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2016 | PAHC | PAHC
#The minerals, it is difficult to model the top line, there is no sense trying to model what commodity prices are going to do.
The bottom line is, we expect that business to be a solid, steady, growing contributor.
We have said before that it is tied to animal numbers in the US, and so it is a low single-digit type of growth business and we would expect our EBITDA to continue to grow in that kind of a range, with maybe a little bit of upside as we get efficiencies and some leverage on some of our expenses.
That is how you think about that, from a modeling point of view.
Yes, you can ---+ I don't even have the number off the top of my head, but I think we say our animal health segment is about 45% in the US, yes it's 45% across the entire segment.
And the us is ---+ MFAs is probably similar to a slightly less percentage.
I'm stumbling around.
What was the second part of your question.
Poultry and swine, but predominantly to poultry.
There is a whole range of products that go into chickens which might not be defined as antibiotics, but are fed through, put in the animal through feed.
These products are not affected by people saying ---+ their requests for antibiotics.
Antibiotics is a defined term.
And most of the industry, if you read through most of the producers, I would say the trend is to try to focus on what is medically important, and yet to use a range of other products, including some antibiotics, in order to treat coccidial diseases and all of the diseases that these animals have, and there is no other way to do that.
Ultimately, the consumer, when they order chicken, want chicken delivered and not some other something else because chicken is not available.
That is how we got to the Magni-Phi product line, and we continue to look.
This is not a simple task at all, we are dealing with lots of conditions, cocci, bacteria, viruses, a whole range of things that go on in an animal that need to be dealt with.
And remembering that the chicken lives for 4 to 5 weeks, and they don't have a long time to treat the animal before it gets slaughtered, so we're not going to see a huge, huge shift away from what is necessary to raise animals.
And again, you know I saw an article the other day, there is some segment of the market can say, we will spend $20 for a chicken.
That might be true, but that's not most of us.
Overall it's a tumult right now, we are right in the mix of everything.
Lots of stuff going on, but we should not forget at the end of the day that the US produces the healthiest, most wholesome and least expensive protein of pretty much any country in the world.
That's what people expect, that's what people demand.
And while we can adjust some of that, and we should adjust some of that, the market is willing to pay for it.
Overall there are lot and lots of people out there that do not want to see their choices limited because they can't afford it.
It is primarily the latter.
We did build some inventories in anticipation of higher sales and now we will pull those back down.
We recognized that some time ago, but a lot of these supply chains are pretty long between initial sourcing or production and finished good products, so we are adjusting that as we go.
MVP was a small part of the dollar increase.
What we've talked about is pricing pressure in some international markets, and Brazil is an important market for us, and so with the Brazil currency strengthening back a bit from where it had been, that takes a little bit of the pricing pressure off and makes it a little easier for us, for our customer to make the sale and take some volumes.
Okay everyone, we will come back to you and we'll be talking about our full-year results when we release them, probably in ---+ we haven't announced it yet, but it will either be late August or early September we'll be putting out our fiscal year results so, talk then.
Goodbye everybody.
| 2016_PAHC |
2016 | MSFT | MSFT
#Thanks, <UNK>.
I spoke to this a little earlier, because in some sense, from day one we had this vision of how we want to build for a future of distributed computing that included our hyper-scale cloud service, which is Azure.
And in fact, Azure is built on hyper-V, and we always said that we were going to build our server as the edge of our hyper-scale cloud, and so that's what Windows Server 2016 represents.
That is what SQL Server 2016 represents, and so we have these unique capabilities, like being able to stretch even a single table in a database in SQL 2016 all the way to the cloud for having infinite table capacity, and then having your apps and queries work.
How we're doing containers: for example, in Windows Server 2016, we have great container support, as well as support for things like our Service Fabric, so that people can have absolute application portability, and in fact, people can even tier applications.
We have had many customers who tier their storage and compute across a hybrid backplane.
So this is an architectural design point that we have built for from the ground up from day one, and it's good to see people validating it now and elsewhere, and we will take that as a validation of something that we thought of a long time ago.
<UNK>, I would say I talked about the reasons, the three big reasons why customers choose our cloud, and our cloud infrastructure in particular.
One, it is about the hybrid design point that is at the core of how we are built, both Azure as well as our servers.
It is because of the higher-level services that we have.
It is also because of the design point we have around not just Azure, but as well as Dynamics 365 and Office 365, and the extensibility of our cloud services across all three of them.
And that's really the fundamental reasons why customers choose us.
The other thing I would mention is, we have more of a commitment, I would say, which has been there from a long time, to build out a global footprint.
We have more regions than anyone.
We have more certifications than anyone in terms of adhering to both regulated industry, as well as digital sovereignty needs.
We've done unique things.
We're the only public cloud provider, for example, that operates in China.
We operate in Germany under German law.
And that matters to multinational companies that also are trying to operate across many geographies and jurisdictions.
So those are our core attributes that are driving our growth, and we'll continue to stay focused on them.
In terms of the gross margin question, I feel very good to talk about this quarter, about our improvement year-over-year and remain confident that we are heading in the right direction.
And so, I think when you think about that plus the breadth of our offerings, I think we're pretty confident.
I will take the opportunity, because we haven't been asked about Windows 10 in the enterprise.
I think we are encouraged by the pace of deployment, the number of proof-of-concepts, and actually some of the stability we've seen in the commercial PC market, in terms of starting to see some refresh rates.
So I think overall, I think we will continue to watch, but our security and management value prop, I think really is paying off.
Overall, we are very, very excited about what we are seeing with SQL on Linux, because the entire idea was to be able to have a full conversation around the data estate with customers.
And to now be able to talk about the full SQL estate, one of the other conversations that we are having is not just about SQL, but our analytics and advanced analytics with R, where we've done some very, very compelling work, again, across Linux and Windows.
And then, of course, the cloud.
So it's really the combination of SQL advanced analytics and the cloud, with things like Azure Data Lake, that are really the choices customers are trying to make as they think about their digital capability and the next generation of services and both the storage and processing capability they need.
Now, in terms of having support for these different runtimes, you're absolutely right, that's the reason why, for example, on Azure itself, Java is first-class.
We have Linux is first-class.
We have real openness to all of the frameworks that you can call out to, and that's something that we stay very attuned to, which is we are not trying to fight some old battles.
This is all about being able to serve customers on their needs today, and that's what is leading and driving a lot of our choices, as well as how we think about our market opportunity.
Overall, I am thrilled about both the AI group that we have formed, the AI research and the heritage we have with MSR.
Even this week, I think we publicly are talking about setting the state-of-the-art when it comes to something like speech recognition, and it's something that we did even with image net and image recognition and object rec.
So these are capabilities that are not easy to build if you don't have a real commitment to research, and then the ability to take that research and then ultimately turn it into products.
So the way to measure, though, from the investment side, is to see AI when it is infused into everything we do.
Take HoloLens.
The ability of HoloLens to be able to see the world, reconstruct it, and in that world to be able to superimpose holograms, that is AI ---+ applied AI that is working today.
When you have Skype translate when two people are talking two different languages and are able to automatically translate without an interpreter between languages, it's using a deep neural net that is bringing together speech synthesis, speech recognition, and machine translation with Skype data.
That is fairly magical.
When you seeing FPGA capable of running CNTK or TensorFlow to create intelligence, that is what we are using, in fact, for our speech and vision work.
That is AI as applied today.
So I am not waiting for some future date to see ROI from AI; we're very much going forward, even the Office tools example I used.
They're all using AI today.
The PowerPoint designer, if you want the most practical use of it, even I can design great PowerPoint slides now because of AI.
And so, that's how I measure progress.
We are committed to long-term research, but we're also very focused on having the long-term research translated into everyday use products, and that's what you will see from us going forward.
Thanks, <UNK>.
With our annuity mix as high as it is, it can impact it a couple points either way.
But I don't think about that as really a material impact you should think about in the next couple of quarters.
And our focus will always be making sure where we have a clear roadmap for customers to make long-term commitments through annuity.
And so we are really trying to get away from some of that, quote-unquote, launch impact that you may normally expect to see.
Thank you all.
| 2016_MSFT |
2015 | TAP | TAP
#Thanks, <UNK>.
Hello, <UNK>.
<UNK>, thanks for the question.
I'll ask <UNK> to pick up some of the detail.
Just a couple of context points.
Firstly, we have started seeing a couple of markets a shift into the economy segment.
Just as consumers make choices about where their constrained disposable income is going to be used.
So that's one dynamic that has started to emerge, and the team are cognizant of and they are obviously wrapped into it.
And then to your second point.
From a promotional perspective, there's no real new news there.
The European market remains competitive.
But, <UNK>, do you want to give a little bit more color to specifically what is happening.
Yes, <UNK>.
I think you've covered the headlines.
Thanks for the question, <UNK>.
As <UNK> said, there is some move driven I think by the consumers being economically challenged, particularly in some of the markets post the flood.
So there's some move towards the economy and value segment in some of our markets.
We've chosen not to play aggressively in those parts of the market.
And to your question on the UK.
This is always fairly volatile in terms of promotion intensity.
But Q1 has been, I would say, a little bit more intense on the promotional lines in the, particularly in the multiple grocers channel, and again, we've chosen not to participate in some of those more aggressive deals.
So that's really what we are referencing when we made the headline results.
<UNK>, we haven't given a specific number on that yet.
No.
<UNK>, yes, it will be a positive contribution.
But I'd point you back to our guidance that we have of $40 million to $60 million worth of cost savings in this financial year.
We obviously have a lot of moving parts, things that move around, so that guidance has remained unchanged.
Thanks, <UNK>.
Hello, <UNK>.
Yes.
So, <UNK>, I will ask <UNK> to talk in a little bit more detail shortly.
Let me just give you a couple of headlines.
<UNK> and the team are in the middle of a very significant transformation of our business in Canada in terms of total restructuring of the supply chain, a big cost down program.
And ensuring that our portfolio is fit for future.
From a Canada perspective, in the first quarter, I was personally pleased with the progress <UNK> and the team made on pricing.
The Coors Light trend has improved versus 2014, that we saw strong growth in Coors Banquet, and with our above-premium portfolio.
And we've been encouraged by our share growth position in both Alberta and Quebec, which are critical markets for us.
At headline level, I would say overall, we're disappointed with our total performance.
And we'll certainly ensure a far more effective and ruthless execution of our plans in the balance of the year.
Take it from me, we'll be running even harder and faster in Canada.
We've got a great set of plans, and it's very much about the quality of execution of those plans through the balance of the year.
To build on some of the strong points at our American and our Canadian Business.
But, <UNK>, do you want to just jump a little bit deeper into some of the detail in Canada as per <UNK>'s question.
Not a lot I can add to it.
<UNK>, I think that the quarter was a bit better for the beer industry, no question about it.
The shift I think from Easter from Q2 into Q1 was absolutely a help.
If you look at the marketplace, the market trends were not dissimilar to what we saw last quarter, in the sense that the West was much stronger than the East.
And so part of our under performance came from geographic mix, part of it came from cycling the big promotion of Molson Canadian around the Winter Olympics last year, and part of it came from just under performance.
On the under performance side, we've got a very clear view on what's driving that, and we're working very aggressively to change those things.
Probably there is also worth mentioning looking at the big picture of things.
Our goal is to grow share, and our goal is to grow the profit.
And we have been focused against the strategy of overhauling the portfolio, driving our cost base down, and improving our executional capabilities.
And I think we've made good progress on all of those, as <UNK> commented.
If you look back at last year, we saw improving share trends for the first three quarters of last year.
And the last two quarters have been more challenged.
But as I say, I think we've got a clear line on where the under performance is coming from, and we'll be working to address that.
Thanks, <UNK>.
I believe that's the case.
Yes, <UNK>.
I'll give you a little bit of context, and I will ask <UNK> to talk specifically about the opportunity that we see in India.
But I think have been pretty clear that as we look at building our international brands really around the double act of the Coors trademark and Staropramen.
We're looking to drive that business principally on a license and export model, with the exception of a couple of markets were we believe that we can invest really for the medium to long-term, and India fits really nicely there.
I think we did their apprenticeship in India through our initial foray into the country, and we see a very clear path to strong position across three states.
And when you think about the population in these states, across the three of them, we're talking 150 million to 200 million people.
So these are big markets with real long-term potential.
So we'll be selective with our international cash investments, as I say, principally on a license and export model, we're a small number of markets where we can see long-term growth potential.
On India itself, <UNK>, do you want to just give a little bit more color to where we are in the marketplace.
Building on what <UNK> said, we see India as an attractive long-term market.
It's currently at ---+ the market size is 23 million to 24 million hectoliters.
It's been growing double-digits steadily.
And yet the per capita consumption of beer is only two liters per person per year, which means in the long-term we expect this market to continue to grow.
Our strategy in India has been taking positions in attractive states, and building up leadership positions within those states.
With that, in our first state, Vehar, which has worked out successfully.
With the recent acquisition, I believe we do that in two other states when started leading positions.
And our strategy will be successful in these states and roll at a steady pace that we can continue to drive that strategy versus a pan India.
Specifically within that, we have local brands.
So this acquisition gives us a brand called Thunderbolt, which is a very strong brand, and it also gives us a platform to build our global brands on top of these regional brands.
And that's, broadly speaking, our strategy in India.
Obviously any investment in any international markets goes through our pack model.
And we will be very judicial in our use of cash, as per the framework that we've described on a very consistent basis.
But we're certainly very excited about the medium to long-term potential around the geographical platform we've now given ourself in India.
To take the second part of your question first.
We have a 50/50 governance model within MillerCoors.
So the Board is constructed with equal Directors from both SAB and from Molson Coors.
And it's fair to say I think Alan Clark and myself are absolutely aligned on what we need to get done in the US business.
We both harbor the same ambition to build a winning beer business in the US, and we both hold the intent of ensuring that we have a great leader to lead the MillerCoors organization.
We are looking broadly for a new leader.
I don't want to get into the detail of the process.
The process is well underway, and I think people are just going to have to be patient.
Asking an executive from one of the shareholders to step in and run one of the businesses is not unusual in many organizations.
So I don't think were doing anything unusual, and I would really encourage people not to read anything beyond the headlines into this.
We have an interim requirement, we have an interim solution, and in the process for a permanent leader continues.
Great.
Thank you, <UNK>.
Thank you, <UNK>.
Thanks.
Hello, <UNK>, let me pick that up.
So what we said was as we move through towards the end of 2016, we expect our international business to be at least at breakeven, if not in profit.
We still believe that we will deliver that, when you put to one side the impact of FX that has clearly impacted the business since we made that statement back at the end of 2013.
We expect the FX impact relative to our plan at that point in time to affect us by mid to high single-digit millions of dollars.
So when you include that, it will make it challenging to get to breakeven.
And when you exclude that impact of FX, we are still very confident that we will get to breakeven FX excluded.
<UNK>, would you like to pick that up.
Happy to address that.
So first of all, let me work backwards.
SAB's entering into the market has been in the last 30 days, so nothing I can really comment on there.
I think we've got a terrific portfolio, and we'll be able to address all commerce.
In terms of competition in the marketplace, it's a competitive beer market.
Certainly more and more brewers added to the market as the cross the space grows, but I don't think anything has changed in that over the last quarter.
Relative to your question around pricing, pricing was, I'd say broadly in line with inflation across the country.
The amounts in excess of that I would put down to mix, as both the above-premium import and the above-premium domestic segments of the market grew.
More specifically than that, I would say pricing was weakest in Quebec and strongest between in Ontario and the West.
Thanks, <UNK>.
I'm not sure really that is true.
Only in that the beer store will continue to operate, will continue to be run by a Board as it is today.
And it will continue to exist in a format that provides opportunities for any brewers to get their beer to market.
So in that sense, I don't think anything changes.
As you will have read, there are a lot of changes that are coming to Ontario.
But there's not a lot I can add to what has already been announced publicly.
So a couple of things, so maybe mixing two things there.
On the pricing side, the province has instituted some restrictions on pricing for a period that ends in 2017.
But the beer tax, which at the beginning of the process looked like it could all come in one year, will be phased in over four years.
So they bring that in at 25% a year.
And, <UNK>, just to be clear, that four-year period begins in November of this year.
So really think about 2016, 2017, 2018 and 2019 is the four-year period
Well I don't think Heineken brand's have dramatically changed our mix.
We've brought other Heineken brand's on board that tend to be much smaller.
But just to give you a sense of the split.
When you look at that 3.8%, about two-thirds is driven by net price and the remainder was from mix.
Thanks, <UNK>.
I do, thank you.
I'd just like to thank everybody for joining us today and for your interest in Molson Coors Brewing Company.
We look forward as a senior team to meet with many of you in New York on June the 17th.
And just finally, best wishes again to Tom and also to <UNK> as we work our way through this transition.
Thanks for your interest this morning, and we will see you soon.
| 2015_TAP |
2017 | ABBV | ABBV
#Today I'll highlight recent pipeline updates and discuss some of the key milestones we anticipate for the remainder of 2017. I'll start with our hem-onc programs, where we continue to make significant progress with both Imbruvica and Venclexta
Starting with Imbruvica, as we've outlined, expanding into new indications is an important driver of future growth
Earlier this year we added relapsed/refractory marginal zone lymphoma to our growing list of approved uses, and we continue to make progress with other indications as well
During the quarter, we submitted a supplemental new drug application for the use of Imbruvica in patients with chronic graft-versus-host-disease who failed prior systemic therapy
GVHD is a severe and potentially life-threatening complication that can occur in patients who have undergone an allogeneic stem cell or bone marrow transplant
There are currently limited treatment options for this disease, and if approved, Imbruvica would be the first and only therapy specifically indicated for chronic GVHD
In Phase 2 data presented at the end of last year, 67% of patients who failed steroid therapy responded to treatment with Imbruvica, with one-third of the responders achieving a complete response and almost two-thirds substantially reducing steroid use
Based on these data, we expect a regulatory decision in the second half of the year
Later this year, we anticipate several key data readouts for Imbruvica, including data from an interim analysis in front-line mantle cell lymphoma, as well as additional potential interim analyses in other forms of non-Hodgkin's lymphoma
Moving now to Venclexta
We're expecting data from the MURANO study evaluating the combination of Venclexta and Rituxan later this year, which we believe will support a broader label in relapsed/refractory CLL and help establish Venclexta as a foundational therapy in this patient population
The Phase 3 program evaluating Venclexta in front-line CLL is also ongoing, with studies been run in younger, more fit patients as well as older patients with comorbidities
These studies, as well as other combination studies with Imbruvica, are important parts of the Venclexta strategy to drive toward chemo-free regimens in CLL
We anticipate key data from the CLL14 study in older patients with comorbid medical conditions to be available in 2018. Beyond our core strategy in CLL, we are making great progress with our development programs to expand Venclexta across multiple hematologic malignancies
We have Phase 3 studies ongoing in multiple myeloma as well as AML, where we have received Breakthrough Therapy Designation
And these studies are progressing well, with key data becoming available in the 2019 timeframe
Later this year, we are also expecting additional data readouts from Phase 2 studies in indolent non-Hodgkin's lymphoma and diffuse large B-cell lymphoma, which will inform decisions regarding advancement in these indications
I'll now turn to our solid tumor programs, where we continue to make good progress with our late-stage programs, Rova-T and ABT-414, as well as with our early-stage oncology pipeline
Starting with Rova-T, our registrational trial in third-line-plus small cell lung cancer, the TRINITY study, continues to progress nicely, and we expect data later this year
Our submission will follow soon thereafter, enabling a commercial launch in 2018. In addition to TRINITY, we have a comprehensive development program in place for Rova-T to evaluate this promising therapy in earlier lines of treatment in small cell lung cancer, as well as in other tumor types that express DLL3. The Rova-T program includes additional studies currently underway in small cell lung cancer, including MARU, a Phase 3 study evaluating standard chemotherapy followed by Rova-T in the front-line setting, and a mid-stage combination study evaluating Rova-T with Opdivo and – with Opdivo and Yervoy in small cell lung cancer
And this quarter, we will also start the TAHOE study, a Phase 3 trial in second-line small cell lung cancer
Beyond small cell lung cancer, the neuroendocrine tumor basket study is progressing nicely, and we anticipate beginning to see early data from this study towards the end of this year
As we've discussed, the acquisition of Stemcentrx not only provided AbbVie a late-stage asset in Rova-T, but brought a highly attractive discovery and early development platform as well
In addition to Rova-T, we have four Stemcentrx assets in the clinic, and we are on track to transition several additional programs into human trials this year, adding to our growing oncology pipeline, which includes more than 35 late preclinical or early clinical stage assets
Beyond Rova-T and our other Stemcentrx assets, we're continuing to make progress with our solid tumor programs, including our antibody drug conjugate for glioblastoma multiforme, ABT-414, which was granted Fast Track Designation earlier this month
At the upcoming ASCO meeting, we plan to present full data from the Phase 1 study of ABT-414 in glioblastoma, including overall survival and progression-free survival data
And later this year, we'll see data from the Phase 2 study in second line GBM that, if positive, would support regulatory submission
In our early-stage oncology pipeline, we continue to build capabilities and explore new technologies that will extend our reach in the solid tumor market
We're making good progress with our next-generation immuno-oncology programs and other novel approaches such as our bispecific technology, with a number of assets having recently entered the clinic and more study starts expected through the remainder of 2017. Moving now to our HCV program, where we recently received priority review from the FDA for our pan-genotypic next-generation HCV therapy
In the quarter we also received EMA accelerated assessment and priority review in Japan
Last week at the International Liver Congress we presented new results from our Phase 3 program, including data from the EXPEDITION-1 and ENDURANCE-3 studies, which together with previously reported data reinforce our next-generation therapies' potential to provide high cure rates and a shorter treatment duration for the majority of patients across all genotypes, including patients with compensated cirrhosis and those with genotype 3 infection
Results from EXPEDITION-1 demonstrated that 99% of patients with compensated cirrhosis achieved SVR12 with 12 weeks of treatment across genotypes 1, 2, 4, 5, and 6. We also presented data from ENDURANCE-3 in patients with genotype 3, the second most common (16:22-16:33) genotype globally and the most challenging to treat
These results showed that with just eight weeks of treatment, 95% of genotype 3 patients without cirrhosis and who are new to treatment achieved SVR12 with our next-generation therapy
We're excited about the high cure rates across all major genotypes and the results in difficult-to-treat patients that we've seen in our Phase 3 program, and remain confident that our pan-genotypic once-daily ribavirin-free HCV therapy will be competitively positioned within this market
We remain on track for regulatory approval in the U.S
, EU, and Japan later this year
Moving now to our immunology programs, where we have two very promising late-stage assets, risankizumab and ABT-494, each with the potential to significantly advance standard of care in a number of immune-mediated conditions
Risankizumab, our anti-IL-23 monoclonal antibody licensed from Boehringer Ingelheim, has the potential to provide best-in-class efficacy and increased dosing convenience with quarterly administration
Results from the Phase 2 study of risankizumab in psoriasis were recently published in the New England Journal of Medicine
These data show that selective blockade of IL-23 with risankizumab was associated with a superior clinical response compared to Stelara
In this study, approximately 2.5 times as many patients achieved PASI 100 with risankizumab compared with those receiving Stelara
The Phase 3 program in psoriasis is well underway, and we look forward to seeing data from three of the pivotal studies later this year, with commercialization expected in 2019. Earlier this month, we also published results from a proof-of-concept Phase 2 study of risankizumab in Crohn's disease
Results from this study show that patients receiving risankizumab achieved higher clinical and endoscopic remission rates than placebo, suggesting that blocking IL-23 could be a very promising therapeutic approach in Crohn's disease
52-week data from the open-label maintenance portion of this trial will be shared in a late-breaking oral presentation at the upcoming DDW meeting in May
Phase 3 studies in Crohn's disease will be starting soon
This year we'll also see Phase 2 data in psoriatic arthritis, with Phase 3 studies expected to begin in the first half of 2018. Additionally, we are expecting to begin a Phase 2 for risankizumab in ulcerative colitis in the second half of the year
Moving now to our selective JAK1 inhibitor, ABT-494, where we continue to make significant progress with our development programs in RA and inflammatory bowel diseases
At the upcoming DDW meeting, we'll be presenting data from the Phase 2 CELEST study in Crohn's disease, showing that treatment with ABT-494 demonstrated endoscopic improvement and clinical benefit as induction therapy in patients with moderate to severe refractory Crohn's disease
Based on these strong Phase 2 results, we'll be initiating a Phase 3 program later this year
We have two additional mid-stage programs for ABT-494, including an ongoing Phase 2 study in atopic dermatitis and a soon-to-begin Phase 2 study in ulcerative colitis
Turning our attention to rheumatoid arthritis, we expect to begin seeing data from the first of six Phase 3 RA studies in the coming months, with top-line data from the SELECT-NEXT trial in patients who have failed conventional DMARDs expected in June, and data from the SELECT-BEYOND study in biologic inadequate responders expected later in the summer
We plan to present full data from both of these studies at a medical meeting later this year
We believe ABT-494 has the potential to be best-in-class with an optimized benefit risk profile, and we are particularly excited about this asset's potential in the difficult-to-treat anti-TNF inadequate responder population, a growing segment of the RA market representing roughly 35% of the biologic treated population
And finally, in the area of women's health, we are nearing completion of the Phase 3 program for elagolix in endometriosis and are on track for regulatory submission next quarter
In addition to the endometriosis program, we have Phase 3 studies underway in uterine fibroids
This program is investigating the effect of elagolix on heavy bleeding related to this highly prevalent condition
We anticipate beginning to see data from this Phase 3 program late in the year
Earlier this month we presented detailed results from the Phase 2 study in uterine fibroids at the meeting of the Society of Endometriosis and Uterine Disorders
These data demonstrated that treatment with elagolix provided superior efficacy and rapid control of heavy menstrual bleeding associated with uterine fibroids compared to placebo, as well as improved quality of life
Treatment with elagolix was well tolerated, with hormonal add-back therapy substantially attenuating the side effects of elagolix on bone mineral density and hot flashes
Importantly, there were no abnormal endometrial findings, demonstrating that elagolix has potential as a chronic, uninterrupted treatment for this condition
We remain excited about this potential new medicine for women with both of these highly prevalent conditions, where there are few effective treatment options
So in summary, we've continued to see significant evolution of our mid- and late-stage pipelines, and we look forward to many important data readouts, phase transitions, regulatory submissions, and approvals later this year
With that, I'll turn the call over to Bill for additional comments on our first quarter performance
Jeff, this is Mike
I'll take the first part of that question
So obviously we've been following the situation very, very closely
Of course, we don't have access to the complete response letter or knowledge of Lilly's conversation with regulators
But we do have a very clear understanding of our own program, our own data, and our own extensive conversations with regulators here in the U.S
and in major jurisdictions around the world
And based on that, we remain confident in our program and don't see any read-through from the Lilly situation
We've designed a very comprehensive and robust Phase 3 program that will thoroughly characterize the efficacy and safety profile of both of the doses of ABT-494 that are being studied in Phase 3. And we remain confident in the data that we've seen, our Phase 2 data, we're very strong not only from an efficacy, but also from a safety perspective
An important issue here is dose selection, and we designed a very robust Phase 2b program that explored a wide range of doses across different patient populations, because dose response is not necessarily the same in an earlier population or an TNF-inadequate responder population, for example
And we ran Phase 2 studies in both of those patient populations
That allowed us to select doses that we think optimize benefit/risk, and as I said, we've designed a Phase 3 program that will fully demonstrate that benefit/risk and support regulatory decisions
So our level of confidence or enthusiasm on ABT-494 remains high and hasn't changed a bit this past week
So, this is Mike
I'll take that question
We feel very good about the data that we've generated across the program and across genotypes
If you look at our response rates, they're very high across both the common and uncommon genotypes, and in particular in some of the most difficult to treat patient populations, like genotype 3. And so, while it's difficult to speculate about a label, we think that the evidence that we've generated strongly supports pan-genotypic use of the product
And with respect to the eight-week data, I would make similar statements
The eight-week data have been very strong across genotypes, including in very difficult to treat patients like genotype 3 patients
There, it's been studied in genotype 3 patients at eight weeks who don't have cirrhosis and are new to therapy, but that's a very, very significant portion of the market, not only in the U.S
but around the world
And our results are very strong, and again, while it's difficult to speculate about a label this early in the process, we think the data supports the use of the regimen in that manner
Okay, this is Mike, I'll take the question about Rova-T and TRINITY
So what we know about small cell lung cancer is that treatment options are severely limited for these patients
We know that in the front-line setting, we can drive good response rates with traditional chemotherapy, but those responses aren't durable and patients relapse
And when they relapse, they're very, very difficult to treat
Second and subsequent lines of therapy have much lower response rates and very poor durability of those responses
In the third-line setting, where we're conducting the TRINITY study, for example, one-year survival is at best 12%, and many experts would put that number lower
So what we're looking for in TRINITY is something that really changes that picture, something that shows response rates that are different from the chemotherapy options and clearly differentiated – chemotherapy drugs response rates in the teens here – and responses that have the promise of being durable, and increasing that long-term survival to the greatest extent possible
And you asked about our confidence
We remain confident in Rova-T and TRINITY
Rova-T is supported by a very, very strong package of preclinical biology and early clinical data
And this is a situation where the early clinical data are predictive of TRINITY
We're essentially looking at the same endpoints in TRINITY that we did in the early studies
So we feel good about that asset and about the overall Stemcentrx pipeline
Okay
This is Mike, I'll take those take questions
With respect to the risankizumab data, if we look at the Phase 2b data for risankizumab, it shows the strongest observed results in the category, which would include the IL-17s and the IL-23s
We had very high PASI 90 response numbers and very high PASI 100s, so complete clearance of skin disease in that program
And there were other features about the data that were very striking
First, we had very good durability response, and there's a very good administration, with the ability to drive quarterly administration in our Phase 3 program
So basically what we're looking for is a result in Phase 3 that is consistent with those Phase 2 data
The other thing I'd point out, with respect to other agents, is we run active comparators in our Phase 2b, now that's against Stelara not against the IL-17s, but we saw very high PASI 100 rates there
And as I pointed in out in my prepared remarks, PASI 100 was about 2.5 times higher for risankizumab as compared to Stelara in that Phase 2, and the results of PASI 90 were similar, that there were substantially higher PASI 90 response rates, about double that of Stelara
So we feel good about the competitive profile and the ability to drive that through Phase 3 and into the market
With respect to Crohn's disease, the data that we've seen are very encouraging
We're moving very fast already
So I'm not sure if the data at DDW accelerate that, but we're poised to move into Phase 3 and we feel that there's a lot of potential for this pathway in inflammatory bowel diseases as well
So with respect to the framework that Rick laid out, we have a number of opportunities to move forward in lines of therapy
And one that we would expect to see data on later this year is mantle cell lymphoma, an aggressive form of non-Hodgkin lymphoma, where we're anticipating interim data from a pivotal study in front-line, which would be an important step towards moving to front-line therapy there
In mantle cell, we also have combination work ongoing with Venclexta, and that combination has shown very strong results
And so those data would continue to mature over the course of the timeframe that you described
We're also going to see data in other forms of non-Hodgkin lymphoma over the course of the next 18 or 24 months, including data in diffuse large B-cell lymphoma, where we've seen good results in patients who have the ABC or activated B-cell phenotype of that disease, and also additional work in follicular lymphoma, which is the largest form of indolent non-Hodgkin lymphoma
Outside of NHL, we're making good progress with GVHD
As I mentioned in my prepared remarks, we have the initial submission in but we have ongoing data generation in GVHD
So all of those data will mature over the course of the timeframe that you described
And then, at the back end of that two-year period, we'll start to see more data on multiple myeloma and other opportunities as well
So with respect Veliparib, as we've said on other occasions, we were exploring a different hypothesis with Veliparib
We know that Veliparib – or we know that PARP inhibitors play a role in treating patients with inherited mutations in DNA repair, germline BRCA mutation and similar mutations
But we didn't view it as a substantial opportunity for a company like AbbVie to come third or fourth to market in that population
Essentially, the medical need was met for those patients
So we were testing a different hypothesis, and that hypothesis specifically was whether PARP inhibition would augment DNA-damaging chemotherapy; that the first hit, if you will, didn't have to be genetic, that it could from that DNA-damaging chemotherapy
We've now seen across a couple of studies that that hasn't played out in the way we had initially envisioned
We see that in the triple-negative breast cancer neoadjuvant study and in the squamous non-small cell lung cancer study
And so, while that's not the result we had hoped for, we knew going in that this was a higher-risk, higher-reward sort of approach, and that the evidence while reasonable, from a preclinical and early clinical perspective, isn't entirely predictive in this setting
And so we knew that it was going to take Phase 3 data to answer the question
We've seen the first two readouts, and those studies did not meet their primary endpoint
With respect to ongoing work, we have ongoing studies, some of which will read out very soon
So we can't speculate about what those results might be, but we will complete the ongoing studies and update you on the progress as soon as possible
<UNK> - Credit Suisse Securities (USA) LLC (Broker) Okay
| 2017_ABBV |
2018 | INTL | INTL
#Good morning.
My name is Bill <UNK>.
Welcome to the earnings conference call for our fiscal 2018 first quarter, ended December 31, 2017.
After the market closed yesterday, we issued a press release reporting our results for the fiscal first quarter.
This release is available on our website at www.intlfcstone.com as well as a slide presentation that we will refer to on this call in our discussions of our quarterly results.
You will need to sign on to the live webcast in order to view the presentation.
Both the presentation and an archive of the webcast will also be available on our website after the call's conclusion.
Before getting underway, we are 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 meanings 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 could 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 Fiscal 2018 First Quarter Earnings Call.
We achieved record operating revenues of $212.6 million in the first quarter of the fiscal year, representing a 15% growth over the prior year.
Together with holding expenses to a 5% increase, this resulted in income before tax of $18.6 million, which is one of our strongest ever first quarters of a fiscal year and represents a 121% increase over the prior year.
We achieved growth in operating revenues in all of our operating segments, despite difficult market conditions, in particular, continued low market volatility in most of our key markets and also low commodity prices.
For the first quarter of fiscal 2018, we recorded a net loss of $6.9 million, or $0.37 per share, including an estimated onetime noncash charge of $20.9 million, or $1.12 per share, related to the enactment of the tax reform.
Excluding the impact of the tax reform as well as the additional $1 million charge incurred on the Singapore coal matter, our core net income was $15 million, representing core EPS of $0.78 per share.
Our immediately prior Q4 core earnings, excluding the impact of the Singapore coal charge, were $15.8 million, representing core EPS of $0.83 a share.
Looking at our segments, we had standout performances from Commercial Hedging, which increased segment income 37%, primarily as a result of an increase in both OTC revenues as well as additional interest income as well as a $2.6 million decline in nonvariable direct expenses due to a bad debt provision a year ago.
Our Clearing and Execution segment also showed strong growth at 84%, primarily as a result of an increase in operating revenue as well as a $2.3 million decline in nonvariable direct expenses.
Global Payments segment income increased 11%, driven by a 7% increase in the number of payments made, combined with maintaining a steady average of revenue per payment versus the prior year.
The Physical Commodities segment declined $1.9 million versus the prior year, despite increased operating revenues.
This was partially due to an additional $1 million charge related to the Singapore coal issue as well as some mark-to-market timing issues in our gold business.
Securities segment income declined 15%, primarily as a result of a $5.4 million increase in interest expense in our debt trading business as well as a $1.5 million increase in transaction-based clearing expenses in our equity market-making business.
I'd like to briefly touch on the impact of the recent tax legislation on our current and forward earnings.
As a global organization, while we have never let tax considerations drive our business decisions, we have always sought to optimize our tax charge over the years.
This has resulted in us minimizing our U.S. taxes to the extent allowed and accumulating significant overseas retained earnings in more favorable tax jurisdictions.
As a consequence of that, we have a net operating loss in the U.S., which is being carried as an asset on our balance sheet.
The immediate net result of this new tax legislation has been a $20.9 million charge, which has been offset against our net operating loss.
So not a cash item.
We now have significantly less restrictions on being able to allocate our overseas capital and to move our liquidity throughout our entire organization, which should allow a better optimization of capital.
Against this, we have lost the future benefit of our net operating loss, which has now been monetized through the charges associated with the foreign accumulated earnings under this legislation, combined with a decrease in its value resulting from the lower tax rate.
In the near term, the lower U.S. tax rate will not have a significant impact on our aggregate tax charge, as we have relatively little U.S. taxable income.
However, most of our customer float revenue is based in the U.S, and any incremental interest earnings will now be taxed at a lower rate, and thus, more of that incremental benefit should drop to the bottom line.
We have estimated that we should realize approximately $21 million in pretax earnings for a 100 basis point move in the short-term interest rate.
This incremental revenue will now be taxed at about a 14% lower tax rate than historically was the case.
With that, I'll hand you over to Bill <UNK> for a more detailed discussion of the financial results.
Bill.
Thank you, Sean.
I'll be referring to slides and 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.
As Sean noted, in the first quarter, we had several items of note, including a provisional $20.9 million discrete tax charge related to the enactment of the Tax Cuts and Jobs Act and an additional $1 million bad debt expense on physical coal, which we discussed on our fourth quarter earnings call.
The $20.9 million tax charge is made up of an $8.9 million remeasurement of deferred tax assets and liabilities from a 35% federal corporate rate down to the new 21% effective rate and a $12 million charge related to the deemed repatriation transition tax on previously untaxed accumulated earnings and profits of our foreign subsidiaries.
The top of Slide #3 is a chart which 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 an effect of the 2 items I just mentioned in the first quarter of fiscal 2018 as well as the $39.4 million bad debt on physical coal net of incentive recaptures in the immediately preceding fourth quarter.
The bottom graph shows the strong growth we have seen in the last 2 quarters in our core operating results, which resulted in adjusted ROEs of 13.2% and 12.1% for the fourth quarter of fiscal 2017 and the current period, respectively, with a combined $1.61 in adjusted earnings per share for the 6-month period.
Moving on to Slide #4, which represents a bridge between operating revenues for the first quarter of last year to the current fiscal year first quarter, operating revenues were $212.6 million in the current period, once again a record high and a $27.1 million increase over the prior year.
As shown, all operating segments showed revenue growth over the prior year, led by Clearing and Execution Services segment, which added $8.6 million in operating revenues, driven by a 7% increase in exchange-traded volumes combined with a 16% improvement in the average rate per contract as well as a $2.3 million increase in interest income.
In addition, our largest segment, Commercial Hedging, added $4 million, or 7%, in operating revenues versus the last year.
The growth was driven by a $4.6 million increase in OTC revenues, primarily in our Brazilian grain and global soft businesses.
In addition, interest income increased 83%, or $1.9 million, in this segment versus the prior year off the back of a rise in short-term rates.
These gains were partially offset by a $2.5 million decline in exchange-traded revenues, driven by both lower domestic grain and LME metals revenues, both due to lower levels of market volatility.
Our Global Payments segment had another strong quarter, adding $1.5 million in operating revenues to $24.6 million with some interesting dynamics related to payment volumes.
The number of payments made were up 7% versus the prior year but down approximately 10% versus the average volumes seen in the third and fourth quarters of fiscal 2017.
Certain commercial customers who had been growing their payment volumes throughout fiscal 2017 changed the manner in which they were doing their payments.
These customers who previously transacted their individual high-volume, but low- (inaudible) payments through our platform, opened their own bank accounts in certain countries, to which we had made payments into on their behalf.
However, we still made the foreign currency funding payments into their accounts on an aggregated basis in these countries.
This resulted in a decreased number of payments made versus the immediately preceding third and fourth quarters as multiple payments were aggregated into a funding payment.
This resulted in both an increase in the average revenue per payment made and overall revenues versus those periods with the ancillary benefit of lowering our variable cost as the result of a reduction in the number of payments made.
Our Securities segment added $5.6 million, or 15%, in operating revenues versus the prior year, driven by an 11% increase in the growth of dollar volume traded in equity market-making as the result of onboarding of new customers and increased market share captured.
In addition, our debt trading business added 24% in operating revenues, driven by increases in our domestic fixed income, municipal securities and Argentina businesses.
Physical Commodities added $800,000 in operating revenues versus the prior year, with growth in our Physical Ag & Energy business partially offset by a decline in precious metals.
The decline in precious metals was driven by a $1.3 million unrealized loss on derivative positions held against inventories carried at the lower of cost or market in our nonbroker dealer subsidiaries.
These inventories turn over in a short period of time, so we should see the reversal of those losses in the second quarter of fiscal 2018.
Excluding this loss, precious metals added $1.2 million in operating revenue versus the prior year.
Finally, operating revenues in the unallocated overhead segment increased $6.6 million versus the prior year, mostly as a result of the $5.6 million in unrealized losses on U.S. Treasury notes and interest rate swaps in the prior year quarter related to our interest rate management program.
The next Slide, #5, represents a bridge from 2017 first quarter pretax income of $8.4 million to $18.6 million in the current period, a 121% increase, which demonstrates the strong core operating growth realized during ---+ versus the prior year.
Sean covered the variances in pretax income in our operating segments during his portion of the call, so I'll just note a $2.1 million increase in our unallocated overhead segment.
This positive variance was a result of the prior period unrealized loss on the interest rate management program I just mentioned, which was partially offset by central overhead growth through the addition of headcount in several administrative functions as well as an increase in share-based compensation and long-term incentives.
Slide #6 shows the interest income on our investments in our exchange-traded futures and options businesses as well as balances in our Correspondent Clearing and independent wealth management businesses.
As noted on this slide, our interest earnings on these balances have increased $3.9 million versus the prior year to $8.9 million as our yield on these balances has increased 54 basis points to 117 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 Sean noted, a 100 basis point increase in short-term rates has the potential to increase our interest income by nearly $21 million on an annual pretax basis.
In addition, on the 100 basis point increase, the new tax legislation will tax these earnings at a lower effective tax rate, which will result in an incremental $2.8 million increase in after-tax earnings over historical tax rates, as noted in the table.
Moving on to Slide #7, our quarterly financial dashboard.
I will just highlight a couple items of note.
Variable expenses represented 58.4% of our total expenses for the quarter, above our target of keeping more than 50% of our total expenses variable in nature.
Nonvariable expenses, which are made up of both fixed expenses and bad debt expense, increased $3.4 million, or 5%, versus the prior year.
As noted earlier, we reported a net loss from continuing operations for the first quarter of $6.9 million, or a negative 6.2% ROE.
A reminder that excluding the effect of the tax reform and the $1 million bad debt charge related to the closing of our physical coal business, our adjusted net income in the first quarter was $15 million for a 12.1% ROE.
Finally, in closing out the review of the quarterly results, our book value per share declined $0.21, primarily as a result of the tax charge, to $23.56 per share versus the prior year.
We did not repurchase any of our common stock during the first quarter.
With that, I would like to turn it back to Sean to wrap up.
Thanks, Bill.
Our core earnings, as we described on this call earlier, for the last 6 months have accelerated and are encouraging and starting to approach our 15% ROE target.
This is despite a period of low market volatility and low commodity prices.
In late 2017, we started to see volatility increasing as it became clear that the Fed was accelerating its efforts to extricate itself from the markets and allow them to normalize.
This trend seemed to continue and perhaps accelerate in 2018 with a commensurate increase in volatility.
Obviously, we've all seen a major spike in volatility over the last week or so.
There are continuing signs of good economic growth in the U.S., combined with synchronized growth globally, all of which seem to support ongoing interest rate increases during 2018 and beyond.
Increased interest rates and increased volatility is very positive for our business.
Our customer float will now have the added benefit of a lower U.S. tax rate on these incremental earnings.
While macro factors have turned more positive for us, we continue to work hard to drive organic growth in an industry that continues to consolidate.
With that, I'd like to turn back to the operator and take any questions.
Operator.
All right.
It doesn't look like we have any questions.
So once again, thanks for your time and attention, and we will be speaking to you in 3 months.
Thank you.
| 2018_INTL |
2018 | MNTA | MNTA
#Thank you, <UNK>.
I'll start today's call with a discussion of Sandoz' launch of Glatopa 40 milligram.
And then following that discussion, I'll provide highlights for our biosimilar and novel drug pipelines.
I'll then close with an update of our strategic review of the business that we initiated earlier this year.
<UNK> will follow me to discuss our first quarter financial results, including our Glatopa profit share, and provide guidance for 2018.
And we'll then open the call for questions.
Before I begin though, I'd like to note this morning, we issued an 8-K announcing that our CFO, <UNK> <UNK>, will be taking a planned temporary medical leave of absence effective May 9.
In <UNK>'s absence, I will be performing the functions of Principal Financial Officer and Principal Accounting Officer.
<UNK>, we wish you a speedy recovery and very much look forward to your return as soon as possible.
I'll start with Glatopa.
In February, the FDA approved Sandoz' ANDA for our Glatopa 40 milligram product and Sandoz initiated the launch process.
Sandoz is still in the early phases of the launch, is securing customer contracts and orders have been shipped.
Following the positive outcome from the FDA review of Pfizer's McPherson facility, Sandoz has had to work to build inventory of Glatopa 40 milligram for the U.S. launch.
As a result, Sandoz expects accelerated adoption by customers as the year progresses.
Customers have been enthusiastic about the introduction of Glatopa 40 milligram.
And we remain optimistic about Sandoz' ability to gain share.
And I look forward to updating you on our progress on our next earnings call.
<UNK> will discuss our Glatopa profit share for the first quarter.
But overall, we remain pleased with Glatopa 20 milligram's performance and Sandoz' ability to retain approximately 40% of the 20-milligram market in the face of generic competition.
We continue to expect the aggressive competition in both the 20 milligram and the 40 milligram markets and continued pressure on our Glatopa revenue streams in future quarters, particularly when new generics enter the market.
Turning to biosimilars.
I'll start with M923, our wholly owned biosimilar to HUMIR<UNK>
As we stated earlier in the year, the BLA submission is prepared for regulatory filing, but we are holding off on filing pending conclusion of our business development discussions.
M923 is part of our strategic review.
And we will update you at the conclusion of that process.
Now to 710, our proposed biosimilar to EYLEA being developed in collaboration with Mylan.
In January, we announced that the FDA had accepted the IND and Mylan is in the process preparing for the confirmatory Phase III study.
Commercial manufacturing scale has been achieved.
And our goal is to start up the pivotal clinical trial in patients in the first half of 2018.
The trial will be a randomized, double-blind, active control, multicenter study in patients with diabetic macular edema to compare the safety, efficacy and immunogenicity of M710 with EYLE<UNK>
We look forward to updating you on the progress as the program progresses.
Lastly, on biosimilars, I will focus on M834, our biosimilar ORENCIA candidate, also in collaboration with Mylan.
Our investigation into what caused the failure to achieve the primary endpoint in the M834 PK trial is ongoing.
We are in the process performing a comprehensive investigation into the potential reason for the PK results, which could be anything from assay variations to structural differences in our molecules.
Once we finalize the investigation, we will work with Mylan to determine next steps and provide an update as appropriate.
I'll now turn to our novel drug pipeline.
And I'll begin with our lead novel drug candidate, M281, a recombinant anti-FcRn program designed to be a novel best-in-class monoclonal antibody for the treatment of patients with immune-mediated disease.
In January, we released positive top line multi-dose data from our Phase I study of M281 in healthy volunteers in which the data demonstrated safety and tolerability and confirmed proof of mechanism for M281.
In the multiple-ascending dose portion of the study, M281 decreased circulating IgG levels up to 89% with a mean reduction of 84%.
In both, the SAD and MAD portions of the study, M281 was well tolerated at all dose levels with no serious adverse events or unexpected safety findings observed.
We designed the molecule to optimize its ability to reduce IgG levels while minimizing off-target effects and immune activation.
And we're very pleased to see this molecule is working as designed.
We believe M281 has the potential to be a best-in-class molecule for intermittent and chronic use in a broad number of rare immune-mediated disorders with high unmet patient need.
We are in discussions with regulatory authorities with regard to potential indications.
And we plan to finalize our development strategy and initiate 2 proof-of-concept studies in the second half of 2018.
We're looking at entering into multiple indications, one of which will be an indication where you have seen our competitors conduct trial, such as myasthenia gravis, ITP or pemphigus.
Our goal is to demonstrate the potential of our molecule in an area where the target has been validated and hopefully demonstrate that our higher potency and strong safety profile translates into best-in-class efficacy.
The second indication is more likely to be an indication where there is no currently approved treatment and where we believe we have the potential to differentiate from our competitors and possibly gain accelerated approval.
We're also committed to exploring the optimum dosing schedules with our Phase II trials.
And in parallel, we have begun working on a potential subcu version of the product for introduction into future trials.
We look forward to updating you on these indications at/or before the Analyst and Investor Day we plan to host in the second half of the year.
M230, our novel program in collaboration with CSL is a recombinant Fc multimer that works by antagonizing the activating Fc gamma receptor system and blocking immune complex-mediated tissue damage.
The clinical development of this program will focus on immune-mediated disorders with high unmet medical need.
We are very excited about this program and believe that M230 has the potential to be a first-in-class recombinant Fc multimer providing an improved treatment option to patients with autoimmune disease.
In late January, CSL began dosing subjects in a Phase I study designed to evaluate the safety and tolerability of M230 in healthy volunteers.
CSL anticipates that the study will be completed in 2019.
And I look forward to keeping you updated as we move forward.
Lastly, I'll end with M254, our hyper-sialylated IVIg program designed as a potential high-potency version of IVIg.
This program hasn't received as much attention.
And as we approach the clinic in the second half of this year, I plan to feature it more prominently in our pipeline discussion.
We're on track to complete the IND-enabling toxicology study later this year and are targeting the initiation of a proof-of-concept study in the Phase I study in the second half of 2018.
Even though it's not yet in the clinic, M254 has the potential to be our first novel autoimmune program to reach proof of concept.
Our main goal in the initial trial is to demonstrate the enhanced potency of the molecule versus IVIg in human.
In animal models, we can reproducibly demonstrate up to 10 times the potency of IVIg.
If we can do this in humans, it will be a game-changer for the IVIg marketplace, which today is a global supply-constrained market with over $4 billion in sales in autoimmune indications.
IVIg in autoimmune indications is a very difficult therapy for patients often requiring infusions over 1 or more days with challenging side effects.
A drug with a fraction of the volume and infusion time and with the potential to dose higher for better efficacy could create meaningful value for patients and our investors.
We believe a single trial with a dose-ranging in normal volunteers progressing directly to patients in a population such as ITP, where IVIg is approved, could be conceded quickly, allowing us to show the benefit of this innovative compound within 2 years and providing another catalyst for our stocks from our promising autoimmune portfolio.
As I'm sure you can tell, we're very excited about our novel drug pipeline.
And we'll plan to share more information at an Analyst and Investor R&D Day, which we plan to hold in the second half of the year in New York City.
Turning now to an update on the strategic review.
Earlier this year, we initiated this process with the goal of reducing spending on our biosimilar portfolio, which will free up additional capital to fully fund what has become a very attractive novel autoimmune portfolio.
This review was precipitated by the delays in the launch of our Glatopa 40 milligram products and the subsequent deterioration of the market with Mylan's entry ahead of us.
Without the revenue stream we had planned for from Glatopa, we did not feel we had the runway to develop a broad portfolio Momenta had created without excessive dilution for our investors.
As I stated earlier, we are exploring a number of options.
And we will update you when we make a decision.
Our goal is to complete this strategic review by the end of the second quarter of this year.
Before I wrap up, I'll provide an update on the goals and milestones for the rest of 2018.
First, with the launch of Glatopa 40 milligram, we look forward to gaining further clarity on how the market will evolve with 2 generic 40 milligram products in the market and gain better insights into the future revenue potential from Glatopa 40 milligram.
In biosimilars, as part of the Mylan collaboration, we expect to start up the pivotal patient trial for M710 in the first half of 2018 and complete the investigation and determine next steps for an 834, our biosimilar ORENCIA candidate.
For our novel drug portfolio, we plan to initiate 2 Phase II proof-of-concept studies of M281 in 2 different indications and to progress M254 into the clinic in the second half of 2018.
And CSL has initiated a Phase I healthy volunteer study for M230.
And we look forward to the advancement of that program as well as our research collaboration with CSL.
And lastly, we expect to finalize our strategic review by the end of the second quarter of 2018.
With that, I'll turn the call over to <UNK> to review Q1 financials.
Thanks, <UNK>.
Good morning, everyone.
We reported a net loss for the first quarter of $48 million compared to a net loss of $32 million for the same quarter last year.
Revenues for the first quarter totaled $5 million compared with $27 million for the same period in 2017.
First quarter 2018 revenue included $3 million in product revenue, which was profit share earned from Sandoz sales of Glatopa 20 and 40 mg after a deduction of approximately $10 million for our 50% share of Glatopa 40 mg inventory reserves.
Excluding these inventory reserves, profit share was approximately $13 million, in line with the preceding quarter.
In Q1 2017, we reported product revenue of $23 million.
The year-over-year decrease in product revenues for the first quarter was primarily due to lower net sales relating to Mylan's entry into the COPAXONE market and the Glatopa 40 mg inventory reserves.
Research and development revenues decreased to $1 million from $3 million in the first quarter of 2017.
The decrease was primarily due to lower revenue recognized from the Mylan upfront payment and lower reimbursable expenses for our complex generic programs with Sandoz.
First quarter R&D expense decreased to $33 million when compared to $36 million in the same period in 2017.
The decrease was primarily due to reduced external R&D expenses for M923, offset by increases in spending for M710 and M281.
First quarter G&A expense decreased to $21 million from $23 million in the same period in 2017.
The decrease was due to lower legal expenses in the quarter.
The company previously gave operating expense guidance that it expected non-GAAP operating expenses for the first quarter of 2018 to be approximately $45 million to $55 million.
Our non-GAAP operating expenses defined as total operating expenses less stock-based compensation and less collaborative reimbursement revenues.
For the first quarter of 2018, our non-GAAP operating expense was $48 million, within our guidance range.
Finally, we ended the first quarter with $346 million in cash, cash equivalents and marketable securities compared to $380 million at the start of the quarter.
Now turning to guidance.
For 2018, we continue to expect non-GAAP operating expenses to be approximately $180 million to $220 million for the full year.
Specifically for Q2, we expect non-GAAP operating expenses to be $45 million to $55 million.
Year-over-year, we expect to decrease spending on biosimilars and increase spending on our novel programs.
Please note that full year 2018 guidance is subject to potential changes based on the outcome of the strategic review process of the business that we initiated earlier this year.
Lastly, as mentioned earlier in the call, now that we have announced our first quarter results, I will be taking some time for a planned temporary medical leave.
In preparation for this leave, <UNK> and I have worked out an interim plan.
And I'm confident that we have the right people and oversight in place to fully support Momenta's ongoing operations and the strategic review process.
I'll look forward to catching up with you all after I'm back in the office.
We'll now open the call to questions.
Operator.
Sure, thanks.
Well, I think I would say it's still early days in the marketplace.
But so far, it's been a positive reception from what we're hearing from the sales force from the customers.
And so I don't see any issues.
And I see as much interest as we saw certainly in 20 milligram product when we first went into the marketplace.
I will say that it's a competitive marketplace.
And so as we have anticipated, it's you know pricing pressure on the product.
But that's what you'd anticipate in today's generic market with the kind of bios we have.
I'm sorry, I don't have that data.
The challenge on this one is that this really is Sandoz' product that they're marketing.
And so you're really down to the detailed level in terms of call patterns and stuffs which just I don't have.
Yes.
So what I tried to give is a general picture of it in my comments, is that we believe we can go first into healthy normals and then progress directly into an ITP-like indication where IVIg is approved.
But we don't have the specific design ready to discuss.
We will discuss the details of that in our fall R&D Day, where we'll give you the full design of the trial and how we plan to proceed with that molecule.
Sure.
Well, our hope would be to gain breakthrough designation.
When you're going into a disease that has a high unmet need and no current therapies, that's really where the opportunity does present itself.
I think it's a little premature because that's always based upon the datasets that you have.
But one of the things that we're trying to do is ---+ and the reason we haven't talked about the specific different indications and thinking about it, we're talking about exactly those issues with the FD<UNK>
What's the trial design.
How do we think about the number of patients.
One of the things that we're trying to balance in these indications, some of these vary indications also have very long enrollment times with very few patients.
And so we want to make sure we get someplace where we not only have that opportunity for breakthrough, but we have a reasonable chance of enrolling it in a reasonable time.
And so those are the discussions that are ongoing now.
Sure.
Well, it's hard for us to comment on our competitors' programs.
I mean, obviously that's something they're going to have to deal with because they did have that imbalance in their trial.
But it's really hard for us to interpret that because it's not our program, so we don't have all the details on it.
I can tell you that our design of our Phase II trial, our proof-of-concept trial, is actually going to be a significantly more robust design in terms of number of patients and dosing.
Our goal in that trial is to really understand dosing schedules, really understand what dosing level that we have to have and to be able to demonstrate that the higher potency that we have with our molecule can potentially deliver better efficacy.
So we're actually going ---+ when you see the design, they'll be actually ---+ it will be quite a robust design that's really designed to let us get into Phase III with a great deal of confidence of our dosing schedule, great deal of confidence with the dose that we're taking forward.
And so that's what we're working on right now.
And we'll again give you that ---+ we may give you that before we get to our R&D Day, too, because we'll maybe able to start the trial earlier.
But we are ---+ because we are viewing this molecule as the proof of concept has already been achieved with the argenx data, our goal now is to make sure that we have the best evidence and the best way to take our molecule forward with a Phase II.
Sure, thanks a lot.
And I appreciate everybody on the call.
I realized there was a very big deal announced this morning and I know where everybody is.
But I appreciate those of you who were able to be on the call.
Thank you very much.
| 2018_MNTA |
2017 | INTL | INTL
#Thanks, <UNK>, and good morning everyone from a snowy New York.
Welcome to our fiscal 2017 first quarter earnings call.
During the quarter, we saw President Trump getting elected in a political black swan event, which has had fairly dramatic, and at least for now, overall positive impact on the markets.
It is now clear that we're dealing with a different type of administration that is likely to have an impact our market environment.
I would expect this to be generally positive for our business, with more volatility in the financial markets, and perhaps a greater probability of interest rate increases, as well as some easing of the regulated burden on the financial industry generally.
The market seems to concur with this view and has rerated financial stocks since the election result, our share price included.
This is a marked change in financial sentiment, which has largely been negative to the sector overall, since the financial crisis eight years ago.
While there was generally increased market volatility for the reasons just mentioned, the Q1 market environment has been somewhat mixed for us, with moribund grain markets, and on the other side of the spectrum, extreme volatility in the metals market, which led to some customer stress.
Overall, the Q1 was a disappointing result.
We recorded an EPS of $0.34 a share versus $0.46 last time, a decline of 26%.
On a sequential basis, we're down 62% versus the Q4 EPS of $0.90, albeit that quarter included a $6.2 million after-tax gain on the Sterne acquisition.
These results were impacted by a provision for bad debts of $2.5 million, due to the extreme market volatility of the LME metals markets, and a negative mark to market adjustment on our interest rate enhancement program of $5.6 million, due to interest rate increases.
These items accounted for approximately $0.29 of EPS.
In terms of our recent acquisition, we realized a net loss from the recent Sterne Agee acquisition of around $600,000 for the quarter, including related overhead costs assumed, slightly worse than Q4, but still less than originally anticipated.
We are very pleased with the integration of this new capability and believe we remain ahead of schedule and ahead of projections made at the time of the acquisition.
Q1 results also included the ICAP energy voice-brokerage business for the first time.
An incremental bottom line of $500,000 offset the loss from the Sterne Agee business.
The net result for the energy voice-brokering business was after expensing $900,000 related to compensation commitments, which were part of the acquisition cost, and will continue for the first two years, as well as additional $300,000 resulting from the amortization of intangibles, also related to this acquisition.
We're very pleased with the energy voice business, which has transitioned well from ICAP.
Some highlights for the quarter, and obviously, <UNK> will get into more detail: We achieved record operating revenues of $185 million for the quarter, up 23% from a year ago.
This was largely due to the addition of the Sterne Agee business, although it should be noted that these incremental revenues did not produce a positive bottom line at this stage for us, but we believe will do so in due course.
On a transactional volume basis, the outliers were global payments, up 53% year-on-year, debt trading up 49% year-on-year, and the FX prime brokerage up 36%.
On the other hand, assets under management declined 21%, due to the devaluation of the peso.
Four out of five of our business segments had positive revenue growth and positive growth in segment income.
Securities revenues were down 23%, and the segment income for that segment was down 41%, due largely to a decline in revenues from Argentina, which benefitted in the prior period due to gains resulting from the significant devaluation of the peso a year ago.
Global payment segment income resumed its strong growth and was up 32%, off a 53% growth in transactional volume, as we continue to gain more traction with our bank partners.
The physical commodities business realized a 200% increase in segment income, with good ongoing performance from the precious metals business and a significant increase from the agriculture and energy business.
This after a significant restructure of that activity over the last 18 months.
Procuring and execution services segment income was up 63%, due largely to improved results from exchange traded futures and options business, as well as the addition of the Sterne Agee [tiering] and independent wealth management business, as well as the ICAP energy voice-execution business.
This was offset by a decline in performance from our FX prime brokerage business.
And again, just to remind everyone, segment income does not include overhead costs, and if we include these overhead costs, the Sterne entities were ---+ if we do not include the overhead costs, the Sterne entities were accretive to segment income, but obviously, as mentioned before, not to the bottom line.
As mentioned earlier, we experienced dramatically enhanced volatility and sustained price movements in the LME metals, post the presidential election.
The cumulative scale of the price moves had not been seen for decades.
This resulted in both dramatically increased revenues for us, but also elevated liquidity stress for our customers, some of whom were unable to perform.
This resulted in a bad debt provision of $2.5 million for the quarter.
So, while volatility such as this drives our revenue, we need to be careful in times of extreme volatility, as this can manifest itself in liquidity stress and counterparty issues.
I will no hand you over to <UNK> for a discussion of the financial results.
<UNK>.
Thank you, Sean.
I'm referring to slides and the information we've made available as part of the webcast, specifically starting with slide number 3, which represents a bridge between operating revenues for the first quarter of last year to the current fiscal first quarter.
As noted on the slide, first quarter operating revenues were $185.5 million, which is a $34.2 million increase over the prior year.
Looking at the performance of our operating segments, the most notable change was a $33.8 million, or 113% increase, in our clearing and execution services segment.
This is primarily related to the acquisition of the Sterne Agee correspondent securities clearing and independent wealth management businesses, as well as the ICAP business, which Sean touched on, which collectively added incremental operating revenues of $30.2 million in the current quarter.
The second-largest increase in operating revenues was in our global payments segment, which added $4.8 million on 53% volume growth.
In addition, physical commodities operating revenues added $3.9 million over the prior year, as the precious metals business increased $900,000, and the physical ag and energy business added $3 million over the prior year.
Commercial hedging added $2.1 million in operating revenues, as increased exchange trading revenues, primarily on the LME, more than offset declines in OTC revenues, which resulted from lower energy and renewable fuels volumes, as compared with the prior year.
These gains were offset by a $11.4 million decline in our securities segment.
While our equity market making and domestic debt trading businesses grew operating revenues over the prior year, these gains were offset by an $11.3 million decline in operating revenues in our Argentine debt trading and asset management businesses.
The prior-year period included a strong performance in Argentina, primarily due to the devaluation of the Argentine peso.
Moving on to slide number 4, which represents the bridge from first quarter pre-tax income in 2016 to the current period, overall pre-tax income declined 31% to $8.4 million in the first quarter of 2017.
The CES segment increased segment income by $2.2 million, to $5.7 million for the first quarter of 2017.
While CES achieved significant growth in operating revenue, a significant portion of these revenues are paid out to independent representatives in the independent wealth management business.
These payments, which are recorded as introducing broker commissions, represented the majority of the $16.6 million increase in IB commissions in this segment, as compared to the prior year.
In addition, as Sean mentioned, as part of the acquisition of the ICAP voice-brokerage business in the first quarter, we recorded a $900,000 charge to compensation and benefits, per the terms of the acquisition, which will continue to be expensed through the end of fiscal 2018.
Global payments included increased segment income $3.2 million to $13.2 million, while physical commodities and commercial hedging increased segment income $2 million and $400,000 respectively.
These gains were primarily driven by the increases in operating revenues.
However, the commercial hedging results were dampened by an $800,000 increase in bad debt expenses versus the prior year, as a result of the $2.5 million bad debt in the LME business in the current-year period.
The prior-year period reflected a $1.7 million bad debt in our energy business.
As shown in the table in our press release, corporate unallocated overhead reflects a $5.6 million unrealized loss on our investments in our interest rate management program.
However, this is lower than the $6.7 million unrealized loss in the prior year.
This $1.1 million positive variance was offset by a $3.6 million increase in overhead costs acquired with the Sterne Agee businesses, leading to an overall $2.5 million negative variance in overhead versus the prior year.
The bottom of slide number 8 in the presentation shows the after-tax effect of these unrealized gains and losses in the interest rate program by quarter.
Included in unallocated overhead in the first quarter is a $921,000 acceleration of unamortized debt issuance costs on our 8.5% senior unsecured notes, which we redeemed during the first quarter.
Slide number 6 shows the interest income on our investment in our exchange-traded futures and options businesses, which hold our investible customer balances and encompasses our interest rate management program, excluding the mark to market fluctuations I just mentioned.
The continued implementation of this program and increase in short-term interest rates, and a 14% increase in customer deposits, led to an underlying increase in interest income, shown here, of approximately $500,000 versus the prior-year period.
Moving on to slide number 8, our quarterly financial dashboard, I'll just highlight a couple of items of note.
Variable expenses represented 57.5% of our total expenses for the quarter, exceeding 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 $14 million, or 24%, driven by the acquisition of the Sterne Agee and ICAP businesses, which made up $10.8 million of the increase.
The remaining increase in non-variable expense was primarily driven by the $500,000 increase in bad debt, the $300,000 of intangible amortization mentioned by Sean, and a $1.2 million increase in professional fees, excluding the portion of those related to the acquired businesses.
Net income from continuing operations for the first quarter were $6.3 million versus $8.8 million in the prior-year period, which resulted in a 5.8 percent return on equity, below our target of 15%.
Finally, in closing out the review of the quarterly results, our book value per share increased 12% to $23.77 per share.
We did not purchase any of our common stock during the first quarter.
With that, I'd like to turn it back to Sean to wrap up.
Thanks, <UNK>.
While we're a little disappointed with our Q1 results, we remain positive about the outlook for our business.
The growth and expansion of our business and its capabilities over the past couple of years has positioned us to take advantage of a still-consolidating industry.
And in addition, the market environment is now providing a tailwind for our business.
As we said last time, we stand poised to become a best-in-class franchise, offering our global customers high-quality execution, both high touch and electronic, insightful market intelligence and post-trade clearing services in almost all markets and asset classes.
This is a comprehensive array of products and services, which should allow us to take advantage of large and noticeable, and as yet unfilled, void in the market created by the demise of larger financial franchises during the financial crisis.
So with that, I'd like to hand back to the operator and see if we have any questions.
Operator.
Good morning.
On our exposure.
Okay, so I would say we had a pretty exceptional situation in Argentina a year ago, and that probably continued back for maybe two, three quarters of last year, so if you sort of extend backwards, right.
And that all resulted with the turmoil that was going on there, change in administration, the government manipulating interest rates and foreign exchange rates and such.
That led to a lot of activity in the markets we trade in, so we had increased volume.
And in addition, to hedge our equity exposure in the markets, we took up a short position in our trading book to help offset any potential devaluation.
And so, both of those things created an exceptional profit situation for us, and that was probably most notable in the fourth quarter.
So I think we're now returning to a more normal situation in Argentina.
I think if you had to go back and look at sort of the two-year-ago type results, I think we're probably more along that kind of line, maybe sort of up 20% or 30%.
But we certainly have lost the exceptional sort of market environment that we were a beneficiary of last year.
We are now in a position, also, to extract some of the equity and retained earnings that have been built up in Argentina, so we are reducing the capital that we need in that business, and that business continues to produce a great ROE for us.
Even in a more normalized situation with slightly less capital, with a more normalized situation, that business is definitely achieving its hurdle rates on its committed capital for us.
The upside potential for us is we are one of the few international companies that remained in Argentina during the crisis.
And so the sort of ---+ the next opportunity for us beyond the baseline business is how do we become more involved in cross-border financial activities out of Argentina.
And we're working pretty hard on that.
We're one of the few [tiering] members on the futures exchange down there.
We are a member of the securities exchange down there.
So we're starting to see slow and incremental progress for us becoming kind of the counter-party of choice for international financial institutions looking to do business there.
So I hope that's answered your question.
So I think there's a longer-term sort of new opportunity for us, but the baseline business has probably returned to where it was, you know, maybe two years ago.
Very happy with the business, making the right return on capital.
We now need to sort of transition that business into more of a cross-border opportunity, which we see coming.
Yes, so you know, we sort of always think about the business in terms of the core economic earnings.
I mean, we are a little bit reticent to put that in our earnings releases and so on, because it sort of sounds sometimes like you, you know, trying to justify bad results.
But I would say two things.
You know, the last two years, we have been pretty close to that 15% ROE.
We think we are now sort of getting some tailwinds, you know, just generically at a high level.
You know, we put in a slide in the last quarterly call, which showed the impact of interest rate increases on our business, which have now been magnified because of the Sterne Agee acquisition.
You know, that alone, if we see another two or three interest rate increases of 25 basis points, that alone could add about 4 percentage points to our ROE.
So, you know, I think we feel, at a high level, very confident that if we continue on our current track, with the sort of tailwinds we have, that that is achievable.
If I had to sort of look at this quarter, what I would say is if you sort of normalized our earnings for bad debts, the mark to market on our interest rate enhancement program we have, which we explained a number of times, if you look at the fact that we're effectively expensing, with the ICAP deal, we're expensing the purchase consideration.
So we're not sort of raising goodwill, but we're expensing it because we get a tax shield on that.
If you adjust for all of those things, I mean, this was more like a $0.70 quarter, right.
So, you know, from our point of view, we're looking at the ---+ it's still below 15%, but it's sort of more like a 10%, 11% ROE, if you look at the core operating results of the business.
And you know, those things will reverse at some point.
So I ---+ you know, it looks like we're sort of way off our target, but I'm not sure we feel, looking at the core operations, that we're that far behind.
Does that make sense.
Yes, so a couple things.
So firstly, the interest rate increase we saw, which will impact the customer assets we hold in short-term securities, which is about 40% of our total float is sort of held in short-term securities, that increase happened in ---+ I forget now exactly, but I think it was December, right.
So you know, that really didn't come into play at all for the quarter we're reviewing now.
So we should see a pretty immediate impact, at least for that portion of our float, our customer float.
And obviously, as we see subsequent rate increases, you know, that should come through pretty fast.
In terms of the portion of our assets where we've invested further down the curve, we have a laddered program.
It has a duration at the moment of around about 20 months.
You know, we are earning on that ladder higher rates than we would if we had kept the float short, on the short end of the spectrum, so it's clearly adding value.
It is adding noise in terms of the mark to market, but in our view, as always, we manage the business for a good economic result.
That ladder is starting to roll off.
So, for example, we've just recently in the last two weeks had a tranche roll off, and you know, it was earning something like 50 basis points, and we switched it to back end of the ladder, and it's now earning 150 basis points.
So we should see the average yield on the invested portion of our portfolio probably increase, and you know, it should settle, all things being equal, at around 120 basis points, and I think at the moment we're at about 80 basis points.
But that will take close to probably 18 months to achieve, or maybe 12 months to see some real impact.
So I think the upside potential over the next year or 18 months is an enhancement of something like 50 basis points on our investment, all things being equal.
And I think what you'll see is on sort of 40% of our floats, you'll see very immediate impact when we have short-term rates go up.
So I don't know if that helps you.
But it would probably be helpful if you went back to our earnings deck from last quarter.
We actually put a table in there, and you know, we estimated that once the full effect of interest rates had come through, a total of 100 basis points increase I think was about a 4.8% ROE impact.
Now, that would take some time to realize, obviously, but that's how we calculated it.
Yes, so I think we've sort of ---+ we have had conversations about this before.
I mean, this is a very real risk we run in our business.
You know, we have 15,000 customers, and we rely on those customers to honor their obligations to us.
We obviously have a very, what we think, rigid and robust credit process to assess all of that risk.
But it is implausible to think that you're not going to have some bad debts when you have 15,000 customers, right.
So, you know, we think that on average, somewhere between $5 million to $8 million a year should be the sort of high-water mark for bad debts.
We'd like to see that happen with lots of smaller amounts rather than big chunks.
But this was definitely an extraordinary situation based on a market circumstance we had never seen in the metals market.
I mean, you know, we do stress tests and so on, and this was sort of off the scale of probabilities.
And you know, the result was, in those environments, our customers sometimes don't pay as much attention to their liquidity stress situations as we do, and you know, they end up not being able to make margin calls.
So I would say that this was probably exceptional.
I think we would like to see probably more like half of that $2.5 million sort of as a reasonable quarterly amount.
But it's probably, as always, if we look back three, four years, we seem to have it come in big chunks when we have market kind of turmoil.
So anyway, I would say if you want to model it up, I would say somewhere between $5 million to $8 million is how I would bracket it a year.
And certainly, we're trying very hard to be well below that, but I would say that's kind of a realistic expectation.
Does that help.
Well, thank you.
Operator, do we have any other questions.
No one.
All right, well thanks very much for attending the call, and we will speak to you again in three months' time.
Thank you.
| 2017_INTL |
2017 | CBOE | CBOE
#Thank you, Debbie
Good morning and thank you for joining us today
Before I begin today, I would like to acknowledge the passing of our friend and colleague, Magnus Böcker
Several of us at CBOE had the pleasure to come to know Magnus while laying the groundwork for an educational partnership with SGX
We are personally saddened and, on behalf of CBOE, I wish to extend our condolences to his family, to our friends at SGX, and others throughout the industry who mourn his loss
Moving on now to our quarterly results; I am pleased to report on a strong quarter 2017 at CBOE Holdings, with adjusted earnings per share of $0.87, a net revenue of $267 million, led by continued growth in our proprietary index products
Our overall options volume during the second quarter was up 15% over the previous year, and our proprietary products continue to outperform the industry
We established an all-time record quarter in VIX trading, which increased 19% over the second quarter last year
Our index options volume increased 9%, reflecting the third highest quarter for VIX options trading and continued growth in SPX options volume
We continue to see strong trading in our proprietary products in July, led by VIX options, which had their busiest month this year
We have grown accustomed to increased VIX trading amidst spikes and volatility
We were obviously seeing that low volatility environments create trading opportunities as well
While VIX-linked ETPs remain key to the VIX ecosystem, we believe the most recent increases in volume can be attributed to a growing group of users trading VIX futures directly, rather than using VIX ETPs
We are also seeing VIX options trade in greater size and users continuing to find utility trading VIX futures and options, regardless of the VIX index level
In other business lines, global FX volume was up 8% in the second quarter, and our market share stood at 12.9% at the end of June, compared to 11.5% a year ago
We saw second quarter market share in both U.S
and European equities decrease against the prior year's second quarter, due to this year's continued low volatility
Our Bats ETF marketplace however, continues to thrive and grow
Our growing market share in ETF listings demonstrates our ability to offer meaningful benefits for issuing firms and deep liquidity to market participants
We are now home to over 221 ETFs, 89 of which were added this year
Of those, 30 are BlackRock iShares funds, which transferred from a competing marketplace earlier this week
Year-to-date, we have won 39% of all new ETF listings, our highest-ever percentage, including some of the largest ETF launches this year
Five of this year's top 10 new ETFs in terms of assets under management are listed on Bats
We also listed ---+ we also listed our first exchange-traded notes this past quarter
With the addition of new funds from some of the industry's most influential firms, including Franklin Templeton, Janus, UBS and Principal, and new opportunities to leverage our global presence and CBOE brand, we expect our listings business to gain even more momentum
We took an exciting step toward further expanding our growing product line this week by entering into an agreement with Gemini Trust Company that provides CBOE with a multiyear exclusive global license to use Gemini's market data, including Gemini bitcoin auction values, to create bitcoin derivatives products
We are working closely with the CFTC and, subject to regulatory review, we intend to offer trading and cash-settled bitcoin futures on CFE in the fourth quarter of 2017 or early 2018. CBOE will also retain exclusive rights to use Gemini market data for the creation of new indexes, as well as the rights to distribute Gemini market data over CBOE's market data feed
As you know, Gemini previously selected Bats Global Markets to list their proposed bitcoin exchange traded fund
We cannot be more pleased to build on that partnership by leveraging CBOE's experience in product innovation and cutting-edge asset classes to develop and trade bitcoin futures
The collaboration with Gemini is an example of the strong potential for innovation we see in marrying ETP issuer relationships, ideas and capabilities with CBOE's deep product development expertise
We look forward to responding to the growing interest in crypto currencies through potential bitcoin futures traded on the regulated derivatives exchange, with the many expected benefits this brings, including transparency, price discovery, liquidity and centralized clearing
Moving on now to our integration with Bats
As mentioned in our last call, the combination of the two companies provides the opportunity to cross-sell additional products and services to an expanded customer base
We continue to focus on our core index business and target the OTC space with quality listed products, while extending our global reach to promote an expanded product line
I'm pleased to announce we will be opening a satellite Hong Kong APAC office in the third quarter while continuing to leverage our presence in London and Singapore
Our coordinated efforts across multiple locations in the U.S
and abroad enable our equities, derivatives and FX sales teams to interact more frequently and efficiency, with a greater expanded base of buy-side and sell-side clients
Our extended reach enables us to build closer, more collaborative relationships with local brokerage firms and indexers and accelerates our ability to cross-promote our products to a much broader audience
We are preparing for our sixth Annual CBOE Risk Management Conference Europe which, runs from September 11 through 13. This will be our first RMC Europe held near London and the first to feature team members who now represent new lines of CBOE business, including FX products and European equities
RMC typically attracts sophisticated traders who are early adopters of our new products
We very much look forward to sharing our expanded offering with many of our most influential customers
As you know, the migration of our trading technology onto Bats' proven platform underpins the scale and efficiency we expect to gain from the CBOE-Bats combination
We remain laser-focused on working with customers to help ensure a seamless technical and operational integration
Last quarter, we held the second in a series of customer conference calls on the migration of CBOE's exchanges onto the Bats technology platform
On that call, we announced that we expect to complete the C2 options exchange on May 14, 2018, which follows the previously announced migration of CBOE's futures exchange to the Bats platform planned for February 25, 2018. We expect to announce the date for CBOE's migration in the coming quarters as we continue to work on requirements for the hybrid floor and electronic system
We are also implementing a new index technology platform that will serve as the foundation for our growing index business and enables us to better calculate and disseminate data for new and existing indices
Completion of the new index platform is expected in the first half of 2018, and we will announce a full rollout schedule in upcoming technology integration customer calls
Turning to our European equities business and the progress we've made toward addressing the challenges and opportunities inherent in MiFID II
Bats Europe is nearing completion of its technical and operational readiness, having successfully implemented a strategic plan that allows ample time for customers to test our systems and prepare for MiFID II
Last month, we successfully completed our third and most significant software release of the year, which included all of the real-time exchange functionality needed for MiFID II compliance
Our final software release is scheduled for October
Importantly, we also see MiFID II as an opportunity to provide value-added products and services to help customers navigate the changing regulatory environment
These include our Large In Scale, periodic auctions and expanded buy-side trade reporting services
The new volume caps coming under MiFID II will limit trading in dark venues, causing investors to seek new places to trade with minimal market impact
Our Large In Scale and periodic auctions offerings are designed to enable investors to find liquidity and trace large quantities of stock without the associated market impact
We continue to see rapid uptake in trading on our Large In Scale service, a block trading platform launched last December with BIDs, a block trading leader in the U.S
More than 86% buy-side customers are now connected, and we continue to see increased trading on the new platform
The trading experience on the periodic auctions offerings, lit book operating auctions throughout the day, allows market participants to trade in increased size without significant reactive market movements
We believe we will see strong traction in our periodic auctions offering as we near MiFID II commencement
Last quarter, we expanded our Europe trade reporting, BXTR, the largest equity trade reporting facility in Europe to enable buy-side firms to meet their trade reporting obligations under MiFID II by allowing their brokers to submit trade reports using their existing connectivity to Bats Europe
Turning now to our U.S
equities and our Bats market close proposal
We continue to receive questions on this initiative, so I'll take a moment here for an update
Bats market close is a near end-of-day match process for non-Bats listed securities that we created in response to customer demand
It would provide a means to secure primary market closing print prices without disrupting the primary market closing auctions that take place at the end of the U.S
equities trading day
On July 6, the SEC extended the Bats market close review period another 45 days, making August 20 its next action date
At that time, the SEC may either approve or institute a proceeding disapproval, which would give them another 180 days to act
We remain strongly committed to the customer benefits of this initiative, which are highlighted in our response letter to the SEC earlier this week, and we will continue to advocate for its approval
In closing, I would like to thank the CBOE team for a great second quarter, our first full quarter as a combined company with Bats
It is a credit to the talent and professionalism of the entire team that we continue to systematically hit our internal integration milestones while delivering strong results in our core business lines and positioning the company for future success through the consistent execution of our strategic growth initiatives
I am excited about the opportunity that lies ahead for this team to leverage our expanded product line and extended global reach to continue to grow CBOE and reward our shareholders for years to come
With that, I thank you for your time
I will now turn it over to <UNK>
<UNK>, great question
It's one that we focus on, probably the first question our board asks us at every quarterly meeting
They too see the opportunities to execute on the revenue synergies that we laid out, gosh, almost a year ago
But really the opportunity we continue to focus on here, is growing the index complex, really leading with this incredible uptake in volatility trading, even in a low environment
So VIX futures and options, and then the growing appeal and the flexibility that our retail customers are seeing in a Monday, Wednesday, Friday SPX complex
So the opportunities are to take those core index products and use the broadened and expanded business development lines, that is really leveraging the U.S
team here and really looking to Mark Hemsley, who runs the European operation, getting his team up to speed on education
I think I mentioned last quarter, that we were sending our own options institute instructors over to Mark's team in order to really get them up to speed, inform ---+ a much, much more informed lead generation, so that we can grow this product not just domestically, but globally
So that remains the focus
This will continue to be an index story, I think, proved out in both high and historically ---+ incredibly historically low volatility
So that's the core
But you did bring up a good mention of our interesting release yesterday
I want to turn it over to Chris and maybe <UNK> <UNK>
Just a little bit of overview, while we're sticking to the core, we're still looking to the future to build new opportunities that we'll be able to tell you stories in the coming quarters
So <UNK> and Chris, if you could maybe kind of give an overview of the relationship with Gemini, and then, Chris, maybe how we see the opportunity to roll out products after the initial relationship begins
I think if we look at all of the opportunities and how people are employing this, I think you're right
I think in the last six to nine months, we've seen our users change the way that they view and are able to harvest premium, and our products are almost directly benefiting that change in opinion
And again, if I remind you what volatility our VIX contract is actually measuring, it's the market's perception of risk
And the spot VIX is a 30-day measure of that perception of risk
So the contract itself is just a direct reflection of where people view their risk over the next 30 days
And, of course, the term structure is look at their perception risk over time
And to your point, that has been flat in the past
That has been in contango and, on occasion, goes in to backwardation
Now the opportunities as soft [land], I'm not quite sure where you're going with that
Our existing customers are, in fact, finding the utility in a low volatility environment, employing different strategies
The fact that everyone piling into a short model strategy was probably more the norm in the first quarter
We see people now getting out of spreads that allow them to leverage those positions and taking outright positions, whether it's all-in short, as the trend has been
But we see now the interest in long ETP exposure in a more binary effect like ---+ I've given up on this short model, can't get lower
I'm flipping my ---+ use the analogy of my old floor days, I'm flipping my trading card over, and I'm taking an outright-long position on volatility
There are too many things uncertain in the world
You can pick up the paper, debt ceiling looming, North Korean missile tests in the future
And what that impact and my perception of risk over time is reflected, I think, in the activity we see going from all-in short, to now taking outright long positions
So not atypical to what we've seen in the past
There are changing perceptions of risk, and that's been reflected in our marketplace
Let me just punch the point, <UNK>, and what we've observed, and it was a big one for us, we saw a million contract VIX options trade, which is really taking a position, using the leverage of an options contract, taking in premium, I should add, that really takes a position mark that I don't think we're going to stay in this low volatility environment
And on a way back to a normalized volatility, all the way up to a 35 level, this is an incredible payout for someone who's completely taken a different position on vol and expected risk in the future
So we're seeing much bigger positions from existing and much more activity from new customers
So I'll leave you with those thoughts
Hold on
Debbie, can you get ready for the mute button? If Chris starts giving anecdotes, we've got to be careful
<UNK>, why don't you give a little background on the philosophy? And I can get into maybe the broader view on M&A and just how we've accomplished this over the last couple quarters
So with that as the background, the way we view M&A and you've referenced some properties that perhaps could be out there
Wouldn't expect us or this board to have any targets that are very, very large scale acquisitions
But we're typical to the activity that we were employing pre-Bats
We're looking to grow this core business, period
And if that means we can build tools that make that easier for our customers to either find and interact with our proprietary complex, if there are tools that Bryan Harkins needs on the equity side or Mark Hemsley sees an opportunity in Europe, we will chase them down
We'll look either to build or buy
And if it makes more sense for us to go out and make smaller bolt-on acquisitions that further this strategy, we'll do it
But right now, we are deep in integration and migration of this platform to deliver what we set out to deliver to our shareholders last September
So again, think smaller bolt-on
If we think it's quicker to market for us and more effective, we'll build otherwise, but nothing planned large scale at the moment
And then the ---+ Chris, the October EDGX Complex Order Book
Why did <UNK> get two questions, Debbie?
Well, let me be specific [ph] that we heard you right, <UNK>
It was pricing on CFE?
And then the second part of that question really in mix
So if you saw the increase in the first quarter this year in RPC and VIX futures over the previous that was the price adjustments we made in January
And then the difference between Q1 and Q2 in RPC, really is due to the active day trader discount
So you're right, as we see the day trader pick up their volume, we'll see a slight decrease in RPC, but we'll see that bounce quarter-to-quarter just depending on the mix
So right to your point, you're right
You did see that and quarter-over-quarter, it just is the blend between pure customer or day trader ---+ people taking advantage of the day trader discount
| 2017_CBOE |
2018 | ENTA | ENTA
#Thank you, <UNK>.
Good afternoon, everyone, and thank you for joining us today.
I'll begin by providing updates on our key development programs, and then <UNK> <UNK> will discuss our financial results for the quarter.
For some of our listeners on the call today who are new to our company, our strategy over the past several years has been to use our drug discovery expertise to develop best-in-class compounds in virology and (inaudible).
Our first 2 successes were in HCV, with our protease inhibitors glecaprevir and paritaprevir, developed and commercialized through our collaboration with AbbVie.
We are continuing to build on that success by using the royalties provided by that collaboration to fund our wholly owned programs in NASH, PBC, RSV and HBV.
Among these wholly owned assets, the most advanced is EDP-305, our FXR agonist candidate for NASH and PBC.
We continue to believe that FXR agonist have the potential to be cornerstone agents in combination therapy for NASH.
EDP-305 is a highly selective and potent FXR agonist that successfully completed a Phase I a/b clinical study last year, and was granted fast track designations from the FDA for the treatment of NASH patients with liver fibrosis and for the treatment of PBC patients.
Recently, we initiated a Phase II clinical study of EDP-305 in patients with PBC.
This Phase II clinical study named INTREPID is a 12-week randomized, double-blind, placebo-controlled study evaluating the safety, tolerability, pharmacokinetics and efficacy of EDP-305 in subjects with PBC, with or without an inadequate response to ursodeoxycholic acid.
The efficacy of EDP-305 will be assessed by evaluating reductions in levels of alkaline phosphatase, or ALP, versus placebo.
Today, we are announcing that we've also recently initiated recruitment of a Phase II dose-ranging clinical study of EDP-305 in NASH patients.
This Phase II clinical study named ARGON-1 is a 12-week, randomized, double-blind placebo-controlled study evaluating the safety, tolerability, pharmacokinetics and efficacy of EDP-305 in subjects with NASH.
This proof-of-concept Phase II will allow safety and changes in levels of alanine transaminase, or ALT, as a primary endpoint, will also focus on evaluating multiple secondary endpoints, including imaging and noninvasive markers of fibrosis and steatosis at week 12.
INTREPID and ARGON-1 studies are using our new tablet formulation that delivers about a twofold greater exposure than the suspension formulation used in our earlier Phase I study, resulting in doses of 1 and 2.5 milligrams in these Phase II studies.
We expect to have data from the INTREPID and ARGON-1 studies in 2019.
In addition to our clinical program with EDP-305, we are identifying follow-on FXR agonist leads and we are continuing our ongoing discovery work in a non-FXR mechanism for NASH, anticipating the likely need for a combination therapy in this indication.
Turning to our RSV program, we are excited about EDP-938, a potent non-fusion inhibitor and our first clinical candidate for RSV.
This inhibitor of the end protein works by blocking the replication machinery of the virus.
And as a result, may have the potential of being more effective at later stages of infection than fusion inhibitors.
Enanta has presented promising in vitro and in vivo data at several scientific conferences, demonstrating that EDP-938 is a potent inhibitor of both RSV-A and RSV-B activity, and maintains antiviral activity post-infection while creating a high barrier to resistance.
The Phase I clinical study of this inhibitor is currently ongoing.
The objective of the study is to evaluate its safety, tolerability and pharmacokinetics of single ascending dose and multiple ascending dose levels of EDP-938 in approximately 80 healthy volunteers.
Upon successful completion of this study, we expect to begin a Phase II proof-of-concept challenge study in RSV infected humans in the fourth quarter of calendar 2018.
We are also focused on HBV, with an estimated 250 million patients worldwide representing a significant unmet medical need.
Our discovery program continues to move ahead and is generating promising leads.
Preclinical data on EP-027367, one of several HBV compounds we have discovered, was accepted for oral presentation at the 2018 EASL meeting in Paris on April 12.
This HBV core inhibitor has potent antiviral activity both in vitro and in a humanized mouse model.
Further details on the compound will be available at the time of the presentation.
We will continue our efforts to discover, characterize and secure patent protection for several new core inhibitors of HBV.
We hope to announce our first HBV candidate later in 2018.
Let's turn now to our licensed HCV products.
We continue to be very optimistic about the commercial potential for AbbVie's new MAVIRET regimen, which includes glecaprevir, our collaboration's second protease inhibitor.
On AbbVie's recent financial results conference call at the end of January, they stated that MAVIRET had climbed to 32% market share position in the United States.
And internationally, had the #1 position in Germany, Spain and Italy.
We look forward to AbbVie continuing to execute its launch of MAVIRET worldwide.
For calendar year 2018, AbbVie management provided global HCV and MAVIRET sales guidance to exceed $2.5 billion.
Given this guidance from AbbVie, the potential for increased royalties to Enanta from MAVIRET are significant.
And I will remind you that Enanta is eligible to earn double-digit royalties on 50% of AbbVie's global net HCV sales on MAVIRET.
We've made great progress with our programs in NASH, PBC, RSV and HBV.
We'll continue to advance our 3 clinical programs, add additional mechanisms of actions and discover follow-on compounds to supplement our programs, all to broaden our footprint in these disease areas.
I'll now turn the call over to <UNK>, to discuss our financials for the quarter.
<UNK>.
Thank you, <UNK>.
I'd like to remind everyone that Enanta reports on a fiscal year schedule.
Our fiscal year ended September 30, and today, we are reporting results for our first fiscal quarter ended December 31, 2017.
Enanta ended the quarter with approximately $298 million in cash and marketable securities as compared to $294 million at our September 30, 2017, fiscal year-end.
We expect that these cash resources and our future royalty revenue stream from our AbbVie agreement will be sufficient to meet our anticipated cash requirements for the foreseeable future.
For the 3 months ended December 31, 2017, revenue was $38.1 million compared to revenue of $10.4 million for the same period in 2016.
The increase in revenue in the current quarter was primarily due to a $15 million milestone payment received for the reimbursement approval of MAVIRET in Japan, as well as an increase in royalties earned on AbbVie's global net sales of hepatitis C virus regimens due to the launch of MAVIRET in major markets in the second half of 2017.
Royalty revenue in the current quarter was $23.1 million based on AbbVie's global HCV sales of MAVIRET and VIEKIRA totaling $510 million.
Moving on to our expenses.
For the 3 months ended December 31, 2017, research and development expenses were $18 million compared to $12.5 million for the same period in 2016.
The increase in research and development expense was primarily due to increased preclinical and clinical costs associated with the progression of our wholly owned R&D programs in NASH, PBC, RSV and HBV.
General and administrative expenses for the quarter was $5.8 million versus $4.9 million for the comparable quarter in 2016.
The increase in these expenses was primarily due to an increase in headcount.
Enanta recorded income tax expense of $3.6 million for the 3 months ended December 31, 2017 compared to an income tax benefit of $1.5 million for the same period in 2016.
Income tax expense for the 3 months ended December 31, 2017 includes a $3.8 million noncash revaluation charge that decreased our deferred tax assets to reflect the reduced federal corporate income tax rate as a result of the enactment of the U.S. Tax Cuts and Jobs Act in December 2017.
Net income for the 3 months ended December 31, 2017 was $11.7 million or $0.59 per diluted common share, compared to a net loss of $5 million or $0.26 per diluted common share for the corresponding period in 2016.
Note that net income for the 3 months ended December 31, 2017 reflects the $3.8 million or $0.19 per diluted common share noncash revaluation charge I previously discussed.
Further financial details are available in our press release and will be available in our Form 10-Q for the quarter when filed.
I'd now like to turn the call back to the operator and open the lines up for Q&A.
Operator.
Sure.
So thanks for the question, <UNK>.
So this is <UNK>.
We went through the data ---+ we presented the Phase I data.
We top lined it last fall and we presented it at NASH-TAG early this year.
And we showed how we had looked at a number of different factors: safety, biomarkers, et cetera, et cetera, PK exposure.
Our goal is to give very good once daily dosing coverage.
We also wanted a good safety profile.
As you know, at the high 20-milligram dose sort of we got into the nonlinear range on the PK and the exposures popped up a bit.
And that\
So ALT, I think if you go back and you look at the FLINT study, I mean, ALT was one of the key parameters looked at.
So I think, especially for a 12-week study, again, this is a shorter duration study.
We want to take a look at ALT reductions.
As you know, we'll be looking at patients who already have elevated ALTs.
They've either been phenotypically characterized as having NASH or have logically been characterized as having NASH.
In fact, you can look on clinicaltrials.
gov for a lot more information on this because we have just recently posted this week the trial design.
But ALT is a great surrogate to look at for NASH activity.
And of course, we'll ---+ you'll see from our inclusion criteria that we're looking at fat, steatosis and ---+ so you can imagine we're using imaging as secondary endpoints, et cetera, also biomarkers of fibrosis.
So I think it'll be a compact 12-week study that should give us a lot of information.
I think we've picked 2 interesting doses to explore.
And we're going to now have that up and running alongside the PBC study.
And again, both those studies are targeted to read out in 2019.
Yes.
I think we can't give that breakdown right now.
So just to be clear, we get royalties on VIEKIRA and VIEKIRAX and TECHNIVIE and all the paritaprevir-containing regimens.
All of those sales go into 1 bucket and MAVIRET sales into another bucket and we get royalty streams on each of those buckets.
But certainly from the VIEKIRA, some of that are 3-DAA regimens.
The majority of the VIEKIRA's AA regimens, but there's also some 2-DAA in there where we get a different blend.
And then in a separate bucket, we've got MAVIRET where we get a double-digit royalty on 50% of those sales.
So this has all gotten aggregated together.
And let's just say we won't get any more granular than AbbVie does in terms of reporting out those various sales.
What I can say is it's a pretty reasonable expectation that, going forward, MAVIRET is going to be the key driver in the HCV growth.
And I think it's at a very exciting time.
You can see just after ---+ MAVIRET was basically launched in the EU and only part of the EU starting in July and then the U.S. in August.
So to see that kind of calendar Q4 performance in such a short period of time, I think, is just ---+ is really impressive.
And so while others are reporting declines in their HCV revenues, I think Enanta has the potential to be, sort of, the growth story for hepatitis C, at least in the near term.
Okay.
So that was 6 questions, I think.
Let's start ---+ let's go all the way back to the HCV 1.
So on the ramp there, I think ---+ VIEKIRA is sold in dozens and dozens of countries.
It's well over 50 countries globally.
And so I think there's just a part of getting MAVIRET in every nook and cranny around the world.
So VIEKIRA sales will be, obviously, continuing until ---+ well, probably continuing even as MAVIRET comes into a particular territory.
But given the profile and the simplicity and the overall efficacy of MAVIRET, it's reasonable to assume that, that transfer what happened very quickly in all the various territories just as it has happened in the United States.
So they're continuing to launch globally very aggressively.
I pointed out some of the key territories in Europe that they commented on.
Well, the other thing I'm excited to see, the ---+ MAVIRET was just approved in Japan in September, but it didn't get pricing approval until November.
So any Japan contribution for calendar Q4 was not ---+ certainly not a full quarter baked in there.
So we'll see in calendar Q1 just how Japan could potentially add to all of this.
So ---+ anyway, I think MAVIRET switchover will be pretty seamless.
But in the meantime, VIEKIRA will continue to sell.
So thinking about RSV, I mean, we just started the Phase I a few weeks ago.
And these things usually take a few quarters to conduct and then we'll pull down the topline data and analyze it.
So I would say maybe sometime in the Q3 timeframe.
But we'll give an update on that as we progress the study.
Then Q4, we would plan to start the challenge study.
Having our dose planning well in line to get that done.
So data from that, obviously, will also flow into the 2019 timeframe.
And there, it's just a question ---+ at the end, I think it's a little hard to answer your Phase II question about RSV fully until we see the PK profile from our Phase I study.
I think we'll want to look at the PK and safety and so forth.
