK>, we don't get down to that level in terms of calling it ---+ that goes to margin ---+ sorry, at that level.
But it is improved.
Yes, that's fair.
We're seeing a little bit of ---+
Yes, they had some organic growth.
It wasn't all from the acquisitions, because we didn't have the full quarter for the acquisitions.
They've got some organic growth in there.
I think our focus is on that organic growth, new services, service expansion, covering more territory, new applications.
We've been investing in that.
As we've talked about, we're committed to maintaining that 24% to 26% margin profile.
Yes, it did.
We're integrating quicker than we had planned on, and driving those margins up.
There's still a drag on galvanizing's overall margins in the quarter, but we made a lot of progress and it's moving faster.
We're feeling real good about the progress to date.
First impact's going to be the ---+ at least the first positive impact's going to be from the improved margins in the volumes from the US Galv sites.
Like we said, we'll get those up pretty close to our normal run rates by the end of the year.
I think the guys are well on track to do that.
We're already seeing the benefit from that.
That's occurring now.
I'd have to say that's the first.
In terms of zinc, as we talked about, we actually in a lot of ways, because of our size and scale and our ability to drive efficiencies and productivity on zinc usage, we tend to prefer prices on zinc going up.
On the other hand, because of the volumes we can buy ---+ and we tend to buy forward to some extent or commit forward, not buy forward.
Yes, we're looking at next year as we get into say fourth quarter next year, benefiting from the lower zinc costs, but we're not overly excited about where it's at.
I'm sorry, the Trinity I referred to them as US Galv.
But those are the Trinity.
No, I'm sorry.
The official name of the Trinity galvanizing business was US Galvanizing.
That's my fault, didn't mean to confuse you.
That's lumpy because that tends to be the big electrical projects, our high-voltage or medium-voltage bus projects, which the one we've announced was $10 million.
That's ---+ you can miss it by a few days and it makes it look a little different.
There's a lot of lumpiness in that international project backlog.
Same for WSI.
When they're booking international jobs, those tend to be the bigger jobs, so it changes that backlog pretty quickly.
While it's down, we're not concerned about that at all.
We see plenty of opportunities on the international side, and we have more resources in place to ensure we get those.
And the Chinese portion of the Westinghouse went in the second quarter.
Yes, that's part of it.
That was international backlog out of NLI that shipped.
Yes.
Sure.
Well, thank you, Amy.
I thank everybody for participating in today's call.
We look forward to talking to you again at the conclusion of this current quarter.
Once again, thank you and have a great day.
| 2015_AZZ |
2015 | RGEN | RGEN
#I think we're seeing it as we move into the second half of this year.
When you think about the way OPUS gets adopted, in the first year or two of market adoption you typically get into one column step.
Now we're seeing that we're getting into multiple columns steps, and in some cases all three column steps which means, in my mind, that we're moving into a platform.
Yes, obviously, OPUS is going to be strong in the second half of the year.
The mix does change H2 versus H1, and that's why we're seeing a gross margin difference.
Sure, <UNK>, we're also seeing a little bit of de-leverage on our factories.
It's the typical seasonal issues with holiday periods, shutdown periods over the summer and winter months, early winter months.
A little bit, yes.
Earlier this year, Sigma launched a cell culture media that uses growth factors, basically our IGF-1.
Clearly as our partner they see the traction in the marketplace.
And the first media that they've developed and launched, new media developed and launched is for fed-batch processes.
Okay, I'll take that question in segments a little bit.
But in terms of the top 25 pharma customers, I would say that our focus for OPUS has been initially on getting the contract manufacturers aligned and using the technology.
That clearly is happening.
With respect to the large pharmas, we're also making progress there.
I don't have an exact number, <UNK>, in terms of how many of the top 25; but the numbers are definitely accelerating and we are very confident about the second half of the year.
Your question about OPUS 60, we've taken additional orders in Q2 and here in Q3, and we have a really healthy pipeline of OPUS 60 opportunities.
I think the real advantage that we have now in the marketplace ---+ and I said this in my earlier comments ---+ is that the combination of OPUS 45 and OPUS 60 really now allows us to start to convert customers who are using glass columns at this scale and converting them over to prepacked columns.
And that's really our focus.
Yes, I can.
I think we published that we had a very strong quarter in affinity ligands, also in ATF products, okay.
Then thirdly our OPUS lines; and then fourthly for the quarter would be the growth factor line.
Yes, clearly we're having a very strong year for the affinity ligands.
Second half of the year not as strong as the first half, but still it's going to be a good year for us for affinity.
It's a little too soon to comment on next year, and we'll know more I think as we get closer to the Q3 earnings call.
Yes, I would say that ---+ yes.
OPUS business in general, we're targeting about and projecting about 50% growth for the year.
So I'd say we were a little less than that in the first half, but we'll be stronger in the second.
So overall we'll still hit our target of 50%.
It was less than that in the first half, but it will be stronger than that in the second half.
But for the year it will grow 50%.
Just let me add, <UNK>, just to add maybe a little bit more color on that.
As you might recall, we really ramped up our commercial organization towards the end of last year and into ---+ through Q1.
I think what we're seeing now in the second half of this year is the impact of the larger commercial organization.
Sure.
Well, we typically give guidance for the full year, so our tax rate for the full year is in that range between 27% to 29%.
We had a lower tax rate in Q2 based on mix of where our income was coming from, between our Swedish entity and our US entity.
As you know, we pay a 22% tax rate in Sweden; and in the US largely we're not paying tax at all because of the NOLs that we are carrying forward.
I'm sorry.
We're looking here.
What.
Could you repeat the question.
No, you're talking about contingent consideration, <UNK>; I apologize.
Yes, We didn't catch that.
Sure.
Every quarter we reevaluate what our current forecast outlook is for the ATF product.
And depending on probabilities of meeting certain milestones that are outlined in our purchase agreement with Refine LLC, we basically have to re-true-up the accrual.
Right now we have our accrual trued up.
We booked $1.9 million for the first half of the year; $800,000 for the second quarter; and we're fully trued up to what we believe the full-year forecast is and sales forecast for ATF.
So we're not expecting any additional accrual for ATF through the second half of the year.
But, however, if we exceed our current sales projection, there is another potential of $200,000 that we could book to meet the variable component of the contingent consideration milestone.
But that's the max, <UNK>.
Yes, that's the max this year.
Unless ---+ there's another element of 2016.
Right now we think we're well below the 2016 milestones and we will not have to pay a contingent consideration based on 2016 results.
So right now we're at zero accrual for that.
Yes, that's a great question.
Clearly, ATF has been a really nice win for us since we acquired the business a year ago.
As you might recall, we started to use the distributor network that was selling ATF about a year ago, and we've also added in a commercial lead over in Asia.
That actually has really benefited us, and we are seeing now some pullthrough on OPUS and we're getting some important accounts now adopting OPUS in Asia.
| 2015_RGEN |
2017 | CNSL | CNSL
#Thanks, <UNK>.
Good morning, everyone, and thank you for joining Consolidated Communications' first quarter call.
First off, it was a productive quarter and start to the year.
We have a clear vision and are executing well on our strategy as we make targeted investments to position Consolidated Communications for future growth and create value for our shareholders.
I'll begin my remarks today by updating you on our pending FairPoint merger and relay my continued enthusiasm around many benefits this merger will bring as our 2 companies become a stronger, more competitive company in serving our customers.
We have made great progress in our effort to obtain all required approvals and close on this acquisition midyear.
Both Consolidated and FairPoint secured shareholder approval on March 28, and we were granted Hart-<UNK>-Rodino clearance in January.
We also secured the financing to fund the acquisition on very favorable terms last December.
On the regulatory approval front, we have 11 of 17 states completed.
We are working diligently on the 6 remaining states where we are engaged with commission staff and all interested parties.
We continue to be on target for a midyear close.
Overall, I am very pleased with the progress made to date, and I'm confident in the many benefits we'll realize with this merger and the increase in scale.
This acquisition supports our strategy to sustain and grow cash flow.
The addition of FairPoint will significantly expand Consolidated's broadband reach by adding more than 21,000 fiber route miles and 13 new states to the Consolidated footprint.
We are in an excellent position to leverage FairPoint's fiber network along with our extensive product portfolio, bringing benefit to our combined carrier, commercial and consumer customers.
We expect to achieve $55 million in annual run-rate synergies within 2 years of closing.
The transaction is accretive to cash flow, which strengthens our dividend payout ratio while significantly improving our capital structure.
Ultimately, combined, we will become an even stronger company.
Consolidated has a successful track record of integrating companies, having completed 3 acquisitions in the last 5 years.
We will use our playbook and experience to deliver a smooth integration and achieve our synergy targets.
Now turning to our first quarter results.
Revenue in the first quarter totaled $169.9 million and adjusted EBITDA was $71.1 million.
As a reminder, last year we took steps to sharpen and refine our focus on our core business and broadband strategy.
We made a small acquisition of Illinois-based Champaign Telephone Company which closed in July.
Additionally, we had 2 divestitures; the sale of our Iowa ILEC in August, and the sale of our Equipment business in December.
Please note, these events impacted our year-over-year comparisons.
Our commercial and carrier revenue totaled $76.8 million in first quarter.
We had another strong quarter of growth in Metro Ethernet with a 24% increase in units from a year ago and we are seeing increased interest in our cloud product suite, specifically Cloud Secure, Cloud Wifi and Unified Communications.
Cloud is an important part of our sales conversation, and customers appreciate our expertise and expanded commercial product portfolio in our effort to solve their business problems.
Cloud Services have grown 10% since our mid-2016 launch across all markets.
Now we continue to have success serving multilocation businesses, like a Minnesota-based financial institution, for example, that has 19 sites who signed on with our MPLS, WAN and hosted voice services.
Also, in an Illinois-based agriculture implement dealer recently chose Consolidated Communications for their 20-site WAN and data center requirements.
We evaluate all success-based opportunities to extend our fiber network and bring more buildings on net, having achieved a 10% increase in lit buildings year-over-year.
With our carrier channel, we are seeing increased demand for small cell and dark fiber solutions and have had some early successes in our North region with small cell densification network in 2 urban markets, which we deployed.
We are active with a number of RFPs and are in an excellent position in the markets within our service area.
We have approximately 1,300 towers under contract, 150 of which are under construction.
And despite this positive momentum, we have been experiencing continued bandwidth price compressions most visible in our carrier channel, and this has resulted in some contract revenue write-downs and midterm renewals to secure more sites and longer-term extensions.
Our consumer focus is on securing the broadband pipe to the home and profitable video apps.
We've made good progress increasing speeds in the first quarter and proactively upgraded 30,000 connections.
96% of our broadband-capable homes can subscribe to 20 meg or better and 42% can get 100 meg or more.
We more than doubled our 1 gig subscribers from over a year ago ---+ from a year ago.
The demands for higher speeds will continue, and we are prepared to meet those demands through our network upgrades.
Our consumer ARPU was up nearly 2% from the prior quarter, reflecting our progress and focus on profitable broadband services.
We recently launched consumer self-service tools, specifically Wi-Fi monitoring, which gives customers the ability to manage their connectivity and bandwidth allocations in the home, ultimately creating a better experience and a better cost structure for our company.
We look forward to extending these benefits to the FairPoint customer base post close.
Also in the first quarter, we launched the CCI All Access app giving customers a quick and easy way to unify their TV Everywhere experience and any other content services they choose to access.
Now I'll turn the call over to Steve for the financial review.
Steve.
Thanks, Bob, and good morning to everyone.
The first quarter was a productive quarter for us and a good start to the year.
On a sequential basis, excluding the fourth quarter sale of our equipment IT services business, first quarter revenues were essentially flat.
Operating revenue for the first quarter of 2017 was $169.9 million compared to $188.8 million a year ago.
More than 60% of the year-over-year decline was due to the sale of our equipment business, which produced $9.6 million in the first quarter of 2016 and the divestiture of our Iowa ILEC, which contributed $1.8 million a year ago.
Additionally, excluding the impact of the sale of the Iowa ILEC, subsidies were down $1.9 million, following the step downs of CAF II in Texas USF funding and access revenue was also down $2 million.
Commercial and carrier revenue, despite the strong growth in Metro Ethernet, was relatively flat due to continued price compression, largely from the carrier channel.
Consumer revenue, excluding the impact of the sale of Iowa ILEC; was down about 5.5%, primarily due to voice erosion and then expected decline in video subs due to the heightened focus on video profitability.
Our revenue mix is well diversified, with 82% of our first quarter revenue being business and broadband services.
We will continue to grow strategic revenues to counter the expected legacy declines.
Total operating revenue ---+ total operating expenses, exclusive of depreciation and amortization, were $109.2 million compared to $120.4 million for the same quarter last year.
The year-over-year decline in expense is primarily related to the divestitures, as previously discussed.
Net interest expense for the quarter was $29.7 million compared to $18.6 million for the first quarter of 2016.
The year-over-year increase in interest expense is primarily related to the acquisition of FairPoint and our December refinancing of FairPoint to debt.
The quarter includes $3.5 million in amortization expense of commitment fees associated with the committed financing we delivered at signing of definitive agreement.
In December, subsequent to announcing the transaction, we converted our committed financing to $935 million in commitments under the incremental facility of our secured term loan.
Starting January 15, we began to accrue ticking fees or accrued interest at the rate of approximately 4% on this committed capital.
This resulted in an additional $7.9 million in expense being recognized in the quarter.
Ticking fees will continue to accrue up until closing of the transaction.
The increased expense was partially offset by the refinancing and the company's existing $900 million term debt in October 2016, resulting in $2 million in annualized cash interest savings.
Other income net was $5.2 million compared to $7.2 million in the first quarter of 2016.
Cash distributions from our wireless partnerships in the quarter were $5.6 million compared to $6.8 million a year ago.
Wireless distributions were impacted by significant CapEx investments made in the Houston MSA to upgrade and build out the market to support the Super Bowl.
The buildout has impacted distributions for the last 2 quarters.
However, we do expect second quarter wireless cash distributions to be approximately $7.6 million.
Weighing all these factors and adjusting for certain items, as outlined in a table in our press release, adjusted net income was $5.7 million in the first quarter, and adjusted net income per share was $0.11, which compares to $9.5 million and $0.19 per share for the same period in 2016.
Adjusted EBITDA was $71.1 million in the first quarter compared to $78.6 million a year ago.
The year-over-year decline is primarily due to decline in our high-margin subsidies and network access revenues as well as the $1.2 million decline in wireless partnership cash distributions.
In the quarter, we made $29 million in capital investments or 17% of revenue.
We continue to have flexibility in our capital plans with 2/3 tied to success-based opportunities and are focused on fiber deployments.
Our capital investments have to meet our internal paybacks and returns.
From a liquidity standpoint, we ended the quarter with approximately $26.6 million in cash on hand and the full $110 million revolver available to us.
For the quarter, our total net leverage ratio was 4.58x.
Cash available to pay dividends was $24.3 million, resulting in dividend payout ratio of 80.5% for the quarter.
With respect to our dividend, this week our Board of Directors declared the next quarterly dividend of approximately $0.39 per common share, payable on August 1 to shareholders of record on July 15.
This represents our 48th consecutive declared quarterly dividend and $19.6 million return to shareholders.
We are affirming our 2017 guidance, which was provided at the time of our fourth quarter earnings.
We will update our guidance following the FairPoint closing.
To recap, on a stand-alone basis and excluding the pending FairPoint acquisition, we expect cash interest costs to be in the range of $70 million to $72 million.
Cash income taxes are expected to be less than $2 million, and we expect capital expenditures to be in the range of $115 million to $120 million.
With that, I'll now turn the call back over to Bob for closing remarks.
Thanks, Steve.
So in summary, we are confident in our ability to execute on our focused strategy, deliver results and return value to our shareholders through our long-standing dividend.
Looking ahead, we're eager to close on the FairPoint transaction, begin integration work and grow strategic revenues.
We are expanding our fiber-centric reach and maintaining strong and steady cash flows.
It's the combination of these steps that provide the long-term sustainability and value to our shareholders, customers and, of course, our employees.
So with that, Skyler, we'll take any questions at this time.
Yes, <UNK>, I'm still looking at and very confident, frankly, in the midyear, midsummer time frame.
And so specifically, when you look at the states, we've got 6 remaining: Illinois, Kansas, Maine, New Hampshire, New York and Vermont.
We're in the discussions with the regulators around the appropriate process and going through the review of our operating plans and we feel really good about the collaboration that's occurring.
So it's a real defined process, there's a schedule and when the commission meets and we'll vote, and then all lines up for a close within the, let's say, next 90 days.
Well, scale matters.
We're seeing that from a wireless back hole, for example.
You have the big wireless providers moving to unlimited plans.
They put in thousands of sites over the last 15 years.
And whether they're at the end of a term or midterm, they're leveraging that scale and those distributed sites into a stronger contract opportunity, if you're willing to renegotiate.
And we're feeling that pressure.
So I think we're in a good position in the markets where certainly we've got the most robust fiber network.
The NFL markets are a little more competitive.
We're very, very encouraged by the robustness of FairPoint's fiber network.
And so while if you look at what's happened to bandwidth costs since 10 years ago, where a megabit was maybe $50, and now in 2017 it's $0.80 per megabit, you can see the trend is accelerating on bandwidth pricing.
And we see the scale increase and essentially doubling our current installed base of towers as well as tripling our fiber network reach, a good step in securing our long-term future in that space.
<UNK>, I will try and provide some additional color, so maybe starting with consumer.
We did ---+ I did say that revenue was down 5.5% year-over-year after you normalize for the divestiture of the Iowa ILE<UNK>
I mean, on consumer side, we are still seeing some voice erosion.
Again, only 7% of our consolidated revenue is tied to consumer voice.
So we have a lot of that behind us.
Also, our strategy on video has been changing from linear subscription video, adding set-top boxes and really focused on gross adds.
We are moving more towards over-the-top applications and delivering faster speeds of broadband to help our customers, enable them to do more streaming as they choose.
So our backing up on video net adds is intentional and we are seeing some revenue declines associated with that.
And also that does enhance our profitability and free cash flow as we move away from there because we're not incurring the egregious programming content increases and we're not incurring CapEx expense relative to the set-top boxes.
So I think our strategy is right on the video side for this year.
The commercial and carrier side, the way we have that bucketed is a little tougher to give you all the piece parts that you're probably looking for.
In that number, we did ---+ we do have the CTC acquisition.
As you remember, we acquired that in July of last year.
That's been a nice add to us.
I would say that the price compression is maybe $1 million a quarter for the last 2 quarters.
And so I think net-net, commercial and carrier revenue was essentially flat.
And again, we're expecting basically 3% growth out of that line item, but right now it's being slowed as we kind of deal with the price compression primarily on the carrier side.
So let me pile on to that in terms of on the commercial front.
As Steve mentioned, it's a 3% growth strategy that we continue to pursue.
We saw unit growth on Metro Ethernet services by about 24%.
Cloud Service isn't significant on revenue, but it fuels our relationship-based selling approach and the consultative sales approach.
And so when you look at how our strategy to compete with some of the price compression we're seeing on the carrier front and secure the commercial customers and enterprise customers, we're getting more aggressive with some promotional positioning on bandwidth, as long as they take our cloud services, which helps long term from the retention.
Our churn is at a historic low in most of our commercial markets, and we attribute this shift in our sales strategy that we began in late '15 and finished in second quarter of '16 as the reason that our churn is already ---+ which was already strong, has continued to improve.
So I think that handles the commercial and carrier.
Let me go to consumer to give you an idea of what we're doing from a pricing strategy there.
We continue on, as Steve mentioned, to focus on video profitability and we match the content price increases and pass those along in total to our customers.
We continue to look hard at the content lineup and rationalize where cost increases don't make sense, whether or not we continue the carriage.
But bottom line, our strategy of upgrading network and making more bandwidth available, for example, 96% of our network can get between 11 and 20 meg, and 42% of our network can get over 100 meg, that has served us very well, as well as our unified portal to strengthening our relationship with customers and facilitating their access to our TV Everywhere product and leading them to an over-the-top consumption.
So that's been a real advantage and just to put a finer point on it, our consumer ARPU is up to $86.50, which is about a 2% increase.
And that's in context of still some decline in broadcast video ARPU along the way.
So a lot in there.
I hope that satisfies your questions, <UNK>.
If not, feel free to come back with a follow-up.
Yes, <UNK>.
The ---+ as you mentioned, I won't comment on Frontier.
But our strategy has been to pursue operating company acquisitions that have strong fiber assets, and that's been our disciplined approach to M&A.
And we do that in 2 ways: one, we look at strategic opportunities like the FairPoint 22,000-mile fiber network and we look at tuck-ins like CTC that brought us a little under 300 miles and about the same number of buildings.
So in the case of FairPoint, while it came out of a Verizon spinoff and has a bit of a troubled past, Paul and the team have done outstanding job of deploying a robust fiber infrastructure, put $1.1 billion into the ground and have built a very refined carrier service organization that is something that we will preserve and build on with the additional scale that our combined company will present.
And so we really take an approach that we acquire operating companies, we look at the fiber assets, we figure out how we're going to leverage.
And if we can get value out of our 3 customer group strategy and that's when I mentioned the value of the network, they've got a great wholesale operation and we're going to benefit from the combined scale that we get and preserve and grow that.
On the commercial and the consumer side, we see some tools that are in our playbook that we can use to accelerate efforts and initiatives that they likely would have got to next door or in the future.
And that's the power of the combination and we'll deliver some cost synergies that, at times, we may exceed but invest back into the business where we have room to do so in terms of marketing and community involvement.
So our playbook's quite refined.
This is, well, large in scale.
A very tidy implementation of an integration.
And while there's a lot of people involved, we're very excited and very confident in our team and our ability to execute.
And in fact, there's 17 projects that are teed up and 7 of them are customer-facing oriented and focused on reducing customer pain points and bringing value as we do a brand change in the future.
So I could talk on and on because we're very excited about the benefits of putting these 2 companies together.
Bob, could I just add, just to stress, you like that out very well, but there is no forced cut, there's no transition agreement.
Operating systems are already in place.
We choose when and if we cut to the system, so nothing compared to the FairPoint-Verizon original deal.
Yes, that's a very good point.
Let me start with the 5G evolution.
And I think that's going to take time, but I really think that timing is excellent for us.
This combination that will give us scale to play larger with Verizon as they want to build out this 5G network will allow us to extend our fiber footprint.
And so that's very attractive to us and we're continuing to participate in the technology forums that allow us to stay close to those decisions.
But I do think it's going to be an evolution versus a 2-year, 3-year phenomenon and it will recharge the carrier space.
In terms of the distributions and the capital investment, we've lived through that cycle for 14, 15 years now.
And Verizon is very rationale, how they do it.
Now you can't predict exactly the impact of a Super Bowl like we had in the last couple of quarters.
So that affected distribution a little more specifically in the markets where we're a partner.
But we're in very good markets.
We understand the strategy in those markets typically.
And I think it will be a natural evolution that won't hit us significantly all at once in all the markets in which we are partners.
But it is something that we'll be watching closely and try and give some leading indicator to all of you on how it might impact us.
Just a follow-up to a previous question.
How do you recommend do we think about growth within the commercial and carrier business over the next couple of quarters within our models, particularly given the pricing compression you're currently seeing.
I'm going to reiterate the strategy we have around that business.
We're still viewing it as a 3% growth business, all in between carrier and commercial combined.
I think we're in the fifth or sixth inning of some major contracts that we have that are being leveraged to a ---+ either an extension or to get more sites and seeing the price squeeze as a result of those.
So I feel confident with the sales resources we have, the ramp we have in the strategy that we see, that the growth revenue there continues to be solid.
But I think we're going to follow an industry trend there, feeling some pressure for the foreseeable next couple of quarters.
The only thing that I would lay out that, typically, just immediately following the close of an acquisition, we're able to get on a 2-year run some good spike out of new properties.
And so we're optimistic that we can get more than our fair share versus industry trends once we've applied our strategy to some new markets post close.
But for now, I think we're feeling the same pressures that others are in the industry.
Yes, <UNK>.
Thanks for the question.
We kind of have a unique suburban and rural mix in Texas, Minnesota, some of the central North, Pittsburgh, Kansas City, somewhat Sacramento, they're fairly substantial markets.
And what really drives right now small cell opportunities is densification and some of that's population oriented and others terrain oriented or geography.
So I'm not going to give you specifics on RFPs that we are working on, I just can't do that.
But ---+ or at least shouldn't.
But when you look at our markets, Pittsburgh has a geography that lends itself to small cell, Kansas City has some density, the central north where we've done in some tier 2, tier 3 towns some small cell work, that has really given us the chance to show that we can do everything from a hybrid managed bandwidth to a dark fiber and Radiohead engineering and cabinet deployment for a wireless partner that needs to fix an issue quickly.
And so as 5G evolves, we think we're really well positioned with the turnkey or an a la carte small cell solution for our wireless partners and the added scale that comes certainly with some of the geography in the Northern New England area positions us in an excellent spot to capture some of those opportunities.
<UNK>, this is Steve.
I'll try that, and since we are in an ongoing settlement discussions with the 3 states, I'm not going to give you a lot of color.
But we are ---+ we're in different places in all 3 states, but we have gone through ---+ for the most part, we have gone through the formal hearing processes.
And now we are ---+ we might have a little bit of that left to do.
But for the most part, we've made our case.
We are working with all interested parties, as Bob mentioned in his presentation.
And now we're just trying to get to getting to agreement on moving forward with the transaction and I think we're making really, really good progress on that.
What I would say is, and I've met with all 3 governors in those states and governors in some other states, very excited to have us investing there.
They understand the good things FairPoint's done with the network deployment.
We've been working cooperatively with all the intervenors.
And I got to tell you, I'm pleasantly surprised with the receptivity and the collaboration.
So it's a definite ---+ a different environment, it's a more modern approach, and it gives me great confidence that we'll hit our targeted midyear close.
<UNK>, this is Steve.
Thanks for the question.
I'll take the first part and Bob will take the second part.
But relative to the wireless distributions we did provide the $7.6 million number on second quarter, and the way I would think about it lasts for full year 2016, we ended up with like $32 million in total distributions, and we were impacted in the last quarter, because some of the CapEx builds we were talking about were the Super Bowl and the South Texas market.
The last half of the year historically has always been, the voice provided higher distributions than the first half.
So we're still ---+ we think $7.6 million.
We just want to show that it was rebounding.
And that we actually think it will be higher in the last half of the year.
Related to, <UNK>, your comment on the data in commercial service uptick, we're very active on retention efforts, early contract renewals, things like that.
Our consultative sales approach which we rolled out in conjunction with Cloud Services is our tools to change the conversation with businesses has really expanded our product portfolio and our ability to solve business problems.
That's elongated the sales cycle a little bit.
But to an earlier question that <UNK> asked around demand, we saw through the election period, demand slowdown so it fit well with an elongated sales process.
And we built a real good rhythm and execution amongst our sales team now that we're really excited by.
And that really started to surface and become more visible in first quarter.
So when you combine that consultative sales approach with the focus on building Metro E as our foundational product, it allows us to control the quality better.
We are able to roll out a unified portal, which more and more customers are being transitioned into.
It gives them access to their information as well as bandwidth monitoring.
It reduces calls into our call center, which helps on the cost side.
So we're feeling very confident in that strategy and not only in our legacy consolidated areas, but the benefit it will bring once we close on the FairPoint acquisition.
Yes, about 40% to 45% are upgrades.
That's a very good question.
And with that, it allows us to extend the relationship with the customer and get a little more wallet share as we layer on the cloud service and data center.
In the expansion areas as we pass new buildings and extend our fiber network, we're seeing a pretty good impact of combining our fiber-based Metro Ethernet with the cloud portfolio.
Well, we thank you again for joining us today, and we look forward to updating you on the second quarter results and our FairPoint closing.
Thanks, and have a great day.
| 2017_CNSL |
2017 | AWK | AWK
#Thank you, Amy, and good morning, everyone, and thank you for joining us for today's call.
As Amy said, we will keep the call to about an hour and at the end of our prepared remarks we will have time for your questions.
During the course of this conference call, both in our prepared remarks and in answers to your questions, we may make forward-looking statements that represent our expectations regarding our future performance or other future events.
These statements are predictions based upon our current expectations, estimates and assumptions.
However, since these estimates deal with future events, they are subject to numerous risks, uncertainties and other factors that may cause the actual results to be materially different from the results indicated or implied by such statements.
Additional information regarding these risks, uncertainties and factors, as well as a more detailed analysis of our financials and other important information is provided in the earnings release and in our 2016 Form 10-K each as filed with the SEC.
Reconciliation tables for non-GAAP financial information discussed on this conference call including adjusted earnings per share, adjusted return on equity and the O&M efficient ratio, can be found in the appendix of the slide deck for this call.
The slide deck itself can be found on our Investor Relations page of our website.
All statements in this call related to earnings and earnings per share refer to diluted earnings and earnings per share.
And before I turn the call over to <UNK>, let me briefly talk about the American Water investor relations team.
As you know, Melissa Schwarzell was promoted recently to a new position in our Rates Team.
And almost at the same time, Cathy DeMots, our IR Executive Assistant decided to retire after 30 years with American Water.
I'd like to take this opportunity to thank Melissa and Cathy for all their hard work, dedication and comradery during their time in the Investor Relations Group.
Now, as part of American Water's commitment to developing talent from within, we promoted Ralph Jedlicka who has been part of the Finance Team since 2007 to be our new Director of Investor Relations.
And then we were lucky to find Kelly Uyeda, a professional with 10 years of IR experience to be our new Executive Assistant.
I'm personally very excited about our new team.
Most of you folks have already interacted with Kelly and Ralph, and we look forward to meeting you all when we go out on the road on investor visits.
And with that said, now I'd like to turn the call over to American Water's President and CEO, <UNK> <UNK>.
Thanks, <UNK>.
Good morning, everyone, and thanks for joining us.
Today, our CFO, <UNK> <UNK> will cover the fourth-quarter and full-year financial results, and our COO, <UNK> <UNK>, will give key updates on our operations.
We will highlight a number of 2016 Company records and achievements throughout our presentation.
Just to name a few.
We accomplished record levels in safety, capital investment, O&M efficiency, and regulated acquisitions.
All of these achievements are possible because of our engaged employees, our safe and efficient operations, and our smart investments.
And this enables us to achieve top quartile customer satisfaction, continued 7% to 10% long-term EPS growth, and top dividend growth.
Our employees delivered another strong year of results by successfully executing our strategies.
In 2016, we invested about $1.5 billion, the highest in our Company's history.
$1.3 billion of that was invested in our regulated systems to improve service reliability and water quality for our customers.
We're able to increase our investments to this level because our hard working employees continually improve both O&M and capital efficiency.
We're proud of our ability to deliver on our growth goals, while effectively managing every dollar so we can deliver excellent customer service while limiting the impact on our customer's bill.
Most importantly, we know our customers need to trust that the water we provide them is clean and it's safe.
Once again, we met or surpassed EPA requirements in 2016.
In fact, our systems were 21 times better than the industry in drinking water quality and compliant as measured by the EPA's drinking water database.
This is absolutely foundational to our business.
Our customer base is growing by a record 82,000 customers through closed and pending regulated acquisitions.
This is in addition to the 13,000 customers added from organic growth in our existing service areas in 2016.
Our military services group completed two price redeterminations in the fourth quarter for a total of $0.75 million in annual fee adjustments.
Keystone Clearwater ended 2016 as we projected.
For 2017, natural gas prices have rebounded and both drilling rig counts and well completion activity have increased significantly.
Keystone continues to increase market share by offering total water management solutions at competitive pricing to Appalachian Basin E&P.
At the same time, they expanded their overall services outside the oil and gas industry to the municipal water services market.
As you can see on slide 7, operating revenues were $802 million during our fourth quarter.
We experienced continued growth in our regulated businesses from investments, acquisitions and organic growth.
And while we faced headwinds throughout the year in our market-based military services group, we benefited from two price redeterminations in the fourth quarter and four in the full year.
<UNK> will discuss the quarter's drivers in more detail in just a few minutes.
Operating revenues for the year increased 4.5% over 2015.
And our 2016 annual earnings, without the effect of the Freedom Industries' binding agreement in principle, were $2.84 per share, up 7.6% over 2015 EPS.
Turning now to slide 8.
Today, we affirm our 2017 guidance of $2.98 to $3.08 per share and continue our progress toward achieving 7% to 10% EPS growth through 2021.
Additionally, we project we will grow our dividend in 2017 at the top of our long-term EPS growth range, following the double-digit growth we have had for dividends over the past four years.
In summary, it was another really good year and we thank all of our employees who made it happen.
With that, <UNK> will now give his update.
Thank you, <UNK>, and good morning, everyone.
We reported earnings of $0.57 per share in the fourth quarter of 2016, up $0.02 over the same quarter last year.
As a shown on slide 16, our regulated segment and market-based businesses were each up $0.01, and parent was flat to the prior year.
For the full year, we reported earnings of $2.62 per share.
Excluding the $0.22 charge from the binding agreement, our adjusted earnings per share were $2.84, up $0.20 or 7.6% compared to the prior year.
These adjusted results were driven by our regulated segment which was up $0.23 or 8.7%.
Our market-based businesses were down $0.01 and parent was down $0.02 as expected.
Turning to slide 17, let me discuss the quarterly results by business segment compared to fourth quarter last year.
Our regulated operations were up a $0.01 overall.
Revenue was up $0.12 from authorized rate cases and infrastructure mechanisms to support investment growth, acquisitions and organic growth.
O&M expense was higher by $0.05, $0.03 of which was due to timing.
As we mentioned in our third quarter earnings call, we expected about $10 million of certain maintenance, repairs and campaigning expenses to be completed in the fourth quarter of 2016.
We also had higher depreciation and general taxes of $0.03 each, driven primarily by our investment growth.
For our market-based businesses, we were up $0.01, mainly from the 2016 addition of Vandenberg Air Force Base in our military services group and price redeterminations at several military bases.
We record price redeterminations related to prior periods in the quarter they are completed.
Turning to slide 18, let me walk through our 2016 adjusted earnings per share compared to the prior year.
The regulated businesses adjusted earnings were up $0.23 or 8.7% with four major drivers.
First, revenue was higher by $0.43 per share, of this $0.43, $0.32 was from infrastructure surcharges and authorized rate increases to support investment growth.
$0.08 was from acquisitions and organic growth, and $0.03 was from balancing accounts and other.
Second, adjusted O&M expense increased $0.06 from several factors.
We had higher production and employee-related costs to support growth in our business.
We also had a $0.05 negative impact from several non-recurring items, including a judgment on a contract dispute, a technology write-off, and the 2015 benefit from finalization of the California general rate case.
These increases were partially offset by lower casualty insurance claims and lower uncollectible expense.
Third, depreciation expense increased $0.09 from investment growth, and finally general taxes, interest and other increased $0.05.
Again, attributable to our investment in infrastructure to provide reliable service to our customers.
I would also like to point out that although there was no year-over-year weather impact in our regulated business, we did have a favorable weather impact of $0.05 in 2016, mainly from the dry weather conditions in New Jersey that <UNK> discussed.
Next, the market-based businesses were down $0.01 year over year.
We previously shared with you some headwinds we were facing from lower capital upgrades in our military services group, and Keystone's efforts to manage their business to be earnings neutral despite a very challenging natural gas market.
With that said, the military services group ended the year flat compared to last year.
Although revenue was down $21 million due to lower capital upgrades compared to 2015, the impact was offset by the addition of Vandenberg Airforce Base and price redeterminations in the fourth quarter.
In our home owners services group, revenue was up $11 million compared to last year.
But it was more than offset by higher claims, increased marketing expenses, and costs associated with investment in a new homeowner services group customer information system.
And lastly, Keystone's results for the year were essentially earnings neutral as we anticipated.
Parent and other costs were higher by $0.02, primarily from higher interest expense on long-term debt, higher short-term debt balances and increased interest rates on short-term debt compared to the prior year.
Also in 2016, we contributed $2.3 million to the American Water Foundation, a 501(c)(3) organization which exists to help the communities we serve offer a better quality of life to their citizens.
Turning to slide 19.
We have a total of $125.4 million in annualized new revenues effective since January 1, 2016.
This includes $92.2 million of new authorized revenue in 2016, of which about two-thirds was from infrastructure mechanisms with the remaining one-third rate cases.
And we have another $33.2 million in new annualized revenues that have been authorized since the beginning of 2017.
We have also filed and are awaiting final orders on four rate cases, a California step increase and two infrastructure surcharge requests for a total of outstanding revenue request of $71.7 million.
Slide 20 highlights our key financial performance metrics that continue to create customer and shareholder value.
You heard <UNK> and <UNK> talk about our record level of capital investment this year of $1.5 billion.
This includes $1.3 billion of regulated system improvements to better serve our customers.
These investments increased our estimated rate base at year-end 2016 to $10.7 billion, a 7% increase from the prior year.
The remaining $200 million was for acquisitions, with Scranton being the largest acquisition with an adjusted net purchase price of $151 million.
Our cash flows from operations grew 8.2% to $1.3 billion in 2016.
This was driven by our strong adjusted net income growth and higher working capital.
Working capital increased from lower capital upgrades in our military services business, continuous improvements in collection efforts in our regulated businesses and the timing of expenses.
Our adjusted return on equity improved from 9.4% to 9.6%.
With the conclusion of our Illinois rate case, including the 45 basis point improvement in the authorized ROE in that state, our weighted average authorized return on equity across our regulated footprint remains approximately 9.9%.
And we continue to narrow the gap between our authorized and achieved returns through a continuous improvement culture that focuses on O&M efficiency, capital efficiency and constructive regulatory outcome.
Turning to slide 21 and looking forward to 2017, we are affirming our 2017 earnings guidance of $2.98 to $3.08 per share.
The major variables included in our guidance range are consistent with what we've shown you before, with plus or minus $0.07 of weather or what we consider normal weather variability being the most significant.
Events or variations outside of these ranges could cause our results to differ.
We also continue to be a leader in dividend growth, compared to the Dow Jones utility average, the UTY and our water utility peers.
In fact over the last four years, we have had dividend increases at the top end of our long-term 7% to 10% EPS compound annual growth rate.
Subject to Board of Directors approval, we project our 2017 dividend growth to be at the top of that 7% to 10% long-term EPS growth range.
With that, I'll turn it back over to <UNK>.
Thanks, <UNK>.
Before taking your questions, I want to highlight very briefly our Company value of environmental leadership and what it means to our customers.
As a company that relies on environmental protection for the services we provide, American Water is naturally focused on sustainability.
Not just because it's the right thing to do, which is certainly is, but also because it's our business imperative.
It is more than just compliance with laws and regulations, although we are proud that our systems are 21 times better than the industry.
It extends to partnerships with the environmental groups in our local watershed to foster protection and education on water issues.
It also means that we are front and center on national policy issues around sustainable water supply, water quality and replacing aging infrastructure.
There are approximately 53,000 water treatment plants in the United States, with about 400 of those participating in the EPA and AWWA's Partnership for Safe Water program.
In 2016, only 33 plants received the President's Award, the program's highest honor.
Pennsylvania American Water was awarded 9 of these 33 out of a total of 53,000 water treatment plants.
Also in 2016, American Water was recognized by the Environmental Business Journal for our water quality and sustainability, and named by Newsweek as one of America's top green companies.
Our efforts have also translated into eight patents, most dealing with water treatment technology as well as $43 million of research grants awarded over the years.
And of course, that is because of the people we have at American Water.
Our R&D group of 15 employees includes eight PhDs and four people with other advanced degrees.
They work hard every day with researchers across the globe to find better ways to sustain, treat, deliver, and recycle our precious water resources.
And our 6,800 employees, including operations, engineering, water quality and environmental lab professionals, are always finding better ways to serve our customers and protect our environment.
While awards are good, the best recognition is highly satisfied customers and their peace of mind.
With that, we're happy to take your questions.
Hello, <UNK>.
Right.
So our Keystone Clearstone operations are in the Appalachian Basin, and we're the only water services provider that does the cycle of water management.
Except of course, we do not at the end of the cycle take the waste at the sites and put them into the deep wells that have been controversial.
So because of that, we're finding that more and more of the E&Ps want to deploy their capital for their own, for example, development of pipelines and for their own services.
So we can step in and basically handle providing the water and recycling the water on the site, and they don't have to worry about it.
So we've gone from 20% when we purchased them in July of 2015 to 35% now.
We still believe that there are opportunities for growth in the area and in fact what we're finding now is that there's so much work in the area that we're seeing some of the pre 2016 downturn, we're seeing some of the pricing come back for the services and the need for the largest E&Ps especially to feel comfortable that they have a partner who has a very strong commitment to environmental sustainability.
So we do think that there is further room to grow in the Appalachian Basin.
One of the things were excited about, for example, there's a lot in the press about drones and delivering packages.
We're actually in New Jersey America and utilizing drones and infrared to actually go over pipes in the ground from the air, and we are finding that were able to spot leaks and find leaks before they ever occur in main breaks.
And you don't have to dig up the ground or anything, it's pretty cool some of the things we're doing.
And there was an FSR that I was out with in northern New Jersey a few months ago, <UNK>, and he had the smart phone.
And when I say we went into a house, I say the royal we, he went in a changed a meter and I was with him in the house and we walked outside, and this gentleman has been with the Company 38 years, and he looked, he goes, watch this.
He said I can read this meter immediately on my smart phone.
So there's a lot of really neat things going on in terms of deploying technology in very practical ways.
Not just the high-tech level ways, but things that make it easier for our front-line employees to serve our customers better and we're just at the beginning of that we believe.
Sure, <UNK>.
Thank you for the question.
I will start and then <UNK> can talk specifically about the New Jersey situation.
So interestingly, I've been involved with the bi-partisan policy center working on looking at the whole infrastructure issue around the administration and their efforts.
And it's interesting, there are a lot of parties that are interested.
We have a coalition with the US Chamber and NAM and several groups that are looking at this.
I think the question is remains is where is the money coming from.
So for us on the infrastructure, we are very excited that there is a focus on infrastructure.
We like that there is a lot of interest from both sides of the aisle on public private partnerships.
So we'll just have to see how that plays out.
But the good news for us is regardless of what plays out nationally, we have such a strong capital investment program.
And being an investor-owned water utility, we could see a bump but for us we're just continuing to our business which is robust, and as we said, we continue to invest more and more capital.
So there could be something down there.
We're monitoring it closely and hopefully we'll see some become from that.
The last question you asked and then <UNK> can talk about what's going on in New Jersey with the issue around municipalities.
We're constantly, as we said at investor day, we survey the landscape of all municipalities and companies that are out there that meet our guidelines and our discipline in terms of acquisition.
But we are very disciplined.
So when we look, we don't see the need to grow for the sake of growing unless it is a good investment for us for the long term.
Our financial models, we're always looking at so what will this mean 5 years, 10 years, 15 years, and ensuring that we have a discipline around those acquisitions.
But that doesn't mean we're not looking or that we don't have substantial data and information on these opportunities, it just means that we will not get out there and do something for the sake of just saying that we have an acquisition.
And I do think, it's interesting.
We've been waiting, as you know, following the water industry as long as you have, everybody keeps talking about there will be, no pun intended, the flood gates opened on municipalities to be privatized.
But it is a one-by-one battle.
As municipalities have to look at their own particular circumstances, and at all the options that they have available to them.
So our entire strategy is we're in these communities, we're on the ground, we're there to be a solutions provider.
We think in many cases we can provide services at a lower cost, and we believe that we can improve water quality, improve service, and give predictability of cost in many locations better than what exists there and it is incumbent upon us to make sure that we tell our story.
And the New Jersey situation is very interesting, <UNK>, if you want to talk about that.
I think the thing this points out, <UNK>, is not just this but EPA.
What we have found in the past is where as we would immediately need to and would address issues that came up in terms of any noncompliance in wastewater, for example, that there are many municipalities and cities that have had noncompliance items for decades.
And there was just a different standard of holding them accountable than us.
And I think one of the things we learned from Flint, Michigan is safe water is for everybody.
And regardless of who provides that water, whether it is private or public, there should be the same standards for safe clean water and that we have great waste water services and sanitation services.
So I think that as some of these things have happened, people have realized it doesn't matter who the purveyor is there needs to be standards that everybody follows.
And for us, it's the ability to have a level playing field.
Absolutely, <UNK>.
So in the investor material and in our slides, we outlined the overall acquisition process.
And if you look at page 12 of our slides, it really starts with the agreement process.
So when we look at the Scranton acquisition, we have now closed Scranton as of December 2016.
That means that we take on the customers, we begin to integrate them into our system.
And generally, from a financial standpoint during the timeframe between when we close and when we get through a final rate case decision, we finance those acquisitions with shorter-term debt and we would expect these acquisitions to meet certain financial metrics including being accretive to earnings.
And so that is the process that we go through until we file our next rate case decision or rate case.
In the rate case process, then we will coming out of that process have our authorized amount that is included in rate base upon which we would earn ---+ have the opportunity to earn a full return.
It's different for every acquisition.
But yes, once you get that full amount in the rate base, that's what you would generally expect.
This is <UNK>, <UNK>.
I think everybody is just wondering what's going to come out of Washington.
They're looking at the issue of infrastructure and what that means.
They're looking at any potential changes in the EPA, and for the electric side the clean power plant and what does this mean and the waters of the US and I think everybody is also carefully watching for the tax issues.
So I think there are state issues that continue to be state to state, but I think at NARUC, just like everywhere else, we're watching to see what is going to happen on the new landscape.
And we're all speculating and we can draw general models, but at the end of the day we're waiting to see ---+ even proposals.
If we have proposals, we can model and see what the impacts are.
At this point, we're just guessing.
And I think everybody is pretty much in that situation.
We continue though to look at investment opportunities regardless, NARUC, does, with the President of NARUC, Rob Powelson, of course, Pennsylvania has always been very innovative in the way that they look at infrastructure and ensuring that their citizens are taken care of that are our customers.
So I think it was the same theme but an uncertainty of so what will the new rules be, and how long will it take for us to know what those new rules are.
Hello, <UNK>.
No, <UNK>, we don't do that because it's so small.
Basically, they were extremely capital light.
We are open to looking at design build and operate on a 5-year basis, and we would actually look at that 5-year for any capital investment from a depreciation standpoint at least for our models.
But right now, it's just not significant enough, and we're just not really disclosing it because it's so small.
Well I think it depends on your definition of normal, what normal is.
I think going back to the low turn we've had from the middle of 2015 say through the end of last year, we know things are picking up.
You can just look at natural gas prices, even though they've come down a bit because of the really warm weather we've had this winter, we know that of course going into the summer, 2015 natural gas was 33% of power generation, coal was 33% and nuclear was 20%.
Now we're starting to see as gas prices are so affordable, that will probably continue and we will probably see gas increase.
And those of you all who cover electric also know that regardless of what happens with the clean power plan, a lot of plans are already underway.
And people are already building significant new combined-cycle facilities.
So we believe that we've turned the corner.
We see activity tremendously growing as I said in my comments.
We're seeing rig counts up, we're seeing well completion activities up, along with the natural gas prices.
We believe that we're getting back to a more normal.
What that normal is, I think we're going to have to see over the next few months.
And will continue at our quarterly discussions to say, is it higher than we thought or less than we thought.
But we do, as we always are, want to be conservative, and make sure that we have a few more months under us to see what can we look at that's more predictable.
So it's much better than last year, will it be back to 2014, 2013, 2014, I think we'll just have to wait and see.
Well it's not settled, and we had two different firms who did not participate.
And so we currently ---+ one of them requires arbitration, and we have begun the arbitration process.
The other, we have filed a lawsuit in West Virginia against, and that is public information.
So we're continuing, as you know, these things don't happen quickly.
But we are in process, October 28, we actually filed in Kanawha County against Star Indemnity and that one is public record.
And then the other insurer, we have actually started arbitration process.
Since they are located offshore, there was mandatory arbitration.
And we actually have had the panel, the chairperson of the panel has been selected.
So we're continuing that process, and both of those, that level of insurance together is $50 million, $25 million each.
Yes, it would be both.
And if it were, as you know, the entire settlement was on West Virginia American Water's books because they were the ones that the lawsuits were against.
And so if we do recover any additional funds, it would go back to West Virginia American.
Thanks, <UNK>.
And I would tell you that for those that we have not been able to answer your questions, our Investor Relations will get back with you.
We appreciate all of you participating today.
We appreciate those of you who were at our investor day.
If you have any questions, again, please call <UNK> and Ralph.
They will get back if we didn't get a chance to answer your questions.
I'd like to remind everyone that our 2017 first quarter earnings call will be on May 4, and our annual shareholders meeting will take place on Friday, May 12.
Thanks again for listening.
We hope you have a great spring, and we will talk to you again in May.
| 2017_AWK |
2016 | ADC | ADC
#Thank you, Keith.
Good morning, everyone, and thank you for joining us for <UNK> Realty's first-quarter 2016 earnings call.
Joining me this morning is <UNK> <UNK>, our Chief Financial Officer.
We are pleased to report that 2016 is off to a strong start.
In the first quarter we invested over $38 million in 13 high-quality retail net-lease properties.
Of those 13 assets, we acquired 12 through our acquisition platform for a total investment of $33.3 million.
The acquired properties are located in nine states and are leased at 13 national and super regional tenants operating in nine diverse retail sectors, including the entertainment retail, specialty retail, quick-service restaurant, discount and auto services sectors.
The properties were purchased at a weighted-average cap rate of 7.9%, with a weighted-average remaining lease term of approximately 7 years.
Our first-quarter acquisitions combined with our robust pipeline puts us well on our way to achieving our targeted 2016 acquisition volume of $175 million to $200 million.
We are currently conducting diligence on a number of opportunities comprised of both individual assets as well as portfolios.
On to the development front, we continue to see more opportunities to deleverage our unique capabilities for a number of national and super regional retailers.
As previously announced, the Company completed its Hobby Lobby project in Springfield, Ohio during the first quarter of 2016.
The property, which is shadow anchored by Walmart is located in a dominant retail trade area and is subject to a new 15-year lease.
The development was completed ahead of schedule at a total cost of approximately $5 million.
In addition to the Company's recently completed Hobby Lobby development, construction has commenced on our previously announced Burger King in Far West, Utah.
The development has a total cost of approximately $1.6 million and is the inaugural project of our previously disclosed partnership with Meridian Restaurants to develop up to 10 Burger King locations.
The Company will own a 100% fee interest in the property upon the project's completion and we anticipate rent to commence in the third quarter of this year.
Subsequent to quarter end, we commenced construction on our second Burger King project in partnership with Meridian in Devils Lake, North Dakota, which, like Far West, will be subject to a new 20-year lease.
These projects are in addition to our Wawa in Orlando, Florida; our Chick-fil-A in Frankfort, Kentucky; as well as our Starbucks in Wakeland, Florida, all of which are currently under construction.
We also continue to make significant progress in our partner capital solutions platform.
Our three differentiated external growth platforms give us the capability to work with retailers at various points in their growth cycles.
An ability that has positioned us as a comprehensive solution and an uncommon and differentiated growth model in the net-lease sector.
As we continue to leverage our three external growth platforms, we look forward to updating you as these opportunities take shape.
We have maintained our discipline, bottoms-up underwriting approach emphasizing real-estate fundamentals.
We continue to couple that emphasis with a top-down focus on e-commerce, resistant and retail sectors.
Our industry-leading portfolio is wholly concentrated in retail net-lease properties and represents a very well diversified mix of tenants, retail sectors, and geography.
As of March 31, 2016, our growing retail net-lease portfolio spanned 42 states and consisted of 291 properties with leading tenants that operate in over 25 distinct retail sectors.
By nearly any measure, our portfolio continues to be among the strongest in the net-lease space.
It is comprised almost exclusively of national and super regional retailers with over 50% of annualized rents coming from tenants with an investment-grade credit rating.
In addition to our current acquisition, development, and partner capital solutions opportunities, we continue to believe that our portfolio has unique value that is attributable to our ground-leased assets where the Company is a fee-simple owner and ground-lessor to leading retailers.
With over 80% of our total base rental income derived from these ground leases, we feel that the portfolio presents an extremely appealing risk-adjusted investment for our shareholders.
Currently 88% of these ground leases are with tenants that have investment-grade credit ratings, including JPMorgan Chase, McDonald's, Aldi, PNC, Walmart, Lowe's and Wawa.
These assets are a direct reflection of the value that we can add through our development platform.
Overall, portfolio-occupancy rate remained 99.5% at the end of Q1.
Hence, our [core] portfolio continues to be effectively fully occupied and has a weighted-average remaining lease term of 11.2 years.
These metrics demonstrate a stable and long-term asset base.
As we look to our lease maturity schedule, we are in a fantastic position to maintain strong occupancy levels throughout the remainder of 2016 and into 2017.
We now have no remaining lease maturities in 2016.
Last, but not least, I would like to thank our many loyal shareholders for their continued support.
Through a combination of share price appreciation and dividend growth, the Company realized a total return of nearly 15% in the first quarter of 2016, representing one of the highest total shareholder returns in the retail net-lease space.
With that, I will turn it over to <UNK> to discuss our first-quarter 2016 financial results.
<UNK>.
Thanks, <UNK>.
Good morning, everyone.
Let me first run through the cautionary language.
As a reminder, please note that during this call we will make certain statements that may be considered forward-looking under federal securities law.
Our actual results may differ significantly from the matters discussed in any forward-looking statements.
In addition, we discuss non-GAAP financial measures including funds from operations or FFO and adjusted funds from operations or AFFO.
Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures can be found in our earnings release.
As we announced in yesterday's press release, total rental revenue including percentage rents for the first quarter of 2016 was $18.7 million, an increase of 28.2% over the first quarter of 2015.
G&A expenses were approximately 10.1% of total revenue for the quarter as compared to 10.6% in the first quarter of 2015, a 48 basis-point decrease year over year.
We continue to expect decreases in corporate operating leverage as we grow the Company and realize operating efficiencies through increased scale.
FFO for the quarter was $12.7 million, which was an increase of 27.2% over 2015.
Similarly, AFFO was also $12.7 million, an increase of 26.5% year over year.
On a per share basis, FFO increased 8.5% over the prior year's results to $0.61 per share and AFFO increased 7.9% to $0.61 per share.
During the quarter, we repaid an $8.6 million mortgage secured by three Wawa properties in March which represented our only debt maturities in 2016.
Also in the quarter, the Company issued 53,886 shares of common stock through its ATM program realizing gross proceeds of approximately $2.1 million.
We believe the ATM program is an efficient tool for us to reduce our overall cost of capital, improve timing and efficiency of raising capital and helps improve the liquidity of our stock.
We continue to maintain one of the more conservative balance sheets in the industry and as of March 31, 2016, total debt to enterprise value was approximately 30.3% and net debt to recurring EBITDA was approximately 5.3 times.
Our fixed-charge coverage ratio, which includes principal amortization, was a strong 3.5 times.
These metrics are consistent with our targeted leverage and coverage levels and signify considerable capacity for future growth.
Finally, on April 15, the Company paid a dividend of $0.465 per share to stockholders of record on March 31, 2016, which represented a 3.3% increase over the $0.45 per share quarterly dividend declared in the first quarter of 2015.
Since its IPO, the Company has paid 88 consecutive cash dividends.
Our payout ratios for the quarter were 77% and 76% for FFO and AFFO respectively, which are at the lower end of the Company's target ranges and reflect a very well-covered dividend.
We are very pleased with how 2016 is progressing and believe we are well-positioned to perform at a high level through a combination of consistent execution, balance sheet strength and our emphasis on delivering attractive, risk-adjusted total shareholder returns.
With that, I'd like to turn the call back over to <UNK>.
Thank you, <UNK>.
To wrap up, first quarter represented another strong quarterly performance for our Company.
Our strategy has remained consistent and we've continued to grow and diversify our best-in-class retail net-lease portfolio while maintaining our capabilities to our industry-leading balance sheet.
We are quite enthusiastic about our opportunities for the remainder of 2016 and beyond.
At this time, we would like to open it up for questions.
Good morning, <UNK>.
Sure.
I think, first, it is a very small sample size.
To read anything into the lease term in that $33 million in acquisitions would do us a disservice.
I tell you, with that small sample size, it gives us the opportunity to articulate on some specific transactions that we executed on in the first quarter.
Specifically, we did a small portfolio working in conjunction with Aaron's Rents where they took over those stores from a franchisee.
We acquired the real estate.
These are Walmart, Wawas, fantastic underlying real estate there, but they took over from a distressed franchisee; we had the ability to acquire that real estate with new buildings.
Secondly, we acquired our first Dave & Busters in Austin, Texas.
Again, really a fantastic piece of real estate, high performing store.
The store is already in percentage rent.
Really Main & Main for Dave & Busters in a unique location with underlying real-estate attributes.
I think, all in all, reading into the shorter least term of 6.9 years isn't indicative of what you will see from us for the remainder of the year.
Hey, <UNK>.
It is <UNK>.
Historically, the Company has used the ATM as bridge financing to fund the acquisition pipeline.
And then, over the longer term, they have sourced long-term debt capital to pay that line down or equity.
You should expect that we will take a similar approach and we are evaluating the debt capital markets right now for long-term financing to pay down the line of credit.
Yes, I think for a tenure private placement, you're in the low- to mid-4%s all in.
There has been a little bit of volatility in the tenure treasury of late and it has run up, but pricing has not moved too much.
Spreads tend to come in as the tenure bounces around.
We continue to maintain an active stance in terms of disposing of net-lease assets, really what we deem non-core net-lease assets with a focus on reducing our pharmacy concentration.
We did not have any dispositions close during the first quarter.
We are looking toward Q2 through Q4 of potentially realizing some of those transactions and recycling those proceeds.
Yes, that is fair.
I think, you can see our Walgreens count, our Walgreens exposure specifically came down 70 basis points just as a function of the growth in the underlying portfolio and the growth in the denominator.
We stated before, pretty clearly, that we are going to take an active stance in reducing that concentration and not only allow the Company to grow out of that position.
It is a difficult market really driven by 1031 purchasers' endpoint timing of dispositions.
We're confident that we will be able to transact on the disposition front on some of those assets through the remainder of the year.
That is a great question, Rob.
We have been pretty clear that our driver is not when we make investment decisions, whether or not a retailer carries an investment-grade credit rating.
We're really looking for national and super regional retailers, many of which carry investment-grade credit ratings and many of which are unrated.
As we've talked about, historically, and commented on the call today, we just wrapped up another Hobby Lobby.
We have a Chick-fil-A in the ground currently in Frankfort, Kentucky.
Those are unrated retailers, but I think, if you ran them through, we are pretty confident actually, if you ran them through a Moody's risk calc, where you would see us dive into their balance sheet, they would be investment grade.
So we're not imputing any credit ratings for any retailers either.
We are using the traditional ratings definition.
Our focus is really maintaining that national and super regional retailer perspective.
It is focusing on main retail corridors.
I think investment-grade exposure as we transacted, you mentioned, as we transact on the acquisition disposition, development and partner capital solutions front, we will vacillate.
I think our goal is to maintain a significant piece of our portfolio as investment grade, but we definitely do not have a hard line of 50% or anything of the sort.
I'd see turmoil in the private markets, or any turmoil that you're referring to currently in the markets, that doesn't have an impact in the present.
That could play out in the future.
Laith Hermez and his team here, our Chief Operating Officer, is doing a fantastic job working with retailers on development opportunities.
We're seeing growth in our pipeline.
These projects take an average of 24 months to bring to fruition.
We're seeing both external growth opportunities, but also internal, embedded growth opportunities in context of our own portfolio currently.
We have additional outlot opportunities.
We have additional redevelopment opportunities that we are currently looking at and working on and we look forward to really bringing everybody up to speed on those, hopefully in the next quarter.
We are going our discussion shortly with the board regarding the dividend.
Our current payout ratio is both on an AFO and AFFO basis of 76% or at the lower end of our stated range.
Our range has typically been 75% to 85%.
As <UNK> mentioned in the prepared remarks, that implies the ability for future growth.
We've always wanted to maintain consistency and predictability with the dividend, maintain a conservative payout ratio, but a payout ratio that our shareholders continue, really a payout yield that our shareholders continue to enjoy.
The board will be discussing the future dividend in the near term.
We look forward to continue to have the ability to raise the dividend in quarters and years to come.
Thanks for the quick question George.
So the $33 million, in the first quarter we had talked historically about bringing an approximately $25 million transaction forward into Q4.
We feel like our Q1 run rate of $33 million plus that $25 million transaction we brought forward would've brought us to about $55 million to $58 million for the first quarter.
I wouldn't read into the Q1 run rate of the Q1 that $33 million and us that as a run rate.
We're pretty confident we are going to be able to hit the $175 million to $200 million guidance that we put out earlier.
I will tell you we've got quite a significant pipeline right now.
As I mentioned, both individual one-off assets through multiple different sourcing channels that we typically find assets through as well as some small portfolio opportunities.
All of these are, of course, subject to customary diligence.
We're seeing a lot of opportunities across all three of our external growth platforms, not just acquisitions.
And it is great to see the traction in the marketplace and then being able to leverage those platforms, not only on the discrete basis though, but leverage those platforms and produce a really superior risk-adjusted opportunities to what we see in the market.
The cash yields were in the upper 7%s as well there.
They were due frankly to their shorter term nature of those; the cash yields were only about 10 to 15 basis points up there.
Generally, we've always stated that our development yields, minimally we looked a 250 basis-point spread.
That is on a float, on a variable basis a 250 basis-point spread above market cap rates.
If we're going to undertake a typical two-year development project, we are going to be looking for that amount of cushion before we embark on a site selection, entitlements and construction.
Our development yields, I will tell you today are in the upper 9%s and 10%s.
We're really achieving yields here on fresh 20- and 15-year terms on these transactions that are with some fantastic retailers and great opportunities.
That is a function of the value creation process that we undertake with development.
Yes, we haven't given guidance just because of the variable nature of development and the timing.
We don't control the timing.
Many of these projects are going through entitlement, permitting and site-selection process.
To date, we have announced approximately $7.3 million in development.
We anticipate additional announcements coming later this year, hopefully as soon as Q2.
Then we will see how the pipeline materializes throughout the course of the year.
It's tough to pin down actual commencement days and we historically haven't announced the project until we effectively have a shovel in the ground.
Great, this is <UNK>.
The non-cash comp spiked in Q1 because, for the first time, the board took their fee in stock and that stock was granted in January, so we expensed that stock comp in January.
That will not be indicative of the run rate, but that is what it is due to.
That is for the entire year and that was a decision they chose to make.
They had the option to take it in cash, but they all chose to take it in stock.
That is on the individual level.
I think it is a testament to, frankly, the belief in the execution and the strategy.
Every board member chose to take their board fees this year in stock rather than cash.
I think that is a great statement for the Company as well as the board members.
Typical tenants, national tenants don't provide store-level sales.
I'll tell you that we do everything we can in our diligence and in our investigative powers to understand the store-level performance and we often do understand the store-level performance.
For example, the Dave & Busters transaction I mentioned in Austin, that store is effectively now in percentage rents.
So we understand the store-level performance as well as the coverage there, which is well North of 2.5 times.
Most of it is anecdotal; it will come through tenant interviews, our relationships with retailers and their real estate departments well as everything from our diligence on the ground at the store manager level.
So, store-level coverage, we're not writing these leases, especially in the first quarter.
We are not writing the leases, we're taking, subject to them.
And most national retailers are not providing that store-level data.
Frankly, I don't think we are seeing a significant portfolio premium today as we saw on years past.
I think portfolios today, there are opportunities where portfolios are trading potentially even at discounts.
So the days of the portfolio premiums really driven by some of the large-cap peers as well as the non-traded vehicles snapping up assets left and right are essentially gone.
The opportunities we typically look at our either small-sale leasebacks with retailers that we have the ability to then develop for and work with on an organic basis to leverage our balance sheet and execute on a sale leaseback.
But then, also, on a go-forward basis to work on organic development and work with the real estate departments on their net new storing strategies.
Or diversified portfolios diversified by tenant-sector geography as well as lease term.
Those are what we call mixed bag portfolio.
The days of the portfolio premium really driven by the non-traded entities out there, I think we are past those days.
No.
So, we are confident that our existing platform can aggregate $175 million to $200 million in unique opportunities net-resale opportunities that are a traditional to atypical to the market.
We mentioned on the last call, we got a similar question, our cost of equity has improved, our cost of capital has improved, but that's not going to change our bottoms-up underwriting approach.
At the margin, does it give us the ability on the margin to transact.
Sure, but I think, as we look forward in 2016, our core focus and our disciplined underwriting approach is still going to drive all of the investment decisions that we make.
Thank you.
Good morning, <UNK>.
I think from 30,000 feet, we've seen the confidence improve.
We are coming out, obviously, out of the great recession; consumer spending has improved marginally.
I think consumer confidence, obviously, has improved.
It really varies by sector and tenant.
We obviously do not see the big-box retailers out there doing Greenfield projects.
That said, we see sectors, such as the fast food sector, such as the auto parts sector and a number of others that are out there aggressively looking for new opportunities.
These are not prerecession number of openings.
Our focus is working with the retailers that fit within our investment profile, that fit within that e-commerce resistant lens and that we can feel like we can partner with on a go-forward opportunity and deploy meaningful capital and be a material piece of their growth.
Does that make sense, <UNK>.
It is hard to look forward.
I tell you if you look at net-lease retail, you effectively---+ most retailers except some of the smaller mall-based retailers and the traditional mall anchors will all look at freestanding formats.
Whether that is a junior box, you see freestanding Bed, Bath and Beyonds, you see freestanding T.
J.
Maxx and HomeGoods combo stores today.
So most retailers, who will go in a shopping center, unless they are a small tenant that feeds off of a traditional grocery anchor, will also look at freestanding formats.
It frankly becomes a function of occupancy costs to develop a freestanding store rather than go in line can be more offensive for them.
I think the freestanding nature of assets, when you look at the visibility, the access, the parking, the ingress, the egress, the retail synergy that you can drive with a traditional freestanding net-lease format is really a dominant format in the retail landscape today.
Coupled with one other thing, I think you see a lot of retailers, in this omni channel world that we're in today, looking to add drive-throughs, really pick-up windows.
Walmart has been very aggressive in adding pick-up windows.
If you want a pick-up window, you either need an end-cap or you need to be freestanding to allow for the circulation as well as the vehicular traffic to access an exterior wall.
I think, as retailers look forward in 2016 and beyond and they are looking in the omni channel world, how their e-commerce presence, online ordering, physical pick up, more and more retailers are going to realize the benefits of net-lease retail.
I think we are going to see more of it, frankly.
Thanks, <UNK>.
Good morning, Tao.
I think, as we touched on, I think reducing overall pharmacy is the only thing that we can point to.
Pharmacy exposure and specifically, Walgreens, in the portfolio today.
We are looking at what we believe and we're confident is the best net-lease portfolio in the country.
It is 100% retail It is over 50% investment grades; it's got north of 11 years weighted-average lease term.
We have zero lease expirations remaining in 2016.
We have had the opportunity since we launched the acquisition platform in 2010 and the partner capital solutions platform in 2012 to construct this portfolio anew.
When you look at the retail landscape today and the stress retailers that are having challenges and or filing for bankruptcy, we have no exposure to them, because, frankly, since we launched the platform, we've stayed away from them.
We did not believe in the strategy, their merchandising strategies; we did not believe in their execution.
When you look across that landscape today, we do not have any Sports Authorities in our portfolio.
We do not have any office supply stores in our portfolio.
We have been very specific with our investments in targeted sectors and then targeted leading retailers in those sectors.
I think the results are today what you see and that portfolio, again, we believe it is industry-leading.
We are focused on the one piece that I mentioned is reducing our pharmacy concentration which we think is a great opportunity to divest and redeploy that capital on an accretive basis throughout the year.
Overall rent coverage for the portfolio where we have tenants that report, which are traditional sale leasebacks, typically with a franchise restaurant, is well over 2%.
That is really our threshold.
We have one restaurant in the portfolio, that we acquired as part of a small portfolio transaction at the end of 2014.
It was a Sonic restaurant that we immediately put on the market and disposed, sub-6% cap.
I think was about a 5.5% cap that did not meet that coverage threshold.
If we're going to enter into a lease transaction, typically a sale leaseback where we have rent coverage, we are targeting any rent coverage north of 2 times.
Thank you.
With that, we would like to thank everybody for joining us this morning and we look toward to speaking to you again when we report our second-quarter results.
Thank you, everybody.
| 2016_ADC |
2017 | CMO | CMO
#Thank you, <UNK>.
Good morning, welcome, everyone.
I'll make a few brief comments, then we'll open the call to questions.
Our results this quarter were negatively affected by higher mortgage prepayments and higher borrowing costs while benefiting from higher cash yields and higher portfolio balances.
Overall, yields were down 1 basis point while our related borrowing rates were up 15 basis points.
After declining by 2.7 CPR in the first quarter, mortgage prepayment rates reversed course during the second quarter, increasing about 1.8 CPR to average 24.7 CPR for the quarter, largely attributable to seasonality and the flattening of yield curve.
This resulted in about $2.4 million in additional investment premium amortization, negatively affecting portfolio yields.
Meanwhile, our repo borrowing rates were higher this quarter with the market adjusting for 3 25 basis point Fed hikes in the last 7 months.
Higher interest rates also weighed on our hedging costs due to the cumulative effective of older lower rate swaps expiring in recent quarters and newer higher rate swaps being added.
On the plus side and key to our short-duration ARM strategy, we picked up 6 basis points in portfolio yields largely due to periodic coupon interest rate resets.
And as illustrated on the last page of our press release, the currently resetting portion of our portfolio can be expected to continue increasing in coupon in the coming quarters with fully indexed coupons 32 basis points higher at June 30 than related coupons in effect on that date.
Against this backdrop, we earned $0.14 per common share in the second quarter down from $0.20 in the first quarter.
We paid a $0.21 common dividend for the quarter.
Book value was down $0.26 for the quarter to $10.72 per share, including $0.07 return to stockholders with the common dividend.
Weaker ARM pricing levels contributed $0.12 to the decline in book value compared to March 31, while swap pricing contributed $0.07.
Year-to-date, book value is down only $0.13, including a total of $0.08 in dividends over earnings, and we paid $0.42 in common dividend.
This produced an annualized economic return of 5.3%.
Given the stability inherent in our short-duration ARM strategy, we believe we are well positioned to preserve our stockholders' capital while generating attractive risk-adjusted returns over long-term investment horizons.
More immediately, mortgage prepayment levels in the coming months and quarters as well as the pace of future increases in short-term interest rates remain key to our near-term results.
With that, I'll open the call up to questions.
Sure.
I mean, obviously OAS on ARMs, depending on the model you run, could give you a lot of different answers.
If you [rule behind] an OAS and speed assumptions post resets look fairly attractive right now versus new issue.
But then you get into the various cohorts and speed performance and issuers, I would say that irrespective of OAS, post resets were a lot more attractive now than they did 6 or 12 months ago.
I think particularly in some of the paper where IO is expired 2 or 3 years ago, it's been beat up pretty severely.
And I think 1-year LIBOR has been fairly stable for the last 7 or 8 months.
And so you're not going to have the payment shock in those securities like you have 12 months ago.
So some of that paper looks very attractive in our models.
Newer issue, 5/1s are the speed ramp is faster now there's been some time.
And I think a lot of that has to do with property values going up, flippers in there.
So borrowings that normally you would see prepaying in the 10 to 12 CPR area, 6 months in, are prepaying at 20.
And so I would think that because of that, we are not as prone to buy as many new issue 5/1s right now.
So long answer, more season post resets are throwing off higher OASs and just seasoned paper in general I think is more attractive than new issue for the most part.
What you're seeing on the IO paper in general, the paper that went from IO to fully amortizing in 2016 and 2017, that is fairly fast right now.
It went to fully amortizing in 2015 or earlier, it's not ---+ it's fairly well behaved and paper that still has IO on it is fairly well behaved.
So the fastest IO paper is back and expiring in that year are 1 to 2 years earlier.
On either side of that, it's fairly well behaved.
So we saw ARM speed generally pick up for the July factors and a lot of that was day count related.
And then we should see that come back the other direction for our August factors.
That's just a matter of how many business days were in the month versus holidays.
And longer term, we expect to see some moderating of the prepay activity, <UNK>.
I don't know if you want to provide any additional insight, <UNK>.
No, I mean, I think the data is out there generically.
I think ARMs July versus June were up between 5% and 10% from the June trend, which was kind of in line with fixed rates and as Phil alluded to, they should come back down in August due to day count.
And June is the highest from a seasonal standpoint.
So quarter-over-quarter, third quarter speed should be slightly higher than second quarter.
Based on the data we've seen so far.
| 2017_CMO |
2015 | LOW | LOW
#So Chris, in the quarter, weather had no net impact to the three month period.
We did have favorable weather in the first part of the quarter, a little tougher weather toward the end of the quarter.
Second, as you suggest, we did see two-year stack accelerations throughout the quarter.
So feel really good about our ability to deliver comp on comp.
As we look to 4Q, we would expect further acceleration on a two-year basis into Q4.
As it relates to November to date, we were in line with our expectations and we're really excited about Q4.
Mix should have a negative impact.
As Rick noted, we're now into four straight quarters of double-digit appliance comps.
We've cycled some tougher compares, although appliances continue to perform well.
So mix should be a little bit less pressured in Q4, and going forward, for that matter.
Thank you, <UNK>.
So I'll start and let <UNK> jump in.
So Dave, we're doing some media-mix modeling, so we're trying to understand impact of different mediums on different markets, and we're adjusting accordingly.
So ultimately, we're taking a look at the most effective yield, which is the sales dollar yielded for dollar of marketing spent.
We have shifted some, as Rick mentioned in his prepared comments, we've shifted some dollars away from print towards more digital assets.
We're able to reach more folks on a very cost effective way, which gets into the effectiveness of, and efficiency of, marketing.
<UNK>, the pro is an inexact science.
We have some direct measurements of them relative to managed accounts and credit vehicles.
There's some imprecise measures.
The pro mix is about 30%.
It's grown ---+ in the past three quarters, it's grown in line with the Company average.
The fourth quarter last year was a little bit faster, so that would suggest it's migrated from a little bit higher, in that 30% range.
I'll start.
This is Robert.
Then I'll let the other guys finish.
Certainly, when we look at consumers' discretionary versus nondiscretionary spend, we're seeing that when you combine small and large discretionary spend, what they're telling us is that more than 50% of their spend is on a discretionary basis, which has tripped over from where it would have been prior years.
So, we're seeing it move above that 50% level.
We talked about appliances being double-digit comps for the quarter.
We've talked about some of the project spending and the initiatives that we're putting behind that, whether that's project specialists interiors, which is major, interior remodels or product specialist exteriors, which is the exterior programs we do.
Fencing, siding, new windows, those type of things.
Both of those programs had double-digit comps in the quarter.
So appliances, PSI, PSE, all running double-digit comps in the quarter.
So we are seeing that consumer take on that willingness to spend around the home on discretionary projects, driven by, as I said in my comments, the macro factors as well as continued comfort that comes from home price appreciation that they're seeing.
The other item I would add in addition to Robert's comments is, if you take a look at tickets above $500, comp at 7.2%.
Continue to see strong growth in the big ticket categories.
Thank you.
It's a great question, <UNK>.
When you think about it from where we were at, peak operating margins previously to where we're at today, and trying to hone back in on that, we really are a totally different company.
If you think about back in those days, it was single channel.
We were on a rapid expansion of the store footprint.
We think the store is still the nucleus of our relationship with the customer, but the store in and of itself is not enough.
We really have to be there on an omni-channel basis for the customer.
That's why everything we've been investing in for the past few years is really to be able to deliver that omni-channel offering, so that we take those stores, we continue to build on those and leverage them.
The PSI, PSE programs that we just talked about, whether it's the improvements that we've made on dot com, whether it's all the improvements that we've made with the pro customer, to really get us back to point where then we can look at other opportunities to try and grow that top line.