We wanted to make sure we come up with the right doses or dose regimen to give good coverage so that we put ample pressure on the virus throughout the conduct of the study.
And so we'll really need to see how that PK profile plays out so that we understand how many cohorts we might include in that Phase IIa challenge study.
And depending upon how many cohorts we have, of course, the time ---+ the conduct of the study will depend on that.
So give us a little bit of time and we'll give an update on that as we are progressing through our Phase I studies.
And then getting to now Phase II PBC or the INTREPID study and Phase II NASH, which is the ARGON-1 study.
They're almost tracking now side by side.
Obviously, PBC got just a little bit few weeks head start.
But it's really going to boil down to recruitment.
We're hoping to conduct a study predominantly this year.
And then it'll obviously, depending upon when the last patient is, we'll have 12 weeks after that an analysis of the data, et cetera, et cetera.
So it's pointing somewhere probably more toward the mid range.
So stay tuned for an update as we progress.
But somewhere down that line.
It's really a question, too, of where ---+ when and where we will put out that data.
So it really boils down to recruitment.
Tax question, I'll defer to <UNK>.
Sure.
This is <UNK>, <UNK>.
Our effective rate for the quarter was 24%.
But I'd say at this point, we're not going to provide guidance for the rate for the full year, since it's ultimately going to be a function of revenues and how that impacts the bottom line.
And also the level of R&D credits generated by our spending this year.
So for those reasons, we'll perhaps consider guidance down the road, but not at this time.
Sure.
So, yes, to the extent we have benchmarks ---+ or there may be benchmarks in the future from Novartis and Gilead, we'll be comparing ourselves to them for sure.
Really, the only benchmark that we have right now is ---+ in this type of study is ALT.
And I think if you go back to FLINT, it was sort of in the 20% to 30% reduction range over that time course.
So I think we would be looking to do at least that.
And then with regards to biomarker and imaging data, I think there's not a lot of strong data for comparisons there yet.
Certainly, not out of Intercept.
So we'll be waiting for Gilead and Novartis to put that data out.
And then likely, we don't know exactly everything that they're measuring.
But likely, there will be an intersection of some of our markers and some of theirs as well with regards to imaging and other things that we'll be able to line up some comparisons.
It is a short-term duration ---+ short-duration study.
I'd also point out, again, this is sort of a 12 week.
So this isn't a 50- or a 72-week or 1-year long study.
But it's meant to drive key relevant markers, help us gain confidence on efficacy and dose selection and then to build the stage for moving on to later stage studies.
Well, FXR already does have a lot of things.
It's certainly ---+ it certainly has ---+ if you look at fibrosis and inflammation and gluconeogenesis and fat, you can ---+ there's certainly a strong mechanistic rationale for why FXR is tied into all of them.
Which is going to be the most profound driver in the end is something that we're going to have to figure out.
So some drugs that focus more purely on steatosis has one dimension.
We'll have to see how an FXR will stack up against them, against that dimension.
But again, we're looking at FXR as being sort of a central regulator of many of the different mechanisms.
And so it's the aggregate of the approaches that I think make FXR really compelling.
Yes.
There could well be more than 1 backbone before it's all over.
I mean, again, I'm just looking at it from a perspective of how many mechanisms have true validation in a NASH sighting.
And the list is relatively few.
There can be multiple other backbones, so I'm not excluding others.
But we think that FXR is going to be a key one.
And we're happy to think about adding other mechanisms onto that.
So I don't mean to imply that FXR will be the only such one.
As you know, there were few HCV analogy.
There were some backbones that were nuke related, and then others that weren't.
And early on, people, I think, incorrectly assumed that one backbone would be the only backbone you would ever find.
I think there's ---+ especially in something like NASH that has so many factors going on, I think there's different ways to think about the problem and different ways to approach it.
| 2018_ENTA |
2015 | TREX | TREX
#Morning, <UNK>.
Sure.
We have not seen any significant movement in pressure treated lumber at retail.
It's been relatively stable.
And in fact, if you looked at the higher grade of pressure treated, which is generally a cedar that has had less product available in the market than what a lot of the consumers would like to have.
And therefore that is very stable.
So, we don't really see an impact from that, nor have we seen competitors using reduced polyethylene prices to try and drive the retail price down.
I believe what's happening is over the last several years, there have been very few price increases.
And I think that it is a point in time when competitors are basically utilizing that to strengthen their margins back to where they believe they're appropriate.
Well, our primary focus is growth of the business.
The buyback of the stock is something we do on an opportunistic basis.
If we see a share price that is exceptionally low we are out there and have been and demonstrated we've been active buyers.
But our first goal is to grow the business.
We believe that through our R&D team, as well as our manufacturing team, we can offer more to shareholders through innovation with them than we probably can do with acquisitions.
Acquisitions, of course, bring all kinds of risk with them.
However, if we saw the right acquisition we would certainly be open to it.
This management group has looked at a number of potential candidates, primarily in the building products area.
And thus far, I have not found any that really met the requirements that we were looking for, which basically is a strong return on investment considering the risk associated with the acquisition.
Yes.
We haven't broken out the international sales as a segment within the business as of yet.
I expect at some point in the future we will do that when the size is appropriate.
From a European perspective in breaking that out, if you look at an overall worldwide market, about half of the composite decking sales are outside of North America.
And when you break that apart from there about 50% to 60% of that outside of North America market is going to fall within Continental Europe.
So that's the key reason for our focus within the major economies within Europe.
Of course as you'd expect, the economies that are functioning with little bit stronger economically have a better opportunity.
So we have focused on the UK, France, Germany and some of the other countries up in Scandinavia, and we'll continue to go after that as we go forward.
We currently do not have all four lines running.
We do not have the demand to support all four lines.
We anticipate that in 2016, we will move into the four lines.
Until we have fully loaded those lines or we see a demand curve that supports fully loading those, we will not be proceeding with any additional lines.
So I would say for 2016 based on our current trajectory we would probably be limited to four lines in 2016.
We typically do not have a press release.
This is where we're talking with our distribution partners, as well as our sales force on internal strategies for the company.
We've talked about our pricing.
We do have a roughly 6% price increase that we've already implemented on Transcend monochromatic.
That is the only price increase of any significance that we've passed on.
Programs also will be talking with our distributor partners and typically we do not go into those in detail with the Street.
Well, as I mentioned, the operational issues related to the heightened aesthetic standard, that's behind us at this point.
We don't provide specific gross margin guidance as we go forward, but as I mentioned in a - with a prior question, we do expect utilization to be up slightly in the fourth quarter and there will also be some benefit from the price increase on the Transcend Classic colors.
Yes.
On a year-over-year basis, we're still targeting a 45% incremental growth.
And, <UNK>, in looking at that number, I think you need to look at what occurred in prior fourth quarters to put it in relationship.
Fourth quarter is one of the lower months from an incremental margin standpoint, typically.
Third and fourth quarter are typically challenges to that number.
First and second quarter very strong.
You saw it come down slightly in the third quarter and again, typically fourth quarter is a little bit of a challenge on that 45%.
If you took the full fiscal year change in revenues and then look at a change in gross margin at 45%, you can fit the fourth quarter accordingly.
Based on everything we've seen and heard, both from our Big Box business partners, as well as the two-step channels, is we continue to expand our market share.
It is equally as clear in the third quarter as it was in the earlier part of this year.
Thank you, <UNK>.
Yes, I think one of the things you ought to look at, the Q will be out later today.
Much of that information will be contained within the Q to give you more detailed color on that.
The view is that it has been a little bit more expensive because the type of claims that have come through, more cash payments as opposed to material, delivery that really relates to our ability to deliver certain materials.
We don't have every state covered by a delivery program, so that causes that number in some cases to be a little bit higher.
With regard to the claims, the claims are still decreasing.
They aren't decreasing as quickly as what we had anticipated.
Therefore, we see the need for the increased reserve, but as it has been the case since we first started this process, claims have continued to decline and I think one of the big telling issues is for me, is when I look at the cash out, it's down considerably from prior year.
And we need to continue to see that decline.
We expect that we will continue to see that decline.
It makes the cash implications of that less and less of an issue as time goes on.
Well, certainly, we view an opportunity for further expansion sales with new distribution partners as an opportunity.
It will be a much smaller opportunity in 2016 than it was in 2015.
I think the big opportunity really comes from the conversion from wood to wood plastic composite.
We saw an indication in 2014 of it starting to move.
It's been very clear and in fact, noted by others publicly that we are starting to see people move from pressure treated to wood plastic composite.
So I think that trend is going to benefit us as we go into 2016.
We continue to take share, and just to be clear, the share gains we've had are not all from new distribution partners.
We saw share gains with new dealers across the United States.
It was not just in the northeast where we added significant new distribution.
So we're pretty excited about the growth that we've seen.
And where we are growing compared to our competitors.
We have outstanding products out there that the market recognizes and we're being rewarded for putting those good products on the market.
I'd say we're probably in the sixth to seventh inning.
There's still opportunity there, but again, that was not the primary driver for this year, it was one of the drivers.
Thank you.
This executive team remains focused on strengthening our number one brand position, our premiere distribution network, our strong product development expertise and our low-cost position.
These competitive advantages continue to allow TREX to excel in the outdoor products category and utilize our core competencies to enter new markets.
As we move into the fourth quarter, another banner year for TREX, we also have our sights set on the opportunities that lie ahead.
We look forward to updating the investment community on our overall 2015 results and our expectations moving forward in our next call.
Thank you for participating with us today.
| 2015_TREX |
2017 | AVY | AVY
#Thanks, Mitch
And hello, everybody
As Mitch mentioned, we delivered another strong quarter, with earnings coming in ahead of our expectations
Our adjusted EPS was up 25%, driven largely by strong operating performance
We grew sales by 10%, excluding currency, and 5.3% on an organic basis
And currency translation added about 1% to reported sales growth in the third quarter, with an approximately $0.02 benefit to EPS compared to the same period last year
The reduction in the tax rate also contributed roughly $0.05 to EPS in the quarter versus last year
Our adjusted operating margin of 10.4% improved by 60 basis points versus prior year, as the net benefits from higher volume and productivity improvements more than offset higher employee-related costs
Productivity gains this quarter included approximately $14 million of net restructuring savings, most of which benefited our RBIS segment
And our adjusted tax rate was 28% in the quarter, which is consistent with the guidance we provided in July, and down from 31% for the same period last year
And year-to-date free cash flow, we've generated $256 million, up $8 million compared to the same period last year
And we continue to expect free cash flow conversion for the year of nearly 100% of GAAP net income
And our balance sheet remains strong
We have ample capacity to continue investing in the business, including funding M&A, as well as continuing to return cash to shareholders in a disciplined manner
In the quarter, we repurchased approximately 400,000 shares at an aggregate cost of $35 million
And net of dilution, our share count declined modestly
And we paid approximately $40 million in dividends in the quarter as well
Now let me turn to our segment results
Label and Graphic Materials sales were up 7% excluding currency, reflecting 2 points of benefit from acquisitions, including Mactac, which we acquired at the beginning of August last year, as well as Hanita and Ink Mill
Our organic sales growth of 5% represented a rebound from a slower pace we reported last quarter, as the timing effects we highlighted during our last call, played out as we had expected
These timing effects reflected shift of sales that are both the second and fourth quarters, and we continue to expect that organic growth for the second half of the year will be roughly 4% in this segment
Consistent with our strategy, LGM's high value product lines continue to grow faster than the base business, with relatively broad-based strength across most of our high-value categories
And looking regionally, organic growth reaching mature markets of North America and Western Europe were both solid, with Europe rebounding from the slower pace we saw in Q2, as expected
Growth in emerging markets also rebounded from our Q2 pace, and when we adjust for timing effects, China, ASEAN and India all grew organically at high-single to low double-digit rates in Q3, while Eastern Europe and Latin America both posted solid mid-single digit growth
Operating margin for the segment also remained strong
Our ongoing productivity efforts in material reengineering continued to help us expand the market for Pressure-sensitive Materials and maintain our cost advantage, allowing us to grow profitably across various raw material cycles
For the quarter, LGM's adjusted operating margin of 13.1% was up 40 basis points compared to prior year
As the benefits from productivity and higher volume more than offset higher employee related costs and a negative net impact from pricing and raw material costs
As we anticipated, overall commodity costs were up modestly compared to prior year
And as you know, our raw material costs tend to differ across regions and individual categories
We continue to monitor movements within each market, and adjust our prices where appropriate
And while our overall raw material costs have been relatively stable this year, we do anticipate some modest sequential inflation in the fourth quarter
We're in the process of implementing some targeted price increases accordingly
So now, I'll shift to Retail Branding and Information Solutions segment
The RBIS team delivered another excellent quarter
As the team continues to execute extremely well on its business model transformation, enabling market share gains, while driving significant margin expansion
Regional empowerment has moved decision-making closer to the market and improved local accountability, helping turn speed and flexibility into competitive advantages
And we also continue to build a more efficient cost structure here
RBIS sales were up 7% organically, driven by strength in both, RFID and the base business, combined with some benefit from holiday timing
The strength was broad based, spanning most market segments and product categories
And we believe that we continued to gain share, as we see our volume growth outpacing apparel unit imports
Sales of RFID products were up more than 25% in the quarter, and sales of external embellishments, another high-value category for us, were up by low double digits, as our heat transfer solutions got an extra sales lift, related to next year's World Cup
Adjusted operating margins expanded by 170 basis points to 8.7%, driven by the benefits of higher volume and productivity as well as the anticipated reduction in intangibles' amortization
These benefits were partly offset by higher employee related costs, including incentive plan accruals, reflecting this segments strong performance against targets and relative to last year
And finally, turning to the Industrial and Healthcare Materials segment, with the benefit of the Yongle, Finesse and Mactac acquisitions, sales rose 50% excluding currency
Organic growth returned to a solid 3.5%, following the anniversary of the bulk of the headwinds we've been facing in the healthcare category, and we saw solid organic growth for both, the industrial and health care categories in the quarter
Operating margin declined by roughly 3 points due primarily to acquisition-related cost
As Mitch mentioned though, we have fallen short of our productivity targets for the underlying business, and we are refocusing our efforts to drive productivity, while continuing to invest to support growth
Over the coming years, we expect to see operating margin expand to LGM's level or better here
So turning now to our outlook for the balance of the year
We have raised the midpoint of our guidance for adjusted earnings per share by $0.10 to an updated range of 490 to 495, reflecting the strength of our underlying operating results
We outlined some of the key contributing factors to our EPS guidance on Slide 9 of our supplemental presentation materials
Focusing on the factors that have changed from our previous outlook, we now expect reported sales growth of roughly 8% for the full year, and at recent foreign exchange rates, we estimate that currency translation will be roughly neutral to sales and earnings for full year
We also now expect incremental restructuring savings of approximately $50 million to $55 million, primarily due to rising confidence that we'll realize the full benefit from planned actions for the year, as well as the execution of a few projects a bit earlier than expected
And we expect average shares outstanding, assuming dilution, of approximately 90 million shares
Our other key assumptions remain essentially unchanged from what we shared last quarter
So to wrap up, we're pleased to report a strong quarter of continued progress into our long-term strategic and financial objectives
And with that, we'll now open the call up for your questions
Question-and-Answer Session
Yes, I think overall, as I mentioned, we do see material cost tend to differ a little bit across regions and across categories
Overall impact on the quarter was relatively modest, and it was in line with what our expectations were for the quarter
Overall, we're seeing a few pockets of inflation in some specific areas, areas such as paper in Europe and Asia
And overall, our approach to deal with these things is pretty consistent with what we've done in the past
We've focused on material reengineering, to try to reduce the cost of our materials where we can, and then we look to pass inflation onto pricing as necessary as well
Overall, we did have ---+ that's just a modest inflation this quarter and expect to see a little bit of modest inflation in Q4 as well
And we also had a little bit of carryover price headwind from prior year, as we're still in pretty much a deflationary environment through the beginning of this year
So a little bit of carryover there
But overall, at this point, we're seeing some modest inflation trends, and we're looking at some price increases where necessary
An example of that, in China right now, we're seeing some increases in paper
And we're in the process of implementing some price increase actions in China in early October as well, to deal with that
Yes, there is a few timing-related impacts that we talked last quarter about some timing in Q2 that led us also some timing impacts in Q3. A little bit of impact from timing of the Chinese mid-Autumn festival, which was in September last year, fell in the first week of October with Golden Week this year
But also, I mentioned the price increase we've implemented in China here in early October that led to a little bit of a prebuy for us in the third quarter in LGM
So overall, we still expect, on the LGM side, about 4% organic growth in the quarter or in the back half
And that basically translate into the total corporation deal as well
Yes, we had a little bit of a headwind from pricing
Again, most of that was carryover, as we talked about a minute ago
But largely volume driven growth in the quarter drive the majority of our organic growth
Price mix was a slight modest headwind, I think, in the quarter as well
Short answer is, yes, there is continued share gain
We've been talking about that for a number of quarters now, in the base business
And then clearly, our differentiated position in RFID allows us to continue to drive growth and penetration of that new product platform
If you look at just apparel import units, they've been ---+ if you look at them within the U.S
, they are up less than 1% for the last 6 months, and they're down around 1% in Europe
So the overall apparel imports that you're seeing into the mature regions, still pretty anemic growth or flattish overall
So clearly, the amount of growth we're showing is share gain
And as far as the outlook for next year, I can't have one comment that describes what's going on
It's really unique, retailer by retailer and brand by brand
I think overall, you can see the ---+ all the focus that the retailers are having towards driving more towards omnichannel
That's something we're working with each of the retailers and brands to help support them in that transition, and a place where our position in RFID continues to make us a key strategic partner for them, as they look to make that transformation
<UNK>, this is Greg
I think, overall, revised guidance for this year, as I mentioned, was really driven by just continued confidence in our ability to execute on our strategy, particularly in the RBIS strategy that they've been executing against this year, and really delivering solidly against
For next year, I think you could expect ---+ we've said this year, we have $50 million to $55 million restructuring savings, roughly half of that is carryover
And we look at basically $20 million or so of carryover into next year as well
I think modest headwind year-over-year
Sequentially, relatively neutral, I think, as we look Q3 to Q4. So a little bit of modest increase in inflation and a little bit of pricing actions that are offsetting part of that, so
Right
So I'll start with the first question
I think overall, one thing I think it's good to remember is our breadth across geographies
So given how broad our geographic spread is, across LGM in particular, what we're seeing right now is pockets of inflation that are different in different categories and across different geographies
So you might see a little bit of chemical inflation in North America
Still relatively modest to us in that region, whereas, we're not seeing that necessarily across all other regions
So right now, it's still kind of in pockets, in different categories across different geographies
Relatively modest across each of those individually though as well
I think some of our ---+ just the breadth of our geographic scale as I said, strong vendor relationships, good material science ability to manage through that as well, has given us the ability to manage through some of those potential challenges that you mentioned also
Yes, it's typically specialty papers, <UNK>
So not 100% linked to pulp, for instance, as you mentioned yourself
What I can tell you what we are seeing is typically, I think I mentioned earlier, a little bit of paper increases in Europe and a little bit of paper increases in China
Not seeing much outside of that at this point in time
But that's where we're seeing a little bit of headwinds right now
And that's why we've done some pricing actions accordingly in both of those regions to deal with that
Sure
In both, U.S
and Europe, as we mentioned earlier, we had low-single to mid-single digit growth in both North America and Europe in the quarter
And roughly consistent with that, across the year-to-date, little bit of a challenge earlier in the year in North America, but for the last couple of quarters, relatively consistent, from that perspective, low single-digit growth
Share issuance
Probably have to follow back up with you, Jeff, on that one
I don't have that off the top of my head
| 2017_AVY |
2016 | VLO | VLO
#Hello, <UNK>.
Yes, <UNK>, this is <UNK>.
We can't talk about forward turnarounds, but we take a view of turnaround activity and then also markets to plan our throughputs.
Well, okay.
I don't know that I've assessed it the way you're asking.
We understand that they had a partnership that they wanted to both exit and they decided to do that.
I think Saudi's pleased with the assets that they got in the deal and Shell's pleased with the assets that they have in the deal.
And that's really all we know about that one, to be quite honest.
I do not view this transaction, though, as a precursor to a whole series of other major similar type of transactions in the US, <UNK>.
I just don't ---+ we're not hearing it and we're not seeing it.
Well, I can't ---+ I'd only be speculating.
And I really don't have an opinion on it.
Again, I think they'd have to find something that was for sale if they wanted to engage.
And I just don't know if there's a significant portfolio of assets out there that they could get into.
You bet.
Sorry, <UNK>.
Good morning.
Yes, this is <UNK> again.
I don't think we've really seen any significant impact of the exports on any of our operations.
<UNK>, this is <UNK>.
So I'll answer it.
We started up in December.
Our funding investment decision was for about $150 million of EBITDA.
If you use 2015 pricing, it made about $200 million.
And if you look at the last quarter, we're estimating it contributed about $35 million.
So it's in line with our funding decision.
And then <UNK> spoke to the market on it.
So that's where the project sits.
You have commodity risks all over the place.
I think when we analyze the project, the one that we always stare at the most is naptha.
The Gulf is long naptha, its crude unit backed out resid purchases.
And so we always have a keen eye on the placement of the naptha that's created due to both of these projects, both the Corpus Christi and the crude unit.
That's where I would say the greatest commodity risk is.
<UNK>, I never really heard anybody use generous and FTC in the same context.
But what I would describe them as a very reasonable group, quite honestly.
And we've had a lot of dealings with them over the years, as we've done acquisitions.
I believe what they would look at, not only for Valero, but for anybody, is your ability to restrict trade in a particular market.
And because the Gulf Coast is so long and so over supplied and the barrels tend to move throughout the US and abroad, you're not going to run into a situation whereby having a more significant concentration in the Gulf Coast, you could run into a situation where you could manipulate markets.
It just wouldn't be possible.
So anyway, I really don't think they'd have a problem with additional Gulf Coast exposure for Valero.
No, I think, we have seen a strategic shift that the Saudis have made an effort to regain the market share they lost to a lot of the domestic crude producers.
And they're exporting a lot more barrels to the US Gulf coast.
And we certainly saw that in the first quarter and we expect it will continue.
Throughput guidance, yes.
So <UNK>, I'll take a stab at this.
<UNK> alluded to it.
Both of the crude units are running in the ---+ the Corpus Christi crude unit is running in the second quarter and the Houston crude unit starts up in the second quarter.
All the rest of the volume guidance is related to other activities and then with our market outlook and the capacity that we plan to run with.
Yes, this is <UNK> <UNK>.
I think a lot of it, there's quite a bit of stock to pull down on the RINs.
So we'll see.
We still don't have clear sight to what's going to be called for in 2017.
So I think right now, it's a little early to say.
It's been remarkably stable for the last few months, RIN prices.
Yes, so we had heard the same thing, that there was a lot of cargoes, especially parked off New York harbor.
Our understanding is a lot of that has actually come in over the last couple of weeks.
And as I mentioned, we're actually seeing the premium regrade start to widen, which kind of contradicts this idea that there's all this octane laying around.
Thanks, <UNK>.
Hello, <UNK>.
<UNK>, this is <UNK>.
So in the first quarter, we did 249,000 barrels a day of diesel.
If you include jet and kerosene with that, we were up to 295,000 barrels a day.
That was split with about 80% going to Latin America, 20% to Europe.
During the first quarter, the arb to Europe was closed most of the first half of the first quarter.
It opened back up and has remained open.
So I think you'll see a little more volume go into Europe.
But we're still seeing very good Latin American demand for diesel, as well, moving forward.
Right now, the $2.6 billion is what we have in our forecast.
On an annualized basis, obviously, we're way short of that, but we're okay on the forecast.
<UNK>, this is <UNK>.
I'll give a little color on that.
The first quarter is always a little bit of a challenge.
You're coming out of the holidays and you have weather to contend with.
The first quarter for us, at least seasonally, is always light with respect to our CapEx.
We'll spend more than the run rate, then that rate second and third quarter, and then it slows down again in the fourth quarter.
So that's where I would say the seasonality in the CapEx spend for our Company.
Good, <UNK>.
You.
Yes.
So we've seen the arb to export diesel to Europe open since midway through the first quarter.
It remains open today.
And we're seeing good demand for European quality distillate in our system.
Yes.
So I think what you're ---+ at least my view of where they are in northwest Europe, the refineries that are cutting are primarily refineries that are producing fuel oil, because fuel oil is so discounted today.
Pembroke is a pretty high conversion refinery.
So we're seeing (inaudible) remain very high at Pembroke.
Yes, it's more of a passing comment.
I would say very limited, but I don't want to tell you we would never look at a UK refinery and then we show up at some point in time and do it and you remind me of it.
But <UNK>, you know those markets.
Frankly, we've said this for years, and we got a gem in Pembroke.
And back to your first question, all the diesel that's produced at Pembroke moves inland, most of the gasoline.
And so we've got a fairly unique footprint there, in that we're able to supply the domestic markets in Ireland in a very efficient way.
So we really like that.
If we could find a similar type of asset in a market that was similar, okay, and when I say that I'm really thinking primarily of the UK, but I think we'd consider it.
Now are we having active conversations on anything like that.
No.
But would we want to move into France, Spain, Italy or the Med.
The answer would be no.
So it's more of a passing comment.
But we tell you guys, we're looking at everything that's out there and we do that, because we're always looking for opportunities to continue to grow the EPS.
But again, we're very pleased with the portfolio that we have and we can create significant income with it.
So we don't feel desperate to do anything in that M&A market.
Certainly, again, it's in competition for all the other good uses of cash that we have.
I would think ---+ I mean, we're going to continue to look at each of the drops as we come up on them, as far as how we want the financing to be to mitigate the taxes.
I think it would probably be on this next drop, similar cash tax, after-tax cash has ---+
But <UNK>, looking longer term, and this is just the reality of it, a lot of the logistics assets that would be dropped, they've got zero tax basis.
And so I think for a long time, when everybody was looking at 10-time multiples, 11-time multiples on these drop transactions, with all that cash flowing back in, we were really overstating the actual cash that would be coming back into the sponsor.
And so the reality of it is, we're not changing the portfolio of assets that we have to drop.
We're really looking at the drop structure and doing it as efficiently as we can.
Again, <UNK> mentioned earlier that we think the capital markets are certainly there, but it's a little bit expensive to go to the public markets today.
We don't have a gun to our head to do something, because we've got the distribution covered for two years with the cash flow stream that we have today, and all the things that he mentioned earlier.
I think we're in a very, very strong position here.
And we can take our time and time the market and be patient in doing this.
And whether we do $500 million or $750 million now and then we'll start talking about next year, what we're going to do, we're going to continue to grow the LP.
We're going to continue to drop.
I think we're just waiting to see if things don't improve a bit.
And certainly, higher crude prices should take some of this pressure off, if we see the crude markets move up, and we should be in a good place going forward.
No problem.
Okay.
Thank you, Bianca.
We appreciate you all for joining us today.
Please contact me or Karen Ngo if you have additional questions after the call.
Thank you.
| 2016_VLO |
2017 | XOXO | XOXO
#Thanks for your question.
I will give you a couple of numbers and <UNK> will give you the context.
When you look at the transactions business and you look back to where it was growing in 2013 and 2014, it was in the 20%-some odd range.
What typically happens with that business is we have a bunch of product innovation, growth accelerates and it comes back to the more normalized rate.
In 2014 and in 2015 two additional things made that business grow fast.
In 2014 it was adding commerce to our portfolio after getting out of the merchandise business, in 2015 it was adding GigMasters.
These are smaller items, but they do help that growth rate.
When I look at the trends we're seeing and I'd like to make sure I focus everybody on the trends driving this business being traffic, conversion, AOV and take-rate, and I look at some of the larger players that we have, they are seeing their traffic be in the 15%, 20%-some odd growth rate.
A little bit of conversion increase and on a normalized basis I would expect the business to get back toward that 20% range, and that is why that guidance is there.
<UNK>, I'd put that in a broader historical context.
If you look at what we used to call our transactions or a component of our transaction business, the registry business.
Three or four years prior to this team coming in and investing in those products, the growth rate was essentially 0%.
We believe that by investing in better products that better connect our users to the solutions they need, we can drive that business.
You saw that in 2014, 2015, and 2016.
Every year we anniversary those product improvements.
We have to go back in and launch new products.
I mentioned a few in my prepared remarks that we're excited about for this year that we believe are going to be very solid growth drivers.
Each year you're seeing us layer on new products that need to be successful.
That build on the success of the improvements we made in the year previous.
In our categories of broadly speaking endemic and non-endemic.
The reason we saw opportunity to grow our National business when we put this team together is that we had largely maxed out, in aggregate, the budgets of these endemic advertisers.
The Knot has been the leading online publisher in the wedding space for a very long time.
It gets to a point where if you haven't gotten the budget of someone who sells wedding dresses or wedding registries after being the leader in the space for that long, there probably isn't that much budget to get.
We saw the opportunity to improve our sell-through rates and therefore our revenue by expanding beyond those endemic categories.
The gross drivers now moving forward are, I think you'll continue to see steady CPMs in endemic categories.
We think you'll see some downward pricing pressure on our non-endemics.
But we've still got a lot of market opportunity there for ourselves.
You will see that we will continue to grow traffic as we improve our products, and we will sell that increased traffic to these non-endemic advertisers so that in aggregate we continue to grow that National online business.
I'd redirect you to the top-level strategy which is the big opportunity.
The opportunity to grow by multiples of where we sit today is this local marketplace.
This global marketplace where less than 5% of the vendors are writing us a check today, even though we are the leader in the space.
Where we've got a big growth opportunity because we've been investing in and building out this two-sided marketplace.
Driving more traffic, driving more leads, and now you're seeing us invest in that sales organization to go out and get the market share and the revenue opportunity that we believe is ours.
| 2017_XOXO |
2017 | AXP | AXP
#Thanks, <UNK>, and good afternoon, everyone
We’re off to a solid start to 2017. Our earnings per share for Q1 was $1.34 and we’re encouraged by the momentum we see in our revenue performance
As you know, accelerating revenue growth through capturing opportunities across our diversified business model has been a key priority for us
In addition, we’re seeing the benefits of our cost reduction efforts and continue to return significant amounts of capital to shareholders through our dividend and share buyback programs
In many ways, our Q1 results show the steady progress we’re making on the range of growth and cost initiatives that we have put in place over the last couple of years and that we reviewed at our Investor Day last month
These initiatives have been supported by the spending that we did over the last two years
We expect that these efforts will all come together to help us produce steady results during 2017 and position us well for the longer-term
Going forward we remain focused on delivering improvement in EPS as we progress through 2017 and beyond this, we’re equally focused on our strategies to generate sustainable revenue and earnings growth
While it is still early in the year and we have work to do, our first quarter is a positive start to hear
With that, let me turn to the detailed results, starting with the summary financial performance on Slide 2. Revenue for the first quarter was down 2% reflecting lower discount revenue and net interest income following the Costco portfolio sale in Q2 of last year
When excluding FX and Costco related revenues in the prior year, our adjusted revenue growth accelerated modestly to 7% on a sequential basis
The first quarter also included as expected given the volume growth we’re seeing a greater year-over-year increase in provision and rewards than we experienced in the fourth quarter
Net income was down 13% versus the prior year first quarter
As we continue to grow over the co-brand exits from 2016. As we move through 2017, we expect net income and EPS to grow due to the benefits from our cost reduction initiatives and the seasonality of revenue
Of course we expect a return to year-over-year net income and EPS growth as we get to the second half of 2017. Earnings per share of $1.34 reflects our net income performance and also the benefits of our strong capital position
Over the last year, we returned $4.1 billion of capital to shareholders through our share repurchase programs, which has resulted in a 6% reduction in average shares
These results brought our ROE for the 12 months ended in March to 25%
So with that is the summary, let me now turn to a more detailed review of our results starting with billings
You can see on Slide 3 the world wide FX adjusted billings were flat in the quarter versus the prior year
To get a better understanding of the underlying trends on Slide 4 as we have in recent quarters, we show billings growth adjusted for both changes in foreign exchange rates and the impact of Costco
Here you can see that adjusted billings growth accelerated modestly to 8% in the quarter
The acceleration was broad based
As you can see in both the segment view of billings on Slide 5 and the geographical view of billings on Slide 6. Across all of these views, I would point out a number of trends in our billings performance this quarter
In the GCS segment, we continue to see strong growth in the small business and middle market customer segments
Adjusted volumes in the U.S
grew at 11% in the quarter and outside the U.S
volume growth accelerated
In the large and global GCS customer segment spending volumes were up a bit as compared to last year
As we have said for a while now we would expect that this will remain a slower growth segment absent an uptick in travel and entertainment spending by larger corporations, which we have not yet seen
consumer segment growth rate was consistent with Q4 2016. We are pleased with the impact of the initial changes we made last October in our U.S
consumer platinum product
It’s too early to comment on the most recent changes to the product as they just took effect at the end of the first quarter
In the international consumer and network services segment the billings growth rate improved sequentially to 8% on an FX adjusted basis
Looking at the two parts of the segment, volumes from proprietary cards grew at 11%, reflecting continued strength in several international markets
In GNS, the FX adjusted growth improved from 4% in Q4 to 6% in Q1, as we saw sequential improvements in all of EMEA, JAPA and LACC
GNS plays an important role in strengthening our global network
I would remind you though that going forward as we previously discussed we do expect pressure on GNS volumes due to the changing regulatory environment specifically in the EU, Australia and China
Given the lower margins we are in GNS however, this will have a less bottom line impact
Moving to international in total, you can see on Slide 6 that our billings growth rates remained strong
As we saw our fourth consecutive quarter of double-digit in FX adjusted terms growth and overall international accelerated to 13% FX adjusted growth
The improvement in international is broad-based, with strength in both our corporate and consumer businesses
As we look at a few key markets for example we see continued strong FX adjusted growth in the UK up 17%, in Mexico of 15% and in Japan also up 15%
Finally I would briefly note a couple of calendar impacts to growth rates in the quarter
As I mentioned at Investor Day, the leap day in February 2016 negatively impacts growth rates this quarter by about 1%
Offsetting that somewhat we did see a benefit in March is the Easter holiday mood from Q1 last year to Q2 this year
In many international markets there is an extended holiday around Easter, which impacts volumes
Stepping back we are encouraged by the momentum we see in the adjusted billings growth rate
The improvement is coming across our segments globally and reflects returns on the investments we have made over the last couple of years
We still have work to do
And the competitive environment especially in U.S
consumer remains intense, but we are focused on driving more volume onto our network from our wide range of growth opportunities
Turning now to our worldwide lending performance on Slide 7, our total loans were up 12% versus the prior year on an FX adjusted basis, slightly below the growth rate we saw in the fourth quarter of last year
As we have for several years now, we continue to grow U.S
loans faster than the industry, driven primarily by our success in growing loans from existing customers
During the first quarter, more than 50% of the growth in U.S
consumer loans came from existing customers, consistent with the trend we described at our Investor Day
As we look forward, we believe that we can continue to grow loans above the industry rate given our unique growth opportunities, while maintaining best in class credit performance
Looking at the right hand side of the slide, you can see that net interest yield has been steadily expanding and rose again sequentially in Q1 to 10.3%
Yields typically widen in the first quarter due to seasonality
But the steady trend we are seeing is driven by the impact of a number of factors, including a shift in mix to non-cobrand customers, who are more likely to revolve, less revolving loans at introductory rates
Some specific pricing actions, and of course a benefit from increases in bench mark interest rates without an offsetting change to our personal savings deposit rate
We do expect deposit rates will move up overtime, but we remains to be seeing when that change will occur and how much rates will increase
Before turning to provision, let me touch on our credit metrics
Delinquency in last metrics across our lending in charge card portfolios continued to be very strong
And the worldwide loan portfolio, you can see that the delinquency rate was flat to Q4 and loss rates increased slightly both sequentially and year-over-year
The modest increase and lending loss rates versus the prior year is in line with our expectations and consistent with our view, the loss rates would begin to increase due to the seasoning of the new accounts and the shift towards non-cobrand products, which have a slightly higher right of way rate, but also generate greater yield
And this quarter’s lending results reflect that dynamic
The combination of continued strong loan and receivable growth and modestly higher year-over-year loss rates, including in certain charge card segments, has caused our provision, as expected to grow well above the growth rate in loans as you can see on Slide 9. As we look forward to the balance of the year, we expect that provision will continue to grow faster than loans, a trend that is fully contemplated in our earnings expectations
Turning to our revenue performance on Slide 10. FX adjusted revenues were down 2%, when we adjust for both FX and Costco related revenues to get at the underlying trend, revenue grew at 7%
I will say that adjusted revenue growth in the quarter outperformed our own internal expectation as in the month of March billings and revenue both came in above our plans
We are pleased with the momentum in our adjusted revenue growth rate
And we are encouraged to begin the year bit above the full year range, we’ve provided at Investor Day of 5% to 6% adjusted revenue growth
Looking at the components of revenue in more detail
Discount revenue declined by 3%, but increased by 6% on an adjusted basis
The discount rate in the quarter was 2.45% up 1 basis point year-over-year, due to lower rate volumes coming of the network more than offsetting the impact from merchant negotiations mix and the continued rollout of OptBlue in the U.S
Well the discount rate increased year-over-year, the ratio of discount revenue to build business declined by 4 basis points, which I welcome back to in just a minute
Net card fees grew by 7% in the quarter, reflecting continued strength in our premium U.S
portfolios including Platinum, Gold and Delta, as well as growth in key international markets like Japan and Australia
The Platinum fee increases we announced in March are not yet impacting the results as the fee increase for existing customers does not go into effect until September
Other fees and commissions grew 5% in the quarter, while other revenue declined by 16%
Other revenue growth is impacted by the sale of a small business, which provided back office systems to run third party loyalty programs, during December 2016. Net interest income is down 5% due to lower average loans, but increased 15% on an adjusted basis driven by the 12% growth in adjusted loans in the higher net interest yield that I mentioned previously
Coming back now to the ratio, discount revenue to build business on Slide 12. You can see that this ratio was down 4 basis points versus the prior year, while the reported discount rate was up one basis point
The decline in the ratio, discount revenue to billings this quarter is driven by a shift in billings mix towards GNS and higher incentive payments to cobrand and corporate card partners as the volumes in those categories accelerate
Turning now to our total expenses on Slide 13. Our expenses were 1% higher than the prior year during the first quarter, though I’d note that performance trends varied across the different expense lines
At Investor Day, we highlighted that are spending on card member engagement is reflected across marketing and promotion, rewards and Card Member services expenses
And I’ll discuss the changes in those P&L lines on the following slide
Moving to operating expenses, total operating costs during the quarter were down 3% versus the prior year
I’d remind you that in the prior year operating expenses were impacted by $127 million gain from the JetBlue portfolio sale and an $84 million restructuring charge
We continue to make progress on our cost reduction initiatives and believe that we are on track to remove $1 billion in the company’s cost based on a run rate basis by the end of 2017. As we highlighted at Investor Day, we expect the year-over-year decline in operating expenses to be larger as we exit 2017 than what we saw in Q1. Our effective tax rate during the quarter was 31.9%, which is below our full year 2017 expectation of 33% to 34%
The Q1 tax rate benefited from some discrete tax items, we continue to believe that our full year rate will be more in line with our 33% to 34% expectation
Moving to the summary of our Card Member engagement spending on Slide 14, total engagement spending in Q1 was $2.8 billion or 4% higher than the prior year
Looking at the components of that spending as expected, M&P was down 4% versus the prior year
These results are consistent with our comments at Investor Day about anticipating a reduction in our M&P spending versus 2016 levels
We continue to focus on improving the efficiency of our marketing spend by using our scale to consistently drive cost savings from our ongoing marketing operations
We also continue to shift our focus towards existing card members and increase our use of digital channels both of which can add efficiencies
With all these efforts, despite a lower level of marketing spend, we acquired more new cards during the first quarter than we did during Q4, including 1.7 million cards across our U.S
issuing businesses and 2.6 million on a worldwide basis
Over 60% of the Global Consumer cards we acquired in the quarter came through digital channel
And digital is particularly important as you know, for acquiring new millennial card members
And going forward, we continue to anticipate that full year 2017 M&P will be lower than 2016 and more similar to the full year 2015 levels
I’d note however, that the ultimate level of marketing expenses will be influenced by our financial performance and the opportunities present in the marketplace
Moving to rewards, consistent with our Investor Day expectations, rewards expense was up 6% despite a small decline in proprietary billing volumes versus the prior year
Adjusting for the Costco cobrand volumes in the prior year, rewards expense would have increased in the quarter by 20%, while adjusted proprietary billings grew by 6%
This growth in rewards resulted in a ratio of rewards cost to proprietary billings of 87 basis points
The greater year-over-year increase in reward expense during the quarter reflects the impact of the enhancements to our U.S
platinum products that we implemented at the beginning of Q4 2016, as well as continued strong growth our Delta co-brand portfolio
Cost of card member services increased 14%, reflecting higher engagement levels across our premium travel services including airport lounge access and co-brand benefits such as First Bag Free on Delta
As we highlighted in Investor Day, this is an area where we can offer differentiated benefits and we’ll continue to invest as evidenced by the rollout of the new Uber benefits on our platinum cards a few weeks ago
Turning now to Slide 15 and touching on capital
We continue to use our strong balance sheet position to return a significant amount of capital to shareholders
Over the last nine quarters, we have returned a 101% of the capital we have generated
I think this shows the commitment we have over time to leveraging our business model and capital position steadily create shareholder value
Now we of course just completed our submission for the 2017 CCAR process earlier this month
And as I’m sure you all aware the process continues to revolve each year
We remain confident in the strength of our business model and our ability to drive shareholder value to capital returns
Now of course, we also use capital to support business building activities such as growth and our loan balances, potential M&A activity
In addition to returning capital through dividends and share buybacks
I’d also remind you that our capital plan for the upcoming year will be dependent upon the Fed review and we expect to hear back from them about our submission in June
Step in back, over the past several years we have embarked on a serious of initiatives to reposition the company drive sustainable revenue growth
Those efforts which we covered in Investor Day, include, amongst others, focusing on further penetrating commercial payments by leveraging our small business and middle market assets on our global commercial segments, driving more organic growth through expanded engagement with existing customers, better leveraging our digital and big data capabilities for new customer acquisition and other targeting, growing our merchant network and pursuing lending expansion opportunities
These action for targeted to provide a mix of returns over the short, medium and longer-term
While the impact from those efforts, we’ll play out over time
We are encouraged with the trend that we have seen in our business metrics and revenue growth over the past several quarters and believe that these initiatives are driving real momentum
As we look out to the balance of the year, we believe that our outlook for the full year 2017 EPS to be between $5.60 and $5.80 remains appropriate
As we discussed at Investor Day we anticipate that EPS will grow through the year and as we have in the past, we will continue to balance delivering earnings to the bottom-line and investing for the moderate to long-term
We do believe that our 2017 plans appropriately balance shorter-term profitability with the steps we need to take to generate sustainable revenue and earnings growth over the longer-term
With that, let me turn it back over to <UNK> and we’ll move to Q&A
Couple comments <UNK> and thank you for the question
You are correct that relative to our expectations early in large at Investor Day
What surprised us frankly in the month of March was how strong the revenue performance came in
And so that is the main driver of why our EPS for the quarter ended up being a little bit stronger than I would have expected back in that first week of March
On the margins I’d also point out that we had a few tax discrete items, you’re always working on various tax audit settlements and things like that, that are a little bit hard to time, and so those came in and out at a couple pennies as well, although over the course of the year that number is not particularly material
In terms of our guidance for the year, I guess I’d come back to what I said in my earlier remarks
<UNK> we feel really good about the start we’re off to, but, gosh, it’s only one quarter and we have a lot of work to do as we go through the years
Certainly we are encouraged by the revenue performance
And I would say based on the first quarter, I’d certainly think it’s much likelier that we will be at the higher end of the revenue range that I talked about in Investor Day which was for adjusted revenue growth to be at 5% to 6%
But we like a little bit more time pass before we convert that into what that might be for EPS
I would just include by saying we certainly feel very confident in the $5.60 to $5.80 EPS guidance range that we have reconfirmed again today
Thanks, <UNK>
You are right <UNK>
That we have a pretty simple financial model we like to talk about, which all starts with taking advantage of the range of revenue growth opportunities we have and to the extent we can get good revenue growth, the fixed cost nature of our business allows us to get pretty steady operating expense leverage
And the fact that we’re not overly capital intensive in our business allows us to use our capital strength to add a little bit more to EPS growth
It’s pretty simple model, but it all starts with the revenue growth line
You heard us talk a lot at Investor Day in early March about how focus we are in the objective of getting to a sustainable 6% revenue growth rate and when you look at the business model we have – we can achieve that, we certainly are then confident we can get to EPS growth of more than 10% steadily
What I would say, this is 1 quarter
We feel really good about the quarter end
Certainly in 2017 I’d remained you that when you think about prior year including a big game on a couple portfolio sales as well as happy year of earnings from that partnership that, we no longer have
Our EPS growth if you consider those things in 2017 is of course quite high way, way, way above the more than 10% level and that’s because we are getting an unusual amount of operating expense leverage because of our efforts to take $1 billion out of cost structure
And because as we built into our guidance and as we’re off to a good start on we have pretty good revenue growth in the projections we have for 2017. So what all that translates into 2018 and beyond we’ll have to see, but I think we feel pretty positive about the start we’re off to this year
Thank you
Sure thanks for the question
As you have heard us talk about probably in multiple forms, when you look across our geographies and our customer segments, our attrition rates are modest and actually remarkably stable
They just don’t move that much
I think it’s certainly got a lot of attention when we talked about the fact for a few weeks last year in the U.S
consumer premium segment, when you look that Platinum cards you had a very modest uptick in attrition that quickly came back down
But all of these numbers for attrition across all of our businesses are in the low single digits on an annualized basis
So we really haven’t seen any change when I look across the different business and the different geographies <UNK>, in those numbers and to finish of the Platinum story while we saw that one little blip for few weeks, in fact we ended 2016 with more Platinum Card Members in the U.S than we’ve ever had in more spending on the Platinum Card that we’ve ever had in a year
So we are always focused on providing great value to our customers we very much try to target our value propositions at customers who want to build long-term relationships with the company
That’s what we’re all about
And right now we don’t see any signs of any change in our ability to do that
So thank you for the question
It’s a good question <UNK>
We – if you go back probably a year you heard us first day at our Investor day in 2016 that when you just think acknowledge the reality of the competitive environment mostly in the U.S
consumer segment
We said at the time we expected to our rewards cost to grow a little faster than billings
In fact if you look at most of 2015 and 2016 they really weren’t there were growing roughly in line with billings
But our expectation for some time has been that you would in select cases, see us change some value propositions
In early October of last year, we did make some more significant value proposition changes in both the business and consumer platinum products in the U.S
We’re pleased with the early results on both of those
But that step up is what drove our rewards costs up in Q4 of 2016, I’d say you saw probably the full effect, because you probably in quite get the full effect in Q4. In this quarter and so you will continue to see that ballpark level of year-over-year increase until we’re done lapping those changes as you get to the last quarter of 2017. All that said, I would remind everyone, we feel good, as a general matter, about our value propositions today
And I think the mere fact that we had another really strong quarter of acquiring new Card Members is a demonstration that across the range of geographies and customer segments and products that we have, we think we have very competitive value propositions when you look at both what Doug Buckminster referred to in our Investor Day as the sort of real – a table stakes elements of the product, which are about rewards and pricing as well as the experiential value that we work very hard to uniquely offer given the range of unique strengths we have
So I would expect to see, in some, the rewards cost continue to grow for the next couple of quarters
It is mostly Platinum, although there’s also some really nice growth we’re seeing in a few of our cobrand relationships like Delta that also pushed the number up a little bit
But it’s mostly Platinum, and we should be done lapping it as we get to the end of the year
I’ll admit I’m paging through, <UNK>, to be exact with the numbers
But I guess, I’d make a few comments
First off, remember, when you look at average spend year-over-year, the sale of the Costco cobrand has caused some dislocations attempt to on a year-over-year basis actually go in the other direction
Because the average spend per card was a little lower
When you look sequentially in – <UNK> just handed me this
Thank you Jamie
Well I think Don as I’m sure you expect me to say, we really value all of our cobrand partners, and I would put Hilton in that category
And you didn’t ask, but it’s probably on your mind
I would put SPG in that category, and we work really hard everyday to create value for our card members, for our partners and for our shareholders
Beyond that, I can’t comment on specific contract terms for what might be the ultimate outcome of Marriott as they think about what to do with the 2 cobrands that are now offered to both Marriott Rewards and SPG Card Members or what Hilton might choose to do as it thinks about its current 2 cobrand partners
What I would say is that to the distinction you made, we do think that there are certain types of cobrand partners who are interested in building value, and business together
Cobrand partners who are focused on some of the travel and entertainment oriented strings that we have I would remind you that we run a big consumer travel agency and we have a joint venture to run a big business travel agency and we have a long, long, long, long way to see of being very strong in attracting a customer base that is very travel oriented
And so we do think that allows us to bring some unique strengths to travel oriented cobrand, that’s quite frankly, probably are at there in certain retail cobrands or often a retailer as we talked about on and off over the last couple of years
And often, the retailer is really after, in many ways, a payment vehicle that will allow their customers to do some level of borrowing
And while, as you know, one of our strategic initiatives is trying to capture more of our own customer borrowing behaviours as a general matter, we remain a Spend-Centric oriented company and we’re less likely to be real focused on a real competitive on products where the economics are really driven 100% by lending
So we’ll have to see where things like Marriott and Hilton goal going forward, but we’re focused everyday and providing value to those partners
Thanks for the question Bob
Certainly we are encouraged as I said by the momentum we see across our billings growth, our loan growth and our revenue growth
It is early in the year right and I guess I make just a few balancing comment
Yes, March given stronger than we expected in certainly revenue growth even stronger than we expected
We do a little bit of rounding I will point out to simplify in the slide if you go calculate the precise number, you will see that our Q4 revenue growth rate on an adjusted basis was about 6.4% and in Q1 was 6.6%
So it does around 6% to 7%, but you have to put it into a little perspective
Leap day certainly hurt us in Q1. I will say outside the U.S
and particularly in our business segment Easter going to April probably helped us a little bit and then yes, we feel really good about the momentum we had built over international
So you will see some modest win, so as you get later end of the year first regulatory reasons they talk is going to impact the network business
I’ll have a bigger billings impact in revenue or profit impact
We’d some small revenue impact
So we’re driving management team on getting to is much revenue growth as we can get to
We are really pleased with the start we’re off to
As I did say earlier it does certainly maybe we should be at the higher end of that 5% to 6% range when I talked about yesterday for the year per adjusted revenue growth
I just think we’d like to see a little bit more time pass and a little bit more performance before we move beyond that number
So thank you for the comments
Well, there’s probably a couple questions there David
The first thing I’d say is that through March 31 as we look at our result it’s hard for us to see anything that suggestive of a material uptick in consumer confidence or consumer or commercial spending
Well, we have been gaining momentum as we look at the many different areas gaining momentum
We can see a change that we have made and how we’re running the business and what value propositions we’re offering, et cetera, that seems to be what is driving the change as opposed to us getting the benefit of just in generally stronger economic environment
So certainly we are as hopeful as anyone that there in fact is stronger economic growth to come in the future
I just can’t say I’d see any evidence of it right now in our results
And so your comment on T&E certainly one aspect of the changes we’ve announced in the U.S
to our platinum products is to position them both for the consumer and small business segment as being the go to products for the premium travel oriented card member
And we do think that positions us even better than we already are for positions us to be in a good spot to benefit from any increase in consumer spending or commercial spending in those areas
As I say that I would remind you that I think we still consider in going to that latest round of changes as a very, very strong player in the T&E segment
And I think that is the <UNK>’s heritage it remains a tremendous strength of the company
Certainly we have brought in our offerings tremendously over the last couple of decades, but that T&E strength we do think continues and the latest moves we made are just the latest step in ensuring that we don’t lose that positioning
So we’ll have to see
I certainly hope that we see an uptick in spending I just can’t say we’ve seen it
Yes, so thank you David for the question
Think you
What – you are correct if you just think about the U.S
with the co-brand portfolio sales and really steady nice growth in international
You are correct that we’re generating a little bit more of our earnings outside the U.S
and that does have a positive impact on our tax run rate
And that’s actually why even for the year before any of the discrete items that came in this quarter we gave slightly lower guidance for the tax run rate than what you’ve seen in the prior year results
Tax reform – we’ll have to see, as you’ve heard us say in other forms due to the nature of our business we have a pretty darn high effective tax rate and if you dig through the details of our financial statements, you will realize we pretty much pay that full tax rate in cash to the U.S
So we are a very, very significant tax payer
So any lowering of corporate rates in the U.S
we are likely to be a significant winner on because we’re not a particular beneficiary of any of the very and many things that help other organizations back to pay lower rates
So we’ll have to see, certainly we’re not running the company counting on any changes in the tax area, but it would be a great thing if it were to happen
It’s really just a math, Rick, if you take the size of the settlements that drove the discrete items in Q1. In a single quarter they were an up to drag your tax rate out of our 33% to 34% range
If you take – if we don’t have other settlements, which I generally don’t build them into my forward-looking comments because they’re harder to forecast
Over the course of a full year, they are quite enough to pull you out of your range
They certainly would – what I would expect will pull us to the lower end of that range, but not necessarily –there’s no differential assumption I’m making about mix
Thanks, Rick
Well, you’re correct, <UNK>
There is a seasonal element
But as I mentioned earlier, there’s really quite a number of other factors that have helped us steadily drive the net interest yield up including some pricing actions we’ve taken, including the fact that with the funding mix we have right now personal – the personal savings rates we have on our deposits haven’t really moved
So in fact, the Fed interest rates increases so far have been in a positive for the company
Including the mix of customers moving to one where there’s a little bit more revolve, which of course helps the yield
And then we also and this is a benefit that will a bit over time
You’re helped a little bit right now, because we had in our efforts to win back cobrand card members over the last year or two
We had a number of people who were on introductory or promotional offers you were flipping into paying regular rates now
And that’s helping with the rate up a little bit right now
So a lot of factors there
The seasonality base a little bit and the one time impact from winning back some of the cobrand card members will save it bit over time
But all the other things, we think will hold and we think this continues more broadly to be an area, where there is a long, long runway for steady growth in net interest income, right
And where we’ve been growing our loans by having over 50% of the increase come from existing customers or those are people we know we understand the risk profile is further cementing the broad customer relationship we have with them
So we feel really good about what we’re doing here
Okay, we’ll take one more question, thanks
Well
<UNK> I appreciate the question
I think first off, it’s important to maybe that’ll set a little bit of the facts
So if you look at last year in our global consumer business – get to B2B in a minute, but in our global consumer business over 55% new customers brought in [indiscernible] And in fact that number was up about 16% at versus the prior year
If you look at the rolling of applications and new card members who are coming to mobile channels as you would expect
Almost half of those new applicants and card are millennials
If you look at the things we do as a company in the digital sphere, we talk a lot about how the unique nature of our closed loop network allows us to be particularly adept at working with company in the social media, digital and payments field
We really feel like we have been at the forefront of how you bring those three worlds of digital, social media and payments together
In the partnerships, we’ve done with Airbnb with Twitter with Facebook – with Facebook to have an annex spot
When you look at our pay with points program, which is broader than anyone else’s in the industry, it is disproportionately used by our millennial customers
So we feel really good about our track record of attracting millennials to the franchise
We feel really good about the range of things we do using our unique assets to appeal to millennials
The last thing I’d say though, whether you’re a millennial or a baby boomer or in any cohort
We are however about building long-term customer relationships
And we build products, we build value propositions, we build service experiences that are trying to attract and retain people who are about long-term relationship, not necessarily people who are looking for the latest great thing and they’re going to swap out of it six months
So, look you can never do enough in this area, so we’re focused every day I’m trying to do better
But I think our track record with millennial strong
And I think our ability to leverage our unique assets is strong
So I appreciate the question, but we feel pretty good about what we’re doing so
| 2017_AXP |
2017 | ASTE | ASTE
#Good morning.
<UNK> this is <UNK>.
I didn't have anybody mention that when I talked to them.
We have few divisions outside of the U.S., our Osborne division and Telestat that manufacture outside the U.S. and Brazil which has not been great.
But those are three locations we are actually (inaudible) record technology.
So of that about 19% of our business last year probably half of that was exported in the U.S.
Yeah.
In a good year and in a good international year when international's 40% or whatever, it would be probably be upward of 75% when the dollar's weak and encouraging those folks overseas to buy.
But with the US dollar headwinds, I think <UNK>'s right.
The other thing I would add to that is can I visit Telestack too when I was over in Europe and I told you we've been very pleased with the acquisition.
Those guys are doing a great job and they've got a good backlog.
So they've been really a pleasure to have with us.
There is a frankly an oversupply of pellets because it's been warm on the private market.
In Europe they haven't needed as many pellets for the housing so there's an oversupply of pellets so there's some spot buying going on that's slowed it down.
The other thing that helps us feel good that it's going to come back is there's utilities coming online in 2018 and the demand is going to go up.
So that ---+ you don't have to have the housing market for the demand to go up.
Yep.
I'll get that right.
Let me get that number for you.
In the quarter Power Flame was ---+ it's about $8 million in revenues and ex-amortization which we've buried amortization of their intangibles as you know in acquisition accounting, they did about $350,000 of contribution profit before amortization.
'morning.
Sure.
Hey, this is <UNK>.
You know, actually until about two or three months ago, most of it's been pent up demand but we've had some new plants for new area purchases in the last two to three months.
It's now the pent up demand stage in my opinion.
I'll tell you, it's really consistent across the US.
It's more where it's not and where it's not is more the Dakotas still depressed.
But it's pretty active consistently across the country right now for us.
Thank you.
Thank you, Melissa.
We appreciate your participation in this fourth quarter conference call and thought for your interest in Astec.
As our news release indicates, today's conference call has been recorded.
A replay will be available through March 7, 2017 in and an archived webcast will be available for 90 days.
A transcript will be available under the investor relations section of the Astec Industries website within the next 7 days.
All of that information was contained in the news release that was sent out earlier today.
This will conclude our call.
Thank you, all.
Have a good week.
| 2017_ASTE |
2017 | CECO | CECO
#Thank you, <UNK>.
Good afternoon and thanks to everyone who's joining us on the call.
Today I'm going to cover a few key items including overall academic and operational progress at our University Group, major initiatives and achievements, and some key highlights including our financial results which showed continued improvement and came in ahead of our expectations.
Now let me begin the call by reviewing some of the academic and operating progress that we achieved during 2016.
The past year at CEC was marked with a strong focus on across-the-board improvements and operating processes and efficiencies that we believe has enhanced our position as a long-term leader in post-secondary education.
Our teams have been focused on refining and executing operational changes while undertaking several new initiatives and investments, with the overall goal of improving student experiences both before and after they enrolled in our programs.
A new management team was put in place in 2015, with a streamlined reporting structure that has been more effective and efficient.
We also continue to maintain and build upon a compensation structure that emphasizes and promotes a culture of ownership which further aligns with shareholder interest.
I truly believe that we have some of the best talent in our industry and are maintaining an excellent employee base.
You can see that quality through this year's results.
We are motivated and focused with a clear vision to serve and educate our students, and the progress we have achieved has allowed us to invest more time, intellectual capital and dollars in various student-serving areas of our University platforms.
During the year, we continue to focus on improving student outcomes and retention by leveraging technology and making progressive updates to our curriculum and core sequencing.
We have further enhanced our mobile platform and added new functionality for the benefit of our students.
Changes we made to our core sequencing and course design have promoted learning, increase faculty interaction the students and improved overall student experience during the first few sessions.
We believe improved retention is a catalyst of student success that benefits long-term shareholders.
Recently, both institutions have continued to expand their graduate team model structure which personalizes student-facing services and financial aid, admissions and advising, that we believe helps increase accountability and ultimately improves overall student experiences and retention.
We also experienced reduced turnover in our admissions and advising functions, and increased the effectiveness and efficiency of our front end operations, which we believe should ultimately reduce cost per start while improving the student experience.
At CTU we modified the application process for first-time students which we believe will increase their opportunity for success and make them more prepared for class.
We have invested incremental resources in our financial aid function, which has helped increase our document collection and counseling efforts to students.
We invested in full-time faculty roles, increased our professional development offerings and continued leveraging our mobile platform and integrated technologies like Intellipath to improve the student experience.
In fact, CTU has increased the number of full-time faculty by 30% since the beginning of 2016.
We believe this has improved overall faculty student engagement, promoted learning and ultimately resulted in enhanced overall student retention and outcomes.
At AIU we focused our efforts during the year on increasing accountability at all operational and student-facing functions by revising and improving our managerial and skill development program.
We redesigned our calendar to align better with student lifestyles and provide more desirable breaks in our curriculum.
We've enhanced the first course that undergraduate students take by building workload levels slowly as they develop the necessary skills and motivation to be successful.
During the year we conducted a review of and eventually improved the assignment workloads and content for new students while reducing average class size to encourage personalized support from faculty.
Our new student advising model promotes further collaboration between faculty and advisors which we believe elevates accountability and effectiveness of our retention efforts.
We believe those efforts, in addition to sharing best practices across universities and a focus on continuous improvement, have paved the way for AIU to potentially achieve academic, operating and financial metrics that are and resemble more closely with CTU over the long-term.
Lastly, we've optimized our spending across marketing channels by allocating resources towards those with a higher propensity of positive outcomes.
All of these changes at our universities are intended to provide stronger engagement with students, which we believe will enhance retention and outcomes and ultimately increase the long-term academic value of our University platforms.
And, in fact, we saw the positive impact from some of these operational initiatives during the year, with University total enrollment growing more than 5% year-over-year.
In order to further leverage the investments and operational improvements made in our student onboarding, advising and learning process and to pursue responsible and sustainable growth, we have committed to opening an admissions and advising center in Phoenix, Arizona.
This center should enable us to test new approaches and processes at a reasonable cost, and will enable us to better leverage and serve the increased demand that we are experiencing.
We expect the center to be fully operational in the second half of 2017.
Moving on to some of the recognitions our universities received in the last year, AIU was recently selected as a top school in the military advanced education training 2017 guide to colleges and universities research study.
Although the MAE&T publication does not rank schools in the guide, they recognize the schools that exhibit best practices in military and Veteran education with the use of their 2017 top school logo.
We also received several recognitions last year for our mobile technology.
CTU mobile was the winner of the International e-learning Associations 2016 award for mobile learning in the academic division.
The International e-learning Association awards are given each year for the best work in e-learning, mobile learning and blended learning in both academic and business industry divisions, and are based on a review of variety of attributes including educational soundness and effectiveness, usability and overall significance.
Eduventures, a research and advisory firm that is focused on analyzing the forces that are transforming higher education, awarded CTU with the Eduventures 2016 Innovation Award, which recognizes the achievements of individuals and organizations that share Eduventures vision for improved outcomes through innovative programming that supports critical areas of an institution.
We are proud of our universities and all of the progress that our organization achieved during the year, and are looking forward to greater success in the future.
Now I will provide a brief overview of some of the operating and performance highlights of the quarter and full-year.
Before I do; however, I would like to discuss the settlements that were announced Tuesday afternoon.
During the fourth quarter we recorded a $10 million charge for a settlement related to a case that was filed in 2008 which was scheduled to commence in a jury trial later this month.
While the Company felt strongly that this case had no merit, we concluded that moving forward with the trial and incurring associated legal expenses along with the risk inherit in any jury trial, would not be in the best interest of the organization and our students.
The settlement of this lawsuit that was filed over eight years ago does not in any way reflect on our ongoing operations, practices and processes, and we have not admitted any liability nor committed any violation of law in the above matter.
Our organization continues to emphasize a culture of compliance embedded into our daily operations.
We also recorded a separate charge for associated third-party legal fees of $22 million during the fourth quarter.
Please note that my review of the fourth quarter key results exclude the impact of these two charges.
During the fourth quarter we continued to make progress against our strategic initiatives.
Total enrollment within University Group increased by more than 5% year-over-year supported by improvements in student retention.
As we have mentioned throughout the year, we have been and will continue to be focused on improving student retention and experiences and believe that our growth in total enrollment is a testament to the positive impact our efforts and initiatives have had on retention.
University Group's revenue improved 2.3% for the full-year.
Excluding the fourth quarter settlements, the University Group generated operating income of approximately $22 million for the quarter, and approximately $102 million for the full-year, which represents the highest level of full-year operating income in more than five years.
Which we, again, believe is evidence of the quality of the team we have in place and the improvements we have been making in serving and educating our students.
Our discussions in previous quarters were primarily centered on improving student experiences and retention after a student starts school.
During the fourth quarter we made several investments in our admissions and advising function that were focused on improving student experiences before they start school.
Similar to our retention initiatives, we believe that these investments and improvements in front end resources will help drive sustainable and responsible new student growth.
We are seeing positive impacts of these investments on new student enrollments at both CTU and AIU in the first quarter of 2017.
We ended the year with a strong liquidity position with cash and equivalents increased to $207 million.
This was ahead of our outlook range of $180 million to $190 million and is the first time in over five years that we have had positive cash flow from operations, primarily driven by the strength of our execution.
As we look to 2017, our priorities remain the same.
We are focused on continuing to improve the market position of our universities by strengthening the breadth of program offerings and leveraging faculty and technology, with the goal of enhancing retention and outcomes for our students.
Given the improvements in student retention, continued stability and efficiency in our University Group as well as the prospects for new student enrollment growth at both of the universities, we are updating our 2017 cash outlook which also now incorporates the payments related to the fourth quarter settlement charges.
Please note that as we near the completion of the teach-out phase of our transformation and enter a period where we expect sustainable and responsible growth within the University Group, we'll be providing our outlook under a more conventional matter that focuses on operating income and adjusted operating income rather than adjusted EBITDA, and is more reflective of the Company's future state.
I will provide some additional closing remarks later, but <UNK> will now take us through the financials and review our updated outlook.
<UNK>.
Thank you, <UNK>.
As we review the financial performance, I want to start with results for the consolidated Company.
On slide 4 we have summarized the consolidated results for Q4 and the full-year, as well as provided a comparison to 2015.
For the quarter, revenue was $155.3 million which was down 22.4% year-over-year.
And for the full-year revenue was $704.4 million, a 16.9% decline year-over-year.
The decline in revenue was primarily attributed to the teach-out strategy in our culinary arts and transitional group.
Excluding the impacts of the settlement charges that <UNK> discussed earlier, the consolidated operating loss was $23.9 million for the quarter and $0.3 million for the full-year.
This compares to operating losses of $3.9 million for the fourth quarter and $92.2 million for the full-year in 2015.
Please note that these figures include $34.7 million in 2016 and $17.9 million in 2015, for charges related to the remaining lease obligations for the vacated space within our teach-out operations.
On a consolidated basis without adjustments for legal reserves, we posted a net loss for the quarter of $32.9 million as compared to net income of $142.7 million in the prior-year quarter.
As a reminder, last year's fourth quarter net income included a reversal of a tax valuation allowance of approximately $147 million.
Full-year consolidated adjusted EBITDA was $41.9 million, which was a $46.4 million improvement versus 2015.
We ended the quarter with $207.2 million of cash, cash equivalents, restricted cash and available-for-sale short-term investments, which will be referred to as year-end cash balances for the remainder of today's discussion.
Cash flow generated from operations for the year was $5.9 million, which compares favorably to cash used from operations of $21.7 million for the prior year.
This improvement in cash flow was primarily attributed to lower operating costs.
Capital expenditures for the year were $4.1 million.
Moving to slide 5.
Here we highlight the results of University Group.
As <UNK> mentioned, total enrollment within the University Group improved by 5.3% year-over-year.
Revenue decreased 1.3% year-over-year in the fourth quarter, but grew 2.3% for the full-year.
The University Group operating loss for the quarter included several key items which impacted the year-over-year comparability.
These items included charges for the settlements that were discussed earlier, increased compensation expenses related to performance driven metrics and the timing impact of the transition to a new calendar at AIU that <UNK> spoke about.
If we adjust for these items to simplify the comparison, the fourth quarter operating loss would have been relatively flat year-over-year.
Turning now to slide 6.
We highlight the result of the culinary arts and transitional segments which are in teach-out.
Revenue declined year over year for both segments, but the overall operating losses for the full year improved in line with our expectations.
Note that per our previous discussions, year-over-year differences in the financial performance were expected to normalize in the second half of 2016 as the impact of our strategic initiatives annualized and the initial economic benefits associated with announcing the teach-outs start to diminish notably, especially within our culinary arts campuses.
Turning to slide 7.
We have summarized our 2016 results compared to our previous provided outlook.
2016 consolidated adjusted EBITDA was $41.9 million was a significant improvement versus 2015.
Improved retention trends across most of our institutions resulted in better than estimated total enrollments and we generated stronger than expected operating efficiencies at our teach-out campuses.
Year-end cash balances were $207 million.
Improved operating performance, earlier than expected realization of operating efficiencies and slightly better working capital trends contributed to the improved cash position.
<UNK> mentioned earlier that we will be providing our outlook under a more conventional measure that focuses on operating income and adjusted operating income rather than adjusted EBITDA.
We believe this is a simpler measure and we will reconcile all adjustments back to GAAP measure of operating income.
On the next two slides, we've provided an update to our outlook.
As you can see, we expect the University Group and corporate operating income to grow in 2017 and again in 2018, primarily driven by expected modest growth in total enrollments.
We expect the adjusted operating loss for our teach-out segments to be approximately $50 million to $60 million in 2017.
The culinary arts teach-outs are scheduled to be completed in 2017, so by 2018 the losses should reduce to a range of approximately $10 million to $20 million as we wind down the remainder of our teach-out campuses.
We continue to actively manage the real estate associated with these teach-out schools.
During 2016, where it was appropriate and financially responsible, we reduced our footprint and lowered our ongoing costs.
We have highlighted the estimated real estate charges which will be recorded upon the completion of the teach-out on this chart for your benefit.
We expect year-end cash balances of approximately $150 million to $160 million for the year ending December 31, 2017, and expect balances to increase in 2018.
We continue to carefully manage our cash balances during the teach-out phase of our strategy in an effort to maintain sufficient liquidity.
Also, our revised outlook includes the impact of the settlement payments discussed earlier.
It is worth noting that without this impact, our year-end cash balance outlook would have been ahead of our previous provided outlook.
Finally, please refer to slides 10 through 15 included in our presentation.
There you will find a summary of the key assumptions contained within our outlook as well as reconciliations of GAAP to non-GAAP items.
With that, I'll turn the call back over to <UNK> for closing remarks.
Thanks, <UNK>.
In closing, 2016 was an excellent year of execution and operational improvement for the Company, during which we met and exceeded our operational and financial targets.
We've developed a strong track record of performance against our goals and 2017 will be a year in which we transition from a period of teach-outs to what we believe will be a period of sustainable and responsible growth.
And further, we expect an inflection point in our overall operating performance in 2018.
We have a solid cash position of $207 million in year-end cash balances which was considerably greater than our initial 2016 outlook, and will enable us to continue making smart investments in student-facing services, faculty and technology, that we believe will continue to enhance overall retention and outcomes for our students.
As we enter 2017, we remain focused on improving the market position of our universities by strengthening the breadth of program offerings and leveraging faculty and technology improvements.
As the operating performance of the Company improves, we will continue to analyze and evaluate incremental growth investments for the benefit of our students.
We are focused on improving the strength of our overall University Group as we seek to improve retention and outcomes that ultimately benefit all of our students and shareholders.
I remain excited about the talent we have throughout our Company, as well as the opportunity we have long-term to grow responsibly through focus on student outcomes, quality and retention.
Lastly, I want to thank all of our students, employees and shareholders for their continued support.
Thank you again for joining us this afternoon, and we will now open the call for analysts questions.
Yes, there's two things that are happening, as we said.
We really focused 2016 more on retention.
We will continue that focus, but also on improving the process, in particular the front end process, including, as I said, AIU.
And what we are starting to see as we come out of 2017 is a positive new student enrollment and we are seeing an improvement in the CTU enrollment as well, new student enrollment as well.
So our view is, going forward, again, obviously CTU being a larger school, it takes a little more time to build that momentum, but we are seeing positive improvement at CTU and a positive trend at AIU.
And again, we are hopeful that will continue through the year.
Again, if you look at where we have come from, it will be improvement.
But to say at this point exactly when that goes positive, certainly we're going to work towards that, but it is just one of those things that you don't want to get ahead of yourself.
Well, I think we've had pretty good strength across most of our programs at both CTU and AIU.
But I think in particular, at AIU what's happened is we changed the management structure there.
We've added a person who oversees all of enrollment there.
As well as looking at the entire admissions process, reducing the amount of handoffs that occurred, and that along with several other things have really improved the process.
We are very encouraged by the fact that we continue to see good demand across both institutions and we hope to see that continue.
As we mentioned, about opening this Phoenix advising and admissions center, the main driver behind that is, again, we see strong demand and so that is, as you know, a very good labor pool there.
And so that's, again, one of those things that we are hoping ---+ again we don't want to get ahead of ourselves, but as we prepare to open that during the second half of 2017, we're hoping to also see a little bit of lift from that as well.
Great question.
What we've done ---+ CEC had done a good job.
We provide a higher, I think, level of sophistication there.
And really looking carefully at where the, not only the leads are being generated, but obviously the quality in the context of the cost.
And our view is that we can continue to bring down our cost of acquisition, partially due to the fact that, again, a better admissions model.
But frankly, our ability to continue to generate good quality leads at a reasonable cost.
So I guess that's a long way of saying we see that there is still opportunity to lower our acquisition costs, but again, our ability to generate the higher quality lead at a more reasonable cost, I would say we are well along in the process, but there is still, we believe, some benefits to be gained from that.
I would say ---+ I don't want to say necessarily a positive, but one of the nice things that I think that any of us can do as shareholders is make sure you refer to both the 10-K and the prior 10-Qs.
Everything that we are aware of, we're very careful to include it in there.
And so that really is the best source to look in.
Certainly if I'm aware of anything, it will be in there.
That is number one.
Number two, I think if we look at in the context of the one that was settled, that was filed in 2008.
So, again, I think by looking at what ---+ the potential that's maybe out there that we don't know about, let's hope there is not, but the timeline associated with those things, I think because again, sometimes the frivolous nature of them, it even takes years to get them where they are.
But again, the 10-K and the 10-Qs that we've filed in the past, I think that gives you a pretty good comfort level of what's out there.
I think the philosophy here is responsible and sustainable growth.
And we're going to continue to focus on that.
And I think this year we are excited about the potential prospects of that, <UNK>.
I think always you're balancing that with the financial performance, but our view of it is there's no reason why as an organization we don't have the potential to have competitive margins for our industry.
We have two great universities.
We have a very good management team in place and we are encouraged by the demand that we are seeing.
And so, again, you've known me for a while, and the ability to balance the two is something that I think we have a pretty good feel for what we should be doing.
So again, I think it comes back to that responsible and sustainable growth can be achieved by still expanding your margins, but again, you want to do it in a prudent and careful way to make sure that the most important thing is you are providing a quality education for the students that will show up through the retention and the outcomes.
And that really is the guiding principal.
We're not going to grow beyond our ability to make sure that the quality education is there.
Thank you, <UNK>.
Again, we appreciate you joining us this evening and we look forward to speaking with you again next quarter.
Thank you.
| 2017_CECO |
2017 | FCPT | FCPT
#Thank you, Gary.
Joining me on the call today as is always is Bill <UNK>.
During the course of this call, we will make forward-looking statements, which are based on beliefs and assumptions made by us and information currently available to us.
Our actual results will be affected by known and unknown risks, uncertainties and factors that are beyond our control or our ability to predict.
Our assumptions are not a guarantee of future performance and some will prove to be incorrect.
For more detailed description of some potential risk, please refer to our SEC filings, which can be found in the Investor Relations section of our website at fcpt.com.
All the information presented on this call is current as of today, November 3, 2017.
In addition, reconciliation to non-GAAP financial measures presented on this call, such as FFO and AFFO, can be found in the company's supplemental report, also available on the website.
With that, I'll turn the call over to Bill.
Thank you, Gerry.
Good morning.
Let me first make a couple of comments on our third quarter acquisition activity, which included the announcement reflecting the signing of a purchase and sale agreement of a large transaction with Washington Prime.
We are working very hard to replicate this transaction with other REITs and retail landlords.
We are confident that we'll be able to make real progress on this initiative, as we've had a number of discussions with relevant parties.
Yesterday afternoon, we announced the closing of 5 Red Lobster properties for $19.4 million.
We have looked at a number of these properties as there has been a significant number of trading hands in the last year.
We believe the quality of the real estate, coverage ratios and lower rents differentiate these properties from the others that we have analyzed.
Regarding overall net lease market observations, we are seeing relatively flat cap rates quarter-over-quarter that when you parse the data by brand, higher credit names are trading at perhaps a bit tighter cap rates, while at the lower-quality end of the spectrum cap rates have widened out.
On the restaurant industry, overall, I'd like to repeat 3 observations from last quarter's call as they are still relevant.
Darden continues to execute at a very high level with a conservative financial profile.
Two, many other casual dining companies are not doing so well, and we have avoided these credits.
And three, the quick service brands we've been acquiring are stable.
In the third quarter, the nation endured several weather-related natural disasters.
Our portfolio itself is not adversely affected ---+ impacted.
And where there were minor issues at Darden properties, they were exceptionally responsive.
Unfortunately, one of our tenants, the second-largest Dairy Queen franchisee, has a predominantly Texas portfolio.
Although, the single property we lease to them is in Tulsa, Oklahoma, and was not directly impacted by Hurricane Harvey, the storm did have its very significant impact on their Texas business.
They filed for bankruptcy earlier this week, and we're working diligently to assess our alternatives.
The single property accounts for approximately $170,000 in annual rent or approximately 0.16% of our total annual rent.
On a more positive note, Gerry and Nicole have had a very productive quarter.
The recasting of our credit facility will save us approximately $1.8 million in financing costs next year.
Internalization of our accounting functionality should also allow us to save cost next year.
Not to be nostalgic, but next week is the second anniversary of our spin from Darden.
We are pleased with the progress we have made.
We appreciate that this progress is only possible because of the dedicated hard work of our team members, the guidance of our Board of Directors and the support of our shareholders and financing sources.
Now Gerry will take you through our financial results.
Gerry.
Thanks, Bill.
First, a few comments on our results for the third quarter, before I turn to the balance sheet.
We generated $26.3 million of cash rental income after excluding noncash straight line rental adjustments in the quarter.
On a run rate basis, the current annual cash base rent for leases in place as of September 30 is $105.4 million.
Our weighted average annual rent escalator remains at 1.5%, and the reminder for modeling purposes that all of Darden's cash rents increased by 1.5% on November 1.
Cash interest expense, excluding amortization of deferred financing costs and other noncash interest was $5 million for the quarter, reflecting a full quarter of interest on the $125 million of unsecured notes, which funded in June.
There were no borrowings on our revolving facility during the quarter as we maintained a net positive cash position of approximately $75 million during the quarter.
Our net income FFO and AFFO per share results were impacted in the third quarter by the short-term dilutive effect of the balance sheet cash, but we are pleased to have the capital raised to fund the perspective Washington Prime transaction and other acquisitions like the Red Lobster transaction that Bill mentioned, which was announced yesterday.
We reported $2.2 million of cash, general and administrative expenses after excluding noncash stock-based compensation.
As expected, results were down from the second quarter, which was high due to proxy season costs and some overlap of internal and external accounting costs, which no longer existed in the third quarter.
Turning to the balance sheet, a couple of comments on the recasting of our $650 million bank credit facility, which was announced on October 2.
The terms and covenants for the new facility were standardized and improved to reflect the company's progress since inception, including our investment-grade rating.
In addition, we were able to improve margin pricing by 35 basis points and other fee levels, which we expect will result in $1.8 million in annual cash interest expense, which Bill also mentioned.
The credit facility extension increased our weighted average debt maturity to 5.8 years at quarter-end, and our net debt-to-EBITDA stands at 4.4x at quarter-end, and we remain committed to maintaining that level at or below 5.5x to 6x.
In conjunction with the closing, we extended the cash flow hedging for our term debt, as outlined on Page 9 of our supplemental, to cover the extension period, and we remain 100% hedged on that debt today.
Lastly, you'll see that we revised our supplemental disclosure with the goal of expanding and reorganizing the information to make it easier for investors to digest.
Please let us know if you have any questions regarding the disclosure or don't think we hit that goal of improved disclosure and transparency.
And with that, we'll turn it back over to Gary for Q&A.
Sure.
We've looked at a number of Red Lobster's, both, obviously, varied and Golden Gate and private sellers have been active in that brand this year.
We've looked at a number of them.
These were a handful that after looking at dozens and dozens and dozens seem to make sense.
Pricing was consistent with the prior acquisitions that you've seen us do.
Nothing out of the ordinary there.
They're more than twice as much work.
To ---+ not to be sarcastic about it, but that property, I think, we had a lot of learnings.
It was a good work.
It's a good acquisition with a strong franchisee.
Just it's a lot of work.
So I don't think that's going to be a significant focus of ours.
Really, the focus on the acquisition is, obviously, we're still doing our one-off business and active in the market.
But our day-to-day focus, if you looked at our travel calendar as one proxy for that, is, really focused on replicating the Washington Prime thesis.
On top of, <UNK>, our normal day-to-day business.
Yes, for competitive reasons, <UNK>, I'm not going to go there.
But as I said in the remarks, this is not an isolated event.
No.
Nothing from a watch list or other tenants.
We had one property that was, I think, closed for a day or 2 within Darden, but they were really impressive how they were on it.
But yes, nothing outside of the one Dairy Queen in Tulsa.
I think, it's very significant.
Now that ---+ clearly, these are professional owners of real estate that have had these properties on their books for a long time.
So the onus is on us to convince them as Washington Prime was convinced, that the valuation arbitrage is significant and that they should act on it.
But we do think it's meaningful, especially for a company of our size.
Well, they're actually performing quite well under the Golden Gate tutelage.
And as you know, that brand ---+ that investment was recapitalized with the foreign investor recently.
So we view it as a sort of a very different thing than when Darden sold that brand.
And without getting into the very specifics of the individual properties, I would just say that, they had lower rents basically than most of the other properties that we looked at.
As you may remember, when ARCP purchased that portfolio, rents were quite high.
And so this was really a process of shifting through many, many, many different properties to find ones with rents that we found attractive.
Both.
I think that currently, the mid-priced casual dining business is stressed.
There have been bankruptcies.
I think there will be more.
As you mentioned, we don't own those brands.
There may ---+ this may become an opportunity, but the pricing is not attractive yet.
We don't look at a 50 basis points move in a cap rate for a brand that's under significant negative comparable sales as being enough compensation to be interested.
Yes, I don't think it's a new thing.
There has been supply of these restaurant brands as they increase unit counts.
If you look at the stock price performance of restaurant brands over a long period of time, the highest correlation to stock price performance is unit growth.
So that's been a area of focus for a long time.
I think we're seeing inside the mall and inside the shopping center, a move away from apparel retail to food and beverage, entertainment and fitness, I think that's a well-documented trend.
We think we have a superior position being on outparcels, especially in QSR with drive-throughs with ample parking.
So we think that the outparcel component of food and beverage is preferable, and that's why we haven't gone inside the structure, so to speak.
But I think it's frankly ---+ it's the other side of the coin of restaurants being more defensible against the threat of Internet retail, it's where folks can arrange capital to grow, where they can't in sporting goods or electronics or apparel.
Are you talking about like Chuck E.
Cheese or as far field as (inaudible) TopGolf.
Yes, we've looked at them, but we haven't pursued any ---+ with any seriousness.
I wouldn't completely say we wouldn't buy one, but it hasn't gone that far yet.
The issue with some of these is that frankly, they're not tested within the net lease universe.
And so it'll be interesting to see if there is ---+ if there are defaults with the severity of losses.
And these are pretty specialized buildings and are ---+ as you mentioned, are quite large.
And you do get a bit of a cap rate ---+ more interesting cap rate, but not by a wide margin for sure.
So you'd have to be pretty sure that you have a replacement tenant in mind or sort of a plan B.
But ---+ so we've looked, I wouldn't completely dismiss them perhaps as a part of a portfolio, but it really hasn't been a serious part of our focus.
We've found good uptake from both public and private.
I think the sophisticated private owners understand that the value of their portfolios mimic what's happening in the public market as they're marking to market their portfolio, they have to be cognizant of that.
So it's interesting if you look at some of the shopping center and mall REITs, the valuation differential is actually twice what we calculated.
Our expected value differential to be between Darden and the SpinCo.
So ---+ however, much the SpinCo made sense, we think this thesis makes twice as much the sense, and we're getting good audiences.
Precisely.
And we'll continue to do that where we can get very good pricing on a reverse inquiry basis.
We have a ---+ just a tremendous amount of interest in our assets, and it's managing that interest versus a 1031 exchange process, having to have properties that you're going to ---+ that you know that you're going to buy in the near term.
And frankly, our properties are ---+ our Darden properties are very difficult to replicate.
We've said a couple of things.
One is that 80% is our ---+ roughly our target.
We don't want to be meaningfully above that.
And then I would say over a very long period of time ---+ and no, we did not yet raise it in the fourth quarter.
But over a very long period of time, my view is that people own REITs, and you may underline that people owned real estate in order to get increased distributions over time.
So I understand the capital markets theory or option that you described, but ultimately over a long period of time, people want to see increasing dividends.
And so that's something that we think we'll talk to our board about annually at the end of every year.
Terrific.
Well, I just wanted to just quickly repeat the thank you to the team here over the last couple of years working really hard to get us where we are at, to our Board who's been really supportive of us as a management team and to our investors who really stood by us, we truly appreciate it.
Hope everyone has a great weekend.
Thank you.
| 2017_FCPT |
2017 | ROST | ROST
#Good afternoon.
Joining me on our call today are <UNK> Balmuth, Executive Chairman; <UNK> O'Sullivan, President and Chief Operating Officer; Gary Cribb, Executive Vice President, Stores and Loss Prevention; John Call, Executive Vice President, Finance and Legal; <UNK> <UNK>, Group Senior Vice President and Chief Financial Officer; and Connie Kao, Vice President, Investor Relations.
We will begin our call today with a review of our first quarter performance, followed by our outlook for the second quarter and fiscal year.
Afterwards, we'll be happy to respond to any questions you may have.
As mentioned in our press release, we achieved respectable growth in both sales and earnings during the first quarter, despite the uncertainty and volatility in the external environment.
Earnings per share for the period were $0.82, up from $0.73 in the prior year.
Net earnings were $321 million, up from $291 million last year.
First quarter sales increased 7% to $3.3 billion with comparable store sales up 3%.
Sales gains at Ross were broad-based across most merchandise categories and geographic regions.
First quarter operating margin of 15.2% exceeded our expectations due to above plan sales and merchandise margins.
As we ended the first quarter, total consolidated inventories were up 6% versus the prior year with average in-store inventories down slightly.
Packaway as a percent of total inventories was 46%, similar to last year.
Despite challenging multi-year comparison, dd's DISCOUNTS also saw continued solid growth in same-store sales and operating profits in the first quarter.
Our store expansion program remains on track with the addition of 23 new Ross and 5 dd's DISCOUNTS stores in the first quarter.
We are planning a total of 90 new locations in 2017, comprised of approximately 70 Ross and 20 dd's DISCOUNTS.
As usual, these numbers do not reflect our plans to close or relocate about 10 older stores during the year.
Now <UNK> <UNK> will provide further color on our first quarter results and details on our second quarter guidance.
Thank you, <UNK>.
Our 3% comparable store sales gain was driven by higher traffic as well as an increase in the size of the average basket.
While first quarter operating margin of 15.2% decreased relative to last year's 15.4%, it exceeded our expectations.
Cost of goods sold was flat for the quarter.
Merchandise margins improved by 15 basis points while distribution and occupancy costs declined by 15 and 5 basis points, respectively.
These improvements were offset by a 35 basis point increase in freight expenses.
Selling, general and administrative expenses during the period increased by 20 basis points mainly due to higher wages.
Earnings per share for the quarter also benefited by $0.01 due to favorable expense timing that is expected to reverse in subsequent quarters.
During the first quarter, we repurchased 3.3 million shares for a total of $215 million.
We remain on track to buy back as planned a total of $875 million in stock for the year under the new 2-year $1.75 billion program authorized by our Board of Directors in February of this year.
Let's turn now to our second quarter guidance.
For the second quarter ending July 29, 2017, we are forecasting same-store sales to be up 1% to 2% on top of a 4% gain last year with earnings per share of $0.73 to $0.76 compared to $0.71 last year.
Our guidance for the second quarter is based on the following assumptions.
Total sales are projected to increase 4% to 5%.
We expect to open 28 new stores during the period, including 21 Ross and 7 dd's DISCOUNTS locations.
Second quarter operating margin is projected to be 13.9% to 14.1%, down slightly from last year's 14.4%, reflecting our forecast for higher freight costs and wage costs.
In addition, net interest expense for the quarter is estimated to be about $3 million.
Our tax rate is expected to be approximately 37% to 38% and weighted average diluted shares outstanding are projected to be about 387 million.
Based on our first quarter results and second quarter guidance, we now project earnings per share for the 53 weeks ending February 3, 2018, to be in the range of $3.07 to $3.17 compared to $2.83 last year.
As a reminder, our forecasted EPS for 2017 includes an approximate benefit of $0.08 per share from the 53rd week.
Now I'll turn the call back to <UNK> for closing comments.
Thank you, <UNK>.
As I said earlier, we had a solid first quarter, despite the challenging external environment.
Looking ahead, we have plenty of liquidity in our open-to-buy to take advantage of the terrific opportunities in the marketplace and offer shoppers the best bargains possible.
That said, we also face our own increasingly difficult prior year comparisons, along with political, macroeconomic, and retail climates that are likely to remain uncertain.
So while we hope to do better, we are maintaining a somewhat cautious outlook for the balance of the year.
Over the longer term, we are confident the off-price sector will remain a strong performing segment of retail as consumers continue to seek value.
In addition, we believe our operating strategies and ongoing investments in people, processes and systems should enable us to drive respectable growth in both sales and earnings in 2017 and beyond.
At this point, we'd like to open up the call and respond to any questions you might have.
Okay.
Ladies' comparable sales for the first quarter were positive.
We feel that the changes we made, we no longer have those lingering execution issues that we had last year, and the challenges.
We feel that those are behind us.
We've made the appropriate changes.
A lot of those issues were around seasonality in color and execution.
So we feel that, that - that we made progress during '16, that we've made additional progress in Q1 and that we're going to continue to move forward.
And there are opportunities as we improve our assortments in the second quarter.
Sure.
<UNK>, it's <UNK> O'Sullivan.
It's a good question because, as you know, over the last several years, we've reduced average inventory in store by about 40%.
So this is a question we've actually been working on for some time.
And we've been using the extra space that we've created, if you like, in stores to really look at 3 things.
One is make the stores easier to shop just by organizing the store in an easier to shop way; secondly, expanding into faster growing or new categories; and then thirdly, when it comes to new stores, be more flexible in terms of the store size, the new store openings.
So I would say we're actually pursuing a mix of all 3 in terms of, as you say, optimizing how we're using the space.
Sure, <UNK>.
We're very happy with the availability of the real estate locations that we're seeing.
And as you'll appreciate, typically, the real estate locations we're seeing now really feed the pipeline for the next 2, 3 years.
So we're pretty happy with that outlook.
There aren't ---+ as you say, there aren't many retailers out there who are opening 80 to 90 new stores a year.
So therefore, landlords are pretty happy to see us.
We have a great real estate team, a great network and they've done a nice job finding new locations.
In terms of rent and occupancy costs, we're certainly taking opportunities where they exist to negotiate and renegotiate those.
But I would say that for the most part, rents and occupancy are fairly stable at this point.
Sure.
What we're seeing in the marketplace is there's a lot of availability.
It's pretty broad based and as you know, availability is often the result of department stores not making their plan and their forecast, so that's the one thing we would see in the immediate.
In the future, obviously, it gives us an opportunity, as the department store business is challenging to gain more market share.
Sure, <UNK>.
In terms of trends during the quarter, certainly, like you saw and I think across the retail landscape, sales strengthened as we moved through the quarter.
Sure, <UNK>.
It's <UNK> <UNK>.
The delay in tax refunds, it certainly wasn't a positive for the quarter.
The volatility made it a little bit more challenging to plan and operate the business.
It's hard to say though if there was a negative impact to the overall quarter from the refunds.
I'll give you some stats on ---+ also on regional performance.
For us, Southeast, Florida, and the Midwest were the top-performing regions.
The Midwest continues to be very strong region for us, it's been a top-performing region for over 3 years.
I'd call out other major markets.
California was slightly below the chain average given the unfavorable weather with the storms during the quarter.
Texas performed in line with the chain, and that's an improvement from the second half of 2016 when it was below the chain average.
And then, <UNK>, in terms of areas that are improving the momentum, sales really were pretty broad based throughout the company.
Ladies continues to make progress.
The Ladies business is always a challenging business since there's really no major sales trend, fashion trends out there unless you really have weather to drive it, particularly in Q1, Ladies continues to be a challenge.
But we do feel like we are improving on our execution.
And so if we continue to do what we need to do, our expectation is that it would improve as we get into second quarter.
But again, there is ---+ one of the real problems in Ladies is there is no real overriding fashion trend to drive it.
Sure.
Yes, I know there's been a lot of discussion about vendors wanting to pull back.
Well, we haven't really seen that.
We continue to see plenty of branded bargains in the marketplace.
And quite frankly, vendors have strategies that have fluctuated over time.
And we do business with over 8,000 vendors, so we've been able to successfully navigate over the years through all of these changes.
In terms of new brands, we really wouldn't talk about brands ---+ specific brands on the call, and same thing pretty much for new categories where we're testing.
Sure, <UNK>.
We expect wages to abate in the second half of the year as we anniversary the most recent wage increases that took place in last year's second quarter for us.
So our guidance though still for the year assumes an SG&A leverage point at about 3%, which is in line with historical averages.
Well, I was just going to add, further out, I think you had asked beyond 2017, it's hard for us to be precise beyond the current year.
But we've taken the view that wage pressure is probably going to be a reality for the next several years.
Certainly, in some of the major states that we're in, there's legislation that's already been passed that pushes up the minimum wage over the next several years.
So we're expecting continued wage pressure, but it's hard to be precise about that.
No.
We haven't changed our outlook, <UNK>, even though we exceeded merch margins by 15 basis points during the quarter.
Though that was primarily driven by above plan sales, which allowed us to leverage markdowns and drive the business with closeouts.
Just after 1 quarter, we wouldn't change our outlook for the year.
So we didn't say specifically on the basis point impact, though.
We ---+ beginning in Q4, we did ---+ have seen a tightening of carrier rates as well as fuel costs that are up against some very low levels last year.
Right now, we expect freight costs to be a headwind for the remainder of the year and that's reflected in our guidance.
In terms of your question about the outlook for gross margin, there were really 3 things that have helped us drive our gross margin improvement over the past several years.
The inventory reductions we've taken have obviously helped us to drive down markdowns, that's been an important component.
Improvements in our shortage control, the investments we've made there, again, have helped to drive our gross margin.
And then the third component has been ahead of plan sales, driving, obviously, ahead of plan turns.
As we look forward, of those 3, I think there's limited opportunity left in the first 2, the inventory reduction and the shortage control.
We'll continue to manage those tightly.
But I think, realistically, there's a limit to what more we can do.
So most of the growth on gross margin going forward is going to have to come from the sales line in terms of ahead of plan sales.
Sure.
Home has actually been one of our strongest categories over the last couple of years and we believe that there is further opportunity to grow the business.
But for competitive reasons, we wouldn't disclose a specific target.
Sure, <UNK>.
So in the first quarter, DCs levered by about 15 basis points, and that was all due to both efficiencies in the DCs and also fixed cost leverage.
So we would, certainly, over the next couple of years expect to see ---+ have some ability to lever the fixed cost there as we don't expect additional significant investments in the next couple years.
In terms of California, we continue to see comps there, certainly, over the last couple years.
I mean, we've obviously been in the market for 30 years and we continue to comp.
So we continue to believe we have opportunity to comp stores there.
In terms of the breakdown of our new store openings, I don't think that's going to change materially.
I mean, from year-to-year, you could see a small adjustment, but I don't expect to see a material change.
So the way to think about it, is about 1/3 of our new stores, more or less, are in the Midwest, about 1/3 are in sort of existing, if you like, Ross markets outside the Midwest and then the remainder are dd's new openings.
Sure, <UNK>.
The closures were fairly recent and late in the quarter, so the impact would have been very minor to the quarter.
Over the long term though, fewer stores, fewer competitors certainly create more market share opportunities for us, which should be a positive factor for the business.
No.
I wouldn't change anything that we said in our initial call, Ike, earlier in the year that we expect going into the year that we expected merchandise margins to be relatively flat and to call out, at this point, that we think freight will be a headwind to the remainder of the year.
We haven't had any ---+ we certainly haven't had any communication from customers that they're demanding e-commerce from Ross.
I think that's mainly because of the type of business we run.
I mean, it's important to keep in mind we're a moderate off-price retailer, a low average unit retail around about $10.
So as you mentioned, Mike, the economics really don't work.
We offer a very broad assortment which, again, is hard to replicate online.
And a treasure hunt environment, which, again, is very difficult to replicate outside of the bricks-and-mortar format.
So overall, we feel like it's very difficult for an online retailer, even if that retailer was us, to sort of compete with what we offer in our stores.
That's not to say that it's not important for us to monitor what's going on online and to monitor online competitors.
We do that all the time.
I think it's hard to know how you would actually get at that question other than looking at our business.
And if we saw our business start to fall off, and we diagnosed that and found the customers were buying online rather than coming into our stores, buying online from other people rather than coming to our stores, I think that would be a clear indicator for us.
Clearly, based upon the strength of our business, we're not seeing that trend.
Well, on the comps front, on the concentration of top vendors, I would say probably similar year-over-year without having that exact number in front of me.