Certainly we expect to continue to have gross margin ---+ I mean, operating margin improvement, continue to have nice flow-through as we drive comp sales improvement, like the guidance that we've given you.
But, we will continue to look at ---+ how are there other opportunities, as the consumer changes.
The way the consumer wants to interact with us changes, what are the other opportunities where we can do things that will continue to allow us to pursue opportunities for growth, particularly in a recovering market, and the affinity that we're seeing with the consumer around investing in the home.
So, whether it's stuff like lowesforpros.com that we invested in because we know that was a key gap we had there, whether it's rolling out additional PSI programs like we added this quarter in the store, you'll see us looking at ways that we can continue to make sure that we're responding to where the customer wants to go.
And whatever that ends up being, we'll end up evaluating that, but also using the base of stores we have to continue to drive nice flow-through.
I don't know ---+ I don't have the number back before the peak, as to the exact numbers as to where it was at.
That would be back in the ---+ (multiple speakers)
2009 is when we started the survey.
2009 is when we started the survey, is what Bob's saying.
So we don't have numbers back before the decline.
What we are seeing, though, is a greater proportion of customers telling us they're leaning into the big ticket discretionary from smaller ticket discretionary.
As you think about greater consumer sentiment, confidence around their personal job situation, there's home appreciation, they're starting to think about these bigger ticket discretionary projects.
I can say that the categories that you asked about did comp in the 3% to 4% range.
As <UNK> said, they were positive.
But, they were below the Company average based on the strength of the appliance and seasonal living businesses.
So the market specific growth is based on the state of the economy and housing in those markets.
So the factors that drive the macro Lowe's business also drive each individual market.
Housing and incomes in those markets, some higher, some lower, depending on where they are in the housing cycle.
We've talked about the choppiness quarter to quarter, and the flow-through.
That's a variety of factors.
Performance relative to plan drives those accruals year-over-year.
The nature of the credit program, as we think about portfolio performance, loan loss reserves, that's driving some expense leverage second half of this year, relative to first half.
As I mentioned in my comments regarding building repairs and maintenance, are planned as more front-half loaded.
Therefore, we're getting the leverage based on the timing of projects year-over-year.
So there's just a variety of factors that contribute to movement year-over-year.
I think if I had to leave you with a punch line, you heard us talk about steps we're taking in payroll, in advertising, in indirect spend that are sustainable, will drive benefit through 2015, into 2016.
So for 2015, SG&A grows at roughly 46% of the rate of sales growth.
I think something close to that 50% is probably the right way to think about it.
So as you think about the mix of our business, it's 70% pro and ---+ excuse me, 70% DIY, 30% pro.
However, the pro ticket is larger than the DIY, pro.
So the driver of the big ticket's probably going to be closer to 60%/40%, DIY to pro.
Thank you, <UNK>.
This will be our last question.
So, Rick talked about customer satisfaction.
We continue to see very strong customer sat results through our customer focus program.
As you think about close rates, we've done a lot of things to address all the potential factors that might impact close rate.
Both the quality and quantity of labor, the depth of inventory, the local assorting.
Rick mentioned way-finding, which is the ability to navigate our stores.
So a lot of good steps we've taken.
As a result, we're seeing roughly 100 basis point improvement in close rate, this year relative to last year.
That's the expectation.
We've seen good sequential progress through the quarters.
We saw sequential progress through the months of Q3.
As Robert talked about in his comments, good momentum as it relates to the consumer and the drivers of our industry, and each day our execution continues to improve.
So we feel good about the ability to drive and achieve or exceed the outlook we put forth for the year.
Thanks.
As always, thanks for your continued interest in Lowe's.
We look forward to speaking with you again when we report our fourth quarter results on Wednesday, February 24.
Have a great day.
| 2015_LOW |
2016 | IDCC | IDCC
#Thank you, <UNK> and good morning, everyone.
As you saw this in morning's release, we delivered another very strong quarter and a very strong year.
Which, we will get into the numbers in more details.
But the combination of a continued top line and dropping expenses demonstrates the underlying strength of our business model and the skills which we are executing against it.
A couple points to note for the quarter.
First, with recurring revenue at $93 million, and that number not including any contribution from Huawei, we remain comfortable that our wireless business can reach an annual royalty platform of $500 million to $600 million based on the existing agreement, and the additional licensing opportunities ahead of us.
We also believe that we can get to these revenue numbers without incurring increased expense.
When you combine that revenue growth with stable expense, you have a great opportunity for shareholder value creation.
Where exactly will that revenue growth come from.
Unlike many businesses that would have to chase a large number of customers to drive that level of revenue growth, we have to succeed in licensing with a handful of major names; such as LG, ZTE, Lenovo, Shawmail, and Apple.
We are seeing progress while we appreciate the licensing can be challenging at times.
However, we have shown over the last 20 years our ability to get difficult deals done ,and we are confident that we can work these opportunities as well; leveraging the strength of our patent portfolio and other tools at our disposal, such as the ability to use the exchange of patents as consideration, the ability to conduct research for customers, and the opportunity to work with customers on some of our pre-commercial product offers.
Indeed, it is these tools and our flexibility and creativity that often sets us apart from other licensing companies.
We have also been meeting with investors to begin to frame out the additional growth opportunities we have beyond the one I just talked about.
I think each is very exciting and they fall into three categories.
The first is just market growth of the our core business.
The bulk of our revenue today essentially comes from LTE-enabled devices, with a good portion of that coming from agreements that are volume dependent.
Annual LTE handset volume growth remains very strong, by some projections roughly 15% per year.
That means assuming our per-unit based licensees experience that level of growth, we should see some nice incremental grains in our revenue without any increase in our costs.
The third growth factor relates IOT.
Essentially, there are two areas of growth that we are focusing on.
The first is the connection side of IOT, basically all the wireless devices that will be deployed in automobiles, meters, and other data-producing things.
The beauty of this opportunity is that it is a natural extension of our existing licensing program, as it will rely on the same research and same patent portfolio.
In effect, the opportunity comes at no incremental cost.
In terms of the addressable market, there are many different estimates being made in terms of the overall quantity of IOC-enabled shipments in any year, and the mix between cellular and non-cellular devices.
While the estimates vary, the annual shipments tend to count in the billions.
IHS and major analyst firm projects that shipments of IOT-connected devices will exceed 12 billion per year by 2019, and close to two billion of those from projected to be 3G and 4G devices that leverage our core connectivity areas.
This means there is a significant opportunity for meaningful revenue growth that we can pursue without incurring any significant additional costs, except taxes.
That translates to even greater growth and profitability.
IOT also bring as new opportunity in terms of what we refer to as the services and application layers.
The beauty of IOT is not simply having data-producing devices send back to collection point.
The beautifully of IOT is creating an environment where all of that data can be accessed, mined, manipulated, aggregated, and compared to greatly enhance current services, but more importantly, create brand new services.
We have made significant investment in the platforms, like 1M Power and wattIO that will increase ---+ that will create the architecture needed to facilitate these new services.
In recognition of the significant opportunity that this represents, we have consolidated all of these activities in the renewed business unit at the Company led by Jim Nolan, a long-time InterDigital veteran.
Jim has over 20 years of experience in wireless, and is the driving force between the Convida relationship with Sony.
This new business unit has the opportunity not only to drive a new patent licensing opportunity with the Company in this space, but also to build a vibrant commercial solutions business around the assets of the Company.
Indeed, on the solutions side we already have customer traction with Sony and others, and are looking this year to expand our customer base.
The purpose of these engagements is to refine the platform, drive the adoption of the underlying standards, and to position the business for solutions revenue growth in future years.
So far, they are executing on plan.
All in, the business continues to perform very well.
We have exceptionally strong financial base, very strong opportunities to drive significant near- to revenue and profit growth, and we have longer term growth opportunities that are significant and equally important, aligned with our core skills.
And we are pursuing those opportunities with the same high-margin operating model that we employ today.
With success, we can materially growth our profit and our value all for the benefit of our shareholders.
Let me turn the call over to <UNK>.
Thanks, <UNK>.
2015 has been another strong year for InterDigital, and we are very happy to end it on an equally strong note.
Fourth quarter 2015 marks our fourth consecutive quarter with more than $100 million in revenue.
More importantly, in fourth quarter 2015, we continued the longer-term trend of increasing our recurring revenue with only modest increases in our operating expenses.
In fact, year-over-year, our fourth quarter returning revenue is up 9% while our pro forma operating expenses are basically flat.
Looking at full year 2015, our recurring revenue is up $84 million or 29%, while our pro forma operating expenses are only up $5 million or 3%.
Said differently, our recurring revenue from 2014 to 2015 has increased nearly 17 times the amount of the increase in our pro forma operating expenses over the same period.
As we head into 2016, we are pleased to report guidance for first quarter revenue of between $99 million and $102 million, which is currently comprised entirely of recurring revenue.
Looking beyond the first quarter, there are a couple of things to keep in mind.
First, the fact that our per-unit revenue has become a substantial partial of our overall revenue means that our customers' new product launches have an increased impact on revenue.
Our first quarter guidance reflects the positive impact of that cycle.
However, absent new agreements, some decline in recurring revenue from first quarter 2016 to second quarter 2016 would be both natural and consistent with prior years.
Second, as is always the case, our revenue guidance does not include any potential new agreements or audit settlements we may find during the quarter.
This is based on the simple premise that we cannot predict the specific timing of such events.
Nonetheless, we will continue to work to resolve disputes and add to our customer base.
Additional progress in licensing, together with maintaining a relatively flat cost structure, continues to offer the most immediate potential to increase value for our shareholders.
Now let me update you on our recent progress in returning cash to shareholders.
I am proud to announce that recent share buy-back activity has resulted in our Company, on a cumulative basis, having bought back over one-half the number of shares of the Company's common stock that have ever been outstanding.
While it might be mower meaningful that we purchased approximately $25 million in shares year-to-date in 2016, this is still a monumental achievement that speaks to InterDigital's long-term commitment to shareholder value.
With roughly $125 million left on our authorization, we expect to continue our focus on buy-back activity over the balance of this year.
With that, I will turn the call back over to <UNK>.
Okay.
I will let <UNK> address the revenue and then I will come on and talk with respect to the technical question.
Yes, so James, during the quarter we had a resolution of a new agreement with Kyocera that we announced.
I think we actually updated our guidance after that.
In addition, there was a resolution with a technology solutions customer on an outstanding amount that had been due for a number of years and was not fully recognized in revenue.
So between those two items and the strong performance of our existing licensees, we were able to deliver a very good quarter on the top line.
And James, with respect to the opportunity on the IOT connection side, so there are a number of estimates out there, and we are not here to tell you any one is right versus another; but this particular one has a significant amount of total connections; 12 billion or so, which 2 billion to 3 billion is cellular.
So a couple things to think about in terms of the revenue opportunity for us, and this is one thing we are going to be working on during the year in terms of beginning to frame out this opportunity a little bit better so people know what we are chasing.
So the first question is going to be the overall amount of IOT connections and I think every estimate you look at, it is very, very strong so that is not something that there is a lot of question about.
You know, it is in the tens of billions, those numbers.
The next one is one where there is a little more uncertainty and that is what is the mix between cellular based connections and Wi-Fi and other based connections, and this one has a relatively low mix I would say in terms of the cellular mix.
I have seen other estimates that are higher.
Certainly while we have a patent portfolio that can address the full set of connections, our position is stronger today with respect to cellular.
There is a lot of work going on in the standards bodies to create IOT ---+ an IOT-based standard for LTE which basically strips out a lot of the functionality and reduces the cost.
I think if we are successful in getting that standard done and deployed, the actual cellular number can go up a fair amount because cellular has the distinct advantage of universal coverage, right.
You do not need to be in a Wi-Fi hotspot.
I think with that 2 billion to 3 billion, in my view, is probably on the light side, and I think it can be bigger if we can have some success in standardization there.
In terms of the, you know, overall revenue opportunities for the Company, that is the one we are going to frame out during the course of the year.
You know, I think when you are talking about units and these numbers, these are obviously low-priced units, so these are things that are ranging from a $1 to $10.
The higher end stuff probably in cars.
The lower end stuff in FedEx boxes and things like that.
So while the royalty burden as a percentage of advice may be in the same range as it is today in the aggregate, you know, so the aggregate numbers out there you see today is 10% royalty burden, roughly; maybe lower than that and we get our piece of that.
That is going to be on a lower price point.
So as I said, we will put some better boundaries around this number as we go forward.
I would say that I still think it is going to be a meaningful revenue number.
The other important component, though, is it comes at no cost.
So essentially whatever that revenue number is, strip out the tax and it drops right to the bottom line, so as a percentage gain on the bottom line it could be obviously even more meaningful than that.
So more details to come on this as we work the numbers.
Sure.
So, you know, the list is pretty short which is good.
I would say each one of them is a little bit different.
And that is fine for us because we actually have a pretty flexible program, and we can bring different tools to bear with respect to each of those, right.
So I think ZTE, I think to some degree I think it is going to be driven by the Huawei result, so we have had some good progress in terms of the Huawei litigation side moving forward there.
So I think with ZTE, we have a lot of the options that I talked about in terms of the ability to do research, exchange patents, and a bunch of other things.
I think if we can take advantage of a successful results with Huawei, I think that is what helps that one along and also we have litigation underway with ZTE as well and discussions too.
So there is a fair amount of stuff going on with ZTE.
Lenovo, somewhat similar to ZTE in terms of the relationship in China, but also I think probably a greater opportunity for research and patent exchanges and things like that, and so that is another opportunity for us to leverage the various tools we have in the Company, chatting with them as well.
Shawmail probably takes that and takes it up another notch right, Shawmail has got designs moving outside of China, we talked about this before.
Their first entre into India didn't go well, mostly because of lack of licenses and patent coverage.
They talked about the need to build a patent portfolio so chatting with them as well about in terms of how we can help them do that, how we can help them research, and a bunch of other things.
So, you know, LG, I would say a little bit different in terms of the tools that we would use with them.
Joint research is an opportunity with them.
Last year we successfully concluded the 3G arbitration, so I think we got that out of the way and I think there is opportunities with them to do some other collaborative items as well.
So again a little bit different than the first three we talked about.
And then Apple, it is really there, we are just talking about the remainder of the apple ecosystem so we have got a good portion of under license with Pegatron and other Time Media suppliers.
So we are talking about some incrementive of their production.
You know, they recently concluded a deal with Ericsson, you know, I would say that that deal was consistent with the licensing practices that we and others have engaged in for years and years, which is portfolio license, and a comprehensive license, and different than what Apple has talked about in terms of when it talks in litigation about patent-by-patent, country-by-country; so I think it shows that Apple has a business position and a litigation position, and they are not the same, not unusual.
So I think that there is opportunities with them.
I think with Apple, though we can be patient because we have had a pretty good position with respect to their supplier and there is things that we can do with their suppliers without actually having to fully address Apple.
S that gives us another option with them as well.
I would say it does not have a big influence on the discussions today.
I think the only thing that you will observe is, I think it is two pieces.
One, the fact that there is an opportunity right now to create intellectual property relevant to 5G because we are at the front end of a new standard with a lot of things that need to be done.
That is a really good opportunity for us to in effect sell the research, because of fruits of that research will be really valuable in terms of patents, and people are looking for protection.
And if you look at for example the Sony renewal, there was a piece of that around 5G.
So I think the urgency, there is only a certain window of time in which you can create this intellectual property so that research sells in a certain period of time.
So urgency is on us to get the people, but the urgency will also be on the other side to engage with us to not miss that opportunity.
I think it helps there.
I think in terms of just overall perception of the Company, you know, the fact that, you know, we continue to be a strong participant and the standard bodies continue to have our leadership positions just re-emphasizes for folks that we are a continuing player here, a strong player here and, you know, that is always helpful from a licensing perspective as well.
Sure.
As you know, <UNK> we do not provide specific expense guidance for going into the next quarter or the next year.
Having said that, you know, we have been pretty consistent in, and I think even commented on the script today, that we believe that we can kind of maintain a relatively flattish operating expense going forward.
And really I go back to the metric that I like to look at is our pro forma OpEx, which is located in our financial metrics.
That does adjust for things like litigation, that otherwise would affect period-to-period comparisons.
When we need to make an investment in litigation, we are going to make it.
So I want to make sure that we are looking the our operating expense base excluding those kind of separate decisions.
Hopefully that answers your question on expenses.
With respect to the quarter lag that we report on, that also came up in the script because it was really second half, product introductions that helped to drive a good result in Q4 for a per-unit licensee, that was the underlying sales in Q3.
We also issued what I believe to be strong guidance on revenue for Q1, based on those licensees underlying sales in Q4.
Having said that, given the second half of 2016 introductions and the way these product cycles work, we would anticipate some drop-off in kind of same-store sales, if you will, going from Q1 to Q2 as the product cycle gets a little bit further on and people start to think about the next launch, whenever that may be.
Yes, so it is actually coming due in March, mid-March I believe.
And there is really ---+ we do not see it as being an event with a tremendous impact.
As you know, Gene, we issued a new convert around this time last year effectively pre-funding the upcoming maturity of the (indiscernible) security, so we are well-funded.
We have a very strong cash position and by kind of pre-funding that, you know, given the market conditions that existed last year, it allowed us to kind of continue on our buy-back trajectory here.
So we are pretty pleased with where we sit there.
Per share number.
No, the conversion price based on where we are today is, you know, a good bit above our current trading price.
So, you know, based on kind of trading range we have been in, there should not be any impact there.
Yes, so litigation expenses as you noted are down.
They have been kind of trending down all year.
And we are certainly pleased about that.
Our preference is to resolve new agreements without the need for litigation.
You know, we would rather invest in our customers and, you know, find better ways to work with them than to have to litigate.
Having said that, you know, at some point if things are not progressing the way that we would like, litigation as we have always said puts a timeline on those negotiations.
I can not sit here today and tell you that, you know, it is going to be at the same level or higher.
That is one of the reasons why we do not give expense guidance because that is going to depend on how things play out.
But I certainly can tell you that our preference remains to find ways other than litigation to resolve these disputes.
So it is our understanding that there will be the argument in March and that the court over there issues its decision, you know, roughly a month or so after that, so that will move along pretty quickly.
We think we are very well-positioned in that case as we said all along, arbitration awards are difficult to upend, for a lot of good policy reasons, you know the standard is set very high in terms of what the other side needs to prove.
I think the proximity of the Paris hearing to the New York proceeding, I think was one of the reasons; I do not know this because I am not the judge, but I think the judge is being practical in New York and said why get sideways in France if it is going to happen in a month, right.
So I think the fact that though he conditioned the stay on Huawei posting a bond, I think it was a very good signal and obviously puts us in a position if we can otherwise resolve the matter with Huawei, we will have certainty of (indiscernible), which is great.
Bonds also are not free.
There is a fairly stiff cost to a bond, and that creates I think more incentive for Huawei to continue discussions with us.
And so no surprises in terms of what is going on, and frankly I would say a little bit of maybe a positive surprise in terms of the bond requirement in New York that will be helpful to us.
I think we have a couple options at that point.
I think the New York judge has obviously invited the parties to come back there, pos-France decision, and with respect to enforcement, there would be a bond out there for payment.
I think it gives us, you know, another venue and it is a local venue for us to secure payment and you would have French courts as well.
So in situations we are having a couple different tools at our disposal, I think it is helpful.
I think certainly we do try to be opportunistic but when you think about the pace, again I always like to direct people to the longer term trends here.
You noted at least one factor and that is, you know, when you have open windows to get in and out of plans and so forth.
You know, those things are not always visible to everyone else, and, you know, it definitely does impact our pace of activity at times.
There are other factors as well but, you know, what I would prefer to focus on our longer-term trend and we are all very happy with what we have been doing there.
Yes, I think it was I think even a little bit lower last year because the R & D tax credit was for a multiple-year period, but they now have the permanent extension on the R & D credit, so pleased to see that and I think that our tax rate is probably in about the right place at least for the time being.
Thanks, guy.
So what is coming under that initiative is basically everything above the connection level.
Take it that the connection level, that is going to stay within the wireless business unit because it leverages the exact same patent portfolio, the LTE and 3G patent portfolios and the licensing program, and the customers are pretty much the same with respect to, you know, the folks the wireless business already addresses.
The IOT solutions business units again address things above the connection level, so this is up at the application-enabled platforms and service layer platforms.
It combines the oneEMPOWER platform that we have with the Company, the Convida joint venture would be part of that with the management of that would be part of that business unit.
The wattIO business as well, part of that group as well.
So it is again dealing with everything from the services and application enablement perspective.
That is a different patent portfolio at the Company, so it addresses different things.
The customer base is different so you are not always dealing with ---+ you are not dealing with the connection folks, you are dealing with the people who provide those platforms, or the people who make use of those services; and that can be a whole range of people because there is a whole range of verticals here that will benefit from these technologies; so whether it is transportation vertical, an industrial vertical, agricultural vertical.
The business itself would be a little bit different than the wireless business unit in that I think this business unit has a stronger opportunity to be both a combined or a patent licensing business combined with a solutions business.
We have done a lot of work on both of the platforms that we have in the market today, both wattIO and EMPOWER.
I think an important piece of this will help be a driver for the solutions business.
They have customers to-date for the platforms.
You know, as I said in my script, they are not really looking at them at big revenue producers this year.
It is more getting the platform stable.
Getting the technology evangelized, getting the customers in place and basically channel partners in place to drive revenue growth in the next couple of years.
As I also mentioned, we are going to do some work over the course of the next two months to not only frame out the wireless connections value, what we think that may be worth so people can be begin to measure us against that; but also start to build a model or refine the model, we have a model with respect to this business at these upper layers and also let people know what they think that opportunity is, and what the milestones are and what the goal is for those businesses.
| 2016_IDCC |
2017 | EQT | EQT
#Thank you, Pat, and good morning, everybody.
Before reviewing first quarter results, I want to highlight our recent acreage acquisitions.
During the quarter, we completed 2 acquisitions adding 67,400 core Marcellus acres for $652 million, funded with cash on hand.
We\
Thanks, Rob, and good morning, everyone.
For those of you that I have not met, I am <UNK> <UNK>, and I was appointed President of EQT's Production business unit in March of this year.
I've been with EQT for 10 years and have been employed in the oil and gas industry for about 29 years, with the majority of my time spent on the operations side.
I most recently managed the engineering, geology and planning functions for EQT Production, and I have been involved with the growth and expansion of EQT's Marcellus and Utica development program since inception.
I will now make some comments about the quarter.
As Rob mentioned, our sales volume for the first quarter was at the low end of guidance at 190 Bcfe.
This was primarily driven by completing 0 wells in plan, as we did not add frac crews as quickly as anticipated due to the tighter-than-expected market.
We are, however, reiterating our full year guidance and have additional frac crews scheduled to come on at the beginning of June, at which time we expect to quickly get back on track with our 2017 turn-in-line schedule.
Our business plan also anticipated sales volumes to be flat Q2 versus Q1.
We are now projecting Q2 sales volume between 190 and 195 Bcfe.
Our 2017 growth will be back-end loaded as we expected, and we will exit 2017 at approximately 2.6 Bcf per day.
As you saw on today's news release, we recently increased our EUR estimates for our core Marcellus by 14% to 2.4 Bcfe per thousand foot.
This reflects enhancements to our standard frac design, which among other things, increase the sand and water per foot of pay.
We continue to experiment with even larger frac jobs, which we expect will increase the effectiveness and efficiency of the fracs.
At this point, however, it is too early to know if the economics will be improved, because as you may expect, with bigger jobs come higher costs as well as impact to lateral spacing.
We are confident in our technologies and methodology, and we'll provide update as our progress continues.
On the last call, Michael Hall asked about our well results in the dry Marcellus window in West Virginia.
We currently have only 10 wells producing in Marion in eastern Wetzel County, but our preliminary EUR estimate for this area is 2.4 Bcfe per 1,000 foot, which is consistent with our average EUR for our core development area.
We are very encouraged by this productivity.
Finally, an update on our Utica program.
As we've indicated during previous calls, we continue to work in understanding the reservoir and improving costs and have decided to not share individual well results as we move along.
We have completed the Big 177 well in Wetzel County, West Virginia, and it is online.
Our 2017 plan calls for drilling 7 wells, and we are currently drilling the Moore well in Greene County, PA, and should have that well online in the second quarter.
After we TD the Moore, we will move the rig to Armstrong County, Pennsylvania, to drill the next Utica well.
With these test wells, we are getting a better understanding of the production mechanisms, recoveries and the economics of Utica, which was our overall goal of the 2017 program.
With that, I will turn the call over to Steve.
Thanks, <UNK>.
Good morning, everyone, and thank you for joining us.
With this being my first call as CEO, I want to take a few minutes to comment on my strategy for EQ<UNK>
I've been on the management team for many years and have been an active participant in shaping and implementing our strategy, so in many ways, it is a continuation of the strategy that EQT has been successfully executing.
The one thing I'm most proud of as a member of the management team is EQT's history of focusing on creating shareholder value.
From our large share buyback program in the early 2000s, the sale of our LDC business in 2013 to our creation of EQM and EQGP and our current consolidation efforts, EQT has always focused on creating long-term shareholder value.
I assure you that I will continue to focus on doing what is best for the long-term benefit of our shareholders.
We are blessed to have an outstanding set of assets in one of the largest and most economic natural gas basins in the world.
We are already the largest gas producer in the Marcellus and the fourth largest in the U.S. We also have the largest midstream business in the Appalachian Basin.
There are tremendous synergies between the 2 businesses that we have leveraged for the benefit of EQT, EQM and EQGP investors.
As you probably know, I believe there are significant benefits to consolidation in our core development areas.
Over the past decade, we've made tremendous advances in operating efficiencies by focusing on finding ways to improve how we drill and complete our wells.
These improvements have dramatically lowered the per-unit cost of the gas we develop.
Unfortunately, these improved techniques are easily transferred between producers and the advantages gained are short lived, as other producers adopt the same best practices.
So while our development and operating costs have improved dramatically, the economic value added has not increased in concert as the supply of gas increased, pushing gas prices down.
The next wave of efficiencies will come from consolidation of the scattered acreage positions in Appalachia.
This consolidation will drive longer laterals, more wells per pad, improved water and operating logistics and more efficient gathering and transmission pipelines.
These advantages will be more difficult to replicate and the consolidators will hold a competitive advantage that will yield higher returns for their shareholders.
I think further consolidation within the Marcellus core is the best path to creating a sustained competitive advantage, increasing shareholder value.
To date, we've been very successful implementing this strategy and we are beginning to see the value creation from it.
We've added over 220,000 core Marcellus acres since the beginning of 2016.
Our focus is on adjacent acres to what we already own and has facilitated an increase in average lateral length of our Marcellus wells from 5,900 feet in 2015 to over 8,000 feet in 2017.
As you can see in our slides, at a constant $2.50 local gas price, adding 2,000 lateral feet increases returns from 39% to 52%.
As we continue to consolidate, I think it is realistic for us to get to a point where we are drilling 10,000-foot laterals, increasing returns at the same gas price to 62%.
Our midstream business also benefits from our consolidation efforts.
By increasing our inventory, the runway for midstream investments supporting production gets longer.
This opens the door to build gathering systems and makes MVP expansion and interstate pipes further south more likely.
As we implement initiatives to strategically expand our footprint and drive stronger returns, we remain squarely focused on innovation throughout our operations.
I am proud of our culture of innovation at EQT, and we are focused on leveraging that to continue to improve safety, reduce operating costs and improve returns on our investments.
In my opinion, the commodity price cycles are here to stay and we need to be profitable throughout the cycle.
Our continued focus on innovation will enable us to achieve these objectives.
I thank you for your continued support as shareholders of EQT, and I'll now hand the call over to Pat <UNK>.
Yes, <UNK>, I don't think the timing of MVP, although I will reiterate, we still expect to be on target for an end of '18 turn in line.
But if delays would happen, I wouldn't expect it would affect our growth rate at all.
I think you nailed it.
It would affect our netbacks in that time period, from end of '18 until turn in line.
A little bit we would sell more gas locally, but ---+ which shouldn't affect our growth rates at all.
Yes, Phil, I think ---+ so we, obviously, expect there to be an impact once we deliver that kind of gas to that point.
And there are a range of estimates from various services that are out there.
I think our best view is something close to parity with NYMEX is what we're expecting, perhaps a few cents below NYMEX.
But there are some services that think it could continue to trade at a premium.
So I think we're trying to take a bit of a pessimistic view and hope it ends up better than we expect.
Yes, so if I think ---+ so we saw that announcement, and I thought that was actually a pretty brilliant move on their part.
With our recent consolidation efforts focused on ---+ not necessarily focused on, but ended up being more wet gas and as we reconfigure our future development plans to take advantage of those acquisitions, we are now forecasting to be wetter than we otherwise were.
And I think as a result, now as we look out in the future, we think we probably have enough scale to consider opportunities like that.
Probably not necessarily going into it on our own, but something maybe similar to the deal that you described, where we enter into a joint venture to provide some investment opportunities for EQM.
Yes, this is <UNK>.
So the story is, I think, as you know we had reduced activity in 2016, as we began the ramp up in late 2016 and early '17.
We discussed ---+ we chose to be selective about who our service providers would be and we were trying to pair the right mix of quality and price and the market tightened up I think, as everybody knows, quicker than we expected, driven a lot by Permian activity.
But so we've been running 2 to 3 crews in the first quarter.
We think by June, we'll be at 6, ramping up to 7 sometime in the third or fourth quarter and that's how we'll finish out the year.
But like I said, we made a conscious decision not just to jump at the first deal that was out there, and we're a bit selective and we'll be ramping up by mid-year.
And <UNK>, one more bit of color on that.
Our contracts with our frac suppliers had penalty clauses that if they decided to leave, they would owe us some money, similar to the kind of contracts we've had with drilling companies, where during the downturn, we elected to pay the penalties and released the rigs.
A couple of our frac contractors decided to pay us the penalties to take their frac crews to jobs that were more profitable.
So we will get some penalty fees, but that, obviously, is far less than the value of having the wells fracked on the schedule that we would have liked.
But that said, I think we feel good that by the beginning of June, we will have enough frac crews running to confidently tell you that we're going to make our full year guidance, which obviously then projects a pretty dramatic increase in production in the second half of '17.
Yes, it's pretty much a fourth quarter average.
Yes.
Yes, well, certainly, we did see inflation and we've built that in to our numbers.
I think when we issued this new IR presentation, it was built on a 15% service price increase.
So we've built in what we think we are seeing and what we are going to see for the remainder of the year.
So it's in our numbers now and hopefully, we're past the worst of it.
This is Rob.
I think that the frac pricing is probably going to be up more than that 15%, but that's offset some by actually declines on the drilling side because we had some older rig contracts with high prices that rolled off.
So that's kind of a blended number across all the services.
I think a big part of that is the processing costs because of the acquisitions that we've done and the mix of wet and dry gas has gotten a bit wetter for us.
And so processing costs go up, but then, so do realizations.
And some of it is also due to transportation, where we're using more of our capacity to transport our gas as opposed to using it for marketing purposes, which again also it increases transportation cost, but also increases realizations.
Yes, <UNK>.
I think we expected to continue to do similar types of deals as we've been doing.
So the small- to medium-sized asset deals are, by far the most likely and most available.
And I think we're ---+ we continue to be pretty optimistic that there will be a deal flow throughout the year.
So attractive asset packages that fit very well with our strategy.
And I think for now, the bulk of that could be paid for with cash on hand.
There ---+ when you look at the maps, there are some obvious kind of merger type ---+ not necessarily opportunities, but things where you put bigger packages together and really kind of change the landscape.
Those obviously are much more difficult to do, much more unlikely.
And if something like that were to come about, we'd have to take a hard look at how we would finance something like that.
But I think, for now the short term ---+ the strategy in the short term is to focus on the asset deals, because we think we can get some of those done and we can finance those with available cash.
<UNK>, this is <UNK>.
I don't know if I have the Q1 off the top of my head.
But I know in the Q, the current quarter, there's 35 DUCs in there from the latest acquisition.
So of the 183, 35 of those are stone DUCs.
Yes, it certainly is.
Yes, <UNK>, certainly we continue to feel very strongly about the economics of co-development in that particular area of Upper Devonian that we specify in our investor presentation where because of the geology and the results that we have in that area, it's pretty clear to us that it is the right economic decision.
Outside of that box, it doesn't make sense to codevelop, even though in some of the areas, there is good Upper Devonian potential.
It's just okay to wait, to drill those wells until much later.
Regarding the current balance, it's a hard question to answer, <UNK>, because of the consolidation we've done.
We are currently kind of incorporating the new acreage and redoing our development plans to focus on making the best investments we can.
So that's shifting around our focus a little bit from a certain areas into other areas and we haven't really finished that.
So it's a bit tough to answer that, and I'll just mention that maybe I'm getting a little off track here, but one other factor that's ongoing that can affect how we allocate capital between our development areas is around something called joint development and cotenancy in West Virginia.
We've talked about it a few times over the years.
It is some legislative fixes to the old antiquated oil and gas wells in West Virginia that we and the industry have been trying to get updated for quite a while now.
It remains in flux.
We're hopeful there'll be a special session this summer, where it gets brought up again.
And the outcome of that could potentially have impacts on how we allocate our capital across that development area.
So that's a long-winded answer to tell you that it's in flux and I can't give you a good number right now.
One thing to keep in mind on that is we've only got Upper Devonian that we want to develop on about 20% of the core Marcellus acreage.
So within the long run, that's probably a ratio that you'd see, but in any short period of time, the mix can be meaningfully different.
And then just real quick, I don't want to beat this one to death.
The other part is we are still playing a bit of catch up from the cut back in early 2016, where we had cut back some of the co-development potential Upper Devonian wells that now the clock is ticking on those, because of the nature of the co-development.
So right now we're in a bit of a catch-up mode, but that should be concluding here pretty quickly.
Yes, that is still the case, and that will continue to be the case as we bring in new acreage because the whole reason for the acquisitions is to extend the laterals, and if we have the opportunity to do that, even if we permitted a well shorter, we want to go back and repermit it to get of the economic advantages.
So that does build in a bit of a delay in some cases, but that's something that we plan for and really the delay this quarter is driven far more by the frac crew availability than any issues around that.
We had properly planned and accounted for having to repermit as we added acreage.
Yes, I think, big picture, what you see is that the volumes are going to increase significantly in the second half of the year, and so the per-unit cost on a number of line items will start to come down.
I think that's the big picture answer to what we'd expect to see on a per-unit basis.
Yes, that's correct.
Maybe I'll answer the first part of that question and I'll let Steve or Dave answer the second part.
Yes, it is important to us to maintain an investment-grade balance sheet.
There's a number of reasons that we've articulated in the past.
And so we will be cognizant of that when we think about how we would fund any future acquisitions.
We do have both debt capacity and equity markets available.
And so if the acquisitions make sense, we will be able to fund them and we'll manage the debt-to-equity mix to keep ---+ to be sure that we stay on the right side of the rating agencies.
Okay, <UNK>, could you repeat the second part of your question.
Yes, I think ---+ so I think, the issue around the frac crews is a temporary phenomenon.
A lot of equipment, a lot of crews were shut down during the downturn and this rebound is happening fairly quickly and as you know, really quickly in the Permian.
A lot of the equipment and crews are (technical difficulty) between basins.
So we're seeing a lot of that, but I think, over time, and I think fairly quickly, the service companies will recommission a lot of equipment and rehire a lot of the hands that were let go.
So I think there's a time period here where the demand is outstripping the supply, but that will equalize going forward.
So I think, I don't see any real long-term concerns around that and certainly, not related to our consolidation efforts.
I think, consolidation only improves the efficiency of all of that activity, means we can get more done with less crews as we consolidate.
| 2017_EQT |
2017 | CHCT | CHCT
#Thanks.
Good morning everyone and thank you for joining us today.
With me on the call today is <UNK> <UNK>, our Executive Vice President and Chief Financial Officer.
As is our normal process, our earnings announcement and supplemental data report were released last night and filed with an 8-K and our Annual Report on Form 10-K, was also filed last night.
Once again, we had a very productive quarter.
We acquired six properties in five states during the quarter, with a total of approximately 187,000 square feet for a total purchase price of approximately $45.6 million.
These properties were approximately 98.1% leased, with leases running to 2031 and anticipated annual returns of 9% to 9.7%.
We've already acquired two properties in the first quarter with a total of approximately 48,800 square feet for a total purchase price of approximately $7.9 million.
The expected return on these investments range from approximately 9.2% to 9.3%.
The properties were approximately 94% leased with lease expirations through 2022.
In addition, we have nine properties under definitive purchase agreements for an aggregate expected purchase price of approximately $25.7 million.
The expected return on these investments range from approximately 9% to 9.6% and we anticipate that substantially all of these will close during the first quarter.
As it relates to the pipeline, our properties under review continue to increase.
We currently have several properties under signed term sheets and several more term sheets being actively negotiated and that we expect that to be signed soon.
In addition to our acquisition activity in the fourth quarter, we also declared our dividend and raised it to $0.3875 per common share.
This equates to an annualized dividend of $1.55 per share and I continue to be proud to say we have raised our dividend every quarter since our IPO.
As announced last year, I had an active 10b5 plan to acquire shares of the Company's stock.
During the fourth quarter I acquired pursuant to the plan, 74,854 shares of the Company's common stock.
Pursuant to the plan I acquired almost $3 million of the Company's common stock last year.
And in total, considering all sources, I acquired almost $5 million of the Company's common stock in 2016.
[It will all script] but a couple of things people have already started questions about.
I do not currently have anything to announce about a replacement 10b5 program.
The one that I had last year expired as of 12/31.
However, with my history of buying stock at the IPO at the (inaudible) and pursuant to [a plane] in the market in addition to taking all of our compensation in stock, if I were you, I will not be surprised if a new program was announced over the next few weeks.
Also as it relates to the property we are buying adjacent to our corporate headquarters it is for future expansion.
It currently has a tenant in it paying rent and we anticipate leaving that status quo for some period of time.
We'll be getting a return on our investment, albeit a little less than our normal return.
I believe I've taken care of all the items I wanted to cover.
So, I will hand things off to <UNK> to cover the numbers.
Thank you, Tim.
I am pleased to review the Company's financial performance for the fourth quarter and year ended December 31, 2016.
Total revenues for the fourth quarter were $7.4 million versus $4.6 million for the same period 2015.
Total revenues for the year were $25.2 million versus $8.6 million for the partial year 2015.
Rental and mortgage interest revenues were $5.8 million and $19 million for the quarter and year respectively versus $3.1 million and $6.4 million for the same periods in 2015.
The real estate portfolio was over 93% leased.
On a pro forma basis if all the 2016 fourth quarter acquisitions had occurred on the first day of fourth quarter, rental and mortgage interest revenues would have increased by an additional 762,000 to a pro forma total of over $6.6 million.
Total expenses for the fourth quarter of 2016 were approximately $6 million.
Total expenses for the year were $21.3 million.
General and administrative expenses for the fourth quarter were $856,000 and of this amount transaction expenses totaled $200,000.
Depreciation and amortization expense was $3.6 million for the quarter and $13.2 million for the year.
On a pro forma basis, if all the 2016 fourth quarter acquisitions occurred on the first day of the fourth quarter, depreciation and amortization expense would have increased by $330,000 to a pro forma total of approximately $3.9 million.
The Company reported net income of over $1 million for the fourth quarter and over $2.7 million for the year.
Funds from operations for the fourth quarter of 2016 consisted of net income of $3.6 million and depreciation and amortization for a total of over $4.6 million.
AFFO, which adds back acquisition expenses and adjust for straight-line rents and deferred compensation increases the total to $4.8 million or $0.38 per share diluted.
Again, on a pro forma basis, adjusting for debt outstanding for the entire quarter, if all of the 2016 fourth quarter acquisitions occurred on the first day of the fourth quarter, AFFO would have increased by approximately $650,000 to a pro forma total of over $5.4 million and increasing AFFO by $0.05 to $0.43 per share diluted.
That's all I had from a numbers standpoint.
Operator, I believe we are ready to start the question-and-answer session.
No.
We view it as something that we'll naturally grow into.
I mean, as we're growing, we went from zero properties two years ago where we have got, I guess, it's 60 properties now.
We're adding, as we need them, property accountants and other functions like that.
So we anticipate that over the next few years adding, I don't know, two to four year probably as we grow, we don't anticipate changing our pace of growth.
This is just kind of protective for the future, so that we have it.
We're modifying them slightly.
We are still anticipating doing a term loan here towards the end of the first quarter and into the second quarter.
I've said that for probably a year now that that's kind of what we were anticipating doing.
And that we would have another equity raise probably in the fall.
One of the things that adjusted our thinking to some extent is it's been pointed out to us that we're not currently [ending RMZ] and the anticipation is that it would take a capitalization, somewhere around ---+ a market capital of somewhere around $380 million, I think it's by the end of August, to get there.
So we'll probably look at increasing the size of the equity offering that we're planning to do this fall slightly and maybe moving it up a month or two from what would normally be the case so that we make sure that we get into the RMZ by the end of the year.
Based upon where we're looking at, I think they're probably pretty much what we've been expecting.
There has been quite a few of some different property types that have been put on the market because the markets looked at them negatively.
LTAC is one that comes as an example where some of our peers were trying to reduce their exposure to and where the operators were trying to get others involved in it.
And we like this space.
We haven't done anything here.
We've got the one LTAC that we did and kept it as a mortgage.
But other than that ---+ I mean, <UNK>, can you think of anything that's unusual or I guess a good standpoint.
Yes (inaudible).
(inaudible) We get optimistic more than the property type.
I think we had some opportunities within property types to (inaudible).
I don't think we've ever quite looked at it at length, <UNK>.
We wanted to kick it up to $50 million, $60 million a quarter.
I think we probably have the people and the relationships to do it.
We just feel a lot more comfortable doing it on the $25 million, $30 million, in the fourth quarter, $45 million, first quarter it may be $35 million.
But by the third quarter it may be $15 million because third quarter seems to be a lull in our acquisition process for the last couple years.
So we feel very comfortable at doing $120 million.
It's kind of like, if we wanted to, we could do more.
If we thought it would be more profitable to do more, we would.
But we think in the range that we're at and the property types that we are, we feel very comfortable with it and it's like what we did.
I've never viewed it as the capacity type issue from that standpoint.
It's more of how do we do this and have it make the most sense and have it make the most money for everybody.
Well, once we get the term loan done and ---+ are you speaking to before the equity offering.
No, it's lot more than that.
Once we do the term loan, the revolver will be empty again.
I mean, theoretically we don't have to do another equity offering until sometime next year.
One of the reasons that it's been ---+ we probably are going to move it up and look at it sometime in the third quarter though as again the RMZ.
We will be in a position where we do not need to do the equity offering, but it will ---+ we think that it will make a lot of sense from the liquidity standpoint et cetera for our existing shareholders to first go and do it.
We could do another $50 million to $75 million and still be under our 40% I believe.
We are still in negotiations over that and basically what we're looking at now, we think is something very comfortably in the [forward angle] range for seven-year type and maybe set for ---+ somewhere [forward set for five year].
The way you ask the question, of course, [none of that slip] into the second quarter.
We anticipate that they will all close in the first quarter, but this is [Rose Date] and it is not just a property.
So, it is possible that one or two of them slips into the second quarter, absolutely.
I'm going to do some of this in my head.
I am looking at <UNK> while I am doing this to make sure.
I think G&A for 2016 was about $3.2 million and kind of the way I look at that, I break it into three different pieces.
One of them is the transaction cost which is like $800,000 for 2016 and we acquired close to $120 million so that's around 65, 70 bps on the acquisition side.
The other piece of that is compensation, the non-cash compensation piece, which I think last year was about $700,000 (technical difficulty).
And that's going to ramp up on (technical difficulty) schedule.
Hopefully everybody is going to go ramp up schedule on that as we go through the years and we add more and more of this type ---+ more and more of compensation and stuff a piece of it's going to ramp up.
The great news about that is is it's always non-cash.
I mean, there is no cash piece to that, which leave I believe for 2016 somewhere in the $1.7 million, $1.8 million which is like between (inaudible) a quarter of real cash G&A.
And I would anticipate seeing that increase.
Over the years we're going to be adding property accountants, we're going to be adding some other people.
So I wouldn't be surprised to see that bump up of $50,000 to $100,000 a quarter by the end of 2017.
If we feel comfortable then we could invest $50 million at the larger spread than what we're currently investing at.
I mean, again, we aim just to make money, we're not aiming to grow assets, and we think that we're basically in the spread investment business.
So if the environment got ---+ currently, we're investing at [$9 million to $9.5 million] and our equity dividend yields [$6.8 million] and our debt is ---+ consider the term that I just talked about, consider the long-term debt being in the, call it, $4.5 million range.
So, if something happened before that spread, we'll increase 100 basis points and we said, well, gee, this is something that we can take advantage of and we need to do it quickly, something like that would get it to do it.
But other than that, again, we've got our plan, we've got our system, we feel comfortable with it.
The worst thing we can do is accelerate growth and make mistakes.
And since all of us or a significant amount of us, 95% of all of the regional head founders compensation is still being taken and 80% companywide have been taken.
So we will make sure that we've got profitable growth and that we're not making mistakes.
Yes, actually one of ---+ the largest one that we did in the fourth quarter, the one that I am looking to work towards a relationship with, we're very excited about that, it's [Vantage Health Claims] in Louisiana and we feel like they are doing healthcare right, it's an insurance company (technical difficulty) doctors and they are actually building the cost curve.
Their silver benchmark plan is, I think, what I heard was 17% below Louisiana BlueCross BlueShield benchmark plan.
So we're very excited about doing the transaction and very excited about working with them on developing a relationship going forward.
We also bought our first property that was in conjunction with RegionalCare in the fourth quarter and obviously RegionalCare is headquartered here in Franklin and we know their management team well and they have been looking to develop a relationship there.
So we're excited about that.
And several of the others that we have in that kind of list.
We have got signed term sheet on our second one with one of our site clients that's got a (inaudible) property.
We've got a term sheet out for a second property with one of the dialysis clinic companies.
So, we are seeing that come together.
It's taken a little bit longer than what I would like, but we feel very good about where we're going with those relationships.
Thank you and once again I'd like to thank everybody on the phone call for your continued interest and support and we continue to believe that we couldn't be where we are if it wasn't for you all.
So, we're very appreciative of your support and we're looking forward to yet another year in 2017.
Thank you.
| 2017_CHCT |
2015 | MCY | MCY
#Thank you very much.
I'd like to welcome everyone to Mercury's second-quarter conference call.
I'm Gabe<UNK>, President and CEO.
In the room with me is Mr.
George Joseph, Chairman; <UNK> <UNK>, Senior Vice President and CFO; Robert Houlihan, Vice President and Chief Product Officer; and Chris Graves, Vice President and Chief Investment Officer.
Before we take questions, we will make a few comments regarding the quarter.
Our second quarter operating earnings were $0.64 per share, compared to $0.83 per share in the second quarter of 2014.
The deterioration in operating earnings was primarily due to higher catastrophe losses, increased advertising expenses, the result of the recently acquired Workmen's Auto, and net favorable reserve development as compared to prior year.
Excluding the impact of catastrophes and favorable reserve development, the combined ratio was 97.9% in the second quarter, compared to 96.3% in the second quarter of 2014.
Workmen's Auto added [0.2] points to the second-quarter combined ratio.
Premiums written grew 5% in the quarter, primarily due to higher average premiums per policy, the acquisition of Workmen's Auto, and an increase in new business policy sales.
Workmen's Auto premiums written of $5.3 million added 0.8 points to the quarter's premium growth.
In the second quarter of 2015, California private passenger auto frequency and severity increased in the low single digits.
On a sequential basis, frequency and severity was relatively flat from the first quarter.
Higher average premiums from rate increases taken in 2014 partially offset the year-over-year increase in the frequency and severity in the quarter.
To further address the increase in loss cost, a 6.4% rate increase was implemented in late May for Mercury Insurance Company, representing about half of our Company-wide premiums written.
In addition, a 6.9% rate increase for California Automobile Insurance Company, representing about 15% of our Company-wide premiums, was implemented on August 2.
Results outside of California were negatively impacted by $7 million of catastrophe losses, primarily in Texas and Oklahoma, and our private passenger auto business in New York.
Excluding catastrophe losses, the combined ratio was about 100% outside of California.
In New York, we continue to revalue reserves as the impact of changes in claims procedures, which includes the speeding up of claims settlement and case reserving, have added an element of uncertainty to the estimates.
In New York we implemented a 3% rate increase in January of 2015 and a 9% rate increase in July of 2015.
Our expense ratio in quarter increased to 27.3% from 26.8% in the second quarter of 2014.
The increase in expense ratio was primarily due to higher advertising expenses, partially offset by lower average commissions.
Net advertising expense in the quarter was $12.1 million, compared to $5.5 million in the second quarter of 2014.
Our 2015 advertising budget is heavily weighted toward the first half spend.
The advertising spend will be lower for the remaining two quarters of 2015.
Company-wide, private passenger auto and new business applications submitted to the Company increased 11% in the second quarter 2015, and homeowners new business submissions were up 32%.
In California, we posted premiums written growth of 5.6%.
Outside of California and excluding our mechanical break down product, premiums written increased 5.5% in the quarter.
This compares to negative growth of 3.9% and 7.6% for the years 2014 and 2013, respectively.
With that brief background, we will now take questions.
Yes, <UNK>.
No, there's nothing unique.
We get a tax benefit on our realized losses on our investment portfolio, which is primarily due to mark-to-market adjustments as we flow all our investment changes through the P&L.
And you can know from the P&L, we had an investment loss for the quarter.
So that would have positively impacted the [bigger] tax accruals.
No.
I would say about 2.5 times.
Yes.
Well the dividend pay out ratio [probably] this quarter was what, close to about 100% or little ---+ just a little bit under 100%.
There's a lot of factors that go into the dividend pay-out ratio.
We take a look at our earnings, our prospects, and it's something that the Board decides every quarter.
We feel that, today, we have a pretty good capital position, where in years that we haven't really earned the dividend, we've been able to pay out a dividend.
So it's something for the Board to evaluate every quarter.
But at this point, with the amount of capital position that we have, we feel pretty comfortable where we're at.
Now to your question, if we get up to 2.5 times leverage and we are using more of our capital to write more business, I think your question is what happens to the dividend at that point.
We obviously don't expect, though, to have earnings at this level for long periods of time.
A combined ratio was 98.5% in this quarter.
We don't expect that 98.5% to continue for a long period of time.
So we do anticipate that our margins are going to improve.
I'll let Chris talk, but as we mark our securities to market, they're sensitive to changes in market interest rates.
Because as you know, most of our portfolio is primarily fixed income, and we flow those changes through the P&L.
So we get the negatives when interest rates go up, but the positive when interest rates go back down as far as our P&L adjustment.
The entire portfolio is trading.
When the new pronouncement came out, I think it was [FAS-159] a few years ago, we evaluated the accounting.
And we felt that the true measure of earnings is really our core operating earnings.
But we had found that when you were having to write down securities due to temporary market gyrations, you weren't able to get the benefit of when the market bounced back.
And so we just felt like it was better for the Company to flow all the changes through the P&L and mark everything to market as a trading portfolio.
And there is always discussion with the auditors every quarter with respect to what was permanently impaired, what was other than temporary.
And the fact of the matter is that whether you run it through your balance sheet or your income statement, the numbers are there.
So to us, it's simpler, and if you back out the realized gains and losses, you get to your operating earnings.
Well in California, we have a very large book.
So the new business probably represents about 10% of our premiums written.
And you have 90% coming in from renewals.
So new business, although it has an impact, it's obviously not as big an impact as renewal business.
And our California private passenger auto new business sales were up something like 9%.
And they were up 11% Company-wide, so we are seeing some nice new business sales growth, which should help our renewals in future years.
Now in 2014, my recollection is that in 2014, our new business sales were down quite a bit over 2013, which had an impact this year on renewals.
So we feel relatively comfortable in our Mercury Insurance Company where we just implemented the 6.4% rate increase.
Our retention did go down slightly, but it actually went down less than we had anticipated.
So that was good news so far.
It has only been one month into that rate increase, but we were anticipating a larger reduction in retention than we have seen so far.
Most of the advertising, honestly, is coming in in California.
Now the TV advertising it's a national cable ad, and it's national.
In addition to that, we get leads from lead aggregators.
We buy leads.
We do online advertising as well.
So it encompasses a whole lot of avenues for us to try to get new business.
And outside of California our PPA account new business was up something like 15%.
So it's having a positive impact.
And when we take a look at how effective our advertising is overall, we take a look at the lifetime value of the premium that we expect from all these new business sales from the advertising.
And we deduct the cost of the advertising, obviously.
We deduct the cost of the commissions, which are lower, much lower than our stated commissions because we pay much less commission on this type of business that we get through our advertising.
We deduct lead fees that we get from our agents.
So we take a look at the lifetime value of that premium, deducting all the expenses, including advertising.
And right now we're not recovering quite all the dollars.
We're recovering pretty much most of the dollars.
But I will say when you add back the anticipated underwriting income from the sales generator or the premium sales, we're definitely in the black.
So overall, we need to improve.
But overall, I would say it's been a decent investment in the advertising.
Sure.
Okay.
Well, I'd like to thank everyone for joining us this quarter, and we'll talk again next quarter.
| 2015_MCY |
2017 | PAY | PAY
#So let me ---+ I think I understood the question to be maybe two-part.
One is just the overall merchant acquiring appetite for devices in North America, and the second one may have to do with some of our new products like Carbon.
So in general, I think the merchant acquiring space, especially that catering to the small and medium business, is sitting on, still, too much inventory.
They need to work through that inventory, as we've seen small and medium businesses, really take a pause when Visa and MasterCard and others extended the EMV deadline.
So that is still very much with us.
It is getting worked through, but that does impact our volumes and sales to North America merchant acquirers.
Now, having set that had, I will tell you that it's clear to me that merchant acquirers in North America are among the most advanced in the world.
They are looking very hard at long-term business models, and devices, and services around those devices are very much in their roadmaps, and they want to use these devices to differentiate themselves.
They want to not only process a payment and accept a card, but they also equally want to be able to help the business run itself better.
And that's where you see devices like Carbon becoming very interesting.
And the thing about Carbon that is so appealing to acquirers, is that it's not ---+ it is not a platform where the acquirer has to spend a lot of time on hardware.
It is really a platform that's all about software.
It's about the ability to create consumer experiences, and the ability to help their merchants run their businesses.
And it happens to be delivered through our devices and through our gateways.
But a lot of interest, clearly early days because all acquirers have to test and pilot and debate what they really want versus what we have, and so forth, but I feel good about the trends I'm seeing.
Say, <UNK>, this is <UNK>, how are you.
I didn't get part of your question, but I do think I could ---+ I got the gist of it.
If I missed it feel free to double right back.
The margins in this quarter were definitely as a result of the mix, and as a result of the lower volume to a degree, although, as you see, the margins for the hardware business, or systems business were up sequentially.
I do expect that the geographic mix will be slightly positive in Q2, so I see that perhaps trending up just a little bit in Q2.
The story about the second half is really about three or four items that I mentioned on the call.
We're still in early days with our new product introduction aspirations.
We had said previously, and we still stay to a 5% to 10% revenue number of new products, that's relative to the systems solutions business.
So the new products do carry improved costs, bill of materials and structure, so that will be helpful.
The revenue leverage that we get in the second half will be helpful, as well.
And the general mix, although I'm still excited about the progression in Asia, we do see some of the more mature markets that carry higher than the average corporate gross margins increasing, as well.
And, of course, there will be continued supply chain optimization around procurements and the like.
So when I look at the balance in the first half, there are four or so initiatives for just that, effects from the new product launches, that give us confidence on the accretion and the gross margin in the second half.
Yes, again, when you ask questions, I'm sorry to ask this, but could you speak up a little bit.
For whatever reason it is a bit hard to hear.
I think the question was around China.
I think the question was around what we're seeing in our China business, the growth trajectories and how we're doing on tenders.
Is that correct.
Super.
We continue to invest in China.
I think we have been very consistent.
It is a long-term investment.
China is a very unique market, and we're very pleased with the progress we've made.
As you know, we hired a gentleman who was the one of the original CEOs of PAX to help us build the China business.
He has done a fabulous job thus far.
The China market is an $800 million terminal market.
It is absolutely slowing in terms of its rate of growth.
Back in 2014 the market was growing at almost 40%.
I think it's going to be down to sort of a 20%ish rate for 2017.
We have had to absolutely redefine our product family, our terminal family, for the China market.
Trying to sell a global Verifone device in China is not ---+ is not something that could be done today.
It just doesn't fit the specific needs of that market anymore.
And so we've developed our family of products.
We have now gone into tenders with the big five banks, and done well.
We have done well with UMS. We're just starting now to look at the ISO community, which is the SMB market, but we are absolutely going to have significant growth in China year-over-year.
Mind you, we're starting off a small base, but nevertheless, it's important that the trajectory is there and we're learning a tremendous amount about supply chains, a tremendous amount about operating systems that the Chinese have favored, and it's been thus far a very good experience for Verifone.
<UNK>, this is <UNK>, thanks for the question.
We view the North America SMB inventory to be a little bit more than a quarter, probably maybe three, perhaps, four months worth of inventory, based upon our information, and the sell-out that we're now seeing the run rates.
So, we're looking at something perhaps flattish, again, in the SMB market in Q2, and then we start to see it picking up in Q3 and Q4.
Thanks for the question.
I absolutely expect that we will move fast enough to not only maintain, but to grow share.
I think in general, this is a pivotal year for us, no other way to put it, right.
Our new next generation devices are the Company's future.
And so those devices will have significant, significant need in the North America market.
I think First Data and Clover and Square have done a phenomenal job of creating a new category.
And it is a category that I think will have not just North America but global implications.
Verifone's position in this space is, we are a scale player, far greater scale than those two in terms of our device footprint.
And we will be using that scale to really, I think, accelerate the third-party development community's interaction with our platform and our devices, and the merchants and acquirers that we serve.
I view this as an interoperable world.
I view it as vertical applications that help merchants run their businesses.
Should the application, should they choose to use on any hardware, right, so if we have a whole litany of third-party developers developing on Verifone platform, that should be able to be used by Clover and others.
I think that is the way that we all help to grow our industry.
And I, for one, am very excited about that.
I think that in the overall hospitality space, which includes QSR and lodging and some others, really the biggest business is quick-service restaurants.
It is where you're going to get the greatest volume.
It is where you're going to get the greatest turn.
The second biggest place likely is going to be pay at the table, and then lastly is lodging.
So when Verifone looked at our product roadmap and our resource allocation, we first focused on the quick-service restaurants, and we've had wonderful success there.
And we will continue to have wonderful success there.
The second area that I mentioned, we're already in beta on pay at the table.
I wish we could have moved faster, but I think we made the right resource allocation decision.
We are absolutely focused on pay at the table and will continue to drive it.
And then lastly in hospitality, lodging, we're making progress on lodging, that is a completely different animal.
As a vertical it has some very specific software requirements, and so I think we're a little behind in that space, versus where I want to be, but we will catch up.
Well I think maybe <UNK> and I are going to ham and egg this one.
The petro business is a critically important business for us in North America.
We have the number one franchise.
We have some very talented people who run that for us.
And so we continue to be a strategic partner, and in the room with clients as they work through their three- to five-year strategy.
So we feel very connected to the space, and we continue to invest in it.
The media spaces, is a completely different area of specialization, and of course, we got into petro media, petro ---+ and taxi, through, of course, acquisitions.
Those areas were not core to Verifone.
To be really successful in media, you have got to be night and day focused on it.
You have to have the best talent, and you have to have the best ability to execute.
And so I think what <UNK> and I realized over the last couple of years is, we've got good teams, but they're just not able to get the focus that they need to evolve the platform.
We really got to know the GSTV people well.
Obviously, we know Gilbarco well.
This was very much a decision about how do you get the velocity back into this business.
We're trying to create a new media segment, people don't wake up in the morning and say, oh, gee, I have to advertise on gas pumps.
Right.
You have to really educate and have the kind of statistics that you can show and demonstrate that four and a half minutes of a person's time while they're pumping the car can be very, very valuable.
So that is why we decided to do this joint venture.
We're going to have a combined total of over 100,000 screens, which is a tremendous scale in North America.
It's going to cover all of the important DMAs, and then some.
And we're going to get some revenue and cost synergies out of this combination, as you might expect.
From a revenue perspective, we're not consolidating, so it's kind of a non-event.
But it does give us a much better product for our petroleum clients.
And for advertisers.
And that together I think is a formula for building value.
I would just add real briefly, <UNK>, I would just add from a forecasting and guidance perspective, particularly around the second half, we were thoughtful in terms of the revenue we had originally baked in to and for the petro media business.
It is still, in many ways, in its early days given the rollout of the new screens, both our own and with our partner Gilbarco.
So when we do the joint venture, those revenues will get incorporated inside the venture so they'll be out of our consolidated results.
I mentioned earlier that the uplift in Asia, particularly around India will offset that, so we're comfortable with the overall guidance here.
But as <UNK> mentioned, or states, it's absolutely the case that we expect the joint venture will provide, both revenue synergies and cost synergies over time that will improve the economic performance for Verifone's pump and media business.
Yes, well, look, I think Brazil has been a complicated market since the day I got here.
It's never as anyone predicts, to say the least, but we've got a very strong team in Brazil.
We've got an excellent team in Latin America.
They really have very good relationships.
Most people don't realize that almost half of our business in Brazil is services business.
It is not device business.
And it's a business that I think is going through a lot of change.
The two main acquirers are absolutely evaluating their strategy going forward.
One is the kind of client base that they want.
What services and things do they want to provide.
And, I think that - obviously a lot of businesses have been closing in Brazil due to the economy.
And so it's put stress on everybody.
There have been some new entrants in Brazil, and working at scale.
Some properties have changed hands.
And so we're just adjusting and doing our level best.
We have a good product portfolio that we are rolling into Brazil, over the next several years.
We think it is the right portfolio and we're going to continue to build services.
It's a ---+ Brazil takes up an enormous amount of time for our Latin America team as they try to think very carefully about what's going to happen next.
And I was going to say, of course, as it should, right, <UNK>, given the size of the Brazil market to Latin America, it's more than 50% of our total Latin America business.
When we look at and we forecast Brazil, despite what are definitely difficult economic conditions in that part of the world, that region, we still believe that we will be able to show flattish-type numbers, 2016 through 2017, perhaps a little bit more than that.
And it's really on the back of not only the continued product launch around the new products, <UNK>, and the relationships with the two major acquires, but I think if you look at what has happened to Verifone over the last 12 months, our entree into the Tier 2 market, which we did not serve very effectively for many reasons, focus, et cetera, we have been able to pick up a significant amount of share from the Tier 2 players, for which we didn't participate in previously.
It does ebb and flow quarter to quarter.
Hopefully we have good enough visibility in 90 and 180 days to incorporate that up or downtick.
But generally speaking it's a lot more balanced, I believe, for Verifone.
I'm happy to give that a shot.
It's clearly ---+ I talked about overall for the full year around 5% to 10% of our systems solutions business would incorporate our new products.
So let's just, right down the middle there, so 7.5%.
We've been in pilot everywhere.
We talked about our success, particularly in India.
You'll see more of that in Europe, in particular, in Q2.
I see the - much of the ramp in Q3 and Q4, I would say probably, let's say 75% to 80% of the new product revenue that I spoke about will come in the second half, and Q4 being more than Q3.
No, you're thinking about it right.
The first and foremost, we were concerned about the quality of the product that we had.
And what I mean by quality of the product, it's really a combination of not the hardware, but it is a combination of the actual platform and software that run the media loops on those devices.
And so we really wanted to ---+ we really wanted to get a best in class solution.
And so for us to have spent the money to get that best in class solution, would have been difficult.
Furthermore, as I said, we wanted the very, very best people that have built these kinds of businesses, and so just looking at it objectively we sat with our team, we sat with the GSTV team, and we decided the clients here are going to benefit from these two entities coming together.
There of course are, when you do that, expense synergies, but I'm actually much more motivated by the revenue synergies, which I think are going to be significant, given the fact that it's now a very large digital out of home platform.
And it's one that is going to see 100 million consumers a day.
So, we're excited about it.
We like the team.
And, we do think that the contribution margin that will come from the joint venture will be better than what we could have done alone.
Happy to do that.
Of course we did $457 million in Q1 and we gave the guidance range of $470 million to $474 million, and we still have it baked into the full year at $1.9 billion to $1.915 billion, so you'll see incremental increases to that march to that guidance.
In terms of the geographic view today, it's quite ---+ it's not too dissimilar to the color that I gave last quarter.
I was additive to that color, with respect to Asia and North America challenges, particularly in taxi and the joint venture.
But let me be clear.
So for North America, for the full year, including taxi, incorporating the joint venture, which deconsolidates the revenue, we now think that the North America business will be down in the mid to high teens.
I said 15% to 16% reduction, because of the EMV surge last quarter.
It will be a couple of percentage points higher, likely as a result of taxi and the petrol media business.
In Latin America, we assumed flattish, given the economic challenges, Mexico and Argentina I highlighted.
I still view Latin America on the whole to be relatively flat year on year.
And in Europe, Middle East and Africa we still expect to see single digit growth on that front.
Asia was the opportunity that allowed us to certainly maintain our guidance.
And based upon the visibility that we have, particularly in India, we believe that the revenue in Asia will offset the deconsolidation of our petrol media business as well as some softness in taxi.
I would tell you that there is de minimis revenue in third-party applications in the short term.
Right.
I mean, so for 2017, I'm not sure there is much that we could get excited about.
This is about creating platform.
And it's a platform that is very sticky, and has annuity revenue associated, and there are essentially two models for making money.
One is that we write an application as Verifone, and we sell that application as Verifone, and we earn 100 cents on the dollar.
The other is that we have third-party developers using our APIs and they create perhaps vertical applications, and there we have, standard 70/30 model, 70% of the revenue goes to the author of the app, and 30% goes to the operator of the platform, that being Verifone.
So those are the models.
It's going to take several years to get to anything that is really exciting.
However, what really I'm focused on is that as we move into that model, I could really stand up and say that we are no longer in the terminal sales business.
We are now a solutions provider.
And that gives a very different trajectory, that really helps us to even out revenues, to become more predictable, to be able to have the visibility, and I think along with that an appropriate multiple shift.
Well, Carbon is a family of devices now and so is Engage.
So, yes, we have some Engage devices certified, but not all.
And then, we're in ---+ we're really in very early days with Carbon piloting.
So, there is a PCI certification and then there is actually the Class A cert to work with and acquire.
Those as you know are two different things.
Carbon is an opportunity that's global.
There are merchant segments in every country that are looking to do more than just accept a payment.
They're perhaps looking, also, to have a solution that helps them run their business, whether it's inventory, whether it's the actual cash register application.
And so, yes, I think it is universally useful.
The fact is Carbon is agnostic to the acquirer, so any acquirer can work with Carbon.
They could use it as their front end.
They could customize it with their software.
And so we think it's got very broad application.
We're not just talking about one Carbon.
We're talking about a family of Carbon devices, and, we like that trajectory.
We have no plans today for Carbon in India, but I have no doubt that there will be applications in the future.
You're welcome.
Operator we have time for one more question, please.
This is <UNK>, let me answer the first part of the question there, <UNK>.
So in terms of the trajectory on North America, I think we're optimistic but we're cautiously optimistic on the trend, and that's what's baked into our guidance.
I think we will be probably flattish to perhaps slightly down in Q2, and then we see really Q3 and Q4 picking up.
But we're balanced with that trajectory, given some of the limited visibility.
Our expectation is that the channel works through what we view as, one quarter perhaps slightly more than one quarter, based upon the sellout rates.
And then we begin to see some pick up, on that front.
So the guidance of, let's call it 17% to 18% reduction bakes into account that trajectory that I just mentioned.
Thank you, operator.
So thanks again, everyone, joining the call today.
We'll be presenting and hosting investor meetings at the Barclays emerging payments forum next week in New York, and we certainly hope to see many of you soon, while we're out on the road.
So have a great evening, and appreciate everyone's time.
| 2017_PAY |
2016 | EQR | EQR
#It's <UNK> <UNK>.
I gave it for the whole portfolio a moment ago.
And it would have moved the number 0.01, so 0.01 lower.
We actually have lower concessions than we had last year.
So that isn't going to make any difference.
Concessions right now are $100,000 a quarter.
They're just not that material.
They were more significant in the first quarter of this year.
So gift cards are expenses, accounted for under leasing and advertising.
Concessions are accounted for in the month that they're given as a reduction in revenue.
You have combined the two, because the same-store revenue number is reported on a cash basis, and the deduction is already made for the concession.
So all you need to do is subtract the gift cards, which was the number I gave earlier.
It's possible.
We've got some land sites in Boston that were really land sites and dents that we were able to carve out of existing deals that we had previously acquired that could create some development potential.
But we're going to watch this all very, very closely, <UNK>.
We started very little this year.
After running about $1 billion average in 2013 and 2014, we cut that about by almost two-thirds in 2015 and cut it by another two-thirds in 2016.
We're down considerably.
So we're going to watch all that very carefully.
I'm not saying that we're not going to start anything, but whatever that starts will be, at least at the present time, will be de minimus relative to what we had been doing.
We moved, <UNK>, from the third quarter, the sale of a piece of land that's in the Northeast.
So that's the $0.05 difference.
Hi, it's <UNK> <UNK>.
Thanks for that question, <UNK>.
Right now we have about $200 million, call it, of commercial paper outstanding and nothing outstanding under the line of credit.
And I'll tell you the main reason we use the CP program is that it's another pocket of money, and right now it's just vastly cheaper.
CP now is being priced at one-month LIBOR plus 30 basis points.
Our line of credit is LIBOR plus 95.
So we're saving more than 0.5% on that.
So the way we think about using the CP is an adjunct to our line of credit.
And when it's cheaper, or that market is deeper for some reason, or better for some other reason, we will use the CP capability that we have.
And it's just not an important part of the overall picture for us.
What Airbnb is doing or not doing in any particular market has no impact on the way we think about our expected revenue for the upcoming year.
We don't allow those people.
We don't allow anyone to rent an apartment from us with the sole purpose of running an Airbnb business.
We won't talk about it specifically about those markets, but in general in the markets in which we have elected to invest our capital.
And would encourage you to look at the investor presentation we put on our website that does show over extended time periods the outsized revenue growth in these markets, the outsized increase in some underlying asset values in those markets compared to other markets.
Like I said about those specifically, but just the long term out performance of these coastal gateway cities we've invested relative to more commodity-like markets in the country in general, we've got several slides on our website that will address that for you.
Yes.
It was 3.1%.
Thank you all.
Appreciate your time today.
We look forward to seeing many of you in Phoenix, and go Cubs.
| 2016_EQR |
2016 | TEL | TEL
#<UNK>, sorry, let me clarify.
The way you should think about it is that the settlement is going to be basically EPS neutral.
There's going to be [as little] between the other income that's going to go away and the tax rate is going to get lower.
Now, at this point, the guidance and what we talked about, the 23% to 24%, and being a little bit lower in the second half, does not include the settlement.
So we're just not including the settlement (inaudible) but you should think about it as EPS neutral because we have done the prepayment to the IRS.
So we basically stopped the accrual on the (inaudible).
We have no further questions.
So, thank you very much for your time this morning.
Thanks, everybody.
If you have more questions, please contact Investor Relations at TE.
Have a great day.
| 2016_TEL |
2017 | ROG | ROG
#A couple of good, really good, examples, and I'll go back to the Arlon acquisition, which we've now have for two years, some of the technology that came over from Arlon was, when we looked at the deal in due diligence, we understood there was some interesting technology, but what we've seen is, with Rogers capability on applications, to take the Arlon technology and really apply it, and this is in an extremely low loss type applications, that Rogers didn't participate in any large way.
We found that to really enable us to start moving very rapidly in that market with very much leading market capabilities.
So that's one of the real clear benefits that I've seen.
In DeWAL, for example, we've been able to utilize some equipment from some of our other manufacturing locations to help with capacity and so forth and help us easily expand that business in a very cost-effective way.
So as we go through here and we identify on the technology side, on the operating side, there's been early benefits that we've seen with DeWAL and some of the technology side with Arlon.
Hello, Dan.
Okay.
Dan, just to let you know, this year we [did] do a lot of capital expenditures, although they are carrying forward into next year as a percent completed as we do our financials.
Though it looked low, it's really because we didn't finish them and they're carrying forward to 2017.
2017 is about 4% and if we average the two, it's the 3%, 3.5% that we want to actually spend every single year.
It's just unusual that some of the projects ended at the end of the year that are following through on it.
On the capacity utilization that we talked about in the Belgium, you will see a large improvement, not so much is 2017, as we go forward of consolidating the two.
The real run rate improvement will be starting in 2018 or the end of 2017.
So you are not going to see that improvement, but as you look at any consolidation, obviously, there's a large margin pick-up when we do that.
As we've said historically, this is part of our core strategy, both organic growth and synergistic M&A, and we have a lot of focus now on looking at opportunities, top-of-the-pyramid opportunities, companies that we think have good growth prospects from an innovation perspective, where we can acquire them and apply our science and technology to help expand their technology, and of course, power organic growth.
So, we're active, is the way I would describe it.
Yes, I mean, we haven't really disclosed a lot, obviously, subsequent then in the K at this point in time and the purchase price, but a lot of it has to do with that have similar silicone products that we have today, that eventually, we see some synergies in the operational performance and some of the engineering and R&D performance that we see.
2017, obviously, you're not going to be seeing a lot of integrating just the basics on it.
But the margins really should be similar to the EMS margin that you're seeing today on our financials so you're not going to see any kind of a deterioration because of that.
It's very similar.
Just another comment on DSP.
DSP is very much a North America company and they provide us with capabilities, particularly on silicon sponge, which is we didn't have strong capabilities there.
But we see this as a growth opportunity for us, particularly using that technology and those products, not only in the US, but around the world where we have a very strong footprint in Asia and in Europe.
So it's, still to come, we've only owned it now for maybe a month-and-a-half or so, so we're still working through a lot of it, but part of the acquisition thought process was they're experts in these kind of technologies and we can really leverage that through our network.
Thanks
Yes.
<UNK>, it's <UNK> <UNK>.
So it was broad.
I mean we've had, we play very, very broadly in these defense electronics systems and I think if you go back over the years, people generally think of A&D as pretty slow growth.
We generally have seen pretty nice growth, frankly, in that business, because we're playing in the more advanced systems.
Pretty much anything electronic, including the drones, applications like Space Fence, for example, which is something that's being deployed today, anything that's in the high-frequency area, so again, I think this is more, this is a pretty broad-based business.
There is not, it's not one application or two that tends to drive this business.
And I think, overall, we've generally seen some nice growth year-over-year.
So we are actively integrating DeWAL and Diversified Silicones and we continue to seek other opportunities.
This is, again, part of our core strategy, top-of-the-pyramid businesses, high-profit, higher-technology, differentiated and so we continue to see that and when the opportunities come, we will take advantage of them.
Thanks, Scott.
Thank you, everyone, for joining the call today.
We are very pleased with our performance in 2016 and we are looking forward to another great year in 2017.
Thanks for your support.
Have a great day.
| 2017_ROG |
2017 | FSP | FSP
#<UNK>, this is <UNK> <UNK>.
The range that we've been giving for total cost on 801 Marquette has been in the $15 million to $20 million range.
The size of the project increased by about 8000 square feet and so we have just narrowed that range down to be approximately $20 million because we think we will be at the higher end of that range now.
As far as timing of the expensing of those expenses costs, <UNK>, I don't know if you want to comment on that, but I would expect a number of those expenses to come due throughout the current course of the year.
We'll have to look into how much has been expended.
I don't have that number right in front of me.
Actually, we disclosed it.
We do disclose in the supplemental, I believe our cost in that now is about $8.9 million, so we've got some room to run in 2017 for more capital to spend.
But I think the key point there, <UNK>, is that we've increased the square footage in the building and I think we're still within the $15 million to $20 million range.
So I think the rent growth ---+ I think it's a better picture than where it was.