The supply lines have been pretty broad based with all our vendors, so I would think that there aren't any real challenges there.
Could you just repeat the second part of the question on those macroeconomic piece ---+ macro.
So no, we'll give ---+ we'll update the back half comp when we give our release in August.
I'd just point you to, when we started the year, we expected 1 to 2 so you can be pretty similar across the rest of the year.
As you're thinking about inventory, how do you think about the composition of packaways going forward and what your outlook is for it.
And then when you think about real estate cost and new store openings, given the current real estate environment, is rental cost or lease expense at all more flexible today than it was in the past.
I'll talk about packaway first.
So in terms of packaway going forward, packaway are opportunistic purchases, so it's kind of hard to predict where the packaway will come from or what the composition will be.
What I would say is that the criteria for putting goods into packaway, the values that we want to put out later on in the year after we sell the goods is really the main criteria.
So it's kind of really hard to predict the classification or the amount quite, frankly, it fluctuates.
And then on the second question, <UNK>, on real estate.
I would say, the truth is that store closures in the strip mall environment have been a feature for several years now, whether it's office supply retailers or sporting goods retailers or electronics retailers going out of business.
So I would say that it's really more of the same right now.
I would say that rental costs and occupancy costs have stabilized.
But I think a lot of the impact that you've seen from store closures has actually happened over the last few years.
And just to add one thing about packaway.
We feel very good about the content of our current packaway that we own today.
And as you think about diversification of the merchandise mix, over the next few years, what do you ---+ how do you see the mix diversifying.
Between the different types of products you mean, between Home, (inaudible).
Yes, exactly.
Yes, yes.
Well, we feel good about Home.
We feel that we have growth at Home, but past that I wouldn't talk about that on the call.
What I would say is that we think there's opportunities broad based throughout the entire box.
Thank you for joining us today and for your interest in Ross Stores.
Have a great day.
| 2017_ROST |
2015 | WY | WY
#You know, I wouldn't say there's no difference, <UNK>, but you still got to take ---+ as you and I talked about last quarter, taking these mills down and then starting them back up, there's always challenges associated with that, and it may be a little more challenging if it's 18 versus 12, but we haven't seen anything systematic or systemic that makes it harder.
You just got unique challenges with each one of these mills as you take them down and bring them back up.
Some of them have go really, really well and some of ours have gone well, and then some of them, you have challenges.
<UNK>, we look at our mills, and I think flint river is a good example of that.
It was not only factor of taking the mill down for maintenance, but we were also installing some really very beneficial equipment around energy costs, so it's a combination of all of those things.
I think it is important to your question that as we've gone through this process there are learnings, and I would call them only tweaks that you get from just the maintenance, which is a very is important piece in our cellulose fibers business.
We are capitalizing on looking at the learnings as we take a mill down and bring it back up, to factor that into our maintenance going forward, and that's part of our operational excellence.
Thank you, <UNK>.
<UNK>.
Hello, <UNK>.
Why don't we take the next question.
You know, I think it really is just the factors that <UNK> went through.
We've had weaker demand from Asia, which impacts the exports that come out of Canada.
We've had some changes in currency that puts some headwinds there.
And then I think, notwithstanding the fact that housing has been ticking up of late in terms of people have reiterated their full-year guidance for the year, the first half was a little disappointing in terms of where we thought things would be.
So as we look at housing for the second half, our guidance really hasn't changed.
Since we didn't have great response in the first half, that would bode for the second half being better.
But as <UNK> said, we'll have to wait and see.
There are just a lot of moving parts out there with all of this.
We really don't have a range for next year that we would give in terms of guidance at this point, <UNK>.
We will do that as we approach year end.
But one thing that I would say about the projects that we're putting in, and the $500 million is a little higher than where we spend historically, but we've got some great wood products projects that are underway that I think will pay additional dividends as we look at bringing our costs down across that system.
So really excited about the projects that we are spending that money on, but a little too soon to tell you exactly what we will be doing for next year.
<UNK>, we still anticipate that southern prices will be up kind of in line with what they've been up over the past couple of years, which would be somewhere in the 2% to 3% range year over year.
Good morning, <UNK>.
As we look at that, <UNK>, we'll just have to see how that actually plays out in terms of what the final resolution will be.
So difficult for us really to tell what that result will be.
It is something that we have tracked, but it's not something that I would say we have a comment that we would make about it in terms of ports at this point.
You bet.
We can hear you.
<UNK>, just to be clear, your question is related to how we do transfer pricing to our ---+
Yes.
Actually they are correlated, because they all come from the same geography.
There is a different mix, however, as you think about what we would send exports, for example, to Japan versus the grade that our domestic sawmills would use.
Directionally, they usually do track, but they will not be similar absolute pricing because of the grade mix.
<UNK>, as we've said before, we are looking to grow our timberlands.
We think our biggest opportunities will be domestic, whether it be in the south or the Pacific Northwest.
We'll also continue to look internationally, but we're going to make sure that we appropriately risk adjust any acquisition that we would make internationally.
So that's kind of generally the way we think about it.
Currency is going to move up, currency is going to move down so we won't overemphasize that in any decision we may make versus acquisitions.
Good morning, Collin.
You're probably just a little optimistic there, Collin.
If you kind of think about guidance for the sale of fibers business, we were at $27 million, I believe, in the second quarter.
We've got 46 days in the second quarter, and probably less than a handful in the third quarter.
So between the maintenance expense and better productivity as we run more days, I would say that's probably going to be around, just to give you some sense, around the $45 million-ish number.
We said we will have likely lower realizations, but I would expect that to be offset by some higher volumes, as well as some additional potential for cost improvement in other ways.
So I think that will help you get a little bit in the zip code.
I think $90 million, love to have $90 million, but that might be a little optimistic at this point.
Yes, I think would you think about $500 million as being closer to the high-water mark, <UNK>.
I don't think we would be looking at something that is significantly above that.
I think last year in 2014 we were around in the $400 million, maybe $450 million.
So we have ramped that up a little bit.
But I wouldn't see us being significantly above $500 million for 2016.
Yes, Collin, there's nothing that should be read into that.
That's just where it ended up for the quarter under our program, and we'll continue to report, on a quarterly basis, our progress going forward.
Thank you.
Collin ---+ I mean, <UNK>, on your first point, on OpEx, we're encouraged by the progress we've made there.
Still more work to do.
In terms of opportunities to grow our portfolio going forward, we've consistently said, I think now over the last couple of years, that we think our biggest opportunity to grow will be in timberlands, but we would look at growing other parts of our Company as well if we can find appropriate growth opportunities that meet our hurdle requirements and drive value for shareholders.
So that's generally how we think about growth going forward.
The beauty of it is, we don't have to grow to be successful.
We can be very disciplined.
We have been, and we'll continue to be.
But if we can find the appropriate opportunities to grow this Company, that's absolutely something we'll look to do to drive value for our shareholders going forward.
Thanks, <UNK>.
As I understand it, that was our final question, and I would just like to thank everybody for joining us this morning for our call, and more importantly, thank you for your interest in Weyerhaeuser.
Have a good day.
| 2015_WY |
2015 | MDLZ | MDLZ
#Thanks.
Hey, <UNK>.
The answer is yes.
There is a timing impact, as you would imagine.
And so there's only a ---+ although I would say we have gotten a lot better about executing pricing actions.
We used to price once a year.
Now we're pricing far more frequently, particularly in a number of the more volatile markets.
But for the most part, we are pricing to recover our cost increases, and you're seeing that play through in the margins, as well as in the revenue.
And you would see other quarters where it would be the other way and you got to catch up.
That's really the dynamic.
Well, again, I think you're going to continue to see us in a number of the markets, particularly Venezuela and Argentina, you're going to see us continue to try to keep pace with the inflationary impact.
In markets like Brazil, we want to just manage the impact of the pricing that we have taken year-to-date, because we still have some sizable price gaps, and we've had a decelerating impact, as I mentioned, on our category performance.
So, we're going to monitor that and to make sure we're investing adequately behind the franchises.
Well, the euro has come down a bit, I think is the offset to the coffee change.
That's the dynamic that's playing out.
And what was your second question again, <UNK>.
I'm sorry.
Yes.
I mean, given the exposures of where the coffee business is, I mean, it would have a lower tax rate.
So, when you take that out, you expect it to go up a little bit.
What we've got playing out in this outlook is really some specific countries where statutory rates have moved and some discrete items that we see in front of us.
So, that's what's keeping it low.
Over the longer term, we'll give you visibility to that as we move through the year.
Yes, we're not going to get into ---+ it's a private company.
And with our partners, we're not going to disclose a lot about that.
Well EEMEA ---+ a simple answer is, there has been some dislocation with the rapid devaluation of the currencies, and we should start to see that moderate as the year progresses.
So that's an easy one.
Let's come back to the India question.
Let me clarify that.
India is growing.
It's just growing at a slower rate than it had been.
So I want to be very clear.
It's not a problem.
It's just we'd like to see it get back up to the high single digit, double digit rates that it had been growing at since we acquired the Cadbury business.
There's no question that the actions that we took in response to the devaluation of the rupee, as well as the impact of higher cocoa costs, has impacted the market.
We not only have seen our gaps widen, but we also have crossed some critical price thresholds.
And so the intent of our investments back in the chocolate category in India are designed to help to mitigate some of that and help the Indian consumer over the hump.
We've also taken a number of steps to help our price pack architecture in the market so that we are covering various points on the price spectrum.
So net-net, India continues to be a market of great importance and interest to us.
It's got a nice, growing middle class, very low per capita consumption of chocolate, and we expect it to be a growth engine for the future.
Thanks, <UNK>.
Well, I'll give you a little bit of the dynamics and maybe <UNK> can answer strategically.
As we talked about the restructuring supply chain reinvention, I mean that's an activity that will go through 2018.
So this is one where 15% to 16% is what we're calling for 2016, but the reality is there will be continued cost opportunities and margin opportunities beyond 2016.
As I said earlier, I think we want to maintain the flexibility to balance, really, growth with the margins that we drive in the business.
And being able to re-invest is a ---+ it's nice that we're really getting that opportunity right now to begin to do that.
We expect to do that more.
And driving a better balance between top line growth and volume growth, and the quality of that top line, along with higher margins, there's clearly continued opportunity to do that beyond 2015 to 2016.
But <UNK>, a lot of the productivity, as we shared with you, a lot of the productivity that we're driving as we speak, the record net productivity that we just delivered in this quarter and for the first half is before the impact of our supply chain reinvention investments, which, as we've shared with you, have a sizable impact on variable costs.
In addition, a lot of the tools that are driving that productivity, things like integrated Lean Six Sigma, are the tools that will enable us to continue to benefit from productivity as we look ahead.
So we've got good tools in place that should become the foundation for the future performance, and gives us great confidence as we look into 2016 and beyond that our margin performance will continue to be quite strong.
Well I think it's fair to say that we think we have great visibility to continued improvement in our margins.
As we've shared with you, though, we want to continue to make sure, as we think about how much of that will drop to the bottom line, it's all predicated on our balance between our top line and our bottom line.
And we'll continue to share that with you as we move ahead.
Operator, that's our last call.
This is <UNK>.
If you have any questions going forward, happy to take them today, over the next few days, and thank you for joining our call.
| 2015_MDLZ |
2017 | AAOI | AAOI
#Thank you.
Thank you for joining us today.
As always, we thank our investors, customers and employees for your continued support.
And we look forward to seeing you at one of our conference in March.
| 2017_AAOI |
2018 | VRA | VRA
#Thank you, <UNK>.
Good morning, everyone, and thank you for joining us for today's call.
I am joined today by <UNK> <UNK>, our CFO.
I want to take a minute to welcome Kevin Korney to our leadership team.
Kevin joined Vera Bradley in January as our Chief Merchandising Officer.
Kevin has nearly 20 years of apparel, accessory and footwear merchandising experience with several well-known retailers.
Most recently, he served as VP of Global Merchandising for Converse.
And prior to Converse, Kevin served as a Senior Divisional Merchandise Manager for Fossil where he worked with our Chief Creative Officer, Beatrice Mac Cabe.
Kevin gained prior experience with Dallas Cowboys Merchandising, The Walt Disney Company, Nautica, Ralph Lauren and Gap.
And Kevin's leadership, strategic and analytical and creative skills make him a great fit for Vera Bradley in this important role.
Now let's turn to the results.
From both the fourth quarter and the year, we are pleased that revenues were at the high end of our guidance and our gross margin rate exceeded our expectations.
In addition, expense management was a key factor in achieving our results.
Allow me to take a minute to highlight several of our fiscal 2018 accomplishments.
In the product arena, we reinvigorated and reinvented cotton, which remains the most important piece of our business, customers are responding to our newly introduced iconic cotton collection, featuring micro quilting added functionality and innovation and several new updated silhouettes.
We expanded our licensing program by launching technology-related products, swimwear, beddings, stationery, hosiery and medical uniforms, which is important to extending our brand and reaching new customers and markets.
We continue to see an extremely positive response from the market in terms of placement in both existing and new distribution.
For example, our smartphone cases are offered in 2,500 AT&T stores, and Vera Bradley bedding is available in over 200 Bed, Bath & Beyond locations.
On the distribution front, we launched our new re-platformed verabradley.com website, part of our Digital First strategy, which is key to our long-term growth.
In order to reduce clearance sales on verabradley.com, we created a new online outlet site and conducted our first 2 flash sales in October and January.
We continued to strengthen our store base by completing design upgrades on a number of our go-forward full-line stores with nearly 40 full-line stores now reflecting our new design aesthetic and an additional 14 stores featuring updated signage and fa\xe7ades; opening a new full-line pop-up store in Boston's Faneuil Hall, a high-traffic tourist destination; continuing to grow our factory business by opening 6 new stores; and rationalizing and improving the profitability of our base by closing 5 underperforming full-line stores and 1 underperforming factory store.
We also made the decision to exit our small wholesale presence in Japan to better focus on strengthening our core domestic operations.
In marketing, we increased brand awareness with our Digital First strategy by leveraging social media channels and partnering with key influencers.
We continue to strengthen our balance sheet by generating over $40 million in operating cash flow, increasing our cash and investment balance to nearly $140 million and reducing our inventory levels by 14%.
Most importantly, we laid out the framework for our future with Vision 20/20 and started the implementation, which is what I will discuss in more detail after <UNK> reviews our financial performance.
<UNK>.
Thanks, Rob, and good morning.
I'd like to discuss the quarter and the year.
Current and prior year income statement numbers exclude severance, store impairments, consulting and other charges outlined in today's release.
As a reminder, the current year fourth quarter and full year results included an extra week that contributed approximately $4.1 million in net revenue and an estimated $0.01 in diluted EPS.
Let me go over a few highlights for the quarter.
Current year fourth quarter net revenues of $132 million were at the high end of our guidance range of $127 million to $132 million.
Prior year fourth quarter revenues totaled $134.8 million.
Excluding charges, non-GAAP fourth quarter net income totaled $11.8 million or $0.33 per diluted share, at the high end of our guidance range of $0.30 to $0.33.
This compares to $10.1 million or $0.28 per diluted share last year.
Current year fourth quarter Direct segment revenues totaled $110.4 million, a 1.4% increase over $108.9 million in the prior year fourth quarter.
Comparable sales, including e-commerce, decreased 4.6% for the quarter, which was more than offset by new store growth.
As expected, Indirect segment revenues decreased 17% to $21.6 million from $26 million in the prior year fourth quarter, reflecting a reduction in the number of specialty accounts, coupled with a reduction in orders from both specialty accounts and certain key accounts.
Excluding charges, fourth quarter gross profit totaled $74.3 million or 56.3% of net revenues compared to $75.1 million or 55.7% of net revenues in the prior year.
The year-over-year 60 basis point improvement primarily related to reduction in product cost, which caused the percentage to be above our 55.4% to 55.8% guidance range.
Excluding charges, fourth quarter SG&A expenses totaled $57.1 million or 43.2% of net revenues compared to $60.2 million or 44.6% of net revenues last year.
SG&A expenses were lower than the prior year primarily due to diligent expense management and savings realized in conjunction with Vision 20/20.
The fourth quarter rate was modestly higher than the guidance of 42.8% to 42.9%, primarily due to the timing of savings associated with Vision 20/20.
Excluding charges, our fourth quarter operating income was $17.4 million or 13.2% of net revenues compared to $15.2 million or 11.2% of net revenues in the prior year.
Direct operating income was $26.8 million or 24% ---+ 24.3% of net revenues compared to $25.7 million or 23.6% of net revenues last year.
Indirect operating income was $7.6 million or 35.2% of net revenues compared to $9.4 million or 36.3% of net revenues in the prior year.
Now let's move on to the results for the full year.
Current year net revenue of $454.6 million compared to $485.9 million in the prior year and at upper end of our guidance range of $450 million to $455 million.
Excluding charges, we posted net income of $21.5 million or $0.60 per diluted share compared to $26.8 million or $0.72 per diluted share last year.
Our EPS was at the high end of our guidance range of $0.57 to $0.60.
Direct segment revenues totaled $351.8 million, a 1% decrease from $355.2 million in the prior year.
Comparable sales, including e-commerce, decreased 6.7%, which was nearly offset by new store growth.
Indirect segment revenues decreased 21.3% to $102.9 million from $130.8 million in the prior year, reflecting a reduction in the number of specialty accounts, coupled with a reduction in orders from both specialty accounts and certain key accounts.
Excluding charges, gross profit totaled $255.1 million or 56.1% of net revenues compared to $276 million or 56.8% of net revenues in the prior year.
The year-over-year 70 basis point decline primarily related to increased promotional activity in our factory stores, channel mix changes and the second quarter adjustment against slow-moving inventory, partially offset by product cost.
The full year gross profit rate was modestly higher than the guidance of 55.8% to 55.9%.
Excluding charges, full year SG&A expenses totaled $221.4 million or 48.7% of net revenues compared to $235.5 million or 48.5% of net revenues in the prior year.
SG&A expense dollars were lower than the prior year, primarily due to diligent expense management and savings realized in conjunction with Vision 20/20.
The SG&A rate was in line with our guidance.
Excluding charges, operating income was $34.5 million or 7.6% of net revenues compared to $41.9 million or 8.6% of net revenues in the prior year.
Direct operating income was $68.9 million or 19.6% of net revenues compared to $75.3 million or 21.2% of net revenues last year.
Indirect operating income was $37.1 million or 36.1% of net revenues compared to $51 million or 39% of net revenues in the prior year.
Now let me turn to the balance sheet.
Net capital spending for the fourth quarter and fiscal year totaled $2.9 million and $11.8 million, respectively.
Capital spending for the fiscal year was within our $10 million to $12 million guidance range.
During the fourth quarter, we repurchased approximately $1.6 million of our stock equating to 214,000 shares at an average price of $7.70, bringing the fiscal year total to $7.9 million equating to 934,000 shares at an average price of $8.47.
As of the fiscal year-end, we had approximately $13.4 million remaining on our share repurchase authorization.
Cash, cash equivalents and investments at year-end totaled $138.4 million compared to $116.5 million at last fiscal year-end.
We generated operating cash flow of $42.6 million in fiscal 2018, and we continue to have no outstanding debt.
We have carefully managed our inventories, and as a result, year-end inventory was $87.8 million, a 14.1% decline from $102.3 million at last fiscal year-end, below guidance of $90 million to $95 million.
Rob.
Thanks, <UNK>.
As we enter fiscal 2019, continue to implement Vision 20/20 and focus on getting healthy, we will be monitoring and reporting on 4 key elements: progress on restoring full price selling, retaining our customer base, delivering our SG&A and cost of sales reductions and cash flow generation.
As you know, Vision 20/20 is our aggressive plan to turn around the business over the next 3 years.
Vision 20/20 really is a three-pronged approach designed to restore brand and company health by: one, moving to a less clearance-driven business model; two, meaningfully reducing our SG&A expense structure; and three, continuing to focus on our product design and refining our creative process.
Innovation remains top of mind.
The first 2 areas are designed to get us healthy, but all 3 will lay the foundation for further growth of the business.
On the product and pricing front, we will focus on 3 key areas.
First, in February 2018, we began significantly reducing the amount of clearance product available on verabradley.com and in our full-line stores.
This will help to reset our customer's pricing expectations and restore our full price business.
Part of this strategy includes implementing a limited number of flash sale events throughout the year.
Second, we are focusing on our best performers and narrowing of our current product offerings by eliminating unproductive or incongruent categories and SKUs from our assortment.
For example, we are discontinuing fragrance and jewelry this year.
As we reduce clearance and narrow our offerings, inventory levels will continue to come down.
Lastly, we are focused on building tighter assortment guardrails around introducing new categories, patterns and pricing, assuring the right fit for our brand and that our products not only provide thoughtful solutions but also reflect our signature attributes of comfortable, casual and affordable.
We have thoroughly analyzed our historical pattern performance, determining the DNA and isolating the characteristics of our most successful prints.
Conversely, we have determined commonalities among our least popular patterns.
We are confident we can apply the findings from this comprehensive analysis to drive more pattern success going forward, and you should see these changes by fall of this year.
The majority of the product and pricing initiatives are being implemented this year, and we believe these changes will negatively impact our year-over-year revenues by $30 million to $50 million, which is reflected in our guidance of $405 million to $425 million.
Of course, we will continue to focus on stimulating full price selling through our top 10 styles, our solid business and our signature categories like Back to Campus and travel.
Innovation and adding new color, styles and silhouettes are key.
We will also continue to look for appropriate brand extensions through licensing opportunities.
We just announced our plans to roll out a licensed sleepwear and loungewear connection next year and expect to add even more categories in the future.
As we reduce revenues, we also expect to reduce annual SG&A spending by up to $30 million from our fiscal 2017 baseline spending of $236 million before severance, Vision 20/20 and other disclosed charges.
This expense reduction process began in the fall of fiscal 2018, and we expect that $20 million to $25 million of the annualized SG&A reductions will be implemented by the end of fiscal 2019, which is reflected in our SG&A guidance of $210 million to $215 million.
Reductions will come through rightsizing our corporate infrastructure to better align with the size of our business, lowering our marketing spend by focusing on efficiencies while keeping our most loyal customers engaged and taking a more aggressive stance on reducing store operating costs and closing underperforming full-line stores.
We are forecasting to close up to 45 additional full-line stores by the end of fiscal 2021, primarily as leases expire.
About 15 closings will take place this fiscal year, the remaining SG&A reductions will be made following fiscal 2019 and are primarily related to start closings in the out years.
As of year-end, we had 109 full-line stores and 51 factory stores.
We will open 6 new factory locations this year, 4 in the first quarter: Lake George, New York; Charleston, South Carolina; Baraboo, Wisconsin; and Gulfport, Mississippi; and 2 in the second quarter in Hershey, Pennsylvania; and Tinton Falls, New Jersey.
We have reduced cost of sales over the prior 3 years by shifting to lower-cost manufacturing, improved raw material sourcing and enhancing distribution efficiencies.
We believe there are incremental sourcing and supply chain opportunities in fiscal 2019 and beyond.
These savings can help offset the natural overhead deleverage that will occur as we reduce inventory levels and as our channel mix changes.
These factors are considered in our flat to slightly up gross margin guidance.
And <UNK> will provide more details on our outlook for fiscal 2019.
<UNK>.
Our guidance reflects Vision 20/20 and issues that Rob just outlined.
Keep in mind that all guidance numbers are non-GAAP.
Prior year non-GAAP numbers that I will reference exclude the severance to impairment consulting, tax reform legislation and other charges outlined in today's release.
Current year non-GAAP estimates exclude similar items.
For the first quarter, we expect net revenues of $84 million to $89 million compared to prior year fourth quarter revenues of $96.1 million.
We expect Direct segment net revenues to be down in the mid- to high-single digit range compared to the prior year, including a comparable sales decrease from, including e-commerce in the high-single-digit to low teen percentage range.
We believe our Indirect net revenues will be down in the mid- to high-teen range during the quarter.
We expect our gross margin will be flat to slightly up compared to the 54.8% in the prior year first quarter.
SG&A expense is expected to range from $51 million to $53 million compared to $56.4 million in the prior year first quarter.
We expect our first quarter diluted loss per share will be $0.08 to $0.10 compared to a $0.09 loss in the prior year first quarter.
We expect inventory to be in the $85 million to $95 million range at the end of the first quarter compared to $105.4 million at the end of the first quarter last year.
For the full year, we expect net revenues of $405 million to $425 million compared to $454.6 million last year.
Our revenue guidance assumes Direct segment net revenue to be down by high-single digits to a low teen percentage range compared to last year, with comparable sales, including e-commerce, down in the low- to mid-teen percentage range.
Indirect net revenues are expected to decline in the high-single-digit to low-teen percentage range for the full year.
Our gross margin for fiscal 2019 is expected to be flat to up slightly compared to the 56.1% last year.
We expect SG&A expense to total between $210 million and $215 million for the year compared to $221.4 million last year.
We expect diluted EPS, excluding charges, for the full fiscal year to range from $0.35 to $0.45.
Before charges, diluted EPS totaled $0.60 last year.
We expect to generate $40 million to $50 million operating cash flow in fiscal 2019.
We expect our net capital expenditures total $10 million for the full year, primarily related to factory store openings and continued technology investments.
Let me turn the call back over to Rob who will give us an update on our focus areas with fiscal 2019 and Vision 20/20.
Rob.
By continuing our focus on product marketing and distribution and by executing Vision 20/20, we expect that our business and brand will become healthier, operating performance will improve and cash flows will remain strong over the next 3 years.
We are laying the foundation for a stronger company and brighter future.
I am very optimistic about the future of our company.
The Vera Bradley brand is unique, strong and resilient.
Our loyal customer base continues to expand, and both license and international parties continue to show strong interest in our brand.
We look forward to returning to solid growth.
Operator, we will now open up the call to questions.
So as we think about the comp for the full year, I think it won't really have any disproportionate impacts for any particular quarter, <UNK>.
As you think about e-commerce, we'll ---+ we're ---+ we've been taking ---+ we're going to take clearance out of e-commerce, and it should have kind of ratably, over the course of the year, the same impact.
Yes.
<UNK>, a couple of things.
One, it is early, right.
We took most of that reduction just beginning in the first part of February.
So we're still looking at all of those results.
I will tell you, the one thing that we're keeping a very close eye on is watching the full price business and what we have seen, and which is reflected in our guidance is that we have seen an improvement in our full price trend.
As we've hit February and we've reduced the clearance, so we are seeing an upswing in the full price trend, which is encouraging.
But obviously, very early innings in this, but that's exactly what we're going to be monitoring as ---+ how we migrate the customer to our various channels as we go through this year.
Right now, we're taking a conservative approach when looking at kind of share repurchase.
We've ---+ as you know, we've bought back every quarter since we've had the share repurchase plan in place, and we still have about $13.4 million of authorization in place.
But as we work through Vision 20/20, we want to kind of see kind of how the vision ---+ the first quarter of the year kind of really goes, and then we'll continue to kind of look at kind of share repurchase program for the remainder of the year.
Thank you, <UNK>.
So a couple of things, as we look at comps, we know that this year, we'll be taking all of the clearance process, which is really suppressing the comp performance this year.
What we're going to be tracking very closely is the full price performance in our stores and verabradley.com, that, that's the first place that we would begin to expect to see the positive momentum.
And then as we get out of this year and move into next year, then obviously, we believe we'll be in a better position to move to a more positive performance in our direct channels.
We expect our direct channels will show the positive momentum before indirect just because the way the indirect channels will watch the performance.
We expect that our indirect partners are hoping to see their full price business begin to improve.
As they do that, we expect that their orders will get stronger in the back half of the year.
But a lot of those orders will not start shipping until the next fiscal year.
So we don't expect any meaningful change in trend in our indirect channel until we get into the next fiscal year.
Yes, <UNK>.
I'll start with your second one first, then I'll move to products because that will be a little bit longer conversation.
But on the online outlet so far, we have been happy with the initial performance.
And I would tell you, one of the things that we've been most happy about is our ability to use it to clear our excess clearance inventory in a very, very quiet manner.
So we are not publicly advertising the online outlet.
It's ---+ you have to know about it, you have to kind of be in our database, we're really focusing our solicitation to our customer base only on our hyper-promotional customers.
So it's really a very clean way for us to liquidate some inventory.
We have very strong rules in place internally on that.
We're going to hold and kind of cap the volume that we're doing on the online outlet because we do not want that to be a growth vehicle for the company.
It is just a liquidation channel for the company.
So we feel very good about the initial results and what we've seen in the customer base so far on that.
In terms of the product area, what to expect around product, a few things.
I think you're going to see us continue to bring innovation to market around fabrications.
It's been very interesting as we've gone through this journey over the last couple of years and watching what the customer's responding to, been a lot of interest in solid fabrics.
So our denim collection that we have right now is performing very well, our velvet collection we had in fourth quarter was performing very well.
And we believe that the solid classification continue to grow, but particularly in this whole fabric area.
So I think you'll continue to see innovation from us around fabrications.
You're going to continue to see real focus in the travel category.
We've really worked through and upgraded our rolling luggage program, and you're going to see as we roll out this year new products in that category, we expect travel to become more and more important for us.
And as we get into back-to-school, you're going to see more innovation in our Back to Campus business, a little bit wider backpack assortment, a little broader price point assortment, more excited about while the innovation is coming in Back to Campus.
And we do believe that this cotton category for us continues to be our foundation, our distinction.
And we're really excited about the prep work and because the prints are very important to us.
I think we've had erratic performance in our prints for a while, and so we spend a lot of time really analyzing that.
And we feel much more confident that we understand how to bring prints to market more successfully in a way that's very distinctive and very Vera Bradley right from the DNA heritage standpoint and very, very consumer focused on our different target customers.
So that's kind of a recap of what I would say around the product area.
Yes, great question.
I think 2 ways of answering it.
In terms of overall mix, we are adding kind of at all 3 levels.
There's certain things that we're doing on the top end.
Our rolling luggage obviously, is driving a much higher AUR than our average.
So we're ---+ that will be a positive push.
At the same time, we are looking at things like our backpack category where we think we've been missing an opening price point backpack.
So we will be introducing an opening price point backpack as we get to Back to Campus.
So in terms of the overall mix of the assortment, the AUR, from a ticketed standpoint, we don't expect a major movement.
But as we put more of the focus on full-price selling, we should expect to see the AUR improve.
So I didn't catch your first question.
But at the end of this year, I mean, we have about 45 stores to close over the next 3 years.
Ultimately, it's going to be about 15 per year.
I didn't catch the end part of your question.
Can you just repeat it.
Okay.
In the first part of your question, ultimately, we have ---+ each store that we close is not going to be a material amount of kind of revenue that will kind of ---+ we'll see come off the revenue line.
We'll be able to offset that roughly with our factory door opening.
So we would expect to see growth collectively from a comps store growth and out ---+ as well as total growth in years ---+ in Vision 20/20 outside of FY '19.
In regards to from a recapture perspective, we haven't seen any significant recapture any of our channels currently.
The one we've hoped to see the most recapture would be in e-commerce, but so far, we haven't seen a significant amount.
But just remember, we've only closed 5 doors, so it hasn't been a significant sample size yet.
That's a great question.
As we ---+ I'll start with the second half first in terms of where we were successful because that will help explain the future.
One thing we definitely did find over the last few years as we pursued the different marketing programs and the product expansion, we were seeing the best growth in kind of that 20- to 35-year-old area, but not in a significant way to totally change the mix of our consumer.
So we continue to have a very, very broad consumer base, definitely overpenetrated young, little underpenetrated in the 20 to 35, been a little overpenetrated again in kind of the 40 plus.
But we're going to continue to really focus on this multigenerational aspect of our brand.
So we still will be targeting this 20- to 35-year-old customer, but at the same time, making sure their advertising is much more kind of multigenerational.
So I would expect to see a lot more from that ---+ from us as we go out through the year.
In terms of ---+ overall, from a products and assortment standpoint, one thing we did find is we just need to make sure that this casual, comfortable, affordable lifestyle is really key, and that's key to both our younger customer, our kind of 20- to 35-year-old customer and our older customer.
They all are looking for something that really has a more casual bit to it, has an affordable bit to it.
And one thing we learned is we looked at things like our leather business that we've been working on is that our most success in leather was when it was really focused on looks that were a little bit more casual, a little less dressy, kind of the sharper price points.
And that's a great area of learning for us.
So I think you're going to find that our assortments are just going to be much more consistent, much more focused as we move through this year.
Well, thank you for joining us today.
And we look forward to speaking to you on our first quarter call on June 6.
| 2018_VRA |
2015 | ILG | ILG
#Thank you, operator, and welcome to everyone joining us today for Interval Leisure Group's third-quarter 2015 earnings conference call.
I want to remind you that on our call today, we will discuss our outlook for future performance and other items that are not historical facts.
These forward-looking statements typically are preceded by words such as, we expect, we believe, we anticipate, or similar statements.
These forward-looking statements are subject to risks, assumptions and uncertainties, and our actual results may differ materially from these forward-looking statements and the views expressed today.
Some of these risks have not been set forth in our third-quarter 2015 press release issued earlier today, in our 2014 Form 10-K, and in other periodic reports filed with the SEC.
In addition, ILG disclaims any intent or obligation to update these forward-looking statements, except as expressly required by law.
We will also discuss certain non-GAAP measures in connection with ILG's performance.
I refer you to our press release posted on our website at www.iilg.com for comparable GAAP measures and full reconciliations.
In connection with the proposed merger between a fully owned subsidiary of ILG and Vistana, ILG intends to file with the SEC a registration statement on Form S-4 containing a proxy statement prospectus ---+ which we urge you to read, along with other relevant documents filed with the SEC.
Because they will contain important information about the proposed merger.
And now I'd like to turn the call over to <UNK> <UNK>, our Chairman, President and CEO.
<UNK>.
Thanks, <UNK>, and good afternoon to everyone.
Thank you for joining us for today's discussion of Interval Leisure Group's third-quarter 2015 results.
Before we get into the specifics for the quarter, I'd like to first discuss our Vistana transaction.
As you all know, on October 28, we announced an agreement to acquire Vistana Signature Experiences, the vacation ownership business of Starwood Hotels & Resorts Worldwide.
This transformational combination will create a leading, integrated, shared-ownership Company that has the scale, financial strength and product portfolio to excel, and drive value for shareholders and clients alike.
Together, we will have an expansive portfolio of approximately 200 managed vacation ownership resorts, encompassing over 500,000 owners and more than 11,000 employees.
With an even more diverse offering of leading properties and broader geographic reach, ILG will be stronger than ever, both financially and in our ability to thrive in a rapidly evolving industry.
We have posted supplemental materials about the transaction on our website, and I will say more about the acquisition later in the call.
So let me first review our results for the quarter.
ILG reported both top-line and adjusted EBITDA growth in the third quarter.
Total consolidated revenue was $174 million, an increase of almost in 19% year over year, and up 11.7% excluding pass-through revenue.
Adjusted EBITDA increased nearly 7% in constant currency, to $47.4 million.
Our Exchange and Rental segment revenue was $124.9 million, an increase of 3.9% from the comparable period last year.
This increase is attributable in large part to their branded membership and exchange business at the Hyatt Residence Club, acquired October 2014, as well as a 5% increase in rental management revenue earned from Aqua-Aston.
In our Vacation Ownership segment, third-quarter revenue was $49.2 million, up 85.7% from the prior year.
This substantial increase reflects the inclusion of Vacation Ownership sales and financing, pass-through and management fee revenue related to the Hyatt Vacation Ownership acquisition.
The management fee increase was partially offset by the foreign currency impact of translating results of our European Vacation Ownership management business into US dollars.
On a constant currency basis, total revenue and revenue excluding pass-throughs for this segment would of been up 94% and 67%, respectively, for the quarter.
Now, I'll provide some highlights related to our Exchange and Rental segment.
Vacation ownership resort development is increasing.
In fact, several prominent affiliated developers have new projects in progress, and our efforts to bring on new members and inventory from developers and HOAs continued to benefit the Interval Network.
The member retention rates remains at 90%, and new members entering the system from developer point-of-sale increased over 16% compared to the prior year.
During the third quarter, we added 20 resorts to the Interval international network, including two resorts representing two different brands offered by Mexico-based Grupo Vidanta, a leading developer of luxury properties in Latin America.
Our network now has a total of eight Grupo Vidanta resorts, with more than 900 units, including Grand Luxxe, Grand Bliss, and The Bliss properties.
We also added properties in Brazil, Barbados, Ecuador and Italy, as we continue to target exciting exchange step nations around the world.
In October, we announced that a subsidiary of Tropicana Entertainment selected Interval to serve as its exclusive vacation exchange and benefits provider as it launches timeshare sales at the Tropicana Aruba Resort & Casino.
We are delighted to have been selected as Tropicana's exchange partner for their entrance into the timeshare arena.
Rental management revenue earned for managed hotel and condominium resort properties at Aqua-Aston increased by 5% in the period, and combined RevPAR was in line with the prior year.
On a Hawaii-only basis, RevPAR increased 1.1%.
While Waikiki market continued to face challenges, Maui and Hawaii performed particularly well this quarter, with RevPAR increases of 11.3% and 6.9%, respectively.
Moving on to the Vacation Ownership segment, during the quarter, VRI signed management agreements for properties in North Carolina and Vancouver British Columbia, and continues to be a steady contributor.
VRI Europe has also performed well, although it was impacted by the appreciation of the dollar and against the euro and the British pound.
In fact, VRI Europe's adjusted EBITDA is up about 8% on a constant currency basis, both for the third quarter and the nine months ended September 30.
With regard to Hyatt Vacation Ownership, total net contract sales for the third quarter increased 16.4% from last year, driven by our Maui sales operation.
Overall, VPG was $3,374, and the average transaction price was $32,500.
Hyatt Residence Club carries a stellar brand and is a tremendous platform for growth, as evidenced by 42.9% and 35.1% increases in Maui net contract sales, respectively, for the third quarter and nine months.
However, performance at the consolidated properties has not met our expectations.
Consequently, we recently added an SVP of Sales and Local Marketing with nearly 25 years of branded vacation ownership experience, to lead our efforts in rebuilding the sales and marketing infrastructure at these properties.
These initiatives will include incorporating more experienced personnel in sales and marketing at the site levels, as well as investing in additional marketing channels.
We believe that these are smart strategic investments, which we are confident will drive meaningful improvement, and ultimately, substantial growth in this business.
However, these investments for the future will have some impact on us in the near-term.
<UNK> will address this point as he walks you through the guidance for the remainder of the year.
As we have mentioned previously, HVO sales are predominately to new buyers, which represented over 75% of contract sales for the quarter, and over 78% year to date.
We would expect a higher percentage of sales to existing customers over time, as we ramp up activity at the consolidated properties and prepare for the rollout of the Pure Points Club at the end of 2016.
After <UNK> walks you through the financials, I'll describe in more detail our plans to grow the business going forward.
<UNK>.
Thank you, <UNK>.
Good afternoon, everyone.
As you know, all of our comparable results reflect the inclusion of the Hyatt Vacation Ownership businesses.
For the third quarter of 2015, consolidated revenue was $174 million, a year-over-year increase of 18.7%.
Excluding pass-throughs, consolidated revenue was up 11.7%.
Currency fluctuations continued to impact our business, although not as adversely as in previous quarters.
On a constant currency basis, consolidated revenue increased 20.4% to $176.7 million, and excluding pass-throughs, increased by $16.9 million or 13.9%.
In constant currency, diluted EPS was $0.34, and adjusted EBITDA was $47.4 million, up 6.7% from the prior year.
Looking at our segments, Exchange and Rental revenue increased by 3.9% to $124.9 million.
Excluding pass-throughs, segment revenue was up 1.6%.
This increase is due to incremental revenue attributable to our Hyatt Residence Club business, which drove an increase of $2 million in other revenue.
Our rental business reported a 5% increase in revenue over the prior year.
Pass-through revenue of $23.7 million in the quarter was higher by $3.1 million, attributable to incremental property management contracts and an increase in employee-related costs.
At quarter end, Interval Network membership count was flat year over year, and consisted of approximately 58% traditional memberships, compared with 59% in the prior year.
Total transaction revenue of $46.7 million was relatively consistent with the prior-year figures, while membership fee revenue of $31.3 million and the average revenue per member of $43.83 declined to 2.1% at 1.7%, respectively, compared to the prior year.
On a constant currency basis, average revenue per member was down slightly from last year.
With regard to our vacation rental business, we had 754,000 billable room nights, relatively flat from last year.
Rental management revenue increased 5%, and RevPAR was $123.86, consistent with last year's third quarter.
Hawaii-only RevPAR increased 1.1% to $128.48 in the quarter.
Driven by a 3.8% increase in ADR, it was partially offset by a 2.6% decrease in occupancy compared to the prior year.
As mentioned previously, we've re-cast the prior-year RevPAR figures, due to change in industry reporting standards and other calculation adjustments.
The Vacation Ownership segment contributed revenue of $49.2 million versus $26.5 million for the third quarter of 2014.
The 85.7% increase reflects $9 million of Vacation Ownership sales and financing revenue, and $10 million in pass-throughs entirely related to the HVO acquisition, as well as $3.69 in management fee revenue.
On a constant currency basis, total revenue for this segment would have been $51.3 million, up 94%, and revenue excluding pass-throughs would have been $36.9 million, up 67%.
Sales and financing revenue excludes the contribution from our unconsolidated joint venture in Maui, which added $1.3 million to the third quarter's adjusted EBITDA.
Consolidated gross profit for the third quarter was $98.4 million, an increase of 12.2% from 2014.
Consolidated gross margin contracted to 56.6%, primarily due to increased contribution from the lower-margin Vacation Ownership segment.
Selling and marketing expense increased $3.3 million or 22.5% compared to the prior year, due to the costs associated with our HVO sales and marketing efforts.
General and administrative expenses increased $8 million, primarily due to the inclusion of HVO in our results.
Third-quarter depreciation and amortization was $7.9 million, up $1.3 million, which was primarily due to the HVO acquisition.
Interest expense was $6.49, up $4.9 million from last year, related to the funding of the acquisition, and a higher interest rate on the $350 million of senior notes issued in April.
Net income attributable to common stockholders through the third quarter was $19.1 million, a decrease of 10.3% from last year, driven by higher interest expense.
Adjusted net income and adjusted diluted earnings per share in constant currency were $19.5 million and $0.34, respectively.
The incremental after-tax interest expense related to senior notes negatively impacted adjusted diluted EPS by $0.06.
Excluding this incremental interest expense, and in constant currency, adjusted diluted EPS would of been $0.40.
In constant currency, consolidated adjusted EBITDA for the quarter was $47.4 million, up 6.7% from the prior-year period.
This consists of $39.4 million from Exchange and Rental, up 1.5%, and $7.9 million from Vacation Ownership, up 43.2%, compared to the third quarter of 2014.
On the balance sheet, as of September 30, we had $101.4 million of cash and cash equivalents, of which $72.4 million is held by foreign subsidiaries.
Net cash provided by operating activities increased to $135.4 million in the nine-month period, from $91.5 million last year.
This increase was principally due to higher net cash receipts from the addition of HVO operations, lower income tax payments of $14.2 million, and lower net payments of $11 million made in connection with long-term agreements.
Net cash used in investing activities for the first nine months of 2015 was $13.5 million, primarily related to capital expenditures, mostly for IT initiatives.
This compares to $15 million in the prior year.
Free cash flow for the first nine months of 2015 increased by 58.2% to $122.1 million.
During the third quarter, ILG paid $6.9 million or $0.12 per share in dividends.
The next dividend payment of $0.12 per share will be on December 16 to shareholders of record as of December 2.
As you recall, we completed a 144A offering of $350 million of 5 5/8% senior notes due in 2023.
Interest is paid semi-annually in arrears on April 15 and October 15.
Borrowings outstanding under the revolving credit facility amounted to $75 million as of September 30, with approximately $520 million available to be drawn.
As you begin to think about next quarter, I want to remind you that the fourth quarter of 2014 included recognition of all pre-construction sales on our Maui joint venture, totaling approximately $4 million in adjusted EBITDA.
In addition, that quarter was adversely impacted by $1.5 million in purchase accounting adjustments.
Turning to our guidance for full-year 2015, as <UNK> mentioned, we are taking steps to overhaul HVO sales and marketing efforts at the consolidated properties.
Consequently, we are adjusting the top end of the guidance range we had previously provided.
We currently expect that revenue will be between $690 million and $700 million, and that adjusted EBITDA for the year will be between $182 million and $186 million.
At the same time, we are increasing our cash flow guidance to a range of $105 million to $115 million, resulting primarily from a decrease in projected 2015 CapEx.
The revised range for CapEx is 3% to 3.5% of consolidated revenue.
It is important to note that ILG's fourth-quarter cash flow is traditionally lower, from a seasonality standpoint.
Additionally, there are a number payments to be made in Q4, including interest on our bonds.
As you look at the forecast, please keep in mind that ILG has been adversely impacted by $9 million in revenue and $3.1 million in adjusted EBITDA year to date, as a consequence of currency translation.
In addition, purchase accounting has negatively affected adjusted EBITDA by about $1 million so far this year.
I'll now hand the call back to <UNK> for some closing remarks.
Thanks, <UNK>.
Overall, we've made progress growing our business and strengthening our balance sheet in 2015.
As you know, the recession and resulting consolidation of the industry materially changed the shared ownership landscape over the past five years, and we have been in the process of redefining ILG's position in this evolving market.
We believe we are taking the necessary steps to position the Company for a meaningful increase in both the top and bottom lines.
We are a stronger Company today, with a clear path to sustainable long-term growth.
This is something that we could not have said five years ago.
This brings us to our Vistana acquisition.
While we will be providing additional information in the Form S-4 expected to be filed in December, I will now walk you through the supplemental set of slides I mentioned earlier.
Let me start by spending a moment discussing how we got here and where we intend to go.
We have been steadfast in our strategic initiatives to drive growth.
First, grow revenue, adjusted EBITDA and cash flow.
Second, achieve strategic diversification.
And third, optimize our organizational structure.
Our acquisitions of Hyatt Vacation Ownership and now Vistana support each of these objectives.
The Vistana transaction makes a great deal of sense financially, strategically and as a platform for long-term organic growth, enhancing our attractiveness as an investment opportunity for our stockholders.
Now specific to the slides, as you will see on slide 4, this combination gives us an even stronger platform to drive significant shareholder value creation.
With the acquisition of Vistana, ILG will be anchored by a more flexible financial profile and multiple robust growth engines.
And we will be strongly positioned to capitalize on emerging trends in the industry.
By any measure, we are creating a stronger, more competitive Company.
We will have the global master licenses in vacation ownership for Westin, Sheraton and Hyatt, three of the top upper-upscale brands in hospitality.
We will have improved scale, global reach, assets, inventory, and sales and marketing infrastructure to support increased growth.
And this will be complemented by an enhanced financial profile, with a strong balance sheet and substantial free cash flow from recurring fee-for-service revenues, such as management fees and exchange and club revenues.
In addition, although we already have a strong dividend policy, we will continue to evaluate additional opportunities to return capital to shareholders over the long term.
Following this acquisition, ILG's revenue streams will be even more diversified.
And while we continue to focus on asset license fee for service business lines, the Vistana acquisition will enable us to immediately capitalize on revenue and profit growth opportunities.
Additionally, it's important to remember that this will not be a patchwork of businesses.
There are significant strategic benefits to the transaction, including substantial achievable cost and revenue synergies.
Through the combination and seamless integration of ILG and Vistana, we expect to achieve approximately $21 million in annual synergies three years from closing, and approximately $26 million in year five.
These will come from a combination of ILG's global corporate infrastructure and proved utilization of the standing inventory through existing ILG channels, and increased penetration of membership programs to Vistana customers.
Furthermore, the combined Company will be naturally leaner through normal-course attrition efficiencies and rent consolidations.
Slide 5 gives further detail on the value of the key assets included in the Vistana transaction.
An important component of the value is in the net unsecured [ties] receivable, totaling $415 million as of September 30, 2015, which we believe can be quickly securitized to obtain approximately $375 million in cash, based on a 90% advance rate.
Cash from securitized receivables is expected to be the primary source of financing the plan developments.
Future development will be executed in a capital-efficient manner, using pre-construction sales and phased construction.
Near-term growth will be generated primarily from sales produced by approximately $240 million of inventory in high-quality resorts with proven track records.
This includes the commencement of Nanea, the third phase of the Westin Kaanapali Ocean Resort, which recently started sales.
As many of you are aware, we are also receiving five resort hotels in world-class destinations valued at approximately $200 million, which we intend to convert to timeshare properties.
For future development, Vistana currently has $30 million of land in exciting destinations.
Sales will be conducted through 14 existing sale centers, with six more to be added over the next three years.
I would like to point out that in 2006, Vistana generated $739 million in VOI sales.
Slide 6 highlights the approximately $5.5 billion in expected sales value of Vistana's embedded inventory.
You heard this number when we announced the deal, but I want to shed some additional light here.
The sales are expected to be generated from the inventory on hand and embedded in Vistana's completed projects, estimated at $1.2 billion, as well as expansions of existing resorts and those currently in development, such as Nanea, estimated at $3.1 billion.
Sales from conversions of the five transferred hotel properties ---+ the Westins in Cancun, Puerto Vallarta and Los Cabos, and Sheratons in [Hawaii] and Steamboat Springs ---+ are estimated at $1.3 billion.
Turning to slides 7 and 8, you can see here some new financial detail about Vistana, beyond what we disclosed when we first announced the transaction.
What these numbers show makes it even more clear that we are not just acquiring a great portfolio of high-end resorts, we are gaining a business that delivers and is poised to achieve even greater financial performance moving forward.
Modified adjusted 2015 EBITDA is forecasted between $140 million to $145 million, based on 8% to 10% contract sales growth and increased ADR and occupancy in resort operations.
Said 8 shows two scenarios, one based on Vistana's 2015 expected growth rate, and another based on a higher growth rate fueled by the embedded $5.5 billion in potential sales I recently mentioned, and the six new distributional points to be added over the next three years.
In 2018, these scenarios would result in approximately $185 million to $220 million of modified adjusted EBITDA, which includes targeted synergies.
So you can see why we're so excited about this business combination and the opportunities that lie ahead for ILG.
The transaction, which is expected to close in the second quarter of 2016, will fortify our foundation for long-term sustainable growth, anchored by a strong pipeline of new resorts and future phase opportunities.
With that, operator, please open the call for questions.
Hi, <UNK>.
Well, definitely no cap and no collar in terms of valuation.
If they take a look at these assets and some of the numbers that we have we've posted today, and I think you can come to a valuation that is, indeed, something that we feel is very good.
I think if you take a look at what we are expecting moving forward and you add ---+ if you have $415 million of unsecuritized receivables, you've got $200 million value for the properties that are being transferred, and you've got a whole host of other assets that are on the balance sheet.
I think you can come to a conclusion that it was the kind of deal that makes sense.
So we're talking about the consolidated properties.
The Maui joint venture, we have a strong sales team and very robust marketing channels.
And so if you see how much the sales have gone up year over year, we've got 42.9% for the quarter, and 35.1% year-to-date Maui increases.
But the consolidated properties, we need to invest in people and marketing channels, and that's what we're doing.
We brought in a very experienced SVP of Sales and Local Marketing.
We're investing in people and in marketing channels.
And we believe it's just a bump in the road, and that we will ---+ with the right kind of focus, like has happened in Maui ---+ we will be able to bring that business around very well.
The $5.5 billion in expected sales value does not include the additional land that I mentioned, with the $30 million.
And yes, we will.
The Vistana team has not really focused on fee-for-service deals traditionally, but it's something that we're going to look at moving forward.
I think there's the opportunity there with the sales and marketing distribution platform that they have.
But the $5.5 billion in expected sales value is something that we're looking at, developing ourselves on the basis of that it's a capital-efficient kind of deployment, with projects that are additional phases of existing projects, conversions of properties, as well as inventory that's already built.
The Hyatt Pure Points Club is projected to be launched at the end of 2016.
Sheraton has a similar program that they rolled out not that long ago.
So it's quite similar to that.
And it is Hyatt-only that we're talking about.
Were not talking about the Maui project.
So we could envision having a Pure Points club for some kinds of inventory, but yet having the home-week preference that we have in Maui for other kinds of destinations.
That's what Westin has today.
In terms of fee-for-service, we will look at that.
Clearly there's opportunities to do a variety of kind of capital-light structures, whether it's just-in-time inventory, or whether it's fee-for-service.
You have to take a look at where is your most accretive transaction, where can you drive in the best return on your money, as well as absolute EBITDA contribution.
And you've got to measure of those things at once and make decisions around it.
But clearly we are open to all kinds of structures, and have had people reaching out to us for discussions around it as well.
Thank you.
Well, I hope you can see why we are so excited about the future of ILG.
I want to thank you for your questions and participation on today's call.
We appreciate your continued interest in ILG, and look forward to seeing you soon.
Operator, please conclude the call.
| 2015_ILG |
2016 | PWR | PWR
#<UNK>, we ---+ and it's a good question.
We will continue ---+ we have and will continue to make adjustments, yes, if transmission doesn't materialize in the second half of the year.
We expect margins to continue over time to get back to the 10% range.
Canada is a big issue right now, Canada is challenged.
We do have less big projects going on right now, especially compared to the first half of last year.
The mix of smaller projects to larger projects is certainly back to levels that we had in 2010.
With that said, we have significant amount of transmission in backlog that we will need to execute on in 2017.
We have to maintain some of our core capabilities, and not be short-sighted.
We've got that large project, the West Mac project that we've got to execute on; the concession we won in Alberta.
Again, we're very early still on the [Navpor] job, and we expect other awards to come out that will be sizable in the coming years.
I don't want to be shortsighted and cut all of our capabilities; but we do have a sense of urgency to return margins to historical levels, and we will continue to make necessary adjustments.
We have and will continue to make necessary adjustments to improve margins over time.
Yes, thank you.
Good morning.
Well, I don't think there's any one answer to that.
I think we book backlog every day.
We've taken that into account when we evaluate our uncommitted business, and everything that we do.
The day-to-day book and burn work, and the large-project environment.
I think one of the key things that I mentioned today is that on your more volatile projects where backlog is ---+ you have the less visibility on backlog or your larger projects ---+ we've assumed very little uncommitted electric transmission large projects at the mid-point of our guidance, and we're comfortable that we have on the mainline guidance at the mid-point, that we have they work booked, or either in 12-month backlog recently booked in the first quarter, or that we're in final negotiations on projects, and that's your mid-point.
I think the other work is really book-and-burn work in areas of our business that have been accelerating over the last several years, and we don't expect any change in the sub-transmission business, the electric distribution, and our LDC business, all of that equates to probably half of our consolidated revenues.
That business continues to accelerate, and that's your day-to-day work that you probably have less committed, but you book that every day.
That momentum continues, as well.
Yes, my earlier commentary I think was based upon the fact that we do have such a seasonal ramp, we do think we'll have a draw of capital out of the business to support that growth.
I think that you'll see the levels of debt continue to increase on average balances between first quarter into the second, into the third, as we set up to fund the working capital that would be required to maintain that growth.
Fourth quarter's going to be highly dependent.
It's normal seasonality since the fourth quarter would roll down some, and would therefore be a strong cash-flow period, much like you saw in the fourth quarter of this year.
But the timing of when that can happen is very difficult to predict.
I do believe that ultimately we will have free cash flow, but I think you will see most of it being very back-end loaded and highly seasonality dependent.
Yes.
I think we will continue to book backlog.
Takeaway capacity is needed, whether it's oil or natural gas.
There's some markets that you hear that they don't need pipeline.
I can certainly understand that in some of your liquid play shales.
But we have customers that have a need to move liquids out of regions to either refining centers or load centers.
In this environment, it actually reduces the cost, because they cannot move enough product by pipe, it's stranded.
They're having to move it by rail.
Rail looks really costly right now in this environment.
Both liquid ---+ there is a need for liquid and natural gas takeaway capacity, and you will continue to see backlog grow in those areas.
In certain regions, you will see pipeline capacity grow.
Or the need for pipeline capacity ---+ like from the Canadian oil sands.
There is a desperate need to build takeaway capacity by our customers.
All right, well thank you.
I would like to thank you all for participating in our fourth quarter 2015 conference call.
We appreciate your questions and your ongoing interest in Quanta Services.
Thank you, and this concludes our call for today.
| 2016_PWR |
2016 | HSC | HSC
#Yes.
We think ---+ the amount that we estimated that would have been in 2016 that's getting pushed into the later period is about $7 million ---+ the operating ---+ it's $70 million of revenue and equivalent amount of margin at the operating income, sorry, I misspoke.
So, that's being pushed from what would have been in 2016 and into 2017.
Yes, we were thinking that would be high single-digits margins.
I'm sorry, please speak ---+
Yes.
I'll just ---+ the contract churn, if you will, for the quarter was $23 million of revenue and negligible at the operating income level.
Just remember, with the full year, it was revenues of about $76 million and the impact was of $10 million at the operating income.
We expect that $10 million figure to translate similarly into 2016, about the same revenue number too.
I mentioned, our net debt position at the end of this past year was $831 million.
Our ratio was 2.8 times.
So I expect to make a meaningful debt reduction with the improved cash flow position we have, as well as change in the dividend strategy.
So I'm looking for a $20 million to $50 million reduction in net debt by the end of the year.
Now, we didn't talk about ---+ there's obviously other levers we can pull and we will consider them as we need to, not the least of which is a discussion each quarter that we consider relative to our ability to pay our Brand payment in kind or cash.
Yes, most of the inventory build that I was referring to is all related to in fact these contracts with SBB.
As you'll recall in 2014, we received some sizable advances.
We began the inventory buildup over the course of this past year.
That of course will continue.
So that's really the lion's share of inventory buildup I was referring to.
Yes, <UNK>, I don't actually see us exiting our position.
We remain very optimistic for the prospects of that business.
As much so as we did when we inked the deal over two years ago.
As <UNK> noted, one thing we will consider and we consider every quarter is whether we make a payment toward venture partner in cash or allow ourselves to be diluted somewhat.
So that's a decision that we will make quarter to quarter.
A wholesale exit of our position is really not contemplated.
Thank you.
So we have been talking about our backlog throughout the year.
We started the year with a very strong backlog, as we've discuss each quarter, we've continued to deliver on that backlog, which certainly and we were sort of experience that indications that the business was declining.
With our lag ---+ with the lead time associated with our business, it's usually six to 12 months in advance.
So, we have seen this coming throughout the year.
I think we are experiencing it full time now.
I forget your second question, I apologize.
What was your second ---+
Yes, we are expecting the situation as exist today to more or less continue as it is today.
We don't expect any meaningful improvement.
Frankly, we don't expect any ---+ we're not anticipating any significant deterioration.
Just to add to that, even if we did see an improvement in oil prices given the lead times that we have on the Air-X-Changer product as well as the inventory that's in the channel today, it's unlikely that we see much left in our business this year.
We are seeing growth there.
As you know a quite a small business.
We have introduced a number of new products there.
We have taken inventory out, it's really a very good story.
Of course since largely goes into nonresidential construction, hospitals and education and help so forth.
That business we expect to grow this year.
Yes.
You know historically seasonality of our business is such that the first half and in particular first quarter is our weakest quarter of the year.
So where we see the traditional improvements, it's just seasonality driven through Rail and Industrial and all the businesses frankly as the orders increased.
But we also will start to realize the full-year benefit of the cost reduction initiatives that we've taken in Metals from Project Orion in Orion's Phase 2 and Phase 3, as well as the corporate cost reductions that we have planned for as well.
So it basically reflects the full-year picking up those benefits in the second half.
Honestly, there's not a lot to share.
We spend a lot of time getting ready for the process.
We have had some discussions.
We don't have a strong view yet on a spin versus a sale.
I think the most important message certainly as we are very committed to this process and remain convinced that it's a key lever to unlock value for our shareholders.
Yes, we have been talking about the potential for contract tenders and awards predominantly in Europe and India including the UK by the way in that category.
So when I was referring to tenders that we hope to hear conclusions on in the near-term, I am looking mostly towards Europe.
Yes, at least one of the ones I'm referring to is of the magnitude that absolutely similar in size to one of the SBB contracts, yes.
| 2016_HSC |
2017 | VAR | VAR
#Yes, the good guy was Emory.
The actual ---+ we do have a difference on currency.
We actually think that's a point to the bad for us.
It doesn't ---+ it's not a good guy for us.
It's about 1 point the other way.
And then the other 2, maybe 3 that we got that I mentioned briefly on the call, is this growth in our emerging market backlog.
And as I said, that's about a 3 to 6-month longer cycle to revenue than our, say, our U.S. backlog.
Second, we did see in the quarter a little bit of U.S. backlog pushout, just call it 4, 5 units at the end of the quarter.
And then this one is anecdotal and it's tough to quantify, but I do think we have a little bit of folks doing some look-see on Halcyon, and what should I think.
How do I play this.
And the good news is the order rate's chugging along right where we'd like it to be and we feel good about that.
And we feel great about the Halcyon introduction and where it's going.
And we might have a little bit of that kind of globally.
So having said that, that didn't pause anything in China for 2 seconds.
They just had a banner quarter, and we feel really good about our China team and what they're doing.
We're seeing success in both the public market and the private market, and just really establishing our leadership position in China.
Yes.
And just to put a finer point in the currency side, currency in the quarter's probably 10, 12 to 15 million dollars of a revenue headwind, given our exposure in the euro, sterling and yen, broadly speaking.
It's pure mix.
Yes, and we're not seeing that.
As I said, we're seeing about 300 basis point increase year-over-year in our emerging market portion of the backlog.
And as that flows through, it's flowing through a little ---+ it's just a bigger mix.
We're not seeing any lengthening of the emerging market transition to revenue.
What we like about Halcyon is it\
I think the ---+ you've seen a month ago, CMS ---+ 4 weeks ago, CMS published their guidelines for this next year.
I'd say that very little changed.
So at least as it's executing, as we see it executing for kind of fiscal year '18, we don't see much change in the reimbursement scenario.
Longer term, I think we've been pretty consistent about this.
We think that there'll be some bundling options that are put forth.
It will be interesting to see how those go.
We have not had any negative feedback from customers in the U.S. as to their reimbursement model they're seeing from CMS here recently.
So at least as it's impacted our comp, outlook here over the next year, we don't see much change.
After the long term, how does value-based pricing impact radiation therapy.
I'd just point out that, that's how we compete in every other market in the world.
And we compete on a very good basis that radiation therapy remains one of the most cost-effective approaches to cancer care.
The economics of radiation therapy are very favorable at that level.
It is how we compete outside of the U.S. Change is always the hard part, and when that change comes, I have no doubt there will be some hesitation in the marketplace as people kind of figure out what the new models mean.
But I think in the long term, it actually is a positive for radiation therapy.
And oh by the way, the other factor in there is that we'll also ---+ the trends to shorter fractionation, SBRT, SRS, will continue.
And that's a share opportunity for us because we're the best in that game.
None whatsoever.
I haven't seen or heard a whisper on that.
Other than a lot of noise coming out of Washington.
We can talk about that for a long time.
But our customers are head down, plowing ahead.
I\
You know what, I don't think it's a one-off.
I think there's more of it out there.
I saw a number, I don't remember it, but there's like 600,000 pets in San Francisco and 60,000 children.
And so one population is growing more than the other.
We ---+ we're excited about this.
It's the first 6.
I don't ---+ this isn't going to be what drives our business.
But I do think there's some incremental opportunity there.
And we're very excited to be partners with PetCure.
And it is interesting.
The statistics, there's 180 million pets in the U.S. and 12 million diagnosed with cancer, so ---+ which happens to be almost exactly the same number of patients that are diagnosed with cancer in the U.S.
I did say it's aspirational.
That's where we want to go.
When we look at our 12 months trailing, we're ---+ what is it, <UNK>, 3.5%, 4%.
3%.
3%.
3%, 12-month trailing.
You look at the last 3 quarters, a little north of that.
We've got a new product.
So that's kind of what we're to driving to.
I think that we've got the usual clouds on the horizon in terms of the reimbursement in U.S. We talked about FXs.
We've had other times when we've done really well, but had to give a lot of it back in FX.
So there's some risk.
But aspirationally, we've got ---+ as we were in New York, we talked about our software opportunity.
Can we grow that over 5 years to a $900 million business.
We've got good ---+ our portfolio has never been broader, never been deeper, Halcyon opening up some new market that we think is incremental.
It's going to take us a while to execute on that, but that's where we're driving to.
I think we're in really good shape.
I mean, we have, over the last 3, 4 years, we've made significant investments in China, in India, in Brazil.
We've also invested very heavily in a market development resource and government affairs.
A lot of these opportunities are government opportunities.
So as we look at these markets, one of the things we're encouraged by is, at least at this point, I don't think I have to go out and make a big sales investment.
I think we've got pretty good coverage.
And for where these markets are, we're in pretty good shape.
Great.
And maybe one for <UNK>.
You've had a few months under the hood.
And if we think about nonoperational items, tax rate, hedging, is there any low-hanging fruit you could identify that you think are ripe for improvement.
And then maybe how we should be thinking about the pacing of those (inaudible).
Yes, I would tell you that it's working capital is the opportunity.
And our ability to think about capitalizing on Halcyon and the working capital benefit of time to value for our customers and our patients as well as in our balance sheet.
Along with some just good old execution.
And that, coupled with, I think, working our way through the right amount of detail and rigor as we think about interacting with our customers day in and day out to make it easier for them to take a bill from us and turn that into an actual payment.
So it's good, old-fashioned execution on the working capital line, I think, is our biggest opportunity after I've been under the hood here for 90 days.
I haven't seen any data, so this will be a little bit from the hip.
I'd say we haven't seen ---+ maybe a little bit of change in Japan.
That market's been tough.
And otherwise, I'd say kind of Brazil ---+ I don't know think if that's a change.
It's kind of been that way for the last 3 or 4 quarters.
So I don't know that Brazil's a change.
That market remains tough.
But otherwise, I'd say pretty stable.
The market remains very good.
I'd like to think of it as at a very high level.
And when you look at the percent of patients in China that are treated with radiation, it's less than 20%.
In U.S. and Western Europe, it's between 50% and 60%.
So that's just ---+ that's where I'd like to start.
There's a huge need.
And then when you start thinking about it in terms of kind of urban China versus rural China, that's the description of urban China.
Rural China hasn't even been touched yet.
So we are optimistic of our position in all segments.
We've worked very hard to kind of get a leading market share in both the ---+ we've historically been a leader in the private market.
We're working very hard to be a leader in the public market.
We've now established leadership in both markets and we feel very good about that position.
So I ---+ in terms of the market, I'd say the market, in long-term trends, are very positive.
It is a market that every now and then ---+ you know what, it was 2 years ago, we had this ---+ 2, 2.5 years ago, we had this reform hiccup where they went quiet for a quarter or 2 while they retooled their purchasing processes due to some anti-kickback issues that they had, had in other sectors in healthcare, not in radiation therapy.
That impacted everybody, of course.
Every now and then when political change happens and chairs rotate, we see a little bit of delay.
But I'd say when you kind of look at trailing 12 months, it's been strong double-digit growth.
And we feel pretty good about that as being the market.
Might we have a quarter or 2 where things slow down, that could always happen.
But our funnel remains very robust in China.
We've got a very good team over there and feel very good about where the team is, getting deeper and broader and I believe worked hard to establish share leadership in that market, and now have it and are looking to leverage it as that market builds out its cancer capability.
And I think ---+ oh by the way, it's worth a reminder, Halcyon is built in China.
And we've got to get through the regulatory process, but we think that also sets us up very nicely for kind of the next inning of this game in that market.
Yes.
Market is clearly moving downmarket.
It's interesting, there are some sovereign governments.
China, Western Europe, I think they have much more rationalized governmental health systems, and so they'll do some of these big, large, multiroom centers.
But I think that the U.S. market is ---+ with maybe this Georgia exception and a few others, it's going to be 1- and 2-room treatment centers.
Protons remain very interesting clinically.
The benefit of the physics behind the proton remain very exciting for our customers and matters.
There's some debate about what percent of cancers does it matter in.
But I think it's safe to say that it's somewhere between 15% and 20% of all cancers can really benefit from proton physics, and we're going to see that kind of come into the marketplace.
When you look at the financial modeling on these 1- and 2-room centers, it's so much easier.
It is really difficult to financially pencil out these really, really large centers.
And certainly, we've seen that in some of ours and in the broader market as well.
So I think the U.S. market is clearly moving to 1- and 2-room centers, and we'll see a lot less of that in the future.
And so we're excited about these, University of Pennsylvania, the order we booked just last quarter.
They're one of the leaders in the world in proton therapy.
To have them kind of give us a vote of confidence is a real boost to our position and talks about the credibility of our single-room product.
And then to have this other one in Thailand talks about the scope and scale of Varian, the ability of us to deliver in those markets.
Sure.
This is <UNK>.
We are a percent of completion basis accounting for our proton business.
And based on the percentage of completion of that project in the third quarter, we booked $46 million in revenue and the associated costs with that.
No.
We recognized the cost and revenue on a percent of completion ---+ percentage completion basis.
And so there was an appropriate amount of cost booked relative to the revenue for the percentage completion of that project at that point in time.
So $46 million of revenue did not drop to the bottom line.
There was associated costs with that.
Sure.
In Oncology, I would say there's kind of a couple of things.
So we've seen certainly benefits around our supply chain efficiencies.
That's certainly a very favorable driver.
And we've seen that kind of increase.
As you look throughout the year, that's been a steady increase in the Oncology business.
I think good, solid pricing discipline has been good.
We did in the quarter get a excise tax refund that accounted for about 0.6 percentage points of that increase we saw in Oncology up to 48.1%.
And then we also saw a favorability in our services mix as a percent of revenue, and that's about 100 to 150 basis points of that favorability we saw.
So we're happy with progress in our ability to manage cost and good pricing discipline in the market as we move through the whole year in the Oncology business.
Yes.
Thank you, operator.
I think there's 4 key takeaways that everybody should think about today.
First and foremost, we're the market leader.
We now have the strongest portfolio of product offerings in our history, evidenced by our successful launch of Halcyon.
This positions us very well as we execute against our long-term aspirational goal to touch 6 million cancer patients each year, more than double where we are today.
Second, Varian's focused.
With our successful spinoff of Varex this year, we're now focused exclusively on extending our position as leader in systems and software for the treatment of cancer and other indications.
Third, we're optimally positioned to grow in both developed and emerging markets, supported by our new product offerings and rapidly growing service and software businesses.
And fourth, we have a discipline to drive profitable growth and improve liquidity, both of which strengthen our financial flexibility so that we can continue to invest in growth opportunities.
Thanks for joining us today.
| 2017_VAR |
2016 | BANR | BANR
#Hi, <UNK>.
It's <UNK>.
So, as we noted, the core operating number that we reflect for the quarter did include the $1.4 million of prior-period expenses.
We do ---+ so that will go away going forward.
In addition, we would probably expect another $1 million to $1.5 million of run rate expense reduction through the final phases of the integration and cost savings related to the acquisition.
However, as I did note earlier it's certainly entirely possible that growth in our operations will mask some of that, specifically if we continue to have good success in mortgage banking.
You realize that those are variable costs that can increase.
And there'll be some additional expenses associated with our progress towards becoming a $10 billion bank.
But we're getting close to the run rate that we expect in the second half of the year, but there's a little bit of room left to go.
Well, I think we've indicated a number of times that on a long-term basis we expect with our business model and our geography that an efficiency ratio in the 63% to 65% range is probably a reasonable target to allow us to still deliver a value proposition that resonates with clients.
If we exclude the one-time expense and the merger-related expenses on a normalized basis we were just right around 65% for the quarter that just ended, so we're getting pretty close, as I indicated.
<UNK>, this is <UNK>.
What I would add to that is we are very focused on creating positive operating leverage, not specifically just the efficiency ratio.
So as long as the organization continues to be able to grow aggressively the revenue stream and outpace the expense to create that positive operating leverage we will stay focused on that.
Well, that's certainly the expectation.
So I guess, as I said, an encouraging sign would be the size of that loan held for sale portfolio.
I hope it's not because they weren't salable, let's put it that way, and we don't think they are.
So that is an encouraging sign, and that will be part of the strategy for staying under $10 billion.
There are also, as long as we've opened that subject, you can see that we had a pretty substantial amount of federal home loan bank borrowings at the end of the quarter.
We will be able to liquidate some securities to pay those down, and we will expect to see some continued runoff in some of the brokered CDs and other timed certificates.
So we still remain optimistic that staying under $10 billion is going to be very doable, and, as you know, that has significant impact in terms of pushing off the financial consequences of the Durbin Amendment if we do go over $10 billion.
So, the strategy remains the same, and it does appear to us that we have the levers to pull to execute on that strategy.
Not enough.
Yes, actually, the core yield probably dropped a few basis points on the loan portfolio.
The table that shows yields on loan includes the impact of purchase accounting, and, as I noted, that was 18 basis ---+ or as the press release noted it was 18 basis points during the quarter.
So we're still in an environment where term loans in particular are coming in with interest rates in the very low 4s, and sometimes we're seeing good clients.
This is not news to our change, but good clients in commercial banking lines have been sub-4%.
So the pressure on loan yields has not dissipated.
It will be there.
But, as noted, the margin has continued to hold up reasonably well.
Hey, <UNK>, this is <UNK>.
The increase during the quarter was really driven by that single transaction.
It was a commercial real estate transaction.
There was a squabble between the owner and the tenant that resulted in a cessation of lease payments.
As I mentioned in my comments, we believe that a successful resolution has been crafted to that issue, and we are hopeful that that will be consummated in the early part of the third quarter.
Yes, that really drove the increase in nonperforming assets.
I think so.
Well, we really overall expect growth there, <UNK>.
As I've noted, the first half of the year is always seasonally weak for us, and I think for most banks, particularly banks in the Northwest that I'm familiar with.
So core deposit growth, the strategies that we have in place, we would anticipate an uptick in balances and additional client acquisition along the lines that we've achieved for a number of years now.
But there will be that planned runoff continued on the CD portfolio.
It's getting smaller all the time.
As I noted, 85% of the deposits now are in core.
So just simple math means that runoff will slow down.
Hi, <UNK>.
This is <UNK> <UNK>.
Through the first six months of this year we've incurred $9.2 million.
We expect another $1 million to $2 million that we'll incur in the third quarter.
There may be a small tail in the fourth quarter, and that'll primarily relate to some additional consulting expense and some premises cost.
There was a minor amount of interest reversal.
I don't remember the exact number, <UNK>.
This is <UNK>.
But that's a common occurrence any time a loan migrates to nonaccrual.
No.
Not at all.
Yes, <UNK>.
Good morning.
Our ---+ again, our capital deployment plan hasn't changed.
Our first and foremost goal is to make sure that we have a solid core dividend that has a payout ratio between 30% and 35%, that we are reinvesting effectively in the franchise to maintain that core dividend.
And then we would look to potential ways in which we could augment the franchise and then look finally to the buybacks and/or special dividends.
So we still have authorization, up to 5%.
We have not utilized it to date.
But we're exploring all options on utilization of capital going forward.
Well, Ted, that's a great question.
This is <UNK> <UNK>.
And like all great questions, they're not easy to answer.
But I'll take a stab at it by saying the following.
Assuming that we see similar patterns in loan growth and a similar migration of acquired loans into the provisioning arena, you would expect to see provisioning to be similar to what we had this quarter.
But we need to keep in mind that it's not realistic to expect that there would be a run rate of over $1 million in net loan recoveries going forward.
Well, <UNK>, this is <UNK>.
As we've suggested in the past, we think that normal organic growth commensurate with the economy and taking a little additional market share is going to have your balance ---+ or your deposits, in particular, your funding resource growing by 6% to 8% annualized rate, maybe even a little higher than that.
But it ---+ so that's going to organically take you over 10 eventually.
And our expectation has been, continues to be that that's sometime during 2017.
Are there other levers that we could possibly pull to push that $10,000 threshold out even another year.
Yes, they're there, but they become more strategic in nature, and we haven't approach or announced any sort of decisions relative to any of that.
So I think our normal ---+ that process still remains, that sometime next year we'll cross $10 billion.
Does that ---+ and I guess the ancillary to that, does that mean if you think you're going to do it organically might you do something a little more aggressively to get even further beyond 10.
That's a possibility.
But those are strategic decisions that are further down the road.
Well, I think that's right.
And then, as <UNK> has pointed out, we have strong capital position.
And so employing that capital is an additional element to the thought process.
Yes, this is <UNK>.
I think as mentioned in the comments I made, actually our delinquencies declined slightly during the quarter.
And really in terms of looking at the risk rating of credits in the portfolio it's been remarkably stable over the last several quarters.
There's migration in and out, but the net effect, with the exception of that one large credit impacted by the energy sector, it's been a very stable picture.
Almost all of the brokered CDs would be maturing in the second half of this year.
And there's a table in here that has them in it.
I can't remember the number off the top of my head.
I want to say about $90 million.
No, I didn't say that appear to.
I said I don't want to find out that they are.
May have been a bit flip in that.
But it is a fairly significant buildup compared to the prior quarter.
So it hopefully is very good news in terms of what to expect going forward on gain on sale.
So, yes.
Probably about two-thirds of it.
No, that's the plan.
Well, I think ---+ this is <UNK> <UNK>, <UNK> ---+ I think that there's a healthy balance between the two.
Of course, there is some expansion of credit granted to existing relationships, but we've been very pleased by the progress we've been making in the historic and the new footprint with the addition of new borrowing customers.
I don't have an exact split between the two, but it's balanced.
It's what we expected.
Nothing out of the norm.
That's really tough to answer, <UNK>.
This is <UNK>.
As opportunity presents itself, growth opportunities present themselves, we'll make appropriate investments, and those generally require some expense investment.
But do I know exactly what those are going to be.
No.
I think the other point that I was trying to make with that comment is there are expenses related to ultimately crossing $10 billion in terms of DFAS compliance, in terms of organizational staffing and the like that could come into play here, as well.
So you're going to have growth opportunities presented by just the business and economy that's still, in our market areas, is performing well.
And then there's going to be a little bit of perhaps catch-up with respect to preparation for crossing $10 billion.
Those will be in contrast to expected cost savings as a result of further completion of the integration process.
<UNK>, this is <UNK>.
<UNK>, let me just add that if you reflect on <UNK> and <UNK>'s comments regarding future run rate of the expense base and what the makeup of that is, that contemplates bad investments.
Yes, <UNK>.
This is <UNK> <UNK>.
So that business typically will generate about $75 million to $90 million a quarter in terms of loan production.
We would expect that business to generate between $1 million to $1.5 million a quarter on a normal basis.
So you could expect to see what we saw in the second quarter repeat maybe with some additional gain on sale going forward.
<UNK>, this is <UNK>.
Actually we've been very pleasantly surprised that our business strategy that we've rolled out is being very well received in the marketplaces in which we operate in both of those states of California and Utah.
We're actually seeing quite a bit of client relationship growth, and it's too early to tell what we're ---+ early indications are.
You had a nominal amount of attrition.
And we're actually seeing growth in those particular markets with our new product offering and our sales strategy and service levels.
It's just under $50 million, <UNK>.
Yes, I think to the extent that we reduce holdings of securities which are yielding less than loans, that's going to be a mitigating factor on the net interest margin.
But, as I pointed out earlier, low interest rates are still a fact of life, and there's an awful lot of pressure on origination rates.
Thanks, Andrew.
As I stated, we are pleased with our solid second quarter 2016 performance and see it as evidence that we are making substantial and sustainable progress on our disciplined strategic plan to build shareholder value by executing on our super community bank model by growing market share, strengthening our deposit franchise, improving our core operating performance, maintaining a moderate risk profile, and prudently deploying excess capital.
I'd like to thank all my colleagues for driving the solid performance for our company.
Thank you for your interest in Banner and for joining our call today.
We look forward to reporting our results again to you in the future.
Have a great day, everyone.
| 2016_BANR |
2015 | FN | FN
#Thank you, everybody, for joining us today.
We look forward to talking to you in the future.
| 2015_FN |
2016 | CSCO | CSCO
#Thanks, Jim.
Well, I'll tell you, after the first year in this job, I know for a fact that every month there are new things that we face.
And the good news is we tend to execute well and we deal with those.
As it relates to ---+ first off, let me just say, in the EMEA business, the decline there was largely attributed to Service Providers.
So I just want to make that clear.
We would not suggest that the broad-based shift in the EMEA results was solely dependent upon Brexit.
What we saw from a Brexit perspective is exactly what you would expect.
In the UK proper, we saw customers pause.
We saw them just kind of slow a bit because they're uncertain.
And we also saw the impact of the currency devaluation, which you would expect.
But we remain very committed there.
We think we'll work through this.
But those are the real impacts.
On the Ericsson front, I'll tell you that the partnership continues to move forward, and there was really no correlation or discussion of the Ericsson partnership as it related to the decision on restructuring.
We think that, again, that the original benefits that we saw with that partnership, with their global scale for services, their OSS capabilities, their radio expertise, combined with our IT expertise in data center and security, and other of capabilities, as well as the enterprise and IoT, were really the drivers there.
So we see that continuing.
As it relates to the cloud impact, I think when we look at sort of next-generation data center build-out in the private cloud, we look at our ACI portfolio, and we saw a $2.3 billion annualized business that grew 36%.
So we feel like customers continue to move towards a hybrid cloud environment.
The orchestration capability that we talked about with cloud center, which is from the CliQr acquisition, combined with the knowledge that we're going to be able to provide the customers through Tetration.
So think about Tetration providing analytics about what's going on, CliQr and ACI then being able to deploy policy and move workloads between public and private cloud.
And that's what we think customers are going to look for, and we think we're in a pretty good spot there.
Yes, so I'll take that.
So on the gross margins, we do have seasonality of when different mix of our products are bigger.
For example, data center and services are bigger in Q2 and Q4, so you can see that normal seasonality in there.
As I said to the earlier question, I think from an overall perspective, we feel great about our gross margins.
We are being smart about the tradeoff on top line and bottom line, and the teams continue to do great work in terms of driving productivity and costs out of the products that allow us to do that.
From a pricing perspective, our price ASP price erosion that we saw in Q4 was basically in line with what we saw in Q3 ---+ actually, 20 basis points better.
So we're still in that same range; we're not seeing any change there.
In terms of acquisition revenue, we don't typically disclose that, but I can tell you it was roughly less than a point.
Yes.
Thanks, <UNK>.
On the web scale players, what we reported in the last couple of quarters was our top-10 web scale customers, and that business was up 2% this quarter.
But it is a ---+ when you have 10 customers in sort of a reporting segment like that, it's highly dependent upon ordering cycles.
So I'm not concerned about our relevance or anything relative to that.
On the switching business, I think it's important to understand a couple things.
Number one, your question relative to the ACI portfolio, and has it exceeded the traditional portfolio, I think we ---+ the answer to that is, yes.
And our orders there were ---+ I think grew in the data center switching business, were up mid single-digits.
Yes, in the revenue, on the revenue side, yes.
On the revenue side.
And so that transition continues to go well, and we see customers that are investing in new cloud-ready architectures, are choosing the ACI platforms, which is showing in the results.
When you look at our overall switching portfolio, it's just important to understand the math on what percentage of that business is still attributed to our campus portfolio.
And as we said, any time we have these macro ---+ these environments where customers have any level of uncertainty, that tends to be an area that they will continue to sweat, if they can.
And our job over the next several quarters is to drive innovation in that portfolio, integrate security more tightly, and again, focus on orchestration policy and helping our customers lower their costs.
And that's what we're going to try to do.
Yes, you know, I think that's a great question, <UNK>.
If you go back to ---+ I think that was back in June of 2015, was our last financial analyst conference, it has changed quite a bit.
Our transition has accelerated, that we've been accelerating.
And I'd say the other major change from that long-term guidance was certainly our expectation of the data center business, and that market has changed.
So I'd say there is no long-term model change per se right now, but we're in the process of planning an analyst conference hopefully at the end of the calendar year here, and we'll update that.
But I would say those are the two major assumption changes since we did that.
Yes, <UNK>, thanks for the question.
When I think about routing, I actually think about it in several different ways.
Number one, you've got the SP traditional portfolio with Edge access and core, which we discussed earlier, which is largely just a consumption-driven cycle that we go through.
In the enterprise space, we have this transition to software-defined wide-area networking, which we're very well-positioned in right now with our IWAN portfolio.
And we're actually working on a key differentiator for us, which I think is, as our teams have built out the ability to really drive the next-generation secure Edge.
With our cloud security capabilities, the combination of dynamically provisioning those branch solutions, with the ability to have robust cloud security and Edge security, is going to be a real differentiator for us.
So we see that being another opportunity for us going forward in the routing space.
And then finally, when we talk about the security and the security-driven refresh of our core, in Q4 we actually had a couple of customers ---+ I talked earlier in the opening comments about Stealthwatch Learning Networks.
Which is effectively a machine-learning algorithm that runs at the edge of the network in the branch, and it actually does machine learning and a little bit of AI to determine normalcy for customers, and then flag for them when they see abnormal behavior going on.
And we saw a couple of customers that actually made the decision to do a branch router refresh based on that capability, which we just launched in July.
So we believe that there's innovation that we can bring that will lead us to a refresh opportunity in the core, and we think that's largely going to be driven around security.
And we're seeing some real early examples.
We need to see how it plays out, but we're seeing some early examples there.
All right, <UNK>.
Thank you very much.
In wrapping up, I just want to summarize our priorities again as we think about the year ahead.
First off, we're committed to executing against the financial model and against our priorities, regardless of the conditions of the market.
And we're committed to making the decisions that are necessary to drive our growth, and also to fulfill the commitments and obligations that we made to our customers, partners, and shareholders.
We also are pleased with where we are on the transition to software and subscription models, and you can assume that we'll continue to accelerate that over the next year.
We also ---+ I believe we'll drive a greater pace of innovation than you've seen in the last several years from Cisco.
Our teams are very excited.
There's a lot of things going on.
So we're very committed to driving innovation.
And then finally, just to reiterate, our long-term strategy to create greater value for our customers and our shareholders, while ensuring that we're also making the decisions for Cisco's long-term success, will remain at the forefront.
So I want to thank everyone for spending time with us today, and we'll look forward to talking to all of you soon.
<UNK>.
| 2016_CSCO |
2015 | LLY | LLY
#Let me start with the sola question.
And make sure I hit all these, <UNK> as we go through, or <UNK>.
So on sola, we have a more standard data safety and monitoring board like we do with many large studies.
Their mission is really one of monitoring safety.
We have communicated on prior calls we have not chosen to go for an option to have an interim look specified by the company.
And we would not instruct them to conduct such a review.
I will say that data safety and monitoring boards, as we set them up, they're independent, their mission is to look at study data on behalf of the patients, and it's not unprecedented that they may call us and say we think you should stop the study.
But we have not asked them to do that, and we're under no obligation to follow their recommendation.
Based on our observations from EXPEDITION I and II, you would note it took till about 40 weeks to see a drug effect.
And based on the enrollment curve we have for this, we don't see a lot of value in looking at an interim because we enrolled the study very rapidly.
And most of the benefit will come in the final months if the study behaves like EXPEDITION I and II.
So unfortunately, we will be waiting until late next year, the latest part of next year before we have the answer, and I would expect the study to run until that time.
On US pricing, you're correct to point out our year to date is 3%.
I think that's more indicative of the underlying trend we see, which is list price gains net of gross to net reductions for all the various mandated and commercial reasons.
The one-time event in Q3 which <UNK> tried to answer earlier was a shipment to our authorized generics partner.
It's a large shipment.
The way that deal's set up is we book revenue under the terms of that deal for the bulk product that they then distribute, creating another option for patients, a low-cost option for generic raloxifene.
There's clearly demand for that in the market.
And we're help to supply Lilly-made raloxifene for our authorized generic partner.
The way that deal's set up, those shipments happen periodically.
' It just happened one occurred in Q3, and it was subsequent enough to shift down the Q3 reported price below our ongoing trend.
But I think the year-to-date numbers are more indicative of our trend.
I think your next question was on the base inhibitor, and what would trigger that into Phase III.
We've previously communicated that as well with our partner AstraZeneca.
We designed this as a Phase II-III program.
We are actively enrolling into the Phase II components.
The primary objective of the first interim analysis, which we expect to happen in Q1 of 2016 will be a look at safety.
Base inhibitors, while very promising in terms of genetic validation, and their pharmacokinetics and dynamics, many have gone down on off-target safety.
So this is a first look at sustained dosing in a reasonably large cohort of people with Alzheimer's.
And that will then trigger expansion of that study and perhaps triggering another study and movement into the Phase III component of Lilly's pipeline and advancing to patients.
Was there another question.
Okay great.
<UNK>, we're having a hard time hearing you.
I'm not sure if you can do anything on your end to improve audio quality.
Yes, it is.
I do not believe we did.
I think we have commented that the study designed for ACCELERATE was to have people come in on a variety of statins that they may have already been on on the maximum tolerated dose.
I will just qualitatively say the patients who entered the study had LDLs in line with guidelines.
And it was really already on best standard of care statin.
We further reduced LDL as <UNK> mentioned in the mid-30s on top of that, thus the quite surprising to us, and I'm sure the field lack of MACE effect.
We will be disclosing more data about ACCELERATE, everything we've learned and probably more data exposures after that sometime in 2016 in a major cardiovascular meeting.
Yes, you will have to remind me on the CSF1R question.
With regards to IO staff, we actually have a really, really good team of people in New York and in New Jersey who are focused on IO.
And Michael Kalos heads our research group there, he came from U Penn.
We also recently brought in some IO experience in the medical and the development area.
And we have in our IO hub that we announced in New York and New Jersey recently moved one of our very experienced drug developers from Lilly.
So we feel very good about the expertise we've got there, and we're going to continue to built that internal expertise as well as through the partnerships.
I think we announced over the last year, nine different partnerships related to IO.
So our view is that we will use the external expertise and the internal expertise to continue to drive our IO experience.
<UNK>, I don't know if you can comment on that.
I can't comment on that.
From a timing perspective, we have completed our Phase I dose study and now have a dose of one arm.
We just announced actually a collaboration with AstraZeneca to do a combination of the PDL-1 with our CSF1R.
So we think from a timing and from a development perspective, we're as competitive if not more competitive than other companies.
The specifics around the dimerization, we're going to have to get back to you on, okay.
We're excited about our CGRP antibodies for two different conditions.
We're studying first for cluster headache, we announced earlier in the year.
We proceeded into Phase III, and those studies are enrolling as we speak for both chronic and episodic cluster.
And then on migraine, we finished our Phase IIb study in the first half of the year and actually read out the results in June.
We need some robust reduction in headache days, et cetera, and we will be proceeding into Phase III imminently.
We're excited about this program.
We think it's a very competitive molecule in a largely underserved space.
In terms of the oral products, there's been a long history of researching and attempting to create an oral CGRP inhibitor.
That's proved to be difficult I think for many of our competitors.
We are in the list of people who also have our own program in this area.
We don't have anything to say about that today.
We observed the trade that happened and wish them all the luck in the world.
But right now, all the data in terms of what looks like drugable CGRP inhibition are antibodies, those are the late-stage projects, and of course we have one of those.
The ---+ you are right that it's a little on the pipeline.
It's the [biochaperone] that we licensed from Adocia.
I think so far the program is progressing extremely well.
We're very pleased with the results, and as we continue to get results, we will be sharing them.
Yes.
If you notice every ---+ each of our quarterly calls, we provide the absolute gross margin.
But then we also provide a slide in the packet where we illustrate what our gross margin would be without the effect of FX.
And if you're trying to get a sense of what the underlying run rate is, our gross margins are really running in that mid-70%s range.
So once all the FX noise is cleared out, which we expect to exhaust that once we move into 2016, you should expect we're going to be somewhere around that natural run rate of mid-70%s.
Thank, <UNK>.
We appreciate everyone's participation in today's call and your continuing interest in our company.
We hope you will take part on our call on November 11 to discuss the baricitinib data that will be presented at ACR as well as our investor event in Boston on Tuesday, December 8, where we will discuss in detail our Animal Health business and provide a comprehensive overview of our efforts in Alzheimer's disease.
We hope these updates allow you to more fully appreciate the myriad opportunities before us, and why we're bullish on our future.
Finally, if you have questions we didn't discuss during today's call, please contact our IR team.
They will be standing by.
Thank you and have a great day.
| 2015_LLY |
2016 | ARE | ARE
#Thank you.
It was over time, <UNK>.
I don't ---+ it's relatively small.
Yes, pretty much.
A little bit of both.
But, as you know, the valuation of biotech and life science, generally, has been moving around quite a bit.
I would say that it did dip as of March 31st.
It recovered about a month later, and it scaled back a tad.
So, net-net there's been some decent movement, just from a valuation perspective, and it's purely the publicly-traded securities we're discussing.
We did realize about $11 million of proceeds during the quarter, so we did tap some of the gains during the quarter.
But the bulk of it had just to do with changes in stock price.
I would say, as <UNK> had mentioned, there's healthy activity in the market, broadly, some of which includes our underlying investments.
And I would guess that in the near term you'll see some large mark-to-markets coming into the public portfolio, soon.
So, if you look at page 52 of the sup, you get a snapshot of what we have publicly, and at the moment, our net unrealized gains are about 3X of our cost, and then out of the private side, as <UNK> mentioned, we had made an early investment in a company called Stemcentrix, which occupies East <UNK> Court, and that return could be as high as 25X.
Well, I think if you go to page of the sup, we've kind of expanded it, page 41, key future projects and we've tried to give a little bit of context with some renderings, etc.
We don't have any plans at the moment, I think, as I said last quarter, to initiate any new developments.
We did, obviously, move Vertex to active, but at the moment, our pipeline is strong.
It's full.
It's highly leased.
And we don't see any reason to start any new projects.
If you come to Investor Day, I'll tell you.
Of course.
I think in Nautilus, <UNK>, you could give a little color on what's the activity there, it's been very strong.
<UNK>, it's <UNK>.
Yes, we've been really pleased.
We just signed a letter of intent with a major Japanese firm to take roughly 30,000 square feet of our 3565 building.
So, that will only leave about 10,000 square feet there, and we executed a letter of intent on Friday with an existing tenant to expand and take the 25,000 square feet of availability there.
So, we'll be 100% here in the next 30 days or so.
And <UNK>, maybe comment on activity on 100 Binney, which seems to be, these days, pretty extraordinary actually.
We're down to the short strokes on approximately 110,000 square foot lease, with a public biotech company that's in the Cambridge market currently, and has a lease expiration that they need to deal with.
So, that's moving toward completion.
And then we have, on the balance of the space, which is about 110,000 square feet, or 2 1/2 floors, we're starting to see more and more activity, even though the space is not going to be deliverable for ---+ until early, or occupiable until early calendar 2018.
And that's ---+ it's interesting that we're seeing 30,000- and 40,000-square-foot requirements nearly two years out from occupancy date, requesting proposals from us.
So, as I mentioned earlier, we're kind of sorting through and trying to figure out the best prospects to engage with, and that will play out over the next several months.
I would also put a footnote on that.
Bristol-Meyers has half the building.
The other half is still uncommitted in various stages of discussions, etc.
But we've been told that we will have, likely, two credit tenant RFPs for as much space as we can provide them.
So, there's no shortage of demand in the market for that building.
And there's no competitive first-in-class project coming to fruition at the moment.
So, I'm going to maybe give an opening, then I'll ask <UNK> to talk about it.
But I think it's fair to say we did reach a high-water mark when we signed ARIAD back a couple of years ago, and I think today we'll be reaching a new high-water mark with 100 Binney.
But I'll let <UNK> discuss kind of the comparison of both, and some of the construction-cost situations.
Yes, I think, <UNK>, the rents have moved.
I don't have the figure directly in front of me, but about $10 a square foot on a GAAP basis, so the average rent over the term from when we struck a deal with ARIAD to where we are right now.
I would say that we have offered ---+ been able to offer somewhat less dollars in TI allowance for the ---+ in connection with that increased rent.
So, if you adjust it for TI dollar commitment, it's an even better move up.
In terms of the cost, I think some people have ---+ I saw some comment related to the expense, particularly 100 Binney, and one thing to recognize there is in the Bristol-Meyers situation where we have a landlord build, we do have to carry the cost of the tenant's investment over and above the TI allowance as part of the basis in the property.
So, I think you see a high number there because of that, more than anything else.
So, though construction costs have been increasing, I would say they certainly have not increased faster than rents have.
We have heard various things.
They are building out nearly ---+ I'd say over 75% of the space that they are leasing and are nearing completion with that buildout, leaving about 25% of their direct space; and this is exclusive of the IBM Watson space, so this is about 215,000 square feet that they have not subleased.
They've been building out that space.
The current information we have from them is that they intend to occupy, but they are ---+ we know that they are entertaining some discussion with subtenant prospects, particularly on the non-built-out portion of the space.
We've seen the flier, and that's all we've seen.
So, we don't know much more than that at the moment.
Thanks, <UNK>.
So, maybe I'll open that and then ask <UNK> to comment.
I think we see that there is still a lot to do, as you can tell by our activity up in Torrey Pines and University Town Center, the Illumina campus, the Campus Pointe campus; so, we have our hands pretty well occupied with a lot of moving parts and trying to capture as much of the quality demand in that market as we see.
I think we've certainly paid attention to what's going on downtown, but I don't think that it is necessarily as ready for prime time as some of the other locations, if you look at the Mission District in San Francisco, or some of the early activities.
I don't think you see them at the same level, but <UNK>, you can comment on the ground.
Hi, <UNK>.
Yes, I think <UNK> had ---+ summarized that pretty well.
We have been looking around down there quite a bit.
I email <UNK> every other week with a new idea, most of which I get a no.
But we think that long-term, there's probably a natural extension for what we're doing.
But it's probably midterm out four or five years before we probably pull the trigger on something like that.
I've never said yes.
Mostly I just get the no back, saying will you lease the Lilly space and quit bothering me.