<UNK>, this is <UNK> again.
We are---+ in terms of the mortgages that FSP holds on some of our single assets, we are anticipating the potential for some dispositions that would falter those repayments this year.
And we will keep you posted as we proceed through the year, but there are a couple on deck that are possibilities for this year.
This is <UNK> <UNK>.
It's primarily a function of new leasing is when straight-line rent goes positive and some of the leasing that we did in the third and fourth quarter is what picked that up.
And also from the acquisition that we made in December for Dominion Tower.
That was part of it as well.
No problem.
There's been a combination of both of those, <UNK>, but what we're doing is looking at the remaining lease term of all the leases we have when we acquire the building and setting straight-line rents.
So in most cases the leases have increasing rents each year, so we're sort of starting off with positive straight-line rent until we meet the midpoint of the leases that we acquire.
So, you know, I think it's more a function of that then above and below market leases.
I don't have a number for you on those.
We do evaluate each one of those individually.
Good morning, <UNK>.
This is <UNK> <UNK>.
The GAAP yield for the first full year is expected at about 6.9%, and the first full year cash yield is expected at about 6.2%.
You're welcome.
<UNK>, this is <UNK>.
Our expectations is to be a net seller in 2017.
Well right now were not expecting acquisitions, so I'd rather not give a disposition range because there's a variety of scenarios that we've looked at.
We will continue to monitor all five of our markets for opportunities, but our expectation is, broadly speaking, to be a net seller and to work on our objective of replacing the bridge financing for Dominion Towers.
What I'm seeing out there is there are opportunities out there and we'll keep our eyes open.
But that's not our expectation.
Yep.
You're welcome.
Just to say thank you everyone for tuning in to the call and we look forward to talking to you next quarter.
Thank you.
| 2017_FSP |
2016 | BIG | BIG
#Thank you for the questions.
Yes, we did assume that we would roll out the private label credit card here in the second quarter so I wouldn\
Good question.
<UNK>, I think first off when we think about the month of May, being totally transparent, we had planned the month of May below our guidance for the sole fact that Memorial Day comes a week later and all of our marketing efforts focused on Memorial Day are shifted or are different year-over-year because of that timing.
So the month of May and where it sits is not necessarily indicative of how we think the quarter is going to play out.
When we think about the second quarter though in Furniture, we would continue to expect that it is a leading category up in the high single digit range, could reach a little bit higher but definitely high single digits would be our expectations coming in.
Again, taking into account that we have multiple programs in place to drive business, we've got a completed Furniture expansion, we are just introducing in the last three or four days to Jennifer that we have completed a Bigger, Better, Furniture department expansion with all of the marketing collateral behind it including the launch of the credit card, etc.
So there are a lot of different initiatives in place to help drive second quarter and the balance of the year and multiple years ahead.
From a Seasonal perspective, I appreciate you giving us the opportunity to use prior-year comps as a reason but we know we need to comp on the comp in Seasonal.
It is an Ownable category, we are going to have to grow on top of growth.
So when we think about second quarter, it isn't necessarily about the more difficult comparison from last year, it truly is about better sellthrough in first quarter primarily in Lawn and Garden.
We knew coming into the second quarter was going to present a little bit more of a challenge.
And then if we are all being transparent here, we know when our business, we know when the weather is good our business in Seasonal will be very good.
We know that, we have seen it, just like we experienced our business in Furniture being very good when tax refunds are out there and on time.
So we are confident in the assortments.
That is why they are Ownable, Winnable categories because we know we can differentiate there.
We know we've got teams focused in our stores to make it happen, so we feel very good about both of those categories going into the second quarter.
So from a margin perspective in the second quarter, again not to repeat myself but I will go ahead with the higher sellthrough in Seasonal in the first quarter clearly we think we\
So from a regional standpoint, that is one of the reasons why we called out the Northern and Midwestern regions of the country.
Certainly did a little bit better year-over-year in Seasonal than the balance of Company and that was very clear to us in the numbers.
Another reason why those areas of the country outperformed a little bit in the first quarter also relates to our Furniture ---+ so you know from following us for a long, long time that we have a more concentrated, in a number of stores, a larger Furniture presence in some of our Northern Midwestern markets than we might in some of the Southern markets and certainly much, much more concentrated than we have in California as an example.
So weather year-over-year and clearly the Furniture strength can help some of our more mature markets in the North and the Midwestern parts of the country.
Specifically, on the second part to your question thinking about I think your phrase was energy markets for the Texas market.
My recollection is we comped positive in those markets or certainly in that region for the quarter as we did in all regions.
And not to the extent of the Northern or more weather-impacted markets, but certainly we comped in those areas of the country that are seeing some challenges from an energy perspective.
We've got a very good team in the Southeast and Southwestern markets, again same opportunities from an inventory, value, strategy standpoint so we have every expectation that those markets will continue to perform.
The first piece of that I would tell you we look at, you know the Furniture business is highly fragmented I guess is the word I would use.
Outside of the national player, Ashley Furniture, which we do business with is really the only odd guy out there on a national basis besides us.
So we look at all the different regional players by market but we really ---+ and we have talked about this many times ---+ if you look at our assortment in upholstered furniture and mattresses and all of those mattresses are what we call SMUs or special makeups that are built for us exclusively by Serta.
And we have an incredible value proposition there, opening price points are our sweet spot both in Mattresses, Casegoods which we primarily, for the most part outside of some product, we buy from Ashley is all product that is built for us primarily in Vietnam.
So very competitive opening price point strategy versus some of your traditional furniture regional players as well as Ashley, we really play in the opening price point with them as well versus their higher-end assortment.
So again, that is really ---+ it is a big differentiator and the reason we talk about Ownable is when you think about the discount space and the two big guys out there, they don't transact in the brick and mortar in those businesses.
And so we really have a nice ability to continue to grow it and take share away from again regional, like here in Columbus, you have Value City as an example, Meijer out of Michigan does some roadshow business.
You look at Costco, very, very high-end furniture assortment.
So we are really a value proposition, great quality, and great fashion and again as I said before, this team is incredibly highly energized, the BPARM teams, and they are not afraid to test and learn and under Martha's leadership expanding the offerings where appropriate and taking the fashion level up to a higher level and again also testing higher price points in both Mattresses and in Furniture as well.
We just have great partnerships with our suppliers from United in Upholstery.
I am actually going to be down in their factory next week.
So again, it is a business that our vendors are tremendously supportive of and that is really, really the strategy there.
The reason why we talk about Ownable is that is exactly why because there is not a lot of competition in the discount space and certainly the dollar stores aren't in the Furniture business.
Hopefully that answers your question, Matt.
We feel really good about it.
We have been fairly consistent through this SPP process, so 2014, 2015 and 2016, 2016 the year we are in; so third year that a flat to slightly positive comp would be necessary in order to leverage expenses.
So I see no reason why based on first-quarter results or outlook for the balance of 2016, why we should come off of that.
It is happening in our business today and clearly with the upside on comp in the first quarter up to a 3%, you can see the power of the leverage.
Looking forward, we will have more to say.
As <UNK> mentioned in his prepared comments, we are going to have our second investor conference under <UNK>'s leadership, will happen later this fall.
And we will be able to speak more intelligently about 2017, 2018 and 2019 and what our key initiatives are going to be in the business, what investments we might want to make and what our expectations are from a category standpoint, marketing, the whole strategy like we articulated a couple of years back.
So premature to talk about 2017, 2018 and 2019, but that is where we will spend some of our time when we are together later this year.
I will take that question, <UNK>.
Thank you.
It is a good question.
We have spent a little time yesterday actually with our Board of Directors talking about that.
And we certainly are well aware of all of the store closings out there that are going to be liquidations that are taking place now, and probably a lot of that real estate won't open up until next year as the dust settles and the guys who are in some of that space will take those higher rents.
What I would tell you is we are still looking at the store base saying we want to improve the current existing fleet that we have of the 1,448 stores that we have today.
We know, as TJ used the word full transparency, that we have a lot of work to do to update those stores whether it is just signs on the outside of the store or the interiors, and we feel that is a better place for us.
Because as I said in our prepared remarks, honestly our country, as we all know is way over-stored, and I recognize that there are some folks out there that are continuing to grow their store base but a completely different strategy than ours.
So we will look at that real estate when it comes available and when the rents are reasonable, and we would probably look at it more as a relo opportunity where we have some stores that we would like to improve the size so that we can ---+ for example Southern California, some of our stores don't have the room for Furniture, things like that.
But I am not real bullish on growing the store base at this moment in time.
But again, we are always opportunistic and TJ can add a little color because Real Estate reports to him and his team is razor-focused on looking at the opportunities market by market is what we really do today.
We just did Phoenix a few weeks ago.
TJ, do want to add some color.
I really do appreciate the question and I appreciate the kind words that you mentioned in suggesting that we are ready for growth again.
I think that from our perspective, we had a significant amount of dialogue yesterday with the entire Board engaged on this entire topic.
And I guess from our perspective, in the right situation with the right rents, filling in markets because we are in most major markets, if those opportunities just fell in our lap I think we would be very, very interested in doing that.
Last time we went through a cycle like this you will probably remember in 2008, 2009 when we had two very large retailers go out at the same time, we did benefit from that although it took a little bit of time before those stores made it all the way through the process back through the bankruptcy court, landlords and came to us at rents that were something we could work with at our current level of productivity.
So I think we are on top of, we understand where the locations are, we understand which ones we would be most interested in.
Most of those as <UNK> mentioned, will help us not just relocate stores and increase productivity but also move the brand forward because in many of those markets it would allow us to increase our Furniture penetration, etc.
, etc.
So there's a lot of good reasons to look at what is going on right now in the real estate market in adding or relocating stores.
We are not ready to commit to that as an opportunity just yet.
We think it is still a little bit early, not because we don't want to, but because we just need to make sure they come back to us in the right locations at a rent that we can afford given our current productivity.
Now I say current productivity because that is the single biggest opportunity I think we all believe that we have.
As good as the business has been the last nine quarters at a real high level, we are in the mid-160s in terms of productivity and that is low compared to our competitive set and really speaks to where the single biggest opportunity is not just in comps but when that productivity goes up, obviously it will be much easier for us to think about new stores.
It is multiple items.
Fuel would be one, productivity in our buildings would be two, SKU optimization, carton flow, more consistent flow, a tight relationship between the entire supply chain would be a third.
So it is not any one item.
And candidly a fourth is the warehouse management systems or WMS systems that are now live in four of their five buildings.
We've got time under our belt now in learning a new system, learning potentially new processes all with the design of making us more productive in the building.
So there is multiple different reasons for the leverage.
Having said that, leverage in Distribution Transportation was our expectation all along coming into this year.
I think we are doing very well in that space as the business continues to evolve so multiple different reasons, Joe, for the leverage.
Not at all, Joe.
I would tell you someone asked the question earlier about the overtime thing, and we did the math on that and it is a very small impact.
We actually pay a really decent wage out there when you talk about our full-time store team leaders and then when you look at the hourly associates in the stores, we actually have a fairly generous package out there that is very competitive and we are not having difficulty at all.
And I would tell you that what is happening right now that really hasn't been talked about a lot and obviously a lot of folks I am well aware of and know who they are with this Sports Authority bankruptcy, you are going to have thousands and thousands of people out there both in distribution center as well as part-time and full-time hourly workers available.
So again, we are not seeing anything and a lot of that talk about price investment, when we walk that competitive set that you are referring to, we certainly don't see the upgrade in quality of people or the energy that seems to be talked about.
I believe that when you walk our stores and you talk to our associates they are highly engaged and highly energized.
Sure.
I will start with the second part first.
There is plenty of inventory in the stores today for Jennifer to shop in the Seasonal space.
Memorial Day is a very important part of our business so I just want to make sure everyone if you are still needing Seasonal product, come on out.
We have got plenty for you.
However, as the second quarter goes on, we do anticipate given the higher sell-through in first quarter, we don\
Yes, <UNK>, obviously we transacted for about two weeks in the quarter and it was a very slow opening process, not a lot of activity relative to the first quarter but the month of May obviously was in full operation.
And as I said earlier, the performance is really the big piece of it is coming out of the Seasonal areas with some Gazebos, some umbrella-type categories within Seasonal but also in some Summer categories.
I was just over there with the Board Wednesday walking the fulfillment center here in our back distribution center and you have seen a lot of product that she is buying like fashion dinnerware that our buyers buy in the Summer area for outdoor entertaining has been a big seller in there.
There has been a few limited assortment of Patio Furniture that has been on there that has performed very well.
And then secondly, the other area that has performed very well has been parts of Soft Home whether it has been in the bath area, towels and top of bed and sheets and so on.
So it is really fun to watch that happening because obviously Seasonal is an Ownable category for us and then Soft Home is Winnable so that has really been the focus.
What we have learned is we put some convenience businesses on there and we have learned that when we talk about our mission statement of surprises in every aisle every day, some of the surprises that happen and the team has done an outstanding job this year and as TJ said, hitting or beating their forecast in these convenience businesses.
One of them I will give you an example is we put sandals on the website.
It is a size business but it is also not top of mind so when we merchandise that if you have been in our stores this season, you will see those sandals in the aisle with a fixture that the customer has to navigate around.
So I look at that transaction as totally a surprise.
In other words, she didn't get up in the morning and say I'm going to go to Big Lots to buy sandals.
That is typically not what that customer does and that is why they ended up being edited.
And so that product is not performing but in the brick and mortar it is running up double digits so again, that is just a lesson learned for our team saying you know what, we just need to make sure that we put the Ownable, Winnable categories on there that she has told us clearly that she wants to buy online.
And as we move into the back half, obviously we will be putting on more Seasonal product and that product is built and on its way and assorted and that is the Christmas Trim part of the business.
And we feel very good about that as far as we move into the back half and that is really candidly fourth quarter is where we will see much higher level of transactions.
But being very cautious about how we roll this out and test and learn and the team is really on it and we have a great person who has merchandised that website and she is all over it with the merchants, and we feel very good about it.
I don't know, <UNK>, if you had time to look at it but it is a pretty robust website considering where we came from versus three years ago.
I want to stress here, <UNK>, and for everybody just how early some of these results are.
As <UNK> mentioned, really you had two weeks that had any kind of significant or measurable volume in the quarter and even in terms of communication and letting the public know that we are online, we have moved very slowly in order to make sure that we can handle the traffic and service the customer well.
I think we have been successful on each of those items.
I think one of the stats that was mentioned on the E-Comm DC tour was 99.9% or 99.8% accuracy in terms of getting the right product to the right customer on time and within the shipping windows and things like that.
So I think from an execution standpoint, we are off to a real good start in making sure it is a good experience for Jennifer.
But it is only this past weekend in our ad where we actually featured it in print for the first time saying you can shop these items on BigLots.com with the neat little buggy and the whole thing to tell them what items are available and which items are not.
So it is still very, very early in understanding how she is going to respond and what drives the most traffic to the site.
Additionally if you have been paying close attention, we have actually tested a couple of different shipping offers and there's many, many more tests to come I am sure.
So it is still very, very early in understanding and no different than our retail operation clearly as it has gotten warm out in the last handful of days in most regions of the country, we see our Seasonal business online get better than it had been the week before or the week before that.
So a lot of learnings still occurring but I think hopefully the key take away is we are moving forward in a very measured and diligent way so that we can really understand and test our way through this in 2016.
I guess that is all.
I don't believe you should expect it to be 50 to 100 basis points by the time we get to Q4.
That would suggest we would do almost our ---+ a large, large majority if not all of the year in Q4.
And from our perspective, <UNK>, we are putting it in the comp.
I would say it is still immaterial to the comp in most quarters.
We do expect it to build quarter to quarter through the year so obviously second quarter will be bigger than first since we will be online the entire quarter and third should be bigger than second and fourth obviously will be hopefully, much, much bigger than second or third.
So from our perspective, it is a pretty measured cadence, it should flow with website traffic and we expect our conversion to improve as the year goes on also.
We have had a lot of learnings so far, and I think maybe one of the most encouraging learnings is really how much in each transaction she is purchasing.
The average order value is probably a little higher than we anticipated so that is a good stat for us.
I think our challenge as we move through the year, we have website traffic every week, we had website traffic before we had an e-commerce business.
How do we convert more and more Jennifers once they get to the site and how do we reach the Jennifers that may not be in our Buzz Club or may not read the ad circulars, how do we let her know that we are now transacting online.
So still a lot of work to do, still a lot to learn as we move forward this year.
Sure.
Diluted share count for second quarter I would estimate between 44 million and 45 million for the quarter.
Thanks, <UNK>.
I believe when we gave initial guidance for the year, our estimate was an operating loss in the range of $10 million to $12 million for the year on sales of $20 million to $22 million.
I believe were our original estimates for the year so hopefully that helps from a modeling perspective.
Again, when you think about the operating loss, a couple of things to consider, we've got roughly a $40 million asset meaning we invested about $40 million of CapEx between late 2014 and the entirety of fiscal 2015.
That will depreciate primarily over a five-year life for the most part but some parts are a little bit longer so I think our guidance was roughly a $5 million to $6 million depreciation number included in that operating loss.
Our expectation would be we will have shipping costs and not net shipping revenue but there is a cost associated with the net costs associated with shipping product that you could add to the depreciation.
And then obviously with the partial year volume that from a loss perspective, we will not have a full year's worth of volume.
So still a tremendous amount to learn between now and the end of the year before we would be even remotely close to thinking about providing financial information out past this year.
So with roughly 3,000 SKUs on the website and knowing that as we move through this year, we may still have 3,000 SKUs but it will likely be a different 3,000 SKUs and how does Jennifer respond to that is still in front of us too.
And the last comment I will make and then I will stop talking about e-commerce is I will say the seasonal nature, the cyclical nature of this business is something we are going to learn too.
We understand our cadence in seasonality in brick and mortar, and we have made some assumptions that e-comm will follow that, that is an assumption.
We may find that it calendarizes differently for whatever reason.
So still a lot to learn from an e-comm perspective, but I feel good that we've got the disciplines around the cost, I feel good that we've got governance around shipping costs.
We meet every week to discuss shipping results and future promotions.
And I feel good about how Lisa and the BPARM teams are really trying to manage inventory and adjust inventory levels based on results, positive or the other way.
So I think we've got a lot of eyes on it, <UNK>, but we are still focused on the other 99.5% of the businesses where our primary focus is.
No reason at the moment, <UNK>.
I would tell you again we have already made adjustments in inventory.
We have already made adjustments in terms of how we are going to market with shipping costs and other things.
So we are already learning and applying those learnings to results.
But as we have talked about, we've really had three or four full week's worth of selling.
I think it is way too early to make adjustments for the year.
I think it will be more appropriate to talk about third quarter and fourth quarter expectations after we learn from second quarter.
Thank you, everyone.
Derek, will you please close the call with replay instructions.
| 2016_BIG |
2016 | OPB | OPB
#Before any other questions, I want to comment on a question, or more of a perhaps an incorrect observation somebody made through WebEx.
Someone was assuming that the correspondent banking ---+ this goes back to the little over $100 million of balances that moved out at the end of the quarter and came back in, they made the assumption that these were correspondent banking balances.
That's incorrect.
Of the $100 million roughly $20 million, $25 million of that was correspondent banking, and everything else was fiduciary banking related balances.
So I just wanted to be clear on that.
Any other questions.
I'm sorry, who is this.
The better way to look at it, at this point, until we give detailed color on PENSCO, et cetera, is we've guided that you should anticipate that our efficiency ratio is going to work its way in to the 30%s over the course of the year, and you can see that our adjusted efficiency ratio, when you take out all the noise of the first quarter, was roughly around 40%, 41%.
We anticipate that we're going to break into the 30%s over the course of this year.
I think that's probably in addition to all the other color that was given on the call related to expenses during the first quarter, I think that would be a good way to give you color.
Thank you, everybody, for joining us on the call, and we look forward to talking with you on the second-quarter call.
Thank you.
| 2016_OPB |
2016 | LUV | LUV
#My pleasure.
I'm very informed on that topic, <UNK>.
Well, no.
I'll just speak for me personally.
Yes, I have expected that if the industry profits recover, which they have, and then we recovered more with lower fuel prices, it's just a natural extension of that is that individual companies are going to be more aggressive and especially the smaller carriers, so I think it's all very predictable.
What the effect of that behavior is, is less predictable.
So we had a plan for 2016.
Its turned out to be more aggressive than our results and we go back and adjust.
But no I don't think it's shocking where we are at all.
And we'll continue to compete very aggressively in this environment and I think we have all of the strengths that we need, mainly the people of Southwest Airlines, to compete and win customers, compete for and win customers.
It would be in the 5% to10% range but just keep in mind, that's very significant percentage of the seats in the industry, but if you're just looking at the network carriers, it would be in the 5% to 10% range.
Well and if I could just, hopefully this helps clarify for everybody.
We're the nation's leading airline.
We're in all the major cities, we're in all the major city pairs and so by definition anybody who grows in the US they will likely be growing in our market so I probably should have made that more common sense argument for the group earlier.
The competition isn't adding seats to small markets.
In fact if anything they're taking seats out of small markets so where they are going where the traffic is and that is our specialty because we are an airline that serves major markets with lots of traffic.
So I think that it's very it should be intuitive for everyone that whether it's a legacy carrier or whether it is a ULCC that they will likely be overlapping with us when they add capacity.
Just as a reminder we carry one in four passengers here in the US and our network is [fast] so I don't think there's really anything surprising in the numbers that we provided.
I don't think it's going to really mean anything.
I think customers will mostly go to www.southwest.com, that's where the super majority of our customers book Southwest and they will see the same www.southwest.com that they know and love.
It is behind www.southwest.com where we will have a new reservation system engine so ---+ <UNK>, I think for the most part it's going to be invisible to our customers so they won't know that they're making a booking in a new system as far as I can recall.
That's exactly right.
The ease-of-use with www.southwest.com will continue exactly like it is today and for customers booking there they really won't see any change.
I'd have to think about that.
I don't think there's anything that is customer experience-wise that they will see, so this is all back office things.
Now, <UNK> has staffed up in our call centers significantly in anticipation of a new system that will take longer for our people to work with just because of a learning curve.
We'll have all of the resources we need so that should be transparent to the customer as well.
But other than that, I don't think the customer, even in that I don't think the customer is going to see anything different.
They won't.
Well he's staffed up already because they need to go through training and they need to know what it's like to talk to a customer, to make a booking and work through changes in all those things before we add the new technology, all that is in place and I think <UNK> is going to ---+ between <UNK> and <UNK> they will have trained about 20,000 employees with this new reservation system.
One other thing real quick, <UNK>, since you're on this topic is remember that we launched international service in mid 2014 and that is using the technology that we are now converting the rest of our reservation system to, so we already have a lot of experience with this current technology and so I'm expecting that this is going to go very well.
$24 million.
Well my hearing is good and I understand.
I think my answer is consistent which is if we want to improve RASM we don't want to charge back fees because that would only have a negative effect on our RASM.
We have a unique and beloved position in the industry with this approach and we would be foolish to squander it, so no thought whatsoever with charging bags.
Beyond what we already do of course.
Which is modest.
Well, Rich, right now there's none planned for 2017.
Las Vegas is obviously as you know an extraordinarily important market for Southwest and one that we have tremendous community relationships with.
We will continue to keep it very high in our consideration set, but the focus for next year we'll be following up or following through with our Houston Hobby launch, we're obviously just getting started in Cuba and LAX to Mexico and then we'll be launching Fort Lauderdale so that keeps us really busy for the near term.
Rich, let me get back to you on that one.
I want to make sure I give you an accurate answer and that has not been my focus.
So I want the most up-to-date information.
Thanks Tom.
As always if our media folks have any follow-up questions reach us at 214-792-4847 or via our media web portal at www.swamedia.com.
Thanks so much.
| 2016_LUV |
2016 | TMST | TMST
#Good morning, <UNK>.
Yeah, I'll start with the pension.
The pension obligation at year end was pretty much fully funded.
If you look at our funded pension plans, they were fully funded so we don't anticipate any cash contributions to our pension plan.
In the first quarter, we reimbursed for our 2015 OPEB costs so that's what the $13 million are.
And then going forward, for all of 2016, we will pay the claims right from the VEBA trust rather than from operating cash flow.
So the net cash out relative to OPEB will be about $2 million for the full year.
Yeah, first of all, in guys have done a good job on working capital, taking a lot of working capital out of the business.
Last year we reduced our working capital by about $150 million and then for the first quarter, you know, it was call it break evenish, even though our revenue was up.
So that's a good job.
You know, the story for working capital for the year will be depends what sales will be for the year and what revenues are.
But so specific to Q2, we've called revenue flat so we wouldn't anticipate much change in working capital one way or another.
Yeah, you know, I would say most of the cost cutting programs are fully in force as of Q1.
So while I think there could be some smaller additional reductions, I wouldn't anticipate them to be very large.
I think what's really helped us is that enterprise-wide we've had all engagement from our employees so I don't want to sell them short because as you can tell in the first quarter, the cost reduction was a little bit better than we thought it would be.
So, you know, hats off to everybody who was involved at that at <UNK>ken Steel but I would not anticipate a significant increase in cost cutting run rate after Q1.
No, there really isn't.
The revolver has a borrowing base and that borrowing base is based on accounts receivable, inventory and fixed assets.
And so as our working capital changes, the borrowing base changes.
So one of the things that we did is we now have a lot better feel for our borrowing base.
It's one of the reasons we reduced the size of the revolver from 300 million to $265 million because we're never going to have a borrowing base close to $300 million so we thought $265 million would be the maximum that we would need to borrow.
Sure, <UNK>.
Probably the first thing I would point out is making, having free cash flow in the first quarter was helpful and so we're just evaluating our needs.
We don't want to borrow money that we may not need but we keep our eyes open into the capital markets about what we might want to do to boost liquidity going forward.
Thanks.
We would anticipate that the sale leaseback will close in the second quarter and that would be considered an operating lease.
But we'll provide more guidance on that once we're done.
Well thanks for your question and thank you for your interest in <UNK>ken Steel.
We've got some bright spots this quarter but 2016 will continue to be a challenging year so we're not taking our foot off the gas.
Our performance in the quarter demonstrates that our employees remain diligent in taking right actions to perform in a difficult environment and I want to thank all of them for their efforts.
If you have any follow-up questions as usual please don't hesitate to call <UNK>.
Thanks again and have a great day.
| 2016_TMST |
2016 | A | A
#Thanks for the question.
I have to say, it really was across the board, with one exception which is the chemical and energy markets.
All the other markets were up quite substantially for us.
And I think this is consistent with what we had talked about in prior calls, which is really there's going to be a level of investment in China relative to quality of life issues, environmental and food, lined up directly with their five-year plan that they're in the midst of a major improvement in their overall pharma industry.
And that there's a lot of money going into research.
Then I think the reason Agilent has been able to do so well here is we've got this combination of we've been working the organizational structure, our channel model in the country, we've had a lot of stability over the last 18 months.
So we've got a really strong team there.
And that combination of the team, our historical strength in China, and the new products we have, it's all coming together in terms of growth.
I guess maybe I'll just add one thing.
<UNK>, perhaps you can comment here.
We often talk about the strength of end markets and the new products going into these end markets.
But I think there's something going on relative to your business there and the move to services I think it's worth commenting on as well.
Thanks, <UNK>.
And thanks, <UNK>.
To add a little color to that, is we've seen a fundamental shift in buying behaviors in China, largely shifting from the core areas and around Shanghai, Beijing, to some of the more Tier 2, Tier 3 cities where services now is viewed as a commonplace purchasing item in China.
And it's certainly driving the growth.
The breadth of services, I think in China, as well as the consumables business now, is the rest of the story where they have reached the size and scale that they have the same interest that we'd find in the Western markets around enterprise services and consumables all coming together.
So starting as you mentioned, <UNK>, with our extraordinarily strong position to start with, the install base of China has just allowed us to build the business and truly outgrow our expectations in the second half around this, too.
I mentioned ---+ I asked <UNK> to comment on that because as you may recall, we really have changed the portfolio composition of the Company to be much more in the aftermarket.
So [CapEx] instruments are actually less than 50% now of total Company's revenue.
And historically, China has been driven by new instrument purchases.
We're seeing increasing growth also coming from services and consumables.
The main reason for the increase, which is about $60 million, from $139 million this year to $200 million next year is really the significant increase that we are planning in terms of our nuclear acid facilities, RNA-based therapeutics in Colorado.
So we had one facility.
We're still expanding the capacity of that facility.
But we are building.
And we just started a few weeks ago 20 miles away a second facility that will kind of double the capacity when it will be put in production end of 2018, 2019.
That is the main reason for the increase.
Starting in 2018 we should start ---+ we will see a reduction in the CapEx.
This is not the run rate.
Our CapEx run rate is still between $100 million and $120 million per year.
This is way above our run rate.
Sure.
Yes, <UNK>.
Thanks for the question.
I think I'll pass it over to <UNK>, maybe get a little bit more color on the quarter results.
Yes.
We really continue to see overall in our Radiance pick-up, driven definitely by Omnis that we see the growth is coming back.
It's nice momentum we're seeing.
It has continues to ---+ basically it has continued to increase over ---+ during 2016.
So with that momentum, we expect that we will continue to see a good performance into 2017 also.
From a reimbursement perspective, obviously there are already some expectation how that will look like into 2017 and 2018 with the [permits] on.
Now we'll have to see what happens under the new Administration here whether that will change anything.
So far we actually don't expect any significant changes in 2017.
<UNK>, feel free to augment my response here.
But I think obviously it's going to be volume, which is about 60% of the margin improvement comes from volume.
And the things that we can control, we're on top of.
So it's really ---+ that's the one thing I can't control, is what's going to happen in the market.
So obviously there's that 60% tied to margin.
And then we've got some pretty big initiatives in the gross margin area with our water fulfillment team.
I think you may have heard me speak previously about some of our work in value engineering, material cost, reductions, and logistics.
Also keep an eye on our gross margins as we work through the year.
Some of those things take a while to actually they start coming through your P&L.
Once they're there, they're there for an extended period of time.
And <UNK>, anything else you can add to that.
No just that we do have stretch goals, as we mentioned.
We are paid internally on achieving 22%.
And that means all of us have stretch goals to make ---+ to achieve that, to contribute to 22%.
And the OFS and Henrick, the order fulfillment and supply chain organization, which has delivered greatly in 2016 is looking at opportunities to deliver even more in 2017, which would help us bridge the gap.
Thanks, <UNK>.
One additional thought here is I think it's important to remind everyone, is that some of the things that are going to help in 2017 have already been finished in 2016.
So things such as our simplification of our financial system's infrastructure, so it's done.
And now the saving will show up in 2017.
No.
I would just mention that what we saw was really strong pacing throughout the quarter.
So it wasn't ---+ we didn't see something happen all of a sudden in the last 4 or 5 weeks.
We had strength all through three quarters of our fiscal year close.
<UNK>, great question.
I would point back to what we discussed back at the May <UNK> Day where we really said, what this is really all about is generating superior earnings growth.
If you think about what we're trying to do here, is we're trying to outgrow the market, expand the operation margin to keep driving up our adjusted earnings per share growth.
So what we like to be able to do is, really that should be the focus of the team as we move forward.
Operating margin expansion and capital deployment and the growth in market are all ways to get there.
So we'd like to really be, that have become the cornerstone of our long-term focus.
And we want Agilent to be viewed as a Company who grows their earnings faster than revenue.
But as I mentioned at the <UNK> Day is, I really want to also make sure that we don't get so focused on continuing to drive up the operating margin year in and year out that you pass on things that are [immediately], say, accretive.
Maybe they're dilutive on your margins, but with good M&A additions to the business.
I think the way we're going to talk about the Company post 2017 is very consistent with what we had talked about back in the spring in New York City.
Sure, <UNK>.
As I look through my notes here, I think we're expecting low single digit growth.
I think it's important to kind of parse it out by academia and government.
So we think, if I go by the major regions, China is going to be strong.
And they've actually helped mitigate some of what's been happening in the US and Europe.
We're not expecting much in Europe.
It's been down.
It was down again, but not ---+ it was basically sort of almost feels like the chemical and energy market, which is kind of chugging along at a reduced rate.
We're not expecting the governments there to do anything in terms of more stimulus.
In fact, one of the things we're watching is what are they going to do as a result of Brexit, among other things.
We expect a strong China, academia, and government.
We expect a continuation of this current environment in Europe.
In the United States, the academia side is not bad.
What we've seen more it's been on the US government side.
The US government, our US government business is down in 2016 relative to 2015.
And that's why in my call I mentioned, we need to see where this new Administration goes with its budget plans and investment priorities.
So right now we're kind of staying on the sideline, just saying it's going to continue do be just like it is but ---+ in the United States.
But we could see something different in a few months.
We just don't know.
I think you anticipated my answer.
So we basically have a flat line for the year and it hasn't ---+ it's been shrinking for the last 7 or 8 quarters, 2% or 3%.
I think we ended up down about 3% for the full year.
And we're basically saying it's going to be flattish for 2017.
If there's any good news to that story is, the fundamental industries are still out there in terms of gasoline is being produced.
We've seen record levels of production in United States, for example.
The plants are running.
There's a lot of discussion.
There's a lot of reports externally about a turn.
Oil prices have been inching up.
But our history here is that it's really hard to know exactly when it's going to turn.
What I can say is that if you have a profitability productivity message associated with something you can bring to the laboratory, then they might listen to you.
And we're hopeful that some of our new product introductions will hit the mark there.
But in terms of our overall market assumption and growth assumption for the Company, we're assuming flat for 2017.
No big movements one way or another.
I think what we've said, and I'm really trying to be ---+ have actions that are consistent with our prior communication.
We said we would look at acquisitions that could be short-term dilutive in nature.
And we did one latter part of 2016 and we just love having iLab part of the portfolio.
It's going to be ---+ it's a great addition to the business.
But right now it's not at the corporate average.
We'll move it up.
So if we saw other opportunities like that, we would pursue them.
But I think if you want to look at the type of deals and the size and other things, just look at what we've done so far to give you kind of a sense of the things that we're looking at going forward.
We like accretive deals.
And we like ones that can move up ---+ move the barges up.
You're quite welcome.
Sure.
So there's a couple things going on, which is in terms of the overall fundamental end market growth rates we think biopharma and the small molecule side of pharma are both growing quite strongly.
Small molecule side is really being driven by a conversion to the new technologies, liquid chromatography in particular.
Also an increasing interest in enterprise service, what we have to offer from ACG.
So I think what's been going on here for Agilent, we've had a combination of really strong end market growth.
There's a new market that has and will continue to develop in the services side.
We're doing well there, along with our new instruments in the pharma.
When I look at 2017, we think that the biopharma side of that market's going to continue to go quite strongly.
It's been an area of prioritization for us in terms of new solutions.
But we do think that over time, that the small molecule stuff will start to move back towards more of a long-term growth rate.
<UNK>, I think ---+ what do we kind of think about a long-term growth rates in the small molecule side.
On the small molecule side I think more in the low to mid single digits range, whereas in biopharma we're more optimistic.
It continues to be double digits.
That's our projection right now.
Does that help.
I have to say, I don't think they really know yet, as well.
What they're doing right now is they're right in the midst of their capital budgeting process.
So what I can tell you is that I've had a couple conversations with customers over the last two or three weeks on this exact topic.
And what they describe for me is ---+ hey, our end ---+ these are ---+ one customer was somebody who provides services into and equipment into the energy market.
Listen, we're starting to get interest in quotes.
But we're not sure whether it's going to hit in 2017 or 2018.
When we had our VIP launch for the Intuvo 9000 GC a lot of our customers were in the chemical and energy space.
And they said ---+ listen, we love this productivity message you have here.
I think there's a real economic ROI.
I'm now right in the midst of my budgeting process inside the company.
Maybe I'll be able to he get this thing through this year or maybe the following year, because there still seems to be this sentiment, particularly with the larger companies, they want to hold onto the equipment as long as they can before they have to replace it.
So ---+ and again, that's why I pointed to the fact it's not all negative because of the fact we do have a strong service and consumables offering into that space.
But again, we just don't ---+ I don't think our customers know yet, as well, what's going to happen.
We do know it's going to happen.
History will repeat itself.
There will be a replenishment of aged equipment.
But again, we're just not confident enough right now to say when that's going to occur.
You're quite welcome.
Thank you.
Thank you, everybody.
And on behalf of the management team, I wanted to thank you for joining us on the call.
If you have any questions, feel free to give us a call in IR.
Appreciate it very much.
Bye-bye.
| 2016_A |
2018 | MA | MA
#So the first part, the merchant acceptance, there is growth across the European region on merchant acceptance, from large outlets that earlier used to prefer to take either local payment systems only or cash.
That changes that, all the way to small ones.
What you do see really changing also is the reduction in suppression.
So even if the outlet said we accept, in actual fact, when you showed up for a small ticket charge or a low-value payment, they would encourage you to kind of lay off the idea of producing electronic payment, I think all that has changed quite dramatically.
It's helpful.
It's part of the secular change in the way cash is used in the European economy.
I wouldn't declare we kill that right now because I think a year or 2 in Europe is a relatively small time in a set of complicated countries with lots of local dynamics vis-a-vis local schemes, local players and the like.
So I will tell you, keep your eye on that space and we'll keep working into the acquiring community.
You're talking about a full 5-year transition in a continent like Europe.
It's good signs.
It's a nice tailwind, but I'm not running with it to the bank yet.
That's kind of the first part.
Your second question was about ---+ remind me what the second question was.
PSD2.
PSD2, oh, favorite topic.
So we're coming up to the time frame of when all this starts to go live in so many ways in different aspects of implementation in Europe.
We have been working both internally as well as with the help of our largest clients, as well as in conversations with regulators, about the implications of PSD2 and the things we can do around PSD2 with these European merchants and European banks and the new European entities that will get created as a part of PSD2, the PSPs and the various acronyms that are being created in PSD2.
Your question was around VocaLink and PSD2.
So to get VocaLink onto the ground in different European countries beyond the software status, which is kind of what it is today in the Nordics and some other markets around the world, will require us to actually participate in the RFP process of different ACH systems being opened up in Europe.
We are participating, you heard me in my opening comments, we are participating in those RFPs.
These take a year or 2 to get resolved and settled.
After they get settled, it'll take a while to get invested in and implemented.
Well, we are very active in all of those.
And one of the reasons why I think you will see us using some of the tax reform money in a sensible way in our business is to keep on focusing on the opportunity with Fast ACH, thanks to VocaLink's capabilities in Europe, but also outside of Europe, even in the United States and other markets, not just in infrastructure, but it could be in the application, it could be in the scheme rules and it could, of course, be in different aspects of the range of things we can do with Fast ACH.
So I think in the world of e- and m-commerce space, there's so much going on, <UNK>, in that whole space.
And I think if you go back in time when essentially Visa and Mastercard in those places and other brands like us, the other card ---+ what were called card network brands.
We got into a position where we became part of a drop-down on a merchant's checkout site.
Drop-down, you've got one brand or the other, and you enter a lot of details, you enter a lot of addresses, and that created its own friction and its own lack of branding at the checkout point, even though the consumer was aware of the brand because they were looking at their card and entering the data.
I think that's moving and PayPal is one way of that movement.
But our own efforts with branded checkout points is moving, and we will continue to do that.
I think PayPal itself, its relationship with eBay, I would look at the IPO time, it's something for Dan to answer, but I'm pretty certain that all of you thought about one day that relationship will come up for reassessment, and it's come up for reassessment and eBay has chosen what it wants to do.
I think Dan's done some interesting work of building out his partnerships in the meanwhile.
So he's kind of consolidated his own position today with their second and third leg of the stool.
And I think we are a key beneficiary of that because, as you know, we've got a great partnership with PayPal, which includes all their co-branded cards and their corporate cards and all the understanding around how their wallet is used, including the visibility of the brand and the non-steering towards ACH and the data flow and basically the pass-through angle compared to the stage angle, blah, blah.
So my general net take of all this is this is still a wide-open field.
It's going to be years before you can figure out who's playing what game here.
All I'm trying to do with our company and all of us are doing is we want to be very much a part of that game.
So we are going to keep investing in tokenization and secure checkout.
We're going to keep investing in an enhanced consumer experience in digital.
You'll find us doing all kinds of things with banks, with merchants in that space.
We're going to keep investing and align the developer community to access our capabilities with digital and core payments through the simplest form of APIs and SDKs so we can get embedded in more and more locations.
We're going to keep investing and creating good R&D with our Labs and making sure that we are capable of working with our clients, with Labs as a service.
You heard me talk about that with specific reference to Bank of America, but frankly, it applies to many other clients as well.
So we've got a whole series of strategies in digital to make us not be anywhere other than at the forefront of what's going on here, with simple transparent standards.
And standards are important, because they enable merchants and banks to connect one time, not multiple times.
So you'll see us over this period of years to come, that's the focus: Simple experience, simple standards, focus on security, secure every transaction, make sure we do good stuff with Labs, make sure the open APIs and SDKs are available and well-used and make sure that we focus on all forms of payment, not just card rails, but ACH, Fast ACH, all those so that you enable banks and merchants to do the best thing for their consumer.
That's our digital strategy, not changed.
PayPal, eBay, other issues will come and go.
We're doing what we need to do.
All right, <UNK>.
First of all, on your first question, I'm not going to give you any guidance on rebates and incentives for 2018.
And it is because of the new revenue recognition rules coming in.
There are so many moving parts between growth ---+ gross revenue and contra revenue, that I just feel, given all of the work that we were able internally to do, I just feel that the net revenue number is just the best guidance that I can give you.
But I do want to take the opportunity to deep dive into that just a little bit more.
As you know, I called out $300 million of benefit on the net revenue line due to the new revenue recognition rule.
$100 million of that is really in relation to customer business agreements and through ---+ to incentives.
And there are a number of effects that we had to be estimating in this.
So first of all, as you know, we had amortization of incentives in previous deals that have been previously expensed.
So in prior years, we expensed those and they will be now expensed over the life of the deal.
And that will be a negative, right.
We estimate actually that roughly about $0.5 billion of incentives will need to be re-recognized as contra revenue under the new rules starting 2018.
And we will ---+ the average life of this recognition is approximately 7 years.
So it's not ---+ so it's a headwind.
It's not really material in the context of our size.
But then in addition to that, we would have had some incentives in 2018 or later that will now have to be carried back to prior years, to the original deal inception or carried forward.
So that will actually reduce the amount of incentives recognized in 2018.
So you can see these 2 things are toggling with each other.
And then the last, the third thing is that, obviously, we will be having new deals coming in, and that could impact this calculation, too, depending on the terms and conditions in these kind of deals.
So when you put all of this together, we do estimate the net benefit of that $100 million that I just referenced, but obviously, that could change over time.
And then, beyond 2019, we will continue to amortize the remainder of that $0.5 billion, of that roughly $500 million that we have to re-recognize as contra revenues under the new rules.
So you can see this is a relatively complex area, and that's why we're staying with net revenue guidance, and we're not going to split it up in gross and into contra.
With respect to your second question, there's really not much more that we can say to you.
And quite frankly, what our cross-border business, inbound business in Europe is has actually no relationship in terms of how the European Commission would be looking at fining us, if they fine us.
But we have, at this point in time, really no new news.
So I'm still going to point you back to the last Q that we filed.
That is a pretty accurate statement in there.
And unless something happens between now and when we file the 10-K on, what, Feb 14 or 15, if we have an update, obviously, the K will be updated by that time.
<UNK> is in accounting heaven for the last few weeks and months.
Yes.
And you also got Venezuela, which she's done an outstanding job of and trying to put her arms around how to manage that through the next period of time.
In Venezuela, we're still very much on the ground doing all the right things.
We've got a great team.
We're supporting a lot of our clients there.
We're not pulling out of the business on the ground.
That would be a very unfortunate thing to do.
And I think it would spark all kinds of humanitarian issues, given the role we play in that economy.
In fact, we are trying to work with other players, including multilateral institutions, trying to find a way to make this a sensible outcome, because there will be an outcome one day in Venezuela.
So this is not a ---+ you've got to think out long term on what we're doing in all of these things, whether it's European cross-border or Venezuela or these rules.
At the end of the day, we're trying to give you guys some thought of what we are thinking in terms of what the impact could be.
But <UNK>'s laid out a pretty good estimate of where we think our '18 revenues and expenses and EPS and our combined '16 to '18 goals will go.
And I'll say you, over '16 to '18, we've had a good run.
We gave you an update in September when we raised our guidance.
Now what we are doing basically is making sure the accounting flows through.
Yes, there's a small improvement in '18 that she pointed out.
Some of it gets eaten up by Venezuela, some of it gets eaten up by the lapping of the acquisitions.
That's kind of where we are.
We're driving our business to win share and keep taking advantage of the secular trend in the business.
That's what we're trying to do and not getting ourselves tied up between rebates and incentives and gross revenue and net revenue at a time when there are so many moving parts that asking someone to estimate that accurately would be asking for the moon.
It is.
No, most of it is just that.
And then all the other things you heard about is pending.
They're all coming on board.
So you'll see some benefit in the Bank of America when it starts issuing.
It'll take time.
You'll see some benefit from the Kroger co-brand, the Cabela's co-brand.
But these things take time.
Meanwhile, there's the natural spending pattern that SpendingPulse shows up and there, as I said, fourth quarter growth was actually lower year-over-year than third quarter, just to be clear.
Don't go there.
You're giving me nightmares.
Okay.
Just to let you know, the total cash tax benefit as a result of the tax reform on an annual basis is in the zip code of $450 million, right.
And we're doing then 2 things.
One, we're taking the $100 million in order to invest into the Center for Inclusive Growth.
And the other part that Ajay was mentioning in terms of the employee benefits as well as the additional investments we're doing, we have that embedded in the baseline of the operating expenses, okay.
And that's ---+ it's all embedded in the low double-digit guidance that I have been giving to you for 2018, based on the new revenue recognition rules.
I don't want to run a business in which I'm paying employees for their retirement long term, because this is not a 1-year, $1,000 contribution kind.
This is we're adding to our already good 401(k) and defined contribution plans around the world.
And second, we are investing in data and digital and Fast ACH.
We don't want to run a business where that stuff is kept as a separate item.
So <UNK> has got those embedded in the way we'd look at the future of our business.
The only thing that's not embedded in that is these lumpy contributions that are going to the Center for Inclusive Growth because, honestly, $100 million going into that center being directed for workforce training and financial inclusion in the U.<UNK> and elsewhere, that kind of lumpy contribution is the one that we've not got embedded in our guidance.
We're telling you about it, but it's embedded in the total, but not in the net that we're looking at.
Right, <UNK>.
Well, it's in the low double-digit operating expense guidance.
We put 2 ppt for that particular contribution.
In the total.
But not in the organic growth.
No.
First of all, I would always expect my competitors to make every effort possible there.
They've got a strong company.
They've got good people on the ground.
They're going to make efforts to win back share.
And that's the reality, and it's the ---+ I believe that we survived by being competitively paranoid about all our competitors.
So that, to me, it just is, I take it as a given that they'll attempt.
There's a lot of competition on the ground, it's not just Visa.
It's Cielo.
It's the local methods of doing a lot of work.
There's a lot of competition on the ground locally.
There's also a lot of regulatory changes that are going on in Brazil, including with the bankers' association attempting to look at the idea of the way installments are paid and the whole installment method is managed, including the settlement time.
There's a ton of things going on in the market in which we are today, a very large market share player there.
The political environment in Brazil, yes, this year '17 showed an improvement, but you got to remember, you're comparing '17 to '16, which was not a particularly, let's say, delightful year in Brazil.
It was a hard year.
And they got some political stability; '17 turned out to be better.
Good economic policies were getting put in place.
Remember that '18 has an election, and that election has currently identified 2 players to come there, none of whom is in the current government.
And so it's a little unclear to me what instability that could cause in the economic environment.
That's why <UNK> pointed out, and I pointed out, that there are pockets of instability across the world that we're careful of, and Brazil is one of those for this reason of the political circumstance and the longevity of their economic reforms.
I've been around a long time with working with Latin America, and I've learned that you cannot take for granted what happens for a couple of years because it does find its way through change on where politics goes.
So that's where we are.
I'm relatively constructive about Brazil.
We're investing on the ground.
The number of people we have in our office have increased.
Our capabilities on the ground have increased.
Our technological investments on the ground have increased.
And we're going to keep seeing growth there is what I'm hopeful for, but I ---+ 2018 is a year to watch out for.
Yes, so <UNK>, obviously, the numbers in Q4 that you saw in the rebates and incentives and we had given you a little bit of a heads-up on our November call that, that number might be coming in a little bit higher than what we had forecasted before, that should show you that we have actually terrific deal activity in Q4, and those deals will be rolling in over the next 6 to 18 months.
It depends which deal you're looking at.
I, quite frankly, with everything that I'm seeing from the pipeline from our reach ---+ from our regions around the world, I think that we are going to have a similarly robust deal activity in 2018.
I don't think there's any letting up.
I think there is a lot of players in the market that are looking to do things with us as a network, and it will be similarly robust.
And on B2B, <UNK>, the global travel deals that we did over the last couple of years, they're actually helping us in our cross-border, as an example, back to somebody's question, I forget, on cross-border.
But there's all this work we're trying to do with the B2B hub.
We've announced the one partner had signed up.
There's a bunch of partners in the pipeline.
Hopefully, a few of them will come into locking on.
There's all the work we're trying to do with Fast ACH and Send in different parts of the world.
So B2B is pretty active for us right now.
We consider ourselves to have good assets in place.
So we are working our pipeline hard.
So I'm sorry, we're going to have to cut you off, <UNK>.
We can chat another time, but thank you all for your questions.
And I'd like to wrap up with some closing thoughts.
We're pleased with 2017 financial results.
We think it's all driven by strong operating performance and execution of our strategy.
Overall economic trends are positive.
And as we said a couple of times on this call, we're going to monitor some risks and uncertainties that <UNK> and I have spoken to.
But overall, we expect 2018 growth to be similar to 2017.
Meanwhile, we expect tax reform will benefit the U.<UNK> economy and have a positive impact on our company.
We see this as an opportune time to further invest in our employees and communities and continue to strengthen our business with strategic investments in those key growth areas while continuing to return excess capital back to our shareholders.
And so thank you for your continued support of all of us and our company, and thank you very much for joining us on the call today.
| 2018_MA |
2017 | BKNG | BKNG
#Thanks, <UNK>
I'll discuss operating results and cash flows for the quarter and then provide guidance for the second quarter of 2017. All growth rates referenced in my comments are relative to the prior-year comparable period unless otherwise indicated
I highlight that as we have discussed for several quarters now, the non-GAAP figures for our Q1 results and Q2 forecast includes stock-based compensation, and do not reflect a reduction to income tax expense related to available NOLs
The reconciliation between our GAAP and non-GAAP results is detailed in our earnings release
2017 is off to a strong start
Room nights booked in Q1 grew by 27% despite a challenging prior year growth comp
We estimate that the shift of Easter into Q2 had a slightly beneficial impact on Q1 gross bookings growth with an offsetting negative impact to Q2 gross bookings growth which I will discuss further in a moment
The Q1 impact is offset by Q1 prior-year's extra day for leap year
Performance was strong across each of our key geographic regions, and we believe we grew our market share in the U.S
and internationally through outstanding organic execution by our brands
Rental car day growth also accelerated to 15% in Q1 compared to 14% in Q4. Average daily rates for accommodations or ADRs were up about 1% for Q1 versus prior year on a constant currency basis for the consolidated group which was consistent with our forecast
Foreign exchange rates unfavorably impacted growth rates expressed in U.S
dollars for our Q1 results as compared to the prior year
Q1 gross bookings grew by 24% expressed in U.S
dollars and grew by about 27% on a constant currency basis compared to prior year
Gross profit for the quarter for The Priceline Group was $2.3 billion and grew by 16% in U.S
dollars and by about 17% on a constant currency basis compared to the prior year
Gross profit as a percentage of gross bookings for Q1 is 84 bps lower than prior year Q1. The decrease is due largely to booked-versus-stay time lag, impacted by Easter shifting to Q2 this year and an expanding booking window
Other contributing factors to the variance are discounted closed user group rates and business mix
The shift of Easter from Q1 last year to Q2 this year also negatively impacts Q1 gross profit, operating profit, EBITDA, net income, and profit margins, and will benefit those metrics in Q2, in both cases compared to the prior year
Our international operations generated gross profit of $2 billion which grew by 17% in U.S
dollars and by about 19% on a constant currency basis compared to prior year
Gross profit for our U.S
operations amounted to $315 million which grew about 6% compared to the prior year
Advertising and other revenue, which is mainly comprised of non-intercompany revenues for KAYAK and OpenTable, grew by 8% in Q1 compared to the prior year
Margin performance was better than our forecast due to gross profit growth and advertising efficiency that exceeded our forecast
The timing of investments in non-ad OpEx was also favorable to forecast
GAAP operating income grew by 1% and GAAP operating margins decreased by 341 bps compared to Q1 last year, due mainly to performance advertising
Performance advertising deleverage was impacted mainly by the timing of bookings versus stays that I just discussed and strong growth in performance advertising channels
Adjusted EBITDA for Q1 amounted to $635 million which exceeded the top end of our guidance range of $580 million and grew by 4% versus prior year
GAAP net income and fully diluted EPS both increased by 22%
Non-GAAP net income per share was $9.88, up 7% versus the prior year, exceeding our guidance for the quarter and FactSet consensus of $8.82. Our non-GAAP tax rate of about 16% was favorable to our forecasted rate of 19%, mainly due to nonrecurring discrete tax adjustments in the quarter
In terms of cash flow, we generated $381 million of cash from operations during first quarter 2017 which is an increase of about 10%
We made a pre-payment of income taxes in the Netherlands in Q1 to earn a pre-payment discount, which negatively impacts operating cash flow for Q1 but will benefit subsequent quarters when the taxes would've otherwise been due
During the quarter, we returned $212 million to our shareholders through share buybacks
In March, we raised €1 billion of cash for our U.S
parent company by offering a five-year bond in Europe at a 0.8% interest rate
Our cash and investments amounted to $15.5 billion at March 31, 2017, with about $2.3 billion of that balance in the U.S
Now for Q2 guidance
We are forecasting booked room nights to grow by 16% to 21% and total gross bookings to grow by 12% to 17% in U.S
dollars and by 15% to 20% on a constant currency basis
Our Q2 forecast assumes that constant currency accommodation ADRs for the consolidated group will be up by about 1% compared to the prior-year period
As mentioned a moment ago, seasonal factors added to growth in Q1 and are forecasted to pressure growth in Q2. We are comfortable with the combined forecasted growth rate for the first half of the year, which we believe is reflective of generally healthy macro travel trends and implies a continuation of market share gains evident in our reported Q1 results
We forecast gross profit to grow by 14% to 19% in U.S
dollars and by 17% to 22% on a constant currency basis
GAAP operating margins expressed as operating income as a percentage of gross profit are expected to be lower than prior-year Q2 by about 140 bps
Our Q2 forecast assumes year-over-year pressure on performance marketing ROIs and that paid channel growth will continue to be strong
Our forecast also reflects brand advertising and non-advertising expenses as we invest towards high travel season and innovation to drive future growth
Q2 adjusted EBITDA is expected to range between $860 million and $905 million, which at the midpoint is up 9% versus prior year
EBITDA growth and margins are impacted by the factors I just discussed for GAAP operating profit
We forecast GAAP EPS between $12.55 to $13.25 per share for Q2, which, at the midpoint, is up by about 11% versus prior year
Our EPS guidance includes interest expense on our recent bond issuance and assumes a fully diluted share count of 50.1 million shares, which reflects the beneficial impact of the common stock repurchases we have made to-date, offset by additional equivalent shares related to our convertible bonds due to the increase in our stock price
We are forecasting Q2 non-GAAP fully diluted EPS of approximately $13.30 to $14 per share which at the midpoint is up by about 8% versus prior year
Our forecasted non-GAAP income tax rate is about 18% for Q2 and the full year
Our Q2 forecast is based upon recent foreign exchange rates and assumes that our growth rates in U.S
dollars will be negatively impacted by foreign exchange rate fluctuations
Consistent with past practice, we have hedge contracts in place to substantially shield our second quarter EBITDA and net earnings from any further fluctuation in the Euro, British pound, and various other currencies versus the dollar between now and the end of the quarter
Our forecast does not assume any significant change or macroeconomic conditions in general, or in the travel market in particular
As <UNK> just mentioned, I have decided that now in my 14th year with the company, the time is right to start working towards my retirement
Equally importantly I think the time is also right for the company
We are in great hands with <UNK> and our brand CEOs running the business
Our brand CFOs and my headquarters finance team are world class and will keep doing great work as we transition to a new Priceline Group CFO
I will stay with the company as long as necessary to help recruit my successor and to ensure a smooth transition
I thank all my colleagues around the world for their incredible accomplishments over these many years
It has been a dream come true to be part of such a wonderful team
And we will now take your questions
Question-and-Answer Session
And as far as share in the U.S
, <UNK> <UNK>, we look at the market – we attempt to size the market based upon the properties that we have on our extranet
So there's over 1.2 million properties on Booking
com today
We know the number of rooms that are in those properties, and so we look at that as a proxy for the market
That includes vacation rentals
So in our room nights booked also include vacation rentals
So we see them as basically interchangeable with hotels and other types of properties as places where people want to stay when they travel and we want to give them the maximum number of choices
So looking at it that way, we can see our growth in total, we still have a relatively low share of the worldwide market single digits
And we can also see our growth for the U.S
market relative to the market's growth and relative to what other players have reported, including our biggest other online travel competitor
And we feel that we're gaining share based upon those metrics
You're welcome
Thanks, <UNK>
Well, first of all, for the guidance
No change in approach
Same approach that we've used every quarter
It's a little bit different, in that there's volatility in the early part of the quarter here because of the shift of Easter, and so that makes things a little bit more difficult
I'd say that the market remains healthy
We see occupancy in ADRs are strong
The seasonal impact has certainly negatively impacted growth for Q2. We think the booking window expansion that we have been talking about for a couple of years now is probably all else being equal moving some bookings that would have been made in the past in Q2 into Q1, and even into Q4 as people are booking early
If you look at the midpoint of our room-night guide for Q2 together with our actual results for Q1, it would imply a 23% growth rate, which would compare – it takes the seasonality out of it, with the shift of the hotel or booking window, a shift of Easter timing or booking window
So that 23% growth would compare to a 27% growth for the first half of last year, which we're comfortable with that
We think that's very solid performance
We expect the business to decelerate structurally given the size of it and the long-term trends that we have seen over many years
The growth may decelerate more in certain quarters
We have accelerated in certain quarters
But overall, for the long-term, our growth has been very resilient
It's been a pleasant surprise
The growth drivers that drive – have driven our growth in the past are still there, so the secular shift from offline to online continues
We still have a single-digit share of a very big market, so there's a lot of opportunity to continue to add properties and to continue to penetrate the properties we have more deeply
Our teams are adding properties at a very healthy rate, as <UNK> talked about, and we're working every day to continuously improve conversion on our websites
And then we have maintained a very consistent approach to advertising: no change in our approach, no change in competitive position that we can detect
So we continue to invest in reasonable ROIs to drive a healthy mix of top line growth and profitability
The 8% growth in guidance for EBITDA is a function of that top line growth that we talked about and then just the margin pressure that we're guiding to in the quarter, which is less than what we've seen over many of the last quarters where we've guided, and the drivers are pretty much every line item
So we are assuming that there will be more ROI pressure in Q2, but what I said last quarter, that overall we think for the first half of this year the margin pressure from performance marketing will be less than what we experienced in the back half of last year, I stay with that statement
I still feel comfortable with that
And then we're also investing in brand advertising as we're in peak booking season getting ready for peak travel season, and we're investing in OpEx for our brands, customer service people, property people to continue to sign new properties and continue our growth in the future
And then IT people that are working on innovative projects and just keeping up with the growth in the business
Thanks, <UNK>
Regarding the expanding booking window, I would attribute that more to people continuing to repeat with our business, becoming familiar with the model, with strong occupancy rates and rising ADRs, looking to book farther in advance and feeling comfortable doing that because they know we have a very flexible model and if their plans change later they're able to change their booking
So I think that's the more fundamental driver there
That I would expect to continue
If there were some significant change in macro or maybe people felt less comfortable about whether or not they were going to travel economically or the ADRs were dropping, maybe they would change their behavior
But it would still be a free option to make a booking and then if prices drop you can change your booking later
So I think that's what's driving that
And then ad efficiency was pretty solid in Q1. It's a mix of what's going on at all of our brands
So we have some brands like KAYAK and agoda leaning a little bit more heavily into brand advertising or discounting to drive demand to their websites
There's still underlying ROI pressure, in general, and it's the trend we've seen for many years now
I would expect to see that going forward too, <UNK>, until we don't see it for an extended period of time
I would just build that into the forecast
It's what we have built into our forecast for Q2. And so that's what's built in there
I wouldn't – there's nothing that I have seen that would lead me to believe that there's a sustainable ability for ROIs to improve year-over-year
You're welcome
I see a little less margin pressure than what you're talking about for Q2, <UNK>, unless you're adjusting for Easter timing
But then there would be less pressure in Q1. So, yeah, I'm seeing more like 150 bps for GAAP operating margins
It's always a balance between top line growth and bottom line growth
We try to strike a balance
From time to time, we see opportunities to invest in brand advertising
We think that's a good thing to do for our business for the long-term
There are OpEx investments that we've come across in the past, things like investing in mobile which have been critical to the success of the business
If you go back to 2012, we were a business that was generating room night reservations of 200 million and over the last 12 months we're more like 600 million room nights
So I think those investments have paid off and we're going to try to make start investments for the future
We're always looking to manage those expenses as closely as we can and with a fast-growing business we generally expect that we can make the investments that we need to make and not have pressure on margins from non-ad OpEx
But from time to time where we see the opportunity, we won't let short-term margin objectives do something that might be detrimental to the long-term growth of the business
And then performance advertising leverage, <UNK>, it's all the factors you mentioned
So it's what's happening with external players, what we're doing internally, again trying to strike a balance between top line growth and bottom line growth
So we're pushing into channels where we think we can do that efficiently
There's also the manner in which the auction is run by the advertiser, and we're balancing all of those to try and strike a good balance
What I answered earlier to somebody else's question, I wouldn't forecast that there's going to be leverage in performance marketing
I would have to see that for a number of quarters and have some reason to expect it to continue before I would build that into a forecast
While we have had quarters here and there where the leverage story on performance marketing has been better, in general now for many years, all the way back to 2012, it's been a source of margin pressure
And I've seen it as a source of margin pressure in other players in our space too
In fact, to a greater degree on their margins than what we've experienced with ours
So I feel comfortable that we are continuing to expand our lead in a very competitive marketplace, and performance marketing has been the most important tool that we have used to try and drive traffic to our website over our history and build our brands
We're improving our capabilities with brand advertising, and we look to deploy money there too where we think we can get a reasonable return
Even if it's over a longer period of time because there's typically a lag there between when you spend and then the benefit that you get by having more brand awareness and having people potentially come to you directly, which would improve the performance advertising metrics
And maybe even just cause them to search for our brand or a higher propensity to click on our brand when they search in other paid channels
So I think there's opportunities for us from time to time to invest a little bit more heavily in brand advertising and that would help, but I wouldn't forecast performance advertising leverage until we see that happening
And, <UNK>, your assumption was correct on the agency take rate
So you're looking at agency gross profit divided by agency gross bookings
That's down because of the Easter shift
The fundamental take rates are very, very stable
<UNK> <UNK> - Credit Suisse Securities (USA) LLC Okay
You're welcome
And, <UNK>, we feel like the broader macro trends are positive, particularly in the travel market
We see occupancy rates are strong, ADRs are up, the reported results of other players in the space I think we're very strong
So it feels to us like the macro is healthy
As far as it relates to the trend thus far in the quarter, it's a little bit clouded by the shift in Easter
So when there's a holiday like that where people are traveling, what we'll typically see is an uptick in cancellations going into the holiday for people whose plans have changed, and then while people are traveling, they're not making bookings, and so that impacts our gross bookings growth
So I'd say the broad macro is positive
It's a little bit difficult to read because of the impact of the shift in timing for Easter into Q2.
You're welcome
<UNK>, we're not seeing any significant impact on the booking window from the growth in vacation rentals on our site
And maybe that's based upon the way we're presenting them, very integrated into our search results, and so people are still searching the way they would search
<UNK>be there are some on-the-margin people that are coming in specifically looking for vacation rentals and they're booking a little bit earlier
But we think that the expansion in the booking window is more driven by growth in repeat users and direct traffic than the addition of vacation rental properties
Well, strong euro
Times have changed when – now the $1.09/€1 is a strong euro
We're used to the good old days of $1.30. So I see nothing to call out there, <UNK>
It's been relatively stable for the last year or so
It's kind of been in that like $1.05 to $1.10 range
So nothing that I would call out regarding change in travel behavior from the euro
And I'm sorry, what was your second question?
Sequential G&A, I mean, the key drivers in there would be office-related expenses, so rent and related occupancy expenses and personnel related expenses, travel, and so forth
It would just be investments that we're making in those areas as we're adding head count and being ready for growth in the future
And I would expect that that would be an area in particular, <UNK>, where we would have leverage for the most part going forward
So for whatever reason, if it's in Q1, it could surely just be from the Easter shift
You're welcome
Well, we don't have a Q3 forecast for you, <UNK>
So, I won't say whether the weighting will increase, because that could give you a read on the bottom line
But it will continue to be by far our biggest profitability quarter of the year given just the normal seasonality of the business with the great preponderance of travel happening in Q3 for high-season summer travel
I'll just add from last year, we couldn't notice anything discernible in our results when they were talking about issues with their website, so
Nothing that we could detect
| 2017_BKNG |
2017 | IVR | IVR
#Thanks, <UNK>.
Good morning, everyone, and welcome to Invesco Mortgage Capital's First Quarter 2017 Earnings Call.
I will give a few brief remarks before turning the call over to <UNK>, who will discuss the portfolio in more detail.
I'm pleased to report that Invesco Mortgage Capital had a strong start to 2017 with core earnings of $0.40 per share, which is back in line with our dividend and a 2.7% increase in our book value per share.
Active sector allocation, a highly diversified portfolio and superior security selection led to a 5% economic return for the quarter.
The trajectory of core earnings is supported by a number of tailwinds at this time.
Slower prepayment speeds and favorable funding environment and our ability to reinvest cash flows into the opportunities that are producing ROEs that are clearly accretive to earnings.
In fact, we're seeing hedged ROEs in the mid-teens on 30-year Agency collateral, which is the level we haven't seen in a number of years.
Our active approach to managing IVR's asset mix has also contributed to our recent performance.
We believe this environment will continue to provide opportunities to add value.
Over the course of the last several quarters, we reduced our asset balance as we further reduced risk by investing cash flows into shorter duration 15-year in Hybrid ARM Agencies.
Those sectors have performed very well, and we are now moving back towards 30-year fixed paper, which offer extremely attractive ROEs.
We also have taken advantage of these attractive assets to get our asset balances back up.
Within credit, we benefited from both our sector calls, particularly, in seasoned CRT bonds and seasoned subordinate CMBS bonds as well as through great security selection.
This is reflected in the strong spread tightening we've seen in those sectors and also by the numerous rating agency upgrades that we've seen within the portfolio.
While spreads have tightened dramatically, we still feel very good about the fundamentals in both residential and commercial credit in favor of holding these positions with high book yielding time and it is very difficult to replace strong seasoned credits.
The result of our efforts could be seen on Slide 5, where we show our economic return relative to peers over each of the past 3 calendar years as well as over the trailing 3- and 5-year time periods.
In each instance, we compare favorably to our hybrid and Agency peers.
It is not coincidental that the volatility of our book value has also fallen dramatically over the past 5 years.
Our disciplined approach to risk management has proven effective.
We thought it was important to highlight this performance for a couple of reasons.
First, we feel that our story has been underappreciated over the past few years as our price and book discount is not consistent with the type of returns that we have produced.
Second, it is an affirmation of our ability to invest well across the most diversified opportunity set in the space and deliver investors an attractive dividend while reducing book value volatility.
I'll stop here and let <UNK> discuss the portfolio.
Yes, one thing I'd point out is, our book and this is across most of our credit assets is pretty highly seasoned.
And we spend a lot of time with the big security selection trying to pick up the best bonds.
And so our ability to replace that type of credit is, it will be pretty difficult to replace those types of bonds unlike something like Agency, which are relatively easy.
And yes ---+ and also, those bonds, a lot of the season credit on top of that are some of the highest book yielding ROEs that we have.
So again, it's very difficult to replace that.
Yes.
In terms of activity there, most of what has been done has been drawdowns on existing ones.
We'll continue to search for opportunities and deploy capital when it becomes available.
But at this point, we've been really encouraged with opportunities we saw on the CMBS side just given the implementation of risk retention and seeing underwriting standards really holding firm there.
Still some opportunities within legacy, but certainly, fair to say that most of our focus recently has been on more new issue.
Regardless of whether or not we participate in the class subject to risk retention requirements or simply plan a subordinate bond from, say, a risk retention eligible transaction, it is good to see that as the cycle progresses here that we're not seeing lending standards become more aggressive.
If anything, it's been the opposite.
Yes, I think the right answer to that in terms of the Agency book, I mean, if you look at the composition of the Agency portfolio, we're still ---+ we still have quite a few bonds in Hybrid ARMs and 50-year collateral.
So we've been more likely to ---+ as we saw ---+ and as we see attractive ROEs, more likely rather than increased leverage, we're more likely to move capital from hybrids and (inaudible), which have lower ROEs and obviously, less convexity risk and duration risk and do it that way without increasing leverage.
That will be the most likely scenario today.
| 2017_IVR |
2015 | AVT | AVT
#This is <UNK> again.
I would say no we're not exposed to the comm infrastructure like some of our suppliers are.
Those accounts generally are big and direct for them, so we don't have that same kind of exposure.
And again, being a mass market broad line distributer across our account base, a lot of those smaller ups and downs get normalized out.
So there's no area I see in our (inaudible) markets that we serve, industrial being the biggest, where we see much in the way of weakness today.
Yes, I would say just generally, Will, if and when we have disconnects and by the way it can go both directions depending on where the market is at.
The major categories of significant, I would say, CapEx comm infrastructure as well as the consumer device areas are usually the usual suspects when it comes to any differences to some of the market characterizations you may hear from us versus our suppliers.
And just to follow up on <UNK>'s comment, we've had six quarters of positive book-to-bill so I think that bodes well for the backlog we have within the strength of the core markets.
So the question was around upgrade cycle, which I'm not sure he made a comment around upgrade cycle, <UNK>.
I think he was just talking about the improved execution leading to what we believe are some perhaps better than market growth numbers as TS continues its progress on its financial goals.
So would you make a specific comment on any other ---+ .
Yes, that was really what I meant.
So we have the team really again being externally focused and it's paying off.
And we've done also a few changes, there will be some more changes to come, but I would say we have the base is solid.
And again, the last four quarters we've been surfing on that much stronger base now and taking far more advantage of the market opportunities.
And back to a previous question, have we gained share.
I'm really waiting for some market data to confirm it.
At this moment I'm not able to confirm or to make a judgment on that.
I'm not sure we have a specific driver on the storage strength other than the overall market appetite that's going on, <UNK>.
In other words, trying to drive it down to a specific marketplace like increased video storage or demand increased regulatory, et cetera.
Just don't have that level of resolution available to us.
But again I think our overall characterization is that storage in aggregate continues to be one of the more positive growth stories within the overall TS portfolio, by the way in all regions.
Sure, <UNK>, a couple things I would point to.
We've been continuing our ERP investments over the last few years but specifically over the last 12 months specific to replacements that we've been working on.
In addition, I would point to this quarter we acquired a property in Europe for distribution capability and that really caused the year-over-year impact.
When we come to Analyst Day I'll be sharing more in terms of the go forward outlook, but I would think it to be moderating in the $130 million to $160 million range as we move forward.
Yes, so <UNK>, it's <UNK>.
As I said the most desirable opportunities for us are probably very much in line with the fundamental growth strategies in our businesses.
So you look at EM and fundamental value propositions around design change, supply chain, opportunities to expand and grow on that; the consolidation play is not 100% over particularly in some of the Asian markets as an opportunity.
Continue to expand the value propositions into adjacent opportunities as we did with MSC and embedded systems.
These all make sense to us as targets of opportunity.
For TS, taking a look at the market developments as the evolution of the third platform, I think to use the IDC term, converged solutions, adding select opportunities to grow in software and services makes strategic sense to us along those lines.
So these are the ---+ as the businesses continue to articulate their plans for their long-term growth, the make versus buy decisions that line up in those categories make an awful lot of sense to us.
And then once in awhile a deal will find us based on some other entity making a strategic decision to look for perhaps strategic acquirers, et cetera, and of course we would deal with those on a, as they come basis overall.
But what makes most sense to us is to lay out the road map on the fundamental strategic pillars for growth that we're counting on and hopefully we can align the deployment of capital inorganically as horizontal organic investments towards pursuing those opportunities.
<UNK>, it's <UNK>.
I really couldn't comment on that.
I don't know if there's a high degree of correlation.
I don't think we've ever looked at it when looking at a Fastenal or Grainger against our business.
I think they're different.
And again, all I can base it on is the dashboards that we have and what we're looking at.
And when I ---+ again our book-to-bill in the mass market customer base has been solid for six ---+ been positive for six quarters now, so we have a pretty strong backlog.
And there's no signals in the environment today that lead me to believe that will change.
Again, as <UNK> said in the lead off, we're still in a mixed signal environment so things could change that way.
But there's nothing that we see today that would lead me to believe that we're looking at some weakness in the short term.
<UNK>, it's <UNK>.
I would just reinforce, we remain very vigilant on a number of fronts, watching key indicators not only on the macroeconomic front and what's going on with GDPs, but we're watching PMI, we're watching business confidence, we're watching manufacturing indices.
Believe me, we do not believe we're going to be immune from any protracted significant changes in the marketplace that do ---+ that will eventually impact in the industrial space that's more important to us.
But as <UNK> pointed out vis-a-vis some of the other sort of distribution entities with a different look at the industrial markets than we have, at this point we don't consider that a major disconnect causing us any undue amount of concern.
Well again, guidance just being on a quarterly basis at this point it's much more driven by our internal dashboards, the currently scheduled orders that are on the books and supply chain engagements, the activity levels we're seeing from our partners and bars, quotes, proposals, configurations, et cetera.
So that really is much more impactful as the way we look at it.
However, as I said we keep an eye on the more macro indicators as well to be alert to any signs of any particular impact on our business.
But the best information we have as of today, is reflected in the guidance that we provide.
Sure, hi <UNK>, it's <UNK>.
To clarify the $0.11 is versus the year-ago quarter we provided on a sequential basis.
The number we had referenced earlier was on a sequential basis, so the math actually calculates directionally to what you provided from on a sequential basis in terms of the $0.02 to $0.03 impact from currency.
But the $0.11 is attributable to the year-on-year number.
Thank you for participating in our earnings call today.
Our second-quarter FY15 earnings press release and related CFO commentary can be accessed in downloadable PDF format at our website under the quarterly results section.
Thank you.
| 2015_AVT |
2017 | TIF | TIF
#Thank you.
Good day, everyone.
On today's conference call, <UNK> <UNK> and I will comment on the first quarter financial results, our growth strategies and the full year outlook.
Of course, before proceeding, please note that statements made on this call that are not historical facts are forward-looking statements.
Actual results might differ materially from the planned, assumed or expected results expressed in or implied by these forward-looking statements.
Additional information concerning factors, risks and uncertainties that could cause actual results to differ materially is set forth in Tiffany's Form 10-K, 10-Q and 8-K reports filed with the Securities and Exchange Commission including the news release filed today under cover of Form 8-K.
The company undertakes no obligation to update or revise any forward-looking statements to reflect subsequent events or circumstances except as required by applicable law or regulation.
Now let's proceed.