(Laughter)
I think as <UNK> mentioned, our target has been, and this is also for our desire to upgrade to ---+ get upgraded to a triple-B-plus rating, is somewhere in the 10% to 15% range, and I think, <UNK>, on your end our target is ---+
We're hoping to be closer to that 10% number by the end of this year.
No problem.
Thanks, <UNK>.
Thanks, <UNK>.
I think that, that's true.
I think the US market has come a long way in the decade since we started in Asia and Europe, back in kind of the 2005, 2006 range.
I think there was a feeling that India and China would hold half the world's population, and could be really great markets.
I think some day they will be, but they're still, I think too early for prime time, and you can tell, as <UNK> mentioned, we have almost $50 million in currency losses.
I mean, I think it's hard for companies in the real estate sector to focus heavily on overseas operations.
I think that given our footprint, given our ---+ I think our high-quality, really amazing campus locations and tenants, there's no reason now to think about overseas, whether it be Europe or Asia.
But if you go back pre-crash, those were pretty interesting markets, and I think the markets here in the United States were still in the process of evolving.
But they've come an awfully long way in that decade.
Yes, I think it's completely off the table.
I think that over the next medium to longer term we'd look at newer markets in the United States, because there are markets here that are interesting.
But again, maybe not ready for prime time.
Think about New York, where we won the RFP back in 2005, and here we sit a decade later with a campus.
But these efforts are, literally, a decade-long effort and we've worked hard, not only things you guys see in the supplement, but an amazing amount of work at the cluster level, to really bring those clusters along.
So, I think there's no way that I could see, foresee, going overseas again.
I think it would be expansion in the United States.
Well, I think in Scotland we acquired options on land that we were able to exit that land and recoup our investment, and I think, make some money from that.
In Toronto, we obviously were involved in the MARS project early on and restructured that, and we reported our exit from there and what happened.
I think those two have been fully disclosed.
We haven't really done anything else outside of China and India.
And I think China and India are pretty well documented in the supplement.
There's nothing else out there that I'm aware of.
Okay.
Well, thank you very much.
We closed early and we appreciate your time in a busy earnings season.
We'll talk to you for the second quarter.
Thanks, everybody.
| 2016_ARE |
2018 | COST | COST
#Well, some of the preopening will start before because as you open up, let's say, the first several that opened in the first several weeks of Q4, much of the preopening is incurred in the month leading up to it.
But ---+ and Q4 is also 16 weeks versus 12.
So my guess, it'll be ---+ it will clearly be higher in Q4.
And I don't know how ---+ necessarily, how it sets us up.
There may have been a few weeks we've pushed to get into this year just to try to get them open.
So that saves you a little bit, but we do that every year.
Thank you, everyone.
Have a good day.
| 2018_COST |
2015 | ATGE | ATGE
#Of course, within there, you've got DMI and the growth that we're starting to see there come back.
So what changed to get it higher is we've been working on this.
We acknowledge that it's been a little bit frustrating a couple of quarters where we had some operational hiccups.
We think it was more us.
There's still a very strong, very solid long-term demand, obviously, for physicians and for veterinarians.
Globally, by the way, but obviously here, we're focused on United States and Canada, for the most part.
But, increasingly, we see global opportunity.
And I think it was a combination of some reorganization to better support the medical schools, in particular.
That's what more of the issue was.
The vet school was pretty steady through that little hiccup that we had.
And also, we have very strong brand reputations and we saw a real opportunity to do a better job of communicating, of taking some things that were working for a long time ---+ I think I mentioned the information seminars.
That's been a tried-and-true part of the DMI recruiting process for a long time.
But we were still doing it the same way we've always been doing it, yet the environment was changing around us, more social, more digital, not just radio.
Radio is still there, but you've got to supplement that, and you've got to follow up with different technologies in different ways.
So by doing that, we've improved the results.
And of course, that goes hand-in-hand with the academic results, because students see those residency match rates.
That has been very important for us.
And all of that was what was behind the May number of 11%.
We don't expect to see that as a long-term trend, because 11% is a little bit of a catch up for making up for lost time.
But we think we can still ---+ we're in good shape here for September, and long-term, see continued low single digit enrollment growth over the long-term.
No.
I'm saying we're still catching up for lost time here, so it could be better.
We're feeling good about September.
I'm just saying, from a long-term ---+ I get back to that five-year long-term average ---+ we think that's the more prudent way to forecast, and if we do a little bit better sometime than long-term trend, great.
I just wouldn't want to say that double-digit is a long-term trend.
There's a little bit more at AUC.
You want to comment on that, <UNK>.
That's good.
We do see increasing international opportunity, as well, for international students.
Most of our history has been US and Canada.
But we've had more and more interest from international students coming through the schools.
And I think that would probably show up a little bit more at AUC than at Ross, on the margin.
But also, at the vet school, I should hasten to add there, a lot of international interest in our vet program.
Thank you.
| 2015_ATGE |
2017 | PRSC | PRSC
#Great.
Thank you, <UNK>, and thank you to Providence's more than 9,000 colleagues and our network of partners working to make a difference in over 25 million people's lives each year.
In Q1 of 2017, I'm pleased to report that revenues grew almost 5% on a consolidated basis.
And as we've seen in previous quarters, the growth was driven by LogistiCare, the larger of our 2 U.S. health care network management businesses.
Not included in this growth due to our partial ownership was 10% growth at Matrix.
As we walk through over the next few slides, we continue to accelerate the pace and rigor on building the foundation for future growth across all of our segments.
On margins and profitability.
Margins decreased during the quarter, but cash generation was strong, with $36 million of cash generated.
We also had $5 million of CapEx, which is approximately 1.4% of revenues.
Finally, on longer-term profitability and margins, we started to see the benefits of our rigorous value-enhancement initiatives, which we have deployed over the last 12 months, and I will detail further in my segment commentary.
Finally, on capital allocation, we continue to return capital to shareholders, with $18 million repurchased during the quarter, bringing our total repurchase to $122 million since the fourth quarter of 2015, 18% of the company's common stock and an even greater percentage of its float.
Driving this return on capital has been 2 solid divestments in 2 U.S. health care businesses, which have strong ROICs and cash flow characteristics.
We anticipate these characteristics to continue, enabling us to return capital to you and/or continuing to deploy capital towards acquisitions.
Moving on to the next slide, NET Services.
As I mentioned, Q1 was highlighted by LogistiCare's revenues increasing 11% to $324 million in the first quarter, primarily driven by new contracts.
More importantly, our revenue outlook for the year has been enhanced.
This enhanced outlook was driven by a few different events, from the award of our Virginia state contract to a competitor, which is now being retracted, to various extensions and re-awards.
Unfortunately, we are unable to go into too much detail on many of these events by contract or by state due to the various stages or nonpublic nature of where we are in the process.
Second, on our Member Experience initiative, we have attacked on 3 fronts.
First, on the technology side, we are commencing piloting with our next-generation technology platform and are still on track to complete the rollout by year-end.
Again, this will improve service and reduce costs across our network.
The cost reductions are anticipated to be more impactful in 2018 versus the changes in our call centers and transportation network, which will impact 2017 and 2018.
Second, in our call centers, our various work streams have started to improve efficiencies, such as average handle time, where every 10 seconds out of a 4-, 5- or 6-minute call can save north of $1.5 million.
Third, on our transportation network, our efforts have ---+ to improve our network capacity and efficiency have begun to pay off.
Last quarter, I reported that our new pricing models resulted in our spend across 10 provider partners declining our cost with them by over 20% or over $1 million per year.
We are now through the first stage in 8 states and, on a preliminary basis, see close to $5 million of savings from these efforts in 2017.
Also related to transport network optimization, our focus on using on-demand networks continues to ramp very quickly, with both pricing and average response time benefits for our clients.
To summarize, we have 20 work streams in progress that we expect to complete over the next 18 to 24 months.
Once completed, we now expect the initiative to result in annual savings of over $35 million versus the $30 million previously mentioned.
We look forward to reporting tangible evidence of the progress to you, as we have this quarter, on our progress towards reaching or exceeding this goal.
Offsetting this progress during the quarter was the compressed profit margin versus last year.
Adjusted EBITDA was $16.3 million in Q1, resulting in a 5% adjusted EBITDA margin.
The decreased margin was driven primarily by a number of hopefully temporary factors.
First, as the business has experienced at times over the years, we experienced a spike in utilization costs due to startup costs on new contracts.
More specifically, in states such as California a couple of years ---+ sorry, such as Florida a couple of years ago, and as states such as Florida move from state fee-for-service models to outsourced models, demand can increase due to such things as improved service and availability under an outsourced model.
Obviously, this increases costs and, because it was not anticipated in the RFPs, can be addressed jointly by the client and us over time.
The last factor for the margin compression was due to Medicaid reimbursement dynamic in a large state and mild weather across several states, which may have also driven increases in the utilization.
At the moment, it may take a few quarters to work through a few of these items.
We do not anticipate any fundamental change on our long-term outlook.
Looking at NET's revenues in 2017, we do have good insight into modest revenue growth, barring any change in our New Jersey contract.
And we see no significant change in our overall amount of profitability from last quarter.
Next, as we mentioned last quarter, we are still in the midst of an intense operational period at LogistiCare.
We look forward to reporting more progress on our Member Experience initiative in future quarters.
Finally, we are ramping our rigor and focus on longer-term growth strategies at NET Services through organic and acquisition expansion in adjacent areas and, as we've done at Matrix, increase our sales effort and resources.
Part of this effort will be dependent on the appointment of a new CEO.
We have made progress on this front and expect to name a new CEO this summer.
Moving on to Matrix, which is our second U.S. health care business.
So last quarter, I reported that largely, because of our efforts in late 2015 and early 2016, we ended the year with the strongest pipeline that I have seen at Matrix since I joined Providence.
Well, I'm proud to say that our pipeline and our team's efforts are starting to pay off.
We're pleased to report our strongest sales growth at Matrix, with a quarterly growth rate of over 10%.
Regarding profitability, Matrix generated a solid adjusted EBITDA of $12.5 million, which resulted in a 22.4% EBITDA margin.
As usual, this EBITDA came along with CapEx under 25% of EBITDA.
And also, we experienced improvements in working capital during the quarter.
In 2017, we continue to work with our strategic partner to enhance the value of our operating platform and our network of over 1,000 nurse practitioners through potential acquisitions and complementary offerings.
On the acquisition front, we are reviewing multiple opportunities each quarter, and so we feel it's only a matter of time before something is completed.
And on the organic revenue side, we continue to feel good about surpassing our long-term goal of 8% to 10% growth, winning several new clients during the quarter and continuing to feel good about our pipeline.
As always, we are continuously seeking operational improvements to improve the effectiveness and reduce the cost of our services.
Moving on to WD Services or Ingeus.
So as expected, revenue declined 17% in Q1.
Much of this was due to currency changes, but a large portion was also due to the continued lying down of the Work Programme.
Offsetting this decline was growth in a few of our international operations.
Q1 profitability was ahead on many fronts, including cash flow versus Q1 of 2016 and our internal expectations.
As we noted in the year-end conference call, our restructuring efforts and increased operating rigor has started to pay off.
We are seeing primary KPIs ahead of last year, and ratings in our largest contracts continue to be strong or even improve.
In France in Mission Providence, we experienced slight profitability outside of restructuring costs, which again is a significant improvement from last year.
Also in the quarter, we recouped certain previous costs incurred in our probationary services contract that we mentioned we were looking ---+ we are working on last quarter.
So in terms of the remainder of 2017, our outlook remains solid.
First, our U.K. restructuring program, called the Ingeus Futures program, remains on track, resulting in cost savings of over GBP 10 million in 2017 and GBP 18 million in 2018.
These efforts are well underway with most of the redundancies being implemented by the end of Q2.
Please note that these reductions were built into our long-term thoughts on profitability communicated earlier.
Second, we constructively work with Ministry of Justice on the probationary ---+ Probation System Review, or PSR, in order to improve the profitability of the offender rehabilitation program.
Third, in the U.K. and on the Work and Health Program activities, I am pleased to report that we were successful in moving to the third and final round on 2 out of the 3 regions where we are in contention.
In Q3, we communicated to you that these contracts could generate approximately $15 million annually.
We also have been shortlisted for contracts in Manchester and London.
Last quarter, we mentioned that we were competing for a GBP 38 million or $47 million.
Well, due to us moving to the short list and new notifications, the new annual amount is as much as $78 million, which again includes Manchester and London.
Of course, none of these have been awarded, but we're on the short list for each of these contracts.
In other business development news, we are off to a great start in our new contract in Singapore, an expansion effort from our South Korean operations.
And we are bidding on additional opportunities in the U.K. health sector where we have made good headway in diabetes prevention.
I would like to thank our WD Services teams and our Providence value enhancement team, who have been working tirelessly over the last few quarters on improving our operational effectiveness in multiple countries.
I would be neglectful not to mention that they have done this while also maintaining operational effectiveness and even improving our competitive rankings in certain areas.
Finally, I'll now turn the time over ---+ the remaining time over to <UNK> for a few other points on our financials.
Thank you, Jim.
So turning to Page 7 of the presentation, you can see that consolidated revenue in the first quarter of 2017 was $399.5 million, a 4.6% increase over the $382 million of consolidated revenue delivered in the first quarter of 2016.
On a constant currency basis, this year-over-year growth was 6.5%.
The almost 200 basis point delta between our actual dollar revenue growth and constant currency growth is preliminary due to the depreciation of the pound against U.S. dollar that occurred in 2016.
Assuming no other major FX movements, these growth rates should move closer together starting in Q3 as we lapse the Brexit referendum vote, which occurred at the end of Q2 2016.
Segment-level adjusted EBITDA in the first quarter of 2017 was $22.5 million or 5.6% of revenue versus $24.1 million or 6.3% of revenue last year.
Total adjusted EBITDA was $15.6 million or 3.9% of revenue versus $16.3 million or 14.3% of revenue last year.
The 40 basis points of margin contraction was driven by utilization increases at NET Services, the drivers of which Jim spoke to earlier.
Remember that our reported total adjusted EBITDA does not include the results of our JV investments in Matrix or Mission Providence, which have been broken out separately on Page 7.
Now diving into the segments, I'll just try to add some additional commentary to what Jim mentioned.
At NET Services, a large part of the 11% revenue growth in the quarter was driven by new MCO contracts, particularly in California, Florida and New York.
For the full year, our revenue visibility has also improved since our last call due to new contract wins, extensions which take us through year-end and a couple of rate increases.
Assuming we hold on to New Jersey, we are now ---+ we now expect revenue to grow approximately 5% to 7% in 2017, which is consistent with the long-term growth trend for this segment we have communicated on a few occasions now.
On NET's margins, Q1 was a bit disappointing due to the utilization levels and new MCO contract grant characteristics we saw.
However, we don't believe the underlying factors to be permanent, and we are making great progress on our value enhancement initiatives.
While Q2 could still see pressures similar to Q1, we now believe full year margins should be approximately 6%.
At WD Services, the revenue decline for the quarter was consistent with our full year expectation of a $60 million decline in revenue.
Margins at WD Services in the quarter were very strong due to the factors that Jim mentioned.
While Q2 will likely be challenging from a margin perspective on both a year-over-year and quarter-over-quarter basis, as we continue to work with MOJ on the Probation System Review, the second half of the year is expected to benefit from the Ingeus Futures initiative as the redundancies associated with this initiative are on track to be completed by the end of Q2.
Consistent to what we communicated on our last call, we still see WD Services generating low- to mid-single-digit EBITDA margins in 2017, with potential for upside through current contract renegotiations in the U.K. At the holding company level, cost declined approximately $700,000 in Q1 on a year-over-year basis, primarily due to decreases in audit costs, SOX implementation costs and legal costs.
We hold the audit costs and SOX costs of our segments at corporate as well as a significant portion of legal costs.
Recall that in 2016, we took out $4 million of professional service fees versus 2015.
And excluding the cash settled equity awards held by a director, which we have referenced on prior calls, corporate cash costs for the year are now projected to be around $17 million.
Now taking a look at our JV investments.
Matrix had a great quarter, with revenue up over 10% and adjusted EBITDA margins of over 22%.
This solid performance isn't necessarily evident when looking at Providence's income statement, where 46.8% of Matrix's net income flows through the equity in net loss of investees line and is burdened by transaction costs or to non-cash amortization expense and increased interest expense due to the recapitalization that occurred in conjunction with the transaction.
Finishing up on our JV investments, Mission Providence delivered positive adjusted EBITDA as the contract continues to mature and restructuring initiatives drove down the cost structure.
Moving to Page 8.
Cash flow from operations was strong at $36.2 million for the quarter.
Note that this is not directly comparable to the first quarter of 2016 as Matrix's cash flows are included in last year's numbers, but not this year's numbers.
The $32.8 million working capital benefit was primarily due to an increase in accrued transportation expenses at NET, but also a $9 million accrual related to litigation at our discontinued Human Services segment.
CapEx in the quarter was $5.7 million.
Full year 2017 CapEx is still expected to be approximately $20 million, down significantly versus 2016 despite this year's investment in multiple value-enhancement initiatives.
And it's not shown on this page, but our effective tax rate for the quarter was 56.8%.
If you back out this quarter's equity in net loss of investees of $2.1 million from the calculation, the effective tax rate is closer to 43%.
The equity in net loss of investees line, which captures the results of our unconsolidated JV investments, already embeds the majority of taxes associated with Matrix.
The 43% rate is still above our statutory rates due to our inability to recognize benefits in foreign jurisdictions where losses are being generated.
Turning to Page 9.
We ended the quarter with approximately $83 million of cash.
Again, we're also calling out on this page the book carrying value of our retained interest in Matrix as of quarter-end of $156.4 million.
Given we do not include Matrix in our adjusted EBITDA or adjusted net income, it's important not to overlook this significant component of the company's overall value.
Note that this book carrying value decreased slightly versus the end of the year due to Matrix's negative net income for the quarter.
The carrying value is not mark-to-market, thus, as EBITDA grows at Matrix ---+ as EBITDA grows and Matrix continues to generate cash and pay down debt, the carrying value will not be updated to reflect an increase in underlying value of our equity.
Turning to Page 10.
There are not many updates to report on this page as our capital allocation strategy has not changed since our last call.
We are still seeing attractive returns on the CapEx side, particularly in relation to IT investments, and continue to see share repurchases at our current trading level as a great way to generate returns over the long term, especially given substantial work being performed and traction being gained on the various value-enhancement initiatives at LogistiCare, Ingeus and Matrix.
I will now turn the call back over to Jim.
Great.
Thank you, <UNK>.
So hopefully, you saw again this quarter our rigorous focus on helping our companies reach their full potential.
On various strategies, particularly in the U.S., they are designed to create competitive advantages, primarily through strengthening our operational excellence and the value of our networks and also capitalize on long-term trends playing out in health care, the aspiration to improve clinical outcomes, the growing demand for access to care and the lowering of costs.
So when combined with the demographics of an aging population, these trends produce growth drivers that we believe will create sustained long-term opportunities for Providence.
Thank you, everyone, for joining today, and I will now open it up to questions.
Thanks, Bob.
Yes, so just speaking more strictly to the utilization increases within NET Services, I'll start with, and Jim referenced this, our California MCO contracts.
And you're right to compare this to some states where they transitioned from a state-based, fee-for-service model to a capitated broad model.
So when you're at a state-run program where call centers are open from 9 to 5 and transportation providers are submitting claims to a state office, you then transition to a capitated model with higher customer service levels, a 24/7 call center and a dedicated NEMT claims management department for transportation providers.
You can see utilization increase higher than what may have been estimated during the contracting process due to this new environment being up and running.
So now that the utilization is more clear, we can work more collaboratively with our MCO partners and perhaps kind of attempt to restructure some of those contracts, going from perhaps fully capitated to reconciliation, and price discussions can happen; again, similar to Florida, what we saw in Florida in 2015 when they transitioned to an MCO environment.
I think the other factors, we also saw some old claims from California ---+ in California from transport providers that made their way to the LogistiCare system.
So that $35 million is just LogistiCare, first of all.
The amount that is in Ingeus was that's where I was referencing the GBP 18 million, and that's the Ingeus Futures program.
So the LogistiCare is ---+ encompasses the $35 million.
I'm sorry, the second part of your question.
I think over the longer term, some of this will be given back, certainly, as we lower the cost structure over the sort of large scale that we have.
In the short term, because of the longer-term nature of our contracts, we still retain the pricing power inherent in the contracts.
So it's a little bit tough to tell.
I will say that when we do find out more about contracts, particularly around pricing, besides what happened in New York on the MCO contract this past fall, we are very competitive price-wise.
There aren't really people ---+ that many people bidding under us.
That doesn't seem to be a sort of a big issue for us.
And again, I attribute that to our scale and size and efficiencies.
So it will be tough.
It's tough to put a number on it over the longer term.
Sure.
So there were no acquisitions during the quarter.
It was all organic.
Most of it was ---+ all the growth was in the core business, that being the HRAs.
They have been slowly, been rolling out some additional testing services in a few different niche areas, which are sort of add-on solutions to the core offering.
But it's not driving the revenues in any material way yet.
So the growth really for this year is coming from both existing clients and new clients.
In terms of acquisitions, yes, we're continuing to look at both acquisitions within sort of the core offering.
So it could be the other HRA players, but I think we're just as interested in some adjacencies that can sort of leverage the network or in areas such as in home care and care management in particular.
So in terms of the effort going behind it, they did hire a full-time VP of Strategy, who, 100% of his time at Matrix, is focused on ---+ or almost 100% is focused on M&A at this point or forming partnerships.
So there's a lot of, again, a lot of focus on it.
Great.
Thank you again for your participation.
And again, as always, if you have any questions, please feel free to reach out to <UNK> or myself.
We'll be happy to spend time with any of you on the phone or in person.
Thanks.
Bye-bye.
Thank you.
| 2017_PRSC |
2016 | CAL | CAL
#Hi, <UNK>, how are you.
What we said for the year was that we're going to be flat to down low single digits was what we had forecasted as part of the guidance.
And one thing to know, if you take out those planned exits, in Healthy Living we were only down 1.6% in the first quarter.
And down 1.2% on the Contemporary Fashion side, so we expect to continue to see steady improvement throughout, consecutive really, throughout the next couple of quarters.
With Contemporary Fashion really being the one, <UNK>, that's it is going to be the outperformer, not unlike what its really done over the last couple years.
You could almost think about it as Contemporary Fashion being up mid single digits for the year, and the Healthy Living business as being down low to mid, and all in it really comes to flat.
That's kind of how you probably should think about it.
It was interesting, first of all, the one, as you would expect, that was very good was the Vince brand.
And not surprisingly, with Lifestyle Athletic being so important, the way a very, very successful sneaker business within the Vince business and that took off to the point that it almost represented 50% of our total retail business during the first quarter for that business.
So that was significantly up, our Via business was up, Franco was up, Ryka was up and so overall we think pretty good.
Our Sam business had terrific retail performance.
We really saw him gaining market share in the quarter and he opened four stores.
We are going to have 11 open by ---+ now I think by the end of the year.
He's not immune to what's going on in the environment, particularly with sandal sales being tough, but he's really managing the balance of his core and his new items in this business.
We are seeing the consumer really responding very well to new items.
All in, <UNK>, you're never ever completely happy with things, but given the first quarter and the environment and everything that was going on, I think the team has managed quite well.
Because our inventories are lean, we are down 4%, 4.1%, <UNK>, that actually that's really not going to be the case.
For sure, in the first quarter, they were that channel and they will continue to look for off-price product.
But for some of our brands it was a positive because we did have some inventory and resold them for others, we didn't.
So I don't think it is going to have a material impact for us as we move throughout the year.
I think is going to be pretty much a similar balance and total.
Yes, it was about 5% of our total business.
It has historically been in the 3% to 3.5% range.
I think last year it was probably about 3.5%.
It grew significantly: obviously 80%.
The margin impact, our total margins were off basically forty-something basis points.
That's pretty much all attributable to the impact of the business at the dot com.
Mix of two things: shipping is in that, because that would be gross margin we are talking about.
And then there was also a slight deterioration on the merchandise margins as we've been able to now move more sale and clearance products out of our stores because we have the ability to ship from store to satisfy that customer.
And we look at that as being somewhat of a positive in the sense it won't be goods that will sit in the store and not sell.
It will turn our clearance faster.
So about 40 basis points or so, <UNK>, basically the entire decline was because of that, that's the two components.
Yes I can.
Give me one second.
Last year, 2015, May was up low single digits.
June was flat and July was down low single digits.
So yes, they got progressively worse through the quarter and we just went through the hardest part, the first three weeks of May.
Quarter to date it was probably ---+ I would have to ---+ probably half of what we are down would be relatable to the quarter to date, the shift.
Some of those sales are actually going to fall into June because our quarter ends on Saturday.
So we'll have Sunday, Monday, which are part of the event, which last year weren't in May, will fall into June.
But I think when we get the whole thing done, I think its going to be about half of where we're at, so we'll be down, call it, low single digits as we go into the first week of June against a down month and against the rest of the quarter being basically down on a comp basis.
So that's why we're all pretty confident we can still hit our low single digit comp number for the quarter.
Yes, very much so.
The weather, it was really odd, okay, because if you looked at first quarter our business in the Northeast, upper midwest was very good in February and early March and really poor end of April into the first part of May.
Our first part of May, I'm referencing in our current comp trend, is being driven down greatly by the weather in the Northeast this year versus last year.
And so that's gotten better as New York, Boston, Philly, Washington have gotten better weather in the last five to ten days.
The trend has reversed enormously.
We showed a first quarter increase in the northeast because the weather.
Business was so strong in February and March when they really had some poor weather a year ago, and it was better this year.
It is this kind of significance in timing of sales that we have to relate to because, I think it did shift the business quite a bit first quarter and early May.
And we expect to get a lot of that business back, we're getting a lot of that business back and we expect that to continue for the next several weeks.
I think we're talking about it being up high single digits, <UNK>, for the second quarter.
Hi, <UNK>, its <UNK>, how are you.
It was really all over the board, the mix in terms of the performance in the quarter.
There was some brands that were up substantially, there were businesses like Dr.
Scholl's and Naturalizer that we knew that they were going to be planned down.
It was kind of all in, as you heard - Contemporary Fashion down 1.2% and without those exits 1.6% on Healthy Living.
You have to balance all of that because you can't always look at it just on a quarterly basis, right.
You've really got to continue to view through the entire season.
You've got to look at the retail performance and sell-throughs and the inventory at retail.
And when we look at the performance of our brands at retail, and you run through them, its clear that]we've gained market share as a total company out there in the first quarter through [FPD] and the POS channels that we monitor.
So it was really ---+ I wish I could draw a line for you and say that its going to be exactly the same going forward - it isn't.
But we're confident.
As I said a little earlier, that towards the end of the year is the best way to describe it, that we really see Contemporary Fashion really ending up in up mid single digits and our Healthy Living business being down somewhat in low to mid single digits.
So all in, back to the guidance of flat to down low singles.
Yes, we did.
It was ---+ no problem, happy to do it.
It was at Wal-Mart, a fairly sizable category at Wal-Mart that we were getting out of.
They were transitioning to lower price points and was really not a place where we wanted to play, so that was the big one.
Then, in our Naturalizer business, we had some old school, old margin border stitch sandal business that we really needed to evolve and we exited that business too.
Those are really the two big ones.
And again, all in, if you came back we would have been down just 1.6% on Healthy Living without those.
Yes, no problem.
I would say I think the pressure is everywhere, <UNK>, really, when you think about it.
Doesn't matter really what channel it is, I think everyone is looking for inventory productivity.
Period, over and out, the consumer shifting in terms of how they're buying ---+ from brick and mortar, online.
So everybody's trying to figure out how they get the most inventory productivity possible.
Everybody's goal is the same and in terms of the pressure, I see it across the board.
It really depends on the brand, and the channel, but there's no particular one area that is concerning.
Yes.
Canvas, as of itself is doing fine.
We're actually now spanning that category to talk about Lifestyle Athletic, because I think its gone beyond canvas to a degree.
The canvas business is performing at low double digits for the quarter and we think that will continue.
But that whole Lifestyle business is more robust than that and will actually be a bigger part of our assortment going forward too.
You're welcome.
Hi <UNK>.
If you look at it in context, one thing to keep in mind is, in the 111-basis point improvement, 90 of that comes from Famous, even though Famous was down 50 basis points.
Just because of the mix.
Their overall margins are higher than the Company average, where the branded is lower.
As we said here today, the mix impact, and we believe we're going to be able to see similar trends across the business for the rest of the year.
I think it really comes down to the mix piece and how much growth do we get on the branded business and what is that overall impact.
So we took the total up and I think as we get further into the year, we'll be looking to adjust that accordingly.
We're very happy with the team's ability to really manage product costs, manage inventory, really manage the markdowns and allowances as we've seen initial orders come down.
We have seen the associated benefit and reduced allowances and things like that.
So I think we're very encouraged based on what we've seen today, and we reflected that in an overall increase in the guidance.
The current retail environment would suggest that we don't want to get too far ahead of ourself here.
Well, we did open four new stores of Sam, there was five open year to date.
Those carry some big SG&A increases ahead of the sales and consumers that flow to that business.
As <UNK> mentioned earlier, Sam at retail, his same store sales on the few stores that he had open was very positive, high single digits.
So we believe that these are investments that are part of securing the long-term growth.
But they do happen ahead of the sales.
We also, as we've talked about in the last couple quarters, we're developing two new brands - George Brown, the men's business and also DVF.
So those teams and the ramp up of product development, come ahead of seeing the revenue.
When you go through and look at the SG&A excluding those investments, the team's done a great job of really managing their overall expense.
The revenue really leverages those expenses in that business.
You're seeing directly the impact of decisions we've made to invest in that area.
You know, <UNK>, its been so far so good.
Not a lot of business out there right now yet.
So we're in about 200 doors, growing as we move into the back half of the year.
But so far the sell-throughs have been very good.
We're actually quite excited about a new appointment they made, because they've had a little bit of turnover at the design level.
They have a new gentleman coming in, Jonathan Saunders, who has a fantastic track record and along with the new president they hired, we really think as that all stabilizes, too, it is really helpful in terms of generating even more momentum in our footwear business.
But so far, so good ---+ pretty small and really not material to the total yet.
Thank you, appreciate it.
Thank you.
Very small, not too much, <UNK>.
Tiny ---+ a million, something like that.
I think that's fair to say.
Fantastic question.
And you're so right.
With this current environment, and with the initial orders down, speed is really going to be very critical.
And I'm happy to say that we started this project, I would say the middle of last year, so it's about a year.
And we piloted a speed-to-market program in the first quarter of this year, <UNK>, with our Sam and Lifestride businesses and then we've kind of tested it with a number of our other businesses.
And basically if we have a shoe that has been in the market, we can reorder that and have it at retail in about 45 days.
Well, I should say 45 to 50 days, let me make sure I get the right range there.
We're looking at ---+ and that assumes that you have all the materials, there's no changes to the shoe and all of that.
We think speeding up that supply chain is going to be a critical part of the future.
Its almost going to be a necessary capability that we need to have and I think you should expect to see it be a more material - its very early yet, but a more material part of our business in 2017.
But it is a very important part of what we're focused on right now.
Well we weren't doing that kind of rapid replenishment a year ago.
A normal shoe that might have been in the market, was probably 120 days out.
And we're talking about cutting that in half.
We piloted this first quarter, started it with Sam and Lifestride.
We did test it on a few of our other brands.
I think we're going to be ---+ its also about our factory partnerships, and working all of that through too, so this is not just because we want to do it.
It happens, we've got to really work with some of our strategic partners in the Far East.
So we're working our way through all of that as well.
I would say 2017.
I couldn't tell you any more than that today, until we really work our way through in getting a better understanding of what the total impact is going to be.
The spirit of what you're talking about, we feel we're totally (inaudible) on that and we think that's a critical part of our future.
Thank you very much for joining us this afternoon.
We wish everybody a wonderful Memorial Day weekend, and we look forward to seeing those of you that we can during Market Week in a couple weeks.
Take care.
| 2016_CAL |
2016 | BAX | BAX
#Sure.
First of all, AMIA is a very new product from our standpoint so this is a completely new innovative product that we've put on the marketplace and because of not only the user interface, which has a high level of simplicity, but also because of the Sharesource technology that <UNK> referenced, there's a lot of excitement amongst treaters, patients around this, the AMIA cycler.
So the receptivity for this has been great.
Our PD US has been doing a great job promoting and moving this product forward.
What's happening as a result of the increased value that we're providing is there is a margin opportunity for us on this product, but what I would say is over time, we will expect to significantly migrate towards AMIA.
It's ---+ we're focused on new patient starts as opposed to flipping existing patients.
That would be too disruptive.
But over time, this will be a larger part of our US business.
Frankly, in the short term, it's not going to be a ---+ in 2016, it will not be a huge impact on our overall sales, but over the course of this long-range plan, I do expect this to feature very prominently for our Company.
Yes.
We are very pleased with the progress on the retained stake.
This has gone, I would say, according to our plan.
I think, frankly, our treasury, tax and legal teams have done just a fabulous job managing and organizing what is a highly complex process in a condensed timeframe.
We've completed two major transactions.
I referenced them, the equity for bank line and the equity for debt, really getting the balance sheet to the position that we needed to get to.
There are two remaining transactions that need to take place.
One is a pension contribution and one is an equity-for-equity exchange and we expect to be able to do both of these.
There is Department of Labor approval that is required as part of this, or I should say, a Department of Labor posting that is required as part of this and there's a final approval of an S-4 related to the equity-for-equity exchange and it's safe to say we're working closely with both the SEC and the Department of Labor to ensure all of these transactions can be done in a timely manner in advance of the close.
The second half of the year.
Second ---+ I just want to underscore, again, that our core biosurgery business sis doing very well.
We have to adjust ---+ you know, the second half who have those products anniversarying.
Those are laggard products.
They are not part of our core business but they were added to the portfolio a few years ago.
We just need to find a disposition for this ---+ the small products and they are probably detracting our sales force from an even further accelerating.
On the development side, we have HEMOPATCH.
We have other things that are going on.
Launches, we're going to increase our penetration outside the US by creating more indications.
We have a healthy pipeline.
We have a new oxidized cellulose product that is now being launched in several parts of the world including Europe.
So it's a very exciting franchise that momentarily is having these issues with those two products, but as I said second half, we will be anniversary those numbers.
We have a first phase which is about eight molecules but altogether, we have more ---+ much more than a dozen molecules that will come in the next three to four years, probably close to 2017, 2018.
We have all: singles, doubles, triples.
We have a third one coming up.
I would say it's probably between a single and a double.
We have a large one in about a year-and-a-half coming down the pike, so we are working very hard to offset, clearly, the cyclo effect.
But I want to make sure that you understand that those are the organic products of the Company.
We also will be very diligently looking for partnerships and acquisitions to supplement that business because we think there's a great deal of opportunity for the Company dialysis synergies.
We are ---+ we know as much as you do.
The Company, we put very limited resources in trying to understand every single detail about our competitors.
Now it can be regulatory issues; it can be all kinds of different things, the ability to manufacture.
So at this moment in time, we take advantage of no competitors in the markets.
It's a good cash generator for the Company.
We understand and we have forecasted the decline of this business, as we have communicated to you.
If we don't see any major activity in the future, we will be very ---+ the first ones to tell you that the numbers are not changed or changing by how much.
We're going to be very transparent with cyclophosphamide.
It's not a strategic [partner] for the Company.
What it is, is a good cash generator and we're going to use that cash to put that to good use, as I said, in getting into the injectables and double down, triple down in that business.
But anything we know, we're going to make it very clear to you what it is, how much it affects us so there's full transparency in our earnings about this product.
| 2016_BAX |
2017 | SM | SM
#Well, thanks, <UNK>.
Thanks for pointing out the parade, too.
I had forgotten about that.
Good morning, everyone.
Thanks for joining us.
One of the benefits we're finding to prerecording our quarterly commentary and releasing it early is that we tend to get a lot of feedback on questions people have about anything we've said that might be confusing and needs to be clarified or, frankly, even questions from other people's calls that we can address.
This quarter, the question du jour appears to be about our fourth quarter production guidance coming in a little lower than our previous guidance.
So if you look at the revision we made to our guidance, we lowered our full year estimate of production by 1.1 million barrels of oil equivalent, and all of that is essentially from expected lower gas and NGL production from our Eagle Ford asset.
Now more than half of that number, 0.6 million BOEs is due to that great Eagle Ford JV we signed this last quarter, a fantastic deal in which we're sharing some volumes with our JV partner in exchange for improving our capital efficiency and moving more capital spending to the Permian.
It's a great deal.
We're really excited about it, happy to talk about it.
The remainder of that is due to temporary impacts from the storms we experienced.
That number adds up to about 300,000 barrels.
And a couple of expected, really small nonrecurring items of about 0.2 million barrels of oil equivalent, which are just going to happen in this quarter and will be over.
So if you make those adjustments, you get right to our new guided numbers of 44.4 for the year and 10.3 for the fourth quarter.
Now obviously, the big driver of our business right now is oil rate and margin growth, and those small gas volume changes don't really have much impact on our business.
But I understand that people need to understand how the numbers add up.
Now certain analysts were ---+ have numbers in their guidance for 4Q that are well above ours, and I never really understand how they ---+ how people get so far off our guidance.
But I suspect they come to these numbers by making optimistic assumptions about well timing.
And so as Herb and Wade discussed in our prepared remarks, we're right on track with our Permian operations, but the plan has a number of multi-well pads, I think, about 18 wells right now that are scheduled to come on late December.
Most of the money ---+ all the money will get spent this quarter, but they may come in late December, even potentially into early January.
So those wells are right on our schedule for these multi-pad developments.
It's going to be lumpy here, especially at the beginning of our program, when we're ramping up big rate.
And it won't contribute much to 2017 production.
So that's ---+ I think that's probably the source of that potential disconnect with some people.
So now you've got the slight deceleration activity in the Permian.
This coming from, again, from this capital we've been able to free up in the Eagle Ford.
I mean, if we're bringing in an eighth rig and a fourth crew, fourth frac crew into the Permian before year-end, frankly, I think, the way you should look at this ---+ any investor should look at it, is it looks like we're going to have a really great start to 2018.
So we're excited about that and looking forward to that.
So with that, I think we'll just open it up for questions.
Yes, I'll tell you what ---+ this is Jay.
Herb, do you want to talk about what we're doing right now.
And I'll kind of address the more strategic one.
Yes, we're right on track with that.
We had a first phase of 10 wells.
We've got by 7 of them producing now, have another 3 that are in between completing and flowback.
And then we're drilling on phase 2, which is another set of 10 wells, and we're on the second well of that second phase.
So we're all on track with the plans and the JV partner, and we've been making great strides, particularly on the drilling progress.
And then the well results have been outstanding, as we've shared last quarter.
I'll make a couple of comments on it.
We get asked questions occasionally about whether those JVs, particularly the JV in the Powder, is an impediment to selling the assets or an impediment to get the deal done.
That ---+ absolutely not.
These deals are not impediments to doing deals.
They're actually drivers for getting deals done.
And we want to make sure that people can clearly see the value in those assets so that when we see a deal that we want to make, we're not ---+ there's no impediment to doing those.
Let me just take a minute and talk about divestitures as a general topic.
I think when we talk about potential divestitures like the Powder or even a portion of the Eagle Ford at some point, we have to remember, we currently got $1.4 billion in liquidity.
We have no secured debt.
We got no near-term maturities on our secured debt ---+ on our unsecured debt, and we're well hedged.
Our business plan doesn't assume that we're going to make any further divestitures, and we don't need to make any in order to get to lower leverage levels over time.
And frankly, we're moving as fast, I think, as any prudent operator would go in our Permian and the core of our Eagle Ford asset to develop those ---+ that acreage.
So our current leverage isn't a drag on our growth.
Now with that said, I understand, we all understand here the potential benefits of strengthening the balance sheet.
But you only get to sell these assets once.
And we're going to prioritize achieving appropriate value for those assets over speed of execution.
We're working with these JVs and other things we're doing in-house here to efficiently prove up drillable inventory and value in parts of our acreage positions that we think are underappreciated.
And we're going to periodically test that market, and if we can achieve a value for a property we think is attractive and appropriate, then we'll transact.
And I think we've demonstrated, we're not shy about selling things, and we're going to stay very active in that effort.
Now obviously, we can't give anybody assurance that any deal ---+ any particular deal will be done in any particular time frame, but we're going to be persistent and consistent in looking for appropriate values for this acreage at some point.
<UNK>, this is Herb.
So yes, we're not giving a whole lot of detail out there.
Obviously, next quarter, we'll have probably at least a 30-day peak on the Wolfcamp B, and we'll know better on the Lower Spraberry.
But yes, they're performing right in line, but it's really early days.
We're 2 weeks into this, and they were completion designs that are pretty close to our standard completion design, and they are 10,000-foot laterals on those wells.
Mike, this is Herb.
Yes, we're going to do that, really, in February.
We're going to go over all those things we showed last January and February, where we showed the maps and where the sweet spots were and what we've confirmed so far.
You're right.
There were as many as 28 rigs running in Howard County.
There's been a lot of derisking of multiple zones there, and we'll be sharing that in February.
We didn't think it was worthwhile doing incrementally each call, so that's where we'll be.
Well, yes.
We're really pleased with all the places we've drilled that we've definitely exceeded our acquisition expectations by a large measure.
Yes, that's probably one of those areas we really can't get into.
When you do this, Mike, a lot of what they're doing is providing services, so it's a little hard to get to an exact [capital].
When we guide the next couple of years, we're going to put it ---+ we'll get it in our guidance, and you'll see it.
But it will be ---+ it will end up being a reduction in our outspend.
And that's an important aspect of it for us.
Yes, <UNK>, this is Herb.
It's pretty straightforward on the Permian.
We've ---+ a large share of our LOE is related to water handling, produced water handling in particular.
And as we initially put on wells that are more remote, we're trucking a lot of water.
As we build out, have larger pads, we get more and more that's put on pipe.
And so as we progressively move more water to pipe, that really leads to significant LOE reduction.
And we've got some ways to go in getting even more on pipe.
So that's the single largest area to contribute to lower LOE.
Another slight area, and that's the ---+ we inherited a number of vertical wells with the acquisitions, around 500.
And as we've gone through them and done some work to get them up to long-term standards for us, then there's been some expense there.
But that drops off over time.
So those are the 2 key areas.
Okay, <UNK>, on the Jester wells, they're higher sand loading in those locations, but they're also higher water loading.
And we know that the behavior.
You've got to really look at it more like after 6 months to a year rather than just looking at the IP30.
We've also done some changes in chemical mixes, and we'll see how much those influence things in, say, the first year cumulative oil.
So that's really what's driving Jester.
Note one thing that one of those is a Wolfcamp A, and the other's a Wolfcamp B in the Jester pad.
So we'll see how much communication there is between those.
Even though they're 420-foot spacing on (inaudible), they are vertically separated by quite a distance.
<UNK>, yes, this is Herb again.
Yes, we will continue to operate in the Eagle Ford East for our regular operations, meeting our leasehold commitments and getting some great Tier 1 gas and NGL wells.
I mean, that is ---+ the NGL prices where they are, that really helps out our economics there.
So yes, we'll be continuing there.
Yes, there's several things there you put in there.
So first of all, in the transcript I've gone over really on the tech spec side of things, [hope] the sand works for almost all the intervals we have in Howard County and Sweetie Peck, so we're real optimistic there.
In terms of local sand capacity, there's about 2 mines currently operating with about 6 million tons per annum of capacity.
There's ---+ underway are 3 more mines, with 10 million more tons.
So we do see a big ramp up, and there's quite a few more projected after that.
We are engaged heavily with sand suppliers.
So when we talk about that 400,000-plus, we've got a really informed view what sand will likely cost us in the future, and we're feeling quite good that as we ---+ as these sand ---+ local sand mines ramp up, we'll be able to use an increasing percentage of local sand in our completions, and that'll achieve those savings through 2018.
So on the service cost, it's kind of ---+ it's pretty level.
We projected a 10% increase in completions cost.
And some areas were a little bit higher, and some actually dropped.
And then we had some efficiency.
So in aggregate, everything kind of came together at what we projected for the year, so we're pleased about that.
We do see some additional room for efficiency gains that will offset whatever escalations we see.
But the markets really kind of hit a nice stable place right here right now, and we'll see if that continues as we go into '18.
Yes, <UNK>, this is Herb.
The ---+ those 7 completions were in August and September.
There's no other completions in the fourth quarter in the Eagle Ford, either side.
And those were in our plan.
Absolutely.
That's why we see the impact associated with sharing them.
They were in our original plan, and as we remove that volume, that takes down our guidance.
And obviously, we were negotiating the JV arrangement over a number of months, and those completions started after the discussions commenced.
Yes, that's interesting always.
It's ---+ you always think it's going to be very simple.
It's going to be ---+ the middle one's going to be worse than the 2 on the outside.
It doesn't always turn out that way, and it's always a little bit difficult to explain.
So it's mixed.
Really, for drawing conclusions on spacing, we've concluded, you really need to wait 6 months to a year to really get a handle on where things are headed, and this is no different.
One of them ---+ one of the bounded wells is the best well in the pad so far, so it's just hard to come to.
Yes.
But we did show on average, and that's what we were showing in that slide, that those 8 wells that we talked about that are 420-foot spacing, and the middle ones are bounded, obviously, they're performing right in line with the previous wells that were on wider spacing for that period of time.
Yes.
The key thing is we\
Can you just talk a little bit about some of the objectives of the Northern Eagle Ford JV that mostly just kind of testing some new enhanced completions and improving the economics of the acreage out there.
And then, I mean, are you also testing some new areas.
And then, I guess, what's the bias for that acreage if you are able to unlock some value.
Would you look to sell that northern part of the acreage or possibly sell the entire Eagle Ford.
What are the thoughts there.
Okay.
<UNK>, I'll start this, and then Jay will jump in on a number of things you've asked.
First of all, so the Eagle Ford North, it's pretty sparsely drilled, so we see a lot of inventory potential there.
And we started seeing quite a few wells just to the north of us, where the performance was increasingly getting better and better.
And we started to put together an opportunity list of things that we were seeing that would improve the economics considerably, but it would take some time to sort out which ones would work the best and which ones we should try first.
And clearly, that would cost the money to ---+ and there would be some risk dollars associated with it.
So we did identify some potential partners, and one partner in particular brought in several things that they saw, and we've applied just a few of those in these first wells, and you can see the performance is great.
And we have a whole list of a lot of the opportunities.
And I won't belabor these, but this includes stage spacing, a number of chemical things.
But the fundamental thing is you can get a lot more data on your wells, if you're willing to spend the money to get the data, and that will inform you a lot about the completion design.
So that's what we saw.
So bottom line is we see a way to get economic inventory over a large acreage.
And you've got to put a bit to it, and you've got to try the different completions to see the results, and that's what we're doing.
So let me ---+ <UNK>, this is Jay.
Let me address the overall strategic issue a little bit.
So what we're doing with these JVs and what we're doing on what we would call probably our ---+ outside our core development areas, which is really the Southern Eagle Ford position and our Midland Basin area, where we have very, very high returns.
So we would call those top-tier assets.
The strategy of the company is to own top-tier assets and to develop top-tier inventory.
So what we're doing in these areas, both in the Powder and in this Northern Eagle Ford area, is we're trying to understand really for ourselves, is this top-tier inventory.
If you look back at both these areas over the last couple of years, we hadn't done a lot of ---+ hadn't had a lot of activity in them, and the activity we had was a few years ago when we were either drilling in the Eagle Ford probably on too tight of spacing, in the Powder, we weren't using very big frac jobs.
We just had never really put our best foot forward in understanding, can we make this into truly top-tier inventory.
Now if it is, we already own the acreage, so that would be awesome, right.
We develop a bunch of top-tier inventory in acreage we already own.
It's great, full cycle economics, all that stuff makes a ton of sense.
And we need inventory in the long term, and we were going to get cash flow positive here in a few years, and we need top-tier inventory, so that would be great.
On the other hand, if we look at this over time and we say, okay, we've done what we know we can do, we've made great wells, but they're just not going to compete with the kind of things that we have in our Permian inventory, for example.
Then I think you look at that and say that could be the kind of thing that could really help us de-lever the balance sheet.
And we're not shy about selling stuff.
I mean, we will sell things if it makes sense to do it.
If it doesn't fit with us and it has a lot of value to someone else, we're going to do that.
And that ---+ and I'll put that ---+ anything we own in that category.
We're activists here.
We're going to do something if it looks to us like we can make our business better by selling a piece of it, we're going to do that.
But we're going to do it once we understand it and once we know that we can demonstrate what that value is, so we can get a decent ---+ the right value for it when we sell it.
I think that's about as clear as I can be.
That is appreciated, definitely appreciate the color there.
Maybe I can just move over the Powder River Basin.
Any update there in terms of when you might test the Niobrara formation.
It seems like that could be a pretty big upside driver of value for the asset.
And then on some of the newer wells that you've drilled out there, it looks like the Biscuit well is showing some pretty nice productivity uplifts relative to some of the older wells out there.
I guess you probably have 6 or 7 months of data on some of these wells.
I mean, do you think the economics could kind of compete with the Permian at this point.
Or is there still a pretty wide gap there.
<UNK>, let me go first to Niobrara.
So obviously, we've been working in the Niobrara pretty hard, but we haven't lined out a specific location or permitted a Niobrara well there yet, but we do want to get that tested soon.
We have noted that there's quite a few Niobrara permits just off our acreage, so we know the industry will be delineating around it, and that's always beneficial.
You learn a lot from that.
On the ---+ some of the Frontier wells and Shannon wells in Powder, yes, we're real pleased with the way they're coming.
And we obviously have competitive people here, and the Powder River Basin team never hesitates to show me how their wells are doing as well as the Permian wells.
So if we can get the cost [set at] Permian level, and there's no doubt they have dropped the cost significantly, then they could be competitive.
So we're really liking what we're seeing.
We're really pleased with the JV and what's it's brought to the wells.
I'm not going to say yet where they're going to rank in our full portfolio, but we're encouraged with what we see so far.
And any update on what the latest well costs are out there at this point.
Well, it's interesting, because as part of this JV, there's considerable data acquisition going on in order to enable the improvement in the subsequent wells.
So it's hard to pull that data gathering out.
But I will say it's significantly down from where we were a year and 2 years ago.
Well, if you think about the JV we have in place ---+ Herb, make sure I get this right, I think we basically ---+ there's about a year ---+ not quite a year left to run.
We're on the ---+ we're completing like the eighth or ninth well in the first phase, and we're drilling on the first couple in the second phase.
So it would probably be at least the end of next year before we would start to put substantial capital in.
Obviously, I mean, Herb can maybe comment.
This thing is starting to look like it could compete, so my hope is that we get to a decision point on putting our own money in there, about the same time, frankly, that we get to a point where we have free cash flow.
And it works out great in our business plan from that standpoint.
Or we'll go to the point where, hey, it's not going to quite get there, and we've got a lot to do in the Permian that we can still accelerate on and we can make a decision in a different direction.
But I don't think you'll see a lot of our own money.
You may see us put money into the Niobrara here in a test mode, kind of exploration mode.
But other than that, you probably won't see a lot of our own capital going in there, at least in the next 12 months.
<UNK>, it's both.
I mean, we're really driving the cost down, and we're also working to get the well performance up.
So we're ---+ we'll ---+ we don't stop at anything there.
<UNK>, this is Herb.
Yes, we've done a number of tests now with increasing stage counts for 10,000-foot laterals from 67 to 80 some.
And we think it'd probably take a little bit longer to see be a big benefit of that increased stage count.
Obviously, we don't have an offset direct (inaudible) yet, where we can tell that.
But no, I wouldn't attribute it to fully the stage count.
I think we're pleased with the rock in that location, and we've talked before about how there's ---+ in that area, there's tight carbonate, porous carbonate and mudrock.
And where we have porous carbonate, the wells do perform well.
And a lot of people have missed that before, and that's really what we're seeing in a lot of the eastern part of our acreage position that's really benefited us.
So not ---+ I wouldn't attribute that solely to the additional stages.
Yes, coupled with a good completion design.
It is a great completion design.
And that design is essentially ---+ Herb, can you just comment on how we're looking at stage count in particular, kind of how many we're pumping at various stage levels to kind of get an idea on that.
So typically, the key thing here is, we have some models, and then we calibrate them.
And if we're doing a 3-well pad, say, we typically will run the same completion design in the middle and one edge well, and then we'll run an improvement test on the other one so that we can see on either side of a bounded well how much difference it makes.
So that way, we can really calibrate.
So when reach a conclusion, we've got some pretty firm ideas.
And we don't do it in just one location.
We'll probably do it in 4 before we'll draw a conclusion, because you want to normalize out what are the influences with the rock.
There's some things that always happen that are slightly different in wells.
So that's ---+ we're very systematic about assessing completion design changes.
Yes.
So the Sundown pad, so obviously, one is a Wolfcamp B, and the other is a Lower Spraberry.
And it's just up from ---+ just north of Viper.
So those are really, I'll call those delineation wells.
They're our first wells out there at that edge.
And our confidence, obviously, has increased.
We've already got them online.
But also because of those wells that another operator drilled just to the west of our acreage that are both Lower Spraberry ---+ well, there's the Lower Spraberry in Wolfcamp A, and then we have that Apache Eastland well in the Wolfcamp B that's a good well, although with a short lateral.
Well, I don't know if there's anybody left on the call, but we really appreciate you being with us this morning.
And as <UNK> started in our introduction, we're really happy with our results and, certainly, the direction the company is going from a cash flow standpoint margins, just a whole lot of things are going well for us right now.
And frankly, we look forward to a big first quarter '18 and to a really solid fourth quarter here.
So thanks again, and we look forward to seeing you around the conference circuit.
Thanks.
Bye-bye.
| 2017_SM |
2018 | CL | CL
#Thanks, <UNK>, and thanks to all of you for joining us on the call this morning.
At CAGNY in February, I mentioned that we expected 2018 to be challenging, but likely less challenging than 2017.
So far, this has not been the case, as quarter 1 was just as challenging as 2017 with rising raw material and logistics costs, heightened competitive activity and a slowdown in category growth in some markets around our world.
I would say that in response, we remain focused on increasing our effectiveness and agility to better deal with this volatile environment where growth is harder to find.
Over the past few quarters, I've highlighted 4 areas of focus as we look to accelerate top and bottom line growth: advertising behind more impactful creative; innovation across our business, particularly in toothpaste and particularly in Naturals; working with our retail partners to drive profitable growth with a focus on e-commerce; and of course, maximizing productivity up and down the income statement.
These fundamentals remain our priorities in 2018.
But on the call today, I'd like to focus on 2 topics: first, our developed markets, where we think we've made progress over the past year; and second, our developing markets, where we face some new and continuing challenges that we're working to address.
You may remember in the first half of 2017, our North American and European divisions posted declines in organic sales and some weakness in market share.
Since then, driven by the increased advertising spend that we committed to and a focus on identifying the category segments and retail environments that would deliver growth, we have returned to organic sales growth and are back to positive market share performance.
In the U.S., in the first half of last year, our categories declined and we gained share in only one of our categories.
In this first quarter of 2018, our categories are back to growth and our shares were up in 6 categories and flat in one more.
This was a continuation of the improvement we began to see in the fourth quarter.
In Europe, for the second quarter in a row, we are seeing broad-based growth in sales and market shares.
Elmex continues to drive premium growth in our toothpaste portfolio, while Sanex is driving share growth in Personal Care and Soupline is gaining share in the fabric softener category.
Hill's has returned to sales growth with both pricing and volume growth in the first quarter.
In the U.S., volume growth was positive in the quarter despite challenges in the specialty channel.
Our Hill's e-commerce business in developed markets saw a 42% growth in the quarter.
And so in simple terms, developed markets delivered this quarter, and we remain sharply focused on continuing this recent momentum.
Turning to emerging markets.
Our emerging markets took a bit of a step back.
So what are we seeing there and more importantly, what are we going to do going forward to reaccelerate growth in these markets.
Latin America category growth rates slowed in the first quarter due to lower levels of inflationary pricing in markets like Argentina and Brazil, while volume growth slowed in Mexico behind some macrolevel concerns and some heightened competitive activity, which in some cases, we chose not to match.
In Latin America, our pricing improved sequentially this quarter, and that's a trend we expect to see continue over the balance of the year, helped by easier comparisons as we cycle increases in promotional activity last year.
We expect inflation to remain below historical levels, but we do foresee modest inflation given GDP growth, increasing wages and rising commodity costs.
In terms of reaccelerating volume growth in Latin America, we do have a robust plan in place for the balance of the year.
We have a very active innovation calendar, including in Brazil significant premium Oral Care innovation in the high-growth pharmacy channel.
And <UNK> will discuss our strong Brazilian market share performance in his section.
For Personal Care, we have innovation in the Protex line in bar soaps and in the Palmolive line in the Naturals space.
In Mexico, where volume has been down for the last 2 quarters, we expect to see less of an impact from trade destocking.
In Asia, we're beginning to see the benefits of our aggressive push into the Naturals space, where we are now rolled out across the geographies, but we know we still have a lot of work to do.
In the first quarter in Asia, our toothpaste market shares improved sequentially from the fourth quarter in 4 of our 5 largest markets, while in toothbrushes, our shares improved sequentially in all of our top 5 markets.
In China, we are restaging our Colgate 360\xc2\xb0 brand, which is what we call Colgate Total in China, and we're launching elmex as an e-commerce exclusive brand.
In India, we are growing, but we need to improve our share performance.
And we are expanding our Naturals Vedshakti platform by broadening the geographic reach and introducing a wider range of price points.
Australia was, in fact, the biggest driver of our organic sales weakness in Asia Pacific this quarter.
We have been impacted by some difficult retailer dynamics in the market, and we will begin to lap that in Q2.
There has also been an increase in competitive activity that's putting some downward pressure on pricing and market shares.
The Colgate Naturals line is entering this market, as we speak, which along with some easier comparisons, should lead to an improvement in Australia over the balance of the year.
So real progress and momentum in our developed markets, which we are focused on continuing.
And in our developing markets, we have a clear understanding of what needs to get done to reaccelerate growth with specific plans and a sharp focus on results.
And finally, I would like to complement our team for a strong start to the year from a productivity standpoint.
We achieved solid results on funding-the-growth, which helped us offset the vast majority of our raw material inflation.
And we saw limited impact from the increase in freight and logistics in the United States, as flexible programs like Uber Freight and our new 4 PL logistics provider enable us to limit our exposure to the higher spot market rates.
And now back to <UNK>.
Yes, I guess, as we think about pricing, <UNK>, and we talked about this a little bit on our last call.
Clearly, there is underlying commodity cost pressure that affects everybody.
And clearly, we have seen slowing of category growth in some markets around the world.
And what that has resulted in, in some cases, is heightened promotional activity price base to try and get more of that smaller pie, and that puts pressure on pricing.
But as we said in the last call with the underlying commodity pressure, with the inflation that we think will come back modestly in Latin America and other emerging markets, we believe there is the potential to take pricing over the balance of the year.
We know we can do it from a consumer point of view, and we think that other manufacturers are faced with the same cost pressures that we are faced with.
And as I mentioned in my prepared remarks, in some instances, where we thought the promotional activity was economically destructive, we did not participate.
So I think a combination of the underlying commodity price pressures, modest inflation, and I would say an expected lessening, and we are seeing that in some cases of promotional activity, which is not a constructive way to build the business for a medium-term, gives the potential for pricing over the balance of the year.
On top of which, by the way, we have, <UNK> mentioned, the Naturals expansion.
Much of our innovation, while not technically an increase in prices, is very much at the premium end of the category, which, obviously, gives you the margin benefit of the elevated premium price inherent in our innovation grid.
Both, both.
In the North American environment, I think you saw fairly substantial improvement from the fourth quarter to the first quarter in terms of our pricing.
The same in Latin America.
So we went from basically negative 1 to flat quarter-on-quarter, and we expect that progress to continue.
And we will be taking some of these price increases in parts of the world to offset that underlying commodity inflation.
And on top, although it isn't in the price measure, our innovation flow is more at the premium end, which will drive value and margin.
Well, a few things to say to all of that.
Again, stepping back and taking the broader view, the issue we have to address and we're discussing often across last year coming into this year was the weakness in our developed world.
And so we're actually quite pleased with the progress we have made there, particularly as the growth of our categories in those parts of the world is now moving back into a 2% range rather than the 1% or less that we were talking about before.
So we think that's a very good progress.
In the emerging markets, I challenge the notion of share weakening.
In fact, as we try to demonstrate by going through some of our key markets, we are beginning to see sequential share progress in the key markets in those emerging countries.
In a couple of cases, I mentioned in Latin America, we elected not to compete with promotional activity that when you reverse engineered, it carried something like an 11 gross margin.
You can see volume in market share.
We don't think it's economically rational to go chasing that kind of business.
So you're making choices all of the time in those emerging markets.
Emerging markets, by the way, where our market share is significantly advanced of our competitors.
We've never ducked the fact that the local brands are having an effect in the emerging markets.
And we have said for some while that our response was going to be with Naturals and Naturals at a premium price because that was what was being effective in the marketplace, and we have now positioned our Naturals offerings in those categories.
I think the fundamental issue in the first quarter was the categories just slowed largely in Latin America because of an absence of pricing.
And you will remember an awful lot of the near-term growth in Latin America for all companies had been pricing driven.
And in Asia, some destocking with this phenomenal growth of e-commerce, particularly in China, where, by the way, as <UNK> said, we are #1 in building share and our e-commerce business was up some 67%.
And behind all of that, when you do the rational work on are people continuing to brush their teeth, the answer is yes.
And we continue to invest to bring new people into the category.
So in terms of the category growth itself, while it's slowed in the first quarter, interestingly, with the pickup in the developed markets, our underlying category growth rate is about 2.5%.
And we expect those emerging markets to come back as pricing gets more rational.
And meanwhile, we are sequentially building share and we are putting advertising behind it.
And we continue to have innovation behind it.
We all wish these things moved in a straight line.
But unfortunately, as I said on the last call, they don't seem to.
However, we don't think the model is broken, and we think the same focus and activity and tools that we are deploying will be effective.
Thanks, <UNK>.
First, I would say, North America, obviously, is cycling a weak first quarter of the prior year, where we suffered from destocking and the sharp slowdown of the category.
So I would say we benefited from that underlying category growth rate in North America is about 2%.
But there is certainly nothing in terms of an inventory build because of the activity.
I would say, it's the year-on-year comparison and the strengthening growth rate in the category, which as I said earlier, with the investment we are putting behind the business and the innovation which we can judge however we want to judge it.
In the end, the consumer is the final arbiter.
And if the market share goes up, it's good innovation in my book.
So that's really the story on the North America, but nothing that says the underlying business performance would be disadvantaged over the balance of the year.
Now on the advertising side, you have to think about these things holistically.
When the advertising ---+ as we have said before, it's not just about advertising the innovation, but it is advertising the basic benefit of a brand.
Indeed, it is sometimes advertising what we call brand purpose, which is what a brand stands for.
So we can run advertising that we call equity advertising.
That is very simple, very basic in the emerging markets, talking to people, having a future they can smile about on subjects like education, on subjects like water conservation on a basic anti-cavity benefit, which may not sound glamorous and wildly different, but it's extremely emotionally persuasive.
And I think what we have come to, which we believe is making our advertising more effective, is that we've got this balance between the emotional connection with the consumer and the rational connection with the consumer.
Certainly, the quality of our advertising is increasing.
And then you look at the shift we have made to digital, which gives you a lot more information in terms of how you address consumers.
And that is playing a role as well.
And finally, I would say, this year, we would have completed a journey over 3 years, which has seen us reduce the amount of line we spend in, what we call, nonworking media by something like 15 ---+ I'm sorry, 25% to 30%.
And of course, that money then gets directed into what we call working media, which is advertising consumers actually see.
So in the same, advertising-to-sales ratio, you have a shift of money away from nonworking into working.
So you get that additional benefit as well.
But I think it's the type of advertising.
It's the vehicles we're using for the advertising and that alongside the innovation.
So it's not just flowing money, it is doing it in an intelligent way with a focus on making sure we have quality advertising vehicles with that money.
Frankly, Steve, we did, from CAGNY, see changes.
Actually, the developed markets played out pretty much the way we would have expected.
It was really in the emerging markets, and it was this pricing activity, which stepped up as the quarter unfolded and we had to take a position in terms of would we respond or would we not respond.
That took pricing out of the category, which led to the slowdown in the value growth rate of the category.
So yes, it did unfold after CAGNY, to our disappointment.
Look, in terms of flexibility on the year, we have the last year of our Global Growth and Efficiency Program remaining.
We have a very strong funding-the-growth program off to a very good start this year.
6 new areas, the fundamental development in funding-the-growth, which we are now tackling beyond the usual.
And of course, the pricing that I mentioned earlier.
So we're working all of the internal angles to give us flexibility across the back half of the year.
If our commodity forecasting does not pan out the way we expect it to, we'll obviously be close to how that unfolds as the year progresses.
But we are pressing in all of the areas you would expect to give us the most flexibility we can get because, as we said in the release, we are committed to increasing our advertising absolutely and as a percent of sales because of the quality of innovation we have and we believe the quality of advertising vehicles that we have across the portfolio.
I've got one quick follow-up and then another question, I'll try to jam in here.
First, following up on <UNK>'s question, I think you pushed back, <UNK>, on his assertion that your market shares were softening somewhat in the emerging markets.
In your prepared remarks, you certainly talked about the momentum and strength in some of your largest developed markets.
When we look at your market share data that you guys disclosed, just looking at toothpaste globally, it's down year-on-year.
It's weakened from where you ---+ what you last gave from fiscal '17.
How do we put those 2.
And then my second question is on Hill's overall.
A lot of moving pieces in the U.S. pet landscape, a lot of competitive turbulence, a lot of channel turbulence, a lot of it seems really reminiscent of P&G and Iams, with ---+ what General Mills is intending to do with Blue Buffalo.
That clearly creates some opportunities for you guys then.
I know the landscape is a little bit different where the growth is, is shifted from pet specialty into online today.
But is there reason to believe that some of this turbulence could once again create opportunities for you like it did back then.
Well, let me take the second and then come down ---+ come back to the first.
On the Hill's strategy and model, we have been very disciplined over the years.
As you know, we have 2 businesses there.
We have a wellness business for general use, and we have a prescription business against specific conditions in pets.
And we have limited our distribution to those outlets that have advisers for the consumers that allow them to make an intelligent choice, and of course, in the case of prescription, respond to a script from a vet.
Interestingly, e-commerce is the perfect channel for us because you can write anything you want and pet owners will read it all because they are absolutely fixated on the health of their pet.
So given the scientific quality of the Hill's products, given the scientific benefits that have been demonstrated clinically and given the discipline we have in maintaining that connection with the vet, we obviously are working very hard to take as full advantage as we can of any opportunity in that landscape.
One hates to predict, but we will be doing our level best to do that.
In terms of the market shares globally, yes, the dollar share is down modestly.
Actually, the volume share on our business is effectively flat year-to-date, year-on-year, and some of that pressure traces to Latin America because I mentioned that we had walked away from some promotional activity.
And what we are now seeing in the emerging markets, I think we talked about the fact that sequentially toothpaste is up in 4 of the 5 largest markets and toothbrush is up in all 5 from the fourth quarter.
So again, we think the plans we're putting behind the business are making progress, and we will keep driving that over the balance of the year.
Yes, I ---+ let's start with your first, which is with North America.
There's nothing substantively different in terms of the mix of the business coming into this year.
I think the 2 fundamental factors are the year-on-year comparison, where we had a weak first quarter last year because of the slowdown of the categories and the attendant inventory destocking at retail.
So you've got to rebound in category growth, which started in the fourth quarter and is now at a reasonable 2% underlying growth rate.
We've got good quality innovation as we plan to have every year, and we are building market share because of that innovation and because of the expenditure behind quality advertising in the business.
But it would be fair to say that the first quarter itself benefits from the year-on-year comparison.
But looking forward, there is nothing about the underlying strength of the business that concerns us from a planning point of view over the balance of the year.
And then in terms of local competitors in emerging markets, this is a journey.
We have said when we started talking about Naturals sometime back that these offerings were at premium price points.
We think we have shaped some very interesting bundles.
Although we talk about Naturals in kind of a generic sense, actually, the offerings we have vary across the world to reflect local market preferences and we are seeing progress.
It's not going to be overnight.
And I think it would be fair to say in the broader sense, <UNK>, in terms of M&A, look at what we have done over the years with Tom's of Maine or even the elmex brand in Europe, which had a dominant position in the Germanic countries.
Certainly, if there are quality assets, Tom's and GABA would have been local brands in that definition, the relationship we have with Darlie in Asia is another local brand in that regard.
That would certainly not be off strategy ---+ certainly not off strategy.
And interestingly, a little bit of an aside, the Elta business, 1 of those 2 Personal Care companies that we bought, is building ---+ has built a very strong business in China as an e-commerce business.
So in addition with them, we are learning some interesting skills in building direct-to-consumer businesses online in China with imported products.
So not completely off the list of possibility, <UNK>.
First, <UNK>, a detail-oriented question.
So the industry growth rates now in emerging markets, which you indicate are slowing.
Do you have a specific number for us.
I just would like sort of a point of reference relative to the 0.5% organic sales growth in the quarter.
And then the broader question, <UNK>, in emerging markets, are you comfortable with your investment levels in those markets.
You have very attractive margins.
Not every company can say that in some of these regions.
And is it possible that the cost of business is moving higher, investment levels need to move higher to compete with some of this local competition just to return Colgate to some of the growth rate that's ---+ that it's enjoyed in the past in some of these regions.
So your comments there will be helpful.
Yes.
Again, our ---+ how do I say, our understanding of the slowdown in the emerging markets is not that we see this as a permanent slowdown, but as I mentioned before, in the developed world, we have now seen category growth rates move up into the 2% range.
Historically, they had been 1% and lower.
So that's good news.
In the emerging markets, what we saw was mid-single-digits move down to something in the 2.5% to 3% range.
And then, of course, you have the destocking that goes with that kind of slowdown.
The ---+ and largely that was, in those markets, pricing driven because of that promotional intensity that I mentioned.
Now the underlying usage of consumers is the same.
And interestingly, if you profile our categories around the world and our geographic mix, if those emerging markets were to stay at 3%, let's say, and the developed world at 2%, if you look at our mix of the world, our underlying category growth rate would still be 2.5%.
If as we expect, those emerging markets come back because we will have the opportunity to price and given our strength in the category that will lift the value of the category, then you could expect the underlying market growth rate will move north of 2.5%.
Now from an investment point of view, when we think about advertising, as I have mentioned before, we do it from the bottom up.
And so we do it by geography, by activity, by product in our portfolio and that ends up in a ratio.
We don't work the ratio down through the income statement.
So our first quarter advertising was slightly off the highest of last year.
On a ratio basis, it happened to be higher than the average of last year.
And you can imagine, in our priority markets, it is higher still.
And we think and believe certainly from a share of voice point of view and a consumer engagement point of view, we have an adequacy certainly of investment in those marketplaces we need to capitalize on e-commerce, which I think we're saying we are doing.
And we need to continue to build these Naturals offerings around the world in the emerging markets.
But I think it's more building what we have than the need for absolutely more dollar investment.
The pleasing thing with much of this innovation in the emerging markets now is that it's at a premium level, which gives you investment opportunity underneath that.
I guess, I'm still a little confused about what Colgate's root problem is.
Despite all the micro-positive you described in the prepared remarks and some confidence here and showing us some confidence ---+ category confidence.
I mean, results are clearly not what you expected, not what we expected.
They're pretty tough, right.
And I get that you can blame the category growth.
But consistently, if you tell your competitors as well, I mean, you are 40% plus of the category and in theory, the leaders.
And instead we're actually starting to hear kind of different things from you guys, saying something and then what we see in the numbers is slightly different.
So advertising, I get what you're saying for the year, I do, and I get the bottom-up approach, but advertising was supposed to be up as a percent of sales already, right.
It's not, it's actually down.
Gross margin is 50 to 75 that it was, now up to 50.
And commodities, frankly, from CAGNY, haven't changed that much.
FX has gotten better.
It's trying to help you ---+ it should have helped you on gross margin.
We saw top line, certainly from our previous discussions, would accelerate already.
Top line is decelerating.
Pricing, that was supposed to be up, remains challenging and your comps get tougher here.
Innovation was already supposed to help, but dollar share is actually down in India and China and U.K. and Russia and Mexico, where we're hoping innovations would help.
And this isn't kind of a temporary thing it sounds like.
It doesn't sound like they're onetimers, like we heard about last year.
It sounds like it might be tougher longer term.
And that's a struggle like I ---+ personally, as I look at the stock today, I guess I think you guys dodged a bazooka, I was going to say bullet.
But I think you guys dodged a bazooka a little bit because investors are starting to ---+ I guess, are continuing to blame the things that are out of your control.
But a lot of things that are in your control aren't coming in like we expected.
And so I guess, going back to the core question, I guess, I'm still scratching my head about what the root cause of the issues are.
You talk about one-off things that we're trying to do, but I struggle with what the root cause is.
And should investors continue to give the stock, the generous benefit of the doubt it's been given so far and why.
That's it.
The ---+ I don't know where to start really.
The ---+ I think in business in general, you have to put everything in context.
You make the assertion that these are root problems with the company.
We pay pretty close attention to the pressures others in our space and other spaces had in this operating environment.
You challenged on the fourth quarter this notion of pricing being negative and the underlying question was, with pricing negative, would this put pressure on margins.
And therefore, in addition to the share commentary, the model could no longer be effective.
So we have tried to explain that the pressure point that was the developed world, which is where everybody has been focused, we feel quite pleased with the progress over the 18-month period.
And we think those 2 businesses and the underlying category growth is favorable for us going forward.
And then, we end up with this heightened activity in some emerging markets pressing price and leading to category slowdown.
And you make some choices.
And in some cases, we chose short term not to chase.
Economically, we thought, unviable volume.
And you take a short-term share hit and you take a volume hit.
Faced with the same set of circumstances, we would, on balance, make the same decision.
And when we look at the shape of the structure of our business, we see pricing now flat, which is not common in our industry space.
We thought of the gross profit.
We would have liked to have done better if we had had pricing, but we thought that was quite contained.
And we kept very competitive spending on the table running through the income statement.
We never said the spending was going to be up on a ratio basis starting January 1.
We said we were going to increase our spending and keep that money on the table to build the business.
So when you break these things down, unfortunately, there is no simple single silver bullet that says problem solution, you have to manage many moving parts.
And as I have said before, this is not moving in a straight line.
But the underlying consumer behavior is still there.
The medium-term growth potential we have with the growing middle-class in the emerging markets is still there.
We have an innovation profile to allow us to build market share in those categories while we now have strengthened our developed countries.
So while the first quarter was not what we expected, which it seems to me we were in reasonable company in that regard, we think the plans we have for the year allow us to deliver the progress that we have committed to for the year and the underlying consumer behaviors are still sound and solid and we have the brand strength to compete.
I couldn't, but I can now.
Yes.
Yes.
Again, I think North America is largely influenced by the year-on-year comparison.
Last year, the categories were declining and retailers were destocking.
And we saw indeed, our organic growth decline mid-single-digits.
This year, the category ---+ the underlying category growth rates have moved up into the 2% range, healthy for a developed world standard.
We have ---+ we are building our market shares in 6 categories and a flat in one more, and we have put advertising behind that to do that.
And we have ---+ we said in the fourth quarter, we had reacted to some pricing and category specific challenges, and we've managed intelligently to, we think, handle that in a balanced way.
So the underlying category growth rate in North America is around 2%.
And as I said earlier, we don't expect anything to change that underlying strength of our now reestablished North American business.
Interestingly, from an inventory point of view, we continue to see retailers work down inventory.
But on our businesses for this quarter in a more measured way or a more modest way than we saw in the first quarter of last year when the categories were actually in decline.
But the press for efficiency is still very much there and we participate year-on-year with retailers in that regard.
Well, very carefully, I guess, is the first answer.
We've realized the world is changing, but we think we need to be disciplined in managing our company over time.
In other words, we think this is an era for urgency, but not a panic.
And ---+ so it's easy to throw out a lot of, what would I say, make work to window dress the issues we're all dealing with.
And we still very much believe in the fundamentals.
I mean, the fundamentals of these kind of businesses, where people use your products every day, the benefits the product provides are important to their health and wellness with their everyday usage of products.
So you need to build brands and you need to find ways of making a connection, and you need to find ways of bringing the next generation of users into the business.
Now that is being disrupted in no end of ways, how you communicate, how you sell and so on.
And we think we are doing quite a lot in all of those areas with a view to building our brands and building value while we do that.
Now our risk tolerance in capital allocation is, I think, quite balanced.
I think we have demonstrated, if you take the M&A space, for example, I think quite a good track record of identifying good quality assets, bringing them into the portfolio and building them over time.
And in building them, building the overall company.
We continue to be very focused in that area, like much else in life, it does not move in a straight line and we do not choose to be cavalier and panicky in the allocation of our capital in that regard.
That may not be a fashionable thing to say today.
But we think in terms of the underlying health of the company, it's the right position to take.
So urgency, we get.
And we are changing and have been changing a lot of things with this restructuring program we started a few years back, and we continue to change a lot of things.
But we resist the temptation to panic and make work for effect rather than for the long-term health of the business.
And we're always trying to balance the long-term with the short-term.
Yes, I'm afraid Australia has been a case literally of ---+ as you know, the 2 major retailers there control much of the marketplace.
And there has been, I would say, a battle for shoppers between the 2 of them.
And we have, from a joint business planning point of view, tried to be accommodative but disciplined.
And we think we will finally cycle that by the end of the second quarter.
I guess, that's the simple way of saying that.
In terms of trends, all I can say is the second quarter has started at a better clip for us.
And that, I hope, traces to category information, which, as you know, we see on a lagged basis and I can't offer any comment at this time.
Yes, good question, <UNK>.
It's interesting, in our Hill's business, e-commerce is an important part of the business in the developed world, North America and Europe.
In the traditional Colgate business, the growth of e-commerce has been relatively modest, I would say, in the developed world so far, even though we are deploying resources against it.
But in China, it has been quite explosive.
As you know, you have <UNK>baba and Tencent, and frankly, 80 other platforms in China to go after from an e-commerce point of view.
I think I mentioned earlier our Asia e-commerce business, which is largely China, was up some 67%.
We lead from a market share point of view e-commerce and indeed have made sequential progress month-on-month in terms of share increase this year.
And I think interestingly, 2 things to say in terms of skills.
Number one, we believe we can, and we are working very hard to do this, build a very important part of our business in China with imported products, so marketplace direct-to-consumer like the GABA product, elmex that you have just brought to China like a powered toothbrush that we have brought to China.
And like the Elta product, I was mentioning earlier, where actually they have people they work with, distributors in China, that have very good capability.
So the thrust of your question is the right one, which is that we think there's lots to learn in China.
It's an important part of where we are focused and we are thinking about it quite broadly beyond even the businesses we sell pure brick-and-mortar in China.
And we're doing it as a business building exercise, but, of course, it becomes a bit of a learning lab as well.
And we can transfer those learnings and those skills to other parts of the world.
Yes.
Well, to ---+ I would say, the Personal Care business is in relatively good shape.
We have strong brands.
We talk about Sanex.
We talk about Palmolive.
We have the Protex brand.
And then in Home Care, we have different brands in different categories, but our primary 2 categories are fabric softener and dish liquid.
Now when you look at the competitive activity in Latin America, Oral Care was one business.
But then Home Care was the other business because from a pure volume point of view, the purchase frequency of Home Care products is higher than the purchase frequency of Personal Care products.
So if you're looking to drive volume from promotion that is the shorter-term play.
So we, indeed, did see a stepped-up promotional activity on the Home Care businesses.
And again, we decide whether to play or not to play.
And if the margin is destructive, then frankly, we don't, and we will rebuild the businesses with the innovation flow that we have.
So that was a factor in Latin America.
Well, this is <UNK>.
Thank you for joining the call.
And we look forward to reconnecting with you after the second quarter.
Thanks.
| 2018_CL |
2018 | STC | STC
#Thank you.
Good afternoon.
Thank you for joining us for our first quarter 2018 earnings conference call.
We will discuss the results that were released earlier this morning.
Joining me today are CEO, Matt <UNK>; and CFO, <UNK> <UNK>.
To listen online, please go to the stewart.com website to access the link for this conference call.
I will remind participants that this conference call may contain forward-looking statements that involve a number of risks and uncertainties.
Because such statements are based on an expectation of future financial operating results and are not statements of facts, actual results may differ materially from those projected.
The risks and uncertainties with forward-looking statements are subject to include, but are not limited to, the risks and other factors detailed in our press release published this morning and in the statement regarding forward-looking information, risk factors and other sections of the company's Form 10-K and other filings with the SE<UNK>
Lastly, other than in our prepared remarks, we will not be discussing the regulatory process for our announced transaction with Fidelity National Financial.
Let me now turn the call over to Matt.
Thank you, Nat, and good afternoon, everyone.
We appreciate you all joining us today.
Obviously, with the announcement of our agreement with Fidelity National Financial, it has been a busy start to 2018.
And before I begin, I would like to acknowledge the incredible group of associates that make up the Stewart family.
I'm extremely grateful for their loyalty, not only to each other, but to our customers that rely on their dedication and service.
And throughout the process, their efforts have been nothing short of amazing.
Post announcement, we quickly embarked on a national road show with FNF management, meeting with our associates to discuss the transaction as well as the overall strategy to continue growing the Stewart brand with the additional strength of the FNF family behind us.
I would like to acknowledge the attention and support we have received from FNF management in making this transaction successful.
The ongoing meetings and conversations have been encouraging as associates can appreciate the enhanced opportunities afforded by the transaction.
Quickly updating everyone on the regulatory part of the merger process.
In late March, Stewart and FNF each made Hart-Scott-Rodino filings to the Federal Trade Commission.
And then recently, the appropriate initial filings were submitted to both Texas and New York, the states where our 2 primary underwriters are domiciled.
With the process fully commenced, we will be working with all of the appropriate regulators as questions and requests arise.
Once the transaction is consummated, Stewart will join the FNF family of underwriters, leveraging its resources and financial strength to enhance the services and offerings we can provide to our long-standing customer base.
So turning to first quarter results.
Continued commercial strength and a higher fee for file from an improving transaction mix helped offset lower home sales resulting from tighter inventories and continued weakness in the refinancing market tied to rising interest rates.
While closely monitoring our order count post announcement and entering the selling season, we do believe macro purchase trends are favorable and the outlook for commercial activity remains strong.
So this time, I'll turn the call over to <UNK>, who'll provide a detailed review of this quarter's financial results.
Thank you, Matt, and good afternoon, everyone.
This morning, Stewart reported title revenues of $422 million, overall revenues of $437 million and a net loss of $4 million or $0.16 per diluted share.
The loss included pretax charges of $2 million related to strategic alternatives third-party advisory expenses and $2 million of net unrealized losses related to changes in fair value of investments and equity securities.
Due to the adoption of the new accounting standard at the beginning of 2018, changes in the fair value of our equity security investments are now charged to income instead of other comprehensive income where they were previously recorded.
Overall, revenues were down 1% from last year, primarily due to reduced revenues in our ancillary services business.
Our title revenues were up slightly, and strong commercial business helped to offset weaker market conditions.
The title segment generated pretax income of $5 million or 1.2% margin, which included the previously mentioned $2 million market charge on equity securities.
With respect to the direct title business, commercial revenues were up 12% as the fee for file increased 26% to $7,900.
Direct residential revenues were up 5% as an 8% increase in the fee for file to $2,100 was more than offset by lower home sales in the quarter and the continuing impact to refinancing of rising rates.
Compared to the prior year quarter, opened and closed orders in the quarter decreased 9% and 12%, respectively.
Our closing ratio was 67%.
With respect to our agency business, gross revenues increased 2% compared to the first quarter 2017, and net agency revenues decreased 1% as a result of geographic mix that resulted in a 17.6% remittance rate this quarter.
In regard to title losses, as a percent of title revenues, losses were 4.5%, 30 basis points lower than last year's quarter.
Going forward, we expect our title loss provisioning ratio to range between 4.5% to 4.8%.
As always, we know title losses are subject to economic and other factors that can vary quarter-to-quarter.
At quarter end, our total balance sheet policy loss reserves was $480 million.
Looking at our ancillary services and corporate segment, we reported a segment pretax loss of $8 million for the first quarter 2018 compared with a pretax loss of $6 million in the prior year quarter.
The segment's revenues declined by $6 million or 31%, primarily due to declining refinance transactions.
The segment's results for the first quarter 2018 and '17 included approximately $8 million and $6 million, respectively, of net expenses attributable to parent company and corporate operations, with the quarter-over-quarter increase due to the previously mentioned third-party strategic alternatives advisory expenses.
With respect to operating expenses on a consolidated basis, employee costs were down 1% compared to the first quarter 2017, with salaries declining due to lower employee counts and reduced residential commissions, partially offset by increased commercial commissions.
As a percentage of total operating expenses, employee costs were 32%, which is comparable to 31.9% in the prior year quarter.
Other operating expenses for the first quarter 2018 increased 2% to $80 million from $78 million in the prior year quarter.
This increase was primarily due to the third-party advisory fees of strategic alternatives review.
As a percentage of total operating expenses adjusted for third-party advisory fees, they were 18% this quarter versus 17.9% in the prior year quarter.
Lastly, on other matters, our financial condition remains very strong with a debt to capital ratio of 14.2% at quarter end and a book value per share of $28.65.
Net cash used by operations during the quarter was $29 million, primarily due to the seasonal net loss, a reduction in accounts payable and other operating liabilities, partially offset by lower claim payments.
The effective tax rate for the first quarter was 25.5% compared with 36.7% for the first quarter 2017, reflecting the new Tax Act.
I'll now turn the call back over to the operator to take questions.
First question, is there any color you can give us on what you've seen so far on order trends in April.
Yes, <UNK>, it's <UNK> <UNK> here.
Yes, our orders trends are pretty consistent with what we've been seeing.
I think as you can appreciate, we've spent the last few weeks working through the different matters that were discussed both on the Fidelity call and our call, but everybody's sort of focused on the market now.
And we've seen decent momentum as we get back at it here.
Great.
And then on the commercial side, similarly, can you give us any update in terms of the pipeline.
And obviously, the gross in the revenue side continues to be very strong there.
So just any color on geographic mix or what you're seeing in commercial.
Yes, <UNK>, it's Matt.
Commercial business had a really solid quarter, and we continued to see that.
Most major geographies outperformed our internal projections, along with what we're seeing as a continued increase in the average transaction fee per file.
So pipeline remains pretty consistent moving forward.
Just want to check on the title pretax margin.
So you had a little bit of compression there year-over-year.
I think Title365 might be causing a little bit of that compression.
But just curious about thoughts as we get in the 2Q, maybe 3Q, 4Q about potentially expanding margins throughout the rest of this year.
Well, I think we have ---+ I mean, we're constantly looking at operations.
We probably face some speed bumps in the quarter leading up to the transaction announcement.
I think post announcement, we've seen some gradual improvements, and we're obviously looking to close.
But still eyes closed and engaged with the business on a daily basis.
Okay, that's helpful.
And then, Matt, it sounds like you touched on this a little bit.
But anything ---+ any kind of color you can provide around employees post deal announcement.
Are you seeing any pockets of attrition or anything to call out.
Generally speaking, nothing unexpected.
As you might expect in any transactions, there are associates that have had concerns, but we're actively engaging with them to lay those concerns and support the business going forward.
I think I hit this in my opening comments, but we have a very incredibly oiled employee base to this whole process.
In addition to that, again, FNF management has been very supportive in helping us make sure the message comes across of retaining that brand and providing more resources and a stronger balance sheet to help them grow their business.
So I think it's been a collaborative process, and obviously, it's noise.
But we're attentive to making sure we have the message in front of our associates on a consistent basis.
Thank you.
That concludes this quarter's conference call.
Thank you for joining us today.
Take care.
| 2018_STC |
2016 | LNTH | LNTH
#Absolutely.
So, <UNK>, this is a little bit different because if we look at the quarter-over-quarter growth, there's a very strong dynamic from that versus a slightly different dynamic if we look year-over-year.
So let me speak first to quarter-over-quarter.
The most dramatic change between fourth quarter of '15 and Q1 of '16 is our contracting strategy.
So as of January 1st, we now have contracts with all four of the major radiopharmacy chains in the United States, and those contracts specified committed volumes of TechneLite and other key nuclear products for us.
So that's what is really driving that quarter-over-quarter performance.
And in similar vein, the year-over-year performance, the addition of the contracted customers is also driving that.
As I mentioned in the call, we now have contracted committed volumes for TechneLite and in our other key nuclear products with all four of the radiopharmacy chains; so that what you see driving that.
In first quarter, we had, as <UNK> and I both referenced in the call, some further incremental sales of TechneLite where we were able to supply our customers beyond their committed volumes because in short notice, they came to us with extra need and asked if we could fill in that extra volume for them, and we were happy to do that.
I can only offer you the color, <UNK>, that it's completely unpredictable.
So, I think the way for you to think about our nuclear business is with our contracting strategy now fully executed, we have a very good line of sight for minimal committed volume across our key products.
We look to fill that in by meeting customers' extra needs.
However, those needs come to be [cause] whether if it's a market disruption or something else that's happening, somewhere else in the channel, we're always happy to step up and offer our customers with quick notice even additional product that satisfy what they need in their market.
So, I can't give forward-looking guidance on a specific product.
I think as we report Q2 and beyond, you will see then for our key products, for DEFINITY, TechneLite, and Xenon, you will see the quarterly revenue performance for each of those products.
I did understand your question, <UNK>.
And I chose my answer carefully.
I will not comment specifically on what the overperformance was because we don't give quarterly product level guidance.
Sure, <UNK>.
Thanks for joining the call.
The way I will respond about China is, the best I can do <UNK> is cite what the Chinese FDA publishes as their estimated time lines for each portion of the approval process.
So we're currently in the ---+ CTA has been approved.
We're in the portion of the process during which the trials are done.
By their website what they estimate a fair amount of time to consider here is approximately six months.
And the reason is compared to if we think about the U.S. market, these are small trials and they're meant to be confirmatory and not exploratory, and so they are easier to get through.
Post that, once those data are completed and then included in the application, the final phase of the program for the Chinese FDA is actual IDL or Import Drug License approval.
If we look at the time lines cited by the Chinese FDA and we apply those to our current program what we estimate is that our product could be approved for commercial sale as early as the end of 2017.
In actuality, we have seen a program really kind of hit along the published milestones with a little bit of flexibility.
And so, we're encouraged that the program will continue on the expected milestone.
Yes, <UNK>.
And you're right, it was $8 million for the quarter.
And the primary driver of that quarter over last year's quarter is the pricing related to our contracting strategy.
And you're right, that we did not see any impact of the competitor in Q1 that we have baked the expected impact of that competitor throughout the rest of our guidance.
I would think that's probably a fair high level way to look at it, but really the guidance reflects the breadth of all of our products not necessarily just the DEFINITY growth.
So when we updated the guidance both the revenue and adjusted EBITDA, we did consider the margin.
Not a significant shift is expected in expenses from what we thought at the beginning of the year, so I think your assessment is at a high level directionally correct.
<UNK>, thanks for joining the call and thanks for the question.
I think what we're trying to signal with flurpiridaz F 18 is that, versus our last comment included in the last call, we've got active progress forward.
And you're right, one of the key parts that will come out of this partnership is the funding of the second Phase 3 clinical trials.
And we look to have that commence as quickly as possible once we announce and finally execute the partnership agreement.
At this time, I'm not going to offer a program date for approval of the product.
I think it would be premature and I really wouldn't guesstimating.
So I'm not sure that that would be essentially helpful to you with your modeling.
<UNK>, it's <UNK>.
We have a policy, we just are not providing forward-looking product level guidance and revenue, and so I appreciate the challenge.
I guess the way I'd look at it ---+ I think <UNK>'s comment was directionally accurate.
We saw great growth in DEFINITY over the quarter and some other TechneLite favorability.
We're now modeling Xenon for the rest of the year.
So thinking at a high level, you kind of do the math with DEFINITY, Xenon, and some of the other products favorability, I think you can get there.
And I think as you see the second quarter revenue by product results that will help your model for the rest of the year.
| 2016_LNTH |
2016 | VZ | VZ
#Thanks, <UNK>.
On the auction, let's just ---+ I'll keep this one short on the incentive auction because of a lot of rules around what I can and can't say at this point.
But we will participate in the auction and I will leave it at that.
But thinking about spectrum overall, I think we have to think about the 600 megahertz which I've talked about previously and how that fits to our portfolio.
We think ahead to 5G.
As we said, we will be at the forefront and we are currently at the forefront globally talking about standards.
We will be the first company to roll 5G out in the United States and we are currently preparing for those field trials.
The other thing I would say about 5G is we would hope that the FCC moves quickly to adopt the rules to facilitate 5G deployment.
Think about 5G, it may not just be about mobility.
It may be about other use cases; it's not just about mobility.
Then when we think about the unlicensed opportunity, if you were at the Consumer Electronics Show these past two weeks, there were multiple manufacturers who were running side-by-side comparisons of unlicensed, if you will, LTE or unlicensed spectrum utilized by an LTE carrier right next to Wi-Fi.
It absolutely shows no interference, which is some of the rhetoric out there, and it actually showed that the comparability is it improves the Wi-Fi performance by having a managed unlicensed within the LTE carrier.
Again, this just goes to continuing to work with the FCC and having them see through the release and usage of unlicensed for the LTE carriers.
Then, of course, we will continue to utilize the secondary market as we do quarter in and quarter out, utilizing swaps, which we just completed this past quarter.
We're working on another swap that we will complete in the first quarter.
And also minimal buys in the marketplace with smaller holders.
So that's how we think about the whole spectrum asset perspective.
On the sale of assets, as Lowell and I have continually stated, we will always look for opportunities.
The data centers is an exploratory exercise to see if the asset is more valuable inside or outside the portfolio.
I view that asset similar to the way we view towers.
Is there a way to monetize this asset that contributes value to our shareholders and gives us the capability to move that capital into higher-returning assets for Verizon.
There is no decision that has been made.
This is exploratory and as we explore, if the numbers come out like it did on towers, then we will execute on a transaction.
If it doesn't, then we won't.
At this point, again, we will always look at opportunities to monetize the portfolio to the benefit of our shareholders.
Thank you, <UNK>.
Sure.
Thanks, <UNK>.
On the churn rate, if you recall, when we sat here a year ago and we entered 2015 we said a concentration of 2015 will be to protect our customer base.
And that's exactly what we executed on throughout 2015 and the execution of that will continue in 2016.
The focus will be customer satisfaction and satisfying our customer base so they stay with us.
I think that's proven through our very low churn rate this fourth quarter.
Even with the rhetoric from some outsiders about how they are stealing customers, the churn rate does not reflect that.
And port outs are down year over year.
We are doing what we said we do around the loyalty.
Customer satisfaction comes in here around our simplicity and being simple with customers so they understand what they are getting.
And this goes to our loyalty base.
On the service revenue side, I guess the thing I would say on this is that again this is really to math.
Math of shifting from the subsidy model with higher service revenue to a device payment model where you get a break in service revenue but you pay full price for the handset model.
As we said, we are through 40% of our customers ---+ we are slightly higher than 40% ---+ who are now on that new pricing, so you have already seen the impact of that.
As I said last call, we believe the inflection point will happen at 50%, which we believe we will attain midyear.
Coming out of the fourth quarter, though, we did see a slowdown in the take rate of installment sales, but we do believe that that take rate will accelerate back up above 70% for the fourth quarter.
And we're going to announce some differences here, a shortcoming that will drive some of that behavior towards that.
As you know, we continue to allow our current base customers who upgrade to select, whether they take device payment or subsidy, and what we saw in the fourth quarter was we had a higher percentage of our base stay on the subsidy model, which caused pressure on the P&L of Wireless because of the subsidy take.
So having said that, <UNK>, I think as we go through the year we will be able to give you more clarity here.
But the other thing I would ask you to take a look at is the I-ARPA metric, which if you look at third quarter it went up by 0.2% and then the fourth quarter went up 0.9%.
So you are already starting to see some of the underlying metrics starting to absorb some of the repricing.
I will leave it at that for 2016, but I will come back to you as we break through the 50%.
Thanks, <UNK>.
The answer to the question is, yes, absolutely.
And I think we have to go back to ---+ and start at the beginning on the whole top-line growth story.
First and foremost, I think the foundation is our network, our strategy and densification, the use of fiber.
Fiber is going to be critical with the densification, dark fiber.
92% of our cell sites are already fiber enabled; the other 8% are microwave which probably won't get fiber, so when you look at it almost 100% of our cell sites are fiber-enabled.
And every small cell, 100% of every small cell we deployed is fiber-backed.
This is in preparation of some of the future products and services that we are looking at in conjunction with both what Marni has under IoT, go90, but also for 5G.
If you look at customer satisfaction, this goes to a big component of the low churn and how we start to increase the value to the customer so that they are willing to pay us more for increased value.
The quality base also goes to this.
So when you look at wireless, they grew 1.2% here in the fourth quarter.
If you look at volume overall year over year, gross adds and upgrades were down by 1.9 million.
So if you just do the backwards math on that, that's in excess of $1 billion of revenue that wasn't there this year that was there last year.
When you look at it, the foundation of Verizon Wireless is still very strong and we believe that we can continue to grow the Verizon Wireless revenue streams.
On Wireline, Fios is still the foundation.
It's now 80% of the overall Wireline revenue.
When you look at what we're doing in broadband, the pervasiveness of broadband, no one can match our symmetry on the up and downloads, so that's something that we have against our competition.
We are preparing for the over-the-top model.
Custom TV is one of the things that I've said, yes, it has a limited life but you're going to see us refresh Custom TV and continue to do what consumers want, which is what they ---+ they want choice.
They don't want to have to pay for bundles that they never use.
Then, of course, stability of the enterprise business also adds to this.
Then you jump into our growth engines.
If you look at AOL, AOL this quarter increased $300 million in revenue sequentially from the third quarter.
It goes to the strength of the advertising model under AOL, which is why we bought them.
Now some of that is seasonal, but we believe that they will continue to have strong growth into 2016.
Go90, which is still in its beginning stages, and I know we've seen some external reports on the number of downloads in excess of 2 million, but the key to us is not the downloads, the key is viewership.
It's around content and we will continue to add content that is favorable to all generations of population.
Obviously we have a lot of content there for Millennials, but sports and music attain to a lot more than just Millennials, so we are attacking all viewership with this product.
And we will have more to say about that probably midyear.
Internet of Things, if you walked around CES, it's all about the digital mobile world and we are in the best position to capitalize on that with our Smart Cities, Telematics, with the launch of hum.
We started that in the fourth quarter and we've already seen that there are certain stores in the United States that can't keep the product within Verizon Wireless.
They're continually selling out of the product.
And this is a recurring revenue stream.
If you think about ThingSpace this is really the adjunct to the Consumer Electronics Show where we've opened up our platform.
We now have over 4,200 developers working on that platform and that's just since October 29 of last year.
So, yes, it was a transition year in 2015; it will be a transition year in 2016, but I am confident that with the strategies that we are taking that we will absolutely be a GDP growth company post 2016.
Custom TV, we talked about that.
We will refresh that here in the short term to be in compliance with the contractual arrangements that we need to be in compliance with.
Relating to ESPN.
Look, this will go its course.
They're a great partner of ours; we will continue to work with them and I'm not going to speak to the actual lawsuit.
On the I-ARPA, keep in mind only 29% of our customers currently today are on a device payment plan, so they are actually taking the installment plan and paying us full price for the equipment.
But 40% of our customers who fulfilled their subsidy contract have moved over to that pricing, so they are getting the discount.
So we're absorbing that.
As I've said, once you get to that 50% you should see that inflection point start to occur and you are already starting to see some of that in the I-ARPA-type metric.
It's hard for me to forecast exactly what will happen here but the forecast that I have is at 50% you start to see an inflection point.
And we will talk more about that as we go through the quarters.
As far as towers go, look, we continue to build macro towers but at a much lower rate than historically.
Our focus is really around small cells, densified antenna systems, in-building.
But keep in mind that each of those small cells, in-building, and antenna systems all get fiber back to a main macrocell.
So the macrocells still have an important role in how you deliver traffic into those small cells.
As far as building and creating new towers, that is at a much slower rate, but the importance of the tower is still there.
Thanks, <UNK>.
Look, 2014 was a unique year.
You had a very different form factor come out from Apple, which drove a lot of traffic to that iconic device.
You continue to have innovation from Samsung and LG, but we didn't have that huge change in the handset this year that we saw a year ago.
So that I think affected some of the upgrade model.
But when you look at it, we still did about 1.5 million more upgrades in the fourth quarter than we did in the third quarter.
So the volume of upgrades still increased; it just wasn't what it was a year ago.
If you remember, I said coming into this way back in the second quarter I said I did not anticipate that the fourth quarter this year would be a similar volume to the fourth quarter of last year.
But if you go back to the previous years, I think you'll see similar lower volume years.
Then you have iconic devices come out and it stimulates some usage case there.
So for 2016 it's too early to tell you, but I would think that we'll see similar trends that we did in 2015.
Well, for our base it's too early to tell because the first generation of them are just starting to mature, so until I get some real factual data on that it's hard for me to answer.
My own personal opinion here is that, if you look at history, a third of your customer base upgrades every year.
I don't see that changing regardless of what plan the customer is on.
Thanks, <UNK>.
On the cost-cutting, look, I think the last three to four years we've talked about this and we are an extremely disciplined corporation as far as costs go.
With the launch of our Verizon Lean Six Sigma program three years ago, that continues to maintain momentum.
We took out almost 30 million calls down from a year ago, so there's a lot of progress being made on self-serve.
There's a lot of progress being made within our logistics system.
This year alone we generated working capital benefits from how we handle our phone inventory.
You saw the Wireless restructure this year was the first restructure we had really since the inception of Verizon Wireless.
As we go into 2016, you saw us take that severance charge and I would tell you most of that severance charge was related to headcount that was already completed in the fourth quarter.
So entering into 2016, we continue on the path that we were on.
We will continue to look at customer satisfaction, more self-serve options that reduce the amount of calls that we have to take from customers.
There's still a lot of work to be done around our cost structure.
If you look at Wireline, as we came into this year Lowell and I said we would improve the profitability of Wireline.
That came from all the cost reductions that <UNK> and his team achieved.
So we will continue on that path and I feel good about that.
As far as overall economics, I am not really seeing much of anything in the consumer spaces that we drive.
I look at what everybody else looks at and we will have to wait to see where 2016 comes out, but I'm certainly not going to predict any negativism there.
Sure.
Thanks, <UNK>.
When I think about the whole portfolio, go90, Verizon Digital Media Services, and AOL, obviously we just launched all these products, so there's a startup.
It was the first fourth quarter that we advertised these types of launches.
You are going to see that continue through the four quarters of 2016, which was not there in 2015, so there will be pressure from these start-up companies.
Our learnings on go90 are very simple.
We're looking at how many times individuals revisit the platform in one day and we're starting to see some positives there.
People will come in multiple times during the day and that's important because that's what's viable to the advertising community.
The whole basis here is we have to ramp viewership.
I will tell you internally we have surpassed what we thought we would have at this point in time.
We have set higher targets for 2016 because we need to build the viewership in a much quicker fashion.
I think what you are seeing here from AOL is a very strong fourth quarter.
Now there is seasonality to that, but as I mentioned, I'm looking for them to grow substantially in 2016.
So I think when you put this together, I think the top line will start to reflect some of the things that we are looking for, but it will create bottom-line pressure.
These will not ---+ especially go90, will not be a profitable product probably within a one- to two-year horizon right now.
When we launched it we said two to three, but it's probably out two years before that will become a profit contributor to the enterprise; but it will certainly build on the top-line perspective.
But right now we're focused on viewership, not necessarily the profitability of the product.
So I will stop there.
As I said, we will come in with much more detail probably midyear and start to give you some viewership into exactly some of the results of go90 and AOL.
Look, I think we've been pretty open since we acquired AOL.
We said that we would continue to add to that portfolio.
We acquired Millennial, which we talked about.
So, yes, there are things that we continue to look at for fill-ins, if you will.
The other that you brought up, it's intriguing, but there's really nothing to respond to at this point on that.
So, look, we will continue to look at all of our options, as Lowell and I said.
We will continue to look at opportunities externally and look at opportunities internally and if they make sense for the shareholder, then we will execute on those opportunities.
Sure.
Thank you, <UNK>.
Just to refresh, we monetized or securitized $9.4 billion of receivables.
We received gross cash of $7.2 billion.
We obviously paid off some of those securitizations, so about a $5.9 billion net cash.
So when you think about that, we absorbed about $3.5 billion within our working capital this year from the switch to the device payment model.
I will tell you that we have been talking to the rating agencies about different types of financing and I will probably leave it at that at this point.
But we will be looking at potential public markets as well as private markets, but we will stay with the securitization model as well.
So we're just looking at very different alternatives to support the program going forward, because we do believe it will continue to grow in 2016.
And more to say on that when we come to a conclusion on that one, <UNK>.
The answer to the question is yes.
If you look at some of the small cell technology and also some of the technology that can be utilized at the cell site ---+ I know there's a fancy name for it, but I'm not the engineer here ---+ but it gives you the capability to be able to tilt antennas and turn antennas to where the capacity is.
So if you think about football game Sundays and college games, we have the capability to utilize our current resources to increase capacity without any spectrum capacity.
There is a number of technologies that are coming.
Obviously, when we launched 4G we said it would be 5 times more efficient than 3G.
5G is too early, but my suspicion is that we're going to see some similar benefits there from a capacity standpoint, which is one of the benefits of 5G.
So, yes, I think that if you look at spectrum, we are in a very, very good spectrum holdings, as we said with all my other comments around spectrum and how we utilize unlicensed along with what we bought in AWS and the repositioning of what we currently have on 3G over to 4G.
So utilizing all of these items, we feel that we are in very, very good shape from a capacity standpoint.
Thank you for your questions.
Before we end the call I will just turn it back to <UNK> for a few more remarks.
Thanks, <UNK>.
Look, 2015 was a year of significant change at Verizon.
And even with all that change we delivered a strong financial year, continued to invest in growing our customer base, invested in our networks, developed and expanded new businesses, and returned value to our shareholders in the form of dividends and share repurchase.
2016, we will continue what we started in 2015.
We will focus on execution and growth with our three-tier strategy and heritage.
We will continue to build on a strong network and customer foundation.
With our foundation we will compete effectively in this dynamic marketplace.
We will bring new products and services to market and continue to be the leader in the digital-first mobile world.
We look forward to maintaining our positive momentum to create value for our customers and our shareholders, and I would like to thank you for joining Verizon today.
Have a great day.
| 2016_VZ |
2015 | SYNA | SYNA
#Okay, I would love to give you a very detailed answer, on that, Ambrish, but I also don't want to show my competitive hand here either.
As you can imagine, we're Synaptics, and when we delivered touch solutions, we deliver a whole family and a multiple generational family as well.
We have some solutions that you will see in the first half of calendar 2016.
You will see different solutions, frankly, later in the year.
As you can imagine, we have a roadmap on ForceTouch.
Some of those capabilities are matching what we have seen from analog devices and in other cases will be entirely different.
One area that I think that probably will stand out is the cost-effectiveness of our solution.
As we mentioned before, we don't require an additional device.
We could leverage our existing touch controllers, we built in the capability into those touch controllers, at least for the first wave of solutions.
To me given the competitiveness of the smartphone market, that's clearly a requirement, and the fact that we want to see force not just deployed as a very high-end solution, but across the mid-range phones as well.
So key technology's clearly the user experience that we bring, the manufacturing I mentioned, that we bring ---+ once you start in to talk about variable force, across the screen, suddenly you have to measure everywhere on that screen and have that consistency in manufacturing.
That's a nontrivial problem to attack, and you really want to go with an experienced vendor.
And then of course, stating the obvious again, is the IP and background that we bring to the table that nobody else out in the marketplace really has that.
Okay, another great question.
And you're right, it is a lot of the same vendors that you see participating in the marketplace in India or Indonesia.
And some of those same vendors recognize that's where the growth is, as we moved to kind of single ---+ high single-digits growth in the smartphone market.
Those areas are double-digit growth.
One example I can point to, for example, is the Samsung A8 device that uses our fingerprint solution.
It's targeted ---+ one of the target markets was India.
Another one of course was China as well, and that has done very well from what I understand.
We also work with Google.
Actually, the name escapes me on the particular initiative they have, but they want to set a baseline of Android features, and we are on the improved vendor list for touch, as an example, on how we are penetrating the India and Indonesia markets.
The other nice advantage that we have is more and more touch solutions move to display integration.
If it's a white-box type of phone that sometimes the smaller vendors use, our displays get integrated with our solution, and now we've set up a distribution sales force to participate in that market, and we work with the display vendors and they kind of just end up there and we don't have to do a lot of handholding.
It's the great part about being in kind of by far the leader on display integration.
We continue to keep our eye on India.
One advantage we have is actually we have a pretty sizable engineering team now in India, and so if ever need, we can supply or provide local support there, as well.
Not delivering any hints, I think over the last number of years, we've actually consistently purchased our own shares.
And when the market, due to ---+ call it numerous forces out there moved into the mid-70s and even the upper 60s, we jumped into action, because it was, in our view, based on what we can see in the market and our opportunities, there is no better investment out there then Synaptics stock.
So we were very aggressive last quarter.
Now that's not an indication, and so I should be very clear: we are a growth company.
And that is our first priority, is to make sure that we continue to grow that top line.
We've done two major acquisitions.
Kind of one over the last ---+ one each over the last couple of fiscal years.
We are continuing to be actively engaged to look for other opportunities that can help us fulfill our vision and mission of being the human interface leader.
But it has to make sense as well, we're not going to grow just for the sake of growing.
It has to be a profitable growth, and again, has to be very strategic in nature.
We're not giving up that mission, but we will continue to provide returns to our shareholders as necessary by acquiring our own stock.
<UNK>.
Okay I think I covered it.
So <UNK>, Hi.
It's <UNK>.
We've talked about our operating model a number of times, and we expect the full-year to fall within our operating model, and just as a reminder, our gross margin model is 37% to 40%.
Over the last couple quarters, we've trended in the 37% to 39% range.
Q1 was no different.
Q2 our guide is pointing to that range as well.
We expect Q3 and Q4, based on what we see and what <UNK> talked about earlier in terms of our product mix, we continue to expect to see that our gross margins will fall into that range.
Now, as far as operating margins are concerned, we've talked about operating margins of 15% or better.
We've had a few quarters with the RSP acquisition.
Where we have demonstrated that level of operating profit.
Q1 was close to 15%, and we expect Q2, based on the mid-point of our guidance, to also be there, and we expect to drive Q3 and Q4 with that type of operating profit model as well.
So we're going to operate within those parameters for the remainder of the year.
To address kind of the middle part of your question there, we have no intention of re-entering the module business for ClearForce.
Obviously, we had some history there about five years ago, but there's plenty of folks out there that do a fine job of doing that.
That doesn't mean we don't have to roll up our sleeves and get into some mechanical aspects and other aspects of ClearForce that we did not have to.
But again, that's how we add value, that system level knowledge that our customers really appreciate.
In terms of ASPs, there should be some opportunities there.
As we've discussed in the past, we don't need ---+ at this point, our solutions don't require an additional device, but it does drive a device that has more compute power, more memory, more channels to support the force function.
So that will tend to slant the product mix to the higher end.
Typically, our higher-end products have higher ASPs and higher margins.
Okay, so let's start off with the analog devices.
Frankly, <UNK>, I just leverage it off the question.
It's a convenient way to talk about it without mentioning the customer's name.
That being said, no, we don't see any ---+ call it broad spread interaction in the marketplace with ADIs solution with other vendors at this point.
Now maybe at some point they will jump into the market, but in general, I don't believe they compete in the mobile space.
So we're not really anticipating it.
So in your second half of your question, as I had mentioned, yes, we do expect higher ASPs in the marketplace.
In general, we do pretty well in the high end, so this just solidifies our position out there in the higher end of the marketplace.
Whether we have share gains or not, I think it's a little early to make those calls.
Of course, <UNK>, I'm not going to jump into the party if one of our peers has talked about one of our OEM launches.
I'm not going to comment on their timing or the magnitude of those launches.
At this point, I'm only going to talk about Q2, and we gave as much color as we could on the second half of the year.
So, can we take advantage if there is pull-ins and all that.
We have the world's best operations organization, and we don't talk about it a lot, but they accomplish miracles all the time.
We love customer challenges, whether it's two weeks from now or two months from now.
We love when our customers pull in launches or increase volume.
Okay, so first you asked about the timing or the steepness of the ramp.
The timing is, again, what I think I have been saying for at least a couple quarters now is, we would have our first unified TDDI device ramping in volume production at the end of this calendar year.
We are right on target.
In terms of limitations, the biggest limitation is that it tends to be a longer design and cycle then maybe historically you've seen from us with our touch control ---+ our discrete touch controller solutions, as an example.
We have to work with the LCD manufacturers very early on.
They actually cut glass specifically for our solution because we have a specific pin-out.
The other limitation there is, in some cases, it's the first time they are doing in-cell touch solutions.
We kind of have to go through that learning cycle with them.
All of that is good, because it obviously embeds us then as the incumbent supplier, but it does take a while.
Now, we've built that into the discussion that we've had in terms of available solutions for our side on TDDI, as well as the expected ramp that we have from our customer base.
That's why [we said] well, we'll start this year ---+ we'll be fairly light as we go through that learning cycle, but once we get that first device out there, get those first solutions, the LCM manufacturers understand how to build with our TDDIs and do embedded ---+ excuse me, do in-cell touch.
You will see a very nice ramp as we move through the balance of the fiscal year, and then of course calendar 2016 will be very exciting.
We have multiple plays in the PC business.
It's always tough, as you can imagine, <UNK>, when the market shrinks 10% year-over-year to develop a great way to grow your business.
And for us specifically, of course, it's client notebooks.
And is force an opportunity.
Yes.
Keep in mind that force for notebooks tends to be a little more expensive solution, because you tend to want to use glass on the touchpad as well as the actual implementation.
If you have haptics, it can tend to be a little more expensive.
So there are obviously our few force pad solutions in the marketplace, but they all had to be higher end, which then of course tends to be limited volume, given the competitive nature of the notebook market.
But where we see some real interesting opportunities in the PC market is a couple of areas.
One is SecurePad.
You will see solutions launched in the first half of calendar 2016 with SecurePad, which for those that don't know, that's where you have fingerprint actually built right into the touchpad.
A lot of interest in that solution.
And then, we've talked previously, not so much in the prepared remarks this time, about some of the solutions that we're bringing for the desktop marketplace.
Again a fingerprint solution in a mouse or a keyboard or something we call SmartBar to help in gaming, which is a strong part of the PC marketplace.
But all of those are in the desktop area.
Okay, thanks, <UNK>.
First, I should talk more ---+ somewhat similar to the question I had earlier about where's Synaptics going in terms of capital allocation and so on.
As you can see from the last few years, since I have been on board here at Synaptics, our plan has been growth.
We have done a number of acquisitions during that time period, including very sizable ones for, at the time, the size of our company.
We continue to aggressively look at that path, and really that's the priority.
When I'm thinking about where this company wants to go, we're going to continue to drive the company on a growth path, continue to be aggressive out there, look for opportunities, but they really, really have to be the right opportunities.
I think we've demonstrated that we have been particular, while aggressive, to land the right opportunities that can turn accretive pretty quickly, be strategic to the company, and ultimately to hit our first priority: allow that growth that we seek on both a short-term and a long-term basis.
Well, as I said, I think about every day on how we can get can grow as an independent company.
Obviously we are a public company, and at some level you always have to be open to other ideas out there, but again, my mission is to grow.
Okay, hi.
It's <UNK>.
Just as a backdrop, we're continuously looking at opportunities to manage our global footprint as best we can.
<UNK> talked earlier about the fact that we've got a large and growing operation in India.
We've also got a large and growing operation in China as well.
And so, as far as we're concerned, we're continuing to invest.
If you take a look at our head count sequentially, even coming into this quarter, it has grown.
We have grown as a company.
And sequentially into next quarter, we expect to grow as well.
The guide down into December.
Part of that had to do with the restructuring that took place related to our RSP acquisitions.
So we called out the restructuring that we had completed, and we're going to start the benefits of that restructuring right away.
We're going to continue to invest where we feel it's necessary, and we're also going to follow our operating model.
So we're going to continue to do both.
Obviously, we're taking a look at all types of discretionary expenses.
As <UNK> talked about earlier, the market has softened a little bit, and so our entire global workforce is looking at discretionary expenses as well and seeing where we can save, and so we will continue to tweak that and to take a look at that.
And if we can find a few basis points to add to the bottom line, we will.
We continue to be focused on investing in the right places, and actually continuing to increase our headcount.
But with our global footprint in mind, rather than just our domestic footprint.
Yes, thanks for the question.
If you just look at the quarter we just completed, to put it mildly, there's a little bit of churn in the marketplace.
And whether it was China or some of the other aspects of there, and then at the end of the day, we've knocked it bang on, right exactly on our midpoint on almost everything, gross margin, OpEx, and revenue and so on, despite all the churn out there, and one thing that's really hard to control as a company, of course, is what the markets do.
That's kind of why we have that disclaimer of there: well, we've got a plan, we feel really good about our roadmap, but as I said, I feel much better about our roadmap than any time in the history of the company, given just the number of cool solutions that we have ready to roll out there.
But, we can be surprised.
China is an example.
I think it's valid that you brought up.
It's softer than we expected back in July, when we initially gave the annual guidance.
We were expecting the China smartphone market continue to grow, obviously, at much moderate pace than in the past, but that's clearly ---+ Now, as we look forward over the course of the fiscal year, it's probably flat in terms of growth.
So the smartphone market overall, the expectations are somewhere in the high single digits as we look calendar 2016 over calendar 2015.
Obviously the PC or notebook marketshare numbers have come down.
So we've compiled all of those things over the last couple of weeks, just like we did back in July, stared into our crystal ball, and listened to our customers.
One thing ---+ advantage we have now that we didn't have in July: we're three months smarter.
We understand a few designs that we now have, but there is still a lot of work to be done here at the company.
So fairly long answer there just to say, yes, we're doing our best jobs looking at a fairly turbulent market and making a call based on the best information we have today.
Okay.
Thanks for all the great questions.
It's always good to hear what's on everyone's mind.
One thing I just want to again remind you, that we do have our analyst day here in a few weeks, and at that time we typically give a competitive update, our market shares, all those different additional color on a number of the questions that we got today.
I hope everybody can make it, and I look forward to spending the day with you.
Thank you very much.
| 2015_SYNA |
2016 | MCF | MCF
#Thank you.
I would like to welcome everyone to Contango's earnings call for the second quarter of 2016.
On the call today are myself; <UNK> <UNK>, our President and CEO; Steve Mengle, our Senior Vice President of Engineering; Tommy Atkins, our Senior VP of Exploration; and Carl Isaac, our Senior VP of Operations.
I'll give you a brief overview of financial results, and then we'll turn it over to <UNK>, who'll give you an update on our recent operations.
We'll follow that with a Q&A session.
And just as a reminder, as typical for most companies, we'll limit questions to those from analysts that follow our stock closely, as we believe that that is the most constructive and productive use of everyone's time.
Before we get started, I want to remind everyone that the earnings press release and the related discussion this morning may contain forward-looking statements as defined by the Securities and Exchange Commission, which may include comments and assumptions concerning Contango's strategic plans, expectations and objectives for future operations.
Such statements are based on assumptions we believe to be appropriate under the circumstances.
However, those statements are just estimates, are not guarantees of future performance of results, and therefore should be considered in that context.
Moving on to the financial results, our net loss for the quarter was $17.3 million, or $0.90 per basic and diluted share, compared to a net loss of approximately $19.5 million, or $1.03 per share for the prior-year quarter.
As you noticed in the release, there were a number of factors that contributed to the change.
The major positives being lower cash costs, lower exploration expenses, and lower DD&A in the current-year quarter, offset in part by lower revenue due to lower production and prices, and the fact that we fully reserve the potential deferred income tax benefit for the current-year quarter.
Excluding the pre-tax impact of non-cash impairments and non-cash mark-to-market hedging loss for both periods, pre-tax loss for current quarter was $9.3 million, compared to a pre-tax loss of $29.3 million for the prior-year quarter.
To put the quarterly results on a comparable basis as consensus recurring estimates ---+ so, that is, excluding the mark-to-market loss on hedging and excluding the valuation allowance for the income tax provision, net loss for the quarter would have been approximately $0.35 per basic share, which is comparable with the consensus estimates of a loss of $0.33 per share.
Adjusted EBITDAX, as we've defined in our release, was approximately $10.1 million or $0.53 per basic share for the current quarter, compared to approximately $19.9 million, or $1.05 per share, for the prior-year quarter, a decline attributable primarily to the lower revenues, but offset in part by success in lowering lease operating and cash G&A expenses for the quarter.
Cash flow per share for the quarter was approximately $0.47 per share compared to $1.01 per share for the prior-year quarter.
To illustrate the benefit coming from our emphasis on cost improvement for the second quarter, we reduced per-unit cash cost ---+ that is, cash G&A and LOE, and excluding production and ad valorem taxes ---+ by 13%, and that's despite a 24% decrease in second-quarter production, period over period.
We continue to stay focused on further improvement in reducing costs, especially those that we have the ability to control.
Production for the current quarter was approximately 6.8 Bcfe, or 74.6 Mmcfe per day, which was within guidance but below the 98.4 million per day in the prior-year quarter, a decline that was expected due to very little drilling in the last 12 months.
We have provided guidance of 67 million to 72 million equivalents per day for the third quarter of 2016, with roughly the same commodity mix as in the most recent quarter.
As noted in our release, we shortly will be commencing drilling on our newly-acquired acreage in the Southern Delaware Basin.
However, we expect very little production from that drilling prior to year end.
Crude oil and natural gas prices during the quarter were down 27% and 25% respectively, which, combined with the decline in oil production as a percentage of total production, caused a weighted average 28% decrease in our equivalent price to $2.85 per Mcfe for the quarter.
We continue to identify and pursue opportunities to reduce field operating cost, as evidenced by the $3.3 million decline, or 36%, in quarterly lease operating cost.
As I mentioned earlier, that also represents a 16% decrease in per-unit cost, despite the fact that the vast majority of our lease operating expenses are fixed, and despite the 24% decrease in production.
Guidance for the third quarter of 2016 is $6 million to $6.5 million, a little higher than the second-quarter LOE due to some planned expense workovers.
Exclusive of non-cash stock compensation expense, cash G&A expense was $4.1 million for the quarter, or $0.60 per Mcfe, compared to $6 million, or $0.66 per Mcfe, for the prior-year quarter, a 32% decrease attributable to an August 2015 reduction in force in our corporate offices that reduced head count by 30%.
Just as we have done in the field, we will stay focused on minimizing administrative cost in this low-price environment.
Guidance for the third quarter is $4 million to $4.5 million, and we do believe that, despite the reduction that we had in 2015, we do still possess the right team as we reengage in drilling on our new Delaware Basin acreage, and do not anticipate any meaningful increase in G&A associated with that program.
We had approximately $111 million outstanding on our credit facility at quarter end, which was a reduction of about $4.5 million from year end.
In conjunction with the closing of our recently-announced Delaware Basin acreage acquisition in late July, on July 22 we also completed a public offering of 5 million shares of our common stock for net proceeds of $46.9 million, to use in funding the initial payment on that acquisition and the funding of the first several wells.
<UNK> will expand on that in a little bit when he's in his operations review.
At July 31, we had approximately $69.8 million outstanding on our revolver, with approximately $68.2 million available for future borrowing under our $140 million borrowing base.
That concludes the financial review, and I'll now turn it over to <UNK> for the operations update.
Thanks, <UNK>.
Good morning, everyone, and thanks for being with us today.
I'll give you a brief update of kind of what's been happening during this past quarter.
From a calendar standpoint, the second quarter ended quietly, with the results within guidance, and with very little CapEx activity.
But if you ---+ as you've seen from our news releases, things got a little bit more active in July.
We've been working with a private company for a few months regarding the position in the Southern Delaware Basin, and we were able to close that acquisition and exploration agreement here recently.
We feel really good about the fact that the seller wanted to retain a 50% working interest in the leases we acquired.
So, after the carry portion of the purchase price has been paid, we'll be 50/50 partners.
In order to fund our early capital needs for that project, we also completed a public offering in which we received proceeds of approximately $47 million.
We're very excited about this new acreage position and our ability to raise new equity capital that will allow us to develop this acreage, using internally-generated cash flow, and also maintain a healthy balance sheet.
We've been looking for an entry point here into the West Texas area for quite some time.
We were looking for an area that could give us inventory of high-quality drilling opportunities that give us good returns in this lower-price environment that we're in now.
I think, in terms of structuring the transaction in the way that we did, which includes an upfront cash payment of $10 million in carries, or through well carries, over time, and an approximate $5 million contingent amount to be paid in the form of spud fees after we drill the first six wells, we think that's ---+ the deal structure was very fortuitous for us and very helpful for us to get it done.
As you saw from the press release that we issued, upon closing the transaction the total consideration, assuming all fees are paid, will be approximately $25 million, or $5,000 an acre.
We think that compares very favorably with other transactions that have been announced in the area.
Just to the north of us, there's been a few public companies and a ---+ and private companies purchasing acreage, more in the, I'd say, $25,000 to $35,000 per acre range, so we're very ---+ feel very fortunate to be able to ---+ have been able to purchase this at that price.
Our current plan is to spud our first well some time in October.
Working on some logistics now; but, soon as we iron that out, we'll be ready to go.
We would expect first production [as] 60 days after spud.
We expect to have a rig drilling continuously as we monitor production results.
And again, assuming success, and assuming oil prices hang in there, we would expect to have a second rig, kind of the middle part of 2017, and possibly a third rig in 2020, all designed to keep our CapEx program with internally-generated cash flow.
And on that pace, we hope to produce a modest annual increase in production over the next 4 years and meaningful increases in cash flow, reserves and reserve value, as we move to a more balanced commodity profile.
Again, assuming current commodity prices and service costs, and using our strategy of staying within cash flow, our CapEx program over the next few years is expected to be focused almost entirely on this project.
We'll continue to preserve our lease position in our other core areas, a lot of which are either HBP or have a lot of term remaining.
And to the extent prices improve, or other conditions change, we might allocate some capital to those areas.
So, I'll share a few detailed expectations we have for our Southern Delaware project.
We estimate that we have between 150 and 160 gross locations from three benches ---+ the Wolfcamp A, the Wolfcamp B, and the second Bone Springs, with additional potential for more locations in other less-developed Wolfcamp benches and the Bone Springs.
These locations are assumed based on approximate 1,000 spacing and 10,000-foot laterals.
Completion design includes approximately 50 stages on a 10,000-foot lateral, 2,000 pounds of sand per lateral foot, and approximately 80 barrels of water per lateral foot.
A 10,000-foot lateral in a Wolfcamp A well ---+ it's expected to cost approximately $8.2 million.
If average results are consistent with our type curve, the average well will provide an estimated 41% rate of return at yesterday's strip.
So, you can see that this is one of the few areas that it makes sense to drill in this price environment.
And by contrast, most of our other areas require oil prices in a stable $55 to $60 range to get us a 20%, 25% rate of return at the well level.
Just quickly, regarding our ongoing acquisition strategy, we continue to look for opportunities that contain a good mix of producing reserves and meaningful resource upside, that can give us a more ---+ stronger platform for future growth as prices and costs improve.
While we continue to do that, though, we're completely focused on our Southern Delaware Basin project.
That's where the entirety of our capital will be dedicated for the near future.
We're completely focused on that.
We would love to continue to grow our position in the West Texas area for the reasons I've already mentioned.
So, I guess in summary, until we gain a lot more confidence in the price environment, we believe that our near-term strategy continues to be limit drilling only to the higher-return projects or strategic projects.
We'll preserve our acreage through extensions of core position ---+ in our core positions, and limit our CapEx program to internally-generated cash flow in order to maintain a strong balance sheet.
So, that concludes our remarks for this morning, and with that, we'll open it up for questions on the line now.
As far as type curve, I mean, we're using one type curve for all three at the moment.
The reality is, we have a lot more data in the Wolfcamp A, then in the Wolfcamp B, second; and the Bone Springs really is just developing in the area.
And so, until we get more information on it, we're just keeping one type curve.
So, it's a little ---+ we don't know as much about the Bone Springs yet.
Or ---+ yes.
A or possibly B, but yes.
Yes.
We need higher prices to reengage in that area.
Yes.
So, our type curve was generated using those wells.
So, that's ---+ other words ---+ so, our type curve is the average performance of those 20 wells.
And those 20 wells were wells that had lateral links [where] between 6,000 and 9,000 feet.
Their average lateral link was about 7,500 feet, 7,300 feet, I think.
And they were ---+ generally had the higher-profit concentrations in the [half] out of the larger frac fluid concentration.
So, they were similar in nature to what we're talking about doing.
Yes.
Well, our first well, we're going to plan on going East-West.
We think the raw properties show that, so that that's the most advantageous place to go.
There is a mix out here, of North-South and East-West.
We're pretty comfortable with ---+ that you can go either direction.
But we think that raw mechanics basically show that an East-West direction, at least in this area, is preferable.
We'll ---+ we do have to hold the acreage first, and so there will be somewhat of a spread across.
Probably the bias will be done into Wolfcamp A and the B, which will therefore hold the Bone Springs.
So, that's kind of the way that we'll go about it.
Yes.
The latter question first.
I mean, we will houseclean in and around us, we think, as well as looking at other opportunities as we go forward.
I can't remember your first question, I'm sorry.
That's correct.
And we think that we can do that.
There will be ---+ we'll have to work at it, but we think that most, if not all, of the lateral ---+ the wells would be 10,000-foot laterals.
Well, it was originally at a little higher price deck.
But it ---+ where we are today, versus where we first talked about that, is not a meaningful difference.
Thank you, and like to appreciate ---+ tell everybody we appreciate your time today, and look forward to giving you an update soon.
And hopefully if we get some improvement in these oil prices.
So, thanks again.
| 2016_MCF |
2016 | PRSC | PRSC
#Thanks, <UNK>, and thank you all for joining today's call, and thank you to my Providence colleagues around the world for their dedication to our core values, particularly around providing the highest-quality, customer-centered care.
I'm going to spend a few minutes on a few strategic highlights on the call and then hand it over to <UNK> <UNK>, our CFO, to cover the financial highlights.
As always, our focus during the quarter was on creating intrinsic value on a per-share basis through, most importantly, operational excellence and, second, towards deploying capital towards repurchasing shares instead of deploying capital towards acquisition candidates this quarter, which largely continue to have valuation expectations that are inconsistent with our investment criteria.
Our US Healthcare Services segments had another quarter of solid performance, with overall revenue growth of north of 10%, slightly exceeding our long-term growth expectations for this area.
First, I will start with Matrix.
Matrix continues to be a leader in the comprehensive risk assessment field.
In order to drive growth above the 5% expected industry growth in the Medicare Advantage population over the next several years, we are pursuing a number of avenues outside the traditional risk assessment field for Medicare Advantage.
First, as I've mentioned before, we are continuing to invest in chronic care.
We are also ramping up other new offerings to further improve the quality of care delivered in the home and to better identify and close gaps in care.
For example, last year, Matrix introduced pediatric assessments for the managed Medicaid market and also launched two chronic care pilots.
This year, the team continues to introduce new offerings such as Matrix diabetes care intervention, where we will use predictive analytics to identify members who may be at risk of diabetes and would benefit from in-home and telephonic contact with our extensive nurse practitioner network.
Second, as we have talked about before, we have ramped up our investment in sales and marketing over the last two to three quarters, culminating with the hiring of a new Chief Growth Officer in Q2.
While Matrix's revenue declined on a year-over-year basis versus a very strong first half of 2015, volumes outside of our largest client in 2015 actually increased north of 30%.
So while we think that our 8% to 10% 2016 stretch revenue growth target is unlikely to be achieved in the full year, our second half is expected to show year-over-year growth in this 8% to 10% range thanks to our sales team adding seven new clients this year, support from our existing clients and a target list that now has over 150 companies on it.
As you can see, operational excellence also led to stronger margins, higher than we expected, and should contribute to full-year margins consistent with last year's approximately 24%.
We remain favorable on the operating fundamentals of Matrix and, as mentioned, look forward to adding this very well-run in-home healthcare platform ---+ or adding to this very well-run in-home healthcare platform through both organic and inorganic growth.
Moving on to NET Services, or LogistiCare.
First, the quarter's performance was highlighted by new client wins and contract starts in California and improved financial performance in Florida and Pennsylvania due to such ---+ items such as utilization levels.
While our existing Missouri contract was renewed, South Carolina remains under appeal, and we have not heard yet on New Jersey.
We have little insight as to when we will hear on New Jersey, although the existing contract was extended through the end of August.
Second, Q2 profit was negatively impacted by investments in personnel and in a longer-term value enhancement project.
As mentioned in our recent shareholder letter, this value enhancement project is centered on deploying call center best practices, which will improve productivity and increase the use of technology in our client communications amongst other areas.
We will also focus on better utilizing our network of over 5,000 transportation providers.
Through a variety of initiatives in these very large buckets of spend, we expect to enhance our service levels and extend our strategic competitiveness over the next six to 24 months.
We are not yet prepared to size the opportunity for you, but we view this area as one of the biggest opportunities for organic value creation over the next two years.
Moving on to WD Services, a segment which is largely comprised of the May 2014 acquisition of Ingeus.
First, while not yet consistent with our long-term profitability goals, WD's adjusted EBITDA before Mission Providence was positive this quarter.
Our continuing countries, with the exception of France and the startup costs in our offender rehabilitation program, were all profitable and, overall, generated an EBITDA margin profile at or above our long-term target of 8% to 10% for the second quarter in a row.
Second, WD's overall profitability remained under pressure due to losses in France where the startup phase of a large contract remained subject to lower than anticipated volumes and an oversized infrastructure.
On France, Ingeus has deployed an operational improvement team to help turn this country profitable by year-end.
Results were also pressured by startup costs in our offender rehabilitation programs, otherwise known as [ORP].
This program is operating under a seven-year contract, and we expect to have annual revenues in the $75 million to $100 million range and acceptable margins by the end of the year.
To support the anticipated margin expansion of our offender rehabilitation program as well as to ensure high-quality services, we recently hired a former senior leader from MAXIMUS as the program's COO.
Third, the Mission Providence JV, which was formed in late 2014, won incentive contracts since April 2015 that was smaller than expected and commenced operations in July 2015.
Mission Providence's volumes under these contracts that we did win have been lower than expected, resulting in Mission Providence having a larger infrastructure than appropriate.
In response, our Ingeus operational improvement team was recently deployed to Australia for the quarter ---+ in the second quarter and is in the process of implementing a plan to both increase volumes, outcomes and productivity.
While we are acting with urgency, we hope to see breakeven profitability sometime in the fourth quarter of 2016.
In conclusion, on WD, we will reiterate that outside Mission Providence in France, our core WD operations were profitable despite the noise around such areas such as Brexit.
I'm sure that we'll see some short-term effects from Brexit due to government indecision and some smaller contracts that have some funding exposure from the European Social Fund.
However, the secular trends remain in our favor.
And, as we have with LogistiCare, we at Providence have started to work more closely with the Ingeus team around longer-term value enhancement strategies, which we intend to report more on over the next few quarters, to ensure our long-term goal of 8% to 10% margins.
These value enhancement strategies will not only support Ingeus' financial goals but also enable improved client service.
I will now hand the call over to <UNK>.
Thank you, <UNK>.
Consolidated revenue in the second quarter of 2016 was $450.6 million, a 7.7% increase over the second quarter of 2015.
Adjusted EBITDA was $30.7 million, or 6.8% of revenue, compared to $31.6 million, or 7.5% of revenue, in the second quarter of 2015.
This 70-basis-point margin contraction was primarily driven by transportation utilization returning to more normalized levels within NET Services and continued new program investment within WD Services partially offset by productivity improvements within HA Services.
Income from continuing operations net of tax was $4 million or $0.21 per diluted common share versus $0.16 last year.
Adjusted net income was $13.1 million or $0.70 per diluted common share versus $0.67 last year.
In addition to a lower income tax provision and lower share count resulting from our share buyback activity, a 50-basis-points reduction in G&A expense as a percentage of revenue helped contribute to an increase in EPS and adjusted EPS in Q2 2016 versus Q2 2015.
CapEx in Q2 was $13.8 million, bringing first-half CapEx spend to $23.6 million.
Approximately 50% of year-to-date CapEx has gone to WD Services, primarily for IT and new facility investments related to the offender rehabilitation program as well as other new programs in the UK and France.
The other 50% of year-to-date CapEx spend went towards IT investments aimed at transportation, provider and call center efficiencies within our US Healthcare Services segments.
Although we expect CapEx to decline in the second half of the year, we now expect full-year CapEx to be above the top end of our previously estimated $30 million to $40 million range.
The additional spend is coming out of WD Services, where IT and facilities costs relating to new programs are higher than originally anticipated.
Looking forward to 2017, we are focused on reducing WD Services CapEx as we put spend associated with new large programs behind us.
Working capital in Q2 was a $13.6 million cash drain, primarily the result of prepaid income taxes, insurance policies and expenses for WD Services youth summer programs.
A reversal of the AR decline experienced by NET Services in Q1 also contributed to the increase in working capital.
Year to date, excluding taxes on the sale of human services, working capital has actually provided a $32.6 million cash benefit.
On taxes, our effective rate remained elevated and came in for the quarter at 56.9% due to losses in foreign jurisdictions for which we are not seeing a benefit due to their history of losses.
We expect to see a similar elevated effective tax rate throughout the remainder of the year.
On our share repurchases, during Q2 we bought over 273,000 shares for $12.9 million, or $47.36 per share.
Since we began repurchasing shares in 2015 and through today, we have spent approximately $74 million to repurchase approximately 1.7 million shares, or just over 10% of our total shares, at an average price of $43.86.
Moving to our US Healthcare Services segment, NET Services revenue increased approximately 14% to $309.2 million in Q2 2016 versus Q2 2015, driven by new contracts and membership growth.
As anticipated, this growth rate is expected to decrease during the remainder of the year, bringing full-year revenue growth into the high single-digit, low double-digit range.
Adjusted EBITDA at NET Services in the second quarter of 2016 was $20.7 million, or 6.7% of revenue, versus $21.2 million, or 7.8% of revenue, in the second quarter of 2015.
While increased utilization contributed to this year-over-year margin contraction, a shift of long-term incentive plan costs from Corporate to NET Services as well as investments into the value enhancement project that <UNK> mentioned earlier also contributed to the decline.
While we expect additional quarter-over-quarter margin pressure in Q3, driven by seasonally high utilization in the summer months, we are aiming to deliver a full-year margin closer to 7%.
At HA Services, also part of US Healthcare Services, volume increased slightly in Q2 2016 versus Q2 of last year, while our ASP decreased largely due to customer mix.
In the first half of 2016, revenue declined 8.8%, primarily due to reduced demand from a client who drove a significant portion of our volumes in the first half of 2015.
Outside of this customer, as <UNK> mentioned, volume increased over 30% in the first half.
Because demand for this customer fell in the second half of 2015, we expect positive year-over-year volume and revenue growth in the second half.
Adjusted EBITDA for HA Services increased in Q2 to $14.6 million due to a 375-basis-point margin expansion.
In addition to continued efficiency gains, a number of other factors contributed to this unusual expansion for the quarter, including favorable geographic and customer mixes as well as a $1 million pickup from forfeited long-term incentive awards, which has since been reallocated to new employees and will thus be expensed over time going forward.
Although we do not expect to achieve this level of [EBITDA] margin we saw in the first half, and particular in Q2 going forward, our full-year outlook on adjusted EBITDA margin continues to improve, which is offsetting the dollar impact to adjusted EBITDA of volume growth being below our stretch goal.
In Q3, we are expecting margins to contract into the low 20% range as we build additional capacity ahead of an expected uptick in volumes in Q4, resulting in full-year margins consistent with what we achieved in 2015.
Within our global workforce development segment, revenue declined 3.1% in Q2.
However, on a constant currency basis, revenue increased 1.6%.
Prior to the impact in Mission Providence, adjusted EBITDA for the quarter was $2.3 million, or 2.6% of revenue, versus $4.7 million, or 5.1% of revenue, last year.
This decline was due to startup activities at our offender rehabilitation program that were delayed from 2015 into the first half of 2016.
For the full year, we still expect adjusted EBITDA margins prior to impacting Mission Providence to be in the mid-single-digit range, which implies improved margins in the second half of the year.
Mission Providence's adjusted EBITDA in Q2 was negative $1.2 million.
Although losses narrowed on a quarter-over-quarter basis, we are implementing measures aimed at increasing job advisor productivity and improving job verification processes.
Our team has also started to reduce the cost side of the equation in an effort to turn the JV profitable by year-end.
Adjusted EBITDA at Corporate for the quarter was negative $5.8 million and included a $1.2 million benefit from cash-settled equity awards.
Remember that such awards are effectively marked to market each quarter, so increases and decreases in our share price result in expenses and benefits, respectively, to our P&L.
Given the higher anticipated audit and SOX costs experienced in Q1, higher legal fees in the first half and the burden of approximately $1.1 million of remnant human services expenses so far this year, we are now expecting adjusted EBITDA at Corporate for this year to be roughly in line with last year.
I will now turn it back over to <UNK> to close the call.
All right.
Thanks, <UNK>.
Hopefully as you have heard in today's call, we are very focused on supporting our segments' leadership positions without only capital, but also by supporting our CEOs and their teams who are leaders in their industry domains.
As we enter the second half of 2016 and improve our cash generation through reduced CapEx in 2017 and 2018, reduce startup costs at Ingeus, and we start to see the benefits of our value enhancement projects, we feel pretty good about our financial profile over the next few years.
We also believe that Providence will increasingly become a preferred partner and attractive option for companies and leaders who are seeking an alternative to traditional private equity or strategic owners.
In order to prepare for these potential partnerships, we added to our Board of Directors and holding company team during the quarter.
We added three new directors with current or prior CEO experience and demonstrated success in both investing and operations at institutions such as Warburg Pincus, GCA Savvian, Robertson Stephens and Alexion Pharma.
We have also rounded out our holding company investment capabilities with team members who have previously worked at world-class institutions such as Cravath, Swaine & Moore, Blackstone Private Equity, and GE.
Finally, as I said in our shareholder letter, I would like to thank each of our Providence colleagues for their dedication and focus on client care.
I also said capital allocation is a major focus at Providence.
But what truly sets Providence apart is our team of leading experts in healthcare and workforce development services.
Our people are passionate about working with clients and patients to help them better manage their health and improve their quality of life.
We would like to thank you for your support of our long-term ---+ continued long-term focus on value creation.
We have a strong sense of urgency around short-term achievements and believe that our culture of operational excellence will drive exceptional client outcomes in 2016 and beyond.
I will now open it up to questions.
Thank you, <UNK>.
Good morning.
Going forward ---+ and also a lot of our growth that we experienced in Q2 was coming, as we mentioned, from new contracts, particularly in the managed care ---+ the MC arena.
And as we look forward, although we do have renewals and RFPs related to some of our current state programs, we look at growth more coming from the MCO contracts, which tend to be smaller dollar value than a state contract.
But we do see quite a few of those contracts coming out.
Sure.
I will take this one.
We've had a team of approximately ---+ a core team of approximately seven to 10 people working on this program for the last two months just to identify the big buckets and then drill down into some smaller segments within those buckets to identify the opportunities.
What we're moving towards now is actually coming up with the plan to actually roll those out.
Some of the improvements have actually started, and actually started coinciding or even before sort of the larger program came into play.
We are not prepared to talk about the timing of the benefits yet, but I will say that we are ---+ I would say ---+ we've seen any ---+ minimal benefits from this year.
And really it's going to be more focused on 2017 and 2018.
We would like to do some more work on it internally.
It is going to take some investment, as it has this past quarter, around areas such as hiring process improvement talent, which we don't have a huge deep bench right now like we do at Matrix.
So it is going to take some time to recruit those people, do some training within our ranks around some of these changes, and then also come up with the workforce management plan, which hopefully we will be able to communicate more about this fall and relay some of the ---+ some examples of some of the sizes of the opportunities that we're looking at.
Sorry I can't be more specific.
Sure.
Within the US Healthcare Segment areas, outside of this value enhancement project, we should be sub $20 million.
We're going to have some elevated CapEx from this project at LogistiCare, but it's not huge by any means.
So next year, we are probably talking in the $20 million to $25 million range, and this is all very preliminary because we haven't gone through our budgeting process yet.
Then over at WD, it should be fairly minimal in the core operations.
The one thing that would drive it up is the next phase of the Work Programme, which we will be hopefully bidding later this fall.
And we could see some CapEx spend around that.
And at this point, we are expecting to be in the single digits, but we just don't know much beyond that.
So I think when you add that up, maybe you are somewhere around ---+ and this is very preliminary ---+ $30 million for next year.
And I think overall, we would like to get it closer to $20 million to $25 million in 2018.
So, <UNK>, approximately ---+ we are, again, preliminary, hoping to bring down CapEx next year by $10 million to $15 million.
And then 2018 forward, bring it down by even more.
Sure.
I think the ---+ a lot of the success or failure for some of these longer-term contracts starts in the bidding phase.
It really ---+ how you bid the opportunity ---+ the commitments that you make to the infrastructure to deliver those services start actually before you even submit the bid, really even in the design phase.
So I think we are being much more disciplined about that now under Jack Sawyer's leadership.
We have added a new business development head from Circo and Capita.
Capita is a company we respect quite a bit and has been very disciplined around their operational and financial strategy.
So we are shifting to operate more under those disciplined areas of practice.
I think what we will probably see over the next couple of years is perhaps a little bit of ---+ not so much growth on the top line, but we could even see some areas shrink a little bit, and that is also contributed to by the Work Programme.
Expecting ---+ we are expecting that to be smaller than it has been in the past.
Offsetting that is we expect to see higher profitability.
We're still pretty focused on that 8% to 10% margin.
And then longer-term, we are already starting to build ---+ plant the seeds to diversify in some smaller contracts, like a diabetes prevention contract that just ---+ we just launched, which don't have the large upfront capital costs and P&L hits that we have seen in some other contracts, and are less subject to underwriting estimates that don't fall in line with reality when the projects come to fruition.
And I think if we do do anything larger, we are being a lot more disciplined on how we model out opportunities.
So we will run a lot more sensitivities to the downside to protect ourselves.
Now, that obviously means that we will probably not ---+ our win percentage will go down as well.
But when we do win, I think we will all feel a lot more confident in our ability to execute profitably.
Just to sum up, I don't see a lot of top-line growth.
We could even see some shrinkage over the next year or two ---+ modest shrinkage.
However, profitability we see moving the other way, as exemplified by our core businesses outside of the start-up costs two quarters in a row being at or north of our 8% to 10% margin profile.
So I think, all in all, we feel ---+ we're working hard on it, and I think longer-term, we feel good about the business.
Sure.
We attack it on a few different fronts.
The biggest thing that we can do in a place like Australia as we drill down into what's driving the profitability is driving more throughput.
So, that is really what our Ingeus team is focused on.
How can we improve client engagement, getting people in the front door but then also improving outcomes.
One of the areas that we're trying to improve outcomes is around the verification process, which across the industry down there is not ---+ is showing some teething issues.
So, that's one area.
On the cost side, that varies by area.
We have already started some cost reduction down in Mission Providence recently.
In France, I think most people are aware that it's a little bit more difficult to right-size your infrastructure, so that can take a little bit more time.
Then the third area ---+ but clearly, we are focused on it.
And then the third area is around contract renegotiations.
In Australia, I think most of our peers that we have talked to and some have said publicly ---+ and there is trade body out there who has talked about it around some of the issues that we are talking about.
Obviously, we are working closely with the government down there to improve areas such as the verification process, around outcomes, looking at volumes coming through.
I can't comment on any restructuring of contracts anywhere while they are in process, but obviously we're going to try our best to get the best outcome with these long-term government partners.
But that's got to work for both parties.
We've seen it happen in the past in some areas, but again, we're not prepared to talk about it until we have an outcome.
We do.
Yes, we do.
That's ---+ we wouldn't be building the expertise at the Board and then also the holding company level unless we expected to.
We feel that our financial firepower will step up, and so that's something that we're looking forward to.
It's been, as I have mentioned, difficult with valuations where they are; us clearly not wanting to use stock because of ---+ I said we are actually buying it back.
So, yes, we are hopefully waiting for valuations to get more reasonable and then also for our financial firepower to pick up as well, so ---+
Sure.
One of the ---+ our big focus areas is in in-home care or care coordination.
We've got a fantastic operating model in Matrix with a lot of potential to do other things.
So we see ---+ by having these NPs in the home, we see a lot of different chronic conditions, whether it be issues with diabetes, heart issues, vascular issues.
We see environmental issues as well ---+ so, areas around fall protection or just people having trouble with their activities from daily living; we see opportunities in ---+ or weaknesses in a lot of members' nutritional capabilities.
So, there's just a lot of work that needs to be done there.
And I think, obviously, a lot of other people see the opportunity there, too, so it's ---+ we've looked at a lot of potential partnerships.
But, again, it has been difficult due to valuations.
Outside of that area, we have looked at a few opportunities, very high level and on a preliminary basis connected to LogistiCare.
But we are much more focused on the value enhancement project there; that's going to soak up a lot of our time over the next 12 to 24 months.
And then occasionally we do look at some other opportunities and call it ---+ in areas such as training in human capital areas, which we just view as big areas that are consistent with our ---+ what we're seeing in terms of secular trends.
Ingeus is being asked to do a lot more not only on the health side, but on the education and training.
Again, there, we just feel like we have so much to tackle over the next six months in terms of getting these start-up projects profitable that we really don't want to distract there with any acquisitions.
So ---+
I would just say we are ---+ what we are trying to, I guess, minimize is ---+ on the other hand is ---+ what we're trying to stay away from is probably some areas around big, concentrated exposure to ---+ whether it be more exposure to certain governments that we already have exposure to or clients as well.
We are focused on more diversification around the client base.
Yes, I think it will be a combination of factors: one, where our profitability is on a geographic basis; and then two, our ability to demonstrate profitability in certain areas where we are currently generating losses.
So, until you are able to ---+ for example, in France ---+ demonstrate ongoing profitability, you can't ---+ it's difficult to use those losses to offset profitability, offset gains.
So, I do expect that, over time, as certain geographies where we are currently losing money, as those become profitable, that we will start to see the tax rate approach more the 42% range.
But it will ---+ it could take time.
Yes, possibly.
Great.
Thank you.
Thank you, everyone, for your participation.
As always, <UNK> and I are here to answer any questions or to visit in person.
We see a lot of familiar names on the call this morning and think of each of you as long-term partners, so we welcome your participation and welcome your calls going forward.
So, thank you.
| 2016_PRSC |
2015 | CLH | CLH
#Good morning.
Today we distributed our blended products to about 50 different distributors, and we want to continue to do that.
We have good relationships.
In many of those relationships, they in turn distribute directly to our customers for us.
There are a number of markets where we also have customers that we have historically distributed directly to.
As you look at the infrastructure that the combined Clean Harbors and Safety-Kleen now has, there are several markets where it would be more efficient, and we would be able to expand more, if we serviced a lot of our existing, let's say, Safety-Kleen core environmental customers, which total over 200,000.
As we looked out over the next three years, we'd really like to get to the 80% blended level in our business.
We really want to expand our blended business.
It would probably be broken down into continuation of growth with our existing distribution network, as well as the expansion of our direct sale business.
That's probably the number that you might want to measure us by.
That 80% number is really where we'd like to get in the next three or four years.
I think manufacturing was up; I think chemical was probably the one that got impacted a little bit by the strike in the port.
Manufacturing ---+ <UNK>, did you want to touch on that.
Oh, absolutely.
Manufacturing is doing well.
Many of our clients, whether you're talking about ---+ we typically don't talk about specific clients, I'm sorry.
But when you talk about some of the major corporations across America, we have very good relations.
To the extent, certainly, any of the expansions are going on with the lower price of natural gas and a little bit more manufacturing that we're seeing in North America, I think you'll see us grow right with that.
It's not only the industrial, but it's also the waste ---+ the hazardous waste that they generate regularly in their business.
We're excited about that, and you're seeing some evidence of that the first quarter there.
Thank you.
Okay.
Again, thanks again for joining us today.
We really appreciate your questions and comments.
We're going to be participating in several conferences and events in the next month here in Boston, as well as in Las Vegas in conjunction with the Waste Expo.
We hope to see many of you at those events.
Thanks very much.
| 2015_CLH |
2016 | CUB | CUB
#I will let <UNK> address that.
Yes.
So I mean, you could really ---+ it's two things.
One is we have lower revenues in London because we no longer get a usage bonus.
That was probably $10 million to $15 million per year.
And then the other change, of course, is ---+ what I talked about in the call, is the lower exchange rate.
So, we've kind of given kind of the headwinds from the lower pound rate, but effectively, the pound is down, say, 10% year-over-year ---+ 10% to 12%.
So I don't see any operating changes as far as the subway goes or anything like that because of Brexit.
This is <UNK>.
I'll address where the solicitation stands, and <UNK> can talk about the economics.
So we've turned in our proposal.
We did a great job on our proposal.
And as you might have noted, we teamed up exclusively with our customer transport for London.
They had provided some EMV open payment technology that we believed the New York customer really liked.
So, we feel very fortunate with the teaming agreement that we have in place.
As you know, we've been there for a long time and have done a great job there.
Orals are coming up towards the latter end of this month, and both Cubic and Transport for London will be at the table with our customer in New York.
We expect that will be down select to a few, post the orals, and then we expect ---+ the customer has told us to expect an award before the end of the new year.
Some of our team is a little skeptical that that may slide a little bit.
I would guess that it will be somewhere in the first quarter of next calendar year.
Yes, I'll just add, <UNK>, that the contract to do the system would be done over, say, two to three years.
From what we can determine right now, it's going to be percentage completion accounting, so our revenue would start to show up once we kind of cost on cost.
So it will have some positive incremental revenue impact in 2017.
And then we would see full-year benefits in 2018, 2019, and 2020, and then they are also going to procure services as well.
So this will have a really long-term tail.
Yes, this is <UNK>.
We've tended to see change orders over time.
We have a number of change orders that we are working on, so I would expect modest growth in London in the near-term.
<UNK> may have more to add.
Yes, I think we are seeing some expansion on the road work that we've been doing with our ITMS business.
The fare collection business, we are ---+ we've rolled out the open payment, so I think there will be further add-ons there.
And then another important part of what we are doing in the UK is, I think we've got about an 80% market share with all the train operating companies where we have put gated systems.
And so, there's kind of a movement to put some oyster applications into the train operating companies' systems.
Well, it's a quick short, you get an order and you ship it pretty quickly.
So volume does matter.
Fortunately, these products are in very, very high demand, and we are providing very innovative solutions to SOCOM and the like, and they are deploying them pretty quickly.
So we expect nothing but demand to grow.
That program of record we won with the United States Army, we are in the LRIP phase, low rate initial production phase, where they bought a few terminals.
And that will expand from hundreds to, you know, maybe 1,000.
Our team continually is working on new innovations.
A lot of products in that business are commercially priced, so they have less margin pressure.
So we would expect very good margins in that business.
And I would just add, like when you are in LRIP, obviously you start to get a lot better efficiencies with your suppliers once you kind of go into steady-state.
I don't see ---+ actually I see our margin profile probably getting better as the programs mature.
Yes, let me address that.
So most of that, <UNK>, would've been compensation-related purchase accounting.
So when we bought the companies, because they had options for the employees ---+ and <UNK> Harrison, you can jump in, but I believe that was about $25 million of the $30 million.
So I think on an ongoing basis, just the kind of purchase accounting stuff is probably about $5 million to $6 million per year on a go-forward basis on the recent acquisitions.
It's related to earnouts, primarily.
So, this is <UNK>.
So, in Sydney, we are in the process of rolling out a pilot to bring open payments there.
We think that that pilot will turn into a job across the enterprise there that will be worth north of $100 million to us.
We are seeing a bunch of procurements potentially coming out in Boston and then the like of ---+ of course, there's New York City.
The system in Washington, as you know, a competitor received the pilot, and fortunately or unfortunately, depending upon who you are, it didn't work out so well.
So they were canceled.
We are starting to see some demand there.
I would expect us to get upgrades in Washington, DC.
As you know, there is a competitor who did the system in Philadelphia.
You know I've heard mixed things so we'll see how that plays out.
In Melbourne, as you know, we were not the incumbent.
There was another outfit that was the incumbent.
And they had a cost advantage on us being the incumbent of running their system.
And it ---+ the customer didn't want to pay a premium to select us.
So the incumbent won.
In terms of the overall pipeline of opportunities going forward, <UNK>, there is plenty to bid on to grow this Company.
Our team is ---+ you know, when we get New York and Sydney, I think there will be 8 instead of a 6 in front of hundreds of millions, and there's a lot more opportunities to bid on.
The CTS team is working to get to $1 billion in the midterm.
So we see plenty of growth there.
I might just add, <UNK> ---+ I saw on the wire today we announced an upgrade for Miami to basically take them from stored value to open payments, and also to put some of their system into what we call the cloud.
I think that's going to be indicative of what we are going to see kind of across our installed base, is that we are going to see a lot of upgrades.
So, this is <UNK>.
How are you.
You know, I'd say a couple things.
The first is that we have greatly improved our estimating system in the Company, and we are really looking at the underlying metrics that drive nonrecurring engineering, and really honing that, and getting multiple estimates, and making sure, and doing risk-adjusted cost estimates when we think about how to price these opportunities.
And so ---+ and we are working very hard and have been working at improving basic program management blocking and tackling execution.
More fundamentally, we are changing the business in the sense that we're going to have reusability of code from one system to another.
Matt has hired a Product Vice President that, if you will, is creating Legos for the various pieces of functionality, and we're going to have high reusability of the software going forward.
And that will reduce the risk inherently going forward.
So, we absolutely have been learning and intend not to have nonrecurring whoopses going forward.
Thank you for joining us on the call today.
We are excited about Cubic's future.
Thank you very much for your continued interest and support in our great Company.
| 2016_CUB |
2016 | FLS | FLS
#So, basically from the actual expense going out in 2017, we basically ---+ you should be looking at it in the concept of approximately $160 million for 2016.
Incremental to that will be in 2017 approximately $90 million for a full spend in 2018 of approximately $400 million.
Going forward, currently we are paying about $15 million a quarter in terms of paying down debt.
So about $60 million annually.
And 2017 will be consistent with that on the debt payments.
| 2016_FLS |
2017 | JCI | JCI
#Good morning
So for the first time, we will be reporting Corporate as a standalone segment
I think this provides a bit more transparency to the true underlying EBITA performance of our businesses
This segment is really comprised of enterprise-wide costs like executive management costs, public company costs, and other functional administrative costs that really aren't directly attributable to our primary businesses
Our Corporate segment expense did decrease 12% year over year, and this was primarily due to some of the productivity initiatives and the merger synergies that we had identified as part of the planning process last year, and both were a bit better than expected in the quarter
If I turn to slide 13, there are a lot of moving pieces in this quarter relative to the special items and also the fact that Adient is for the first time reported as a discontinued operation
Given the size of some of the special items, let me just briefly comment on each of those, the first being transaction, integration, and separation costs associated with our portfolio activities
That was roughly $134 million, and the way to think about that is about half of it is transaction-related and half of it is integration-related
We had a restructuring and impairment charge for $78 million
The majority of that would be severance-related
We had a lump sum pension buyout in the first quarter
And as a result of that, which was done in connection with the Adient spinoff, there's a requirement to go through a remeasurement of the liability and assets in the first quarter
And that resulted actually in a $117 million gain in Q1. We had some non-recurring purchase accounting expenses that <UNK> referred to
The two primary areas there are the inventory step-up amortization, which is now fully behind us at the end of Q1. And also, we continue to amortize the backlog asset that was set up as part of purchase accounting
And then lastly, there was a discrete tax benefit related to some planning in our foreign entities that resulted in a $101 million benefit
The net of all that is a $0.14 charge, which when added to the $0.39 reported gets to the $0.53 that we've been talking about this morning
So, as I go through my comments, I will exclude these special items and also the comparison will be the pro forma combined financials that we put out on fiscal 2016 in the November 8-K that we filed
So, overall first quarter revenues were up slightly at $7.1 billion
If you exclude FX, lead, and M&A activity, organic sales were up 1%
Gross margin was constant at 31.2% and SG&A was down 3%, which was reflective of the cost reduction initiatives that we have across our business and the merger synergies
If you move to equity income of $55 million, it was 20% higher than year-ago levels, again related primarily to the strong Hitachi year-over-year performance
And then as <UNK> mentioned, for the first quarter we delivered double-digit segment EBIT growth, and we had EBIT margins of 10.7% which were 90 basis points better than the first quarter of 2016 and again both of those exceeded our expectations for the quarter
If we turn to page 14, net financing charges were $119 million which were slightly higher than last year, and our effective tax rate as we communicated on Analyst Day was at 15%, which compares favorably to last year's rate of 17%
Hitachi continues to perform well and that is also the reason for the increase to $40 million in the minority interest add back line item on the income statement, it's up $11 million year over year
And then overall we had a really strong first quarter with diluted EPS of $0.53 versus $0.48 a year ago
And our business unit management team really continue to deliver strong results during this period of transformation and the level of integration activity that's going on across our company
So turning to cash flow on slide 15, our first quarter adjusted cash flow was an outflow of $300 million
As mentioned at Analyst Day, there are a number of one-time expected payments that we realized in the first quarter
The most notable is the $1.2 billion tax payment we made related to the Adient spin-off
We also had some other items related to Adient's cash outflow for the quarter of $300 million and then we had some restructuring and change control payments of $300 million and transaction, integration and separation costs of a couple of hundred million which would include Adient
So, Q1 has historically been a cash outflow quarter for us
So, the adjusted free cash flow number is consistent with our expectations and we remain focused on delivering the $2.1 billion in adjusted free cash flow for the year
If we move to the balance sheet at quarter end, we had net debt to cap of 33.6% versus 39.7% at year-end
That's really related to the fact that as part of the Adient spin-out there was a $4 billion reduction in our equity and as a result that drove the increase in the ratio
Also during the quarter, we completed our previously announced debt exchange offers related to both the legacy JCI and Tyco debt, and we also made $535 million of scheduled debt repayments in the quarter
I would also just point out that beginning in Q2 we commenced a share repurchase program and expect to buy back about $200 million to $250 million of our shares during the rest of fiscal 2017. And again as we've mentioned, this is really focused on countering the dilutive impact of stock option exercises
And then finally I'd just comment that we continue to evaluate our overall capital structure in order to take advantage of opportunities related to the current interest rate environment as well as the timing of our future debt maturities
So, if you move to slide 17, just a couple of things I'd like to point out here
We've already talked about Adient being reflected as a discontinued operation
Just as a reminder, beginning in the third quarter of this year, we will be changing our segment reporting for the Buildings business
At this time, for the first and second quarter, we'll continue to report segments for I would say the legacy BE business in the same four segments we've reported previously
And then Tyco will be reported as a single standalone business within the Buildings set of businesses
And, as you may recall from Analyst Meeting, when we get to the third quarter, we'll have a Global Products segment
And then, we will have our Installation Project Service business, really our field business in three geographies; North America, Europe, EMEA and Latin America, and Asia
Also, as we move through fiscal 2017, we'll continue to have some special items and our guidance that we give here today will exclude any the impacts of those special items
And, lastly, I just wanted to point out that we did end the first quarter, harmonized the backlog definitions between Johnson Controls and Tyco, the primary adjustment related to the way both legacy companies had treated renewable service contracts
And so, the backlog what we're reporting here that's up 6% reflects those new definitions
Moving to slide 18, which shows the waterfall for our first quarter results, you can see the $0.05 year-over-year EPS improvement
That really comes from cost synergies and productivity savings which drove $0.05, along with volume mix, which is $0.02, both in line with our expectations
In fact, the cost synergies and productivity savings is a couple pennies higher
That was partially offset by planned investments in our Buildings and Power Solutions businesses, which was a $0.02 impact
And then the favorable tax rate was really offset by the FX headwinds we had in the quarter
All-in-all $0.53, which represents a 10% growth over the prior year, and we really are off to a solid start as we move through fiscal 2017. If I turn to page 19, in fiscal second quarter, you can see here that our organic sales will be up 2% and EPS at $0.48 to $0.50, which is up 7% to 11% year over year
And this reduction in Q2 earnings compared to Q1 earnings sequentially is consistent with the historic patterns of both Johnson Controls and Tyco, and really is the result of the seasonality in our Power Solutions business where our customers go through a strong customer stocking period in the months of October through December
The waterfall also shows the benefits of synergies and productivity improvements, that does remain at $0.05 through the second quarter
I would tell you that the first quarter synergies and productivity savings were really a lot of the low-hanging fruit that we're able to quickly move on as part of integration activities
I think as we get the processes and procedures in place here over the next quarter to ringfence both the legacy Tyco business as well as our federal business, I think we'll begin to see the second half ramp up in synergy savings
And then I've got a last slide here that I just wanted to go through relative to the phasing in the first half and second half of our EPS bill
Just to provide some context around this, you can see that the normal seasonality, it's contributing a lion's share of the improvement in the second half along with the ramp-up and the synergy saves that we expect and as <UNK> mentioned, we're really running a bit ahead of our first quarter target
So I think that bodes well for us looking at the second half of the year
But all-in-all, we remain very confident in delivering a very strong fiscal 2017 and we reaffirm our full-year guidance of $2.60 to $2.75, which will represent a year-over-year increase of anywhere from 13% to 19%
So with that, <UNK>, we can it open up for questions
I think it's probably a bit of a carry-on to what <UNK> and <UNK> said regarding Buildings
I think 2.5% to 4.5% consolidated is very doable for us at this point in time
I think Power Solutions continues to perform extremely well
And if some of the backlog starts to flow in the back half of the year on the Buildings side, I think we're very comfortable at 2.5% to 4.5% as a target we can get
Yes, pretty consistent
I don't think – we did have some synergies that came out at $15 million reduction in the quarter related some to cost synergies that were permanent takeouts
There was some expense deferral that will probably come back and end up in the second quarter for us
So, I would necessarily go with that $108 million x4, I do think there's probably a slight build in Corporate expenses into the second quarter, so the range we gave before is pretty reasonable still
The performance contracting business is roughly $500 million on an annual basis and industrial refrigeration is probably $400 million to $500 million
When we gave that 90 bps it had lead out
So the number we're using is neutralized for lead
<UNK> <UNK> - Credit Suisse Securities (USA) LLC (Broker) Understood
And then secondly, just on the adjusted free cash
As you say, the Q1 is often an outflow for sort of legacy JCI
When we're thinking about the path to get to that $2 billion plus number for the year, when do you think we start to see positive sort of adjusted free cash? Is that really a second half issue or you think Q2, you'll start to see an improvement?
That's all cost
Correct
| 2017_JCI |
2016 | CNC | CNC
#MLRs are slightly lower for the Medicaid expansion population than our overall average MLR, given the lower ---+ slightly lower acuity of the population.
So that would be in line with our expectations, and then the total program size is about ---+ expected to be about 250,000 members.
That could grow over time, and they're five managed care organizations in Louisiana.
So those are the rough dimensions for the opportunity.
Yes.
This is <UNK>.
You are a little hard to hear.
As I commented at our Investor Day, we're not going to give stand-alone guidance for Centene.
So, we will have to get into that on a combined basis once the transaction closes.
We don't see PDRs (inaudible) and we tend to avoid going into businesses with PDR before you see your first [numbers].
The only thing that I would add is that, when we prepare our budgets and operating plans, we assume that we're going to win business and have new plans coming in every year.
So when we said, for example, in the fourth quarter, we've included the start-up costs for something like Nebraska.
That's because we are always anticipating a certain level of those business expansion costs.
(Multiple speakers).
We will not sign a contract where we don't think the tax (inaudible).
We look at it, we recognize that it may not be profitable from day one, but we have to have service authority.
And, I can tell you, it is policy to not go into the state if we think we're going to do a PDR (inaudible).
I'm going to drop it at that point (technical difficulty).
It's important, and I said this multiple times, in no way at any time in the past since we started doing the demonstration have we looked to the dual product for any of our growth.
We recognize that would be a very slow difficult process the way we're structured, with the opt-outs, et cetera.
And, for that reason, we have said from the beginning that it's just not something we put a lot behind.
We are doing enough.
I think we said at the Investor Day if we get to a high total [between two companies 50,000], we're doing enough to demonstrate and we really know how to do it and do it well.
And we're working with the state issues that affect the outcome so that when and if they decide to do something about it, we're in a strong position.
Beyond that, I have no great expectations.
It's not going to make or break any state or any year.
I think you're going to have to have programmatic changes to minimize the opt-out.
You can't have 50% opt out and have any continuity (inaudible).
[That has to change.
]
Thank you.
Thank you.
I want to thank you all for your interest, comments.
We look forward to another very strong year.
I hope <UNK> will be giving the same reports that <UNK> has.
Thank you, everybody.
Have a good day.
| 2016_CNC |
2017 | CLX | CLX
#Thanks, Bonnie.
So as we said, Renew Life is ahead of expectations for the fiscal year.
That's to ---+ not just for earnings per share, which we've had mentioned earlier, but also in terms of sales and margins.
The integration certainly is well on track.
And like you commented on, we're getting distribution wins with major retailers.
We expect that to continue and that was our hypothesis when we bought this business that this would be such a good fit with our capabilities in so many ways starting with distribution.
And just to name a few, in Food we got distribution wins with Albertsons Safeway, a major food retailer.
In Drug, we are seeing distribution expansion with Rite Aid, and in Mass we are seeing major wins with Walmart, so it's really across the board, which tells us that our capabilities are very relevant in this area.
And we'll begin supporting these wins with a brand-new marketing campaign later in the fiscal year that we are excited about.
And we're starting to ramp up innovations in the fiscal year back half and certainly expect more to come.
So we feel good about the acquisition and it's an example of how we want to operate.
We want to keep the core of the business healthy while putting our cash to work if the right opportunity comes along.
So the category ---+ of course, commenting on your competitive remark, continues to be growing very nicely and it's a very fragmented category still at this point so we think that this is going to continue.
But you know the tide is certainly increasing so right now I look at competition in this category and at advertising in this category as a real positive thing because awareness and trial behind these categories in the grand scheme of things compared to the other categories that we are in is very low.
So this is a good thing.
Hopefully ---+ obviously also, we expect that, as we think about the competitive environment, at some point, probably not in the next few years, but at some point, there will be more consolidation in this category because it is very fragmented.
And our hypothesis is, as we typically do well and other categories, that once this consolidation happens that our Company and our brand is going to be a winner.
But at this point competition is good because it raises awareness and trial.
And at some point it will be more cannibalistic and there will be winners and losers and we will do our part so we can be winners.
When you look at the ---+ if you look at our web attachment, you will see that the All Other category, which includes mix, was actually ---+ it was nice.
It was about flat this quarter.
I guess the two things that are worth calling out, first is the incremental distribution of disinfecting wipes at Costco.
It is a great piece of business and we're very happy to have it, but there is a bit of a negative drag on that.
We will be anniversary-ing that as we go into the fourth quarter, so that's in the number.
But it is being offset by the business mix.
We were just seeing some of our higher-margin businesses were growing a bit better in the quarter and as a result it of kind of washed that out.
I think you are going to see variability in that line item, of gross margin as we move through the quarters, but on balance we certainly feel good about the results for Q2.
The best way, <UNK> ---+ we'd love to look at this as household penetration and the household penetration over the last year on this business is up almost 20%.
So you know I'd look at that as a clear signal that, as anticipated, what the club distribution improvement has done is expand the reach of this category.
And I will remind everybody that the total Wipes category household penetration is still only at about 50% and the way we look at this is that there's plenty of room to grow.
So even though, as <UNK> mentioned, it is a little bit of a negative mix hit that will cycle through in Q4, this is a very good thing for us in the long term.
And it helps increase the reach in a category that's hot and that we expect to continue to do well even as we will anniversary the distribution win at Costco.
Let me start there and then <UNK> can comment on margins.
As you would expect, so while we don't necessarily comment on all businesses and the presence online but businesses that skew younger and businesses that from a logistics point of view are a little advantaged, like disinfecting wipes, Brita, Burt's Bees, also Renew Life, they are doing very well.
But also businesses that have somewhat of a regular purchase pattern, like Glad trash bags, as <UNK> <UNK> commented on early on, have done extremely well.
So we are seeing strength on this business across the board with businesses that skew younger, like Burt's Bees and Brita, perhaps leading the way.
As a nice little sound bite on this, Amazon.com on Brita is now our number four customer.
So it tells you that, that is a business that is doing particularly well and perhaps where the performance in tracked channels that you are all following is not telling the whole story of how that business is really doing.
And then <UNK> can perhaps take your point on margins and household.
Just turning to the Household segment, I would say actually, broadly defined by the way, we saw some nice margin expansion in a couple of our businesses including Charcoal and Litter.
The one business I would point to is our Glad business.
Now again, we feel great about the strategy to trade consumers up to the more premium segment, which as a reminder is margin accretive to the Company.
But the margins were down in the Glad business.
Part of this is just a reflection of the firming up of commodity cost but I think the larger component is really the competitive activity that we've talked about for some time in that category and the step up in investment.
So I would say overall, you know the business is healthy, our strategy to drive premium-ization in the category is working, but there's a lot of competitive intensity and spending around that and that's really what impacted margins this quarter.
That is a good question, <UNK>.
Really what you are looking at over the very long term is inflationary pressures.
Keep in mind, we operate many countries around the world that are experiencing much higher rates of inflation than the US.
So what you're looking at is a combination of US domestic inflation as well as international inflation.
I think that's the largest part of it.
Now more recently, you've seen that number increase beyond the historical trend and that's because we've made some choices to make incremental investments to support our cost savings programs to support margin accretive innovation.
To support capacity expansion behind some of our faster growing businesses.
I think as you look into the next couple of quarters, at least our plans call for the number to come down a bit.
But to be clear the inflation will continue.
And I think the best way to get after that is to keep doing what we're doing, which is drive the cost savings, tightly control our selling and administrative expenses as a percentage of sales, take pricing where it makes sense and where it is cost justified.
And as we've said for some time, if we can control the controllables I think over the long term we'll do well on margins.
Let me start with your first question.
And let's be clear, we did not know about the impairment charges.
I had mentioned in my opening comments, this is related to some communication activity that occurred in mid-December, okay.
And in terms of how we are offsetting this, again something I opened up in my comments, there's three things I would point you to.
The first is just the strength of our base business.
I'm very pleased that we've grown 4% in incremental sales growth in the first six months of the year, that is actually about 6% on a currency-neutral basis.
Our Renew Life acquisition than <UNK> commented on is actually doing quite well.
And while it is early days, we are running ahead of our first year expectations and that is it certainly going to help.
And then finally, as a part of our International Go Lean efforts, not only are we starting to get traction on our margins, but as you know, we want to not just improve margins on that business but we want to drive economic profit.
And one of the best ways to do that is to take a hard look at your asset base and make sure you are the highest value owner.
And so as a part of that, in the third quarter I am pleased that we're selling some real estate.
And not only will that generate some nice cash flows for our shareholders, <UNK>, but that will also throw off a one-time gain of about $0.05.
So those are three things that I would point out that are a bit different than our previous outlook, and overall I think we feel pretty good about the performance of the quarter and year.
<UNK>, I think you asked about e-commerce.
It is now north of 3% of total Company sales and it's going at a 30% clip.
So well on track.
Let me clarify my comments on Charcoal.
You know it was up nicely on the quarter but it's off-season, okay.
So it was helped with the margin within the segments, I think that was the question.
But I don't want to overemphasize the impact that Charcoal was having on the quarter.
As it relates to the margin drivers, obviously we are feeling I really good about the volume growth.
Of course included in that volume growth, we do have our disinfecting wipes distribution at Costco, which generates more volume than sales just because it's a lower price point, but is still a very attractive business.
Renew Life is also included in that.
But I would again just reference you to the web attachments where I think we do a very nice job of really detailing out all the puts and takes on margins.
And then, <UNK>, longer-term on Charcoal, yes, there are tailwinds and we are taking advantage of them.
One thing we are seeing is that millennials are getting into grilling and they love charcoal.
So right now the sale of charcoal grills is actually up.
So remember about five years ago, charcoal grilling was supposed to be dead and it was all going to be about gas grilling and that trend pretty much has reversed.
So that we think that creates a natural tailwind.
People love grilling.
Increasingly, people love grilling year-round.
You mentioned Super Bowl and there are certainly certain states around the country where, weatherwise, charcoal grilling is very feasible year-round.
And we're taking advantage of that trend, for instance with partnerships that we have with the NFL and ESPN, but also other things that we're doing with retailers to encourage impulse purchases pretty much year-round, even though as <UNK> said, Q2 is a smaller quarter.
But as we now start to get into the season again, in the spring we certainly feel good about the plans that we have in place with retailers to continue to leverage that tailwind that we have in the category.
Well, only for perspective, let me take the first part of that.
Renew Life contributed about two points to growth for the Company in the second quarter, so if that helps you do the math.
I would just say longer term, we continue to feel good about the 3% to 5% top-line sales growth.
The biggest challenge, as you well know, over the last year or two has been currency headwinds.
Now we do anticipate those are going to be maybe a bit less than what we have been seeing, time will tell.
And if that's the case, then I think you should see the sales growth for the Company as long as we continue to deliver good momentum, which we believe we can.
I think we can be solidly into 3% to 5% over the long term
So you have a lot in there.
Let me try this, <UNK>, starting with the S&A, as we have said I think for some time, we anticipate getting that below 14% for the full year.
I think we're making good progress against that.
As you look at the latter part of this fiscal year, particularly in the fourth quarter, we've got two things, as I mentioned earlier, that are going to work for us.
First is just ongoing cost savings and productivity.
And then the second is going to be more normalized levels of incentive-based compensation, which were elevated last year because we had a fabulous year and I think everybody felt very good about those numbers.
So those are the reasons we believe SG&A is likely to continue to come down.
For absolute clarity, the other things that I would point to, particularly in the second half, is again about a $0.05 gain associated with the sale of some real estate in International.
And again, Renew Life, this is a full-year number but it had been anticipated to be $0.05 to $0.07 dilutive.
We now think it is about flat, call that about a $0.06 change.
So those are the big drivers that I would call out.
Thanks, <UNK>.
Really encouraged by the progress in International, profit up 27% in Q2.
Specifically, I would say we have talked about the bottom-line actions for a while and we dubbed that Go Lean, and the specific actions we're taking are pricing, making operations leaner, and the Australia real estate sale is just an example of that, making sure that we only spend against activities that deliver return, employing our strong cost savings machine that you are very aware of from the US also against International.
And we're seeing that now really shine through.
But also on the top line I would say there are things that we are doing that are clearly helping.
One is we're ---+ the pricing that I described also leads to sales growth.
Renew Life is working very well, in particular in Canada.
It is a very meaningful and profitable, mind you, contributor and has done extremely well since the acquisition.
Investing in higher-margin future opportunities like Burt's Bees Asia, as I am talking about shifting mix and shifting investments towards a profitable item.
We are feeling very good about the progress that we are making in Burt's Bees.
And then Laundry certainly is a quite a profitable business in International.
And we have innovation that we are driving in the Middle East and in Latin America that is quite successful so that may serve as a few examples of specific activities that lead us to be in an environment that is certainly continue to be ---+ going to continue to be volatile and full of headwinds near term.
We are quite optimistic that Q2 will be perhaps the start of somewhat of a turnaround in International and that we will see profit growth for the rest of the fiscal year and going forward.
And as we've also commented on in the past, we are optimistic about this business in the long term, as Argentina hopefully will continue to do better as the government is taking all the right actions, and that headwind turns more into hopefully a tailwind and importantly the strength of our brands and the operations that we have in International.
You know, it is a good question.
I would say, as we had planned, we stepped up the level of our trade spending in the quarter to support our brands.
Trade spending was up versus a year ago in the quarter and again that was per plan.
And I think what you will continue to see us do is invest heavily to get the trial and repeat on our innovations.
So I think you'll see that trend continue into the third quarter as well as a step up in our advertising in the third quarter, in particular.
And some of that will come out of the fourth quarter, we're just rebalancing the quarters.
I think, <UNK> ---+ this is <UNK> <UNK>.
Just building off <UNK>'s comments, I would point to two things in that All Other line that helped it not be as dilutive as it has been in recent quarters.
One is that foreign currency was not as bad on a year-over-year basis as it had been previously, so that helped.
And then secondly, the mix effect, which I think <UNK> talked about in response to an earlier question.
Whereas, we're still seeing some product mix related to some club volumes we've discussed.
We did have much more favorable business unit mix, so mix across the franchise, that helped us out there.
And since you're looking at this gross margin reconciliation page, and I appreciate you doing so and we've got a lot of questions on this.
If you just fast forward for a quarter or two and compare versus the second quarter, I think big picture, and there's always going to be movements across these different drivers, but for market movement, our prediction is it is going to start to be a little bit more dilutive.
As we've said, we think commodities are probably going to rise after having certainly been a tailwind over the last year or so.
But alternatively, the manufacturing logistics line we think will become a bit more favorable, so gross margin may still be challenged a little bit in Q3.
Q4 may look a bit better.
But that's the way I'd look at this table in terms of the major drivers on this.
In terms of what may change going forward.
I mean look ---+ if we look at sodium hypochlorite bleach, which is I think what you're referring to, <UNK>, our strategy has always been to trade up to the more profitable items and that continues to do well.
Splash-Less is very profitable and a higher-dollaring category that is doing well and you know we will continue to drive that.
And then when we talk about bleach though, I would encourage us all to continue to think about Bleach also as a product category that includes bleach-based sprays, that includes toilet bowl cleaners, those show up in Home Care.
But if you look at those, those are all growing and in part we have record highs in some of this categories and we've had record highs for several quarters in a row.
So I would argue that perhaps all the trade-up efforts that lead to higher sales and higher profits in Bleach aren't fully reflected in the Laundry category progress, but that if you look at total Laundry and Home Care together, the Bleach category is actually doing very well and our strategy in that is working.
So to your first question, <UNK>, Scentiva pipeline volume increased in Q2.
The answer is no, so not significant.
On Wipes, this was a permanent replacement of the number two player in the category.
There is always risk of distribution gains and losses in club, right.
But in general, we have done well and we don't expect to lose that business again because the business is doing very well in Costco and elsewhere.
And as a reminder, the business, while we expand the distribution in club, also continue to do very well in food, drug, mass.
In fact the business for the most part was up double digits in food, drug, mass, as we expanded distribution in club.
And that just tells you that fundamentally the programs that we have to increase household penetration with strong marketing, with innovation and certainly with a little bit of trade promotion to counter the competitive activity as they lost distribution in club is working very well and we continue to be optimistic about the prospects in Wipes.
It should normalize, <UNK>.
Certainly, again Wipes in Costco, that is a significant driver.
If you look at volume versus sales or net sales ratio across the segments, you can certainly see that the spread between volume and sales is most explicit in Cleaning.
And I would point to Wipes as a significant driver there.
And as <UNK> mentioned earlier, we are going to cycle through that in Q4, so that for FY18 that mix headwind will go away.
You know, I'm not get into that fine detail but what I can tell you is this, is we fully expect that our selling and administrative expenses are going to be down on the year.
Now you can go look at the first half, fiscal year-to-date, look at the math and then kind of run it.
We would typically true up some of those accruals in the fourth quarter, so you might have more benefit in the fourth quarter than the third quarter, but nonetheless I think you are going to see those numbers in the second half in total come down year over year, and that will be a nice contributor to EBIT margin and should get the S&A line down below 14% of sales.
That's certainly what the plan calls for and what we're executing against.
As we have said for some time, we'll periodically go into the market to offset dilution.
We did a little bit this quarter, there was not a lot because, quite frankly, we're not seeing much option exercise activity over the last quarter so there just hasn't been as much dilution to offset.
I think on a go-forward basis, if you look at the Company today, our debt to EBITDA on a gross basis is sitting at about a 2.1%, so we are at the low end of the range.
And as I mentioned in my opening comments, we're throwing off a lot of cash so I think over the next year or two it is likely, if we start to build up excess cash, in partnership with the Board, we'll have to look at either additional inorganic growth opportunities, which we'll continue to look for, obviously, or some way of returning money back to our shareholders.
But what we will try to avoid, because it's not good for our shareholders or economic profit, is building up cash that we just don't need.
Like I said earlier, we expect this category to continue to grow and we expect our brand to do ---+ to continue to lead the sales growth in the category so there's some things that we're lapping and certainly the Costco distribution win is one.
But I will remind everybody that sales, also in food, drug, mass, and certainly other non-tracked channels, is up quite nicely.
And I think you've heard us talk about Scentiva as the latest innovation that's been received by customers very favorably to date.
We'll continue to support the business with innovation.
We'll continue to support the innovation ---+ the business with strong marketing programs.
And you know this is a business that continues to have a tailwind.
Like I said earlier, household penetration in the total category hovers right at around 50%.
And we look at that as glass half empty and think we have a lot more to go, given that household penetration and several of the other home care categories is significantly higher.
And the reality is that the Wipes product form is beginning to be the most preferred product form by consumers and we're leveraging that tailwind.
So expecting continued solid growth in the category even post-Q4.
If you think back about the conversations that we've had with you and investors over the last year or two, we've always said that, on the two businesses where we think we can do better, Litter and Brita, we want to turn those around but we want to do it the right way, meaning profitably and in ways that are sustainable.
And certainly Litter ---+ in Litter we have done exactly that.
And we have also said that in Brita it would take time until we have innovation and the time is now.
So we will invest in the back half quite significantly behind a strong innovation plan which has two components.
First of all what we call Brita Stream Pitchers, which by the way as Stephen Curry on the packaging which pops at shelf really nicely.
These pitchers address a barrier in the category and that's convenience.
You can filter as you pour and it makes the filter experience much faster.
You can filter water about 10 times as fast as with traditional filters in the category, so great design.
Very contemporary and upbeat and filter-as-you-pour.
So feel good about that.
And then second, as you mentioned long last filter, they last three times as long and are going to specifically target those consumers who you know are not replacing their filters as consistently perhaps as we would like them to.
The filter also removes lead 99%, so we can make that claim.
And it's a much better value compared to branded and also, on a relative term, private-label filters in the marketplace.
So that of course addresses value as something that has held us back in share a little bit over the last few years in the category and we expect that the two innovations together, in addressing two major opportunities in convenience and value are ---+ should do quite well.
On top we have a new ad campaign, again featuring Stephen Curry, the NBA's MVP, that was very well received in pre-market testing and that will go out in the spring.
So as a result, clearly, we want this business to do better.
It is doing much better in non-tracked channels than it is in track channels but we are feeling positive about the plans based on innovations, both product as well as in other areas and the support that we get from retailers behind those.
I missed out on that.
It does not fit with the Stream Pitchers.
That is a separate filter.
But it does fit with all the other pitchers that we sell.
Why don't we take a question from one last caller.
Thank you.
In closing, we are very pleased with our results for Q2 and the fiscal year to date.
And that of course reflects continued investments in support of our 2020 strategy.
Our strategy is working and we're staying the course with our focus on accelerating profitable and sustainable growth.
So thanks again for joining us today and we will see you all at CAGNY.
Bye, everyone.
| 2017_CLX |
2017 | RS | RS
#Thank you, operator.
Good morning, and thanks to all of you for joining our conference call to discuss our second quarter 2017 financial results.
I am joined by <UNK> <UNK>, our President and CEO; <UNK> <UNK>, our Senior Executive Vice President and CFO; Jim <UNK>, our Executive Vice President and COO; and Bill <UNK>, our Executive Vice President of Operations.
A recording of this call will be posted on the Investors section of our website at investor.
rsac.com.
The press release and the information on this call may contain certain forward-looking statements, which are based on a number of assumptions that are subject to change and involve known and unknown risks, uncertainties or other factors, which may not be under the company's control, which may cause the actual results, performance or achievement of the company to be materially different from the results, performance or other expectations implied by these forward-looking statements.
These factors include, but are not limited to those factors disclosed in the company's annual report on Form 10-K for the year ended December 31, 2016, under the caption Risk Factors, and other reports filed with the Securities and Exchange Commission.
The press release and the information on this call speak only as of today's date, and the company disclaims any duty to update the information provided therein and herein.
I will now turn the call over to <UNK> <UNK>, President and CEO of Reliance.
Good morning, everyone, and thank you for joining us today, as we discuss our second quarter 2017 results.
Continued steady demand along with strong execution by our managers in the field resulted in a gross profit margin of 28.4%, driving our second highest quarterly gross profit dollars in the company's history of $702.1 million.
Current pricing levels are higher than both the first quarter of 2017 and the second quarter of 2016, which positively contributed to our earnings.
However, mill prices were pressured somewhat in the second quarter of 2017, especially for carbon and stainless steel products, which prevented us from enhancing our gross profit margin, as we did in both the first quarter of '17 and the second quarter of 2016 when multiple price increases were announced by the mills.
In a period of rising prices, we are typically able to increase our gross profit margin, as we obtain the higher prices from our customers before we receive the higher cost metal into our inventory.
The absence of meaningful price increases and our receipt of higher cost metal during the second quarter of '17, along with the added elements of a competitive landscape due to continued uncertainty around possible Section 232 action and increased imports in the market, collectively pressured our gross profit margin more than we had anticipated.
In addition, the positive momentum we experienced during the first quarter of 2017 for both demand and metal pricing trends did not meaningful accelerated into the second quarter, as confidence around infrastructure spending and tax reforms stalled.
Because of this, in June, we announced updated guidance for the second quarter that reflected our expectation of a lower gross profit margin, although still strong and within our range of 27% to 29%.
Demand was at the low end and our average selling price slightly exceeded the top end of our original guidance range of flat to 2%.
Recently, there has been a great deal of uncertainty in the marketplace, much of which we believe stems from the pending Section 232 investigation by the United States government.
Uncertainty impacts demand momentum, as customers changed their inventory buying patterns and hold back on capital investments.
In addition, imports increased during the quarter, as we believe metal buyers were bringing in foreign metal before any steel import restrictions, which may result from the Section 232 investigation.
Higher inventory levels along with pricing uncertainty increased competition and pressured our gross profit margin.
Although, we were able to increase our average selling price for the second quarter of '17 by passing through the higher prices that were in effect at the end of the first quarter.
Mill prices for carbon and stainless steel products experienced downward pressure during the second quarter, with some relief for carbon and steel products near the end of the quarter.
Our average selling price was up 11.3% from the second quarter of 2016 and up 2.4% from the first quarter of '17.
Overall, customer sentiment remained positive, which translated into continued healthy customer demand in the second quarter of 2017, with our tons sold roughly flat with the first quarter of '17.
We continue to anticipate customer demand levels will hold with the potential for improvement in the second half of 2017 subject to normal seasonality and into 2018 with even more meaningful upside, if the administration's infrastructure plans are implemented.
Beyond pricing discipline, our managers in the field continued their strong execution in terms of inventory management, helping us achieve an inventory turn rate of 4.5x based on tons, consistent with our 2016 inventory turn rate.
We are very comfortable with our current inventory level.
Turning to capital allocation.
Our strategy remains consistent, made possible by our effective working capital management and solid earnings levels providing cash flow from operations.
We will continue to grow our business through a balanced combination of organic investments and acquisitions, while also returning cash to our stockholders.
The majority of our 2017 capital expenditure budget of $200 million will be spent on growth activities.
We continue to work with our customers to determine which value-added services are most beneficial to them as well as to proactively identify areas in which we can provide additional services.
We believe our gross profit margin improvement over the past 2 years compared to historical levels directly demonstrates the return on these capital investments.
On the M&A front, we have not completed any acquisitions so far in 2017.
The pipeline remains active and we will continue to evaluate opportunities to grow through acquisitions of well-managed metal service centers and processors with end market exposures that complement our diversification strategy.
From a stockholder return perspective, quarterly cash dividends and share repurchases remain core to our capital allocation philosophy.
While we did not repurchase any shares of our stock during the quarter, we will continue to be opportunistic in our approach.
We increased our regular quarterly cash dividend by 6% in the first quarter of '17, marking the 24th increase since our 1994 IPO.
We have consistently paid regular quarterly cash dividends for 58 consecutive years.
In summary, we are very pleased with our success in raising our sustainable gross profit margin range through targeted growth of our value-added processing capabilities and specialty products, coupled with our focus on pricing discipline and inventory management.
In the first 6 months of 2017, we increased our pretax income by $60.1 million or 23% over the first half of 2016.
We remain optimistic about the potential for increased infrastructure and equipment spending, which we believe should improve both metal demand and pricing that will support our efforts to drive earnings even higher.
I will now hand the call over to Jim, to comment further on the operations and market conditions.
Jim.
Thanks, <UNK>, and good morning, everyone.
Before I begin, I would like to take a moment to thank our folks in the field for their continued hard work and dedication.
They did a tremendous job navigating through the market uncertainty in the quarter, and I am very proud of their achievements.
Now, I'll discuss demand and pricing of our carbon, steel and alloy products as well as our outlook on certain key end markets we sell those products into.
Bill will then address our aluminum and stainless steel products and related end markets.
Demand for automotive, which we service mainly through our toll processing operations in the U.S. and Mexico remained robust throughout the second quarter.
Our growth continues to be driven by the increased usage of aluminum in the automotive industry.
Over the past year, we have expanded our facility to support automotive demand for both carbon and aluminum processing.
I am pleased to announce that during the second quarter, we finished construction on our new U.S. facility in Kentucky, which was completed on time and on budget.
We began shipping product from this facility late in the quarter, and so far, it has been operating in accordance with our expectations.
In addition, our facility in Monterrey, Mexico, which became operational in the third quarter of 2016 has also been performing well.
Second quarter demand in heavy industry, which includes railcar, truck trailer, shipbuilding, barge manufacturing, tank manufacturers and wind and transmission towers, was in line with levels experienced in the first quarter of 2017.
During the quarter, we saw positive signs of activities specifically with the lighter agriculture equipment, which was encouraging as well as a slight uptick in construction equipment spending.
We expect demand in heavy industry to remain at similar levels throughout the remainder of the year subject to normal seasonality.
Demand in nonresidential construction market, including infrastructure, continues to experience steady growth, though volume remains far below peak levels.
During the quarter, we experienced increased uncertainty in the marketplace in anticipation of the outcome and resolution of key government decisions, including the Section 232 investigation, tax reform and domestic infrastructure spending.
We remain cautiously optimistic that domestic infrastructure spending will improve, which we believe bodes well for Reliance.
As a result, we are continuing to invest in value-added processing equipment for businesses that sell into nonresidential construction, and we will remain well-positioned to absorb increased volumes in our existing footprint and cost structure, as this end market improves.
Demand for energy, which is mainly oil and natural gas, continues to improve with both rig counts and drilling activity increasing, though, completion activity remains low.
Quoting and overall activity improved during the quarter and mill lead times are extending.
Importantly, beginning in the first quarter of 2017, our businesses servicing the energy market are once again contributing positively to our earnings.
The increased activity in this market is an encouraging sign and we are well-positioned to support demand growth, as energy continues to recover.
Mill pricing for almost all of the carbon steel products we sell into these end markets was under pressure during the second quarter due to the more competitive environment resulting from uncertainty over Section 232 and increased import levels.