As an overview, Tiffany's first quarter results showed a slight increase in worldwide net sales and higher growth in net earnings, and our balance sheet remains strong.
We believe that those results keep us on track to achieve our full year earnings guidance in light of an expectation for continued challenges from macroeconomic conditions, geopolitical uncertainty and a strong U.S. dollar.
In terms of the first quarter, starting with the top line, regional results included a total sales increase in Asia-Pacific, contrasting with modest declines in the Americas, Japan and Europe, although sales in Europe actually increased on a constant exchange rate basis.
In our largest region, the Americas, total and comparable store sales declined in the first quarter primarily due to lower jewelry unit volume.
The U.S. experienced geographically mixed but generally soft performance across the country, which we attributed to varying degrees of weakness in both local and foreign tourist demand.
Elsewhere, our business in Canada was soft while we were pleased to experience solid growth in our stores in Latin America.
During the first quarter, we completed the major renovation of our store on Union Square in San Francisco, and earlier this month, we relaunched our renovated and expanded store on Burrard Street in Vancouver.
Both stores have extraordinary new presentations to serve customers in those important markets.
Our second largest region is Asia-Pacific, where an increase in total sales was due to higher wholesale sales and the effect of new store openings over the past year while comps declined slightly.
The regional sales growth was entirely driven by increased jewelry unit volume, with the decline in the average price per unit sold.
We attributed the continuation of strong sales growth in Mainland China to local customer spending.
Sales in Hong Kong continued to decline, which we attribute to lower Chinese tourist spending, but the sales decline was only modest due to our increased focus on local clientele in that market.
And we continued to experience varying degrees of softness elsewhere in the region.
During the quarter, we closed 1 store in China that had temporarily overlapped with a new store opened last year, and we relocated a store in Korea.
Turning to Japan.
Total sales and comparable-store sales declined slightly in the first quarter with minimal changes in jewelry unit volume and average price.
Total sales also declined in part due to lower wholesale sales.
We were pleased to see higher spending attributed to local customers who we believe represent about 90% of our sales in Japan.
As part of our efforts to further strengthen local customer sales in the important bridal category, we've recently expanded the presence of our major Ginza store in Tokyo by opening a nearby boutique dedicated to that category.
We've been pleased with customer's reaction to this heightened experience.
On the other hand, we continued to see a decline in sales attributed to Chinese tourists in Japan.
However, as you may recall, we benefited in the first quarter of 2016 from higher sales attributed to Chinese tourists in Japan, which then tapered off in the second quarter.
During the first quarter, we closed 1 store in Japan.
Our business continues to gradually improve in Europe.
Total and comp store sales in the quarter declined modestly as reported.
As we saw in 2016, there were varying degrees of softness across Continental Europe, but we were pleased to see a resumption of sales growth in France in the first quarter.
Total and comp store sales rose modestly on a constant exchange rate basis as we have been seeing healthy local currency sales growth in the U.K. that we attribute partly to increased demand by local customers and partly to multinational foreign tourist spending in London tied to the weak British pound.
There were modest changes in the average price per jewelry unit sold and unit volume.
Sales in the other segments had a big increase in the quarter but that was mostly due to an increase in our wholesale sales of diamonds with comp store sales roughly unchanged.
Given our focus on improving top line growth going forward, it's worth reiterating 4 important global strategies to do so: first, continuing to pursue clienteling and CRM strategies to more effectively engage with customers and enhance their Tiffany experience; second, adding newness to the product assortment at a faster pace; third, optimizing the global distribution base through store openings, renovations, relocations and, in limited cases, some closings; and fourth, enhancing brand awareness through effective marketing communication.
We believe these are the key ingredients to achieve better sales growth in the future by increasing the frequency of customer store visit and improving the conversion rate.
Rounding out the sales review, global e-commerce sales were roughly unchanged in the first quarter, but as we've said before, our website served an important dual function of generating online sales while also delivering marketing communication that drives awareness and store traffic.
From a product perspective in the first quarter, we were pleased with fashion jewelry sales which, once again, performed relatively better than our other categories.
Fashion jewelry, which represented 33% of worldwide sales in 2016, primarily consists of non-gemstone gold and silver jewelry.
In the first quarter, while gold jewelry sales led the category's growth, highlighted by the Tiffany T collection, we were pleased that fashion silver jewelry sales were modestly above last year led by the Return to Tiffany collection.
Sales of the 1837 collection were also up nicely.
And a few weeks ago, we launched the new hardware collection, which spanned gold and silver in a range of styles and price points, and customer feedback has been positive.
Looking forward, additional designs in the T and hardware collections are planned for this fall.
Designer jewelry sales, which represented 12% of worldwide sales in 2016, posted healthy growth in the quarter.
The category consists of the designs of Elsa Peretti, highlighted by her Diamonds by the Yard and open heart designs; and the designs of Paloma Picasso which include her new Paloma's Melody collection.
The engagement jewelry and wedding bands category, which represented 28% of worldwide sales in 2016, continued to underperform relative to our expectation and to the prior year.
And performance in the high fine and solitaire jewelry category, which represented approximately 20% of worldwide sales in 2016, was mixed.
Our Victoria collection continued to perform well, though this performance was offset by softness in other collections in this category.
And regarding high jewelry, we were pleased with our annual Blue Book event that we held in New York in April.
The event serves to highlight our extraordinary designs and craftsmanship and to strengthen our relationships with our top clients from around the world.
We were pleased with the response to the event.
I should add that our sales growth in the watch category is encouraging, albeit off of a low single-digit percentage of sales base, as we continue to expand brand awareness in that category through advertising and by introducing new designs that are planned for later this year.
Rounding out the product overview, I'll just add that we are looking forward to this fall when we plan to launch our luxury accessories collection and a new signature fragrance for women.
And now <UNK> <UNK> will comment on additional financial highlights as well as our outlook.
<UNK>.
Thanks, <UNK>.
Welcome, everyone.
Looking at the rest of the income statement, gross margin improved by 80 basis points in the first quarter despite an increase in wholesale diamond sales.
Several factors accounted for the increase.
First, we continue to benefit from favorable product input costs, particularly lower diamond acquisition costs, where we have seen favorable trends over the past couple of years.
Second, after not taking any meaningful price increases in 2016, expect to adjust for weakening foreign currencies, we took modest pricing actions in the quarter that varied by country but which averaged out to a low single-digit increase on a worldwide basis.
Finally, we also benefited from favorable product sales mix as the percentage of total sales coming from fashion jewelry rose during the quarter.
With respect to SG&A, you may recall that during our last call, we commented that one of our priorities is to lower the rate of SG&A expense growth as a percent of sales.
And while it goes without saying that we need better sales growth to achieve that objective on a sustainable basis, we were very pleased to see that first quarter SG&A expense, which included some severance costs, rose less than 1%.
Now with that said, we do expect higher rates of SG&A expense growth throughout the remaining quarters of the year as we invest in various growth initiatives.
With improvement in both gross margin and the SG&A expense ratio, Tiffany's operating margin expanded 110 basis points to 16.2% in the quarter from 15.1% last year.
Net interest and other expenses declined in the first quarter due to lower interest expense.
Our effective tax rate was 31.7% in the quarter, which was lower than expected largely due to the implementation of a new accounting standard related to the treatment of the excess tax benefits associated with divesting or exercise of stock-based compensation.
Importantly, this new standard has the potential to create some level of additional earnings volatility in our future results as the amount of the excess tax benefit or shortfall will vary with changes in the stock price.
And finally, before leaving the income statement, it is probably worth mentioning that our tax rate last year was 29%, which you may recall benefited from the conclusion of a tax examination in the first quarter of 2016.
Turning to the balance sheet and statement of cash flow.
At April 30, we had $960 million of cash and short-term investments, which was up $170 million versus a year ago.
Lower inventory contributed to that increase with net inventory at April 30 down 5% versus a year ago, although we still expect full year inventory to finish flat versus the prior year-end.
As we've stated in the past, we're focused on managing inventories more efficiently both through process improvements and by leveraging a new inventory management system, which we anticipate will be fully implemented over the next several years.
Receivables were 5% higher than a year ago.
Much of that was timing of collections related to the quarter ending on a Sunday.
About 1/3 of our receivables are related to our in-house customer financing offerings, while the majority of our accounts receivable balances are related to other third parties such as credit card companies, department store operators and wholesale customers.
There's nothing particularly noteworthy regarding capital expenditures in the first quarter outside of saying we remain on track to spend about $250 million for the full year.
We spent approximately $12 million repurchasing 123,000 shares during the quarter.
And as of April 30, 2017, we had $299 million remaining available under our existing share repurchase authorization.
We're pleased with our strong balance sheet and high rate of cash conversion, which collectively enables us to continue investing in our business while also providing us with an opportunity to return excess cash to our shareholders.
And now that we've pretty much built out our manufacturing and diamond supply chain, which we believe provides us with important strategic and competitive advantages in the areas of supply availability, product innovation, product cost and corporate social responsibility, we are well positioned to maintain a strong balance sheet and generate strong cash flow going forward.
Finally, in terms of our outlook, first quarter results have not fundamentally changed our view for the full year.
Specifically, our annual forecast calls for total sales to increase by a low single-digit percentage over the prior year, and we are still assuming an increase in operating margin just at a slower rate of growth than in the first quarter.
We expect that the increase in operating margin will be entirely due to an increase in gross margin with SG&A expense growing slightly above sales growth.
We also expect net interest and other expenses of approximately $40 million, an all-in effective income tax rate consistent with the prior year and the continued repurchasing of shares, although for the full year, we expect minimal benefits to diluted earnings per share growth from those repurchases.
Our 2017 outlook continues to call for net earnings per diluted share to increase by high single-digit percentage from last year's $3.55 on a GAAP basis and to increase by a mid-single-digit percentage over last year's adjusted EPS of $3.25 per share.
So to summarize today's call, while our first quarter bottom line results slightly exceeded our near-term expectations, they certainly do not satisfy our longer-term ambition.
We believe this is an important distinction because tight cost control and disciplined cash management are prerequisites for a well-run business, but sustainable long-term success can only be achieved when the top line is growing consistently.
With this in mind, we are not overly focused on macroeconomic factors we cannot directly influence.
Instead, we remain focused on and excited about the top line growth initiatives we are pursuing, namely our efforts to bring more product newness and innovation to our customers while simultaneously enhancing the customer experience, sharpening our marketing efforts and optimizing our store network.
We also believe we have the potential to improve our financial performance by further leveraging our vertically integrated supply chain and by capitalizing on what we believe is a growing global awareness and affinity for the Tiffany brand by consumers all around the world.
We continue to strongly believe that executing our strategies in a disciplined way will create sustainable shareholder value in the years ahead.
I'll now turn the call back to <UNK>.
Thanks, <UNK>.
That concludes this conference call.
Operator, please provide our audience with the replay information, and I look forward to catching up with some of you soon.
| 2017_TIF |
2018 | INTL | INTL
#Good morning.
My name is Bill <UNK>.
Welcome to our earnings conference call for our fiscal second quarter ended March 31, 2018.
After the market closed yesterday, we issued a press release reporting our results for our second fiscal quarter of 2018.
This release is available on our website at www.intlfcstone.com as well as a slide presentation, which we will refer to on this call, in our discussions of our quarterly and year-to-date results.
You'll need to sign on to the live webcast in order to view the presentation.
The presentation and an archive of the webcast will also be available on our website after the call's conclusion.
Before getting underway, we're required to advise you, and all participants should note, that the following discussion should be taken in conjunction with the most recent financial statements and notes thereto as well as the Form 10-Q filed with the SEC.
This discussion may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.
These forward-looking statements involve known and unknown risks and uncertainties, which are detailed in our filings with the SEC.
Although the company believes that its forward-looking statements are based upon reasonable assumptions regarding its business and future market conditions, there can be no assurances that the company's actual results will not differ materially from any results expressed or implied by the company's forward-looking statements.
The company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
Readers are cautioned that any forward-looking statements are not guarantees of future performance.
With that, I'll now turn the call over to Sean O'Connor, the company's CEO.
Thanks, Bill.
Good morning, everyone, and thanks for joining our second quarter fiscal 2018 earnings call.
We achieved a sixth straight record quarter in operating revenues, up a strong 33% from a year ago and up 22% sequentially from the immediately prior quarter.
We recorded our best ever quarterly earnings of $22.7 million, up 106% from the prior year.
After adjusting for the tax reform, second quarter adjusted net income was up 46% from our immediately prior quarter.
Our diluted EPS was a record $1.18, up 103% from a year ago, and on an adjusted basis up 47% sequentially versus the first quarter.
Our return on equity for the quarter was 20%, and for the year-to-date period, excluding the tax reform, was just over 18%.
Our ROE numbers are calculated on total equity, not tangible equity, tangible equity being the way a lot of other financial companies report their statistic.
Using tangible equity would boost these numbers by around 3 percentage points.
The market environment we operate in has become increasingly positive for us over the last 4 to 6 quarters, with interest rates increasing and volatility slowly and sporadically increasing to more normal levels, as the Fed withdraws from the capital markets.
During the [finder] review, we certainly benefited from a spike in equity volatility around the VIX issue, which positively impacted our equities and futures clearing activities.
Also we benefited from higher interest rates on our $3 billion plus of customer float.
Clearly, these more extreme spikes, as we saw in the VIX, are not sustainable, but it does seem that moderately higher volatility has crept back into many of the asset classes, such as metals and agricultural commodities off the back of political and other concerns.
We think this is a more normal situation, which if sustained will continue to be beneficial for us.
We achieved very good growth in segment income in all of our operating segments.
Some brief highlights.
Commercial Hedging segment, which is our largest, increased segment income an impressive 48% from a year ago, and was up 31% sequentially, with strong growth in both futures and OTC revenues and revenue capturing the OTC business, aided by increased volatility.
Global Payment segment income increased 15% from a year ago, but was down 7% sequentially due to seasonality with the December quarter always being our strongest for the payments business.
In the current quarter, payments volumes were flat, but revenue per payment increased by 9%.
This anomaly was discussed last quarter, and was due to a very high volume, but low-value client favorably changing the way they process their payments with us.
We have seen spread compression in some of our key markets in Africa due to a reduced demand for dollars.
After nearly 3 years, we received an upgraded regulatory permission in Brazil, allowing us to better facilitate client flow into and out of this important market.
This happened late in the quarter that has significantly boosted our Brazil payments revenues.
The Securities segment income increased 9% from a year ago, and was up 16% sequentially.
This quarter's result was driven by an 81% increase in operating revenues from our equity business, largely due to the increased volatility in the mix.
I would like to highlight that this revenue increase was off the back of a 35% increase in volume as well as a 17% increase in revenue catch-up, which highlights the impact of volatility on both volumes and spreads in businesses where we act as a trader in facilitating client orders.
Physical Commodities segment income increased 44% from a year ago, and was up nearly fourfold sequentially.
This was off the back of a 53% increase in Precious Metals revenues and a 22% increase in the agricultural and energy activities.
Our Clearing and Execution Services segment income increased an impressive 61% from a year ago and 21% sequentially.
This was primarily due to a record result for our futures clearing business, with volumes up 51% due to increased client activity as well as volatility.
This was further aided by a 21% increase in revenue captured per contract as well as higher interest rates.
With that, I'll now hand you over to Bill <UNK> for a more detailed discussion of our financial results.
Bill.
Thank you, Sean.
I'll be referring to slides in the information we have made available as part of the webcast, specifically starting with Slide #3, which shows our performance over the last 5 fiscal quarters.
The top of Slide #3 is a chart that depicts our reported net income, earnings per share and ROE over the last 5 quarters, while the bottom of the slide shows the same metrics on an adjusted basis, removing the effect of tax reform and the previously disclosed bad debt on physical coal.
In the second quarter, the only difference between our GAAP net income and adjusted net income was an $800,000 income tax benefit related to an adjustment to provisional discrete tax charges taken in the immediately preceding first quarter related to the enactment of the Tax Cuts and Jobs Act.
The bottom graph shows the strong growth we have seen over the last 5 quarters in our core operating results, with the near doubling of our earnings per share and an ROE from the current period in excess of our internal target of 15%.
Our adjusted net income was $36.9 million, with earnings per share of $1.93 for the fiscal year-to-date period.
Moving on to Slide #4, which represents a bridge between operating revenues for the second quarter of last year to the current year fiscal second quarter.
Operating revenues were $260.2 million in the current period, up $64.4 million or 33% versus the prior year.
As shown, all operating segments showed revenue growth over the prior year, led by our Clearing and Execution Services segment, which added $23.8 million or 37% in operating revenues, driven by strong exchange-traded revenue growth, as noted by Sean earlier.
In addition, our largest segment, Commercial Hedging, had its strongest quarter ever, adding $15.6 million or 25% in operating revenues versus the prior year.
This growth was driven by improved performance in both Exchange-Traded and OTC products as well as an increase in interest income.
Exchange-Traded revenues increased $6.4 million or 18% versus the prior year, primarily as a result of increased volatility in prices in the U.S. grain markets, while OTC revenues increased $7.1 million or 34%, with the growth coming from Brazilian grain market as well as increased activity in food service, dairy and cotton.
Our Securities segment added $17.6 million or 46% in operating revenues versus the prior year, driven by strong performance in Equity Market-Making, as Sean noted earlier.
This growth in Equity Market-Making was a result of increased customer volumes and a widening of spreads as well as a $3.6 million increase in interest income related to our Securities lending activities.
In addition, our debt trading business added $4.4 million in operating revenues, driven by a $2.4 million increase in interest income in our domestic institutional fixed income business as well as increased performance in our Argentina and municipal Securities businesses.
Our Global Payments segment added $1.9 million in operating revenue or 9% to $23.4 million, with the number of payments relatively flat with the prior year period, but the average revenue per payment increasing 9% versus the prior year.
Physical Commodities added $4.3 million or 38% in operating revenues versus the prior year, with growth in both our Precious Metals and Physical Ag & Energy businesses.
The number of gold equivalent ounces traded doubled versus the prior year, driving the growth in Precious Metals revenues, while business expansion, particularly in cotton, drove the growth in Physical Ag & Energy.
The next Slide, #5, represents a bridge from 2017 second quarter pretax income of $14.3 million to $29.5 million, a 106% increase, which demonstrates the strong core operating results versus the prior year.
Sean covered the variances in pretax income on our operating segments during his portion of this call, but I'll just note a couple of items.
While Securities segment operating revenues increased 46%, segment income in that business increased $1.1 million or 9%, mostly driven by the strong performance in Equity Market-Making, which was partially offset by weaker performance in debt trading.
While interest income and debt trading increased $2.9 million versus the prior year, that was outpaced by a $4.4 million increase in interest expense.
The $3.1 million negative variance in our unallocated overhead segment was primarily driven by increase in variable compensation related to improved overall company performance as well as an increase in conference expenses related to our bi-annual global sales meeting.
Slide #6 shows the interest in fee income on our investments and our Exchange-Traded Futures & Options businesses as well as customer balances held in our Correspondent Clearing and Independent Wealth Management businesses.
As noted on this slide, our earnings on these balances have increased $5.1 million versus the prior year to $10.8 million, as the yield on these balances has increased 70 basis points to 145 basis points in the current period.
The bottom of this slide shows the potential annualized interest rate sensitivity, which the balance is held at the end of the current period based upon an increase in short-term rates at various levels.
As shown, a 100 basis points increase in short-term rate has the potential to increase our net income by $15 million or $0.79 per share on an annualized basis.
Moving on to Slide #7, our quarterly financial dashboard, I'll just highlight a couple of items of note.
Variable expenses represented 62.9% of our total expenses for the quarter, well above our target of keeping more than 50% of our total expenses variable in nature.
Non-variable expenses, which are made up of both fixed expenses and bad debt expense, increased $5.2 million or 7% versus the prior year.
As noted earlier, we reported net income of $22.7 million in the second quarter for a 19.9% return on equity, above our stated target of 15%.
Finally, in closing out the review of the quarterly results, our book value per share increased $0.32 to close out the quarter at $24.74 per share.
We did not repurchase any of our common stock during the second quarter.
Next, I'll move on to a discussion of our year-to-date results and refer to Slide #8.
Year-to-date operating revenues were up $91.5 million or 24% to $472.8 million in the current year-to-date period.
The largest increase was in our CES segment, which increased $32.4 million, driven by strong growth in exchange-traded volumes, while our Securities segment added $23.2 million in operating revenues versus the prior year as a result of increases in Equity Market-Making volumes as well as an increase in interest income related to our Securities lending and domestic fixed income activities.
Our Commercial Hedging segment added $19.6 million in operating revenues, primarily as a result of higher OTC revenues, while our Physical Commodities and Global Payments added $5.1 million and $3.4 million, respectively.
Moving on to Slide #9 for a discussion of the variance in pretax income by segment for the year-to-date.
The largest increase was seen in our Commercial Hedging segment, which added $14.6 million in segment income, driven by the very strong second quarter performance.
The growth in CES operating revenues resulted in a $9.6 million increase in segment income versus the prior year, while Global Payments added $3.2 million or 13% in segment income versus the prior year-to-date period.
These increases were partially offset by modest declines in our Securities and Physical Commodities segment.
Finally, I'll touch on the year-to-date dashboard, which is Slide #10 in the presentation deck.
Variable expenses are above our internal target of exceeding 50% of total expenses coming in at 60.8%.
Non-variable expenses increased $8.6 million or 6% over the prior year.
Net income was $15.8 million for the current year-to-date period as compared to $17.3 million in the prior year.
As noted earlier, on an adjusted basis, net income was $36.9 million in the current year-to-date period.
The return on equity for the year-to-date was 6.9%, while our average revenue generated per employee of $591,000 exceeded our internal target.
With that, I'd like to turn it back to Sean to wrap up.
Thanks, Bill.
Our operating revenues and core earnings have been accelerating for a number of quarters now as we scaled our business by increasing our capabilities and our client base.
We have created a financial platform that connects over 20,000 clients with over 40 exchanges and hundreds of execution venues.
We have a scalable platform with high operational leverage.
Around 50% of incremental revenue drops to the pretax line.
We have been steadily increasing our footprint and growing client acquisition and our volumes across our platform, which has resulted in the steady and positive trend in our results.
The positive overall trend has now been impacted by improved market conditions, with higher volatility and higher interest rates unleashing long dormant components of our business model, and resulting in what we think is an industry-leading ROE.
We believe that these more positive market conditions are a return to a more normalized situation in the capital market.
Since the spike in volatility around the VIX issue, we have seen general and more widespread volatility across different asset classes, and we also anticipate that interest rate increases are not yet over.
All of this is very positive for our business environment long term.
Despite the better overall market conditions, we continue to see consolidation in our industry with scalers becoming a bigger issue for smaller players, and banks continue to focus on their larger clients.
With that, I'd like to turn it back to the operator and open the answer ---+ question-and-answer session.
Operator.
Okay.
Well, thanks, everyone, for participating, and we will speak to you again in 3 months' time.
Thank you.
| 2018_INTL |
2017 | RRC | RRC
#I think if you look at where we are for 2017, we are well hedged, we're comfortable with our plan and will move forward.
And then I think if you look into 2018, there are several thoughts there.
One is there's multiple ways to win, even if gas is a little lower, we are closer to strip, we see differentials that could even improve beyond what we have in there, NGL pricing and netbacks could be better.
Cost structure and efficiencies, I think, will get better.
I think when you look across 2017, 2018, we're in good shape, and I still think if you look out far enough, and you take into account incremental gas, that demand is coming, and account for base decline that has to be overcome, there's a story brewing for gas.
And last but not least, I'd add in, with gas prices where they are for people that aren't hedged or even what some people are saying oil prices may fall back in the second half of the year, you actually lower prices in 2017 might help 2018, even though the strip doesn't reflect that right now
Yes, this is <UNK> <UNK>, I'll take that.
We think that the ethane markets, both domestically and globally, are improving.
There are several crackers coming online in the Gulf Coast in mid to late 2018 and coming into 2019.
Those stocks are high right now, we feel like the several hundred thousand barrels a day demand that's represented in those crackers that is coming online will more than offset the supply that's available there.
Also propane with the ME 2 project that we're involved in and the propane that we're flowing through and putting on boats to the global markets is really flowing through currently into our improved NGL prices you see, and we see global propane demand increasing PDH plants in China, the energy use for propane in Japan.
So, we see over the next several years propane demand increasing, as well.
I'll tack onto that, <UNK>, and <UNK> said ME 2, but we are actually in ME 1, right.
Didn't want to confuse anybody there, but with the great contracts we have on Mariner East [LON], on Mariner West and ATEX, and the improving markets that <UNK> was just referring to, we're pretty well set up.
Our goal all along for years has been to have a diverse set of outlets and a diverse set of pricing scenarios, I think we are finally beginning to see how that is serving us really, really well.
What's important, it is going to offer us a ton of optionality going forward, so we can set back and wait and see what Mariner East Phase 2 is going to look like, or Mariner East 2X, and the Shell cracker, and all these others things.
We've got lots of opportunities going forward, and I think that's going to be a unique story for us, since we were so early on in these other projects.
The good news is we have optionality there as you look forward, so there's good things happening in Louisiana, and of course, with the pricing that's a big advantage and all that, but there's good things happening up in the Marcellus, too.
You're seeing a lot of improvements, longer laterals, better netbacks, new transportation agreements kicking in, so we will continue to look at that as we go forward and turn that knob to where we think it's optimum for any one particular year or time.
Maybe flip the other way, <UNK>.
The other thing I'd say is we have a really big acreage position, and we have the ability, back to <UNK>'s question too, it's really a big blocky position.
If somebody says otherwise, that's fake news, to use that term.
So, we have the ability to drill long, and what you're saying is, too, again, as we try to be very thoughtful methodical scientific data-driven, so we're drilling some 15,000-foot wells as we speak.
We have some 10,000 wells wet 10,000-foot wet wells, like <UNK> said, that are phenomenal.
So, we will look at where that optimum is, it's probably a little early to say where it is, it's longer than we are, so we will continue to march out, but we'll step out like we are with 15,000-foot wells, so we can see what that data looks like.
And then, again, dial it to where we think is optimum as we move forward with time, but that will drive increasing efficiencies.
Or you could have an old well out there that's butting up against that lease, so there's some of that in there, but we have a lot of wells where we can drill longer laterals on.
That plays in our earlier state, so you'd be spending a lot of R&D dollars to try to unlock it, when, like <UNK> said, we have got a lot of, a much higher probability, stronger economic wells to drill, instead.
But there'd be a lot of value to it.
(Multiple speakers) We hold all those [lease] rights, by the way.
It's captured.
That's a great question, <UNK>.
And back to what we said is those wells really they're east and west of Vernon, they are more like Vernon, so you have got instead of Terryville, you have one Upper Red, down there you got three Upper Red, and Terryville you've got one Lower Red there, you've got three Lower Reds and all these laterals are just in one of those six zones.
Did we pick the optimum zone, did we optimally drill and complete it.
You can go on and on, that's why there's tremendous upside, we're excited about the 400 Bcf per section, the high pressure, the thicker interval, and which of those six laterals is best ultimately that we develop, who knows.
Four of six or five of six or two of six, so there's a lot of upside and a lot of potential there, so it gives us optionality, we just want to be very thoughtful how we go forward.
And like <UNK> said, he talked about all the types of data we are gathering to help understand that.
Thank you
Thanks, everyone for participating on the call.
If you have additional questions, please follow up with the IR team.
| 2017_RRC |
2016 | ALXN | ALXN
#If we look at the $320 million, $165 million came in in 2015.
We are absorbing around $120 million this year, so approximately $40 million, $50 million will be left, which will get felt in 2017 if the currency stays where it is.
Thanks, <UNK>.
<UNK>.
Just to say ---+ <UNK>, thank you for your question and really we will be focused on the heparin sulfate levels.
As you know, <UNK>, this is the bad player in this disease, and while it's a biochemical marker, it's directly related to the pathophysiology of disease.
So we will be concentrating on that and no intention to produce more natural history data at this stage.
<UNK>.
<UNK>, thanks a lot.
So what we're looking at it is ---+ let's address the R&D expenses first because that'll actually ---+ relates very closely with the 48%, 49%.
So you can look at second half of last year where we integrated Synageva, so average run rate per quarter in the second half is $150 million of R&D expenses.
So when we look at annualizing that for 2016, it's approximately starting from a $600 million base.
So, what we have looked at here is a very financially disciplined growth of literally 10% to 12%, much, much lower than what the topline growth is going to be, and we've continued this process as we go forward in 2017 and 2018.
So we take that 22% of sales down below 20% by the time we get to 2018.
Similarly in SG&A, we came down from 28% in the second half of last year to 26% this year, and as the sales move forward and we have topline growth coming over in 2017, 2018 and lesser FX impact, we will start seeing the improvement in those rates also from 26% further down by a few percentage, taking us down to 48.9%.
Can I pass it on to <UNK>.
Yes, <UNK>.
In terms of the second part of your question, thank you, <UNK>.
Obviously, we will be presenting those data at the meeting, so we can't discuss them now.
But if you remember, the three-months data that we did present, we were really very excited by.
And just as a reminder, if you think about the 3 milligrams per kilogram dose where we saw an 11% reduction, really showing that we were able to cross the blood-brain barrier, this has two impacts for me, really.
One is to look at the six-month data to see what we see in this disease.
But it also speaks to the expression platform that we're using here and that notion of being able to use the platform for other diseases where we need to get large molecules across the blood-brain barrier.
So in both levels, we're really excited by these three-month results and look forward to presenting the six-month data at that new time.
Thanks, <UNK>.
Next question.
Yes, <UNK>, before I turn it over to <UNK>, as a reminder, right, that one thing that was really nice that we showed back on investor day was the consistency of what we saw in the patients compared to what we saw in our preclinical models, which <UNK> indicated.
And there is a prescribed ---+ as you might imagine, taking a sample of the CSF, it is not something that is done so frequently.
So <UNK> can talk you through that, but the reason why I mention the preclinical data, remember, we also showed the preclinical data at the 5 and the 10 milligram per kilogram dose showing more reduction in the preclinical models of heparin sulfate in the brain, and so that's the intention of the program moving forward.
But <UNK> can provide more color on the frequency of the CSF and the next steps.
I think you (multiple speakers) articulated it very well, <UNK>, and thank you, <UNK>, for those three questions buried nicely into one question, very admirable.
Really, as we alluded to, this was a six-month study, which is the data that we will present at the world symposium, but we did have a 12 week ---+ we didn't look at our dates before that, so that answers the first part of your question.
In terms of the second, we won't present any higher doses at that six months.
This will be the six-month data for the 0.31 and 3 milligrams per kilogram.
But as you alluded to and <UNK> mentioned, our ability to now ---+ to go to higher doses makes complete sense in this devastating disorder.
And then, your third one is really a basic pharmacology question about how high can you go up with dose escalation.
And this applies to any program, as you know better than I do.
Given the devastating nature of the disease, the encouraging results that we see, particularly in the 3 milligram per kilogram dose, our ability to go higher than that is clear and it's something that we want to do.
We'll also, as always, be very careful.
We'll be looking at safety along the way such that we do proper dose escalation studies, and these will unfold over the next period.
Sure.
So why don't I start, then I'll go to <UNK>, and then over to <UNK>.
Remember in the myasthenia trial, the patients that we enrolled were failing multiple immunosuppressive therapies.
And so despite the use of aggressive standard of care, they were progressing with refractory disease and progressing the MGADL of at least six or even more.
And, of course, we leveraged our Phase II proof-of-concept data to help us design the trial and agree with regulators on what we thought the right endpoint would be, which is a change in MGADL at 26 weeks from baseline.
In terms of magnitude, <UNK>, do you just want to talk through what we saw in the proof-of-concept study and then as we bring that through the registration trial.
Absolutely, <UNK>.
Again, you highlighted the fact that MGADL, we agreed with the regulators that this would be the most meaningful clinical endpoint for the patients, and to answer a kind of sub-part of your question clearly, we'll be measuring exactly the same things in the placebo arm, and as we also said, we will aim to report data from the study in mid-2016.
In terms of the ---+ what we saw in the investigator studies that were the Phase II data, you may recall that we showed an 85% difference in the MGADL between eculizumab and placebo.
The trial has gone very well in terms of the mechanics of it.
We exceeded our enrollment and we believe we've got a really good clinically meaningful endpoint that we are really looking forward for the data to read out, as mentioned, midyear this year.
And <UNK>, on the European pricing discount side, we normally don't break it out by region.
But on an average, we've seen 2% to 3% decline in the prices over the past and that's what we've factored into our forecast going forward.
However, we will see that in 10-Q ---+ 10-K that will be submitted soon, but it was less than 2% in 2015.
<UNK>, I'll get started.
As you know, what we laid out was the patients are going to carry through on their original dose through the six-month period, right.
Then those patients are all going to move for a period of time to the highest of the initial three doses, the 3 milligrams per kilogram.
We are then, as we indicated at investor day, going to re-randomize the 11 patients to the five or the 10.
But yes, there will be a period of time in which ---+ I wonder if this is what you are asking.
There will be a period of time in which all 11 patients will move up to eventually the 3 milligram per kilogram dose for a short period of time on their way to what we have now amended the protocol to do is test even higher doses.
Is that your question.
No, you won't see anything from that, <UNK>.
In answer to, if I heard you correctly at the start, we've really gone beyond that and that's why we haven't discussed it.
Based on the data we saw in the 0.3, 1, and 3, and as <UNK> alluded to the move to the higher dosage with 5 milligrams and 10 milligrams, we believe we've gone over that.
As I said, we'll show the six-month data at the world symposium, and then clearly the 5-milligram and 10-milligram doses will come out in due course.
Which in a way, <UNK>, right, is we've got a couple of shots at looking at this, right.
The first is, what was the dose-dependent response at 12 weeks.
Hold the patients at that very same dose, see what the impact was in terms of additional time through an additional 12 weeks to get to six months, and then we'll dose escalate from there.
No.
I'll just say that I think we've laid out our plans for 103 and I think it's just too early at this point to sort of speculate on what the registration plan will be.
Clearly, we have liked what we've seen so far through 12 weeks.
We look forward to taking a look at the six-month data, and all of this will inform with some other secondary endpoints in the Phase I/II what our plan is moving forward.
It is a devastating disease, so we look forward to ultimately reaching patients as fast as we possibly can.
In terms of 1210, <UNK>.
Just as we've said before, what we are looking for here with 1210 is rapid, sustained, and complete inhibition.
As you know, 1210 is an antibody.
It's behaving very well in the study so far, and as you know, we've had a single ascending dose study, multiple ascending dose in volunteers, two studies in patients, one of them where we've completed enrollment, and clearly we are following the data along the way now and expect to be able to continue to see the data that we showed at investor day, showed that this antibody continues to be well behaved.
I would just add that ---+ so that's precisely why we are running two trials in PNH patients, one of which, as <UNK> indicated today, is completely enrolled.
We are looking at a variety of induction and maintenance doses and looking at intervals of once monthly and longer.
We will be evaluating those different dose levels and looking at troughs over time, and as <UNK> said, we look forward to presenting a more fulsome look at the data for 1210 for the first time near midyear in PNH patients.
So there will be more to certainly discuss then.
Maybe I'll just start and then <UNK> can jump in.
So, our view on 1210 PNH in 2018 is that certainly these two trials will be supportive, but not necessarily the rollover trials, for registration.
But all of it will be informative, both to our registration trial plan and design and the dose and the interval that we ultimately select.
I just sort of leave it at that, and we do feel comfortable that the way that we've laid it out that these timelines certainly fit nicely with what our plans are.
<UNK>, maybe I'll just say that ---+ and I know you would say the same thing.
<UNK>, it's too early to really talk about the plan for the registration trials at this time, whether or not it's naive or switch or a combination of the two.
I think we are assessing that as we speak and I think that as we develop Soliris and eculizumab in PNH, regarding your question about subtleties, I think we'd be looking like we normally do to develop a global program that would be ideally suited for all of the regions and territories in countries in which we operate.
I think you've really cracked it there, <UNK>, in terms of the two volunteer studies and two patient studies will really help us inform the pharmacokinetic and pharmacodynamic profile of 1210, which will allow us exactly to decide on the Phase III program.
We're very confident in the timelines that we've laid out, based on everything that we've seen to date, and then, secondly, just to really reinforce <UNK>'s point, we are clearly in discussions with regulators.
These will be global studies as we did with eculizumab and no expectations, really, of any nuances over and above what you regularly see talking with different regulators.
I think, <UNK>, the other thing I would just comment on is when we think about our timelines and such, obviously we have an extremely strong vantage point as it relates to the global PNH arena, the investigators, the physicians, the patients, which all enable us, obviously, to do outstanding development work in this area.
I'll start, <UNK>, and then Carson will come in.
I think that Q4 was certainly supported by ---+ you know, the program's been in our hands for a while.
We've been applying our PNH and aHUS know-how to HPP for some time.
And as a result of that, right, as we indicated that in any single country because the trials were generally small and global in nature, not any one country is necessarily disproportionately impacted by clinical transitioning patients.
But at the same time, with our introduction in the US in Q4, we did benefit from some clinical-trial patients moving over, and then through our efforts, some patients that we had identified along the way commencing treatment.
So as I think <UNK> and <UNK> indicated earlier in the call, an initial group of patients, but <UNK> can fill you in a little bit more on the types of patients that ---+ beyond whether or not they are clinical trial or not, sort of the dynamics in what we are seeing as the types of patients commencing treatment.
Yes.
Thank you, <UNK>.
So with our focus on the pediatric patient population and our disease education efforts on that population, certainly what we have seen so far is a lot of newly diagnosed patients in the pediatric onset HPP setting.
<UNK>, maybe ---+ so I'll just say this.
One thing we mentioned on HPP is it's ---+ unlike PNH and even LAL-D, where there are publications on prevalence, there really in both aHUS and HPP, it's been a little lighter.
There's been some indications of what the incidents might be in the youngest population of patients, a range of one in 100,000 to one in 300,000 live births being impacted by HPP.
There haven't been, and <UNK> and the team, working with <UNK>'s team, are trying to better understand some of the mutations that identified in the HPP space to try to give us a better understanding of what the prevalence might be.
But at this point, we don't really have much more to work on.