In mid-June and again, in July, however, mills announced price increases for certain carbon steel products that are now in effect.
And we anticipate further price increases, if the 232 investigation results in restriction on steel imports.
Pricing for alloy products has been steadily improving and further improvement in activity levels in the energy market should support increased pricing going forward.
Thank you for your attention.
I will now hand the call over to Bill, to comment further on our non-ferrous markets.
Bill.
Thank you, Jim.
Good morning, everyone.
First, I too would like to thank our folks in the field for their solid operational performance during the second quarter.
We appreciate your continued hard work.
I'll begin today by reviewing pricing and demand for our aluminum and stainless steel products as well as key industry trends and the markets for these products.
Aerospace continued to perform well during the quarter, and remains one of our strongest end markets.
Today, lead times continue to be about 9 to 10 weeks for aluminum aerospace plate.
The backlog for orders of commercial planes remains healthy, and we expect build rates should continue to improve modestly in the second half of 2017, led by single-aisle planes.
On our last conference call, we noted increased activity from many of our defense customers and that trend continued in the second quarter.
Further, we continue to ramp production in regard to our participation in the 5-year, $350 million Joint Strike Fighter program.
We are extremely pleased with our strong position in the aerospace market and look forward to increasing our market share, as overall demand continues to grow.
On that note, our entry into the aerospace market in India through our All Metal Services subsidiary in the U.<UNK>, remains on track to become operational by the end of the year.
We are maintaining our positive outlook for the aerospace market.
Turning to the semiconductor market.
Activity remains strong, especially in the U.S. and Pacific Rim regions.
We maintain our positive outlook for the balance of this year as well as into 2018, based on solid demand trends.
Moving on to pricing.
The majority of our sales into the aerospace market consist of heat-treated aluminum products, especially plate as well as specialty stainless steel and titanium products.
Most notably, a 5% increase for heat-treated aluminum plate was announced during the first quarter and went into effect in April.
Since then, pricing and demand have remained stable.
We expect this trend to continue in the third quarter.
Most of our common alloy aluminum products are sold to sheet metal fabricators that support a variety of end markets.
Demand for common alloy sheet in the second quarter was stable and in line with the first quarter trends.
From a pricing standpoint, the conversion price increase announced for April has full domestic support.
And we believe the recently announced increase for the fourth quarter will also be supported domestically.
We are also seeing less aggressive import offerings, which we believe relates to the Section 232 aluminum investigation.
Lastly, demand for our stainless steel flat products, which are primarily sold into the kitchen equipment, appliance and construction end markets has remained solid.
That said, we experienced some pricing pressure during the second quarter, as the price increase announced in April has been rolled back.
As a result, we experienced some downward margin pressure on sales of our stainless steel products during the quarter.
Thank you for your time and attention today.
With that, I'll now turn the call over to <UNK>, to review our second quarter 2017 financial results.
Thanks, Bill, and good morning, everyone.
Our net sales in the second quarter of 2017 were very strong at $2.48 billion, up 12.3% from the second quarter of 2016, with our tons sold up 1.4% and our average selling price per tons sold, up 11.3%.
Compared to the first quarter of 2017, our net sales were up 2.3% on steady tons sold with our average selling price per ton sold up 2.4%.
Our gross profit margin in the second quarter of 2017 was 28.4%, down from 31.1% in the second quarter of 2016, and 29.8% in the first quarter of 2017.
As <UNK> mentioned, there were multiple mill price increases in the first quarter of 2017 and the second quarter of 2016, which allowed us to temporarily expand our gross profit margin, as we passed through the higher mill price, before we receive the higher cost metal in our inventory.
Given the absence of mill price increases in the second quarter of 2017 and our receipt of higher cost inventory that reflected the mill increases announced in the first quarter, in addition to the downward pricing pressure on carbon and stainless steel products due to uncertainty in the marketplace and increased competitive pressure, we are very proud of our second quarter gross profit margin of 28.4%, which is solidly within our estimated sustainable range of 27% to 29% and produced $702.1 million gross profit dollars, the second highest in Reliance's history.
Consistent with the first quarter, as a result of higher metal prices compared to year-end 2016, we recorded a net LIFO inventory valuation charge or expense of $10 million for the second quarter of 2017 or $0.09 earnings per diluted share.
We continue to estimate a net LIFO inventory valuation expense of $40 million for the full year of 2017.
We did not record a LIFO inventory valuation adjustment in the second quarter of 2016.
As a percentage of net sales, our SG&A expenses were 19.2% compared to 20.7% in the second quarter of 2016 and 19.7% in the first quarter of 2017.
The decrease as a percentage of net sales was primarily due to higher selling prices, which increased our sales.
Interest expense decreased by $3.2 million in the second quarter of 2017 compared to the second quarter of 2016, mainly due to the refinancing of our 6.2% senior notes with bank debt in November 2016.
Our effective income tax rate for the second quarter of 2017 was 31.2% compared to 32.7% in the second quarter of 2016.
We currently estimate that our full year 2017 effective income tax rate will be approximately 32%.
Net income attributable to Reliance for the second quarter of 2017 was $103 million or $1.40 per diluted share, up from $1.38 in the second quarter of 2016 and down from $1.52 in the first quarter of 2017.
Although our earnings benefited from higher selling prices in the second quarter of 2017, the reduction in our gross profit margin from the elevated levels in the second quarter of 2016 and the first quarter of 2017, offset this improvement.
Turning to our balance sheet.
As a result of our effective working capital management, we generated $35.9 million in cash from operating activities during the second quarter of 2017.
We spent $38.7 million for capital expenditures and paid $32.8 million in cash dividends to our stockholders in the second quarter of 2017.
At June 30, 2017, our total debt outstanding was $2.08 billion and our net debt-to-total capital ratio was 30.7%.
As of the end of the second quarter, we had $740.5 million available on our $1.5 billion revolving credit facility.
Our effective working capital management along with our solid earnings, enables us to fund our increased activity levels with significant liquidity available to continue to grow the company and return value to our stockholders.
Turning now to our outlook.
We remain cautiously optimistic with regard to business activity levels in the third quarter of 2017, subject to normal seasonal patterns.
Given our expectation that current demand will remain steady, except for the typical third quarter decline in shipping volumes due to customer shutdowns and vacation schedules, in addition to 1 less shipping day in the quarter, we estimate that our tons sold will be down 3% to 5% in the third quarter of 2017 compared to the second quarter of 2017.
Given the recent increases in carbon steel pricing and the potential for fewer imports, we believe metal pricing momentum is positive.
Therefore, we expect our average selling price in the third quarter of 2017 will be flat to up 3% from the second quarter of 2017.
As a result, we currently expect earnings per diluted share to be in the range of $1.15 to $1.25 for the third quarter of 2017.
In closing, we are pleased with our overall financial performance in the second quarter, due to the solid operational execution by our managers in the field and a competitive environment.
We are excited to demonstrate the increased earnings capacity that exists in our company, if and when market conditions improve.
And we look forward to updating you on our continued success in the coming quarters.
That concludes our prepared remarks.
Thank you for your attention.
And at this time, we would like to open the call up to questions.
Operator.
Hi, this is Greg.
I'll take question number one.
Give Bill, the opportunity to respond to 2.
I think what the trade case is that there definitely has been some uncertainty in the marketplace with our customer base.
And they're just being cautious.
That doesn't mean that they don't have business.
Okay, that they need to buy material to support that business that they have on their book.
But I think, they still have maintained a level of cautiousness.
And frankly, I think most of us have.
We fall into the same boat.
But on the other hand, our demand for it in second quarter on tonnage basis, was basically flat as compared to the very first quarter.
So we're really not complaining about the demand situation.
It would be better, if infrastructure was ---+ the bill was funded and we saw more activity in that regard.
But as business is today, we're really not having much complaints on that.
The uncertainty is always problematic.
But at the end of the day, our customers do have business on their books and they do need to buy metal.
And I think the results speak for themselves on tonnage being flat in the second quarter as compared to first quarter, which was a good quarter.
Bill.
Yes.
And <UNK>, on ---+ I think your ---+ what you said is exactly correct.
In our comments, where the April increase was rolled back on stainless.
I think we've seen a very competitive market.
We expect that market to continue to be competitive into the third quarter.
And there is some speculation and talk about maybe pricing starting to stabilize, improve, as we get into Q4.
So I think from our point of view, we're hearing the same thing.
And we hope that is the case.
Question on the guidance, the pricing outlook of flat to up 3% for the third quarter versus the second quarter.
Are you seeing that based on your realizations thus far in July.
Or are you expecting pricing to get better in August and September to meet that.
Well, so far, the, Phil, the price increases that were announced in the latter part of June and also very recently on some flat-rolled products, they've helped.
The mills are not negotiating, at least as far as we're concerned.
And they're pretty setting their ways on the mill price increases.
So we feel pretty good about that.
Section 232 has been a question in everybody's mind.
It looks like there is going to be a delay in that.
How that's going to impact the pricing market is anybody's guess.
But so far, the announcements that have been made in the latter part of June and just recently in the last week, they have helped.
And we're optimistic that they will continue to hold, and hopefully improve at some point in time, depending on a number of things, 232 as well as just imports in general.
So we're hoping that the imports will start to decline a little bit, especially from the second quarter of this year.
Yes, I guess, my question was more along the lines of whether or not you need to see prices improve from here relative to what you've realized in July to get to that flat to 3% range.
Well, I think those increases that were announced in June and July, would put us in that 0% to 3% increase range.
Yes, because there were some price declines during the quarter, Phil, I think, which is what you're getting to.
So to get back up to that average, we would need prices to improve a little bit from where those that were in effect when we ended the second quarter.
But to <UNK>'s point, the recent announcements we think helps get us up to flat.
And then we see potential upside of potentially more price increases for certain products through the quarter.
Okay.
And then next question here is just on inflationary pressures that you may be seeing in the marketplace, whether that be a tighter labor market and/or a tighter freight market or anything else you may be seeing out there because, I think we're starting to see or have been seeing just general inflation start to creep back into the fold.
Anything you could comment on there would be helpful.
I think, if you look at our SG&A line, Q2 was pretty consistent with Q1.
However, this year, we are up a bit from last year, somewhat because of those inflationary factors.
We put most of our wage increases in effect at the beginning of the year.
So we had some impact from that, just kind of normal inflationary factors, health care, etcetera.
So we've kind of seen that across there.
From the freight side, we run primarily our own trucks at the majority of our locations.
So we would have had that ---+ the driver wage increases, freight [sensed] up a little bit just with the cost of gas and things.
But probably not the level of inflation that some people who are using more third-party carriers are experiencing.
Okay.
And then just a sub-question to the labor piece would just be ---+ are you in the mode to be hiring more folks right now.
Or are you looking to sort of maintain or pare back what you have for productivity sake.
I think where we are from an employee standpoint headcount, I think we're fine, where we are right now.
I don't anticipate, unless we get a little bit of a bump on some of the infrastructure or some of the other industries that we support.
We're in pretty good shape, where we are today.
Yes, I think, we, overall, as <UNK> commented earlier, we think demand is still good.
And we'll hang in there subject to the normal seasonal patterns in the quarter.
Mills are busy.
So we anticipate that the prices will hold even without 232.
And with that continued kind of steady demand, we believe there will more than likely be fewer imports arriving during the third quarter than we saw during the second quarter, which also leads towards pricing support.
Just on that, what you just said, <UNK>, the fewer imports.
I wanted to see what is giving you guys the confidence that we will see fewer imports.
And if there is any products that you could single out that you think will decrease going into 3Q.
Well, we think that there is a potential for that because we saw it quite a bit.
I think June was the highest import month that we've had since early 2015.
We think we're going to see a gradual decline beginning in July, getting more reduced in the month of August, September.
And even with the 232 delay, if people were to start increasing their purchases of imports today, that wouldn't be landing for another 90 days.
So we think there is a period of time here, where there is going to be reduced imports.
And with that, with mills running on flat roll at roughly 90% of capacity, which is big, and the other products running in the 75% capacity range that there is a potential for further increases moving into the future.
We'd just basically go by the offerings we get.
You got to remember 95% of what we sell is domestic product.
We prefer to deal with our domestic friends and partners and even the offers that we do get because we get offers, they are not that great.
And there's not that many of them.
And the spread isn't anything to write home about.
Got it.
Okay, that's very helpful.
And then you guys have not made any acquisitions thus far in '17, I just want to see if there are any specific reasons why ---+ are there deals out there that nothing looks attractive.
Or if you can just give us a little bit more color in your thought process there.
There's been some activity, okay.
But very honestly, some of it is a little bit out of our realm of responsibility.
So we've chosen not to pursue it.
We think that there has been some reluctance from some sellers to get into the marketplace today based on tax reform potential out there.
So we think that some people that would maybe not be sitting on the sidelines, are sitting on the sidelines in anticipation of some tax level that will help them personally.
So but recently, we've seen a little bit of increase in activity, which is encouraging for us.
But, as you know, we're pretty particular in the companies that we acquire, they have to be well-run, well-managed, immediately accretive to earnings and that criteria that we have is, we're going to stick with, it's served us well over the years, and we're going to stick with that going forward.
But we have, just in the recent weeks, seeing a little bit more activity than we did in the balance of the first half of the year.
And I think, <UNK>, as you're aware, as we've done consistently for years, we're opportunistic when the right opportunities are out there.
So it's not a decision by Reliance to not complete any acquisitions so far this year.
It's just based upon the opportunities that are out there that fit our criteria that we have, that <UNK> just talked about.
My question's been asked and answered.
Thank you.
Thank you.
Thanks, again, for your support and for participating in today's call.
We'd like to remind everyone that in September, we will be in Boston presenting at KeyBanc's Basic Materials Conference.
We hope to see many of you there.
Thanks, again, for joining us, and have a great day.
| 2017_RS |
2017 | SXT | SXT
#Thanks.
Good morning.
I'm Steve <UNK>, Senior Vice President and Chief Financial Officer of Sensient Technologies Corporation.
I would like to welcome all of you to Sensient's conference call to discuss 2017 second quarter financial results.
I'm joined this morning by <UNK> <UNK>, Sensient's Chairman, President and Chief Executive Officer.
Yesterday, we released our 2017 second quarter financial results.
A copy of the release is now available on our website at sensient.com.
During our call today, we will reference certain non-GAAP financial measures, which we believe provide investors with additional information to evaluate the company's performance and improve the comparability of results between reporting periods.
These non-GAAP financial measures remove the impact of restructuring costs, currency movements and other costs, as noted in the company's filings.
Non-GAAP financial results should not be considered in isolation from, or as a substitute for, financial information calculated in accordance with GAAP.
A reconciliation of non-GAAP financial measures to the most directly comparable GAAP financial measures is available on the Investor Information section of our website at sensient.com and in our press release.
We encourage investors to review these reconciliations in connection with the comments we make this morning.
I would also like to remind everyone that comments made this morning, including responses to your questions, may include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995.
Our statements may be affected by certain factors, including risks and uncertainties, which are discussed in detail in the company's filings with the Securities and Exchange Commission.
We urge you to read Sensient's filings for a description of these factors.
Please bear these factors in mind when you analyze our comments today.
Now we'll hear from <UNK> <UNK>.
Thanks, Steve.
Good morning.
Sensient reported adjusted earnings per share of $0.87 in the quarter compared to last year's second quarter result of $0.84.
Foreign currency translation reduced adjusted EPS by $0.01 in the quarter.
As I noted in prior calls, last year's results included a $0.04 benefit to the Flavors & Fragrances group from a one-time sale of import rights.
And in this year's second quarter, we realized a tax benefit of $0.07.
Removing the impact of these items in both years, this year's second quarter adjusted EPS is essentially even with the prior year result.
Obviously, this performance does not meet my expectations.
Color had a good quarter, but we had a number of operational issues in Flavors & Fragrances and soft results in Asia Pacific.
Flavors & Fragrances had a disappointing quarter, much of which related to the winding down of restructuring activities.
Operating income was down by 19%.
Recall that last year's second quarter included a $2.7 million benefit from the sale of an import right, but the most significant issue this quarter was the impact of restructuring.
While we completed our restructuring-related production moves in June, the impact of this transition had a substantial effect on the group's performance this quarter.
We experienced production and shipping backlogs, which shifted a significant amount of orders into the third quarter.
We have been reducing the value of the order backlog, and we expect to be caught up this quarter.
As a result of the restructuring delays, we also had higher production and logistics costs, including overtime, temporary labor, expedited shipping and additional warehousing costs.
We will continue to see higher production costs in the short term, but we expect that plant costs will normalize by the end of the year.
In addition to the significant restructuring-related issues, Flavors & Fragrances has been ---+ also been impacted by other unusual items in the quarter, including higher production costs at an additional site, lower pricing and lower volumes in aroma chemicals, a working capital adjustment and lower volumes from one of our customers in Asia.
I'll add more detail on the Asia customer issue in a few minutes.
It was a very challenging quarter for Flavors & Fragrances, but we still have high expectations for the group.
We have completed the restructuring program, which has been a significant distraction for the last 3-plus years.
In addition to the restructuring changes, we completed the sale of 2 businesses earlier this year.
The divestitures removed operations that did not align with our strategy, were dilutive to the group's operating margin and increased working capital balances.
These actions have already improved the group's mix, which is reflected in a 120-basis-point improvement in the second quarter gross profit margin.
And furthermore, these changes allow the group to focus on new product development and other initiatives that will drive growth, improve the group's product mix and generate higher operating margins.
Asia Pacific also had a challenging quarter.
In local currency, revenue was off 3.7% and operating income was down significantly.
On the last call, I mentioned that the group's first quarter performance was impacted by order timing and product mix, and those issues have continued longer than we originally expected.
One of our larger customers in the region is implementing a change in its distribution network, which has affected their sales and consequently, their requirements for our products.
These lower volumes represent a significant portion of the income variance compared to last year's second quarter.
We expect volumes to normalize once our customer resolves this issue.
We still see good long-term opportunities for our businesses in Asia Pacific.
We have made significant investments in both personnel and facilities in the region to increase our technical capabilities, allowing us to work more closely with customers and to sell products that are aligned with the strategies in Color and Flavors.
We recently opened a new production facility and expanded manufacturing capabilities at another site in the region to reduce cost and to shorten lead times.
Expanding our presence in Asia Pacific is a significant part of our growth strategy, and we remain very optimistic about the opportunities in this region.
Color had a good quarter, driven by strong results from the Cosmetics and North American Food Color businesses.
For the group, revenue was up just over 1% and operating income increased 4% in local currency.
The group's operating profit margin increased 50 basis points to 21.9% in the quarter.
The Cosmetics business continues to perform well with strong growth for both revenue and operating income.
The Food Color business in North America reported solid profit growth driven by natural colors.
Our results in Latin America were down, but we think this is an anomaly because there is a strong interest in natural colors and clean label ingredients.
Our Cosmetics business continues to see strong demand for makeup, lipstick and other personal care products.
The end markets for cosmetics have been very strong, and we have a robust innovation program, which allows us to develop solutions for a wide range of applications, including makeup, skin and hair care.
Our success in Cosmetics remains broad-based with growth in every region.
In the food and beverage markets, we expect to see the strong interest in natural colors continue for some time.
In the second quarter, approximately 80% of all new product launches in the U.S. featured natural colors, and this figure is about 75% globally.
Many of the world's largest food companies, including some of the largest food retailers, have announced their intentions to use natural colors in their products.
We expect these conversions to take place over the next few years.
But for the near term, conversion activity has been driven by local and regional manufacturers or private label brands.
Sensient is the market leader for food and beverage colors, and we have developed proprietary technologies that allow our customers to offer natural products without compromising on the appearance or affecting the taste.
We are uniquely positioned to lead the conversion to natural colors because of our investments in new technologies and our applications expertise.
Earlier, in my comments about Flavors & Fragrances, I noted that we had completed our restructuring activities.
We stopped production at the last facility in June, and we have closed or sold 9 major production sites in the last 3-plus years.
Those facilities were not core to our ongoing strategy.
By rationalizing our facilities, we have lowered our cost structure and reduced our ongoing capital expenditure requirements.
This very necessary restructuring has been a serious distraction for several years.
As Flavors & Fragrances moves on from restructuring, we will be able to apply more resources to initiatives that will drive growth, including new product development.
We will have some residual restructuring costs for the remainder of the year, but they will not be significant.
We had many challenges in the second quarter.
And while I'm not satisfied with our results, I remain confident in our expectations for the businesses for this year and beyond.
Color had another strong quarter, and we continue to see strong demand for cosmetic products and natural food colors.
My expectations for Color has not changed, and I still expect Color to deliver mid- to high single-digit revenue growth and high single-digit profit growth for the year.
Flavors & Fragrances has been improving its product mix and will move on from restructuring.
I expect them to deliver low single-digit profit growth with more than 100 basis points of margin improvement.
I have revised my earlier expectations for Flavors & Fragrances because of the restructuring-related issues and the other unusual one-time items that happened this quarter.
We are having a temporary setback in Asia, largely driven by issues at one of our larger customers, but we are optimistic about our ability to grow in this region.
We are revising our adjusted EPS guidance to be between $3.40 and $3.45 for the year, which represents mid- to high-single-digit growth in local currency terms.
Our previous guidance was $3.35 to $3.45.
I remain very optimistic about the company's future.
Steve will now provide you with additional details on the second quarter results.
Thank you, <UNK>.
Sensient's operating income was $44.4 million in the quarter compared to $43.7 million in last year's second quarter.
The operating income results include restructuring and other costs of $7.9 million in the quarter and $13.6 million in the comparable period last year.
Excluding the restructuring and other costs, adjusted operating income was $52.3 million and $57.2 million in the second quarters of 2017 and 2016, respectively.
Foreign currency translation reduced both revenue and adjusted operating income by approximately 1% in the quarter.
Diluted earnings per share from continuing operations were $0.69 in the quarter compared to $0.55 in the comparable period last year.
Restructuring and other costs reduced earnings per share by $0.17 in this year's second quarter and by $0.29 in last year's second quarter.
Adjusted earnings per share were $0.87 in the quarter and $0.84 in the comparable period last year.
Foreign currency translation reduced adjusted EPS by $0.01 per share in the quarter.
The second quarter results included a $0.07 tax benefit, which was primarily due to a planning opportunity that was available to us this year.
We expect the full year tax rate to be consistent with last year's tax rate.
Corporate costs were down $3.1 million in the quarter, primarily due to lower performance-based compensation and lower professional fees.
Operating income was $68.4 million in the first 6 months of this year and $91.2 million in the first 6 months of 2016.
The operating income results include $39.2 million and $16.9 million of restructuring and other costs in the first halves of 2017 and 2016, respectively.
Removing the impact to restructuring and other costs, adjusted operating income was $107.6 million in the first half of this year and $108.1 million in the first 6 months of 2016.
Adjusted diluted earnings per share from continuing operations was $1.69 in the first 6 months of 2017 compared to $1.59 in the comparable period last year.
Foreign currency translation reduced revenue, adjusted operating income and adjusted diluted earnings per share by approximately 1% in the first half of this year.
Cash flow from operations was $25.2 million in the quarter compared to $54.7 million in last year's comparable period.
The second quarter cash flow was reduced by higher working capital balances and higher income tax payments compared to last year's result.
Capital expenditures were approximately $10 million in the quarter, and we still expect capital expenditures to be between $60 million and $70 million for the year.
We repurchased approximately 180,000 shares during the second quarter.
Our balance sheet remains strong.
Adjusted debt to adjusted EBITDA was 2.5 at the end of the quarter.
We plan to keep debt levels in line with an investment-grade profile to maintain the flexibility for capital expenditures, dividend payments, share repurchases and acquisitions.
We will continue to take a balanced, prudent and long-term approach to our capital allocation strategy, which includes evaluating share repurchases and acquisitions on an opportunistic basis.
Thank you very much for your time this morning.
We will now open the call for questions.
Okay, sure.
Let me go through those items for you, <UNK>.
So getting right to it, I would tell you that if we were to, to get at the heart of your question, what were the results without these items, I would tell you that if I were to add up the profit impact of these one-time items that I featured in the opening monologue there, we would have been up about mid-single-digit profit growth, essentially consistent with where I thought we were going to be each quarter of this year.
Revenue was obviously also impacted by the backorder situation as well as the FX piece, which was only about a percentage this quarter, and then you got a couple of percentages related to the divestiture of those other businesses.
So net-net, assuming none of these factors that I addressed in the opening monologue had been in play, we would expect that the operating profit to be up certainly mid-single-digit and perhaps, say, in the range of, say, 5% to 6%.
Revenue would have been a lot closer to flat, and then the operating profit margin would have also been up, obviously, in excess of that 100 basis point that I had guided to in the beginning of the year.
So if you'd kind of separate what are we doing externally versus what is happening internally, when I gave the guidance for Flavors and Color in Asia for 2017, it was based on what we felt we could win in the market, what costs we were going to take out.
And so that was why we certainly formulated the original guidance to you.
And as we talk specifically now about Flavors, it was mid-single digit and perhaps even high single digit on profit.
It was flat on revenue owing to the culling and some of the FX, but that was where we were guiding.
As you look at the second half, that guidance still applies.
That is ultimately what we believe we're still able to achieve externally.
Now I think you would anticipate Q3 or Q4, and we'll just say the back half, as being sequentially much better than Q2 for Flavors and much more consistent with the results that you saw in Q1.
So I think we would get back on track with the OP margin growth being 100 better, 100-plus basis points for the back half.
I think you'll see revenue closer to that flat that we had suggested ---+ or I suggested was the forecast for the year.
And then I think we would be back in that ballpark of mid-, certainly mid-single-digit growth on OP for the back half for Flavors.
So the ---+ kind of underlining all of this is I think the nature of these things.
I emphasized that there's a difference between what's happening internally and what's happening externally.
I think externally, this restructuring issue aside, we are making ---+ we continue to make very good progress on our program, on our strategy throughout much of the Flavors & Fragrances group.
I think putting this restructuring behind us is going to be a tremendous benefit.
As you can imagine, after 3-plus years of this, this gets a little bit tiring to everybody.
But obviously, you know what.
We didn't execute in Q2 and I'm very disappointed with that, but I would tell you that the nature of it, it was very much internal rather than external factors, which would suggest that either we couldn't compete or we couldn't overcome obstacles in the market, and that's not the case.
Well, I would say at this point it's somewhat academic, inasmuch as restructuring is done from the standpoint of consolidating plants and moving products.
These are not easy things and fortunately, I haven't really had to talk much about the inner workings of restructuring.
We've been able to overcome many of these things, but it came at the very end.
Why this one.
Because I think you said it very well.
This is a far more complex move, to some degree, that's why it was held towards the end.
But I think in general, as we move forward, I don't really need to use the word restructuring, because from an operational standpoint, we have now closed that last plant and it's just a matter of when we sell that facility, it's gone forever.
But we've effectively sold every other facility at this point, we're out of them, and we're really talking about growing beyond this.
Some of our other regions where we also restructured, and again, it's never easy.
It's not like consolidating 2 widget plants into one widget plant and you just continue to build.
It's certainly been far more complex than that.
But we've shown and demonstrated in these other regions that have sort of moved past restructuring that once we get to that phase, it's a very different game.
And we can compete very effectively in the marketplace and we're regenerating wins where we believe we can, and I think you will expect and you should expect to see much of the same coming out of this ---+ these 2 U.S. businesses that were affected by the restructuring here.
Sure.
So our guidance for Color at the start of the year was mid-single-digit top line, high-single-digit OP.
That is still the guidance for the Color group for the year.
Part of that guidance is also could there be some uplift in operating profit margin.
Yes, but I didn't commit to some significant movement in that because as you already noted, it's quite good.
If I were to break down those businesses in general, I think Cosmetics had an outstanding quarter.
Again, this is continuing in their program over the last couple of years of very strong results, top line and bottom line.
Pharma business had very good top line growth as well.
I think what you're ultimately getting to was natural colors.
Natural colors has been a significant uplift in this business for the last several years, and our results continue to be good.
Now something that was somewhat relevant for the second quarter was essentially the pace of new product launches in the U.S., in North America in particular, but even on a global basis.
If you look at kind of year-to-date 2017, new product development launches are down 22% in the North American market.
Globally, it's down 7% to 8%.
So that certainly can have an impact.
But certainly, that affects us and a lot of other people in this market.
I think when you look at some of our core business, where we have a lot of synthetic color business, that's one picture.
But when you look at the natural color business, that's a very different picture.
Clearly, synthetic colors, by design, are going to be flat and perhaps even on the decline as we convert customers to natural colors.
But to get at your real point, are we winning in this market.
I would tell you that indeed we are.
When you consider the various spectrums of products in the market, from the innovative and the very sophisticated products to the more mundane building blocks, we certainly win and have an outsized advantage, I would argue, on the more innovative products that provide much more closer to synthetic color matches than you're seeing right now in the market on some of these building blocks.
And an important thing to think about with natural colors, companies that are going to convert to natural colors, there's 2 ways to do this, in my opinion: Correctly or incorrectly.
The correct way would be to find the closest match to a synthetic color.
And for those companies that have done so, we have very detailed IRI data that tell you that those brands are growing, those categories are growing.
For those who would elect to take the building block, kind of the more muted, not good matches to synthetic colors, those brands are being negatively impacted from that.
So not only do they have the negative impact of the economics by converting to synthetic ---+ to natural, but they also have the negatives because they didn't do it on a like-for-like basis, and consumers are rejecting these products that don't offer a comparable visual appearance to the synthetic alternative.
So we continue to focus on that part of the market.
We continue to focus on those opportunities, and I feel very good about that natural color business.
And Color in general, right now, we're up about mid-single, a little bit lower end of that for top line for the year, but I feel very good about maintaining that guidance and that expectation for the year.
Certainly to get to that, natural colors would have to be above that expectation, because we have a big synthetic business that is essentially below that expectation.
So I don't know if all that makes sense, but I just wanted to give you that kind of color to the whole thing.
So to begin, your math is about right and I would tell you that number two, I'm very confident.
And I'm very confident because I'm already seeing what we're selling in July and I'm seeing what our orders in August look like, and it's a picture that allows us to achieve those financial results that I just alluded to.
I think with respect to these residual costs, I don't want to get into accounting romance here, but obviously, some of these things bleed over into a quarter, which is obviously dependent on your inventory levels.
But needless to say, some of those costs will bleed into Q3, but we ---+ I believe we can rapidly remove and continue to remove those costs post ---+ in this post-restructuring phase that we're in.
So in short, I feel very comfortable about this.
The reason that I felt comfortable with our guidance is, again, because I see the path we are on and I see the results and I see the Q2 event effectively being an internal issue, and an internal issue that we now address and have overcome, and in some cases, because they were one-time, they're not repeating.
I feel very good about the prospects in Q3 and Q4.
Well, so I'll answer the first part ---+ the second part of your question first.
We expect tax to be about the same as it was in '16 as it will be in '17.
So think about tax in essence as a timing issue.
With respect to your FX comment, yes, I think at the beginning of the year, we anticipated and we had projected FX to be about a $0.10 impact.
We're looking more like it's about half that and depending, as my crystal ball here tells me, that may be about right for the year.
But we will continue and potentially revise again if rates would move and provide more of a tailwind for us.
But yes, I think FX had a big part of raising the lower end of that guidance.
Sure, I'll say this, so number one, when we closed the other facility, a whole bunch of costs come out as a result of that.
So I think that's already, as we've declared in my opening monologue, that happened in June.
I think a lot of the other costs associated with expediting orders and making sure that production levels are correct and that things are working more seamlessly, this is something that, again, much of this happens and will continue to happen right now.
And as we continue into 3 and in the fourth quarter as well.
So I think these costs are very much in our control, to take them out, because, again, they were precipitated at the onset of restructuring.
Prior to that, this was actually a very well-run, efficient, lower-cost plant in the whole company.
So I've got a lot of confidence that with the new products that we've introduced and the new volumes that we've introduced that, that's going to be something very much in our control to take those costs out and continue to commit to the savings that we had pledged with respect to the restructuring savings.
We haven't necessarily talked about those on this call, but we have certainly more nominal savings for '17.
But the savings we expect to generate are still there, and they will be something that we work towards internally and communicate externally.
As we get into the tail end of '17 and into ---+ more like into '18, those savings are still available to us to be generating from this ---+ the closure of this site.
Backlog, again, I think with the ---+ as I look at our progress there, certainly we see the end is very much in sight and it's in Q3, and I just want to certainly be very clear about that.
But I think the more ---+ the longer you operate in this facility, the more efficient you become, the more successful you become and this is essentially what I've been seeing.
It gives me a lot of confidence that we addressed these issues, get through this backlog and move on.
Well, I ---+ listen, I pledged to our shareholders that we're on the road to 20% operating profit margin in Flavors, and so that is very much still within our sights.
We still have a significant number of our businesses that have demonstrated tremendous improvement in operating profit margin.
Prior to this quarter, we've been talking about that for about the last 1.5 years, the very strong progress we have made on operating profit margin, so I think that continues to be a very realistic goal for us.
Again, you throw out the rest of these costs post restructuring.
We continue to emphasize selling the products, consistent with our strategy, continuing to focus in moving away from the lower-margin, less competitive products.
And so I think these still provide us with a path to the eventual 20% OP margin that I would anticipate communicating here and our progress towards that throughout 2018 and 2019.
So the upside is there.
And ultimately, once we get past cost, then really, the uplift will come principally from product mix.
And I think those are very consistent with where we have suggested from the very beginning, with the 3 or 4 pillars as to how we get to that 20% OP margin.
So <UNK>, generally, I would say since we are ---+ we have been moving price up in the Flavor business, so pricing would be a moderate favorable and volume would account for a little bit more than the reported revenue change then.
In Asia, most of the decline that you see will be volume-related, I would say.
So my ---+ the comments I just gave were on Flavor in Asia.
So in terms of Color, we would have seen favorable volume growth on food and beverage colors, primarily on natural colors, offset slightly by synthetic colors.
Cosmetic was very strong on volume, and those would be the key drivers in the quarter.
Are you talking for 2017 or 2018, <UNK>.
2017.
So it would imply mid- to mid-single-digit growth.
Well, I suppose one day, I would ---+ well, no.
I guess with restructuring, it's the very nature of the program.
You anticipate a lot of things.
You plan for a lot of things, but they're very challenging.
And like I said, I can't tell you how excited I am about restructuring being over, but I think you can't underestimate ---+ despite the fact that you make a product in one production facility, when you move it, it doesn't necessarily do the same things that it did in the last facility.
Why.
Any number of factors might have changed.
The operating environment, the utility support, all these factors could come into play.
I think that when you're talking about a specialty chemical versus a fine chemical, there can often be a lot of variability in raw materials and variability in operating conditions that, again, lend itself to a very complex transition of a product.
You're talking about transferring individuals or training new individuals as well, can certainly add to the complexity.
And then as you're doing this, you're also, in some cases, trying to rationalize and to improve formulations, to take out costs.
Formulations just to simplify the supply chain requirements for any given product.
So there's a whole host of things that can go right and things that can go wrong.
A lot obviously did not go right in this last one, but a lot has gone right in the earlier ones, because, again, I haven't really been talking about this kind of stuff until now.
So yes, if I can get into my time machine and go back, sure, there are some things that I would do differently here to affect the outcome and to improve the outcome.
But I think for this point, it's really a matter of how do we expedite the removal of these costs in these plants and work on improving throughput and other efficiencies in these, so that we can get to where we really wanted to go.
Restructuring was an absolutely essential and necessary step that the Flavor group needed to take to not only take out costs, but to take out complexity.
Operating a lot of plants becomes a very complex game, particularly when you're trying to staff all those plants.
The capital expenditure requirements grow considerably when you have more plants.
And so these things are all very essential.
And I think long term, we're going to be very, very pleased that we went through this painful process of restructuring.
Yes, my target is about measuring outcome, not measuring effort.
And so from that standpoint, each of the businesses is evaluated on their ability or their top line growth that's generated from new product development.
So that would be comment number one.
Certainly for some of our businesses, we assign a 7%, 8%, 10% top line growth expectation out of new product development, with the assumption that you have some products out in the market that go away or the customer cancels them, and you have some that you're also adding that are not considered new products, that are more standard products.
So I would say that's comment number one.
Number two, a lot of this depends on how you define R&D.
We don't necessarily say anybody wearing a white lab coat constitutes R&D spend.
We're fairly purist when it comes to who is actually doing real R&D, rather than who is just in a lab.
So it's not necessarily ---+ I'm not ---+ I can't speak to my competitors, because I'm not necessarily intimately familiar with their process for measuring this.
But I can tell you, from our process, we're very strict and very rigid with how we measure the actual spend.
But ultimately, your question is driving at are we spending enough in this area.
I think in the majority of our businesses, we are, but there is certainly more opportunities, particularly in Asia Pacific, to continue to enhance our investments there so that we can drive a better outcome from new products.
But there's always opportunity in every business, and so a lot of this is about picking the right products, too.
There's a lot of blue sky stuff that a company could do, but sometimes you got to focus on what customers actually want and they're going to buy and they will talk to you about being committed to buying.
So those are some of the metrics that we look at very closely on that one.
The first question I had, just on the Asia situation, the customer there.
I guess you went through the Flavors & Fragrances side and kind of got a lot more confidence that, that was internal and more shorter-term lived.
I mean, what's the right way of thinking about how Asia is likely to play out over the next couple of quarters.
Well, I think that Asia has had, I'll be a little bit deductive on my answer here.
Well, actually, let me be inductive first.
Asia is going to have a very good 2018.
So there's the longer-term answer.
I think right now, it's just a matter of timing on some of what we mentioned or what I mentioned in the monologue.
I think as you look at those Asia Pacific region by region, I think we feel very good about a number of our regions.
Like the Oceania region, we feel very good.
We feel very good about parts of North Asia.
We feel very good about parts of Southeast Asia.
But I think each one of these areas has different challenges associated with them, and some of our challenges right now are what I had mentioned there.
But a lot of this, too, is how do you continue to identify the opportunities.
I mean, Asia is a far more, in general, is a far more fragmented market than you're going to see in the U.S. or Europe.
So there's a lot more players, there's a lot more opportunities for a company like Sensient to be successful.
There's not as much of the stranglehold on the markets that you see in some of the other parts of the world that we're dealing in.
So the opportunities are there and certainly the focus is there.
And I have very strong expectations for Asia Pacific, certainly in '18.
'17 is harder for BRIC.
I got to be completely frank with you on that one, because it's not necessarily within my control.
Nevertheless, I think that it's a good market.
It's a good market for our products and there's a growing interest in our products, whether they're cosmetics or inks, or flavors, or food colors, a lot of the same trends we're seeing in the Americas and Europe.
Whether it's natural colors or extracts, or digital inks, or very sophisticated cosmetic products, that entire market is a prime opportunity for Sensient.
Got it, great.
And then related to something you had mentioned earlier on the Color side, with some of these customers that might have switched to natural with maybe, let's call it, a lower-quality path.
Have any of them already started to come around and talk about going to the higher quality way of doing things.
Yes is the short answer there.
I think it\
Got it.
And then some more technical questions.
The working capital through the second half of the year, I mean, obviously, there's a big use in the first half.
What's the expectation for the second half.
Sure.
So in the first half, there are really 2 themes on working capital.
The Cosmetic business, which has been very strong, performing very well, we see higher inventories and receivables there and that's as expected.
Then on the Flavor side, some of this ---+ some of the impacts of restructuring have impacted working capital and so we saw a negative usage there.
And we would expect that to work its way out in the second half of the year.
The only other thing would be in our Natural Ingredients business.
We've seen some higher inventories there, but that's somewhat by design.
Every few years, you wind up with a crop issue, and so we'd rather be long and have the product to sell there.
So I think the restructuring items should begin to work their way out in the second half.
Yes, okay.
So if I ---+ just as I'm thinking about things for the full year, I mean, we shouldn't be going higher than what we've used up already through the first half.
Is that kind of a logical way of thinking.
Yes, I think that's right.
Okay.
And then just lastly, my model for the tax rate last year was about 25.5%.
Is that what we're ballparking.
For the second half of the year.
Yes, that's about right.
No, for the full year.
For the full year.
Yes, well, so both those statements are right.
So it will be about 25.5% for the second half and that will bring us to that rate for the year.
As you look at a spectrum by segment, you could say that where we are closest to that and where we are furthest from that.
Closest I would tell you is beverage and fragrances.
Furthest from that would be savory flavors and in the middle would be sweet flavors.
And I think some of that is the size of the legacy business.
So in other words, savory had a lot of ingredient sales.
Sweet flavors had a lot of ingredient sales and by that, I mean, fruit preps.
Beverage had fewer of those.
So it was a little bit more of a historical model that kind of, I think, set the trajectory moving forward.
But I would tell you that in each case, that they are ---+ we are making very good progress on this, just a little bit of a further putt on some of them.
And then again, when you have core business, that makes it a little bit longer term in terms of actually moving the OP margin in those individual business units.
But I think certainly overall, we see the opportunities to sell these products.
They're far more defensible.
And I think again, it goes back to the types of customers we're focusing on in the market.
Nobody has asked this question, but certainly there are some big companies out there that have had some not particularly good Q2 results that they've mentioned publicly already.
But you'll notice that in a business like Color, where we have really set out for several years now to diversify our customer base, we can handle those types of declines and still grow the business.
I think Flavors, because it wasn't necessarily strongly aligned with those really big customers on Flavors at the outset of all this, is going to be in a very good position as we continue the pursuit of these B&C customers because fundamentally, those are the folks who are growing.
Those are the folks who are launching products, and they're not necessarily holding back on that front.
So I think we're aligned with more and more of the right customers, and that's going to certainly be a key part of this as well.
Yes.
Yes, I'll leave it with a one-word answer, Mike, yes.
There's ---+ to some degree, there's obviously seasonality in the business.
Our stronger quarters tend to be Q2 and Q3, which as you see last year, were pretty consistent with one another.
And of course, Q4 and Q1 sometimes ---+ in fact, typically, Q4 is a little bit bigger than Q1, but that has historically not always been the case.
So I would tell you that in general, as you look at the business historically, Q2 and Q3 tend to mirror each other or be very close to each other.
Now I mentioned a lot of these one-time items in Q2, so make sure you're taking that into account.
But Q4 would be certainly not as strong as a Q2 or Q3 and a lot closer to, say, a Q1 outcome.
So we've generally been very successful at offsetting that with pricing.
The other thing to keep in mind is that we have so many different raw materials that there are always things moving in different directions.
So you might hear about pressure on one particular ingredient, but then we're going to have others that are going in the other way.
So there aren't necessarily any trends out there right now that I think are going to be a problem for us.
It should be a fairly stable environment in terms of our ability to offset anything that happens.
Okay.
Thank you very much this morning for attending the call.
That will conclude our remarks.
And as the moderator said, if anybody has any follow-up questions, please feel free to call us.
Thank you.
| 2017_SXT |
2018 | ALG | ALG
#Thank you, and good morning, everyone.
By now, you should have all received a copy of the press release.
However, if anyone is missing a copy and would like to receive one, please contact us at (212) 827-3773, and we will send you a release and make sure you are on the company's distribution list.
There'll be a replay of the call, which will be in 1 hour after the call and run for 1 week.
The replay can be accessed by dialing 1 (888) 203-1112, with the passcode 8305796.
Additionally, the call is being webcast on the company's website at www.alamo-group.com, and a replay will be available for 60 days.
On the line with me today are Ron <UNK>, President and Chief Executive Officer; <UNK> <UNK>, Executive Vice President and Chief Financial Officer; Richard Wehrle, Vice President and Corporate Controller; and Ed Rizzuti, Vice President and General Counsel.
Management will make some opening remarks, and then we'll open up the line for your questions.
During the call today, management may reference certain non-GAAP numbers in their remarks.
Reconciliations of these non-GAAP results to applicable GAAP numbers are included in the attachments to our earnings release.
Before turning the call over to Ron, I would like to make a few comments about forward-looking statements.
We will be making forward-looking statements today that are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements involve known and unknown risks and uncertainties, which may cause the company's actual results in future periods to differ materially from forecasted results.
Among those factors which could cause actual results to differ materially are the following: market demand, competition, weather, seasonality, currency-related issues and other risk factors listed from time to time in the company's SEC reports.
The company does not undertake any obligation to update information contained herein, which speaks only as of this date.
I would now like to introduce Ron.
Ron, please go ahead.
Thank you, Bob.
And we want to thank all of you for joining us today.
<UNK> <UNK>, our CFO, will begin our call with a review of our financial results for the first quarter of 2018, and then I will provide a few more comments on the results.
And following our formal remarks, we look forward to taking your questions.
So <UNK>, please go ahead.
Thank you, Ron.
Our first quarter 2018 results were certainly helped by U.S. tax reform, but we set company records for top line and pretax earnings as well.
These records were achieved, both with and without the accretive results of recent business acquisitions and even overcame the effects of the union strike at our Gradall facility in New Philadelphia, Ohio.
The strike, which began on March 12, has been resolved with a new 3-year contract, and the plant returned to normal operations on April 9.
First quarter 2018 sales of $238.1 million beat prior year first quarter sales by 10.5% and without the effects of acquisitions, by about 3.8%.
Excluding acquisitions and the effect of the Gradall strike, organic sales growth for the quarter most likely would have been about 6%.
Industrial Division first quarter 2018 sales of $132.2 million represented a 5% increase over the prior year first quarter sales.
Excluding the effect of the Old Dominion Brush and R.
P.
M.
Tech acquisitions, this division's first quarter sales, which were negatively affected by the Gradall strike, were down about 2.6% compared to the prior year quarter.
Agricultural Division first quarter 2018 sales were $58.6 million, up 13.3% over the prior year quarter as we saw a continued improvement in the broader demand for our agricultural mowing products despite continued weakness in row crop farming income.
Excluding the effect of the Santa Izabel acquisition, this division's first quarter sales grew organically by about 3.7% over the prior year first quarter.
European Division first quarter 2018 sales were $47.3 million or about 25.1% higher than the first quarter of 2017.
Even without the favorable currency translation tailwind, this division's local currency sales were still up 9.9% compared to the prior year first quarter, reflecting good market conditions in Europe.
First quarter 2018 gross margin of $60.3 million grew by 11.2% over the prior year first quarter.
Our first quarter 2018 gross margin was 25.3% of net sales, which compares favorably to 25.1% of net sales for the prior year quarter.
These favorable comparisons were helped by pricing actions, purchasing initiatives and productivity improvements, partially offset by an unfavorable mix of aftermarket part sales, the effects of the Gradall strike and generally higher material costs.
First quarter 2018 operating income of $21.4 million was 5.5% higher than the prior year first quarter, primarily due to earnings accretion from acquired companies and organic sales growth.
First quarter 2018 operating income was 9.0% of net sales, which is slightly below 9.4% of net sales for the prior year quarter.
This decrease is largely due to the Gradall strike, a higher level of spending on R&D projects as well as the timing of legal expenses.
All 3 divisions' first quarter operating income came in at about 9% of net sales.
First quarter 2018 net income and earnings per share were also helped by the lower U.S. corporate tax rates.
Our first quarter 2018 effective income tax rate dropped to 27.0% from 34.7% in the prior year first quarter, a savings of $1.5 million or $0.13 per diluted share.
Net income for the first quarter of 2018 was $14.6 million or $1.24 per diluted share, which is almost a 20% increase over the prior year first quarter.
First quarter 2018 EBITDA of $26.8 million was up 6.2% over the prior year first quarter.
The trailing 12-month EBITDA of $111.6 million continues to trend positively, up 1.4% over full year 2017 EBITDA of $110 million.
In the first quarter of 2018, the net cash used in operating activities totaled $28.1 million, which compares to only $1.4 million used in the prior year first quarter.
Most of this difference was due to high demand and order backlog as well as increasing supplier lead times, which drove higher inventories company-wide and increased investment in our vacuum truck rental fleet.
We ended the first quarter with $75.9 million cash on hand and $147.3 million in total debt.
Since the end of the quarter, we have begun the process of repatriating excess cash from our overseas operations.
By the end of May, we expect that we will have returned between $25 million and $30 million.
After that, we continue the ---+ we will continue the process but we are being careful not to incur local taxes or other indirect costs of moving these funds.
Our order backlog ended the first quarter of 2018 at $237.8 million, up about 62% from the prior year first quarter.
First quarter 2018 new order bookings well outpaced our record sales levels as our backlog grew nearly $20 million during the quarter.
In summary, our first quarter 2018 results were highlighted by record first quarter sales and earnings; our effective tax rate dropping to 27%, boosting first quarter EPS by $0.13; all divisions returning operating income at about 9% of sales; continued year-over-year improvements in percentage gross margins; continued EBITDA growth over prior record levels; and $20 million of backlog growth during the quarter as new orders exceeded record sales levels.
I would now like to turn the call back over to Ron.
All right.
Thank you, <UNK>.
We see that ---+ and I see in general, we are pleased to have started off 2018 on a positive note with record sales and earnings in the first quarter.
This continues the trend we saw developing in 2017, particularly in the second half, in which we start to see some modest market improvement across nearly all sectors of our business after several years of little to no growth.
With this top line growth and our ongoing focus on operational improvement, we were able to once again show even better growth at the bottom line.
And of course, in the first quarter, we also benefited significantly from recent U.S. corporate tax reform measures that had the effect of lowering our average income tax rate by about 7%, adding nearly $1.5 million to our after-tax results in the first quarter.
We would believe ---+ we believe we will continue to see contributions from tax reform at similar rates as we move through to 2018.
And while tax reform certainly helped our first quarter results, we are very pleased with our operational execution during the quarter.
Our first quarter is historically one of our weaker ones as business activity in areas where we are strongest, such as vegetation maintenance, is typically less active in winter months and usually less spare parts consumed during those time period.
And on top of this, as we have said, we had a strike at one of our major facilities where we produce both Gradall excavators and VacAll vacuum trucks.
And this certainly limited our output of these products.
Plus, we were affected by inflation as the cost of purchased components, particularly steel and steel-related items, increased at above-average rates.
Even our product mix was a little less favorable as sales of higher-margin aftermarket spare and wear parts were slightly below our expectation.
Again, we think this was in vegetation maintenance and particularly in ---+ maybe a little bit later winter weather conditions.
Yet despite all of this, sales and earnings in total were up, respectively, and even with record shipments, backlog continued to decline.
And it's really comforting to have strong a backlog level as we move through the year, but we feel is [of comment] almost too strong and is beginning to affect some of our deliveries in certain areas.
And as a result, we are selectively increasing our staffing to meet this demand, and actually, I'll also mention, we're starting to ramp up our capital spending this year, which will extend into next year as well as we work to increase our overall production mainly by focusing on reducing bottlenecks in our production processes.
Part of this will also be an acceleration of our longer-term plans aimed at upgrading our capabilities with more technical and automated equipment.
We want to not just increase our capacity but increase our technology as well to ensure we stay competitive in the markets we serve.
Certainly, having a more favorable tax environment and even the ability to repatriate international earnings in a more efficient manner increases our ability to more economically invest in our businesses for the long term.
And of course, it's the main reason we want to invest in our business, is because we believe in it and we're pleased to see the improving conditions across nearly all sectors in which we operate.
These improvements have been modest, but it's been broad-based, which had been very welcomed.
Our Industrial Division, which has been our most steady performer, is continuing to exhibit good stability.
And even pockets of activity, which were soft in the last few years such as snow removal and some vacuum trucks are both back on pace.
There was a little weakness in the division's first quarter results, but that was nearly all related to the strike that we had, that we've talked about, at our Ohio manufacturing facility.
We're glad this has been resolved, and we have a new 3-year agreement in place, which in terms of which are well within our expectations and operating capabilities.
And further, we feel that some of the shipments from this facility that were delayed in the first quarter will be made up in the second and third quarter of this year.
And certainly ---+ and pleased that we didn't lose any orders or any cancellations, but we're able to ---+ so we'll recover from this quite nicely.
Our Agricultural Division also had a nice start to the year, which was, again, welcome given the severe downturn in the overall agricultural sector of the last several years.
The farm incomes ---+ as I said, the gains were modest, and farm incomes are expected to remain well below record levels.
But it is good to see this market starts to move in a positive direction, which we feel is being further aided for manufacturers such as us by lower dealer inventory levels and generally more healthy dealer conditions.
So the flow-through of new orders to us should be better, and that's what we're seeing.
And then our biggest area of improvement in the first quarter was our European Division, where we finally started to see some market strengthening after several years of slow overall economic activity.
And they were further compounded by some of the geopolitical turmoils such as Brexit and everything.
And then we were even further affected by the strong U.S. dollar, which limited the translation of our international earnings.
And while all these issues like Brexit are yet to be fully resolved, we are very pleased that the economic activity has improved.
There's some pent-up demand.
There's ---+ I think people are settled down and are more accepting the changes, and then even currency exchange rates, which had been a headwind, are now even ---+ been more of a tailwind for the last about 9 months.
So ---+ and all 3 of our divisions have benefited by the modest market improvements, we believe our own internal developments have contributed this much or more to our results as the market has.
We have been steadily investing in our range of equipment, which has resulted in a stream of new and improved products that have been well received by our customers.
And we're excited about some of the new models we will be introducing later this year and early next year as well.
I've got some interesting new things coming down the pike.
And with a more favorable tax environment and even as acquisitions have gotten more expensive, we are increasing our focus on such internal developments and in developing things that we may have historically bought.
And so ---+ and we're pleased with the results we have had from these new product development efforts.
But certainly, acquisitions also remain a key element in our growth strategy, and we're pleased that despite sort of higher prices we think for acquisitions recently, we're still able to find opportunities which we believe are actionable for us and will still allow us to make the kinds of returns commensurate with our overall business objectives.
We completed 3 small acquisitions last year but are still looking at having a lot ---+ seeing a lot of activity in this area.
So in summary, it was nice to have a good start to 2018 with record results in the first quarter, and we feel good about the outlook for the rest of the year.
We have a strong backlog, improving markets, growing margins, a more favorable tax environment, all of which should contribute to a stronger 2018 for Alamo Group.
So we want to thank you for your interest and continued support of our company.
And we'd now like to open the floor for any questions you might have.
Certainly, we started about 1st of April adding selective surcharges, mainly probably in more of our agricultural-related divisions.
Our Industrial Division, there, it's been more price increases because that's more of a build-to-order business.
So as we have been quoting new stuff, we selectively have worked in the prices ---+ the current prices of steel into the new orders.
And usually then, I mean, once we get an order, the flow-through is quicken up, that we are able to ---+ it's not like we quote something one day and then 6 months later, the prices are higher.
It's a shorter turnaround.
We can buy the material quicker when we get the order, and so that flows quicker.
So it's a combination of both surcharges and price increases or at least building steel prices into the new costs.
So as a result, like I said, even our margins were up slightly in the first quarter, and so we're not being ---+ we're probably not getting as much favorable price variances as maybe we got last year, but we're not really giving anything away from a margin point.
I think we've been able to react quick enough and positive enough to take that into consideration.
And I think, certainly, you have to see how the year is going to play out.
We're ---+ if anything, I think steel prices, which had been going up for the last 6 months or so, has sort of flattened out.
Selectively, we've seen a few maybe even where they come off a little, but we're not planning on going down.
But I think we're in good shape to react to whatever happens out there, and like I said, haven't given up any margin and really think we ---+ as long as we stay on top of it, we should be just fine in that no matter what happens for steel for the rest of the year.
A couple of things on that.
Yes, like we had been saying in the last several years ---+ I mean ---+ so over the long haul, our CapEx has run usually at or just below depreciation.
And what I'm saying is probably for this year and next year, it's going to be a little bit higher than ---+ it will be higher.
I mean, it's not going to be like double or anything, but I mean, it is going to be certainly higher than depreciation for this year or next year.
Some ---+ yes, you're right, we are investing in automation, but there is ---+ I mean, I know we just started to ---+ CapEx at our plant in ---+ Rivard plant in France.
And for instance, I mean, we're putting in a new laser cutter, we're putting in some new other machine tools.
And ---+ but we had to expand the building to put it in.
So I mean, there is a little bricks and mortar in that one.
And it's actually one of our bigger capital expenditures already this year was we had a small facility at our Nite-Hawk plant in the state of Washington that we leased while we bought out the lease.
So I mean, that was ---+ it's like ---+ so economically, it's a good payback for us to do that, and ---+ but that's all brick and mortar.
We also ---+ we've talked a long time about wanting ---+ our Super Products Division in Milwaukee operates from 3 separate facilities, which is inefficient.
And we've been talking about consolidating that.
And I would say I hope to, before the end of this year, kick off in that.
We'll actually be building a new plant to be able to put 3 plants into 1, which has ---+ and with the associated equipment and everything.
That will be a major capital expenditure but all spread over a couple of years, but again, like I said, so will be some brick and mortar.
It will also be ---+ but some more state-of-the-art equipment.
And again, we're doing that because it will have a very nice payback.
So it is ---+ we're continuing to invest in technology, but there is some brick-and-mortar, which is one of the reasons it's being kicked up for the next couple of years.
Well, as we mentioned in the ---+ for the second part of your question, as we mentioned, we are in the process now of bringing cash back.
We expect by the end of this month to have brought back between $25 million, $30 million.
The rest of it requires a little more analysis.
There are some local tax issues, and then they're not huge numbers, but we certainly want to be as efficient as possible in bringing money back to the states.
Yes, certainly.
Yes, as I also said, I mean, I think ---+ tax rate improvement for us, it was about 7% in the first quarter, and that's probably about the rate.
I mean, we have ---+ like I say, good news is our international earnings are picking up.
I mean, of course, we didn't get tax reform outside the U.S. So I think the 7% rate, give or take, is about the improvement we think we'll be seeing for most of the year.
As far as the cash itself, bringing it back is one thing.
No, we do not plan at this point anything like a special dividend or that.
Certainly, as I said, one thing, we'll be spending a little bit more than on CapEx.
We said we were going to be kicking that up a little bit.
The other thing is I think as at the end of the year ---+ I mean, obviously, the initial use of the cash will be to pay down debt, but we'll ---+ yes, we're, like I said, going to spend a little bit more on CapEx, we're going to spend a little bit more on R&D.
And ---+ but the main focus of the ---+ we still have plenty ---+ we're still generating a lot more cash than the increases in CapEx and R&D, and the main focus of that is for acquisition.
Like I said, we did a couple of small ones last year.
We'll ---+ I mean, we're looking at ---+ we're probably looking at more than we look at right now, but I think we're being very selective in what we do.
But I mean, we're conscious of that.
We understand valuations have gone up, and some of that is justifiable, but we're still looking at making the same kind of returns.
But, yes, I think acquisition activity is still the main focus of our cash flow, and we think we'll be able to find some that meets our criteria and are anxious to continue growth in that way.
But like I said, I think we've been focusing a little bit more on organic growth as well.
So those are the 3 ---+ CapEx, R&D and acquisitions are still the main uses of the cash that ---+ we will repatriate but that we generate internally.
No.
I don't think so, especially, because like I said, the surcharges and things like that, we don't implement any of that until the second quarter.
So I think that we've responded, and I'm not saying, it's an amount of issue, but I don't see it being any more of an issue in the second quarter or even the rest of the year than it was in the first quarter.
Well, first of all, we have a little lag usually in our pricing.
Like our suppliers, we lock it in for a month or 2.
And usually, that's almost enough once we get them, although we can get the material purchased in time.
One thing you all will notice, our ---+ certainly, our inventory and receivables went up as the business has gone up.
And so, I mean, I think selectively, we're buying a little inventory ahead of demand, where ---+ especially ---+ it's not only where we think price increases are coming, but even more so where we think our lead times are getting longer.
Everything from truck chassis, tractors, some hydraulic components, we're seeing the lead times go out.
So I mean, one of our responses has been to not only buy a little ahead, so that, number one, we know what our pricing is for those components, but number two, so that we have them in stock when we need them given that lead times are growing a little bit.
So that's why I'd say our inventory has gone up ---+ actually, our inventory turns have stayed the same, but our ---+ absolute inventory has gone up a little in response to the market demand and in response to longer lead times.
So I think we're being selective.
The main area of cost in areas has been steel and steel components.
I mean, it's not so much, say, plastics or tires or paint or ---+ those seem to be ---+ other ---+ non-steel things seem to be holding just normal types of inflation.
It's more steel-related.
A little bit on the fuel surge, like freight costs have also ---+ and so we're looking into that as well.
But I think ---+ like I said, I think we feel fairly good about being able to deal with it by selectively buying ahead, by watching it, by ordering as soon as we need it and instead of delaying a little bit.
So I think we're ---+ I'm pleased that our guys seem to be on top of managing the situation that I don't think it will impact margins at all for the year.
Well, our backlog actually increased more than ---+ like I say, the bookings were up better than that.
And that ---+ so it was the strike, and I think $5 million was actually maybe a little modest on the effect there.
I think also that ---+ the area ---+ like I said, it was amazing that we were ---+ probably the unexpected thing was that spare parts in the Industrial Division were all ---+ not just less growth ---+ I mean, actually, less than last year.
And that was ---+ boy, like I said, spare parts are our highest-margin item.
And so ---+ and to see that being off by more than $1 million will bother us.
We believe it was mainly due to the fact that, like I said, weather, the winter ---+ it's still snowing.
Some of the guys said that ---+ April was the coldest April in history for Chicago.
I mean, it's all ---+ weather ---+ farmers are slower getting into the fields.
And we think ---+ yes, I'll say, we were concerned, but we're not really worried because we feel that just the late winter, people aren't getting into the fields just quick.
People aren't buying ---+ getting in ---+ mowing the freeways, along the freeways yet, they're getting a later start.
But we think that's, like I say, we've made up a little of that, a little bit better snow conditions for us, which helps us.
But a little ---+ like I say, we believe that's just ---+ may things delay people getting started with all these.
We believe it will be fine.
We are already starting to see some pickup.
I mean, while ---+ as we have said, our backlog grew faster than ---+ the sales grew in the quarter.
And we feel we're in good shape ---+ yes, we actually think we're in good shape for the rest of the year.
Yes, there's a couple of things.
First of all, in the first quarter last year, we didn't have the 3 acquisitions.
So there was 3 acquisitions in the first quarter ---+ that was there in the first quarter of this year.
We also ---+ we already have ---+ there's some onetime things.
In Brazil, we had a head of operation, and then we bought the new Santa Izabel.
Consolidating those 2 in the womb, a little extra cost and our ODB, Old Dominion, another acquisition.
We're putting new systems conversion effort there, putting them on our operating system, which is, again, sort of a onetime cost.
These are sort of $0.25 million here, $0.25 million there.
And then even a ---+ more of a ---+ again, an anomaly, legal expenses, there was a couple of onetime events there that drove ---+ that legal expenses were up another $0.25 million here and there above sort of what it was last year at this time when we had very low ---+ so it wasn't anything ---+ like I said, it was 2 or 3 little things that this added up to actually being noticeable.
Yes.
Certainly, Europe, I think, they've had some fairly soft conditions for several years running.
It was nice this year that ---+ I think part ---+ what contributed to this is some pent-up demand, a little bit of pent-up demand as well as ---+ the growth, I think, is sustainable.
I think they are but not at the levels ---+ I mean, they were up like 25%.
So we're not going to grow 25%, but I think a healthy growth rate for the next few years is likely.
In fact, when I talk about where we had some backlog bottlenecks right now, I think Europe is ---+ I mean, we've got 2 of our major plants there that are basically almost sold out through the end of the year.
So like I say, we want to try to increase selectively some capacity there because we feel we're ---+ like I say, probably this growth is sustainable, but I mean, just meeting the backlog is going to keep pushing the growth this year.
I'm sorry.
I lost you.
You're saying, with the CapEx we're doing this year, was ---+ are there any costs.
.
No, I don't see anything out of the ordinary.
I mean, most of these CapExes are ---+ like I say, most of that stuff will be capitalized.
And when I said we're doing a little bit more on R&D, that will hit some of these.
Like I say, R&D expenses are up a little.
But like I say, I don't think that, that will be particularly noticeable.
I mean, it's not of a level that should be noticeable.
And the CapEx is not like there's some expense associated with the CapEx, things that will be expensed that will have a material effect on anything.
All right.
Well, thank you for joining us on the call today and the questions you did have.
And we appreciate your interest in Alamo Group, and we look forward to speaking with you on our second quarter call in August.
So have a good day.
Thank you.
Bye.
| 2018_ALG |
2016 | CTL | CTL
#So with regard to the first part of the question where do you think the low-end broadband subscribers are going.
We think they are increasing their speeds, they are moving up speed in the marketplace.
There probably are some cord cutters, but we don't see that as being very significant at this juncture.
We really do see them increasing their speeds.
With regard to SDN, NFV, and the approach that we're taking, we've got several pilots in place today.
We're looking at broader market or geographies for those customers, and we're really thinking about the reach that we get from the SDN and NFV implementations, versus the way in which we are traditionally going after the MPLS and ethernet marketplaces.
And that ability to take our network and provide significant services, beyond just what's offered today in MPLS and in the ethernet marketplace across a broader geography is what's compelling for our customer base at this juncture.
We believe that our prices are lower than the cable offerings, at this juncture.
Of course that's during the promotional period.
So I'll let our <UNK> <UNK>, our CTO, answer the first question about skinny bundles.
With regard to the marketing efforts, and the greater intensity of the marketing spend in the third quarter actually, we're looking to not just drive that in the third quarter, but going forward.
And so we are going to have a marketing, a set of marketing programs that are going to continue to drive our high-speed broadband businesses.
But it's not all incremental.
The fact is that we're taking some funds from other marketing programs that are no longer justified, and moving them to this increased spend as we go forward, and it allows us to continue to drive our broadband services, especially for those higher end customers.
It would be improvement in the broadband net adds, and obviously that's the primary metric in the consumer space.
And by the way, when we talk about improvement in the net adds, it's traditional where the bundled approach, as opposed to those pure plays.
We still have to work some out of the system, with regard to the churn that occurs in our pure or standalone plays.
We'll see that play out through the third quarter, and then we expect that we'll start to see an improvement in the subsequent quarters.
So <UNK>, with respect to the revenue guidance, we still believe we'll be at the lower half of the range that we gave for the full year.
The price increases that we expect to do, and by the way, we did price increases in the first half of the year, I just want to make that clear.
The $40 million is what we effectively deferred, and decided not to do, that we had previously planned when we originally gave our 2016 guidance.
Some of that will implement now, but the impact of that on the last half of the year is going to really be pretty immaterial.
We would hope to have some increases in our sales of CPE, which would help improve our revenues somewhat in the back half of the year.
And then on the wholesale business, especially on wireless backhaul, there continues to be pressure on wireless backhaul.
It's very competitive, a lot of players out there, the wireless companies have alternatives, so it is continual negotiations going on.
Of course we had a major production last year that we talked about this time last year, in terms of wireless backhaul agreements, but it's an ongoing issue.
We think we can be competitive.
We don't expect any major impacts this year, but these negotiations are continual with the wireless carriers, and it is very competitive.
As for the more normal level of CapEx we can get to, we think there's $300 million or $400 million that come out easily out of $3 billion so we think the $2.5 billion level is certainly achievable, maybe less.
It depends on what the opportunities are in terms of driving or investing in technology to drive revenue and margins.
But right now, we think a more normal level being closer to the $2.5 billion mark.
<UNK>, first of all, the mention of the reinvestment, we consider that in every, we look at cash flow of any kind.
That's part of the consideration, so I wasn't trying to say, well that's a change.
We look at, as I said, we'll look at stock buybacks, debt reduction, investment in strategic services and other areas.
Acquisitions, we'll put the whole opportunity, all of the opportunities in there, but the focus again is driving long-term shareholder value.
So where that might, just to give you an example, there may be an opportunity to invest in a certain type of technology, we believe could drive short near-term returns, drive real value for us, offset some capital expenditures, offset some of the cash investment in CapEx so that's the kind of thing we look at.
But it's no change in what we said before.
We really haven't made a decision.
Certainly there are opportunities there to invest in the business, so there's no question about that.
We have not made any decisions, as far as should we invest back into the business with some of the funding that comes from the sale of the data centers.
We just haven't made those decisions yet, but those opportunities are certainly there.
So as you would expect, in the marketplace, there's an over emphasis on speed.
And even though speeds may be well above what the customers' requirements are, there's still that desire to get as much speed as possible.
But we have an advantage that, for example, our cable competitors do not have, in that we are not shared and our cable competitors are.
So what we really focus is on the real speed that the customer's going to get, and what they really need going forward from a broadband standpoint, and that seems to be very, very effective in communicating to our customers what their real needs are versus what the advertised speed might be, in the best of circumstances.
And then of course, the other piece of the whole speed equation that we try to [tell] our customers about is the symmetry of speed.
So we have upload and download speeds that are similar, and we are not seeing that in our cable competition.
So we talk about that upload and download speed with our customers, and the fact that it's symmetrical.
<UNK>, one thing I might point out on that as well is that we've always competed with the cable companies at a speed disadvantage, and we've always been successful adding customers over the years.
And with the network expansion and the emphasis on the network, and improving the broadband speeds from a relative standpoint, we will be competing in a much better position than we've been at in the past, and again, we've been successful in past.
So there's no reason to think we shouldn't be successful in the future, with the focus and the emphasis that we're putting on investing in the network, to increase our speeds.
I believe CenturyLink is well positioned to help our customers realize the promise of the power of the digital economy that we've talked about.
And we'll continue to invest in our broadband network and expand our broadband capabilities that we discussed today, that we believe will help meet our customers' needs, help them improve their lives, grow their businesses.
We continue to see excellent opportunities to beat business customer demand for high bandwidth data hosting and IT and managed services.
We think that we're going to see that demand grow in the months and years ahead.
Additionally, we are focused on meeting the broadband and video demand we see for consumer customers, and are investing to deliver those services that they want and need, as we've also discussed today.
We have a strong set of assets, we have the financial strength that we believe position us well to invest in our future, and to grow our business.
So thank you for being on our call today.
We look forward to speaking with you in the weeks and months ahead.
Thank you.
| 2016_CTL |
2016 | PKE | PKE
#Happy new year, <UNK>.
That's really an interesting question, I think, and there's really two parts to the answer.
One is what we do ---+ we talked about improving our yields in Kansas as an example.
We talked about our new products, which are higher-margin products.
So we have to look at the content of the revenue and also our costs, which we were always going after however we can.
Of course, we are dealing with costs.
There's a limit.
Your costs can't be less than zero.
There's a limit to how much you can do with costs, but I don't think we will ever stop looking at our costs.
And obviously as you commented, the product content has a big impact on margins as well.
And having said that in the short-term, especially the topline revenue line is going to have a big impact on gross margins.
So if revenues fell off in the fourth quarter, that's going to have an impact on gross margins.
If they came up, they have an impact on gross margins.
I think that if we start to see some movement up in our revenues and our long-term planning has always been consistent with revenues moving up, that that upward trajectory of revenues will have a positive impact on gross margins.
It's just simple math.
(technical difficulty).
On the two factors are what we do in terms of our cost, in terms of our product mix, product introduction.
And then on a short-term basis, what the market does in terms of ups or downs in revenues.
Long-term our objective would be to have gross margins, which would be over 30%.
Well, at this point, we don't think that GE is going to help us, not in the 2016 calendar year in terms of any kind of revenue growth.
So we really weren't proposing that if you figure it that way.
But I think it's not a bad way to think of it, <UNK>, for Q3, and that might be not a bad model for 2016.
Now with GE, we are working calendar years.
So, as I mentioned, 2017 calendar, we are expected based on the forecast to see some upward movement to a level more than we were for the first part of this year.
As a forecast, we don't know whether it's going to come true or not, but that takes into account also what we are discussing regarding the inventory work down.
The only point is that that could have an impact upon the next fiscal year because that's the beginning of 2017 calendar will have a little bit of an impact upon the next fiscal year.
As far as other programs, there's nothing significant that we are aware of that will have a major impact ---+ upward impact on revenues in the ---+ or aerospace in the coming year.
So that doesn't ---+ I guess I should be clear because I don't want to mislead anybody intentionally ---+ that doesn't mean that revenues won't move up, but it's not like we could point to a big program and say, okay, here's your forecast.
This is what's expected each quarter, and therefore, we can predict revenues moving up, which would be the case with a larger program often, but most of what we do in aerospace is still not GE.
It's a lot of smaller programs which are less predictable for us, and those are the things we're going after.
We also ---+ I guess I should add that we talked about GE as if it's a zero-sum game, but it's really not true.
We are almost in a constant state of being qualified for other GE programs outside of the cells and thrust reversers.
That's where we started ---+ in the GE facility in Baltimore that produces those products, and that's where we are pretty much sole-source.
But there are very significant opportunities with GE Aviation for the engine itself, the fixed structure of the engine itself, and we seem to be in a constant state of being qualified on those opportunities.
So that's a factor that we really can't quantify too well at this point.
It's a little bit of a wildcard, but it's all positive.
What we're talking about is the baseline ---+ what we know, what is ours, what we have.
There is upside even this year with GE, but that's more difficult to quantify.
I know that's a rambling answer, but I'm not suggesting what you do because you are smarter than I am as an analyst.
But I don't think it's a bad idea to look at Q3 a little bit and think, well, this might be something I could use as a basis for a model for the coming year.
I would not disagree with that.
I'm not recommending that.
We're not forecasting that, but I don't think that's an illogical or unreasonable approach.
And obviously, <UNK>, I just want to add, it's our objective to beat that number, and that's what we are working on every day, to beat that number.
Beat those kind of numbers.
I think those costs, we are always looking at opportunities to improve our cost structure.
But the level that we're at is we have some base that we are probably working off of here.
So movement from that base, assuming we stay right around this revenue level, is probably not going to be very significant.
I can't think of anything that would materially change it in the near-term.
You're welcome.
Thank you, operator.
One more thing I'd like to mention ---+ hopefully some people are still listening ---+ is that there is a live webcast at the Needham conference.
I think it's a week from today, and that's available to anybody, and you might want to tune in for that if you are interested.
We will be doing a presentation about Park ---+ and not just going through quarters, it's more just the history of Park and what we're doing because it's also intended for people that don't know much about our Company.
So I just want to mention that to you.
And having said that, thank you very much for listening in on our third-quarter conference call.
And again, I'd like to wish everybody in the audience a very happy new year and the best of luck in 2016 to all of you.
| 2016_PKE |
2016 | ARRS | ARRS
#Well, we certainly did see some savings in the COGS in the quarter, but really much of that is going to take a little while, as <UNK> talked about at analyst day, to work through, but we did see some of that.
I will let <UNK> and <UNK> comment, but Q1 usually has some pricing actions that do kick in, so sure, we would have seen that as we normally do.
Yes, (inaudible) it is as competitive as always on our pricing.
From a cost perspective, there is a variety of different type of cost synergies that we are going after, including, obviously, looking at common components and driving to the lowest cost between two of us, which is the low-hanging fruit.
Second is around some product redesigns or integration of lower-cost design into a common product.
That takes a little longer.
And then, third, it is around the remaining [fashuring] supply chain partners that we work with and leveraging the additional volumes that we have into lower-cost structure over time.
So it's a combination of both.
But we get a little bit of it in the first, with more coming through the year here.
Yes, that's a good question and that's what I was referring to about these uncertainties that still are there, really, in terms of how these consolidations take place and how as new management takes over these networks, they evolve.
So, we are a little bit cautious about that.
Nevertheless, the end customer demand is there.
There is new over-the-top services getting announced every day and the increase in Internet traffic is just continuing to grow unabated.
So, I think a little bit of caution in the second half around the uncertainties with regard to these many things that are happening right now.
Yes, the comment that we made earlier was that we expected revenue dyssynergies particularly because there were certain places where, when we combine the Pace and the ARRIS businesses together, we would have very, very high market shares that customers might be uncomfortable with, and what we said when we previously commented on this was that we hadn't seen any specific examples of it.
But now I would say we have seen some specific examples of customers splitting business and lowering our share.
Nevertheless, I think we're holding our own pretty well in a very competitive market.
Well, I wouldn't comment on one particular customer, but as I said in the comments, <UNK>, we have seen telco spending begin to recover, and the transfer of those FiOS properties to Frontier is a pretty positive move from our point of view because we think Frontier will be fairly aggressive in upgrading those properties.
And the AT&T/DIRECTV merger, which took place months ago now, I think they're getting their programs, marketing programs, together and I think we expect to see ---+ have seen and we expect to see more uplift in that as the year goes on.
Yes, so the $30 million of ---+ thanks for asking that.
Some people probably haven't seen it before.
But what we had to do is we have as part of purchase accounting is essentially revalue, if you like, the Pace inventory to not historical cost, but to a fair value.
And so, we had to increase the value of that inventory by about $50 million.
We sold some of that in the first quarter and we had a $30 million margin impact, so hence about 1.9% in terms of the margin, if that answers the question, <UNK>.
You'll see about $20 million again in the second quarter, so you would add that 1.9 million ---+ 1.9 points to the GAAP number we have.
Yes, fair value being an accounting term.
That's exactly right.
Yes, there are a couple of things.
Certainly, the Charter/Time Warner and all these other consolidation activities that are going on give me some degree of concern that there might be a pause.
I don't think there is any reduction in the end demand for our products, but there could be some shifts.
On top of that, in <UNK>'s area and actually in <UNK>'s area, too, we have some pretty tricky product transitions that are going on in the second half of the year.
<UNK> mentioned he's introducing a second-generation set of devices in the E6000 and <UNK>'s introducing DOCSIS 3.1 modems in the second half, and we have got to work our way through that transition.
So I think there are a number of things that cause me to just say let's be a little bit cautious about the second half.
I do believe that we will meet our full-year guidance and I'm increasingly confident about that.
Well, we are hearing our customers ordering a lot of product right now.
Our customers don't like what the FCC is doing.
They have filed statements to that effect.
So have we.
We have seen increasing political pressure being brought to bear against the FCC, both on the ---+ on both sides of the aisle in Congress more recently.
And so, I guess ---+ our view hasn't really changed, though, <UNK>.
When we look at this, we say, first of all, how long would it take for it to impact our business, and we think it is a couple of years out in the worst case.
And also in the worst case if it were to be enacted exactly the way the FCC is proposing, that would open up a retail market, one which we are pretty excited about anyway.
As <UNK> pointed out, we just introduced some new products into retail.
So we're building up our retail channel and I think even if it goes in a direction that we don't like, we would still be okay and I think the effect is a couple years away.
A bit too early to say, but we are doing better, without a doubt, but I think we will stick to what we were talking about analyst day, but I am pleased with the progress that we are making at this stage.
Get the guys to generally comment.
Go ahead, <UNK>.
Coming from a mix perspective, we are anticipating a little more CPE in the second quarter percentagewise than what we saw for the mix in the first quarter, and I think the question on international, what we have seen obviously throughout last year was a strengthening of the US dollar, which really tamped down international demand in general.
That has reversed a little bit in the first quarter, so I think we see signs of some momentum building there, again, throughout the year, obviously very sensitive to what happens with the US dollar, but I think what we anticipate is a stronger mix of international in the second-quarter results.
We'll see.
The linearity, so, again, we do believe that the gross margins do improve.
2016 for 2015 is a little bit more difficult because, of course, we have far greater CPE presence within it.
So, that one is a little bit more difficult to tell you about.
By far, <UNK>, that's the biggest impact, right, is just simply the incremental volume around CPE and the overall result on the Company gross margin.
Not sure how we ---+ we didn't say that.
Again, we have purchased $150 million and we have $150 million left in the authorization and that's where we are at the moment.
Well, they keep buying one another (laughter) (multiple speakers) bigger and bigger.
So I could actually see that number go up a little bit as these deals close.
Yes, good question.
I probably should have mentioned the Cablevision announcement.
Cablevision has been a customer with ActiveVideo for quite a while with different applications, so the Hulu application is one of the newest being deployed there, and hopefully that will ---+ that is a great use case that many operators could implement.
So we hope that gains more momentum with other operators.
I know certainly where a lot of the focus is today is around launching the Charter service, using that technology across their footprint, so I think that will be a big focus this year, and some of these new unique applications will probably ---+ it will take some time for them to get more momentum, but the big opportunity certainly is getting Charter fully deployed.
And there seems to be quite a bit of interest in obviously virtualizing capabilities or functionality into the cloud, whether they are VOD user interfaces or full EPG, full program guide or these over-the-top streaming applications.
So, they take a little while to close a deal and get them launched and everything, but there certainly is a lot of interest there.
So just in general, we consolidate all of the ActiveVideo joint venture results as part of our financials and then there is an adjustment at the bottom of the P&L to account for Charter's share of the interest in the entity.
For the most part, it is a software sale, so you are selling a license either on a per-subscriber basis or some sort of enterprise license fee, which is, again, for the most part, a recurring type business model.
And that's basically how it works.
It scales as the customer deploys more and more capability.
Thank you, Ashley.
<UNK>, any final comments.
No, I think we have covered it all.
Great.
Thank you, everyone.
That concludes our call.
| 2016_ARRS |
2016 | LIVN | LIVN
#Good morning.
I'll let <UNK> answer these questions.
<UNK>.
Yes.
Thanks, <UNK>.
Let me start if I can with the question on the FX and the hedging.
We have overall ---+ I haven't given guidance or details on the individual aspects of our hedging strategy, but what I have said because it is an ongoing process that we continue to look at on a monthly basis.
So right now, we have a very selective hedging program.
We actively hedge certain currencies based on our own and partners' forecast.
But we also have very natural hedges that sit with us due to our sales and where our costs fit.
So right now, what we have said is for this year that we expect some FX volatility and that may come from various currencies and we'll continue to monitor that.
But on a bottom-line basis, we do believe right now that we have adequate coverage to mitigate a lot of the risks that are potentially out there in the macroeconomic environment.
In relation to the gross margin, really there are three elements to this one.
Obviously, the largest element in that is mix element.
We also have some benefit of equal amounts, both the medical device tax and the synergies and cost improvements.
But from an FX perspective, there is very little if any FX upside that is being driven on the gross margin at this stage.
Much of our cost of goods are valued at dollars and we're a dollar denominated currency.
So really right now, there is very little if any FX that's driving that is number.
In terms of the inventory statement, again, in terms of our gross margin, we are in a position where we gave the adjusted gross margin.
For the year if you look at the press releases and the GAAP numbers, we have included for the first half of this year, we called out a $35 million inventory step-up.
We believe that most of that now has actually been taken by the P&L in relation to the step-up, and we don't expect much more if any step-up to be hitting the P&L in the second half of this year.
Right, so in terms of the AspireSR, about 80% of our sales in the US are made of AspireSR, so which is probably the fastest conversion we have ever seen in this business, and that speaks volumes about the value that the patients and physicians feel about this device.
So in terms of let's say volume growth, we need to think inside Canada there are two moving parts here: one which is the new patient growth and the other part is the replacement business.
In terms of the new patient growth, again the second quarter was double digit and we see this as a strong trend for the business.
It is very difficult to predict going forward, but we believe it is a result of the AspireSR additional benefits to patients, and we see more and more patients that are drug-resistant that come and have an AspireSR implanted.
The second part which is the replacement market.
So at the end of the battery life, we see this is as obviously a slower growth element, but we see trends that are back to our historical trends of replacement growth in particularly in the US.
Again, we are confident in our ability to hit the 9% to 11% sales growth this year with really the most important for us factor being the new patient growth that is really the one driving mid to long-term growth for this business.
Thanks, <UNK>.
Because we are a larger Company now than both companies were before, we are not maybe splitting some of the subcategories into the details that we used to have as separated companies.
But what's important to see is that we believe the trends that we see in mechanical valves are long-term trends in which we don't see necessarily a turning point for mechanical valves.
The market we've said before is declining, and it's a global phenomenon.
So we don't expect the turnaround point for mechanical valves anytime soon.
And second, we see that the traditional surgical valves ---+ ours, but also when we look at some of our competitors' recently announced results, we see that this is a challenging market because the future is probably for new technology valves, particularly for sutureless valves like Perceval.
It's probably too early to say that when Perceval will become basically the only valve that we'll sell, but it's really not an unlikely scenario in the long run to see that all aortic valves surgeries will be done with Perceval-like valves, and we expect that this will continue.
As the valve itself will see improvements in the years to come, we believe that this will become the valve of choice for physicians and basically will represent the vast majority of the valve sales that we have in the Company.
We don't give those numbers out, <UNK>, but if you look at our long-term goal which is $80 million to $100 million by 2018, and you do the math and if I remember correctly, we sold $37 million of valves this quarter.
Your math is probably right still.
But it is the fastest-growing, by far, the fastest-growing product we have in the valve business.
And again, if you look at our long-term guidance of $80 million to $100 million, I think that gives you a good idea of where Perceval will sit in the next two years.
In Japan, the KORA 250 ---+ look, what we said very, very directionally, we said that we had around 20% market share prior to starting to lose share because of the MRI compatibility, or the lack of MRI comparable product, for us in Japan.
And we believe we've lost about half of the share that we used to have, so again, indicatively, you can think about us at the low point having 10%.
KORA 100 has helped us get a few percentage points back, and we believe that KORA 250 will help us get the rest back.
Let's say, indicatively today we are half the way through.
But we believe that in the next 12 to 18 months, we'll be able to get back to our historical position in Japan with the support of our local partner there and the quality of KORA 250, which is the smallest and only automatic MRI mode product in the market.
Thank you.
I just want to thank everybody for being on the call today and appreciate, I know we ran over a little bit so we appreciate you being with us and have a great day.
| 2016_LIVN |
2015 | ALXN | ALXN
#<UNK>.
Great.
And then, <UNK>, regarding supply.
We really have an expanding global manufacturing network.
Where our objective is redundancy in the system.
From both drug through fill and finish, and right our to labeling and packaging and one of the objectives for Julie has been, obviously, to bring more of those capabilities in-house.
As you know, we have announced expansion of our manufacturing facilities in Ireland, which we are very excited about.
In addition to that, it has just been a continuous focus, under Julie's leadership, on the best talent in the industry, industry-leading quality systems, and continuing to invest in our facilities.
Which we think is represented by some of our announcements surrounding CapEx in this area recently
Should I take the leverage.
Please.
Yes.
So <UNK>, the way to look at this is if you look at 2015 SG&A expenses, right.
And you should literally focus on the percentage of sales in the second half because first half is ---+ did not have Synageva integrated into us.
When you start looking at it somewhere around 27%, 26% levels, we expect to continue at the same percentage level going into next year primarily because we have to invest in making the metabolic franchise a success.
We've got to put our full power behind Strensiq and Kanuma.
That is how we are thinking about SG&A in the next year.
And the leverage will start coming as the sales of these drugs start coming into the model over the years.
<UNK>, maybe on the 2016 forward-looking on the trends and the base business.
<UNK> for 2016, we really expect to identify a consistent number of patients, newly diagnosed patients, on PNH and aHUS.
As we have mentioned earlier in the call, our view is that the majority of the opportunity, both for PNH as well as for aHUS, lies ahead of us.
The good news is, <UNK>, we have a readout between now and the end of the year, which is just a few weeks.
Next.
<UNK> on Moderna.
It is gratifying to see as we build out our global metabolic franchise with 2 new product launches this year, with Strensiq and Kanuma, 6 of the 7 first preclinical programs from Moderna are in the metabolic setting.
And again, <UNK> will share a little bit more about the collaboration at analyst day.
Turning back to the Strensiq question.
As we ---+ by the way you said last week, it was this week, but I agree it has kind of felt like a very long week for many of us.
This week, as we mentioned, given the clinical trial experience across multiple multinational trials, and also the very early experience we have had in Japan ---+ in Germany ---+ our expectation is that a very, very high proportion of patients initiating Strensiq treatment will be infants and young children.
We believe that the typical patient weight across the population is likely to be in a 20kg to 25kg range.
Thank you.
| 2015_ALXN |
2016 | WMT | WMT
#Good morning and thank you for joining us to review Walmart's second quarter fiscal 2017 results.
This is <UNK> <UNK>, Vice President of Investor Relations at Wal-Mart Stores, Inc.
The date of this call is August 18, 2016.
On today's call you will hear from <UNK> <UNK>, President and CEO, and <UNK> <UNK>, CFO.
This call contains statements that Walmart believes are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, as amended, and that are intended to enjoy the protection of the safe harbor for forward-looking information provided by that Act.
A cautionary statement regarding forward-looking statements is at the end of this call.
As a reminder, our earnings materials include the press release, transcript and accompanying slide presentation which are intended to be used together.
All of this information along with our store counts, square footage, earnings infographic and other materials are available on the investor portion of our corporate website, stock.
Walmart.com.
For fiscal year 2017, we utilize a 52-week comp reporting calendar.
Our Q2 reporting period ran from Saturday, April 30, through Friday, July 29 of this year.
And as previously announced, our annual meeting for the investment community will be in Bentonville, Arkansas on October 5 and 6.
We plan on having facility tours on the 5th with our meeting taking place on the 6th.
We look forward to seeing you here.
Now I would like to turn it over to Walmart CEO, Mr.
<UNK> <UNK>.
Thanks, <UNK>, and good morning everyone.
Thank you for joining us to hear more about our second-quarter results.
We had a strong quarter, with adjusted earnings per share of $1.07.
Excluding the $2.7 billion currency impact, we delivered total revenue of $123.6 billion, an increase of 2.8% over last year.
We exceeded our Walmart US comp sales guidance this quarter with Walmart US delivering comp sales of 1.6% driven by a traffic increase of 1.2%.
This was our eighth consecutive quarter of positive comp sales and our seventh consecutive quarter of positive traffic.
I'm encouraged by what I am seeing when I visit stores and pleased with how Greg Foran, our leadership team and our associates are executing our plan to win.
Our customer satisfaction scores continue to improve and the team did a great job of managing the flow of inventory again this quarter.
Comp store inventory was down 6.5% and in-stock levels are up.
We are also showing progress in e-commerce.
On a constant currency basis, GMV and e-commerce sales increased 13% and 11.8% respectively.
The US results were stronger than those in our key international markets.
This was primarily due to growth in our Marketplace offering in the US, the continued rollout of online grocery and growth of pickup in our stores and clubs.
We continue to see proof that our customers enjoy a seamless shopping experience.
The distinctions that we talk about today between stores, apps, pickup, delivery and sites are continuing to blur into the background for customers.
For them, it's just Walmart.
We have built a solid foundation in e-commerce under the leadership of Neil Ashe.
During Neil's tenure, we more than doubled our e-commerce GMV, became the second most trafficked e-commerce site in the US, re-platformed Walmart.com, opened a national fulfillment center network and most importantly, became known as a great place to work for talented technologists and e-commerce professionals in Silicon Valley.
Neil also led our discussions with JD.
Neil will be with Walmart through the end of our fiscal year working in our e-commerce strategies in several international markets.
I would like to thank him for his significant contributions to our Company.
Building on this solid foundation, we made some strategic decisions to position ourselves for the future in the priority markets of the US and China, including the announcement last week to acquire Jet.com.
Operating Walmart.com and Jet.com will allow us to reach even more customers and drive a higher level of growth more quickly.
One of the things we like about the technology they have developed is that it rewards customers in real time with savings on a basket of goods and puts them more in charge of the price they pay.
This empowers customers in a way that is true to the spirit of Walmart.
When customers build a basket of goods online rather than ordering one item at a time, shipping economics are in their favor and ours.
Walmart's advantage has always been in providing the lowest prices on a basket and Jet has created a unique way to deliver the lowest cost basket online.
It is important to remember that customers won't see changes immediately as we await government approval and the necessary tech platform changes which will take time.
Once the acquisition is complete, we look forward to welcoming Marc Lore, current President and CEO of Jet.com.
He will join Walmart as our new President and CEO of e-commerce reporting to me.
He will be responsible for both the Walmart and Jet brands in the US.
Marc is a passionate merchant and innovative thinker who will definitely add value to our business.
I look forward to working with him.
In China, our recent announced transaction with and investment in JD.com improves our position there.
JD's significant presence online, where Walmart and Sam's Club feature prominently, affords us the opportunity to extend the reach of our brands to millions of new customers.
I made a couple of visits to JD's delivery and pickup points in Shanghai when I was last in China and am excited about the potential it creates for our customers there.
Richard Liu, CEO of JD.com, is a talented e-commerce merchant and we look forward to our collaborations going forward.
Additionally, we made advancements in the US on our key priorities to build digital relationships with customers, scaled the assortment and expand online grocery.
As of June, we have rolled out Walmart Pay nationwide to all stores.
Customers tell us they love the convenience of this unique service, and we found that a majority of transactions come from repeat users.
If you haven't tried Walmart Pay, please do and share your feedback.
Customers also continue to enjoy our online grocery pickup service and give it high marks.
We added grocery pick up to 30 more markets this quarter bringing our total to more than 60 markets and nearly 400 locations.
It is gratifying to see how much of this service helps our customers save time.
Next, we are growing our marketplace offering at a strong pace.
Since the beginning of the year, we have added about 7 million new items to the assortment and today offer approximately 15 million SKUs.
Walmart International delivered another solid performance in the second quarter.
Nine of our 11 markets posted positive comp sales and six of those grew comp sales by more than 4%.
Walmex continued to lead the way and I am pleased with the fact that the momentum in the business is broad-based across all formats and countries.
In China, in addition to expanding our reach through the strategic alliance with JD.com, we continue to grow our base of stores and clubs.
In fact, we continue to gain market share in the hypermarket channel.
China remains a strategic focus for us as it represents the largest retail growth opportunity globally.
In the UK, the competitive environment in food deflation continued to challenge the market significantly impacting traffic and comp sales.
Our strategy to turn things around is focused on improving the retail basics.
We are simplifying and strengthening our offering through improved availability and assortment discipline, reducing costs and driving sales through strategic price investments.
While our turnaround will take time, I am confident in the new leadership team there and want to assure you we are addressing this with urgency.
At Sam's Club, comp sales for the period were slightly above our expectations.
Membership performance was the highlight, and there is quite a bit of innovation underway at Sam's related to the member experience.
Earlier this year, we launched a test of Scan and Go, a mobile checkout and payment solution which lets members skip the checkout line.
We are pleased with the adoption of this service and we expect to roll this out nationwide later this year.
We also saw strong growth in the quarter from both Club Pickup and direct to home e-commerce.
The new platform we are using to prospect for new members and better manage their accounts will help us deliver on our priority of growing membership.
These innovations are making it easy for members to shop and save time.
Finally, I have enjoyed my time this week with more than 5000 store leaders and merchants with the US team at our annual Holiday Meeting in Denver.
We've got a great plan for the busiest time of the year and the mood at the meeting was deservedly upbeat.
I'd like to thank our store managers and all of our associates for the job they are doing.
In summary, I am pleased with the momentum in the business.
We have a plan and we are executing against it and customers are responding favorably.
Now I will turn it over to <UNK>.
Thanks, <UNK>, and good morning everyone.
We are halfway through the year and we continue to be pleased with the momentum we are seeing across many parts of the business.
We are executing against our strategic priorities, focusing on the customer and improving core retail fundamentals around the world.
In addition to delivering solid second-quarter results, which I will talk about in a minute, we continue to make decisions that focus the business for long-term success.
Just in the past few weeks, we have furthered our strategy in e-commerce through the alliance with JD.com and the planned acquisition of Jet.com.
In addition, we have agreed to divest our Suburbia apparel business in Mexico allowing for additional focus on our core business in that market.
Each of these decisions aligns with our strategy and demonstrates our commitment to thoughtfully allocating capital against our long-term strategy.
Now let's get to the results.
Second-quarter adjusted EPS was $1.07, which was at the high-end of our guidance range, while reported EPS was $1.21.
Adjusted EPS excludes a non-cash gain of $0.14 net of tax from the sale of Yihaodian in China to JD.com.
We anticipate the gain for the full-year will be $0.16 per share which is within the original guidance range when we announce the transaction.
From a revenue perspective, we had another solid quarter.
Excluding the $2.7 billion currency impact, total revenue increased 2.8% to $123.6 billion while on a reported basis, total revenue was $120.9 billion.
On a constant currency basis, we added net sales of $2.8 billion in the quarter and $7.2 billion in the first six months of the fiscal year.
Walmart US delivered a very solid comp sales increase of 1.6% driven by a 1.2% increase in traffic.
It has now been two full years that Walmart US has delivered positive comp sales.
In fact, on a two-year stack basis, comp sales increased 3.1%.
As <UNK> mentioned earlier, we made progress in e-commerce with GMV and sales, growing 13% and 11.8% respectively.
The US results were stronger than the international results and globally we continue to make headway on expanding our assortment and enhancing the shopping experience for our customers.
Whether it is through online grocery, Walmart Pay or broadening our reach in China through the alliance with JD.com, we are making it easier for customers to access products when and how they want.
Now with the agreement to acquire Jet.com, we are building on our e-commerce foundation and creating an opportunity to accelerate e-commerce even further.
Consolidated gross profit margin increased 53 basis points driven by improvements in all three operating segments.
From an expense standpoint as anticipated, total SG&A increased compared to the second quarter of last year primarily due to our previously announced investments in people and technology for this fiscal year.
That being said, our teams across the globe remain focused on managing expenses.
In addition to solid operating results, disciplined working capital management and the timing of payments allowed us to generate $10.3 billion of free cash flow in the first half of the year which compares to $5.1 billion in the first half of last year.
Continuing to provide returns to shareholders in the form of dividends and share repurchases is a priority for us and we are fortunate to have such a strong business model that generates substantial distributable cash even after we have invested thoughtfully into the business.
During the quarter, we paid approximately $1.6 billion in dividends and repurchased 30.3 million shares for approximately $2.1 billion.
As of the end of the second quarter, we have utilized approximately $7.3 billion of our current $20 billion share repurchase authorization.
With that, let's discuss the results of each of our operating segments starting with Walmart US.
We continue to see steady improvement in the Walmart US business as customers respond favorably to the changes we are making in our stores and e-commerce offer.
Net sales were up 3.1% or $2.3 billion and comp sales rose 1.6% with a 1.2% increase in customer traffic.
We believe a contributing factor to the results is our consistent improvement in customer experience.
Customer surveys indicate that we are making good progress in providing a better shopping experience with cleaner stores, faster checkout and friendlier service.