Even some of these incidence numbers I'm sharing with you are from as long ago as the 1950s with the Fraser publication and more recently a French publication.
Regarding MG.
Just to say briefly, <UNK>, I think, as you know, the patients that we have are refractory patients for myasthenia gravis that failed treatment with at least two treatments.
So they are the most severe.
In terms of the estimate, we do ---+ we estimate the subset is a small proportion of the broader MG population, maybe a few thousand patients in the US, as you may imagine.
So it's very much in the area where we work, these ultra-rare patient populations, the most devastating and the most severely affected by the disease.
Yes, and where these patients have really no other hope because they have been worked through the system and the standard of care.
Thank you.
| 2016_ALXN |
2015 | NSIT | NSIT
#Thank you.
| 2015_NSIT |
2016 | NOC | NOC
#Thank you.
At this point in time, I'd like to turn the call over to you, <UNK>, for final comments.
Thanks, <UNK>.
Well, as I said at the beginning of the call, 2015 was an outstanding year for our Company and I'm really proud of what our team accomplished last year.
And I have to say, I'm looking forward to what this team can accomplish in 2016.
So thanks, everyone, for joining us on our call today and really appreciate your continuing interest in our Company.
| 2016_NOC |
2015 | PERY | PERY
#Oh, from ---+ are you saying from our own eComm, or eComm overall.
Yes.
You know, this is the first year we were able to get eComm basically to a small profit on a standalone basis, unlike, I would say, most other platforms that are out there in the industry.
We were able to do that by really focusing on specific merchandising assortment within each of the brands.
Within our eCommerce platforms today, we focused on also reducing where there were some duplicative analytics where we felt that we weren't getting a payback, and where we were able to invest in marketing and analytics that we felt could give us a higher eComm ---+ eCommerce lift and better profitability.
And we also closed our C&C eCommerce site this year.
That was one of the lower performing brands within our eCommerce platform.
So, that's also provided us a lift.
As we are looking forward now, and we feel that we've been able to get the right merchandising mix correct on each of the eCommerce platforms, and we can leverage the platform in place, it gives us a comfort level that we can now roll out, in the future, some of our other global brands that <UNK> talked about, and be able to reach the consumer more on a direct basis via that vehicle.
The overall goal for us for eCommerce is to get that up over time into a double-digit profitability from a ---+ from an operating perspective.
Product cost.
Product cost has been favorably affected by the lower prices of synthetic, the lowering of oil prices, have lower prices for the years, so nylon, et cetera.
And custom has been on a kind of decline for a couple of years.
So, basically that is an effective ---+ an effect that will result in improved earnings.
We haven't been able to quantify that.
It's a small number but it's a helpful number, whatever it is.
On the other side, we are focused on vetting ourselves for the TPPA, which Senator Orrin Hatch has taken a very active role in pushing, and especially ---+ and Obama have talked about it for the last couple of years that he would like to see that implemented.
It's a political issue at this point.
And negotiating with several different Asian countries on what can we accept and what they can accept.
But once that is completed, and everybody expects it to be completed, it's going to be a big switch in certain apparel categories to the countries out of China.
Generally speaking, men's companies have always been in the forefront of the changes, because we're more conservative, quote/unquote, than ladies business.
And the men's business can take a longer delivery than ladies.
So, all the big companies today are in ---+ moving to Africa, for example, PVH has established offices in Africa.
So has VF, and we are in that process too.
We have been buying in Africa for a number of years.
So, all of this is going to be good for the apparel business.
We also are doing office consolidation whenever necessary.
Like in China, we are reducing our exposure in China, which will result in improved cost of goods for the group.
So all in all, we are very ---+ we are in a good timing to realize some savings on cost of goods, although labor costs continues to increase in every other country.
Well, we are very focused on the licensing business.
We have improved the staff.
We have a new President in Stanley Silverstein, as announced a couple of years ago.
And we are making a lot of progress on licensing in the Middle East and in the Dubai area, and even in Saudi.
And we have a new manager for Asia out of Hong Kong, which is very active.
So we do expect those areas to start contributing.
And as you know, we are very strong in Latin America with all our brands.
And that will continue being a focus of distribution.
Although Latin America, mostly commodity companies, is not going to be growing this year as they were growing in the past couple of years.
You're welcome.
Thank you very much.
We have done our best to continue improving shareholder value.
And we will continue to do so.
So thank you for your patience.
And we are very, very excited about our future.
| 2015_PERY |
2017 | PDCE | PDCE
#Yes, Mike, what I was describing specific to the Delaware was that in addition to hedging, we've actually placed or we've actually purchased some firm transport out of the basin, and that's 40 million a day.
It takes us into the Waha Hub.
So while not a hedge, it provides us flow assurance.
So that's something that we think is really important.
When we think about our general hedging program, we tend to look at our total production, including the Wattenberg, and we're always looking at basis in those sorts of things.
Right now, obviously, on the gas side, CIG is probably our dominant basis position, so that's what we're taking the closest look at.
So hopefully that helps.
Mike.
This is <UNK>.
From API gravity standpoint, we're not seeing any incremental deducts for the variability in API across our position there.
There is a slight higher transportation charge per barrels on the West side versus the East side.
But from all that we see here in front of us today, there is no incremental deducts for API differences.
Sure.
So in the Eastern side, we're averaging right in that mid-40s API range.
As you go towards the Central area, where more sort of the lower 50s to maybe the mid-50s.
And then on the Western side, we're more than mid-50s to maybe a little bit higher than the mid-50s, but sort in that type of range.
So Mike, with that test of 12 wells per section in the A that <UNK> described, that compares to our acquisition analysis, our inventory of 8 wells per section in the <UNK>
So based upon success of that, would then have upward pressure on our inventory, which should be a positive thing for the company.
As far as other companies test in that tight of spacing, I know that, for example, Cimarex has talked about various tighter down spacings that they are doing.
In fact, I'd probably start maybe more on the Western side where they have tested 6 and 8 wells per section in the Upper Wolfcamp in Culberson County and they now plan to do a 12 well per section test in Culberson County called their Seattle Slew test there.
They're also testing tighter spacing.
This is Cimarex in Reeves County also in a test called the Wood State.
So that's another downspacing that they're looking at.
And then I'd say for the central area, the one we probably look at that's testing this most right now would be Resolute.
They've got some work that they're doing on various downspacing tests there between the Wolfcamp A itself as well as Wolfcamp A and the Wolfcamp B.
So there's 2 real examples that are pretty close offsetting this that are testing this tight of spacing.
So as industry progresses forward, as we get more data, we look to see a lot of additional of testing of this downspacing in offset locations and also as well as ourselves.
So hopefully, that gives you some insight of what we're looking at.
For this year, I'll share some thoughts and turn to <UNK>.
For this year, a lot of our work is focused on HBP and our acreage, and with that, we're doing primarily the Wolfcamp A and the Wolfcamp B intervals out there.
As we continue the HBP, the locations and then get more line of sight on then looking at how we continue to build and grow out the inventory.
Clearly, we're going to be looking at additional testing and other intervals, both below that and above that, the A and the B that we have talked about.
So it's something that's on our radar screen.
That's probably more a year or 2 out that we'll start looking at some of the testing of the other intervals.
But keep in mind too there's a lot going on in the industry test and additional intervals as well, so we continue to watch them us we're looking at our own programs as well.
<UNK>, this is <UNK> <UNK>.
So our guidance range right now is $3.25 to $3.60 per BOE for the full year, so we continue to ---+ as you know, we're adding a lot of folks this year, but the good part is, is we continue to see that trend down.
So I think that the trend is something that we anticipate for the full year.
Nothing else really remarkable in there.
Probably just kind of make sure that we trued up for bonuses last year and then we had some deal costs that were in there.
I think we had just about $11 million of deal costs.
Is that right.
So that was probably the biggest difference quarter-to-quarter.
Yes, that gets us transport to the Waha Hub.
And then from there, you get access to the Mexico markets.
You've got good flowback to the East and the shift channel markets and such.
So yes, just gives us great flexibility.
Yes, that part is ---+ that's the index that we're going to be trading against.
Well, what we can say is that, that's on a FERC-regulated pipe, so it's a tariff rate.
At this point, it's probably not something that we're going to put out there.
What I will say is we've captured all the volumes and the commitments in our commitment tables that's in the 10-Q, at least in aggregate.
Mike, no.
I think if we're in this ---+ $45 to $50 range our plan for the year is intact.
Our permits ---+ we obviously have the Delaware where we've been very clear on our efforts to hold the acreage.
Our Wattenberg, if you go back to what <UNK> presented at Analyst Day in some of the economics, even at $40 oil and $2.50 gas are incredibly strong in Wattenberg.
So I think we've got a good path.
I think we're not going to overreact to a market that corrects, hopefully, short term.
If our internal outlooks shifted to where we saw a longer term price correction, I think that will be something where we'll start looking at '18 and '19 and where we take the company.
But I think we've got a good plan this year, and you can expect us to grow in line with what we're guiding.
Yes, thank you, Kevin, and thank you, everybody, and all the Mikes out there.
And we appreciate the ongoing support and expect more to come as we go through the year.
| 2017_PDCE |
2015 | CMCSA | CMCSA
#Well, as you said, we've continued to add over 1 million customers for nine years now and that we have done 16 speed increases in the past 13 years.
So we continue to increase speeds and that is the value that customers are receiving.
We have also, as <UNK> mentioned in his comments, increased the wireless gateways so our in-home Wi-Fi is a very strong value add.
In terms of DOCSIS 3.1 it is ---+ we have it in the labs, we plan on rolling it out early next year.
And we think that will give us more speed capability and we are also working on products that will increase let's just call it the smartness of the Internet, not just speed.
So, we think we can continue to grow market share and the market is growing.
Only 70% of customers have a high speed connection.
So there is market growth opportunity there as well.
Well, let me start by just saying that we see the two companies ---+ the two parts of the Company working together is really part of what is powering these earnings results and across the board.
And one of the areas that we have identified as a management team is that question.
There is [importantly] how do we improve the technology so we have better targeted information.
What is the data that can assist the advertisers and the networks in having the right relationship with what they are offering.
And it is an important area to the Company because of both parts of the Company have a lot of advertising dollars.
It is nice to see the spot market being very successful right now and supportive of this space.
So I think there is a lot of chance for us to perform well.
The other thing with data is sort of measurement and having buyers be more knowledgeable to whatever means that that data gets to the marketplace.
And so, we're looking at all those opportunities across the Company.
<UNK> or <UNK>, please jump in.
Our advertising group which is now unified under Linda Yaccarino for all the cable channels, all broadcast and all-digital.
She's currently not only allowing advertisers to sell across all those platforms, but to do so in a way that is informed by information or complemented by targetability on the Comcast side.
Which is obviously a very, very unique product in a world where advertisers want to marry the proven storyteller ---+ storytelling of a television spot with the targetability of the Internet.
So, she is in the market with those products right now, they are doing very well.
And those products are going to get more sophisticated as we complement them with more information, more set-top box data, etc.
It is <UNK>.
On the balance sheet side or the size of the debt issuance of the Company, I think that continues and should continue to be a factor that we think about.
We are a large issuer and we want to make sure that through the course of time we are always able to carry the balances at good rates through time.
And concerning programming costs, this was a lower quarter than usual in terms of percentage of increase.
We do see that increasing.
We will be slightly below our 8% number that we have given previous guidance on.
And I think we are not done with the budgeting process yet for 2016, so we are not prepared to comment on that yet.
Concerning Internet Plus, as I mentioned, when they roll off promotional rates some people step up to higher level packages, more video, about 30% do.
Some people roll off or churn off and some people extend in the existing to step up in their pricing.
So we find it is an attractive way of getting customers who are initially only interested in Internet onto a video product and then expand the package from there, get a foot in the door.
Concerning Altice, it is good to see others recognize the value in the cable market as we have.
There is always things we can learn.
They do some things ---+ some interesting things with self-service, their IT consolidation, their structural approach and we are always open to learning.
I think the competitive intensity is much the same as it has been in the past.
The base offers they're attractive promotional offers but the base rate remains in the same ballpark.
I think different people are trying different things.
We feel the X1 platform is something we can build on.
There is greater viewership, there is more VOD consumption both transactional and non-transactional.
The churn reduction is significant.
And there are more AOs, more DVR usage.
So we are investing behind the X1 platform and we feel we can continue to ---+ our objective is to continue to improve year over year on an ongoing basis.
I would just add that the thing that I feel good about is the video product that we are offering has tremendous momentum.
It is the best in the market.
People that don't live in <UNK>adelphia or one of our markets when they see it they go, wow, I wish I could get that.
With the ease now of the voice remote we will put millions of those out in the next several quarters.
And it just makes it even that much better.
And our service initiatives and the improvements that are being made, and the reliability and on time and the network reliability, there's a tremendous focus here and I think that is improving as well.
So, you put all that together, I really think we have great momentum and a good strategy.
I complement Dave Watson and the operating teams in the field who are really driving the X1 out and targeting selective segments in the offer.
40,000 a day, that is a huge push.
<UNK>, it is <UNK>, I will start and <UNK> can finish.
But on business services, enterprise growth it is a continuation of what we are doing.
The needs are similar and we are investing and it is a big source of capital investment that you have seen and the recent past and that is going to continue.
But we are going to layer on businesses of a bigger scale that have the profile of the medium-size enterprises that we already have.
And I would just add that we are targeting the Fortune 1000 companies and other large enterprises that have 300 locations or more.
And if you think about it, this type of enterprise customer, we are looking at entities with branches such as banks, restaurants retailers and those are all small customers like an assembly of small customers.
So, we have managed services to more than 20 large enterprise customers already and have already signed multiple eight figure deals.
So one of the things that NBCUniversal does for Comcast and I think <UNK> put a focus on it right from the get go when we moved Jeff Shell to London was to really use this as a way to have the Company look at broader opportunities, not just in the United States, but around the world.
And we are really happy with the Osaka and Japan theme park, 51% announcement.
But as we have said, and I think that what I was really referring to was our China opportunity.
We have a partnership that we are in the process of getting complete all the approvals necessary to go forward, but we are looking forward to building an entire new Universal in Beijing and that is a continuation of the ---+because we are in the theme park business, when we bought the Company there were no owned assets outside the United States.
And we will have perhaps the largest or one of the largest theme parks will be China.
And when you see Universal Japan it is a thriving business that we think we can grow and we are in the process of putting in the manage unit.
Coming from Florida, the Chief Financial Officer of Universal Parks is going to move there.
And the team is really ready for this kind of opportunities and can hit the ground running.
So, there is nothing else at this time that we are working on specifically like that.
But this was a unique opportunity and we are ---+ it complements what we're going to do in Beijing.
I think on the competitive side, as I said, we haven't seen a meaningful difference in approach or sub numbers.
Our churn ---+ our numbers are the best in nine years and it is driven by churn.
So you'd think that if there was a very attractive offer you would see higher churn but our churn numbers remain over.
And concerning the retrans ---+.
I don't know if he is talking to you or to <UNK>.
I think our retrans(multiple speakers) generally speaking are continuing on a steady curve and there is no real lumpiness in that number.
Look, we've seen this is not a new thing, there were similar thoughts when the bells were building, that it was not universal.
We can't per se control that.
We obviously want to have as level a playing field as one can.
But a pro-competitive strategy in our opinion is better than a pro-regulatory strategy.
And if there is more competition, that is something that we have been facing for years and nothing we are going to do to change that or want to change that.
I think if anything it is a reminder to regulators how competitive this industry is and will be in the future.
And that is why it is so critical that we continue to perform well and sharpen our operating skills and we are showing that.
Thanks, <UNK>.
Regina.
We have got time for one more question.
I think it has been a combination of a number of factors.
One is getting people on the X1 platform is having an effect on churn.
Second is we have more people on contracts.
And third is that there is more people using TV Everywhere.
There is a third of our customers are using TV Everywhere on a monthly basis.
And finally, I think our customer experience improvements have helped significantly.
I mean, if we can get the right customers and keep them longer it is going to impact churn.
So our customer experience things in terms of reducing phone calls, reducing truck rolls, getting things right the first time and really super serving our customers is having an impact as well.
I just want to sum up from my perspective what was so good about this quarter from where I sit is the Company working really well together.
It was a terrific first nine months of the year, this quarter being in video the best in nine years, and broadband the best in six years.
At NBCUniversal we basically now have doubled the cash flow on a run rate to do that.
That strength is across so many different parts of the Company that are participating in the technology change that is happening, as we have talked about the millennials, we talk also about NBC and investments in Vox and BuzzFeed and the ability to now hopefully have advertising that can take some of our content and their content and bring it to advertisers.
Doing all this while still maintaining leverage allows us to buy back shares and the dividend and <UNK> <UNK> joining us here and changing sort of the trajectory of that buyback in anticipation of things.
And ultimately it is giving customers what they want in having a company with a unique set of assets that can do that.
And I think we really ---+ in so many different fronts of the Company did that this quarter.
So we are really pleased and thank you for your questions and support.
Thanks, <UNK>.
And thanks, everyone, for joining us.
That will conclude today's call.
Regina, back to you.
| 2015_CMCSA |
2017 | ENS | ENS
#It is going to come down to what the stock price is at the time.
We will always make that assessment.
It will depend on what the likelihood if it is not 2017 what the likelihood of a deal is in 2018.
So it is very difficult to give you a flavor for that as we sit here today, but we'll assess it.
We are open minded.
One-time dividends, changing our dividend rate going forward, it is all on the table.
Nothing's off the table.
We will just see what the situation is, but obviously the job ---+ our job is to emphasize M&A.
That's what we are trying to do.
And <UNK> if I could add just a little color to that, sometimes if we were looking at a large transaction that would be material non-public information which would preclude us from being out in the market buying our shares.
So sometimes even if the share price looked like it was below the intrinsic value of our stock we may not be able to participate.
As we know, there is a better part of the year where our window is closed for normal operating results and the timing of the window and when those are made public.
But to Dave's point, M&A would be first.
There is so much uncertainty right now on what the tax situation might be, not only in the U.S., but throughout Europe with the [beps] initiatives.
We have no idea what type of reactions other countries might have if the U.S. makes changes in their trade policies.
So I think it would cause us to really want to assess the situation carefully before jumping out in a big way.
That's the credit facility in which we don't get full credit for those overseas funds.
The logic there was if you brought down the debt you'd have to pay that US tax rate it has largely gone untaxed at.
If overseas profits were taxed under any of the plans that are being discussed on the U.S. basis, then you have suddenly taken that off the table.
And that's where you would say, okay, in that case you may ---+ and if interest expense, I think whether that gets grand fathered as not ---+ if it ever becomes non deductible, it would make interest expense a much higher priority if you had an expense that was not tax deductible.
You could have debt repayment and you could be looking at dividend changes, M&A, as we discussed, and of course share buy backs are still an option.
We did not acquire any shares in this quarter.
We have an authorization that is available and it is approximately $20 million.
So relatively modest.
It is the annual acquisition that we typically will try to make to offset the dilution that comes from our stock compensation programs.
But other than that we have nothing further and have not made anything in this fiscal year to date.
Thank you.
Thanks, Bridget.
I just want to thank everyone for attending the call today.
We look forward to seeing you at the New York Stock Exchange on the 28th and have a great day, everyone.
Take care.
| 2017_ENS |
2017 | DKS | DKS
#I think right now I would say it's probably not, as you launch a new platform like this you've got natural surge that needs to reset, we've got some things that we need to continue to do, improvement from a functionality of the site.
So in 2017 I would say probably no going forward.
After that, I think, or the back half of this, I think you'll start to see we're probably confident of what we can do from an e-commerce standpoint.
We are looking through that.
We're not ready to provide all of that as we're still going through some of these conversations with some brands.
We've had a number of brands that we've had these conversations with.
We've come to an agreement on where they're going to be from a strategic standpoint, a transactional standpoint, or there's some of them that are going to be eliminated.
But how that all flows through yet, we're still working through that.
But we've got a model that we are confident that we can meet or exceed.
Yes.
You've got less competition out there.
Yes, definitely.
What we're going to do from a, how enthusiastic we are about team sports headquarters and these technologies of Blue Sombrero, Affinity and GameChanger that we acquired, and we think this is, there is a big unlock here that we are working through.
Still the ---+ so what we expect is as we continue to grow the business that the shipping costs are going to become a bigger piece of the expense structure as the business becomes a bigger piece of the entire business.
We're looking at ways at how we might be able to slow those shipping costs, and we're working through those.
But to kind of call out the profitability of e-commerce versus the profitability of the store, we are not ready to do that.
But I will tell you that the e-commerce business is probably more profitable than you think.
I think a big piece of what we're doing are two things.
The vendor consolidation that we've implemented and re-looking at our vendor structure, and what segment a vendor is in, and then what rights or privileges those vendors have inside our business, the investments we're going to make, the investments they are going to make.
And then also, what we're going to be doing from a private brand standpoint.
We have gotten much more aggressive with private brand.
You can see what we've done with CALIA.
Field & Stream has been great from a private brand standpoint.
One of the biggest issues that we have going forward ---+ biggest opportunities ---+ is private brand, and we are investing very heavily in them.
From an infrastructure standpoint, you're going to see more marketing of these, and over the next few years you will see our private brand business grow pretty dramatically.
Yes, we are happy with that.
We think if some of this additional consolidation happens, we're in a great position to pick up a significant amount of that market share, whether it be at Dick's or Field & Stream, the same way as we were able to pick up, and we think we can pick up market share in the golf business when Golfsmith has gone out and both Golf Galaxy and in Dick's.
So we like the position we're in.
This industry is a bit more difficult right now.
We think it's going to continue to be that way on a macro basis, but we do expect some consolidation.
And if that happens, we are in a great position to pick up that market share.
I actually think toward the back half of the year that could be a good business for us.
But we're not planning on that right now.
Sure.
Shocking.
(laughter)
You won't see as many of them in the spring assortments as you will toward the back half of this year.
We've been talking about this for quite awhile.
And as we have talked about this, done this analysis of the business, and we decided we've got to pull the trigger and we've got to do this.
And it's difficult to do.
Is difficult to tell people that you've done business with for a long time that we're not going to do business going forward.
So this is something we've been talking about for awhile, and based on what's going on in the industry today, we felt this was the right time we had to do this.
So we're not going to guide to that right now.
We're still working through this.
We're still working through some vendor agreements, and how we're going to do this, and how we're going to either ---+ our private brand business, how we may come create with some brands product, but this has definitely been the right thing for us to do.
Every vendor is a little bit different and every category is a little bit different, but you should look at that we will get some combination of ---+ and this is a two-way street ---+ so we are also investing also.
We are providing them additional square footage.
We are investing with them to be a bigger part of our marketing campaign.
But you should look at this as it's around pricing, it's around discount, it's around marketing, it's around in-store presentation.
So this is not a one-size-fits-all, and every category and every vendor would be different.
We'd be looking for something different from, somebody in the golf business might be different than what we'd be looking for from someone in the baseball business.
But this has been pretty successful out of the gate, and as you can imagine, the vendors that are going into that strategic bucket are very excited about it.
Great, thank you.
Well, we're not going to get into the economics around this right now.
But the way this works is, leagues will sign up on our platform, whether it be a Blue Sombrero, the governing bodies sign up on our platform which is Affinity.
And then GameChanger is an interactive application that, primarily baseball right now, but is going to be broadened out to other sports.
And they interact with this, we're able to understand who is doing what, who is playing what sport, and be able to market to them.
I thought there was a great comment when we were looking to buy GameChanger with their CEO, who said, I don't remember exactly the number of teams, but they've got an awful lot of teams, and said, I know everybody in Little League that bats cleanup.
I know in high school baseball almost everyone who plays the position of catcher.
So we can market to them that particular way.
And it's a great database that we have only begun to mine.
So there's still a lot to do.
But we can get to that level of detail with people, and these young athletes that I think we will be able to serve them better, and we will be able to provide them what they really need.
Who are you using.
They're both terrific companies.
As you can imagine, the closer our store was to a TSA store, the better it did.
And the further away, then not as good as the one that was close.
We've got a transaction data for all of their business down to the SKU level.
So we can target by store from a marketing standpoint and we can target by store from an assortment standpoint to better serve those athletes.
Well, as we have taken a look at that, we've done a deep dive into not only our business, but some of the businesses that have consolidated.
And we took a hard look at this and said, we've got to make sure that we don't have symptoms of the disease that these other companies atrophied from and died.
And some of the things that we looked at that they had issues with is they had extremely high debt, private equity owned, high debt.
They didn't invest in their e-commerce business the way that we've invested from an e-commerce standpoint.
They did not invest from a product development standpoint the way that we have across, not only good, better, and best categories of product.
They also did not invest in their stores, and they also had a constant revolving door from a leadership standpoint.
And as we looked at these, we don't have any symptoms of those disease.
We have no debt, we continue to invest in our e-commerce business pretty aggressively, and you've seeing the growth there.
This past year our e-commerce business was almost $1 billion.
As we take a look at what we're doing from a PD standpoint, our PD business is going to be roughly $1 billion.
We expect margin rates to expand.
We've developed great partnerships and relationships with the vendors that the others didn't.
So is this a great industry right now.
I think it really is a very good industry that there were some weak links and some companies that couldn't survive.
And I think you're seeing this in some other retail industries too.
So I don't think this is something that we get caught up in.
As long as we continue to run and manage our business, which is why when this whole thing happened, we didn't take a lot of time to ---+ we didn't take time to celebrate, we said, okay, let's do a thorough review of our business and make sure we don't have symptoms of this disease, which is why we've gone back and we did ---+ we've redone the vendor structure and took some of these charges to clean out a little bit of the issues to make sure that we don't have these issues going forward.
Thank you.
No.
It's all behind us.
At some point it would just depend, from a fulfillment standpoint if we developed our own fulfillment center, but other than that, I don't think so.
And we've got a terrific fulfillment partner right now in Radial and we're very happy with them.
This year, we anticipate putting an additional $50 million into that building.
I don't think we're going to guide specifically on those basis points right now, but we do think it will be up somewhat in total for the year.
We do expect merchandise margins to expand.
Actually, I don't think we get there this year, but we are very agnostic as to where they shop.
We just want to make sure they shop with us, whether it be in the store or online.
But the store right now is still a bit more profitable than the e-commerce business, and we expect that to continue throughout the year as we continue to heavily marked this because of the new site.
With a new site, you've got to treat it with some tender loving care.
And we've got some investments that we're going to make there from a marketing standpoint, infrastructure to make sure that we do that.
It would be safe to make that assumption.
We don't think it's gone either.
We think there are still opportunities.
As I said, we've got the data that we were mining in the third and fourth quarter, we're much better at it going forward.
We think that there is still more market share to get.
And, as we said, we think there's still more consolidation to happen in this industry.
The consolidation is not done.
Sure.
Thank you, you too.
Not a lot of difference.
We are a destination retailer.
We don't need the mall traffic to drive our business.
We are a destination.
We actually help the mall traffic, so there's no real difference.
Not MC.
Yes, too small.
No, nothing there.
I would like to thank everyone for joining us on our fourth quarter earnings call, and we'll look forward to seeing everyone when we report the first quarter.
Thank you very much.
| 2017_DKS |
2015 | ODFL | ODFL
#No, no, not at all.
I think we have a strong organizational structure that we do both.
And keep in mind we are in fact doing both.
We have repurchased about just under $28 million of shares since its effective date in December currently, and that's on the, even though we've indicated $460 million of CapEx.
So we will still do both.
Executing and investing in growth in terms of our network, et cetera, and while also looking at returning some proceeds to shareholders in terms of a we purchase.
So I think our balance sheet, our profitability and margins allow us to do both and we continue to look at that.
We see that that's fairly normal.
That includes our DIPD coverage in that line as well as our cargo claims, and we've been very active in managing both of those expenses, and we continue to see that as being a positive number.
Whether it goes down or up as a percent of revenue, as we pointed out in our script, the optics of that isn't as much as you think since our-.
We showed it going from 1.3% to 1.4% but the revenue is down because of the fuel surcharge.
Right.
So the number is actually better as a percent of pre-fuel is your charge revenue.
And that's a good point.
I would say probably it's more flattish.
But I think that's a range we expect to maintain this year.
Good morning, <UNK>.
<UNK>, I don't think, you know, as far as we're concerned, we've not seen any effect on our relationships with the 3PLs that we do business with.
Our stamps on how we work with 3PLs will remain the same, and we've had a successful relationship with our 3PLs.
Our mix of brands is the same this year as it has been the last couple of years, from the tractor standpoint.
Trailers are about the same.
There's nothing in particular different in any major way.
Mix of engines and the whole thing, it's all about the same.
And we're testing some automatic transmissions or what do they call it, semi automatic transmissions, but we're not, you know, haven't moved ahead with anything in a big way on that.
We've been watching the whole natural gas evolution for the last several years, and we're definitely on a wait and see approach.
We don't think that we're ready for that or that's ready for us.
Keep in mind, <UNK>, that our tractors that are used in the P and D routes were previously line haul tractors as we get the ten-year economic life.
So we do not buy a separate pickup and delivery fleet so that makes it a little more cumbersome to try.
And line haul, clearly, natural gas just isn't even close to being practical for us, as I assume for the industry.
Good morning.
On your first question, yeah, we did realize a little bit of tail wind in the first quarter, maybe 20 basis points to 40 basis points on the fuel.
We expect that to reverse to a slight headwind as the year progresses and as fuel costs start to go up and fuel surcharge perhaps lags that a little bit.
So, yeah, that was our currents.
And what was your other question again, <UNK>.
About the fuel surcharge and the customers.
We've not had, honestly, not a lot of, you know, direct feedback nor any way to really measure whether our stance of not taking increases on our fuel surcharge tables, whether that has contributed to mark share gains.
We really, it's impossible to measure that.
I would just say that our 559, which is where that would have affected, saw pretty nice growth in the first quarter, so maybe.
Not necessarily above what would be the overall.
It's hard to make a conclusion that we got additional, but we still think that that was the fair thing for us and the right thing for us to do.
We had not given that guidance.
Correct.
We have a lower weight per shipment in the first quarter, and I think our incremental margin was 30%.
(Inaudible) by that versus overall yield and density across the network, I think yield and density across the network were more influential to our 200 basis point improvement in OR.
But it would have maybe a slight negative effect on incremental margin in that we do haul shipments, so we're hauling more shipments, which means that you've got more movement on that, but the impact would have been minimal, as <UNK> points out, the real question is, are you getting appropriately compensated in terms of yield.
And certainly we have and expect to.
It's been relatively constant, although our overnight and second day is growing perhaps slightly more than our longer haul.
And that's kind of been the trend.
But other than that, we haven't seen any sudden or significant shifts in that.
We are keeping our trailers, our Pup trailers, in the range of, I think it's 18 or 20 years.
Is that about right, <UNK>, somewhere in that neighborhood.
Yeah.
So I think you would probably only make a conversion if they were less than ten years old, would be my, that's just my educated guess right now.
It could go either way.
Even at a, sequentially our tonnage will be obviously higher in the second quarter than the first.
And year-over-year we've already discussed 9% to 10% tonnage growth.
And even more shipments growth.
Keep in mind that probably the more comparable metric is number of shipments growth with respect to employees, not tonnage growth, because we actually move shipments, not necessarily tonnage.
So it takes, so we anticipate that the tonnage growth, that the shipment growth will be higher.
And that means you've got to have the people in place to move it.
Yeah, well definitely be, you know, adding people during this second quarter because June will be another peak month.
Just like March is the peak month to the first quarter, June says the peak month to the second quarter and we've got to be getting geared up to be able to handle the volumes in June.
And then we hope everybody takes a little bit of a vacation in July and then here we go again with the next peak in September.
Keep in mind you don't, the percentage isn't necessarily relevant.
I mean, if you've got a customer and you want to, and you need to run, say it's a new customer.
You only get a sampling of that shipment to see if the cube the weight per cube is what was agreed on from a pricing standpoint.
If I had to guess, I would say 30% to 40% of our shipments go through a dimensioner.
On a daily basis.
Well, keep in mind expedited doesn't necessarily mean next day.
Expedite is expedite regardless of the length of haul.
If we have a customer that needs a shipment going from the East Coast to the <UNK>t Coast, that's expedited but that's not necessarily having anything to do with the transit time.
It's with the immediacy of the shipment.
So that wouldn't necessarily be the reason why our next day shipments are, as a percent of overall has increased.
It's just one of the things, it is growth, continued growth in our regional, obviously, business, but it's not necessarily expedited.
Faster.
Yes, it has.
Yes, it has and I'm not sure how you know that number because we don't disclose that amount of detail.
Coming off a lower base of revenue, too, that's why the percentage growth might be faster.
I think, as long as the macro is in place, doing okay, as long as we see continued discipline from a pricing standpoint, and assuming that we still have the density improvements, all of which we think is the case, there's no reason why we are, our incremental margin wouldn't be definitely at the high end range and of course it's been above that with those ingredients in place.
For it to get to the low range, I think we would have to see all of those things having a negative effect and therefore just not doing well.
And that's for you and the economists to decide if that ever happens.
But that would be the reason why it would ever get down to the low end of that range, would be because of those factors, being not positive.
| 2015_ODFL |
2015 | WSO | WSO
#You know, it's been pretty steady with the commodities.
They are small.
They are not material to the whole business, but copper refrigerant had been pretty stable.
We are seeing some increases, obviously, in the parts and components side, which is good.
No, no, we don't.
We don't get into that.
Well, it's sort of like this, <UNK>.
We are not out of the investment mode.
We added another 25 people in the first quarter, and I think we're going to continue the investment frame for quite a while.
Now, when is some of that investment paying off.
I think that's what we are seeing is some of that, but it's not measurable.
It's just the whole idea that we are getting more efficient in our operations and more efficient in our ability to gain share and produce revenue.
That's really an ongoing thing.
We are not going to stop investing, and quite the contrary.
If anything, I will step it up.
No, it doesn't work that way.
We just keep ---+ and where we see we want to beef up our sales force, we do that, but that doesn't matter what time of the year.
And, of course, technology is an ever-increasing investment.
So, it's not related really to the time of the year; it's just where do we have need and then we take actions to take care of it.
We are still going to be adding people is what I'm saying in the rest of the year.
It's not ---+ we are not over it in the first quarter.
It's just something that we do on an ongoing basis.
That's correct.
No, I don't know about ---+
We didn't say that.
I think the consumer ---+ and again, we don't look at short-term swings.
It doesn't matter to us as it does perhaps to (multiple speakers)
We believe that the movement by the consumer to higher efficiency is a long-term, is a long-term trend.
Yes, yes.
Manufacturers are also keen on increasing their efficiency, so, as I said, I think this is a long-term trend.
There is no end to the technology development by the manufacturers of equipment to improving efficiency.
They are at it and so that trend, I think, is starting with manufacturing and going on through distribution because the consumer wants it.
I don't want to mislead anybody.
Let's use the word strong.
It's only a few days, but I like it.
Yes, I think the market will be bigger this year than it was last year.
I would agree with that.
I couldn't tell you that.
I couldn't tell the growth rate.
Well, because we have been doing this for a long time and we just ---+ this is our sense of what we are going to do.
No, we are not going to provide growth rate numbers.
But don't forget.
The premise is that we are getting better at what we do.
We are more efficient.
It has stuck.
Those increases made last year have stuck this year.
Wow, that's a heckuva question.
<UNK>, do you have a sense for that.
No, I really don't.
Like I say, it's not ---+ even on commercial, it's not a big quarter for us, so I really can't say there is any direction that I can point us in as far as strong versus weak sectors right now.
I would say it this way, that it's become a dependable part of the business over the last several quarters.
There was some choppiness a couple years ago, but it's become much more dependable and consistent, and as <UNK> said, it's early, but it certainly has become more dependable over time.
<UNK>, do you have a sense for that, or <UNK>.
We certainly stock commercial products to fulfill the demand cycle of replacement, just as we do in residential, so there is nothing peculiar or different about commercial versus residential at all.
It is a replacement market that we are working in, <UNK>, so, yes, we do keep inventory out there.
It's just packaged equipment.
It's rooftops and packaged equipment.
<UNK>, there is really not a material backlog.
When we talk about the replacement market, our backlog might be a half an hour after a phone call is made.
So, it's a very short-term, quick emergency replacement business.
Backlog is not really a measurable thing in our business.
And that's how we compete, because of our balance-sheet strength.
We perhaps can carry more inventory to meet replacement demand than our competitors can.
That's fundamental to our strength.
<UNK>.
Yes, the price already moved in the fourth quarter.
Do we expect it to stay high.
Quite frankly, Dave, it's a very, very small piece of our business.
R-22 refrigerant sales, it is almost untrackable.
It's not a material.
Any what.
I couldn't hear the question.
Of course, if it opens up, we are right next to it.
There are 11 million people living there and they probably need a lot of air conditioning.
Don't forget our current market is North America and the export market and our locations in Mexico, so it's a much larger market than we are presently service and 11 million people against, I don't know, 500 million, 600 million is not ---+ of our existing market is not a big number, but the need may be greater there because they are so underdeveloped.
Then we have to see whether they can afford to pay for things, so if it develops, we will be ---+ we're their neighbor, so ---+ and if we're allowed to do business there, we certainly are not going to ignore it.
We are interested in M&A, but the situation for us is that at our size, it's very difficult to see an M&A activity at this moment that would move the needle much for us.
But if it comes along, we certainly want to have and do have the balance sheet to do almost any size, but there is nothing of size that is imminent that I am aware of or I have a sense for, not for lack of looking and not for lack of trying.
But we bought 67 companies more or less and many of them were smaller businesses.
That's not the sort of thing we probably would do today, acquire smaller business.
What I hope we can do is when we do M&A to have something of some size.
I wish you would get after them, <UNK>.
We would love for them to ---+ get after them.
Tell them that they should turn over their distribution to us.
Trust me, I would love to do that.
We would love to buy manufacturers' distribution assets in the Americas.
Well, you don't want to know.
Well, actually in the Northeast, it's also very good, so it's beautiful.
Come visit.
Yes.
86, sunny, and humid.
We love it.
Thanks for your interest in our Company and we look forward to talking again at the conclusion of the second quarter.
Bye-bye.
| 2015_WSO |
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