We've also broadened our e-commerce assortment, strengthened our mobile capabilities and expanded Online Grocery to more than 60 markets and nearly 400 locations.
While there is still a lot of work to do in executing our multiyear plan, we are encouraged by the results we are seeing.
E-commerce contributed approximately 40 basis points to the segment comp and all of our formats had positive comp sales including Neighborhood Markets which delivered approximately a 6.5% comp sales growth in the period.
Although difficult to quantify, we know overall sales included some tailwinds from external factors such as continued low gas prices and unseasonably warm weather across much of the country.
However, we also experienced sales headwinds from continued market inflation in food, which negatively impacted our food comp by around 100 basis points and our second-quarter total segment comp by a similar amount as what we faced in the first quarter.
The grocery business showed improvement from the first quarter with positive comp sales in traffic despite the ongoing deflationary impacts in food.
In addition, both general merchandise and health and wellness delivered solid sales growth with strength in home, toys, sporting-goods and OTC.
The back-to-school shopping season is in full swing and we aim to be the destination of choice with low prices on a great assortment of products for parents and students preparing for the new school year.
In the second quarter, we continued to implement a multiyear strategy of incremental price investments in the US business.
It is still early days for this initiative but we are pleased with the initial results.
We are committed to providing Everyday Low Prices, using data and analytics to better serve our customers both through stores and e-commerce.
Gross margin increased 33 basis points in the quarter.
Improved margin rates in food and consumables were a contributing factor.
In addition, we had improvement in our cost of goods due to savings in procuring merchandise, lower transportation expense as a result of lower fuel costs, and some improvements in shrink.
These benefits are somewhat offset by the implementation of the multiyear strategy of incremental price investments.
Operating expenses increased 8.3% over last year due primarily to the previously announced associate wage rate increases and investments in technology.
We remain focused on managing expenses with an EDLC mindset while elevating the shopping environment for customers.
Overall, the SG&A increase was partially offset by improved gross margins resulting in an operating income decline of 6.2%.
We are also encouraged by the progress on inventory management with inventory declining about 2.9% in the second quarter versus last year, including a 6.5% decline in comp stores.
By cleaning up our store back rooms, leveraging technology and changing certain processes, we are improving product availability and enabling associates to be on the sales floor serving customers in a more effective way.
Turning to the third quarter, for the 13-week period ending October 28, 2016, we expect a comp sales increase in the range of 1% to 1.5%.
As a reminder, comp sales for last year's comparable period were 1.5%.
Now let's move to Walmart International.
Walmart International delivered another solid performance in the second quarter.
Nine of 11 markets posted positive comp sales and six of those markets grew comp sales by more than 4%.
The rate of sales growth in several markets slowed versus our first-quarter results impacted by Leap Day in the first quarter and the Easter holiday shift between first and second quarters in most markets due to the one-month reporting lag.
Walmex continues to produce strong sales results across all formats, while the UK environment remains challenging.
The International team remains focused and continues to execute on key strategic priorities: to actively manage the existing portfolio, deliver balanced growth, be the lowest cost operator, and build strong foundations and talent, trust and technology.
We continue to be aggressive in managing the portfolio, announcing last week the agreement to sell our Suburbia apparel business in Mexico.
In addition, our recently announced strategic alliance with JD.com in China aligns with our growth strategy in this key market by better integrating our digital and physical retail operations.
We also continue to execute aggressive cost reduction programs in the UK and Canada and are expanding cost analytics programs into other markets like Mexico and China.
We also announced market CEO moves this quarter in China, the UK and Canada.
We are confident these moves position us well for driving improved performance in each of these markets and demonstrate the depth of our talent globally.
With that, let's discuss International's overall results.
Net sales grew 2.2% on a constant currency basis while reported net sales declined 6.6% due to a $2.7 billion currency headwind.
From a profitability standpoint, operating income increased 47.5% on a constant currency basis and 35.2% on a reported basis.
This increase includes the gain from the sale of Yihaodian in China to JD.com.
Excluding the impact from this gain, operating income increased 3.1% on a constant currency basis which slightly outpaced sales growth.
On a reported basis excluding the gain, operating income decreased 6.7%.
The accompanying financial presentation includes detailed information on our five major markets.
However, I would like to provide some highlights on each one.
As a reminder, in all countries except Brazil and China, our financial results are inclusive of our e-commerce performance.
Walmex continues to lead the way delivering strong results.
Keep in mind Walmex releases results under IFRS and the results discussed here are under US GAAP, therefore some numbers may differ.
The positive momentum in the business continued across all formats, divisions and countries.
Comp sales for Walmex increased 7.3% in the quarter significantly outpacing the rest of the self-service market.
Excluding the gain from the sale of our bank operations in Mexico last year, operating income would have increased faster than sales.
In Canada, despite increased promotional activity by competitors throughout the quarter, comp sales increased 1.1%.
Comp sales have now been positive for nine consecutive quarters, and according to Nielsen, we continued to gain market share in food and consumables and health and wellness.
Our cost analytics program made good progress helping drive down cost of goods allowing us to invest in price.
Excluding the gain from the sale of certain properties in Canada last year, operating income increased faster than sales.
Additionally, we continue to decrease inventory levels and improve efficiency from a store and labor perspective.
In the UK, fierce competition and food deflation continue to challenge the market, significantly impacting traffic and comp sales trends.
During the quarter, comp sales, excluding fuel, decreased 7.5%.
Our strategy remains focused on improving retail basics, simplifying and strengthening the offer through improved availability and assortment discipline, reducing costs through our cost analytics program and driving sales through strategic price investments where we remain committed to the previously announced five-year GBP1.5 billion price investment.
In China, despite negative comp sales of 0.5% this quarter, our business continues to grow as we expand our footprint throughout the country, and we continue to gain market share in the hypermarket channel.
We Operate For Less initiatives have delivered results and we were able to leverage expenses.
Our recently announced alliance with JD.com enables us to better serve consumers through a powerful combination of e-commerce and retail.
JD.com, the leading online direct sales company and the country's largest Internet business by revenue, has a complementary offering allowing us to deliver compelling new experiences that can reach significantly more customers.
We are optimistic about our future in China.
In Brazil, despite the ongoing economic recession, we delivered comp sales growth of 4.7%.
Our wholesale format continues to perform well and delivered strong growth again this quarter.
In addition, we completed our store systems integration, which allows all banners to operate under a single financial system.
This will provide better visibility to business outcomes, improved alignment of marketing efforts and further enhance our compliance programs.
Overall, we are pleased with another solid performance from our International business in the quarter.
Now let's turn to Sam's Club.
Net sales without fuel grew by 0.4%.
Membership income increased 2.9% as Plus member counts increased and Plus member penetration is near all-time highs.
Comp sales excluding fuel increased 0.6% which is slightly above our guidance.
Market deflation especially in food continued to be a headwind and negatively impacted comp sales by approximately 100 basis points versus the second quarter of last year.
We are pleased with how e-commerce performed as both direct to home and Club Pickup had strong growth.
Sam's also continues to make progress on being a leader in the digital space.
Our members tell us they really appreciate the convenience that innovations like Scan & Go bring to their lives.
This new checkout and payment solution lets members complete the shopping experience using their own mobile device.
Turning to the third quarter for the 13-week period ending October 28, 2016, we expect comp sales without fuel to be slightly positive.
As a reminder, comp sales for last year's comparable period increased 0.4%.
With that let's wrap things up.
There's always more work to do but we are pleased with the first-half performance.
These results combined with our outlook for the balance of the year give us confidence in raising our full-year adjusted EPS guidance to a range of $4.15 to $4.35 which includes a range of $0.90 to $1.00 in the third quarter.
This compares to previous guidance of $4.00 to $4.30 for the full year.
As a reminder, the adjusted guidance excludes the $0.14 net of tax non-cash gain from the sale of Yihaodian in China to JD.com.
In addition, this guidance includes an estimated dilutive EPS impact of approximately $0.05 primarily in the fourth quarter as a result of expected operating losses and one-time transaction expenses related to the planned acquisition of Jet.com assuming the transaction is closed near the beginning of the fourth quarter of FY17.
Keep in mind that this updated guidance assumes currency exchange rates remain at current levels and that our full-year effective tax rate is expected to be at the low-end of our previously stated range of 31.5% to 33.5%.
In closing, we continue to be pleased with momentum we are seeing across many parts of the business.
We are executing against our strategic priorities and continue to focus on the customer.
It's an exciting time at Walmart and we are proud of the progress we're making.
Thank you for joining our call today and we look forward to seeing many of you here in Arkansas at our annual meeting for the investment community on October 5 and 6.
| 2016_WMT |
2017 | RGS | RGS
#Thanks, Sarah, and good morning, everyone, and thank you for joining us.
With me today are <UNK> <UNK>, our new President and Chief Executive Officer; Eric Bakken, our President of Franchise; Mark Fosland, our Senior Vice President of Finance; and Paul Dunn, our Vice President of Finance.
This morning, I will provide a brief overview of our results for the third quarter and provide updates on some financial housekeeping items and liquidity following that.
I'll remind you that our 10-Q press release website all contain more detailed explanations of our financial results, and our comments today should be considered within the context of these and other public business disclosure documents.
Paul Dunn is also available to answer any questions after the call.
Getting into the third quarter.
Third quarter results highlight the operational challenges Regis faces in its company-owned salons.
Adjusted EBITDA of $14.8 million in the third quarter was down $8.1 million when compared to the third quarter last year.
The major items driving the erosions in profitability are related to guest traffic and variable labor costs.
Same-store sales declined 2.9% but same-store traffic is down 5.7%, driven primarily by reduced stylist productivity.
Cost of service increased 200 basis points in the quarter.
On the financial housekeeping front, there are 3 items I would like to share.
But first, I want to take a few minutes to provide some clarity around G&A.
There are a number of puts and takes in our year-to-date results that make it challenging to understand, what to expect for the fiscal year, and what should be considered a true run rate.
Let me first start with G&A as reported.
During last quarter's call, you'll remember, I mentioned we were anticipating our full year G&A to be in the range of $170 million due to timing, one-time benefits and purposeful efforts to reduce the company's G&A cost.
Based on year-to-date results for the third quarter, it now appears our fully reported G&A will likely be somewhere in the range of $175 million due largely to expenses incurred for our strategic transformation.
It is important to note, however, that there are a number of discrete costs in this figure that make it more than our operational run rate would require.
G&A, as adjusted, is a better proxy for our run rate right now.
Our year-to-date adjusted G&A of $119.9 million is down $3.3 million when compared to the same period last year.
Roughly 1/3 of this decrease is caused by purposeful cost reductions that are undertaken by the company.
The other 2/3 is largely related to one-time benefits from items such as incentive comp, professional fees, vacancy of positions and travel, all of which we hope to return to normal levels in fiscal year 2018.
We continue to take a disciplined approach to managing our overall G&A.
When you remove all the puts and takes, we are expecting a run rate of G&A to be in the range of $5 million to $10 million lower than the total fiscal year 2016 adjusted G&A results.
Secondly, I want to remind you, the valuation allowance in place against most of our deferred tax assets makes it very difficult to compare after-tax results for prior periods.
For the 9 months ended March 31, 2017, we recorded tax expense of $7.3 million.
However, there were ---+ $6.4 million was noncash and related to tax benefits we claimed for goodwill amortization, but of course, cannot currently recognize for GAAP purposes.
The noncash tax expense related to this issue will approach $7.7 million for the year, and we expect that will continue on an annual basis, going forward, in decreasing amounts, as long as we have the deferred tax asset valuation allowance in place.
As management has discussed in the past, this noncash charge or benefit could fluctuate significantly from quarter-to-quarter as a result of how the effective tax rate is determined at interim periods.
Thirdly, included in today's press release, as well as on our corporate website, is management's reconciliation ---+ bridging report ---+ excuse me, bridging reported results to earnings, as adjusted for the impact of discrete items for the third quarter of the current prior years.
Lastly, on the liquidity front, our business generated $46.8 million of the cash flow via operating activities during the first 9 months of the fiscal year despite the top line headwinds we have been facing.
We spent $23 million in investing activities, used $1.7 million for financing activities and had a $900,000 negative impact from exchange.
Overall, our cash balance had increased roughly $21.3 million compared to the end of fiscal year 2016.
Finally, as a part of that, we finished the quarter with $169 million of cash, cash on hand, $122 million of debt, total debt, and no outstanding borrowings under our $200 million revolving credit facility.
In closing, we remain focused on funding strategic investments that drive growth, as well as reducing inflation impacts through continued disciplined cost management to ensure we maximize the results, and of course, protect our strong balance sheet.
This concludes the financial portion of the call.
I would now like to turn it over to <UNK> <UNK>, the company's new President and Chief Executive Officer.
<UNK>.
Well, thank you, Mike, and good day, everyone.
Thank you for joining us, and thanks as well for your interest in Regis.
I have 4 objectives for today's call.
I will provide a few additional details regarding my background and qualifications.
I'll give you some insight into my style and approach to the CEO's role.
I'll share a few preliminary thoughts regarding the company's history of underperformance, and more importantly, what we intend to do to improve the trajectory of the business.
And finally, although it is clearly early days, I want to provide a forum for you to ask any questions you may have at the end of the call.
So let's begin with a few more details about my background, which I hope will be helpful to you.
Over a 40-year career, I've had the privilege of serving as President or CEO of 8 companies prior to Regis, and 13 boards, often in highly complex matters.
Someone asked me this week, how in the world anyone could serve as a CEO so many times, and the answer is, I started very young.
I was fortunate and became a CEO at 34 years old when I ran a subsidiary of Borg-Warner, and some of you on this call may remember that Borg-Warner went through what was at the time, the country's largest leveraged buyout in the late 1980s, and I was a member of that team.
And since that time, I have been in the CEO or President's Chair for all but a few years, and during that period, I acted as the Chief Administrative Officer of Fisker Automotive, and later advised the executive management team and board of Hertz Global Holdings and Hertz Equipment Rental.
I suppose it would be accurate to say that I have developed a special set of skills as to what we often call a turnaround executive.
I frankly, am not the doctor you would see when you have a cold.
Instead, I am a specialist who leads the diagnostic effort to determine the source of a company's illness, and then establishes the protocols to cure that illness, and working with the management team, restore the business to vibrant health.
Essentially, a career focused on strategic transformations and operational turnarounds, designed to improve shareholder value often in intense time critical circumstances.
I have been fortunate to lead or help govern companies in a very broad range of industries, including service intensive B2C businesses, with large sophisticated constituents facing complex challenges.
As a result, I believe my experience set translates well to the needs of Regis.
As a little further insight, here are a few more details and what I think you'll see is the relevance of my background.
Regis, as you know, has thousands of stylists who are licensed to cut hair.
At Wells Fargo Armored Service Corporation, where I served as CEO, we had thousands of employees who are licensed.
They were licensed to carry loaded guns in Washington, D.
<UNK>
, New York, Los Angeles and other major metropolitan areas.
So folks I get it.
I understand the importance of attracting, training, retaining and motivating licensed stylists, who deliver a wonderful guest experience.
The Cunningham Group was a graphic arts and printing company that served the craft industry and consumers who frequented stores like <UNK>s.
National Lending Service was North America's largest industrial laundry.
We supplied bed sheets and pillow cases to hospitals and hotels and linens to the fine dining industry.
My largest client there was the Darden Restaurant Group.
Aegis Communication Group provided CRM solutions to Fortune 500 companies.
We also had internal capabilities that did predictive modeling to predict consumer buying patterns.
Our largest customers were American Express, AT&T and Western Union.
Allied Holdings was North America's largest transporter of new cars and trucks for GM, Ford, Chrysler, Toyota and Honda.
At that company, we transported approximately 10 million vehicles per year and the company operated 24 hours a day, 7 days a week.
Like Regis, lots of transactions in a service intensive environment.
Legendary Holdings was a large B2C business in Florida that had a portfolio of assets, including a large condo hotel complex, restaurants, a golf course, office buildings, retail villages and one of the largest marine retail businesses in Florida with both dry storage and water marina services.
At Legendary, if we didn't serve the guests well, they would not come back to our hotel, they wouldn't frequent our restaurants, they wouldn't play our golf course, and they would not bring their boat to our marina.
JHT Holdings transports Class 8 trucks to market for Paccar, Daimler Freightliner and Navistar straight into owned fleets and dealerships.
Euramax is a multinational manufacturer that bends and paints metal, providing consumer products to Home Depot and Lowe's.
So I have very extensive experience in dealing with the big-box retailers, like Walmart, a critical relationship here at Regis, and Euramax provides highly-engineered commercial applications to large building projects in Europe.
A few of the board roles that might be of interest to you include, of course, Spiegel and Eddie Bauer.
Paradise Holdings, while you may not recognize that board, but you will recognize the Atlantis hotel property in the Bahamas.
Not a bad gig for a board member.
Edison Mission Energy was the operating subsidiary of Southern California Edison, powering straight into homeowners in the Chicago Metroplex.
TXU Energy was and is one of the largest utilities in the country, delivering electricity to homeowners in Texas, and all of these boards in the B2C environment.
So I hope you found this brief trip down the memory lane of my career to be helpful and relevant to the road ahead.
While I am only in the third week of my tenure as CEO, I have spent the last 6 months at Regis leading a Huron Business Advisory team that has been working collaboratively with executive management and the board.
Huron's on-site engagement allowed me to see that Regis is an organization with a portfolio of strong brands and a talented group of stylists, managers and professionals.
A number of people, including a number of friends, have asked me why I accepted the role, and the reasons are actually very simple.
Like the first time I saw my wife walking down the stairs at the sorority house, it was love at first sight.
I fell in love with the company and the opportunity.
And during my months here at the company, I became more and more convinced that with these wonderful people and portfolio of great brands and a highly competent and engaged board, we could accomplish great things together.
Additionally, I determined and I saw a significant and achievable opportunity to accelerate the growth of the franchise model while improving the competitive capabilities and the financial performance of the Regis company-owned salons.
Moreover, after what is arguably a long career, I do believe there's a moral imperative to leadership.
There are 40,000 employees and their families at Regis, and of course, shareholder families who are impacted by our financial performance.
Given my background and skills, I was confident that I could help and further, that joining this team was the right thing to do.
So in simple terms, I fell in love with the company, and I agreed to diagnose, treat and help cure this patient.
In terms of my style and approach to the role of CEO, I think you'll find in the coming months and years, that I am open and transparent.
I believe in servant leadership, and I understand very well my responsibility to all of our core constituents.
Our paying guests, our employees here at the corporate center and our talented stylist, our franchisees, and of course, our shareholders.
I have a principled approach to doing business.
We will do the right thing for all of our stakeholders and implement the necessary decisions to drive shareholder value.
I intend to nurture what is best at Regis while addressing those issues that represent a barrier to the company's long-term financial success.
I believe in accountability for results and not simply activity.
A culture of urgency will emerge at the company, and you should expect that the velocity of the decision-making and accountability for those results will increase at all levels of the Regis business.
For additional clarity, every Regis department, program and policy will be judged, judged based on the economic value that is generated for our shareholders.
If that department, program or policy adds value, we will certainly support it.
If not, we will adjust accordingly, and where it is appropriate to do so, we will just invest in that department, program or policy, all based on the economic value generated for our shareholders.
Now that I have briefly described my background, style and approach, let me share a few early days and preliminary thoughts regarding the company's history of underperformance, and more importantly, what we intend to do to improve the trajectory of this great company.
As many of you know, over the last few years, the salon support infrastructure has been reengineered.
Efforts have been made to improve the Regis culture and the company's balance sheet was strengthened.
Additionally, the company's strategy evolved, as Eric Bakken led an effort to increase focus on franchise opportunities.
Despite a history of underperformance, these are all very important achievements on which we can now build.
As noted earlier in today's call, I will serve and support all 4 stakeholders, because I have learned over many years of experience that a balanced approach to guests, employees, franchise partners, and of course, our shareholders facilitates greater commercial success.
The company has made a well-intended effort to focus on our stylists, however, while loving our employees is absolutely imperative, and folks, I will love them, we must also aggressively focus on the consistent delivery of an exceptional guest experience in our company-owned salons, and we must also focus on financial performance.
Eric and I just returned from an inspiring Supercuts franchise meeting.
Our franchisees are key partners, and I expect them to play an important role in improving the financial health of Regis.
We are fortunate to be able to partner with so many talented entrepreneurs, who do a superior job of extending and enhancing our brands.
One of my first decisions as CEO was to promote Eric Bakken to President of the Franchise Business.
Eric is an outstanding executive, and I think this decision should demonstrate to you my commitment to the ongoing growth of our franchise business.
I can tell you after having stood in front of all those franchise owners at Supercuts, Eric was celebrated.
He's a rock star for our franchise owners and they were delighted with this decision.
Of course, under his leadership, we've already seen significant growth in the franchise operations, and of course, I will partner with Eric in the years ahead to maximize the opportunity that we have.
As you know, in the third quarter, we made further progress in this area by reaching agreements to transition nearly 200 company-owned SmartStyle salons to our franchise owners.
These specific salons, in aggregate, produce negative 4-wall cash flow over the last 12 months.
Proceeds from the sale of these salons we've deposited, and we will also receive franchise fees.
Additionally, we will be collecting ongoing revenues from these salons in the form of royalties and product sales.
We expect the bulk of these re-franchise agreements to close in the first quarter of fiscal 2018.
In August, Eric and I will provide an update as to our progress, and expect to provide some additional clarity as to our longer term views regarding franchise efforts and the incredible opportunities we have there.
Let me also add that I believe there may be options to improve franchise opportunities other than converting underperforming corporate salons.
Eric and I will consider all viable options to expand our capabilities and our success in this area.
The evolution of the business to an expanded franchise portfolio is an important element of our strategic transformation.
However, having said that, to maximize shareholder value, we also must be an effective, capable and consistent operator of company-owned salons.
Over the last few months folks, I've seen nothing that indicates to me that Regis cannot successfully operate company-owned salons.
In fact, quite to the contrary, Regis has many salons operating at or above the levels of our franchisees.
Someone recently asked me at one of our meetings, whether I prefer the company-owned salons or the franchise business.
Well, that's a little like asking me which of my children I love the most.
I love them both.
I love them equally, but for different reasons.
I believe that a mixed portfolio of both company-owned salons and franchised salons creates inherent optionality, improves our competitive position, and as a wise course, to stabilize and improve shareholder value.
Regis is a great company.
However, as Mike mentioned earlier in the call, the financial results at Regis are clearly not yet great.
Regis has an unacceptable level of guest traffic and management of variable labor costs in company-owned salons has not been effective.
And to improve our results, we must take steps to drive guest traffic, improve guest retention and better manage variable labor in our company salons, among the other opportunities we have to improve overall financial performance.
As I mentioned to you earlier, to the extent it's appropriate for me to do so, I intend to be transparent and direct with all of our core stakeholders, with everyone.
As we speak, we are in the process of implementing a 120-day turnaround plan, designed to effectively stabilize the near-term results of our company-owned salons.
Because the plan is still in the early days of execution, and has not yet been fully communicated to our organization, I'm not at a point where I can share the details.
However, I can tell you that the initial phase is focused on improving salon labor-management, along with steps to disinvest in certain programming that is not creating value for our shareholders or for our guests.
Last week, I assigned and redeployed key personnel within the organization to these initiatives.
For example, Mark Fosland has accepted responsibility for the ongoing execution of variable labor-management in our company salons.
Mark is a 25-year veteran at Regis, and he and his team are analytically gifted.
I believe that Mark is the best executive in the company to bring this area of our business effectively under control.
Additionally, we're in the process of recruiting a permanent Chief Financial Officer and a new General Counsel, as Eric moves full-time into his role as President of Franchise.
I'm also considering candidates to lead and improve the company's marketing efforts here in the days ahead.
And over the next few months, we'll be focused on improving both the speed and effectiveness of our execution.
Frankly, execution, as in many distributed networks of P&L centers, execution must become a core competency at Regis, so that we deliver on the promises we make, the promises we make to our shareholders, the promises we make to our employees and stylists, the promises we make to our Board of Directors, the promises we make to our franchise owners.
Execution, speed and effectiveness must become a core competency at Regis.
During our end of the year call in August, I will provide an update on the results of our 120-day plan, and provide more insight into my view of potential opportunities to improve the longer-term renewal of the financial performance of Regis.
Now a few thoughts in closing before we take your questions.
I fully understand and I take very seriously my duty and obligation to the company's shareholders.
After a long and successful career, I expect this will be my last role of a CEO, and I have no intention of failing.
I am not going to spend the next 30 years of retirement thinking about a failure.
In fact, I can tell you I would not have accepted this role if I did not believe it could be done and done well.
I am certain, however, that each one of you already recognizes there are significant opportunities here to improve the financial performance of the company.
In fact, I suspect that many of you may be frustrated with the company's historical performance.
You know and I know that talk is cheap.
Therefore, I would ask for your continued patience and support, as we take steps to make real my commitment to the company's owners.
In our future calls, I won't spend much time looking in the rearview mirror, instead, we will focus on building a better future and the efforts underway to establish a winning team at Regis.
You each know that business is a competitive sport, and winning is a learned behavior.
At the new Regis and under my leadership, we will undergo a diagnostic process, we will consider the hard data, we will make informed judgments, and we will take the necessary actions that are required to win for all of our stakeholders.
Please know that in the years ahead, I will do my very best to deliver results that will warrant your continued confidence in our company.
Operator, you can now open the line for questions.
Thanks, everyone, for giving me a hall pass on the questions.
I look forward to talking to you again in just a few more weeks.
Thank you, and see you soon.
| 2017_RGS |
2016 | HLT | HLT
#I'd be happy to but we don't ---+ time does not allow for it.
Kidding aside, the rules that we're dealing with within the IRS code are called the EIK rules.
They are incredibly complex, and very difficult to come up with an easy equation for you of, they own X, they're selling Y, because it has a lot to do with how Blackstone owns the shares in the Company in the various funds that they have.
Very complex attribution rules, and even attribution on a go-forward basis has between large shareholders like HNA and Blackstone, even though they are unrelated in the attribution rules, they become related to a certain degree.
I'm not trying to be evasive.
The truth is there a lot of really smart people on our tax, and with outside advisors that have figured out how all this works, because ultimately we have to get an opinion that says that we meet the REIT qualification rules.
As we've done all of that work, again, not a simple equation because of the complexities of the attribution rules, it became apparent to us in doing the work that in order to qualify we needed to have Blackstone sell down 5.5%, and that's why we've disclosed it.
Obviously, they have until ---+ we can do the spins without that selldown, because this problem only arises as a consequence of the HNA deal, so really they have to have done this by the time the HNA deal closes, so we could do the spins and there was no EIK issue under the set up pre-HNA.
Now that the HNA deal is getting done, prior to that closing, in order to meet the REIT qualification test they would have to sell down the 5.5%.
So I know you want me to sit and give you a very simple equation.
It's just not that simple, but we are 100% confident that the work that has been done is right, and that if they sell down 5.5% prior to HNA closing, we will meet all the REIT qualification rules up front and be able to continue to meet those rules.
No ---+ it would take literally 50 pages of analysis to do this and I don't have it in my head.
It is much more complex than that, and there's no way anybody ---+ I'm not being ---+ there's no way anybody can do it, because you'd have to know the intricacies of how Blackstone holds all this and how HNA is going to hold all this.
Because the attribution rules are not entirely logical.
It is not a simple equation and, again, I'm not trying to be evasive.
It is not that simple.
The thing I think that's important for investors to know is that this fixes it.
Okay.
And that the timing of it is such that it needs to be done before the closing of HNA buying 25% of the company, and there will be no issue.
It will be solved permanently.
That's it.
That's all they need to sell.
Now, Blackstone can sell whatever ---+ it's their choice whether they want to sell more, but the contractual commitment that we have with them is that they will do this, so that we make sure that Park qualifies as a REIT.
No.
I mean, there is not much to say about that.
Obviously we just announced the deal.
We do not think that they are big regulatory challenges to get over.
And so I do not personally think that there's a great deal of risk from a regulatory point of view.
But we'll go through ---+ time will tell, we will go through the process.
No, I don't.
I think if you ---+ we attached the shareholder agreement and filed it so that if you want to, or any investor wants to, you can read ---+ I think we filed 180 pages of supporting documentation, so everything is 100% transparent.
I think if you looked at how we dealt with ---+ how they come on the Board with one HNA affiliated member, one unaffiliated independent member.
Both Board members that have to go through a vetting process with our nominating committee where we are able to say yes or no, and how those Board members can interact or participate on issues that might be in conflict with HNA's investment.
Or, in the event that there is other M&A activity that we're interested in pursuing, if you look at it very carefully, we were very thoughtful about making sure that where there might be potential for conflict, we limited their voting rights.
We limited what they can participate on in Board discussions and on the Board.
We also limited their voting rights, ultimately, on certain transactions and events to make sure that we dealt with those conflicts.
We spent months, literally, of time, on these issues.
We had a special committee of our Board that went through an incredibly rigorous process with outside advisors, both on the banking, legal side, management was very actively engaged with them, in giving our advice.
The reason it took a couple months is because we wanted to make sure we were protecting the base of other shareholders in the Company against any potential conflict so again, you can read it in detail.
I feel incredibly comfortable that we have protected against any eventuality and that we're going to be able to run the Company the way we need to run the Company, that they're going to be engaged with us in a very constructive way, and that anywhere there is a potential for conflict, vis-a-vis existing shareholders, we protected the existing shareholders including ourselves against any of those concerns.
It is, I would say largely rate.
It's a little bit of volume.
But I'd say best I can remember it's like 80/20, 80% rate, 20% volume but there is a little bit more volume.
I think by the end of this year, probably a dozen, something like that.
I can get a ---+ maybe a little bit higher.
But I'd say 10 to 20.
You know what, <UNK>.
It's a great question.
I think we're all the next generation of buyers, right.
So if you look at the breakdown in where timeshare, where we are selling timeshare, it's a pretty diverse set ---+ a pretty diverse demographic, and you got to remember that what timeshare is selling is a vacation.
It's not ---+ this is not a second home or a third home market.
This is simply selling ---+ if you're going to go on vacation once a year, you can do it and save a lot of money and have a lot more space and take your whole family and you can trade it for wherever you want to be or you can trade it for hotel rooms.
It's an incredibly flexible vacation alternative.
I think when you ---+ if you went through the sales pitch, what you'd find is that's what's compelling.
People look at it, and those people who have one or two in many cases, three or four units, are basically saying, yes, I'm going to take one or two or three weeks of vacation, and this is a very cost efficient way for me to take vacation, be able to take my family or friends, have a kitchen, have a washer, dryer and have all these things.
You've got to sort of break ---+ and I know you know this ---+ I think you have to break from ---+ the people that don't understand the business very well I think of it more as, this is sort of in lieu of a second home or whatever, and it is just not that.
So I think it's appealing to anybody that is looking to go on a vacation, and is looking for a value proposition and I think that transcends age, honestly.
No.
I'm not going to ---+ I mean, the way I think about it is we are very confident in the strategy that we're pursuing and that we've articulated which is, we're very focused on having purebred brands that are leaders in their individual segments, that have clearly defined swim lanes, that have premium market share, and as a consequence, help us drive industry-leading organic unit growth.
That's our strategy.
Others have taken different paths.
I'm not going to get into ---+ obviously we've chosen our strategy because we think it's the best strategy.
Otherwise we would change it.
I remain confident in our strategy.
I think as we continue to deliver the results that we are delivering in net unit growth, particularly in the post-spin world, I think the strategy and the success of it will speak for itself.
As for what Marriott or anybody else is doing, I'm not going to comment on it.
I think you've got to ask them if you want to talk about their strategy.
I'm sure they're going to have a call in the next couple of weeks and you can ask them about it.
We're very confident in our strategy.
You can see in terms of deal signings, starts, net unit growth, all those things that are incredibly positively impactful to our bottom line, and our story, we're continuing to pick up some pretty good momentum.
We are doing just fine.
We are picking up.
Lots of reasons for why we're gaining momentum, but I think the statistics sort of speak for themselves.
We continue to pick up some steam.
I can't ---+ it is not affecting RevPAR in a material way.
It's really hard to sort of ---+ I know others have said that it is so many basis points.
I mean, as we've studied it, I think it's really hard to say.
I think intellectually, it's hard to debate that it's not having a little bit of impact, given de-ranking and dimming that's going on within the OTA world.
But it's not so meaningful that we can really measure it in a hard way.
What I would say is, if we look at it, and we have measured it very carefully, we look at our net rate effectively, the net rate, net of distribution costs, relative of where we are now versus where we were, we're better off across the board.
Meaning that, you'd be willing to sacrifice in theory a little topline growth if the result was, you are bringing your distribution cost down and that your net rate effectively is higher.
Across every one of our categories our net rates are higher.
So there's probably some modest amount of impact built in to the last couple quarters and the next couple of quarters of RevPAR growth.
On the headline RevPAR, but on the net rate basis, on a net rate basis, we're better off because we're shifting to our lowest-cost channels, and ultimately our job is to drive better results for our owners who are investing all the capital to help us continue to drive that net unit growth we're talking about.
Our owners are incredibly supportive of what we're doing because they're benefiting from what's going on.
Here is the thing.
I think scale does matter.
I said it in my prepared comments.
And I think we have it, right.
I guess we went from the largest in the world to the second largest, post the Marriott Starwood merger but if you take our pipeline and our rooms in existing supply, we have 1.1 million rooms.
We think that gives us all the scale that we need and we certainly, if you look at the market share numbers that we're driving in each of our brands, that's partly ---+ obviously great products, great service ---+ but partly the result of the network effect that scale creates.
If you look at each of those brands, they are leading their segments in terms of market share so I think, as scientific evidence would say, scale matters and we have it, and what we are obviously trying to do is then lead into it more around the world and build more network effect in the various regions around the world where we operate.
So we feel really good about where ---+ there is no deficiency, I guess I'd say.
I think there's opportunity.
We've got enough of the network effect that I think shows up in all the numbers that I just described to be able to really take advantage of the scale, and now it is to opportunistically continue to layer brands in different locations and different chain scales in markets to just continue to strengthen that network effect.
On a regional basis, I think, honestly next year is going to look a lot like this year.
I hope it's all a step change up a little bit, but in terms of the relative performance around the world, I think it's going to look a lot like this year, which is Asia-Pacific probably leading the charge, non-US Americas, sort of doing reasonably well and comparable.
The US market being sort of in the middle of the pack, and Europe and Middle East, Africa, being a little bit lower than the midpoint because of an assumption that Europe ---+ European economy is going to continue to have anemic growth and Brexit generally, as you get closer to an actual event of the UK leaving the EU.
In terms of thea Middle East, I think it's a very small region relative to many of the others.
There's just enough sort of disruption and enough places where I think we do expect to be positive next year, but relatively modest growth there.
<UNK>, it's a good question.
I'd say there are three or four reasons for it as we've looked at it, some of which we've talked about before.
The STR data first of all is non-comp, where we are comp so you have to adjust for that.
Segment weighting, which you talked about, obviously going to have an impact.
I think a few other things, one, we're more urban in orientation than you would find on average in STR, and the urban markets, particularly because business transient was so weak, were more beat up.
We have a little bit higher average representation from the oil and gas markets, which were ---+ it's hard to believe they keep getting worse but they do, which I think hurt us.
And then there's probably, to my earlier comment, a little bit impact from the OTA situation that I talked about.
Again, we're willing to trade a little bit of headline, topline RevPAR for net RevPAR, if you will, that is higher because that drives a better result for our owners.
But my guess is, again, I can't measure it perfectly, my guess is there's certainly some modest impact in the third quarter from what's going on with the OTAs.
Yes.
Well, thanks, everybody, for the time today.
I'm glad to see this call worked out better than the last one when the AT&T trunk line shut down on us.
We got to do in one shot instead of two.
We appreciate the time, really look forward to getting together with as many as can join us in New York on December 8 at the Conrad in New York downtown.
We'll have all the management teams there, and I look forward to walking you through all three companies in a great deal of detail.
So we'll see you then, and thanks again for the time today.
| 2016_HLT |
2016 | CVX | CVX
#I will take the deepwater question first.
Just to put it in context, we are already producing about 140,000 barrels a day in the Gulf of Mexico in the deepwater and we do that through five operated assets and four non-operated assets.
We are also the largest leaseholder in the Gulf.
So in the near-term with that footprint, we do see many brownfield deepwater opportunities.
In fact, 80% of our spend ---+ development spend ---+ over the next few years is going to be geared towards brownfield development such as Jack/St.
Malo and Tahiti where we actually have good economics.
We have already said the single well breakeven is typically in the $20 to $40 Brent range.
We have also demonstrated tremendous improvement in drilling and completion efficiency so we continue to bring the cost equation down.
Now if we are talking about new greenfield development, we've got a few things that need to happen there.
Obviously we need scale in the resource but we also need to rethink about how we bring our development.
We talked before about optimizing our development concept where we could be trading lower plateau and maybe NPV for greater capital efficiencies.
And this is another place where we actually need our suppliers.
We need to work closely with them to continue to drive the cost down.
This is an important area for us to be good at and we are committed to do that.
Now in terms of how does the Permian compete.
We can't just be a Permian company.
We have a lot of other places where actually we have good resources.
We talked about Tengiz, we talked about Thailand, we talked about Indonesia.
Australia is going to give us those opportunities.
So yes, while the Permian give us tremendous advantage, the size of our Company will require us to actually be broader and to put our capital in places where we can get good economics but not to be solely a one asset class company.
I will start with Wheatstone.
We are still operating under the same funding appropriation which we have communicated to you previously.
We do acknowledge we have seen cost pressures but at the same time these have been offset by favorable foreign exchange.
We are working very hard to mitigate those cost pressures.
Earlier this week we had a good review of that project and we are very encouraged by the progress.
I alluded to that in my prepared remarks.
So the progress we make over the next eight to 12 months will be very important in terms of where we are going to end up but for now, there is really no reason to change our view on the cost.
AAgain, Wheatstone is a huge resource base for us and it is very important to deliver it.
Now in terms of Gorgon, we have seen cost pressures in Gorgon but at the moment really we are not going to change the cost estimate that we have provided previously.
A piece of that obviously is coming from asset sale divestitures if you are looking at first quarter to first quarter.
A significant piece of Gulf of Mexico multiple asset divestments occurred.
Is the question about Bigfoot.
There is no change from the prior guidance we gave and that is the second half of 2018.
It looks like that concludes the lineup of questioners.
So thank you very much.
I want to thank everybody for their time today.
We appreciate your interest in Chevron and appreciate your participation.
Jonathan, I will turn it back to you.
| 2016_CVX |
2015 | FLR | FLR
#Thank you, <UNK>.
Good evening, <UNK>.
That's correct.
Man, if I knew the answer to that, I could retire.
You and I could go to all the Giants games we wanted to go to.
Yes, <UNK>, that's a great question.
I'd just make two comments.
The first comment is I'm hearing from many of the oil and gas customers that $70 is the new $100.
And I think that what you've got is some stability in terms of oil price.
It's volatile; yesterday it was up 6%, not sure exactly what it ended up today.
But I think the oil and gas companies have gotten comfortable with the fact that $120 a barrel isn't something they should plan anything on.
So if they are thinking that $70 is the new $100, then they're planning on something that's significantly less than $70.
Now, it's taken time, and the second point I would make is in this process, these customers, and I might risk getting in trouble with some of them, but I think some of them would tell you that $120 a barrel made them lazy in terms of their capital decisions.
So they are trying to stepping back again, as I said earlier in what are those priorities and what is the actual need from a capital perspective, making sure that they've got that capital efficiency card played within their program.
And then slowly but surely moving towards FID.
So I think they've kind of ---+ the deep breath has taken place.
But they also see that if they don't keep doing, particularly in the upstream, some of these programs, that, you have got to think about it.
Some of these programs take 10 years from the first test well to actual production.
They can't wait much longer.
So that new statistic of you pick the number, I don't know if it's $50 or $40 or $35 or whatever the number is they are using in the models, they are clearly using a lower number.
And many, many of these projects that we were pursuing made sense at that new number.
But it needs to be reconfigured, and we need to ---+ they need to let us apply some of these things that we have learned in order to get those project values down.
So I think we're in that shakeout period right now where some things are slowly but surely moving towards FID that are in the upstream sector.
But that's just one piece, as I mentioned.
Refining is doing quite well, petrochemicals are doing quite well.
There's power projects in front of us.
There's infrastructure programs in front of us.
So it's not just a one-trick pony fourth Fluor when it comes to upstream oil and gas.
Hello, <UNK>.
Cerro Verde in Peru is one big one that is finishing up on the last of the big mining things that are there.
That's really the only thing of any consequence that finishes next year.
Of course it is an estimate; it can be higher or lower.
The biggest variability of it is associated with equipment demand.
So in terms of projects moving to construction and having demands in that regard, we certainly expect growth.
We don't expect a lot of growth out of mining at this point, as we've talked about, which was where certainly a lot of the business in the past has been associated.
The other part of spending is on the more corporate-related CapEx.
So to the extent we have buildings for our own use that we invest in around the world is a demand for capital.
We make those decisions as we go through time.
In some cases, we have options to purchase and that sort of thing is embedded in that number.
But that's one of the reasons why it ended up being something different, at the end of the day, it might be more or less depending on the circumstances and what we decide to do from a standpoint of lease versus buy.
I think, obviously, from a historical standpoint, our burn relative to backlog has been higher, but that's almost the new norm now.
So we will look at it at the end of the year, and we will actually publish [just take] as part of our 10-K what we expect the burn rate to be and the backlog at that point in time.
I think it's a little early to say right now, but it's probably going to end up being a lot like the way this year's was in terms of how it played out, in terms of the relationship of the revenues that actually burned out of backlog.
I don't expect anything real different, I don't expect ---+ I don't think there's any more risk to it or any less.
The stretch percentages are consistent with prior years.
The burn's been low.
It was higher in the past; it's lower now.
I know there is a lot of conversation about what might be in there that is causing that, but this by the nature of the projects we have being very large and very long-term in their execution, you're going to have some slower burn.
Well the ---+ based on what ---+ the same things you read, through count should be about the same in Afghanistan, so it would be consistent with what we see this year if there is no other LOGCAP available to us.
We did win the call-off contract ---+ one of the call-off contracts in the African continent.
But in my conversations with the Army, they still feel like they are going to have a pretty significant presence in Afghanistan.
And if you read the news, we're probably going to have a few more people in Iraq and potentially Syria.
That creates some opportunity for us as well.
That's right.
We're following the military and the deployments that they do.
A great example of that was the Ebola scare earlier this year, and we were tasked to build facilities and the like for the medical ---+ US Army Medical Corp and how they dealt with controlling that epidemic.
That's an example of where it's not just war fighters, I guess, is what I'm getting at.
There's also some things around humanitarian care that the military gets the mission for and we are there to support them.
No, we don't get paid on oil.
I wish we did sometimes.
No, that's just ---+ our contract is to manage of facility.
The US government is going to determine whether they sell off part of it to create some cash flow for them for other purposes and then refill it over time.
That's really doesn't have any impact on our profitability.
It's certainly in the discussion.
I really don't know what impact it would have on the plans that are underway or certainly the ones that are being suggested right now.
Most of them, there is no ---+ to my knowledge, I don't think any of the ones that are in the next wave are naphtha crackers, but I might be wrong in that.
No.
I think the more interesting thing is who's going to be investing in the US in ethylene.
And it's the traditional players, but in a lot of cases, they're partnering with folks like the Saudis and the Chinese, and I think that helps us because of our presence in those other places, in terms of building those facilities the client relationships that we have and those types of places around the world.
Absolutely, we're well down that road in terms of standard designs, and in offshore, it's all about weight and reducing weight as well as the benefits that we are providing in the supply chain of all the commodities.
So we're well down the road on that initiative.
And in fact, that's what really started for us about four years ago, so I think we are well-positioned and aligned with our customers.
Thank you.
Well we work for the US government and the British government in that space, and we are continuing to see opportunities in the Department of Energy space, if you will.
Some of those big programs are in the process of being bid, and we're in the process of getting extensions in some others.
So you're going to see in terms of DOE business some lumpiness, just because of when those things come forward.
There is some of the ---+ of one of them in this quarter but it's just a bridging period before we could take in the full extension.
So there is an example where it was a little bit this quarter but a bigger number coming later, and that's just in one facility in the DOE space.
So there's growth opportunity there, but is going to be tough competition.
Everybody has teamed up with one another, and it's pretty fierce competition.
In terms of the DOD, they are doing the same things that a lot of the private sector is doing, in terms of cost rationalization, some shutdowns, being more competitive in terms of how they provide the service to the military.
So some of these base contracts will be coming up, and it will be more based on best value and how much money you can take out of the endgame, not just the rate per hour for an individual.
But then there's also a fair amount of deployment bases that are coming up for bid during the next two years that we feel like we have got a good position to deal with.
It's going to be a lumpy thing.
It's not going to be as big as it was at the height of LOGCAP in Afghanistan.
We've said that in the past.
But it's a good steady state, almost annuity-type business that provides some of the underpinning of the Company, and it's for a pretty good customer.
We continue to support our customer, and again, that's one of those that has been rationalized and poked and prodded and re-estimated.
And we're waiting on our customer and what they want to do next.
But we're still supporting our customer there.
As you know, they brought a new partner in.
The new partner had new ideas, and they are looking at we going back to some of the fee documents and incorporated some of the new partners wishes.
It's going to be a slow roll.
Our level of effort there has been low over the last year, and we would expect it to be that way.
Well, they kind of had the whole scope before and they have got the whole scope now.
We're trying to figure out exactly what they will maintain and what they will ask us to do for them.
It's a little too early to say.
No.
We were anticipating some gain from this transaction as it was developing.
When we had the second-quarter call, we were pretty clear that we thought it was going to be at least $40 million, which assuming the tax rate played out as expected, would ---+ or at a normal tax rate would have been $0.18.
In the call I said there's some things to be estimated, including the fair value of what we are retaining, which under GAAP we were going to be recording a gain with respect to.
And that was something we didn't know exactly how it was going to play out and that's what produced the ultimately ---+ the gain at $68 million relative to the minimum of $40 million.
So clearly, the $40 million we said was in our guidance coming in.
Then after that it was a range of possibilities.
It obviously ended up playing out at $68 million.
By the same token, as I already said, we weren't planning on having any problem projects.
So there just ended up being an offset in terms of the circumstances of the quarter and the year between the extra gain that we recorded on the Spanish venture and then the one power project.
From a foreign exchange standpoint, there was a slight negative effect in the quarter; it was about a $1 billion negative effect on backlog.
On EPS in the quarter, it was about $0.03.
I think last quarter it was about $0.02.
Other than that, and so it's been fairly small and we're not projecting anything significant on a go-forward basis.
We did have a lot of natural hedges and specific edges we put in place, and we would assume that those continue to play out to be relatively effective.
Thank you, operator, and thank you to everyone who participated on our call today.
As you can see by our results this quarter, the oil and gas group continues to perform well.
Customers with high-quality projects continue to move forward, even in a tough environment and even as long as some of them are taking to get to FID.
Myself, along with the rest of our management team, have seen a number of cycles like these over the years.
We know that it's important to remain flexible, and the decisions we have made over the past few years to cut overhead costs and develop a better solution for our customers gives us just that.
As we look ahead to 2016, we see not only some headwinds but also pockets of opportunity.
Our ability to deliver in any environment has been proven and enhanced over the last few years.
With that, we really appreciate your interest in our Company, as well as your confidence, and we wish everyone a good day.
| 2015_FLR |
2016 | ANF | ANF
#Just to underscore that, we started the pricing strategy for Hollister in the first half of year with certain categories so by the time it got to back to school it was a complete repositioning which has been very successful for us.
Yes, I would say broadly speaking your numbers are right.
We had a little more than a dozen, we have a little more than a dozen stores that we have fully remodeled interior.
We have seen strong returns from those, double-digit as you mentioned, traffic lifts versus the control group as well as sales lifts and we are seeing that consistently and it does give us confidence to continue the rollout and the rollout for 2016 is 60 stores.
I think that is a testament.
The CapEx split, I don't have the dollar numbers specifically but we do plan to open 15 new stores and 10 outlet stores so that is the portion that will be brick and mortar and the balance will be going to remodels.
Yes, we are in the beginning process of that.
We are looking forward to rolling one out by the end of this year.
As we mentioned, we will have a little bit of a different story in the first half and the second half of the year regarding AUC.
In the first half of the year, we are reinvesting in the product, we will be benefiting from some of those macro opportunities but since we are reinvesting in the quality as we have not lapped that as we have in the second half, we will see a slight increase.
And as we get into the second half of the year where we did reinvest in the product, we do have some macro opportunities on certainly like for like product to have an AUC reduction.
So we will have an overall slight reduction in the second half of the year.
<UNK>, it is <UNK>.
I will jump in on our overall comp guidance for the year.
We believe our comp guidance is realistic and certainly given the conditions in the market, we don't feel any need to be more bullish at this point.
No, we continue to feel very good about our inventory management and if anything, expect that our inventory management to continue to improve as we roll out more improved processes across the chain.
So inventory is certainly not a constraint, it has been well-managed and we expect to continue to be well-managed as we move forward.
To start off with the categories, we expect to see in the women's business both women's and girl's business a continuation of our momentum in tops and our goal is obviously to get that momentum going in the men's and the guys business so that is our focus for the first half of the year.
Regarding our brand positioning, I think we talked about it a little bit but we have really established our core beliefs and convictions and we are working on an internal communication of that over the next several months.
And I think you will see that in the back half of the year.
It certainly is not going to be a light switch that we have out there but it is going to be an evolution in how we approach our customer.
At this point we are really not ready to share due to competitive reasons sort of what did and did not resonate with our customer.
But we do have some customer research that we've done around the world to help us solidify where both brands are going.
They clearly will both have some heritage associated with them and they will also have a new modern take.
<UNK>, regarding the question around AP and inventory, the accounts payable balance reflects actions that we did take this year to extend terms with our suppliers.
We also made available to them a supply chain financing platform and that is primarily what unlocked the AP increase.
I believe we rolled it out late second quarter in 2015 so it began in late second quarter I think fully implemented by third quarter.
Regarding the Hollister remodel, all stores in the fleet, all Hollister stores in the fleet are candidates for remodels.
We would like to see this roll out broadly across the chain.
There are definitely considerations including lease terms and lease renegotiations that we are taking into account as well as the expected return we are going to get in every location.
So we are reviewing each remodel decision on a case-by-case basis with the goal of rolling it out broadly across the fleet.
And to answer your question on the store autonomy in both brands.
Yes, that is something that we paralleled last year between both brands to roll out to our store management.
I'm sure you remember in the recent past we focused more on the way our stores are presented rather than on the business driving piece of it.
So they have been given tools to understand and read their businesses.
I've had an opportunity over the past year to visit many of our stores and it is certainly a work in progress and we have made a lot of progress on it and that will continue as we move forward.
On the retention rates from closed stores, it really varies depending on the markets in which we close.
We don't see typically a lot of transfer to other stores mainly due to the fact that they are not necessarily close to other stores so that has a bearing on it.
We do see some migration post closing online but it is minimal.
I think what we are seeing more is the move to online that has been happening and continues to happen and as we close these stores from an EBIT perspective, we are driving productivity overall in the fleet.
Related to gross margin guidance for 2016, there are a lot of puts and takes on gross margin in 2016.
Although the AUC is up modestly in the first half, it is down in the second half.
We expect it to be down for the year slightly.
On the AUR front, a lot of puts and takes there.
So FX is the headwind on AUR but we expect continued AUR benefit both from inventory management activity as well as better selling at regular price and our ability to step away from promotional activity during the year.
So a number of puts and takes on gross margin that drive the guidance back to flat.
We don't break down our comp expectations at that level.
But overall I think given the current environment, we expect to continue to drive strong conversion and many of our efforts are focused there.
We also are working on brand positionings to better communicate our brand story and try and move that traffic number, that traffic has been a headwind I think in the industry.
So we have a realistic expectation around traffic.
We expect continued improvement and continued strength in conversion.
And as we mentioned earlier, driving AUR up modestly based on our ability to step away from promotional activity and with the customer's response to our product offerings.
| 2016_ANF |
2017 | ADM | ADM
#Thanks, <UNK>, and good morning, everyone
Slide 4 provides some financial highlights for the quarter
Adjusted EPS for the quarter was $0.57, up from the $0.41 in the prior-year quarter
Excluding specified items, adjusted segment operating profit was $658 million, up $85 million from the year-ago quarter
The effective tax rate for the second quarter was 28% compared to the 29% in the second quarter of the prior year
Our trailing four-quarter average adjusted ROIC of 6.8% is 100 basis points higher than the same period last year and 80 basis points above our 2017 annual WACC of 6.0%, thus generating positive EVA of $195 million on an annualized basis
Our ROIC has continued to improve for the fourth consecutive quarter
On chart 19 of the appendix you can see the reconciliation of our reported quarterly earnings of $0.48 per share to the adjusted earnings of $0.57 per share
For this quarter, we had a $0.04 per share net charge related to an adjustment of the proceeds of the 2015 sale of the cocoa business partially offset by the gain on the sale of the crop risk services business
We also had $0.04 per share charge for impairments, restructurings and settlements, and a $0.01 charge related to LIFO
Slide 5 provides an operating profit summary and the components of our corporate line
Before <UNK> discusses the operating results, I'd like to highlight some of the corporate items affecting our quarterly results
Net interest expense was up approximately $18 million to $81 million primarily due to higher short-term interest rates, our overall mix of short-term and long-term debt following the issuance of our new fixed-rate debt in August of last year, a favorable interest rate expense adjustment last year, and some additional interest expense related to foreign income taxes due from prior years
Looking ahead, we're continuing to project net interest expense of approximately $320 million for the full year 2017, consistent with what we indicated at the beginning of the year
Unallocated corporate costs of $134 million were up versus the prior year and modestly below our $140 million per quarter guidance for fiscal year 2017. The increase is primarily due to the planned increased investments in innovation, IT, and business transformation
Minority interest and other charges increased to $35 million primarily due to updated portfolio investment valuations in CIP
Turning to our cash flow statements for the first six months on slide 6, we generated $1 billion from operations before working capital changes similar to the prior year
We had favorable changes in working capital of a bit over $300 million
Total capital spending was $452 million
Our current expectation for fiscal year 2017 is capital spending of approximately $1 billion
Acquisitions of $180 million were primarily related to Crosswind Industries, a pet treat manufacturer; and Chamtor, a French producer of wheat-based sweeteners and starches
We spent about $511 million to repurchase shares and including dividends, we returned $875 million of capital to shareholders by midyear
Our average share count for the quarter is 574 million diluted shares outstanding, down 20 million shares from this time one year ago
At the end of the quarter, we had 571 million shares outstanding on a fully diluted basis
Slide 7 shows the highlights of our corporate balance sheet as of June 30, 2017 and 2016. Our balance sheet remains solid
Our working capital of $7 billion was down $1.2 billion from the year-ago period
Total debt was $7 billion, resulting in a net debt balance of $6.3 billion
Our leverage position remains comfortable with a net debt-to-total capital ratio of about 27%
Our shareholders' equity of $17.4 billion was down slightly from the $17.7 billion last year, due primarily to returns of capital shareholders in excess of net earnings
We had $5.1 billion in available global credit capacity at end of June
If we add available cash, we had access to $5.8 billion of short-term liquidity
Next, <UNK> will take us through a review of our business performance
Morning, <UNK>
Morning, <UNK>
In terms of, <UNK>, I mean, naturally you mentioned there are things that we can control and there's things that we can't control
For the things that we can control, as <UNK> indicated, some of the actions that we're taking in terms of delayering spans of control
In addition, yesterday we announced that we're going to effectively sunset our U.S
salary DB plan
So, when you take a look at things that we can control, when I look at 2018, again, we haven't started our 2018 planning process yet
But when you take a look at our run-rate type of savings, right, for 2018, for the things that we can control of the list that – of what <UNK> announced, there's probably at least about $100 million of run-rate savings that we will be able to benefit in 2018. And that's going to continue into the future there
So, again, we do believe – again, we haven't started our 2018 planning process yet
But, again, for things that we're working on right now, at least of what we have announced, at least $100 million of run-rate savings
And don't forget, in terms of the savings that we're going to generate this year, as <UNK> indicated, we are well on track to pass our cost reduction targets for this year
I mean, that will also be ongoing savings into the future
So, again, I think we – that's the reason why we feel good about the future
We feel good about our path towards getting back past our historical earnings and towards our long-term 10% ROIC target with the actions that we're taking
I mean I think, <UNK>, I mean when I take a look at our second quarter results, I mean, clearly our Tianjin operation is improving, so that helps in terms of improving the S&S line
Our European operations are improving, year-over-year improvements there
So, that's a positive in terms of numbers
Our cost reduction efforts in corn also translate to year-over-year improvement
So, there's a lot of actions that we've taken which have driven the improvements in sweeteners and starches
You mentioned some of the other improvements
Remember, lysine is actually part of the Bioproducts division
And so the – some of the Bioproducts' improvements are actually related -relate to lysine around that particular alliance
So, all in all, <UNK>, again, I don't have the exact numbers but I can assure you that a lot of the improvements in sweeteners and starches are actions that we have taken either to grow the portfolio or actually make our cost even more competitive in our processing plants
| 2017_ADM |
2015 | NUE | NUE
#We get our raw material iron ore from four different sources.
I'm not going to give you the specifics of what kind of contract we have with each one of those particular suppliers.
But in general, we have a level of about 25% to 35% flexibility in the supply of raw material iron units.
So we could cut it back 25% or 35% ---+ and I'm talking now, across all the contracts.
I'm not going to get any more specific than that.
But if I may, I want to take a moment here, because there was a question earlier about the DRI, and how should they look at when the cost of iron units is going down, we would see an improvement.
And I answered the question because it was tied originally back to the amount of weeks on hand of iron ore supply inventory we had.
And I said that we keep about five to six weeks of inventory on the ground.
That is an accurate statement, but if he was looking to get some sense of when pricing changes, relative to iron ore pricing on an index basis changes, we need to factor in the issue that we buy on a quarterly basis, with a lagging quarter.
So for whoever asked that question earlier about seeing changes in the pricing of our raw material going into Louisiana, please bear in mind when you see the change occur in the index, there is a one-quarter lag in the pricing that we receive at the plant itself.
Okay.
That correction is credited to Joe Stratman, who held up a piece of paper, and said, quarterly prices.
Clearly, as the pricing has dropped, and everyone that's in the processing game knows it's been very challenging, margins have been severely compressed, and it's very challenging for processors to make a decent profit.
And we expect to see some people not making it through this very difficult time.
Certainly, we have a strong balance sheet, which gives us the opportunity ---+ and we have a strong balance sheet and a history of taking advantage of downturns in troubled times to grow our businesses.
So we'll keep an eye out for assets that come available, when they make sense, they fit into our strategic plan for raw materials, the locations are right, the pricing is right.
I'll tell you what ---+ we won't be shy.
We'll be at the table.
Yes.
We haven't seen much of it yet.
But remember that usually, a lot of times, it's not during the downturn where you see the greatest pressure on these smaller companies, but actually during the upturn when they have to start replacing inventory.
When you're depleting inventory, you generate cash.
When you have to replace inventory, you burn through cash, and sometimes that can be more challenging as it bottoms out and begins the upturn, when you really see companies struggle to stay in business.
That is correct.
I'm sorry.
I was listening to somebody else.
The question that was asked was, can we have an estimate on what the cost of that project is.
We don't have the estimated losses during the outage, but it will probably be less than what we saw from Louisiana, obviously, for the quarter.
It's going to be much less than that.
But there will be some losses from the lost production of one month.
Well, although pricing is dropping, which does have a negative impact on collection to flow into the yards, bear in mind that it's also spring, so that's a time when people are out collecting, more so than in winter.
Transportation is not a factor, like it is in winter, so they balance out.
And although we've seen a small amount of decrease in flow into the yards, it's not been significant, and it's balanced by the two factors of lower pricing, offset by springtime.
And there's another issue just to build upon that, something that hasn't come up in all the discussion we've had today about scrap, and I'm a little surprised by it.
But bear in mind that the other thing we look at to keep the supply of scrap up in the United States is the loads that we buy offshore.
Particularly with the way the currency is today, we've been importing quite a bit of scrap from overseas.
As a general statement, Europe.
Well, if it's a removal of an export tax, it should go up.
Right.
Yes.
So I meant the volume will go up, the volume of their exports will go up.
I'm not sure how much of that would actually make its way to the US as some of the markets.
I would expect that there would be other markets that it would go to in Europe, in Asia, and even in India, would be more logical markets from a logistics perspective than here in the United States.
Absolutely.
It's Economics 101, supply and demand.
Whenever you have a situation when more supply is coming into the marketplace, it puts pressure on pricing.
But I would ask you to consider one factor, and that is, I can't attest to the quality of the pig iron coming out of China.
That might be in question.
Same reasoning.
More supply from iron units into the market tends to bring pressure on all aspects of iron units: scrap, pig iron, DRI.
Well, if there's a service center out there that wants some tons from us guaranteed at higher prices, send them our way.
Okay.
As a general statement, I understand your point.
It's about an inflection.
When are you at the bottom.
If you're asking me where I think we stand on that cycle, we said a couple of times during the course of the call that this is probably a transitional quarter.
So we might see something this quarter.
But I would ask you to remember that there's still a tremendous amount of imports that are in the pipeline that are on their way here to the United States.
So that continues to put pressure on pricing.
But as I said, listen, we're not opposed to selling steel at a higher price.
We like to do that.
But we also have to take care of our customers, maintain our market share ---+ all of those factors that we spoke about earlier in the call.
I'd have to say no.
In fact, I would say that our downstream products group, just the opposite is true.
We see a significant improvement in backlog, order entry, and backlog pricing.
I'm not sure I understand what you mean by that.
Is there any one part of the country in which we are seeing more of that.
It's pretty well-balanced, no geographic ---+ I might say in Canada, we're seeing again, Paris rebar; we're seeing much more improvement because they were down so significantly, because of weather conditions in the first quarter.
But other than that, pretty well-balanced.
Let me conclude by saying thank you.
Thank you to our shareholders.
We appreciate your confidence and your support.
Thank you to our customers.
We appreciate your business.
I want to say thank you to my Nucor teammates for creating value for our customers, generating attractive returns for our shareholders, and building a sustainable future for all of us.
And most importantly, thank you all for doing it safely.
Thanks for your interest in Nucor.
Have a great day and a great weekend.
| 2015_NUE |
2015 | WST | WST
#Thank you, <UNK>, and good morning, everyone.
Welcome to West's second quarter 2015 earnings call.
I am joined on the call this morning by <UNK> <UNK>, our copy of the, and Mike Anderson, our Treasurer and primary investor relations contact.
Today, I will review our second quarter results, full-year outlook, and share my reflections about business after 3 months with West.
<UNK> will then provide a deeper review into the financial performance and full-year guidance.
Then we will open up the call for your questions.
Starting with the results on slide 3, we had a strong second quarter with reported revenues of $359.7 million, excluding a 9.9% currency headwind.
Sales increased 7.4%, driven by demand for our high-value packaging components and proprietary delivery systems.
Adjusted EPS of $0.47 includes $0.09 adverse currency versus last year, and would have grown by nearly 8% over the second quarter prior year on a constant currency basis.
As a reminder, second quarter of 2014 EPS set a record for West.
Turning to business segment highlights for the quarter on slide 4, revenue in the pharmaceutical packaging systems segment grew 8.5% on a constant currency basis, with double-digit growth in Europe, Asia Pacific and South America.
We continue to experience strong customer demand for the high-value packaging components, with sales growth of over 12%, led by newer Envision and NovaPure product lines.
In our pharmaceutical delivery systems business, revenue grew 6%, excluding currency and taking into account the disposition of a small tooling business [in] 2014.
The segment was led by 9.3% growth in the proprietary delivery systems portfolio.
We are justifiably excited about the prospects for the SmartDose and CZ products, but the majority of the growth in this quarter came from the more mature proprietary products, drug reconstitution devices and the [air] safety system.
The second quarter and year-to-date results, together with our packaging systems backlog of firm orders and improving visibility into the second half, adds to our confidence for the remainder of the year.
We estimate constant currency sales growth in the range of 7% to 8%, and are therefore raising the lower end of our adjusted EPS guidance range for the full year by $0.05, to between $1.74 and $1.84.
<UNK> will take you through some of the additional detail behind these numbers in a few minutes.
To update you on the leadership transition, the past 100 days have gone extremely well.
As I mentioned in our April call, I was excited to come to West, and I can tell you that my experience thus has had exceeded my expectations.
I spent a significant amount of time with Don Morel and the leadership team, visiting several West locations, meeting with key customers and partners, and engaging with many of you in the investor community.
It was time well spent, and I was fortunate to have had the opportunity to work alongside Don up to his retirement date on July 1.
I want to again acknowledge and thank Don for many contributions he had made to West during his long tenure as the CEO.
Our current successes and future prospects are rooted in the strategies, culture and goodwill created under his leadership.
Looking forward, on slide 5, we are making investments in West's future growth initiatives around high-value products for biologics and proprietary delivery devices utilizing CZ and SmartDose.
To support the increasing demand for ultra-clean, particulate-free components in the near term, we added to our high-value product capacity with new dedicated clean room manufacturing in Kinston, North Carolina.
We have begun receiving customer approvals for additional high-value products from this plant, and expect to ship commercial product in the third quarter.
In June we officially broke ground for our new plant in Waterford, Ireland.
This investment is designated to service our key customers in the global diabetes market, which will address the increasing demand for these critical components and provide a second source within the West network to produce insulin packaging.
In addition, we have ---+ plan to add world-class finishing operations for elastomer packaging components to support expected high-value product growth in the longer term.
The first phase is scheduled to be operational in early 2018.
Last week, we announced our expansion of the Scottsdale, Arizona facility to meet exe growth in customer demand for the SmartDose electronic wearable injector.
The expansion in Scottsdale will enable continuing development and production of SmartDose and CZ cartridges to accommodate rising interest in the product.
This expansion further demonstrates our ability to support customer launch plans and to provide supply chain security.
As we previously communicated, we have eight active development programs for SmartDose at various stages of pre-commercial development, and including one program in a Phase 3 development.
Having had the pleasure of visiting many of our manufacturing sites, it's been gratifying to see first-hand the work of our global operations team to harmonize and optimize our network.
Anticipating the future needs of our customers in investing in industry-leading processes, capacity and dual source to deliver the highest-quality products and services, is core to our strategy.
As a reminder, in 2014, of the 41 new molecules approved by the FDA, 10 of them were injectable biologics, designed to treat cancer, autoimmune disease, diabetes and infectious diseases.
All 10 of these injectable biologics use West or Daikyo components.
We fully expect this trend to continue and we are confident in West's role in meeting our customers' needs in this still growing area of medicine.
Looking forward, our 5-year strategic plan is currently a work in progress that, as in prior years, we will discuss with you on the third quarter call.
The core of the strategy the Company has in place to deliver high-value, quality product packaging components, as well as differentiated proprietary devices to our customers, is solid.
We are currently reviewing how to build upon this core in a way to fulfill our customers' needs now and in the future.
Before I turn the call over to <UNK>, I want to call out two recent events to the attention of those who might have missed them.
We were certainly pleased to have been added to the S&P's MidCap 400 earlier this month, and we believe this has already increased investor interest in West.
In addition, we recently announced an increase in our quarterly dividend, beginning in November of this year.
We were pleased to continue a longstanding practice, and this was the 23rd consecutive annual increase.
I would like now to turn the call over to <UNK> <UNK> for a more detailed discussion of our financial results.
Thank you, <UNK>, and good morning, everyone.
We issued our second-quarter results this morning, including net income of $27.8 million, or $0.38 per diluted share.
Our reported results this quarter include a $0.09 per diluted share one-time charge associated with executive retirement.
Excluding this charge, our adjusted earnings per diluted share are $0.48 this quarter, $0.05 below the $0.53 per diluted share earned in the second quarter of 2014.
Our 2015 earnings have been adversely impacted by the continued decline in the value of the euro and most other foreign currencies in relation to the US dollar.
The translation of our international results into US dollars for reporting purposes has reduced our reported earnings by approximately $0.09 per share as compared to the prior year second quarter, and by $0.18 per share for the year-to-date June comparison.
We manage our foreign currency (technical difficulty) exposures and generally our local operations are naturally hedged.
Turning to sales, slide 6 shows the components of our consolidated sales increase.
Excluding exchange effects, our consolidated second quarter sales of $359.7 million increased by 7.4% versus our second-quarter 2014 sales.
Packaging systems sales increased 8.5% versus the same quarter 2014, excluding exchange.
Sales price increases accounted for 1.2 percentage points in the sales increase, and the favorable mix of products sold and volume increases contributed the remainder of the increase.
Sales of our high-value products rose 12% versus the prior-year second quarter.
High-value products represented 45.9% of packaging systems' Q2 2015 sales, versus 44.4% a year ago.
We continue to see strong customer demand for our product offerings that meet our customers' high-quality specifications.
Delivery systems sales increased by 6% versus the prior year quarter, ex currency, and excluding the 2014 divestiture of a contract tooling and services business.
Sales of our proprietary products were $29 million, or 28.3% of the segment's revenue in the quarter, versus $27 million, or 27.1%the prior-year quarter.
The combined Q2 revenues from CZ and SmartDose of $8 million were roughly equal to the combined 2014 Q2 sales.
Contract manufacturing sales increased by 4.9% at constant rates, excluding the impact of the tool shop divestiture.
As provided on slide 7, our consolidated gross profit margin for Q2 2015 was 32.8%, versus the 33% margin we achieved in the second quarter of 2014.
Packaging systems' second-quarter gross margin of 38.1% was 3/10 of a margin point higher than the 37.8% achieved in the second quarter of 2014.
The increase in gross margin is due to price increases, the favorable mix of sales, and lower raw material costs, offset by normal inflationary increases in labor and overhead costs.
Delivery systems' second-quarter gross margin declined by one margin point to 19.3%, primarily due to the 2014 divestiture of the tooling operation, and higher labor and increased overhead costs associated with new capabilities supporting both proprietary and contract manufacturing customer programs.
As reflected on slide 8, Q2 2015 consolidated SG&A expense increased by $3.3 million versus the prior-year quarter.
A favorable exchange effect partially offset increased sales and marketing expense related to our global sales meeting held in Q2 2015, which was last held in 2013, as well as increases in regulatory personnel, costs of standardized processes, and information services costs in our packaging systems division as compared to Q2 2014.
General corporate costs are $3.2 million above the prior-year quarter due to higher incentive compensation costs, a 2014 medical insurance cost reduction, and higher stock-based compensation costs, offset by a decrease in US pension costs.
As a percentage of sales, second-quarter 2015 SG&A expense was 16.9% versus 15.6% in the second quarter of 2014.
Slide 9 shows our key cash flow and balance sheet metrics.
Our year-to-date operating cash flow is $2.6 million above what we generated in the first 6 months of 2014, despite the negative impact of exchange rates and the higher level of pension funding in 2015.
The majority of the $10.9 million executive retirement charge will be settled in stock, and is not expected to impact our cash flow.
Our capital spending was $57 million for the first 6 months of 2015, approximately the same as at this time in 2014.
We expect to spend approximately $145 million to $155 million in capital in 2015.
Approximately 60% of our planned capital spending is dedicated to new products and expansion initiatives, including approximately $28 million for the construction of our new Waterford facility.
Our balance sheet continues to be strong, and we're confident that our business will provide necessary future liquidity.
Our cash balance at June 30 was $252 million, $3.3 million less than our December 14 balance.
Foreign exchange reduced our June 2015 overseas cash balances by approximately $13 million.
Debt at June 30 was $326.7 million, $10 million less than at year end.
Our net debt to total invested capital ratio at quarter end was 7%.
Working capital totaled $366 million at June 30, $40 million lower than at year end.
The majority of the decrease is due to the reclassification to current liabilities of our Series B euro notes, which mature in February of 2016.
Looking ahead, our backlog of committed packaging systems orders stands at $350 million at June 2015, 8% higher than at year end, excluding exchange.
At June 2015, the percentage of high-value products in the total backlog is approximately the same as in the 2014 June backlog.
Based on our year-to-date 2015 results, our analysis of the orders on hand, and the continuing unfavorable currency effects, we have increased the lower end of our full-year 2015 earnings guidance in this morning's release.
That guidance is summarized on slide 10.
We have based our guidance on an exchange rate of $1.10 per euro versus the $1.08 per euro rate used in our prior guidance.
As a reminder, each $0.01 strengthening of the dollar versus the euro results in approximately a $0.01 decrease in full-year forecasted EPS as a result of translation.
Going forward, we expect a $0.05 to $0.06 currency translation headwind in Q3, and another $0.03 to $0.04 headwind in Q4.
In addition, our 2015 guidance excludes any impact from a devaluation of the Venezuelan bolivar, as we continue to operate primarily under the official exchange rate; and it excludes the charge associated with our executives' retirement and related costs.
I'd now like to turn the call back over to <UNK> <UNK>.
Thank you, <UNK>.
In summary, our 7,000 colleagues around the world delivered a solid quarter and a strong first half of 2015.
After my first 100 days, I am more firmly convinced that West is well-positioned to benefit from the positive market trends, with increased demand for our high-value packaging components and proprietary delivery systems.
In addition, we are investing appropriately to meet the future needs of our customers and deliver increased shareholder value.
Thank you.
We now look forward to answering your questions.
Yes.
We're very pleased with the results of our high-value products portfolio.
It continues to gain traction and acceptance in the market as more and more of our customers are requiring the higher quality of the end ---+ of the components for their end products.
So, we're seeing that demand.
It continues to play well with how West is positioned and also how our operations are being optimized to really support these customers in all geographies.
Yes, <UNK>.
The pipeline of our CZ programs still remain very robust.
We have ---+ right now, we have 13 CZ programs in formal stability studies, and the outlook continues to be positive.
Yes.
<UNK>, that ---+ basically, it's seasonality, as if you look historically, that's been the case.
We have the summer shutdowns for preventive maintenance from both our shops and our factories in Europe, as well as our customers, and the start of that we see ---+ generally we see the second-half margins being slightly less than the first half.
For the full year, I just want to remind you that we are guiding up for margins both at the gross line and the operating profit line.
Yes.
You've got ---+ there's a number of things, and you hit on the one, the timing of that global sales meeting, which didn't happen in 2014 at all.
And then there's also ---+ in the second quarter of 2014 we actually had a slight reduction in our medical cost premiums due to some experience of adjustments made by the carrier.
So, we actually got a benefit in the 2014 second quarter that's not there this year.
And then, also, on incentive compensation, we're tracking a little ahead of our goals, so we are taking those (technical difficulty) comp adjustments ---+ the provisions up.
So, those are the three big ones.
We're also adding some heads where we believe it makes a lot of sense in the regulatory space.
Our customers ---+ as the regulators and customers continue to drive towards cleaner product, we have the need for more and more regulatory expertise, which is a key differentiator for West in the marketplace.
So, we will continue to invest in those types of expenses.
Okay.
So, capacity utilization is a complicated story, but let me try to simplify it ---+ boil it down.
On the PPS side of the business, we are ---+ we try to aim for a 85% or so utilization of our plant.
However, that's not a perfect science, and certain of our aspects of the capacity, especially in the high-value products, especially around Envision and especially around washing for Westar, we are very, very taxed at the capacity line.
We are pushing up against 100%.
And that's why you see our lead times have been expanding.
We are ---+ as we've talked about, we're putting ---+ we continue to invest very prudently in additional water capacity for Westar as well as vision systems for Envision, and will continue to ---+ as well as clean rooms for high-value products.
But those are the key investments we're making, which we hope in the long term, along with our network optimization programs that we're working on for the plants, will help alleviate some of that strain in the plants.
On the PDS side, it's more on the contract manufacturing specifically.
The utilization percentages are not nearly as high.
They're in the kind of high 60s, low 70s.
And that's appropriate for that kind of business and we feel very comfortable with that right now.
<UNK>, it's a very good point, is that in our packaging systems business we continue to see the outlook of the high-value products to continue to be very robust.
We believe we can continue to perform at similar levels that we have been performing.
And that's the reason why we're continuing to add capacities, really in our ---+ in the three main geographies of Asia, Europe and the US.
Your point is valid in that our ---+ on our delivery devices business, we're looking at future investments that ---+ payback's over a longer term.
But we're very optimistic with ---+ when we start looking at the level of engagement we have with our customers, with the eight active programs, with SmartDose.
And I mentioned one of them's in Phase 3; and then also with the 13 programs in the formal stability with our CZ product portfolio.
So, it is ---+ you're going to see a little bit longer-term with the delivery device ---+ delivery systems business unit down the road.
Well, let me start with ---+ by saying that the outlook of CZ still remains very strong.
And there is a timeline for adoption by customers.
But what we're seeing with conversations with our clients is that the attributes of CZ allows them to be more effective in the end markets.
So, we believe that we have the right formula.
The customers ---+ the uptakes are visible.
There's more in the formal stability trials at this point.
So, we're pretty optimistic that we'll continue to see demand of the CZ portfolio.
Yes.
<UNK>, as you know, this is an area that I've focused on in the past quite a bit.
And I believe West is well-positioned to take advantage of the market opportunities in some of the more ---+ in Asia, and also in Latin America.
I think our position today, while we do have presence with the multinationals in China and India and other geographies in Asia, we do have the opportunity to see more of an expansion.
Now, we have had ---+ we've put investments in China, India, Singapore; but I believe that our opportunity to grow even faster ---+ it presents itself very nicely for West.
So, that is an area that we'll continue to focus on and put a little more energy and resources around that as we go forward.
Okay.
It's ---+ <UNK>, it's ---+ rough numbers.
In Asia it's a little under 10%.
It's about $120 million of sales in Asia.
Well, it depends.
Obviously, if you're talking about in China, there are a number of companies that manufacture elastomers for drug product.
They ---+ if you're talking about the local markets, those are ---+ there's a wide number ---+ a large number.
Our ---+ from a ---+ people that work with the multinationals, we are the primary.
We have market shares that are in ---+ similar to our western markets for the multinationals.
So, in that kind of 60% to 70% range.
In India it is a mixed bag as well; but again, we have very solid market shares with the multinationals in India as well.
No.
I ---+ <UNK>, I'm sorry.
<UNK>, I believe that there's a great opportunity to bring the West quality to the market where it's not as prevalent.
And if you look at the cost of our product in the entire ---+ and drug delivery is a small percentage.
Therefore, to increase the level of quality and the acceptance of their drugs into, whether it's in the local market or the global markets, there is a need to pull more West quality into the system.
Thank you, Operator, and thank you, everyone, for your time this morning.
We look forward to speaking with you again on our third quarter call in October.
Thank you very much.
| 2015_WST |
2016 | NFG | NFG
#Thanks, <UNK>, and good morning, everyone.
Thanks for joining us for today's call.
As you saw in our earnings release last evening, we had a pretty steady second-quarter, although earnings were slightly down from last year.
Earnings in our Utility segment were lower due to warmer-than-normal weather, and lower commodity prices decreased earnings in our Exploration and Production segment.
<UNK> <UNK> will go into the details of the major earnings drivers later in the call.
Overall, activities in the field for each of our operating segments moved right along as planned.
We are just gearing up for the construction season for our regular pipeline renewal projects in our Utility and our Pipeline and Storage segments.
At the same time, we've slowed the drilling activities at Seneca Resources by moving to a single-rig drilling program.
Our reduced drilling level, combined with getting a partner to fund a large portion of this year's drilling program, has cut our spending to allow us to live within cash flow for the year.
Our current plans allow us to stay at a single-drilling rig for at least a year before we need to ramp up drilling and completion activities again, in order to have enough production to fill the pipeline capacity that will come online in November of 2017, the targeted completion date of our Northern Access pipeline.
With respect to our Northern Access project, we received some good news from the Federal Energy Regulatory Commission.
On April 14th, FERC issued its Notice of Schedule for Environmental Review for the project, and it confirmed their intention to develop an Environmental Assessment, or EA, for the project, and announced a July 27, 2016 target date for the EA.
Now that fits within our timeline for a November 2017 in-service date.
The other recent news on the regulatory front is the denial by the New York DEC of the Federal Water Quality Certification for the Constitution Pipeline project in Southeastern New York.
We submitted our own permit filings to the New York DEC, the Pennsylvania Department of Environmental Protection, and the U.S. Army Corps of Engineers for our project just last month.
We delayed our filing by three months after a number of prefiling meetings with the staff of the DEC, in order to make sure that our application was complete and addressed their stated concerns.
Based on those prefiling meetings, and gleaning what information we can from the Constitution denial letter, we feel our application is in pretty good shape.
A big plus for our project is that more than 75% of the pipeline route will be co-located along existing utility corridors.
We also believe that we've worked well with the DEC in the past.
We already own and operate thousands of miles of pipeline assets in the state.
And during our ongoing maintenance and renewal of those lines, we've dealt with them on a regular basis, addressing many project-specific issues.
Suffice it to say that we are confident that our project will continue to move along.
On the federal rate regulatory front, our team has been busy filing the required cost and revenue study for our Empire Pipeline, and answering interrogatories from FERC staff regarding the filing.
The schedule set out by the Administrative Law Judge is a target completion date for the proceeding set for February of 2017.
So we'll keep you posted in future calls if anything major happens in that case.
Switching to our utility and state rate regulation, our utility rate team filed a request for a rate increase in New York yesterday.
This is the first rate increase request the utility has made since early 2007.
The filing supports a $41.7 million increase in base rates, an increase of approximately $5.75 per month for an average residential customer.
As is typical in a New York rate proceeding, any new rates would not become effective for 11 months, so we wouldn't expect any earnings impact until the second-half of next fiscal year.
We have a pretty clear line of sight through the end of this fiscal year with respect to our earnings projections, and you can see that we've tightened up our earnings guidance range.
With respect to our oil and gas production, we are well-hedged for the remainder of this fiscal year and next fiscal year.
And as you can see in the back pages of our earnings release, we are continuing our normal practice of layering in hedges for our oil and gas production as commodity prices in the futures market for our fiscal 2018 and beyond have begun to firm up.
We see the market getting more bullish on commodity prices in the out-years, as production volumes have started to level off and the rig count stays low.
For the foreseeable future, we will continue to watch our spending, protect our balance sheet, and work to get our Northern Access pipeline built that will deliver Seneca's production to an attractive pricing point.
Now I'll turn the call over to <UNK> <UNK>, who will be stepping into the role of President at Seneca when Matt Cabell's retirement becomes effective next week.
Yes, I think it's actually down to two rigs now.
I was just looking at that the other day.
So it continues to fall.
We haven't seen any help on the capacity side as of yet.
It's ---+ whether producers are bringing on wells that they had shut in, we just ---+ we haven't seen additional ---+ at least significant additional capacity available in that part of the state.
Well, assuming that it takes the full year, <UNK>, it would be the beginning of March of 2017.
Again ---+
You know, I think we've ---+ that's kind of what we have planned at the outside.
We had the luxury of being on 98% of the route sites, so that we had what we think was a very, very complete application.
Whether the state will move it along any faster, we can't guarantee; we just know that there is a year time-frame for filing.
So that's what we are planning on.
Well, it's ---+ we're working through that.
We did have a good open season for the Empire North project.
It was ---+ to a certain degree, it was oversubscribed, because certain parties tried to put together different combinations of transportation routes.
And so that's really what we're working through, <UNK>, in order to kind of rationalize the best flows and the best combination, and get that worked into precedent agreements.
We don't have any of them signed just yet, and we just continue to work away at that.
Well, the relationship is great.
We drilled 30 of the 42 wells, with those pads just ---+ they're early; they're just now coming online.
Our costs have been about 10% or more down, which they are pleased with.
You know, we have conversations around entering into the second tranche, but really that's a decision that they are going to make in July.
So ---+ and that's really all I can speak to right now on that.
| 2016_NFG |
2016 | BRO | BRO
#Yes, let me clarify.
So this will be an important point is we had said $30 million to $40 million over a two- or three-year period, not a one-year, <UNK>.
And we said that around a 40 to 50 basis point impact to this year.
Still a good range that we see right now.
Yes.
No, <UNK>, there really isn't and we haven't quantified that because what you are seeing is, remember we talked a lot about catastrophic property but that doesn't mean that traditional inland property isn't ultra-competitive.
And so some carriers as you know want to play in areas where the rate online is higher which might be in a CAT prone area whereas other carriers have a risk appetite that says we don't want to play in let's say coastal property but we want to play on inland property.
So all of a sudden that becomes competitive and the perception of risk is maybe different at one carrier versus another meaning rate online, what they want to put in their portfolio, all of that other stuff.
So I don't want to just give you the impression we talked about property in terms of CAT property because the prices are down dramatically.
That does not mean that inland property is not very competitive and we see sometimes people do crazy things there too.
But no, we have not given any guidance on that.
Can I take that, <UNK>, for just a second.
Let's make sure that ---+ and we've tried to articulate this, that some of our businesses that are impacted are higher-margin businesses than others or there is a growth in a business which might be a de novo business like a program that we start.
So as I said earlier and this is not an excuse, this is a statement of fact.
One, we had a services business, a TPA, that had very limited claims activity which impacted our margins.
Two, CAT property programs which are higher-margin businesses than number one, a startup but two, some of those programs that were growing nicely in Q1.
And three, would be the investment in new teammates.
So I don't want to say that it is just investment in new teammates because just like anything else, some parts of your business are under constant attack and then others might be moving right along nicely.
We just happened to have a lot of segments that are ---+ two or three segments meaning in particular a services piece and in our CAT programs, that have been under competitive pressure and we think that will continue for awhile.
So to answer your question, our margins may be like that if we continue to have results like we have just outlined in those three segments.
That is not what we want, that is not what you want and we don't manage our business that way but we intend over a long period of time for it to work out.
That was independent of the 2016.
Yes, there was.
<UNK>, the way we think about at least the mechanisms for buybacks and the reason why we generally trend towards ASRs is we think they are a very efficient way in which to buy shares back out of the marketplace.
It does give us an upfront share pop which we like as part of the program, allows us to buy through blackouts, etc.
so they can run and it puts ultimate execution back on whoever the agent is.
That is what they do every day and that is why we prefer and we think they are a cost-effective way to go.
That doesn't mean that that is the only way that we would ever buy shares back in the marketplace.
So we are always looking at different opportunities and different programs that are out there.
If there ever was a significant dislocation in our market value or price, we would look at the appropriate options that are out there.
Irrespective of any of them, you still got all of the 10b-18 rules that you still have to comply with.
So <UNK>, as you have seen and read, some of these technology backed companies are very well funded and some of them are coming either to a stop or they are going through gyrations.
And what I would say is this, do we believe that there could be a segment of small commercial purchased online.
And the answer is, yes, that could be the case.
The carriers are careful about what I would call comparison shopping.
So if you have a model which actually lets you basically compare three companies, standard companies that you know by name against each other in their small business units, they don't like that because they try to differentiate their product on coverage and service and which some can and do but in that instance when you have an online rater, many times it is just you are just stacking them up against each other and it is a spreadsheet.
That said, what we have found whether it be in personal lines or in small commercial, there are certain complexities that come with risk particularly as an individual or as a business start to accumulate assets which they may not be familiar with the coverages that would be appropriate.
And so there is a possibility that they have what I call coverage that is stripped down that may be cheaper, cheaper, cheaper but they may be buying a Yugo as opposed to a Chevrolet or a Cadillac.
And so and do they actually know the difference in the coverages.
And so I am not aware of anything yet.
That does not mean that we are dismissing that out of hand.
Quite the contrary.
We think about how technology can play a role in our small business units as well and as we invest in our personal lines business which is actually a $90 million business as you know.
What we would say so far though, so far is the technology companies that I am aware of, they've done a good job of sizzle in terms of the marketing but I don't think that they have done as well a job in the execution of the plan where they are able to make money over a period of time.
It doesn't mean somebody is not going to do that.
It just means that we continue to watch it carefully and whether it was the online benefits related company or when Google started trying the search engine I should say started looking into selling coverage online and then has pulled back from some of that, we watch with great interest.
But we are thinking about how we invest in our small commercial from a technology standpoint and personal lines independent of that.
The first two correct on it, <UNK>, and then we said that the gain on the sale was just a little under $2 million.
The answer is we have had some activity but once again, things kind of evolve over time so you have immediate claims and then you have things that sort of roll in as well.
So we would say that the magnitude of the impact we are not fully ---+ we don't know the full impact yet, it is too early.
But we can just tell you that we have had a good number of claims already.
There is really two storms there.
If you go back, there was the mid- to late March hailstorms in Texas and that drove also some other damage.
So we've got claims off that and then obviously we've got the most recent flooding that is going on just over the last couple of days.
As <UNK> mentioned, they build over time so it is hard to determine what it will look like right now but we are starting to get some claims in.
Thank you all very much and we look forward to talking to you at the end of the second quarter.
Have a wonderful day.
| 2016_BRO |
2016 | REX | REX
#No, no, exactly.
This is much better than what USDA was showing.
That's correct.
Yes, that's what we estimate, $3 million to $5 million.
That's the remainder of the year.
Yes, a little bit finish up and then maintenance, correct.
Actually, we have applied it also for One Earth Energy pathway, pathway we have not received, and we are applying for EPA to ---+ we already had up to 125 million gallons we produce at One Earth Energy, but we are trying to increase it at the slow step there due to some regulation in Illinois.
We probably increased to 135 million and then further to increase that later on close to 150 million.
But all of these things really we have to wait for up the time we receive the pathway for One Earth Energy to increase further production.
Correct.
Yes, I think we will ---+ that is our ultimate goal we'd like to achieve.
I think it's hard to say that, because we are trying to make sure that, when we are pushing these extra gallons, we want to make sure that we go slow and making sure the other bottlenecks are worked out so that we don't have any emergency or create some problem.
So, I think it depends, but I think we are, at the NuGen, we are very close to that level but we are going very slow.
So it's really hard to say, but I think early next year is expected.
You mean to 150 million or 135 million.
I think we have mostly capital investment is already done, and maybe it grows $3 million to $5 million more, as I said.
But we are not pushing hard at One Earth Energy due to the reason we do not have a pathway.
Up to the time we receive the pathway, then we will start pushing a little bit harder.
We have expanded the capacity ---+ we've put in the infrastructure in place at One Earth as part of that $16 million that we mentioned.
Yes, that's correct.
| 2016_REX |
2017 | MXL | MXL
#Thank you.
You know, I think most ---+ if I look out at where ---+ where this ---+ your colleagues are at and kind of where we have been directionally pointing people we have said that the tax rate will kind of migrates its way up towards 20% as we progress through the year and I don't think anything has really changed off of that you should be getting to an overall ---+ right now based on everything we know of course tax is a difficult noise that's coming out of Washington, but right now nothing is causing us to change our outlook and I would say if you have got a blended tax rate that's in the mid-teens on a non-GAAP basis or ---+ for 2017 I think you're in a pretty good spot.
Really no need to change where you're at.
So, <UNK>, you ask a very, very good question and if you recall even in last year ---+ beginning of last year in the first half I was saying that having seen the patterns ever DOCSIS 3.0 deployment I expect the revenue ramp for DOCSIS 3.1 to happen in the second half of 2017 and it seems that, you know, that's how it's playing out.
Is there risk for the rollout, yes, sure in the sense that, you know, it's not as big as they want it to be at this stage, but it's ---+ in indisputable that by Q4, Q1 the following year is going to be a massive one.
So I think that, you know, it is going to be a ramp in the second half and how it starts in Q3 versus Q4 I cannot speak for.
It will be a big ramp.
And I do expect that there will be ---+ there will be more growth in data subscribers for at least a big player like Comcast and with the ---+ with the way things are playing out you have heard about syndication of the Comcast X1 platform to other cable operators, the uptick in DOCSIS 3.1 will happen much faster because it could spread to multiple operators very rapidly so it could be yet one of the biggest ramps for the DOCSIS platform.
Secondly, you know, the ---+ for us there's an increase in the (inaudible) and as always new standard deploys and we had you had benefit from that.
So we expect growth coming over the DOCSIS 3.1 for sure.
We have been running about $5 million a quarter in stock based comp and a little over $5 million in stock based comp and about $2 million per quarter in the stock based bonus, which I don't think you should assume any real deviations from that.
And then on the share count I think on a fully diluted basis we have been ---+ I think we're modeling around ---+ probably around 69 million shares.
The clear answer is that ---+ I just want to make this kind of clear that, right, a lot of attention to these higher gigabaud 32 gigabaud, 45 gigabaud, 64 gigabaud linear products but really that's a small percentage of the big deployments that are happening in China will be the case for the ---+ because they want cost to be low and for the next two years 100 gigabit NRC is going to be the big ---+ the hugest portion of the deployments.
So having said that, you know, we are launching the TIAs and the ramp of these TIAs is what is going to drive the growth and that will be the second ---+ and I expect the pops to start happening the second half the year sometime.
Now, the ---+ the good thing about TIAs are they tend to be margin rich unlike drivers which tend to be module and but the negative thing about them is they take a longer time to of qualify because people (inaudible) very good ---+ complicated optical alignment issues and then people buy (inaudible) directly into the main boxes.
So ---+ so you have this dichotomy.
The cycles stay on track, the ramps happen in second half and can you get pushed a little bit, yes.
Therefore, I'm being cautious when I give you the range of $25 million to $30 million of guidance for optical revenues for 2017.
And at the OFC, which is in March sometime, we will be announcing a bunch of new products and there will be demos and I think from that point there will be good visibility of all the new products in the linear market that we will be launching which is primarily the 32 gigabaud, 45 gigabaud and 64 gigabaud products but 45 gigabaud and 64 gigabaud products will not generate any meaningful revenue until 2018 or beyond and that is ---+ that is just a fact for the industry.
Yes.
Well, thank you, operator.
And as a reminder we will be participating in the (inaudible) Financial Group's sixth annual Semi Storage and Technology conference on March ninth in New York and the 29th annual Roth conference held March 12 to 15 in (inaudible) in California.
So we hope to see many of you there.
With that being said we thank you all for joining us today and we look forward to reporting on our progress during the next quarter.
This concludes today's conference call.
| 2017_MXL |
2018 | FCPT | FCPT
#Thank you, Denise.
Joining me on the call today is Bill <UNK> as well.
During the course of this call, we will make forward-looking statements which are based on beliefs and assumptions made by us and information currently available to us.
Our actual results will be affected by known and unknown factors that are beyond our control or ability to predict.
Our assumptions are not a guarantee of future performance, and some will prove to be incorrect.
For more detailed descriptions of these risks or other potential risks, please refer to our SEC filings, which can be found in the Investor Relations section of our website at fcpt.com.
All of the information presented on this call is current as of today, April 26, 2018.
In addition, reconciliation to non-GAAP financial measures presented on this call, such as FFO and AFFO, can be found in the company's supplemental report, also available on our website.
With that, I'll turn it over to Bill.
Thank you, Gerry.
Good morning.
Our first quarter focus was on diligencing the second tranche of the Washington Prime transaction we announced last year.
As we mentioned on the last call, we believe we'll be able to source additional high-quality restaurant outparcels from retail landlords and have made good progress in this regard.
We are very excited about our pipeline.
During the first quarter, we purchased just shy of $20.4 million in restaurant outparcels in 12 different assets: 3 Buffalo Wild Wings, an Olive Garden, a Chick-Fil-A, McDonald's and Starbucks and several other brands.
Average term was 9.3 years, and the cap rate was 6.8%.
There were no dispositions closed in this quarter, though we continue to receive regular offers for our properties at very attractive prices.
Not much has changed in the restaurant industry in the 2 months since our last call.
We always monitor asset pricing very carefully, but we have not seen substantial evidence that cap rates have moved and certainly have not seen a move that will be commensurate with the change in long-term government bond rates.
We did not issue stock on our ATM in Q1 and were in blackout for much of the quarter, which is typical for the first quarter of every year.
Our balance sheet is in great shape, and we believe we have access to significant capital, both debt and equity.
Maintaining a low leveraged balance sheet is important to us, and we understand well that it is important to our investors.
Our Kerrow division, which operates a handful of LongHorn Steakhouses in San Antonio, Texas, continues to perform very well and has exhibited strong revenue growth that is dropping to the bottom line.
We'll be attending both the ICSC conference in Las Vegas as well as the NAREIT conference in New York City.
If you would like to meet in person, please don't hesitate to reach out.
Now Gerry will take you through the financials.
Gerry.
Thanks, Bill.
A few comments on our results for the first quarter.
We generated $27.3 million of cash rental income after excluding noncash, straight-line rental adjustments.
On a run-rate basis, the current annual cash base rent for leases in place as of March 31 is $109.4 million.
And our weighted average annual rent escalator remains at approximately 1.5%.
I'd also add that our sector-leading EBITDAR-to-rent coverage was 4.7x for the quarter, ticked up slightly from last quarter.
Our net income FFO and AFFO per share results were impacted approximately $0.01 per share in the quarter because of the short-term dilutive effect of the balance sheet cash that we have.
But we are pleased to have that capital available to fund the Washington Prime and other transactions in our pipeline.
On an AFFO per share basis, which we believe best represents the cash flow generated from the business, we reported 6.3% growth in quarter-over-quarter per share results.
In the quarter, we reported $2.5 million of cash, general and administrative expenses after excluding noncash, stock-based compensation.
We maintained our guidance for 2018 of an annual G&A run rate of approximately $11 million, excluding noncash stock-based comp and acquisition transaction cost.
You will note that the amortization of our noncash stock-based compensation increased in the first quarter because we are now amortizing awards over 3 years and just made our third year's grant to put us at a full run rate of amortization.
Turning back to the balance sheet, we ended the quarter well capitalized for the remainder of 2018 with net debt to EBITDA of 4.7x, $53 million of cash and full availability on our $250 million, 4-year revolver.
As Bill said, we remain committed to maintaining a conservative balance sheet with financial flexibility, and we continue to appreciate support of our investors in the equity, bank debt and private note markets who help capitalize our growth.
And with that, I'll turn it back over to Denise for Q&A.
Sure.
Thank you for the question, <UNK>
J.
We have made progress.
The deals are very similar to the Washington Prime deal as far as premier ---+ lots of ground leases, lots of corporate tenants, good demographics, obviously different sizes depending on which deals you're talking about.
We'll announce them the day they close.
We've met with almost every retail ---+ major retail landlord in America.
We've had some terrific reactions from some.
Others it's not a focus.
We continue to plow ahead.
We think it's an attractive avenue for acquisitions.
Sure.
Garden has been, in essence, the exception to trends in the casual dining business, which have been not all that positive.
It seems to be getting a little bit better in the last quarter, but over the last couple of years, many of the casual dining brands are having a hard time maintaining revenue levels at the same-store basis.
Specifically, Applebee's, which is the largest casual dining brand by number, has had difficult performance, although it looks like they are making some progress turning it around.
Our focus because of this has been almost entirely on quick service restaurants, and so we feel like where we've positioned our acquisitions over the last 2.5 years has been appropriate.
Obviously, limiting ourselves to quick service, makes it difficult ---+ as difficult to grow as fast as you could if you had both casual dining and quick service.
Casual dining is ---+ the properties are more valuable, call it $3 million to $4 million, $5 million, versus quick service, which are typically $1 million to $2 million, maybe in the low $3 million.
So obviously, you can deploy more capital per property in casual dining, but we've been satisfied thus far in focusing on quick service.
Obviously, we started life 100% casual and fine dining.
And so we think adding quick service adds to diversification as well as aligning ourselves with healthier brands.
Sure.
Well, in 2.5 years we haven't purchased a restaurant ---+ a nonrestaurant property.
We've certainly seen a number of them.
Oftentimes, they're in portfolios that we look at.
I think when we started it was prudent to stick to our ---+ be laser focused on restaurants.
I think today would we look at nonrestaurant tenants.
Probably more so now than we have in the past.
But to date, we haven't set an LOI on a nonrestaurant, as just one data point.
As we look at other sectors, pharmacies and drug stores, car washers and convenience stores and gas stations, dollar stores, et cetera, we don't really see a subsector that today looks more attractive than restaurants.
Some, you could say, are about as attractive as restaurants, and we don't see any that have pricing that stand out as being more attractive than restaurants.
So certainly, restaurants are competitive, but generally retail and net lease is competitive overall.
So we'd look at it, it likely be part of a portfolio.
But to date, we haven't focused on any specific subsector, if that's helpful.
Two 2 great questions, <UNK>.
I would say that we see cap rates similar to Applebee's before.
Cap rates on Applebee's have picked up pretty meaningfully.
I don't think enough, but meaningfully.
And we've seen demands when folks inquire with us about buying our properties, the pricing is good as ever.
So I think you do see a difference, and there's a substantial difference in the cap rates, but I'm ---+ the difference isn't enticing enough to get us focused on buying casual dining where you have to bet on a rebound in a properties performance or brand's performance.
At least, not yet.
Correct.
Well said.
It's a logical question.
One would expect that to be the case.
I can't speak to a specific example where I have seen that, Colin, at least, not yet.
Yes, it's I think end of the second quarter, beginning of the third quarter, hard to pick a specific month.
A lot of these are properties that needed to be parcelized, and you're relying on local jurisdictions to cooperate in creating a separate tax parcel.
So I know Washington Prime is working really hard on it.
We're very supportive of them and appreciative of their hard work.
But whether it closes ---+ whether we have assets closing in June or July, we're not that fussed about it.
<UNK>, Gerry here.
We have just over $200,000 of a noncash gain on an exchange of land parcels with Darden.
One kind of postclosing items is we had a little parcel that doesn't impact the value of the property or the parking, and they had wanted to switch that.
It had a, as I said, a slight gain.
We backed that out, as you'll see, and noted it before getting to FFO and AFFO.
Otherwise, other income for us is principally the interest on our cash balances.
I think we're open-minded.
Again, it's not something that we spend a lot of time on.
I would just maybe characterize it as when we spun we were laser focused on exclusively buying restaurant properties.
We're not foreshadowing anything here.
If something came around now that wasn't strictly restaurant and we thought it might make sense in the portfolio, we'd consider it.
But we certainly would not ---+ we're not trying to use the call today to foreshadow some strategic shift in Four Corners.
We have been exclusively restaurant since we started.
That's our focus.
Yes, I think if you look at the Washington Prime deal that's one way you could characterize it.
A lot of these transactions have very low rents, but they don't have the typical 20-year lease term.
So that's something that we're very focused on.
We think it's an opportunity, and it's something that's ---+ it's a characteristic of the other deals we're working with, with other retail landlords.
I don't think we've made that public.
I think that you can see us on a consistent basis quarter-by-quarter chipping away.
But the Darden portfolio that we have is so good that it's hard to feel anxious to dilute that exposure down.
And it's not ---+ it's ---+ I think our restaurants are very comfortable that the Darden exposures of extremely high quality, I think, 5x covered today with a high-investment grade operator that's performed very, very well.
So while we like to grow and chip away at that exposure over time, and that's our mandate, we're in no rush, and we're not anxious.
Yes, I think it's not ---+ it's all facts and circumstance based.
And you'll see some be quicker than others.
I think that the WPG deal is progressing pretty much how we planned it to progress.
This is what happens when you're purchasing assets that aren't [marking] for sale that haven't been ---+ where you don't have separate tax parcels and the due diligence takes some time to work through.
But we think that the view is worth the climb on transactions like this.
It's a lot of work.
We feel like we have a lot of capability in our legal expertise to accomplish transactions like this.
They take time.
We've been working on other transactions like this for many months.
And so we feel really good about it.
What's important is once we own the assets do they perform.
So being deliberate in how you diligence assets makes a lot of sense.
But we feel like it's something for a company of our size to be able to purchase assets that have these brands, as I mentioned in my prepared remarks, Chick-Fil-A, Starbucks, McDonald's, is a real advantage.
And while these are assets that take some time to work through, it's worth the effort.
It's all across the board, <UNK>.
And we've got assets that if it's on a separate tax parcel and all the information is ready and the leases doesn't need to be changed at all, we can close as fast as anyone, and we've closed some deals in very short periods of time.
It's when properties need to go through [rolefers], they need to go through separation, it takes time.
And as I said, we've got other transactions we've been working on for many months.
So it's time well spent.
Well, a lot of the transaction-related costs can be capitalized, but I would say that we feel like we're well staffed.
We've ---+ our team has a tremendous capacity for workload.
So I think we feel like we're in good shape.
Thank you, Denise.
Again, to reiterate, we're very happy with where we're headed as we round out the first half of the year.
And we're excited about our pipeline and what we intend to accomplish in the second half.
To the extent folks would like to meet at ICSC, NAREIT or do an investor call, we'd love to meet with you.
Thank you very much.
| 2018_FCPT |
2017 | SIVB | SIVB
#Thanks, Greg and good afternoon, everyone
I would like to start by talking at a high level about certain notable items that were included in our earnings per share of $1.91. I will get into further details on these items later in my comments
But I believe this overview will enable you to more easily separate the seasonal or notable items from fundamental trends which are generally positive and on track overall
On the plus side, we realized a tax benefit from a change in accounting rules for stock-based compensation which contributed $6.1 million to earnings
This accounting change affects all companies
We also had a benefit to earnings of $4.7 million due to the return of tax funds related to a prior year's tax return
Countering those 2 items, we incurred our typical first quarter seasonal compensation expenses from bonus-related 401(k) contributions and employer taxes of approximately $6.5 million
Premium amortization expense from investment securities in the first quarter was $3.5 million higher than last quarter
And there were 2 fewer days in the quarter compared to the last quarter which meant lower net interest income of approximately $4.8 million
Now I will get into the details of the quarter and highlight the following, first, solid loan growth; second, another quarter of healthy total client funds growth, driven by our off-balance sheet client investment funds; third, higher net interest income and a higher net interest margin; fourth, stable credit quality overall; fifth, higher investment securities and warrant gains; and sixth, slightly higher noninterest expense, including the seasonal expenses I noted
Additionally, I will comment on our capital ratios, tax rate and provide details on the changes to our 2017 outlook that Gregg mentioned
Let us start with loans
Average loans grew by $809 million or 4.2% to $20.1 billion
Growth was driven primarily by private equity capital call lines and life sciences
Other parts of the portfolio were relatively flat in the first quarter, although, this is consistent with what we have seen in the first quarter in past years
Nevertheless, we're seeing a continued high pace of repayment due to M&A
On the upside, despite heavy competition and seemingly loosening terms in the market, new loan commitments were solid and advances were strong in the quarter
Client activity remains healthy across all portfolios and our pipeline is in good shape
As a result, we're maintaining our full year 2017 loan growth outlook of the high-teens
Moving to total client funds, that is combined on-balance sheet deposits and off-balance sheet client investment funds
We saw another quarter of healthy growth due to client funding rounds and exit activity
Average total client funds grew $1.4 billion or 1.7% to $86.1 billion in the first quarter
This reflected average off-balance sheet client investment funds growth of $1.2 billion and average deposit growth of $261 million
This growth reflected strong activity among our life science and corporate finance clients
Although, that growth was offset somewhat by significant outflows related to our private equity clients making distributions to their investors
Period-end total client funds grew by $2.7 billion or 3.2% to $87.5 billion
This reflected off-balance sheet client investment funds growth of $637 million and deposit growth of $2.1 billion which means we're starting the second quarter on a positive note
This growth was driven by existing private equity clients, as well as strong new client acquisition in our life science and early stage technology segments
Nevertheless, we're narrowing our full year 2017 outlook for deposit growth to the mid-single digits from our previous outlook of mid- to high-single digits, although, we believe growth is likely to be at the high-end of our revised range
While strong new client acquisition continues to drive deposit inflows, it is offset by high pace of investment and distribution activity among our private equity clients
Turning now to net interest income and our net interest margin
Net interest income increased by $13.4 million to $310.3 million in the first quarter
This increase was primarily driven by higher average loan balances and an increase of 11 basis points in net loan yield due to the impact of the December increase in the Fed funds rate
Interest income from fixed income securities increased by $4.1 million due to higher average balances which benefited from reinvestment of portfolio cash flows at higher market rates
I would like to provide some additional insight into the timing and impact on our results from increases in short term interest rates
The sensitivity of our net interest income to changes in rates was generally in line with our expectations
However, when comparing our first quarter results with the fourth quarter of 2016, there are few specific items that should be considered as they impacted the actual increases in net interest income and our net interest margin
First, as I mentioned at the beginning of my comments, we had 2 fewer days and higher premium amortization expense in the first quarter versus the fourth quarter
Additionally, there is a lag effect of the impact of higher short term interest rates on approximately 30% of our loan portfolio which is tied to 30, 60 and 90-day LIBOR
In short, this means it can take almost 2 quarters to see the full effect of rate increases on these loans
Finally, certain of our sponsored buyout loans have a LIBOR floor of 1%
It is important to note that we're seeing margin compression, both in newly originated loans and existing renewals, as a result of competition and tightening market terms, primarily in our private equity, sponsored buyout and accelerator segments
We estimate that this has resulted in approximately 15 to 25 basis points of margin compression in these portfolios since the beginning of 2016 which is the time period covering the Fed rate increases in December 2015 and 2016. This equates to approximately $15 million to $20 million of net interest income on an annualized net basis
We expect margin compression to continue to impact our net interest income and net interest margin throughout the year despite the benefit from rate increases
Moving onto net interest margin
Our net interest margin increased by 15 basis points in the first quarter to 2.88% due to higher average loan and investment securities balances relative to lower yielding cash balances as well as the impact of the December rate increase
This impact was partially offset by the increase in premium amortization expense and the compression in loan yields from competition which I just mentioned
As a result of the 25 basis point increase in the Fed funds rate in <UNK>h, we're raising our outlook for net interest income and net interest margin
We expect net interest income to increase at a percentage rate in the high-teens compared to our previous outlook of the low teens
And we expect our net interest margin to be between 2.9% and 3.1% compared to our previous outlook of 2.8% to 3%
These expectations take into account the impact of margin compression I noted earlier, but do not assume any further increases in short term interest rates
Clearly, any rate increases will help our net interest income and our net interest margin
Now let us move to credit quality which remained stable overall despite higher nonaccrual loans
Our allowance for loan losses was $243.1 million at the end of the first quarter or 1.18% of total gross loans, an increase of $17.8 million or 5 basis points compared to the fourth quarter
Our provision for credit losses which includes the provision for funded and unfunded commitments, was $30.7 million versus $16.5 million in the fourth quarter
The increase in our allowance for loan losses and the provision for credit losses in the first quarter were due primarily to 3 nonaccrual loans, 2 new ones in the software space and 1 previously impaired sponsored buyout loan
These 3 loans accounted for $16.7 million of the $25.4 million of specific reserves added in the first quarter
In addition, loan growth in the quarter contributed an additional $5 million
Net charge-offs were significantly lower at $12.2 million or 25 basis points compared to $21.3 million or 44 basis points in the fourth quarter
Approximately 60% of charge-offs had prior reserves and nearly 90% came from our early-stage clients
Nonaccrual loans increased by $19.8 million to $138.8 million or 68 basis points of total gross loans
This increase was primarily due to 1 late-stage and 1 early-stage client
We view this as a manageable level of - for nonperforming loans
However, it is near the high-end of our outlook range
As a result, we're slightly increasing our outlook range for nonperforming loans by 10 basis points to between 60 and 80 basis points of total gross loans
This increase reflects the gradual evolution of our loan portfolio over time to include more growth, corporate finance and sponsored buyout loans
However, we're maintaining our full year 2017 outlook for the allowance for loan losses which we expect to be comparable to 2016 levels and for net loan charge-offs of between 30 and 50 basis points
Now I will turn to noninterest income which is primarily composed of core fee income and net gains from warrants and PE and VC-related investment securities
I will discuss certain non-GAAP measures in my comments and we encourage you to refer to the non-GAAP reconciliations in our press release for further details
GAAP noninterest income was $117.7 million compared to $113.5 million in the fourth quarter
Non-GAAP, noninterest income, net of noncontrolling interest, was $111.1 million compared to $109.1 million in the fourth quarter
The increase was mainly related to higher, though, still relatively modest net gains on investment securities and warrants which were offset somewhat by seasonally lower core fee income
Let me review the components
First, non-GAAP, net gains, net of noncontrolling interest on investment securities were $9.5 million compared to $5.3 million in the fourth quarter
Second, we had net gains of $6.7 million on equity warrant assets, primarily related to warrant exercises driven by M&A activity during the quarter
This compares to warrant gains of $4.6 million in the fourth quarter, primarily related to unrealized valuation increases
Moving onto core fee income which includes fees from foreign exchange, credit cards, deposit service charges, lending-related activities, letters of credit and client investment funds
Core fee income decreased by $2.1 million or 2.4% to $82.6 million in the first quarter
This decrease was due primarily to seasonally lower fees on credit cards and foreign exchange
These decreases were partially offset by increases in client investment fees, driven by higher balances and improve yields due to increases in general market rates and an increase in deposit service charges due to higher deposit, client counts and transaction volumes
We're reiterating our full year core fee income outlook of growth in the high-teens
Moving onto expenses
Noninterest expense increased by $2.4 million or 1% to $237.6 million, primarily due to higher compensation and benefits expense
Compensation and benefits expense increased by $7.3 million as a result of annual merit pay raises and higher number employees to support our growth and seasonal expenses related to 401(k) matching and employer payroll taxes
These increases were offset by lower share-based compensation expenses and incentive compensation plan expenses in the first quarter which were elevated in the fourth quarter
As a result of our improved outlook for the full year and our other initiatives to enhance return on equity, we expect our 2017 return on equity to outperform most of our peers, as defined in our 2017 proxy
Because part of our incentive plans are tied to return on equity performance versus our designated peers, we expect higher performance related incentive compensation expense
Consequently, we're increasing our 2017 noninterest expense growth percentage outlook from the high single-digits to the low double-digits
Turning to capital
Our capital ratios rose across the board as a result of increased capital from higher net income
Increases to holding company capital ratios were partially offset by higher risk weighted assets due to period-end loan growth
Lastly, I would like to provide some insights into our effective tax rate
As I mentioned at the start of my comments, we recognized a $6.1 million tax benefits as a result of implementing new accounting guidance that is applicable to all companies effective this quarter
Under this guidance, tax impacts from employee share based transactions are recognized in the provision for income taxes rather than directly in equity under the prior rules
This guidance will likely result in volatility in our effective tax rate
The magnitude of the tax impact of employee share based transactions is a function of one, vesting days for restricted stock units; two, the amount of in the money stock options that are exercised; and three, the change in our stock price relative to the grant date values of the share based compensation awards
Excluding the impact of both the required accounting change and the other tax item I noted earlier, we expect the tax rate for 2017 to be comparable to 2016. In closing, we're off to a good start in 2017. Our outlook remains positive and our expectations for net interest income and net interest margin have improved as a result of the recent increase in the Fed funds rate
Although, competition and a high pace of M&A activity among our clients continue to impact loan growth and margin, there is ample new loan activity in the pipeline going into the second quarter look solid
Fee income trends also remain positive despite some seasonal slowness in the first quarter
We believe our clients are healthy overall and we're maintaining our long term focus on expanding our client base, product offerings and global footprint, while delivering high-quality growth and maintaining stable credit quality
While we're not counting our future rate increases, tax decreases or significant changes on the regulatory front, any improvements in these areas will likely be positive to our current outlook
Thank you
And now I will ask the operator to open the line for Q&A
Question-and-Answer Session
So roughly, approximately around 2.5% and we're primarily mortgage-backed securities or agency-backed securities
So there's a few things
I'm not quite sure what you referred to in the 10%, but if you're referring to the 30, 60, 90-day LIBOR-based loans or the sponsored buyout loans that have floors with the LIBOR floor of one
Well, Steve, you may recall that in my prepared remarks, typically, each first quarter of the year, we have the seasonal expenses there, right? So that is what drives kind of the expenses
If you're comparing Q1 to Q4, so they were $6.5 million of seasonal expenses in Q1, so that's part of it
The other thing is, when you start to look at some of the incentive compensation levels, our stock price was up as well - stock-based compensation expenses compared to a year ago as well, so just depends on what you're looking at, but primarily with the seasonal expenses
As far as the outlook for 2017, the rise in price and there was a fact that some of our incentive compensation plans are tied to ROE
And given our outlook for the full year in terms of ROE, that is up compared to the designated peer set in our proxy
Therefore, the incentive compensation pool is going to be funded at a bit of higher rate
So primarily, the main driver of us moving up our expense outlook is driven by the more improved outlook view on the return on equity against our peers
We believe we picked up that
But obviously, it is - it does change quarter-to quarter when you're on the market competition, it's also dictated by what your competitors are doing
So it's - obviously, it's a bit harder to predict
But, again, we would - the numbers we gave you just in the margin compression that we've seen in the last year
But generally, if you kind of use that as a rule of thumb, we're probably going pickup about 70% of the benefit going forward, somewhere around there is a current estimates, but just want to caution that can change up or down quite quickly
It's probably somewhere around 40%, 45% front office and the rest is back office, somewhere around that neighborhood
Well, obviously, it all depends on the rate outlook and the efficiency ratio
Clearly, we've been trying to bring that down
And the trend has been coming down over the last couple of years, so that we've exhibited a really nice trend there
But, obviously, we still didn't make - need to make investments as well too, but again, I think, you can continue to see general trend
Certainly, the general trend is going down, but again, it all depends on what you're assuming for the rate increase, because clearly, when we have the rate increase, we get a significant amount of revenues without any real incremental expenses
So it really just comes back to how you're modeling to your interest rate changes
So well, I guess, what you do is, you look at the 2016 number, obviously that we finished out
For clarity, we did move the provision for unfunded credit commitments out of expenses to combine it with the provision for loan losses
So that in itself created a little bit of uptick in the interest rate - sorry, in the expense outlook as well too
But I think if you just do reconcile that, I can certainly work with you offline to show what to start with
I don't have the exact numbers in front of me
The other thing as we're trying to get across in our prepared remarks is remember on the LIBOR-based loans there is a little bit of a lag
So if a client has a 90-day LIBOR loan and let's say, it just got repriced a day before, the rate increase comes out in June, let's hope there is one, it's going to be 90 days before that loan even reprices which means you still have 90 days after that
So you're kind of looking at in that example 180 days
So it can take almost up to 2 quarters to see a full effect on some of these LIBOR-based loans there
So again, it eventually does come
It is sensitive to that, but it's just a little bit of a lag when you're repricing these 30, 60, 90-day LIBOR loan
Absolutely, Chris
I mean, we continue to invest and spend on that
We've been doing that for a couple of years
Each year, it probably goes by a couple of million
I mean, $3 million to $5 million increases per year
I mean, last year, I think we increased it around almost $8 million
This year, we may, again, take it up a bit as well
So we continue whether it's for a CCAR, whether it's for SIFI, there's still the whole host of other areas of compliance, whether it's BSA, AML all across the board that we continue to invest
This is part of being a larger bank, but it is embedded in our expense outlook
The maturities are roughly around $800 million per quarter somewhere around there
That's been pretty consistent for the last several quarters
Yes, I mean, we're seeing very little modest increases in the interest rate increases on just a few basis points
And I think we recently updated around 5 basis points or so for some of the interesting-bearing deposit
So it's more or less coming in line as with our sensitivity tables that we've been working with, maybe a slightly little bit less than what we modeled out
But, again, no real uptick or significant pressure on that
Before we move on to Greg <UNK>, I want to actually just clarify one question from Chris <UNK> from KBW a moment ago
Chris' question was with respect to what is the basis of expenses for 2016 that we would be using when we apply our 2017 expense outlook? Because, again, just to clarify, we did make a reclassification or recasting of our numbers by moving the provision for unfunded credit commitments into the provision for credit losses
As a result, the provision for unfunded credit commitments came out in the expense line item
So long story short, the base is the way you look at as we start for 2016, you would take the number from the 2016 10-K of $871 million for expenses for the total year and then you would take out the expenses related to provision for unfunded credit commitments of $11 million which gets you to a net starting point for 2016 of $860 million approximately, of which you would apply that new outlook - expense growth outlook rate
So essentially what you're doing, yes, the expense outlook for 2017 is higher for the reasons we described, but you're also starting from a lower base in 2016. And nonetheless, I just wanted to clarify that for Chris and that was a good question
| 2017_SIVB |
2017 | SYY | SYY
#Thank you, Bill, and good morning, everyone
As Bill mentioned, our associates are executing at a high level as we continue to deliver on the key strategic levers of our three-year plan: delivering accelerated case growth through a focus on local customers, growing gross profit dollars, and managing overall expenses
This morning, I'd like to discuss our segment results with a focus on U.S
Foodservice Operations and International Foodservice Operations
I will also highlight some of the key strategic initiatives of our U.S
business that are helping us to differentiate Sysco in the marketplace
Starting with our quarterly results for U.S
Foodservice Operations, sales grew 2.2% and gross profit had growth of 4%, while adjusted operating expenses grew 2.3%, resulting in adjusted operating income growth of 7%
Overall, our U.S
Foodservice segment had a strong quarter
We experienced strong growth in our local business as we accelerated case growth to 3.5%, which was partially offset by declines in case volume for our multi-unit business, resulting in 1.8% total case growth
Importantly, as we strive to deliver disciplined, profitable growth as a part of our three-year plan, our continued focus on providing value to our local customers through innovative product offerings and value-added services, along with improved e-commerce capabilities, has enabled our growth with these customers for the 12th quarter in a row
Looking at gross profit growth for U.S
Foodservice Operations, we delivered growth of 4% and gross margin expansion of 35 basis points as we continue to manage the deflationary environment well
As you all know, the industry has been in a deflationary environment for an unprecedented six consecutive quarters, and that trend is finally beginning to shift toward inflation
Meat prices are abating, and dairy and produce prices have begun to rise
Based on those changes, we are anticipating overall modest inflation in the fourth quarter
Our strategy around accelerating growth with local customers is working
Over the last several quarters, we've improved the capabilities of our sales force through investments made in training, technology, and targeted resources
And as a result, our marketing associates are spending more time selling and focusing on delivering benefits to our customers versus spending time on non-value-added activities
In addition, our insights-based approach to understanding and meeting our customers' needs continues to guide our efforts
As an example, one of the insights we've received from customers was around providing healthier product options
In response, we created a good-to-grow promotion during the third quarter that highlighted the large variety of fresh and healthy produce options available to our customers
Furthermore, we brought innovative products to market through our Cutting Edge Solutions program
This program introduces new product ideas to customers, which can help them reduce labor costs and/or improve the quality of their menu offering
These are just a few of the programs that have translated into improving loyalty scores for Sysco this past year
We are committed to delivering value to our customers while also providing a more consistent experience of doing business with us
From a cost perspective within U.S
Foodservice Operations, our expense management was solid as we limited growth to 2.3% on an adjusted basis for the quarter
Broadline, cost per case improved by approximately $0.02 compared to the prior year
And on a fuel price-neutral basis, cost per case improved by $0.01, ahead of our three-year plan objective
In our supply chain area, we are seeing positive momentum from our productivity initiatives and ongoing process improvements which are driving efficiencies
One example is our slotting initiative that's helping our warehouses to build pallets faster and more accurately
In the area of delivery, we are seeing progress in improved routing and delivery metrics through the leverage of enhanced technology
While there's still a lot more work to be done, we are seeing improved operating expense trends, and we are focused on continuing this performance throughout the balance of the fiscal year
Additionally, we are continuing to thoughtfully manage our administrative expenses through a more consistent approach that is improving our overall efficiency while maintaining service level to our customers
Looking at the overall performance for U.S
Foodservice Operations, I'm very pleased with our level of execution, which enables us to deliver solid operating income growth and improved operating margins by 34 basis points
Moving to International Foodservice Operations, sales were up $1.3 billion and adjusted operating income increased $6.6 million, both driven largely by our recent acquisition of the Brakes Group
During the quarter, Brakes performed well amidst a challenging environment in the U.K
and is continuing to make progress in their supply chain transformational efforts
Growth in France remains steady, and Sweden continues to produce favorable results
Additionally, we continue to see opportunities for growth across our European business
Lastly, although we are in the early days of integrating our Ireland businesses, things are progressing well, and we expect to achieve modest benefits from that integration
Looking to Canada, we are pleased with our performance despite the continued softness in Alberta which has been driven primarily by the energy market decline
Our Canadian business overall is leveraging the many learnings and successes of our U.S
-focused initiatives and is now implementing many of them
For example, we've introduced the category management and revenue management processes, and we are offering multi-channel ordering via online and telephony, as we provide our customers the ability to choose how they order from Sysco
These initiatives are a few examples of how we are enhancing our customers' experience, as we support the growth of our local business
In addition, we are effectively managing costs by streamlining administrative expenses to improve productivity
As a result, we expect the Canadian business to continue to deliver improving positive performance
Turning to Latin America, we are excited about new facilities in both Costa Rica and Panama
Specifically in Costa Rica, we have opened 180,000-square foot, state-of-the-art facility with a test kitchen and training facilities
This new space will enable new products and full product lines to be available to our customers, and we're excited about the accelerated growth potential those offerings will deliver
In summary, our customer and operational strategies are firmly aligned around improving our customers' experience, engaging our associates at the highest level to improve execution, and delivering our financial objectives as a part of our three-year plan
Now, I'd like to turn the call over to <UNK> <UNK> for further details
Hey, good morning, <UNK>
Thanks for the question
So, let's start with – I think we feel really good about the work we've continued to do in this segment
And if you think about where we said we'd be on our three-year plan, we're right where we've said we would be, which is around 2.5% local case growth
So, obviously, good quarter this quarter
And what I would say is I think over the three-year time, our goal was to continue to gain share in this space, and I feel like we continue to make progress there
But I think what I'd attribute it to is continued just execution of our strategy
If you think about these customers, we've been very focused on them
I think our value proposition is resonating with them
And I think based on that, we're seeing more and more customers support Sysco and partner with us
If you think about new business growth, we're also seeing some new business growth in this space
But overall, I would say it's really just more consistent continuation of the work we've been doing, and I think we're seeing the recognition of that effort with these customers
Okay, I'll start and then I'll toss it to <UNK> for some of the further discussion around the deflation and inflation
So, I think gross margin percentage, yes, it probably slowed a little bit versus where we've been, but I think still very strong
And I think you are starting to see a little bit of impact of that starting to move from deflation to inflation that could be impacting that
But just as a reminder, the areas we continue to talk about regarding gross margin improvement are the category management effort we've had for a few years now, continued improvement in Sysco Brands
So, you saw again additional growth in Sysco Brand with our local customers
Obviously, that shift of mix to higher local case growth versus corporate multi-unit is going to impact that as well
And then, obviously, now revenue management is kind of part of the way we operate day in and day out
So, I think those are all key drivers, what continues even as we start to see a little bit of slowing of the deflationary environment start to happen
Why don't I toss it to <UNK>? He can talk a little bit about some of the categories that are starting to shift a bit
You heard me talk a little bit about it and then maybe just idea of gross margin dollars versus just gross margin percent
Good morning, <UNK>
So, I assume when you say capacity, you're just talking about overall warehouse capacity?
And so, I would say we are fine in that regard
You heard me talk kind of over the quarters about different efforts we're talking where we may have some capacity constraints to get more capacity out of our facilities and more throughput, and a lot of those initiatives in our supply chain area have been working very well
So, we're going to continue to focus on those where we have challenges
But we think we feel very comfortable at this point about our ability to not only handle our existing customers but continue to grow this business within our current footprint
Well, you heard me talk over the first couple quarters about some of the challenges we've had in the SYGMA business
And some of that had to do with some of the operational aspects of the business specific to certain customers, and also the deflationary environment we've seen
So, I think as you start to see some of that deflation slowing as we talk, there's some benefit we're seeing there
And we continue to focus on improving our operational effectiveness
I'd say that those are probably the two biggest drivers of the kind of shift in our performance, although I would say while we feel better about the quarter, we still feel like we have a lot of opportunity in the SYGMA side of the business
This is Tom
Yeah, I'd say, <UNK>, that we're – again, we're talking about mild numbers at this point, and as <UNK> said earlier, this industry historically, I think, operates pretty well at these kind of lower inflation levels
So, we're not seeing anything that would concern us right now about our ability to pass along those prices
I mean, in the category like produce, when you get some of the weather issues they had in California earlier this year, you'll get some spikes in certain areas that have to be kind of managed closely
But generally speaking, we feel fine about how it's affecting the business right now
Chris, I think the only thing I'd really add was more – and some of that caution might have also been around the corporate multi-unit because at the time, we had been slowing in that area
We obviously rely heavily on how each of those concepts themselves perform
And so, I think that's always something that we are thoughtful about as we go into any quarter
So, I don't think there's much else to add to what Bill said
I think we feel really good about where we're at, and I feel like we've got good momentum which is important going forward
Hey, <UNK>, good morning
So, look, I think – let me say a couple things
One, I'd say, we definitely feel like we are improving our level of penetration with our customers, which is selling more to our existing customers
To give you a number on what percentage, I think that's probably a bit of a stretch and
But I think we feel like we are continuing to further penetrate and gain our share of wallet with those customers
And we obviously are growing new customers and adding customers to the portfolio as well
So, I think we have a good balance of both of those working, and I think we feel really comfortable with where that's at
As far as where that's coming from, it comes from a lot of different places
It's hard to, again, peg, is it just in the specialty area? I think we continue to perform well in the specialty areas
But I also would say that the broadline business is really doing very well
And a lot of what you see is the sheer size of our broadline business especially in the U.S
That's where a lot of the growth is going to come from, is from more within our existing customers and certainly picking up some new business from other broadline competitors
Yeah, I don't think I have really that much to add
I think Bill answered that pretty well
The only thing I'd go back to, we've said earlier around the local, is we feel like we're very focused on improving our share wallet with our existing customers, and we're seeing good momentum there
And then, sure, we're always looking at new business opportunities in that space
But I would say it's not anything unique or different this quarter than what we've been doing
I think we just feel like we've got good momentum, and we're continuing to execute our plan accordingly
<UNK> J
<UNK> - Credit Suisse Securities (USA) LLC Okay
And then, just one quick follow-up
And we're kind of beating a dead horse a little bit here, but it's probably worth it
As you think about inflation and deflation and your goal to drive gross profit dollar growth, a couple hundred basis points faster than SG&A, you would rather have an inflationary backdrop than a deflationary backdrop in order to achieve that, number one
And then, number two, sounds like you'd encourage us to really think more about, as we analyze you as a company, more about how you're achieving that gap and how you're growing gross profit dollars over really what your gross margin is doing in any given quarter
I think the only thing I'd add – this is Tom – is that the minimum wage changes you might see around that Bill referenced that certainly impacted some of our customers, don't really impact us much because we're generally well above the minimum wage with all of our employees
I think the only thing I'd add is just keep in mind, I mean, we are still in a deflationary point with meat
And again, a couple of the other categories
Again, we talk about dairy, produce, some of those, to <UNK>'s point earlier, tend to be more volatile in general
So, again, I still think we're certainly in a decent place there
And again, certainly a modest inflation level is something we feel good about in this industry
Yeah, just keep in mind, I think everyone knows this because you're probably ahead of me on your modeling, but Brakes is a higher gross profit, higher expense business
So, when you get into a quarter where you have this seasonality, which is even more pronounced than our seasonality, that's going to accentuate that even more
But that's really why we break it out the way we do
We're actually quite pleased with how we manage the expenses from the core business, if you will, to Brakes to the corporate office
So, I would say right now, we're feeling good about the expenses
We need to keep growing the gross profit, keep that spread, to <UNK>'s point
But that is totally consistent with what we talk about
We talk about that and the customer mix, and we talk about profitable
In this business, what we mean with profitable is to keep that spread there
So, overall, we feel fine on the expenses
This is Tom
You might have to help a little bit with – so, you talk about gross profit per case which we don't really talk about
Are you talking about gross margin and the slowing of the gross margin percent improvement?
I don't really see anything unique or different from what we've been talking about
I think it's obviously the mix of our business continues to drive some of the change
That's certainly, as we talked about, on the gross margin percentage also lapping
We're year-over-year now lapping growth rate upon growth rate from a gross margin percentage perspective
But I guess the last thing I'd say is we feel very good about our 4% gross profit growth in the U.S
, and I think relative to the overall case growth that we're seeing, which was slightly below 2% for that same gross profit growth
So, I think we feel very good about where we're at
<UNK>, if you have anything to add (01:02:13)
So, I'd say, just back on the market share
So, we obviously are very focused on continuing to grow our share across the business
I think, as you know, there are lots of competitors out there
So, to isolate in one area or another is really hard to do, given we compete with so many different types of folks, literally market by market
So, I would just say that we continue to be focused on delivering the right value proposition for those customers, which includes all the things that I've been talking about
So, I won't reiterate all of those
One, in particular, that you did ask about was where we're at on the technology rollout, and we continue to feel really positive about that
We're now seeing across our local customers around 25% of those customers ordering via our online applications
So, we feel really good about the progress we're making, and we continue to feel like that's going to be an area that we'll continue to see growth
But we also – I want to remind everyone that our approach and our strategy around this is to do this in a way that supports whatever our customers are looking for, meaning giving them choice
Whether that's through online or that's through the marketing associate or through some other way of ordering with us
But we feel great about the progress we continue to make and think it's a combination of all those things that are helping us continue to gain momentum
I guess, let me start with – we don't communicate the actual numbers on our corporately managed growth
But you know roughly from our prior conversations, we're around 50/50 on our local versus CMU business
And so, we talked about our local and U.S
Broadline being up 3.5%, and our total of 1.8%
So, you can surmise from there
I missed kind of the second part of that, I think it had to do with the inflation-deflation
So, I don't think – I mean, we've talked about, it remains highly competitive out there
I don't think that the inflation or deflationary environment necessarily affects or changes that competitive nature and who we're competing with
We all deal with some of those impacts as an industry
And obviously, all of us have our way of dealing with those
| 2017_SYY |
2016 | EBAY | EBAY
#On the first half of the question, international was really just rounding up a point.
I wouldn't characterize it to be any different than the prior quarter.
So to answer your question, no, I wouldn't flag anything.
<UNK>, on the markets.
Yes, <UNK>.
Vis-a-vis marketing, we are a very measurement-oriented company, as you know.
And the reason that historically we've been somewhat averse to moving our marketing up the funnel is because it gets harder to measure value.
It's easy to measure value when you are marketing down the funnel and it gets harder as you move up.
But that doesn't mean there is no value.
So we have a way ---+ we are going to do ---+ as we increase the amount of up-the-funnel brand marketing, we are going to do our best at measuring value.
It certainly needs a longer time frame.
I think it is at least a year in which it needs to be in the market to really resonate and start to shift the perception and consideration of the eBay brand.
And we're going to watch it.
That's not the kind of thing you watch every day like you do down-the-funnel marketing, but we are certainly going to watch it carefully.
We've got a measurement framework for it.
We'll hold it ultimately to the same standard that we hold any investment we make.
But it is a little bit longer cycle than what we are used to.
And it will take ---+ we will need to leave it on and have the discipline to leave it on over a longer time frame to know if it works.
Look, I mean, obviously, we believe that the sum of the activity that we are doing can drive higher revenue ---+ GMV growth.
We do believe that.
The time frame will be what it is in some respect and we'll be as aggressive as we can.
And it will be a kind of slower burn in the sense that it isn't a one-quarter wire on.
It will roll in as we roll these experiences in, which will be a build over quarters.
But I don't ---+ we have certainly not changed our original philosophy that we believe that there can be higher growth in this business, given what we're doing.
Yes, <UNK>, we are not changing our capital allocation strategy based on the sale of the MELI asset.
The reality is we have a pretty well clearly defined 2016 buyback that we'll continue to execute.
And then I would expect to some level that will continue in the future.
But it's not going to ---+ it's not changing how we are thinking about capital allocation and our strategy around that.
Thanks for the question.
On Corrigon, we have been working with Corrigon previously.
And the answer is it's already wired on.
If you look at Collective experience that we launched this week, it's actually using Corrigon to do background image improvement.
It's a great experience.
If you haven't seen it, please go look at it.
Just type Collective into eBay Search and go take a look at that vertical experience.
That is using the Corrigon technology to in essence take seller images and improve them and remove the backgrounds and make them look just about museum quality.
So the answer is we're already using it and will expand the use of that over time.
Vis-a-vis the other acquisitions like SalesPredict and Expertmaker, we are already starting to use that in the more backend part of the structured data initiative to create catalogs and taxonomies, which is happening with pace.
So all of these things ---+ almost all ---+ I believe all three of them we had been working with prior to buying them.
And they are wired on now and they are ---+ they will come online with even more spectrum over time.
Vis-a-vis the VR rollout of StubHub, I think I had said that it's now 55 venues, which ---+ and we'll just keep marching down that path because customers are actually using it.
I think we've got one of the best use cases for VR actually driving commerce.
And it makes sense.
It's an immersive experience.
It's a high ASP sale.
And we're learning from that about how we might bring VR into more core eBay activities where immersion matters, where high ASP drives careful consideration of the visual image before purchase.
So we like VR and augmented reality.
And we think they're going to be meaningful in commerce and we want to be a leader there.
| 2016_EBAY |
2016 | RGEN | RGEN
#Yes, great question, <UNK>.
If you look at quarter two and you compare it with last year, the split of OPUS column revenue to resin revenue was about the same, so there was really no change.
But what I think we are going to see as we get into the second half of the year and as we move into 2017, as the volume of 45s and 60s increase, I fully expect that we're going to see more drop shipment of resin to Repligen and that's just the trend that I think will happen as we hit the second half of this year and go into 2017.
I think the reason for that is, when you do one column, it's easy for Repligen to go ahead and procure that resin.
When someone orders 5 or 10 columns, then I think the pricing that they would get versus what we would get at Repligen would be different, so we'd expect to see more of a shift towards drop-shipping.
Sure.
So the majority of the capacity expansion plans, <UNK>, are really related to OPUS.
There are some things we are doing around ATF, but most of the capacity expansion around ATF was done last year.
And the single-use products for ATF are really just getting going now, so I think we are in good shape there.
There will be some capacity, but it's more people that we look at around our ligands business and that's something that we've been adding as we've gone through this year, and we will assess it when we are in Q3, Q4 and see what we need to add for next year as we begin to see some of the forecasts from our partners.
In terms of capacity utilization, we continue to ---+ when I look at obviously OPUS and ATF, we are in good shape on capacity.
Our increasing capacity of OPUS is really related to driving down leadtimes and we think that's something that we are going to continue to focus on here in the second half of the year and into 2017.
But overall I think capacity utilization is very similar to where we were last year where we've got still plenty of capacity on our ligands, and anything we do there will be related to manpower.
Yes, sure.
There are more large pharma that have come in in Q2 that are committing.
Some of the other players that we've always wanted to get into have started to evaluate some of the larger columns that we make, but not to a point where they've said they've fully committed to moving ---+ to replacing say glass columns with prepacked columns, but we've made a lot of progress there.
There's also some of the CMOs, <UNK>, that, again, we are not in every CMO, or we weren't in every CMO at the beginning of the year, but some of the big CMOs that we've wanted to get into globally, we've been able to make some progress there as well.
So it's really across the board.
The CMO traction is very strong.
We are seeing the increase in the number of pharma customers that are migrating to prepacked columns from glass columns, so it's just a very positive trend for us.
Yes.
I would say that we are fully booked through Q3 on OPUS.
We've really done a very nice job with our customer base in terms of teeing people up in terms of when they need columns and making sure they get it on time, so we've really pretty much fully booked through Q3.
Obviously, with two more production suites coming online really at the beginning of September, we would expect that we will be able to drive down leadtimes as we enter Q4.
So you are spot on in your analysis there.
Sure.
So on the growth factor side, the majority of the volume does come from commercial drugs that we've been in that we've been in for a number of years.
We've known really for the last year or so that a number of those companies are making second-gen, next-gen molecules, transferring production to new facilities.
So with that comes some increased volume.
So that's really the major driver.
Obviously, we continue to focus on building out the pipeline, but it's a long and fairly slow process, but overall I think our growth factor business is really driven by the commercial drugs and those that are in late stage.
On your question on platforming, clearly the strategy that we've put in place over the last couple of years, which is to really drive the direct portfolio of products that we have here at Repligen into the marketplace and really leverage the commercial organization that we've also put in place over the last 2.5 years, that's having an impact.
And when you look at the success of ATF and you look at the success of our prepacked column line, we see it this year in the revenue growth that we are achieving and I think what's important is that technologies like ATF are becoming platforms so they are being used in multiple processes, whether it's Phase 1, Phase 2 or commercial processes at key accounts.
So we have a really strong portfolio of ---+ a strong list of accounts and blue-chip pharma accounts that have really adopted ATF over the last few years.
And so we are in a combination of commercial processes and late-stage processes.
What's also encouraging is, as we've looked to China and looked to Asia in general, it's been a real strong area for us and when you see companies purchasing 19 smaller ATF systems, that's a strong leading indicator that they are going to start scaling over the next few years.
So platforming for me is being entrenched at accounts and also having the smaller systems, whether it's smaller columns in OPUS or smaller systems on ATF being used in the process development labs and early clinical, which should become opportunities for us over the next few years as those customers scale.
Sure, sure.
So looking at the second-quarter gross margins, a good estimate is about 50% of the year-over-year reduction from say 60% down to ---+ and the 56% is related to our capacity expansion initiatives and about 50% is also associated with the mix, predominantly the much higher volume of OPUS that we are seeing.
As you look forward into Q3 and Q4 in terms of staging, and I assume you are continuing with the question on gross margin, we expect to see similar type mix, and if you look at our year-end overall full-year guidance of 56% to 57%, you can see that year-to-date we are right in that range and we expect to continue with that range as we go forward.
And then in terms of foreign exchange, a relatively small effect for the year, 1% to 2% on the top line and not a huge effect on the gross margins at this point.
Sure.
So I will start with the Atoll situation.
In the last quarter, we guided $3 million to $3.5 million for Atoll and we are still ---+ the business has taken off well since we purchased it and we are still guiding in that $3 million to $3.5 million range and there are no surprises whatsoever in the second quarter, so business according to plan.
In terms of EPS guidance, the $0.03 versus $0.06, good question; $0.02 related to foreign exchange was already included in last quarter's guidance, <UNK>, so the spread is a little bit lighter.
We've made up a little bit on the volume side, volume gross margin side has made up a little bit of the $0.04 for the cash interest.
Yes, so on the M&A front, <UNK>, obviously, we got the Atoll business back at the beginning of quarter two and, as I said, we are active out there, but I think anyone who knows the bioprocessing business arena knows that it's fairly competitive and we are going to continue to pursue assets that we think are strategic to Repligen and obviously we will give an update on that if we get closer on something.
But for now, I think we are in a good position in terms of our cash to be able to go out and execute on deals as they come up.
That's it.
Thank everybody for joining us this morning.
| 2016_RGEN |
2016 | VFC | VFC
#Sure, I can comment.
I think you're seeing one of the strategic reasons we have a direct-to-consumer channel, which is we're able to adjust our inventories within our stores very, very quickly.
Because it's all our inventory.
I think that's one of the reasons that our DTC business was up 8% in the first quarter versus our wholesale business, which was up low single-digits.
We are able to react for our wholesale partners, at the same speed.
But we can't comment about all the inventory they have in their stores.
They buy based on what they see consumers wanting, with the reality of what their current inventory situation is.
Not just in our brands but across the total operation.
So they have an ---+ we have an advantage quite frankly in that, because all the inventory in The North Face Company is North Face inventory.
So we can move it back and forth and in and out of our stores.
It just makes us a little bit more nimble.
I think that's one reason we are seeing growth.
It's just a different business model.
I forgot the second half of your questions, was it on wholesale inventory.
Yes, it's a different model because they come and place orders with us to buy for fall or for holiday well in advance.
We flow that into them when they need it.
There is not a wholesale inventory model.
Every wholesale partner we have has their own way of doing business.
So it's really impossible for me to answer that more specifically because we deal with very different models with very different retailers.
Yes, <UNK> <UNK> here.
As I mentioned in the script, we believe we have strong elements to believe this is not a brand issue, but it is a category issue.
We mentioned DTC was up.
DTC gives us the possibility to merchandise in very short times, the product offering.
What I did not mention in the script but is very relevant, our reorders were up close to 10% in Q1, which really shows that we don't have a brand issue but we have a product issue.
Now, the good news is the product issue is related to a few styles, which are relevant in the collection, that's why need a little bit more time.
But we actually expect the situation to improve in the second half in a significant way.
No.
No, no, no, we have many elements of other products we see on the brand which are really doing well.
Many categories in many styles.
It is related to a few specific styles which especially in a few areas which are a bit larger markets, UK is a good example, are under pressure in terms of sell-through.
But even in our own stores in the UK, where we have a better and a faster possibility to merchandise, we see very good results.
A lot of it.
<UNK>, we have learned ---+ if I go back 12 years, we didn't have any full-price retail stores.
A lot that we learned from having our own retail stores which is a $3.3 billion business for us now, we've learned how to read daily sales and get stuff into the stores.
Our stores are other people stores.
The top of that, we run the Company with around 100 days worth of inventory.
That's a forward-looking assessment of inventory.
So any day during the year, we've got kind of the next 100 days worth of inventory sitting on the shelves in some capacity in our warehouses.
So we have the inventory.
The question is, how do we read it and get it out.
This hasn't been a change that happened like a light switch change, it is evolving slowly every year with retailers wanted to manage their stores more efficiently.
That means with less inventory.
Rather than placing all their orders well in advance of the season, they are placing some of their orders in advance of the season and asking us to be able to respond.
We are able to do that.
<UNK>, do you want to add anything to that.
Yes, <UNK>, I would add to <UNK>'s comment.
I think the consumer in this ---+ we can call it buy now wear now, or consumers just being very thoughtful and very prescriptive of what they want when.
It's in our responsibility to really think about the frequency of flow of new products.
Historically, you know our businesses well or these industries well, it's a two to four season model.
I think to really win with the consumer, who I believe, call me the eternal optimist, is very incented to purchase.
But you have to put very interesting offers in front of them, new products with very compelling stories.
If we do that on a more frequent basis, like a real retailer would, thinking through a monthly flow lens, our brands with the strength of their connection with that consumer and our ability to drive these new innovative products, especially going forward with our innovation centers.
I think we're particularly well positioned and situated here to grow in this changing dynamic that all of us have to contend with.
You may remember, <UNK>, our fourth quarter, we took pretty aggressive actions to get a lot of that behind us.
I won't say there was no action in the first quarter, but it was not significant from our margin standpoint.
I'll take the e-commerce question and then I will pass the tax happily to <UNK>.
(laughter) On e-commerce, you have heard us talk the last few calls about our investments around our one commerce platform specifically in our digital capability common platform with a very specific set of capabilities that we were able to utilize and leverage across our brand platform.
We will continue to invest behind this important area.
It's a powerful tool to deliver content, that experiential expect of our connected to our consumer, and I think we've been able to marry nicely the commerce component and make that a real seamless interaction for our consumers as they interact with us on our website.
So see that as a very important growth opportunity in the future.
We've got some very exciting innovation projects that you will see come live into the second half of the year tied to our digital platform with a few of our brands.
As this is a really important exciting area of growth.
As it relates to the tax issue, we said in the comments and I think I said earlier, it's $0.03 in the quarter.
We expect that to be the majority of the benefit, although there will be some for the balance of the year.
The reason it's first quarter focused is because in our equity comp cycle that's when our grants mature.
That's where the majority of the activity is historically.
That's what we based it on.
I would also ask you to just remember the other comment I made, and that is that while, yes, we did have a benefit from this tax in the first quarter and that would benefit the full year, on the other hand, we've absorbed the impact of bankruptcies in the first quarter and through the balance of the year.
We talked about our sportswear CBC business being a little bit weaker through the first quarter.
When you add all that up, given the fact that we are one quarter into the year with about 80% of our revenue and profit to go, none of these items are individually significant to VF.
In total, it's really not material to our outlook.
So that's why the way we're looking at it, our outlook is unchanged.
We reiterated what we said 60 days ago.
Sure, thank you all for your time and attention this morning.
As we've said, here during this call, the first quarter came in pretty much exactly as we planned, which changed since February as we've got better visibility into the back half of the year because borrows have begun to shore up and that's coming in, do exactly as we thought it was and our outlook for the year is unchanged.
So we'll continue to execute as well as we do around here and talk to you in July.
Thanks so much.
Bye-bye.
| 2016_VFC |
2016 | UDR | UDR
#<UNK>, this is <UNK> <UNK>.
First, three of the assets are in lease up and they have all leased up very well.
The first asset in Seattle was stabilized.
The next two in Anaheim and second Seattle asset again leased up very well.
Rates that are at or above our original expectation I think when we talked about this, we thought that the all in sort of return on costs in these assets would be somewhere in the neighborhood of 5%.
We don't have anything that changes our view on that and again as we look at the option windows that began opening up next year.
We'll make the determination as to which assets we want to buy and which assets we want to sell.
But again the first one would be the two Seattle assets and the Anaheim asset.
First half of the year will make that determination.
The month October new is at 1.1%, and renewals so far in October at 5.3%.
Alex, this is <UNK>.
With respect to MET, and you've seen it every year, that we've been in this relationship, for the last six.
We've always had some degree of some trade going on throughout the life of this joint venture and I would probably see us continuing that same pattern in the future.
We see no impact from what's going on at Met at Corporate to the real estate appetite, views of the world or their capital availability or deployment of capital.
So, I think we'll discontinued to have these dialogue that we do with a great partner at future opportunities that help us advance UDR and help them advance their capital deployment.
So, I don't see any change to that.
I think it was just one of those years where we decided to sell an asset, buy two shrink land inventory and I like the side of the trade that we ended up on.
Yes
Okay, basically down to land inventory with them is through the end.
Well, it's a long history, <UNK>, and timeless this question.
For the last three years make it four.
We had three years at 10%, we had this year looks like an 8% and as we're looking now towards the future.
I think in a stable supply demand demographic that we're in a phase, its probably in the 6% to 8% kind of range, lot of it would take to get below that fix, I think is a recession and the depth and in the nature of that.
I'm not calling for one, but I think that has been the my historical pattern is when the country goes into recession, its where is our exposure to it, how deepened of our portfolio do we have in those particular areas or industry exposure.
Hard to forecast that element of it, but what we've trying to do is build the company that can stay in that 6% to 10% through most cycles and I think we've done that.
And I think we're going to continue to in the future and when you look at the next strategic plan, you're going to see a lot of the same strategies that we've been executing on in last four years.
Very focused on capital deployment, operations and continued balance sheet improvement.
<UNK>, this is <UNK>.
I think the short answer is no.
What I can tell you is that there are continues to be plenty of liquidity in the market that there is still key debt available, there's plenty of buyers, although buyer pools are somewhat shallower.
What you could see is that buyers continue to underwrite lower growth rates that cap rates could increase a bit.
Remember you still have solid fundamentals in most of the markets, so that even if cap rates increase a little bit and NOI should continue to increase.
So there's no obvious impact to absolute value.
But, there's the big point is that there is avery liquid market, if you look at 2016, transaction volume, it's still going to be very robust, it'll be slightly lower than 2015 kind of record levels.
But should be similar to 2013 and 2014 and there's no evidence that, that's going to abate anytime soon.
No.
I don't think there has been a difference.
I don't think there is a difference today.
But again I think what I just described is sort of how that will manifest itself with any of this legislation is passed.
Sure, <UNK>.
We'll probably have this wrapped up and be able to make an announcement around [NAREIT].
So <UNK>, this is <UNK>.
As we talked about before we've really developed in seven or eight different markets.
So Southern California, Northern California, Seattle and the in the major East Coast markets plus Dallas and potentially Denver as we did in the Steele Creek.
So those - we're going to continue to focus our development activity in those markets, if you can imagine some of that question is really opportunity base that we're going to look at the opportunities in those markets it has the best location.
And using the sort of revenue growth that one would expect in those markets we will underwrite that type of growth and where we find opportunities that that sort of meet our return thresholds those, those are locate, those are projects that that we'll actually move forward and deliver.
We're going to continue to maintain at least that our business plan is to maintain our $900 million to $1.4 billion type development pipeline.
So you won't see it increase above that level.
And again, we'll continue to use a disciplined underwriting approach.
I think certain markets, at certain times we are going to have less opportunity and I think you could use San Francisco is an example that anywhere, where you do have some pressure on the rental rate growth, you still have land prices that are very high.
And so you probably have a kind of a set of circumstances in the City of San Francisco where it's probably hard, but in near-term for any projects to make sense, but again, these markets change over time and the fundamentals of those markets will change and we will continue to underwrite those opportunities accordingly.
<UNK>, we're looking at 5 and it's an operating margin page.
Well, thank you, sir.
Anybody got an idea on the question.
Looks pretty constant.
<UNK>, we're all scratching our head and trying to figure out where you're going with the question.
The new capital put in, it will be probably just operations in new capital.
Shareholder value $400 million, $500 million.
Well, just to be clear it's still <UNK> <UNK>, I'm still President and CEO.
Let me just close with thank you for your time today, and second we're very focused on finishing up the strong year and certainly look forward to 2017 and 2018 and rolling out that strategic plan again in February of next year as we wrap it up.
And we will see many of you at NAREIT, and we look forward to that exchange and time together in a couple week.
So, with that take care and have a good day.
| 2016_UDR |
2015 | CNK | CNK
#Thank you, <UNK>.
I think you had three questions there.
I'll see if I can get to each one of them.
Relative to seating capacity, we are not concerned about a lack of seating capacity, because we're very careful before we re-seat to make sure that the market ---+ that we'll be able to meet demand.
I don't think that's going to be an issue because of the analysis that goes into it ahead of time.
Relative to concessions, the answer to that is, yes.
We are seeing an increase in concessions with re-seating.
And so that's another positive element relative to doing that.
And your third question was ---+ oh, virtual reality.
Yes, absolutely, we're looking at that.
Do I see it as a big strategic initiative for us in the near future.
No, I don't.
Are we looking at the technology.
Absolutely, yes.
That technology will certainly find its first growth engine in the gaming world.
And we're staying on top of it, and we will start to experiment where we see it having potential.
Well, obviously they are.
I've not run the numbers on a projected basis for the entire industry, but I don't think they're coming down to a point at which it is going to be detrimental in any way.
And in fact, just from a movie-going experience, I think the consumer actually has a better experience when a particular theater or screen is more highly utilized than underutilized.
I mean, just think about seeing a comedy or an action adventure or a horror movie: you want that theater to be more full.
So, I think it actually improves the experience for the patron.
And just to expand on that, while, yes, some of the seat count comes down, the utilization goes way up.
So if you're in an underserved market, these tend to behave like putting a brand new theater in the marketplace.
So if you've got lower-quality assets in a market and you do one of these initiatives, you can actually bring new patronage back out again.
And we have seen that in quite a few of our new-builds.
North Hollywood is a great example of that.
That was a theater that needed to be fully repositioned.
And we didn't just go in and put seats, but we actually went in and re-did the theater from top to bottom.
And it absolutely revitalized that theater, and almost created a new film zone right there in the center of North Hollywood.
No, I'm not.
And the reason I'm not is I know what we're doing, and I know how disciplined we are.
And we simply are not going to do that as a Company.
We are extremely disciplined in looking at the new CapEx expenses for repositioning and re-seating theaters.
And I think also, it's likely that our competitors will do the same thing.
I mean, I can't speak for them, but I can only speak for ourselves.
And really there has been no change in our strategy here, and that is to look very carefully.
The results that we've had to date on any repositioning have either met or exceeded our going-in pro forma, and we'll continue to be that diligent.
Well, obviously we've got to be really careful in how we talk to our competitors, and so we don't share ---+
Yes, we don't share competitive information with what we're doing.
So all we can do is look at their actions and look at their publicly announced intentions.
And what I'm hearing, and also what we're just hearing at our trade organization, is that all of the companies are being careful here.
You know, they got burned before, and nobody anticipates or wants to see that happen again.
And I would just add to that point, to what <UNK> just said, I think the industry learned some invaluable lessons during the stadium seating conversions years ago.
So everybody is very cautious with this.
Even when you look at some of the most aggressive announcements of conversions, you're talking in the 30%-ish range.
So, the vast majority of all of our circuits will remain the core theaters.
And I would just say, we look at this as just one of the types of platforms within our option as we contemplate what's best for our market; this versus VIP, versus reserves, versus bistros.
There's a lot of different tactics we can employ to best serve a market.
It's just one of the strategies we have within our selection.
You know, I've been looking at local content for many years from a distribution standpoint, because we have distribution companies all over the world.
And local content has always been ---+ this is not anything new ---+ has always been important.
And it goes in cycles in local countries, just like it goes in cycles here.
So I would anticipate in the coming year and the year after that, that the same is going to take place, because it has been.
And Brazil is a country that is committed to local content, as is Argentina.
And we expect that we'll see similar results in 2016 and 2017.
I really appreciate that question, because it allows us to give a clarification.
We anticipate 2016 of being in the 100-screen growth aspect again for Latin America, so not half.
So if that wasn't clear, I'm glad to clarify that.
Yes, our assigned and committed theaters right now, that was just typically the way ---+ it doesn't mean that we don't have a larger pipeline of projects we're working.
It's just the current status of what's signed and committed.
We're still going to target around 100 screens of growth next year, similar to this year.
Thank you.
Well, there could be a lot that goes into that.
You know, some of that could just be the mix of where they're being developed.
Some of that is going to be ---+ we do see inflation again in these markets.
So some of this is going to be a contrast of that.
It's hard to say specifically.
It's going to fluctuate a little bit up and down, just based on the mix of where those screens are being built, as well as just ---+ country by country ---+ as well as just some of the local dynamics of construction costs.
Let me think about that.
No, I wouldn't say that.
I wouldn't look at it that way.
I think I would just come back to, it's going to be more based on the particular project that we're working on, the type of mall that it's going into, and some of the local currency construction costs that we're dealing with.
It's going to vary in the US, too.
Thanks.
I'll take the second half of that question, and I'll let <UNK> talk to the first.
Relative to pricing, typically, what our plan is, is to not change pricing right after the theater has been re-seated.
And we like to do that because it encourages sampling.
And what we have found is that once we get patrons to sample the new seats, they are absolutely willing to pay a premium.
So yes, we will increase pricing after the theater has been re-established and doing well, but it will not be in a significant way.
You know, it may go up $0.50, it may go up $1.
But typically, we go in with the same price to encourage sampling.
And I apologize, <UNK>.
Could you repeat your first question.
I see.
You know, that performance is going to range market by market.
I think some of the commentary you've probably heard in the marketplace regarding the types of performance and uplifts you see in those theaters, I would say on the whole, we're experiencing those same types of results.
But it really will depend market by market in the dynamics.
Okay.
Seeing no additional questions, we want to thank you very much for joining us this morning.
We look forward to speaking with you again following the fourth quarter.
Thanks again.
| 2015_CNK |
2017 | LDOS | LDOS
#I think that what we are seeing right now is that it will reach a positive growth rate during the year.
It is possible that it will ---+ one scenario that we have got is that it will be up on a full-year basis.
But right now it is kind of ---+ it is part of the range of scenarios, <UNK>.
We are liking what we see.
The one thing that I probably should note that I meant to mention during my response to <UNK>'s question is that the more and more we see the benefits of the integration of these businesses, we have them operationally together today, it is going to be a little more difficult for us to calculate growth rate on the legacy IS&GS business.
Because we are making choices on where to bid new work between legacy Leidos and legacy IS&GS based on capabilities, cost structure, competitive rate structure, etc.
And so, we can give you some flavor on that in the short run, but it is going to be a little bit cloudier later in the year and certainly into next year.
And as a reminder, we are going to come up with a new segmentation in our Q1 call that we'll be describing during that call and that will actually be a segment structure that is based on how we are running the business starting this year.
I think that on the domestic side, <UNK>, we don't view it as being a situation where it is turning around.
And in fact we are seeing consistent strength in the bid pipeline, the win rate that is consistent with kind of how the budget and outlays are looking out of our customer set.
So we are viewing that as being a business that will grow at or hopefully with a more competitive cost structure going beyond 2017 better than the budget growth rate.
Once again, we are kind of waiting and seeing.
We are thrilled that Shulkin was unanimously approved as the VA administrator, which ---+ and I didn't check any records, but it may be unprecedented that someone has been unanimously approved.
And we obviously knew him from before all the way back to DHA.
And he walks into the VA with clearly some mandates and some things he has to get done.
How VA provides healthcare is ---+ by the way, they provide some of the best healthcare in the world.
And they work on an old EHR EMR system called AHLTA VistA which runs on an old database system called MUMPS.
And I think the issues at VA are not uniquely around the EMR EHR but really have to do with their IT backbone writ large, which includes scheduling and it includes a sort of an ERP view, electronic health records is part of that.
And Shulkin did mention ---+ we have a program that came over as part as IS&GS which has to do with scheduling in the VA and Shulkin did address that in his confirmation hearing, that he was going to put some energy behind that program.
And we have seen a small task order get funded really just since the beginning of the year.
But it is small numbers.
Let me speak in a bigger generality.
I think that we will see emphasis in VA, that the government will spend more money to take care of our veterans, as I think we all believe they should.
I think Shulkin will try to drive efficiencies into the VA system and that probably is good for us and good for other contractors like us that have a strong services support position to the agency.
Well, let's see, depreciation for the full year I believe is going to be about [$45 million].
And then the amortization relative to the deal for the full year about $272 million.
About 20%.
That is about a normal number.
And it makes sense when you think about our average contract length being roughly five years.
We are looking at something close to 3 ---+ about 3.0.
And as we said before, we are really pleased with the velocity that we are delevering.
We weren't planning on making the level of debt pay down in the back end of 2016 that we did.
And that is partly because we are able to squeeze some more cash out of the balance sheet, but also because the business is performing really well.
And with the restructuring of the debt, as I mentioned earlier, it gives us an opportunity to reevaluate ways to reduce our cost of capital.
We don't talk in detail about win rates because they ---+ it is really hard for you to glean anything meaningful out of them as a single data point.
What I will tell you though is that just in the back end of the year we have seen some very positive signs in win rates for new work, which has historically been some of the toughest places to have win rates that are up in the 30% to 40% range.
The other thing is takeaways.
One of the things that we are looking at increasingly are opportunities to take work away from our competitors that wouldn't be possible without the improvement that we have got to our cost structure and our bid structure.
So, the improvement that we have seen just in 2016, the backend of 2016 on the win rate on takeaways has been very encouraging.
And so, as we start to see those through the $28 billion that we have got in evaluation today, as well as the things that we are going to be submitting, we are feeling pretty good about it.
Well, I think that in the past we have talked about them as though there is an order and that was very deliberate.
I think that now that we have got our debt down to a blended rate of about 4% and we are making very strong progress toward getting down to 3.0%, there is certainly some opportunity for us to set our sights on any other accretive transactions that would be either M&A or stock buyback at the right time.
And so, we are already starting to map out a strategy that could involve any of those.
And for the right thing we would not be completely closed to doing something material before we are down at a 3.0% level.
It just depends on what it is and where that opportunity is on the accretion horizon.
No, just to be clear, those are flattening out.
Those had been a big ---+ they had been great growth drivers.
We are looking for those to flatten, as I said, and then for the growth to be coming from the existing ---+ or the pipeline of opportunities that I just spoke about.
Yes, I think the point there was a year ago we ---+ on a quarter-to-quarter basis, now we are looking a year back where we had a full quarter of those programs.
And so year-over-year we are not seeing the growth that we would have seen a year ago under those two programs, but they are both still very strong programs and doing quite well.
And don't forget that ---+ remember we do have the heavy construction business that we divested in 2016 that contributed roughly $100 million worth of revenue.
Which will be out of 2017.
Thanks, Rob, and thank you all for joining us on the call this morning.
We look forward to sharing more updates with you on our Q1 call.
Thanks.
| 2017_LDOS |
2016 | AMWD | AMWD
#That's the multi-billion dollar question because the analysis coming out of this recession they are so far removed from any recovery we've ever had in the past.
And the variables even the builders are facing today on labor shortages and land costing versus kind of our GDP numbers, inflation numbers and so forth, the things are almost out of balance from where you traditionally like to look at the macroeconomics of our industry.
Typically, the things we look at, I mean housing is, if you can go back to the pre-recessionary numbers that we follow pretty closely and our analysts would typically follow this, is housing is a very significant impact on the economy as a whole and obviously we're linked directly to that, tied very closely to it real-time, so we watch that.
I think it's something on a market-by-market basis that is a leading indicator from a consumer confidence perspective and their willingness to go out and make that purchase and that investment whether it be at a first-time homebuyer or a buy-up consumer, or somebody out just upgrading.
Today it's continuing to grow.
If you take out the dynamics of the labor shortages and so forth, the industry actually is very strong.
Good or bad even with those barriers they are doing some throttling in the markets such as the labor shortages that's really only throttling the market down to the low-single or low-double digit level which by any standards is still considered healthy growth.
We're watching the factors out there.
I mean, the impact of the global economy or the China economy, obviously you get down in areas like Houston with the impact of fuel.
Fuel has a positive and a negative.
Industries as a whole, that's got some challenges and particularly in a regionality perspective as a whole you expect some of that discretionary income to get back in the hands of consumers and they start to make choices to go out and upgrade kitchens and so forth.
We have not yet seen that.
I do believe there is still a hesitation in a lot of consumers' minds to go out and spend kind of that mega discretionary income.
You're seeing it in appliances, you're seeing it even in automobiles, but those are all things that at some point they break down, they have to replace.
You can always put a couple of additional screws into your cabinet door and make it hang on for a few more years.
Overall though, I mean, if you look at the housing starts and where we're sitting today versus getting back up to that 1.1 million, 1.2 million on the single family starts, you have to believe.
Our confidence in the industry is very, very strong.
There could be some points of time over the next three years where we level out and potentially look at a recession, but on my personal opinion to be small, there's a lot of pent-up demand out there and yes some of that's been filled by multi-family and rentals and so forth, but we've got to get back up to that 1.1 million to 1.2 million single family start just to sustain the population growth in America.
So, it will come.
I think there is going to be a lot of bumps in the road, but I think we have to hang on, we have to be flexible and I think the growth is going to be here to stay for a while.
Yes, this is <UNK>.
We got more vocal on Waypoint as you mentioned roughly three quarters ago just due to its scope now and its size within our business, it's approaching 10% of our total revenue.
As far as the outlook, I mean, as I mentioned we do expect it to continue to be a growth engine.
<UNK> mentioned we are going through our budget process now and part of that budgets, we're actually looking even longer term strategically and where we truly feel Waypoint can go.
We are very optimistic with regards to the growth of Waypoint giving you specific analogies.
We're in the earlier layer, mid innings of a game.
It's hard to say.
I will definitely say we feel it's a strong growth opportunity for us.
I mean when you look at the reality, we just started the business really five years ago.
It took us, I'll say, three years to get up and running but within the past couple of years, really grown this to almost 10% of the business and in our opinion has been pretty amazing, just reflective of our platform and the incredible group of sales folks we have out there that believe in the product and the service.
So at this point, we kind of openly communicated in the past we are where we are with regards to the number of dealers.
I think we don't have a big plan to go out and aggressively grow the number of dealers, but we do feel there's opportunity to continue to penetrate within the dealer base we have and that is the greatest opportunity we have.
So there is going to continue to be growth there.
Comps will get tougher.
Obviously you can't go out and continue to grow market share the way we've grown it.
So comps are going to get tougher, but we continue to have a lot of confidence in it.
This is <UNK> again.
Demand is always volatile and you have to remember with us we are working on offers, as <UNK> mentioned early on, from the time that we actually get the feel like the new construction market there is a lag from when they actually get it from that and we start seeing the impact on our demand, even when the home center or the dealer business when we actually get the incoming order to we when produce and ship it, there is a lag of roughly 30 to 45 days.
So that one in itself drives volatility.
So we love to load our production system any time you get into the holiday season, obviously the last couple of weeks of December, volumes particularly fall off tremendously even in new construction.
So if you look at the quarter as a whole, it's really hard to give you any dynamics or trends that occurred.
There were some ups and downs.
I think home center definitely saw a stronger January than what they probably would have anticipated that offset maybe a little bit lower.
You saw a couple of them talk about pullback or pull-forwards in October that impacted November.
We see some of that that's really driven by the promotional calendars that they run.
So if they run a promotion our incoming will go up quite a bit and then for the weeks following the promotion, they will fall back off.
But no really specific trends I would really say other than what you mentioned on weather.
I won't really say it was a favorability other than that it's favorable with regards to if you look at the comps of prior years I can't comment ---+ I don't know exact whether a year ago, but we have been pretty fortunate this year with regards to weather.
I think the advantage of the weather is that particularly on the builder side, and even on the consumer side, that it gets folks out and allows them to keep that buying process going.
So we don't actually ---+ when we put our budgets together, we don't budget an impact of weather.
So I think it's just the risk that we assume and I'd probably say the same for builders and so forth is that nobody really goes out and creates a plan for weather.
So I think it has ---+ to me this has not had a negative impact, it basically is where we'd like it to be relative to our plan.
Thanks.
You mean with regards to promotion.
(inaudible)We sometimes try to figure out the psychology of competitors, but I really don't know.
I mean I can make assumptions.
I have no idea what their overhead leverage looks like.
I have no idea out there what their trade-off margin versus going on and get incremental revenue coverage on overhead and so forth.
So, where we are and our position right now, I don't feel it's ---+ strategically we don't feel it's the right time to go out and do heavy promotions.
I think the promotions have shown that we're not getting any additional consumers in the door.
So unfortunately all it does is kind of move consumers around.
What we're really focused on and what you see due to our over indexing is that we are truly focused on trying to improve our competitive advantage and trying to improve the incoming customer base for our customers.
So the promos you see, they get more aggressive I can't really explain why.
That's really a question our competitors will have to answer.
But we did ---+ in my mind we responded appropriately conservatively on this one.
We always will respond appropriately in the future.
But you'd really need to ask them that question the why.
We really don't know.
I'm hoping it's a hiccup.
I mean logic says due to the efficiencies of the market I just find it hard to believe it'd be anything long term.
And we saw ---+ you have to go back to that ---+ as you recall, <UNK>, go back four or five years ago, when we were really, really heavy into the promotion that's come way down even today.
So the logical side of me says that there was a hiccup, but we'll see.
I'm hoping it's hiccup.
And what you see in the dealer world tends to be more normalized.
You get some one-offs and so forth but it appears to be more normalized than what you were seeing in the home center side.
It's a good question.
Honestly it's something we're asking ourselves now to step back and what's not in the formula right now obviously is what type of future investments we have to make internally to continue to grow our business and to grow obviously return for shareholders and what impact that can have.
So we feel good about where we are.
Where that steady-state mode is, honestly it's something we are spending a lot of time now thinking about in how future investments can impact that.
I'd like to come back and tell you that it may be slightly higher than that.
But we really need to do our ---+ continue to finish up our strategic work before I can answer that question.
Hi, <UNK>.
Thanks.
I'd really like deferring answering that question with any specific details until next quarter when we wrap that process up and we complete our fiscal year we will start talking about our fiscal year 2017 projection.
But as you've seen and as we even talked at the conference at KBIS there are some pretty standard assumptions that are being battered around with respect to calendar year 2016.
Most folks are talking about a housing start number in the high-single digit to 10%.
So let's call that a 9% to 11% type range.
The remodel industry most folks are in kind of low single digits, 3% to 5%.
Those are probably not unreasonable expectations for folks as they think about calendar year 2016.
I believe you also have wedged in your risks and opportunities, a risk that always would be out there, there would of course be inflationary considerations.
We had a stable environment with respect to input cost and fuel actually has been running over the last bit.
If those were to go the other way, of course that would be a significant risk or if overall demand was to spike either way that could be a risk or opportunity depending on how you're able to take advantage of that.
So those are really be my generic comments at this point of time and then we'll give you a little bit more color on that as we wrap up our process here over the next couple of months.
Yes, so again on the outlook as far as our capital budget goes, we are in the midst of that process as well.
Certainly it would be a step back from the run rate.
So we had $30 million that we spent really over two fiscal years with respect to South branch.
You would pull that out for the expansion fees.
But we're also taking a hard look at productivity projects, our replacement capital, capacity capital et cetera to make sure we're well positioned to take advantage of the overall marketplace.
So I don't think it'll be as low as if you went back, say, three to four years, when the market was depressed and we were restricting spend.
I think it'll be higher than that, but not to the levels we've seen with our recent South branch spending.
I think it's a pretty clean comparison.
Of course, it makes it a tougher comp for us.
That was really the first quarter where we really started to accelerate and trend positively.
We saw things turn from an inflationary standpoint.
We were better leveraging our infrastructure costs on our new construction business as well as our manufacturing footprint.
We've been able to continue to manage that throughout fiscal year 2016.
So, I think it's a reasonable comp period to use.
Thank you.
Thank you.
Since there are no additional questions, this concludes our call.
Again, thank you for taking time to participate and speaking on behalf of the management of American Woodmark, we appreciate your continuing support.
Thank you and have a good day.
| 2016_AMWD |
2015 | OMCL | OMCL
#We had a very good quarter from the government.
I think we're actually up over last year or pretty commensurate with this.
And this has been a good quarter for us in the government.
We had a great quarter for the government.
Yes.
We don't really have those numbers readily available.
But we think that the combined company will meet our long-term goals of [15 and 15, 15] on the topline, obviously, over the next two years.
Just the combination will be all that higher than that.
But they are a growing business.
And the earning should meld in nicely with our operating margins that we would expect from our business.
They're not a lot different from our own business.
Well, I think, probably the biggest thing, I think, correct me if I'm wrong here, about half is service and half is products.
So a big component of their revenue base is of service business that's very recurrent.
So overall, we think the acquisition will nicely align with our long-term goals both on the topline and on profitability.
We are not at liberty to specifically disclose their historical growth on profitability.
But we feel really good that it is a nice fit.
They have a dedicated sales.
Some of the leadership is and some is not.
No, not to our knowledge.
We do have some customer overlap.
I would say that they have a lot of ---+ there's probably almost 10% of the hospital beds, maybe more that are using the centralized model that they are.
And so we have not been able to get into that marketplace because we don't offer a product solution in that set.
So University of Wisconsin, much of the VA, UPMC.
There's a lot of name brand accounts that Aesynt had for a long time and does very well with.
To step back, we think the acquisition is really complementary.
And we'll operate the businesses separately until closed.
No, They're separate products.
We will continue both product lines and servicing support and development as we move forward.
Their product lines are generally oriented toward the centralized market features and functions and workflows.
And so there's really not as big an overlap as you would think.
So it's really complementary.
Yes.
So I think it's relevant to Q2.
I think the impact is smaller but still noticeable.
I would also say between the third and the fourth quarter, some of the orders, while we're confident that that will be signed, they do go from signing dates from one quarter to the other quarter.
And they really look at us from a long-term perspective.
If you look at the pipeline, we feel really good about our pipeline of bookings to come here in the quarter.
(multiple speakers) So we really look at it total year if you, rather than just a quarter cut off for bookings if that helps.
Yes.
I think our market segment is more a standard of care and we haven't seen any impact of any hospital news around those items.
And the biggest impact in the marketplace affecting us is just the consolidation which has changed the shape and the size and the type and the profile of our orders from larger institutions now at our groups and hospitals as well as being more new.
And those are the biggest changes we see in the marketplace.
Yes.
I think we were disappointed that we couldn't get that product out this year.
And it certainly impacted MA and its results.
And we're excited to get that product right and completed and out in the marketplace in the first half of 2016.
And we know that there's a demand for the product, the customers want the product, it solves a great problem.
And we believe we're the leaders with that product in the marketplace as far as having a solution that really works.
But it is complex and it is a different product, but it is a game changer for us.
So we're excited about getting that thing out into the marketplace because we feel a strong demand behind it.
Well, I just think that the beta results have been good but there were more exceptions to the rule than we thought and it's just getting those last pieces of initial software needed to complete the product.
We are packaging, repackaging medications.
So the tolerance for error is very low.
And so we've got to do this with perfection.
So once we have that running at that level, then we'll be able to release the product.
Yes, exactly.
I think that we have gotten a good result in the marketplace as we move people away from centralized and decentralized.
And it's clear that in the marketplace that there are customers who, one, aren't going to move away from centralized and even new customers are picking up on this centralized piece.
And probably what's driving that is in many of the hospital locations, they see the centralized workflow is relieving the nurses from having to do a lot of picking out of dispensing systems, those the drugs can be delivered to them on a patient basis in a very almost a silver platter, if you will.
So they want that kind of customized approach and it really releases the nurses to do more patient care and not be as focused on medication management.
And it does probably come with some cost.
You have to probably put a medication tech on the floor to deal with exceptions.
But we've seen that in a couple of models and it is growing our market end.
I wouldn't say this was a compelling reason but we have seen this model also outside the US.
And so that's something for us to consider is to look at using this model outside the US where you tend to see this particular application as well.
The IV solutions robot is a big win for us.
We do not, to this day without this product line, touch any of the fluids in the hospital.
Really, we did touch the logistical end, we may all the meds until ---+ the IV fluids until they're used.
But there's the whole preparation piece that comes before that.
And the IV robot and the semi-automated software that goes along with it, in case you do manual preparation in the hospital, you will always have to do some, is a very important safety and workflow piece that we have not been able to offer in the marketplace and just about all the competitors that we compete out, but they have that sometimes solution in there.
So it puts us on a better competitive front and I think it allows us to really compete with hospitals that want a full set of solutions.
That's probably a worldwide market.
The TAM is $1 billion, that SAM is about $100 million and it's probably at least $0.5 million in most facilities.
But a lot of these hospitals are consolidating and they're trying to centralize a lot of these things.
And so it's almost a facility that's used for in a network of hospitals, not just a single hospital, but probably at least $0.5 million and just depending on how many you buy.
And I think the simplest version is around $0.25 million, but most people buy more than one to facilitate more automation.
Well, I think in the pharmacy central product area which includes the robot and some other - the central is over 600 ---+
600.
---+ hospitals that have one of their products in the workflow process.
And then point of care solutions, there are over 850 facilities using the Aesynt point of care solutions.
Yes.
It's essentially a term loan A at market conditions.
The commitment letter (inaudible) filed with the SEC, so you can take a look there.
Essentially, it's LIBOR plus.
At the expected leverage, it will probably be LIBOR plus 175 basis points.
1.
75% plus LIBOR, yes.
Yes, the IV robotic solutions is the most international-intensive outside of North America.
And it's actually designed and some of the manufacturing is in Europe.
And this still is an embryotic market.
They probably, I think, have one of the most advanced robots.
I believe they're pretty close to being the market leader.
And so I think it's a great opportunity and it's a swelling market.
But I would still call it embryotic.
But it's had impressive growth over the last year.
I just don't know if we can or (inaudible) growth rate at this point, it's probably (multiple speakers) until the transaction closes.
Yes, so looking at the Med Adherence business, so we feel good about our pricing.
Our pricing is stable.
We do have some lower margin customers.
So I think from a commercial perspective, we'd like to grow further but there's no underlying issues there.
We're definitely working on the cost aspect and we're looking to further increase volume as well that will help of course also our margin as we scale.
So we're building a path back to more historical margin rates over the next quarters.
Exactly.
Yes, we believe there's not been a fundamental change in the market other than ---+ we've said the kind of the profile of the customers.
We're still running great deals in the marketplace, still growing as a company.
The top of the funnel is good, still able to produce great earnings at the bottom, which is transitioning from the top of the funnel out to revenue.
And I think this also sets us up well for 2016 as we will ---+ given our backlog guidance and our revenue, moving our revenue down will set us up well to give us better visibility as we move forward into 2016.
Well, I don't have it at hand but we have won some accounts.
And I think when McKesson first broke off ---+ when Aesynt first broke off from McKesson, we thought there would be a real opportunity to kind of move the needle as they were going through a transition there.
And we really weren't able to acquire as many accounts as we thought we would have.
And so I think it probably is just a fact of the way this market works where the stickiness of customers is pretty strong.
Well, thank you joining us with today and we're really excited about the Aesynt opportunity to broaden our product line and even kind of respond in that last question, I think we don't compete very directly with McKesson and a lot of the product lines and so, we're just really so excited that we now can enter these new markets and offer such flexibility to the customer base out there, which is trying to lower the cost, improve safety, get more people to the healthcare system, so that we can leave fewer people on the outside and that's our goal and our mission.
Thank you for joining us today.
And we'll see you next time.
| 2015_OMCL |
2015 | BCO | BCO
#We compete in a very competitive environment and there's always some movement back and forth in each of our markets.
So Canada will continue to be reported in our top five.
I think, getting at your question, Argentina is about the same revenue size as Canada today.
If that's.
From a macro perspective with, at least what I anticipate the Fed will do, I don't think we're going to see any significant changes now.
200 or 300 basis points, yes, that could make a difference.
25 or 50 I don't believe so.
<UNK>.
It's been so long since rates we're going in that direction I welcome that and think over time it will help but short-term I don't see a dramatic change.
Good question.
We have historically been I think performed very well in Argentina.
Our profitability both measured by margin rate and the nominal local Pesos has improved much, much more significantly and dramatically.
I would characterize it as the Management Team has done a very good job of managing in a highly inflationary environment it's not highly inflationary from an accounting standpoint but I think 30% to 35% inflation fits that category.
So I think the Management Team has performed very, very well.
We have benefited from the increase in the amount of currency and circulation and when you look at the US dollar reported results that gets into our, that hits our consolidated results, we have not had the magnitudes of Peso devaluation in the last year and a half to two years that we had previously.
If you look back two, three years ago as we were having local currency growth of 30%, 40% we were having devaluations in the 30% to 40% range as well, so from a US dollar standpoint you weren't seeing it in our consolidated results.
We have only had about a 10% devaluation today and with 50% to 60% local currency growths that's going to give us much bigger US dollar impact and growth year-over-year.
Yes, I mean-.
It's a good operation down there and they're, it's reflected in their results.
I would not characterize the growth in Argentina as taking significant market share from a competitor.
It's a well-run business benefiting from an inflationary environment that they're managing very effectively in.
| 2015_BCO |
2016 | OMC | OMC
#Just give me one second.
That number is ---+ I think the shares number is 2.7 million shares, gross.
Sure.
Well, let me just make the overall statement that right now for the year, we're staying with our guidance.
But on the media wins, they tend to have at least a six month, in some cases even longer, channel to them, when somebody loses an account, and when a new person comes and picks it up.
On the agency business, it tends to be a 90-day changeover period.
And projects, which are a part of our business, as <UNK> was mentioning, when talking about our CRM, those have even shorter windows.
We learn about quite a number of those 60 days in advance.
So if areas across the business, hard to say, when you take a look at something like P&G starting in the second quarter, where we've been hiring ---+ we've been getting, we'll get some partial reimbursement as we incur those costs.
But there really won't be what I'd call revenue growth.
That really starts to kick in, as I said, July 1.
Sure.
Brazil, right now, we don't know necessarily any more than the IMF or anyone else.
So we are planning to face headwinds throughout the rest of the year.
It might get mitigated a little bit in the second half from the Olympics, but we're not certain.
Unless they come up with a cure to the virus they have, God knows what the attendance is going to be.
So Brazil is going to be challenging, I think, for 2016.
But it's not ---+ it's important, but it's, what, less than 1%.
It's about ---+ between 1.5 to 2% of our revenue annually.
So that's with Grupo ABC included in our revenue numbers.
So, while it's a drag, we have very healthy, the most creative businesses in Brazil.
And what our focus is doing there now, is they're trying to optimize revenue, and they're working very hard on their expense basis.
<UNK>, do you want to ---+.
As far as Accuen in the first quarter, growth from Accuen was $25 million.
I'll take the middle question which I think ---+ I have forgotten it.
M&A.
I think what you'll see is M&A as a result of actions that we took last year, I don't even recall.
There is no real outlier in terms of one big disposal.
It's a number of small businesses, actually, across a few different geographies.
We expect that the number in the second quarter, given where we are with acquisitions, completed as of now, will be positive through the rest of the year, probably in the neighborhood of all in for the year about $80 million to $90 million of acquisition contributions, net.
In terms of other businesses, I don't have that number for you.
I'm sorry.
We don't really track it that way, <UNK>.
Because in each of our disciplines, there's some component of the business, even traditional ---+ our traditional advertising agencies, our media business, as well as PR, healthcare, CRM, et cetera, there's a component of both private-based business and retainer business.
We'd prefer the retainer business.
But certainly there are some businesses we have, that are primarily project-based.
And on an overall basis, more of those businesses are probably in our CRM discipline than the others.
But each of the businesses does have a project-based component.
And, you know, we don't really segregate the revenues that way within those businesses.
Yes.
If you could just repeat that one, <UNK>.
We really can't.
It goes into a much larger calculation than what we show our organic growth and contribution from wins to organic growth, growth and reducing clients.
We fully expect there to be losses during the year, without adding impact for clients coming back on projects.
So we don't ---+ we don't really sit down.
I think the check ---+ I think maybe one way of answering as directly as we can is, we don't place very much of an emphasis on what the billing number is, when new business gains and losses or net new business, billing on gains and losses in that calculation.
So a lot of the numbers ---+ a lot of the businesses we have, the billings number really isn't relevant to the revenue that's being driven from gaining that business from a client.
It's an approach and a methodology that the industry follows.
Everybody wants us to provide a number.
We do our best to come up with a number that's somewhat consistent, in terms of the way we report it.
But we don't place any emphasis on it, in terms of how we actually run the businesses themselves.
We're focused on the revenue contribution in those businesses.
And when we say our expectation is 3% to 3.5% growth, that includes an expectation ---+ or that includes both new business wins and losses that we know of, and new business ---+ some aspect of new business that we expect businesses to obtain.
But in terms of this year, even with P&G, which from an Omnicom perspective is a fantastic win from a revenue perspective, it's nothing out of the ordinary, when you combine it with the rest of what we expect to be in excess of $4 billion of wins net for 2016.
That's a normal year.
We expect our growth is going to be a relatively normal year in that context.
One thing I would add about P&G is it was a wonderful win, for multiple reasons.
One, it validated all the work we've been doing in the digital space.
And what we can ---+ and the services we can provide clients.
And, two, I'm not expecting much of it in the second half of this year, because we are going to be primary focussed on P&G.
But it allows us to open up a third media network, which in 2017 and 2018 and out, is going to provide us opportunities to pitch our business that we might otherwise have precluded from pitching.
Very little.
The margin impact in this quarter was less than 5 basis points.
So 3 or 4 basis points.
So for us, that's a non-event, which is what we would expect in an environment of plus or minus 1% or 2% FX.
Well, we have ---+ we are probably focused more in some ways on improving the service offers, because of the fact that it's hanging both in the way that creative is done, media is executed with all of the channels.
One of the reasons that we announced the formation of two of the groups that are included in DOS, both the public relations and the healthcare, was to getting more focus ---+ even though they're growing, PR had a little trouble in the last quarter or two, healthcare has always been strong.
Is to get more line management, people who are operators in charge of those groups or companies, to continue to drive growth and to make recommendations for incremental acquisitions, which supplement and complement the projects that we have.
As we go through the rest of the DOS, which is a very large part of our group, we're taking a look at other areas, where a similar approach might add to net growth, and as we go out.
But we don't rush, and as I said in my prepared remarks, we have great respect for the brands.
And so we want to make sure that we can strengthen individual brands, in whatever process we take on board.
And the market is open, so I think we can have one more question.
Go ahead.
Sure.
Well, first of all, you're absolutely right.
They're great investments that have to be made in the changing social media environment.
When you focus only on brands, and you don't have any central leadership, you tend to make those investments multiple times.
I think by having central leadership we'll basically be able to do a better, faster job in creating platforms that will be able ---+ which we'll be able to white label, and therefore use across our goods.
The other thing that we've been seeing is an increasing number, not complete number of briefs coming from multi-national clients, looking for different types of services to be included in our responses.
While we have a lot of similarity in our largest groups, there are a lot of specialties in some, that are not included in others.
By having a single individual or team that becomes intimately familiar with the 6,000 people we have there, we will do a better job, I think, and increase our opportunities of winning the business, simply from the knowledge and the control of somebody that is focused 100% of the time on managing our PR assets.
I hope that answered your question.
Okay.
Thank you, everyone, for joining the call.
Have a great day.
| 2016_OMC |
2018 | HAFC | HAFC
#Thank you, Darrin, and thank you all for joining us today.
With me to discuss Hanmi Financial's fourth quarter and full year 2017 earnings are <UNK>
G.
<UNK>, our President and Chief Executive Officer; Bonnie Lee, Chief Operating Officer; and Ron <UNK>, Chief Financial Officer.
Mr.
<UNK> will then provide more details on our operating performance.
At the conclusion of the prepared remarks, we will open the session for questions.
In today's call, we may include comments and forward-looking statements based on current plans, expectations, events and financial industry trends that may affect the company's future operating results and financial position.
Our actual results could be different from those expressed or implied by our forward-looking statements, which involve risks and uncertainties.
The speakers on this call claim the protection of the Safe Harbor provisions contained in Securities Litigation Reform Act of 1955.
For some factors that may cause our results to differ from our expectations, please refer to our SEC filings, including our most recent Form 10-K and 10-Qs.
In particular, we direct you to the discussion in our 10-K of certain risk factors affecting our business.
This afternoon, Hanmi Financial issued a news release outlining our financial results for the fourth quarter of 2017, which can be found on our website at hanmi.com.
<UNK>.
Thank you, <UNK>.
Good afternoon, everyone.
Thank you for joining us today to discuss Hanmi's 2017 fourth quarter and full year results.
We finished 2017 with strong fourth quarter performance to conclude another year of safe and profitable growth.
Highlights for the quarter and the year include loans and leases receivable increased 3% in the quarter and were up 12% for the full year.
Hanmi's net interest income for the fourth quarter increased 3% quarter-over-quarter and was up 10% for the year.
While we are operating in an extremely competitive environment, fourth quarter net interest margin, excluding acquisition accounting of 3.76%, has remained stable over the past several quarters.
Deposit gathering activities also remained strong as we achieved a 14% increase in total deposits for the full year.
Due to capital management of noninterest expense, coupled with the improvements in revenue from growth in earning assets, the efficiency ratio improved nicely for the full year.
As a result, earnings before the onetime revaluation adjustment to reduce our deferred tax assets were solidly higher on both linked quarter and on a year-over-year basis.
And finally, all of the credit quality metrics continue to remain favorable.
Going into more detail.
For the fourth quarter of 2017, we reported net income of $11.5 million or $0.36 per diluted share.
As a result of the tax reform signed into law in late December that reduced the corporate tax rate from 35% to 21%, we were required to record a onetime revaluation adjustment of $3.9 million to reduce our deferred tax assets.
This increased the provision for income taxes and reduced fourth quarter and full year earnings by approximately $0.12 per diluted share.
Excluding this onetime adjustment, fourth quarter net income of $0.48 per diluted share was up by $0.02 or 4.4% compared with the prior quarter, as interest income from the growth in our portfolio of loans and leases more than offset lower PCI gains in the quarter and slightly higher noninterest expense from opening of a new branch in New York City in the fourth quarter.
Compared to the fourth quarter last year, net income per share increased by $0.03 or 6.7%.
Hanmi's earnings performance is clearly being driven by the growth of core sustainable earnings generated by the expanding portfolio of loans and leases.
Net interest income was up more than 3% from the third quarter and 10% for the full year.
The increase in revenue, coupled with our continued focus on expense management, helped improve our full year efficiency ratio to 54.3% for 2017, which is 170 basis points better than the prior year.
Turning to loans and leases receivable.
Our portfolio expanded by 3% in the fourth quarter and 12% on a full year basis, marking the fourth consecutive year of Hanmi achieving double-digit growth in loans and leases.
New loan and lease production of $262 million in the fourth quarter, excluding loan purchases, represents 19% increase as compared with production in prior quarter and 15% compared with the fourth quarter last year.
For the full year in 2017, total organically generated loan and lease production of $965 million exceeded production in 2016 by more than 11%.
I continue to be pleased with the ongoing success of our Commercial Equipment Leasing division that was acquired during the fourth quarter of 2016.
This acquisition has been a success as leases receivable have increased 22% compared with the year ago while generating nominal credit losses.
From a strategic perspective, this business complements our emphasis on business banking to diversify the Hanmi loan portfolio.
And importantly, with weighted average lease yield of 5.6%, this portfolio has been accretive to our overall portfolio yields.
Our C&I lending team also wrapped up a strong year in 2017 with excellent fourth quarter results and continues to benefit from investments to extend our reach both geographically and into new areas of focus.
During the fourth quarter, C&I loan production of $48 million was more than 3 times higher than the fourth quarter last year and represented 18% of total new loan production in the quarter.
For the full year, C&I loan production of $167 million more than doubled compared with 2016.
At the end of the fourth quarter, C&I loans outstanding, excluding leases, was up nearly 10% on a quarter-over-quarter basis and was up 33% on a year-over-year basis.
We continue to make progress in improving the mix of our earning assets.
At year-end 2017, CRE loans comprised 71.3% of our total loan and lease portfolio compared with 76.5% a year ago.
We have made significant progress from year-end 2014 when CRE loans comprised 85% of the total loan and lease portfolio.
As we look ahead, our overall loan and lease pipeline remains healthy.
With our new branch in New York City, giving us access to one of the best markets in the country, we are confident that we can generate double-digit growth in loans and leases in 2018 and beyond.
Turning to deposits.
Despite the typical seasonal slowdown in deposit activity around year-end, total deposits of $4.35 billion increased just over 1% during the fourth quarter on a linked quarter basis.
I continue to be pleased with the strength of Hanmi's deposit franchise as total deposits increased more than 14% in 2017.
The full year growth in deposits was driven by growth in the core deposit categories: noninterest-bearing demand deposits were up more than 9%; money market and savings deposits grew 15%; and retail CDs expanded 20% during the year.
Even though we have been operating in a highly competitive Asian-American banking landscape for deposits, exacerbated by the flat yield curve environment, I'm pleased to report that we have been successful in maintaining our net interest margin over the last several quarters.
In each of the past 3 consecutive quarters, net interest margin, excluding acquisition accounting, has remained steady at 3.76%.
Further, the 8 basis point contraction from first quarter to second quarter of 2017 was primarily attributed to the additional interest expense associated with the $100 million sub-debt that was issued late in the first quarter of 2017.
And finally, our asset quality metrics remain strong.
Nonperforming loans, excluding PCI loans, stand at $15.8 million or 37 basis points of loans.
Net charge-offs for the fourth quarter of 2017 were $1.7 million, which represented 16 basis points of average loan balance.
The charge-offs for the quarter included a $1.3 million charge-off of a fully reserved SBA loan originated in 2012.
Finally, our allowance for loan losses was 72 basis points of loans at quarter-end.
Reflecting our continued credit underwriting discipline, the weighted average loan-to-value and debt coverage ratios on new commercial real estate loan originations for the fourth quarter were 58% and 1.9x, respectively.
Before turning the call over to Ron, I'd like to briefly comment on the Tax Reform Act and its impact on Hanmi.
While it is still too early to tell how it will affect general economic conditions in our markets, the 14 percentage point reduction in the federal statutory rate will significantly improve the earnings power of Hanmi.
With this additional capital, we will have a broader array of strategic options to drive value, which potentially includes additional investments in the infrastructure of our company, expansion into new markets and new products via M&A or on a de novo basis and, finally, rewarding our shareholders with higher cash dividend.
As we announced last month, tax reform provided an opportunity to review our current compensation policies and pass along some of the benefits to our employees.
This included an increase in the minimum hourly wage across the company to $15.
With this move that benefited approximately 100 employees or 13% of our workforce, Hanmi is well in excess of the minimum wage requirements in all states in which we operate, including California, where some employees have seen their wages increase by as much as 36% from previous levels.
The total additional compensation expense to the company for the year will be approximately $400,000.
I truly appreciate the important role our hourly employees play in providing exceptional service for our customers and strongly believe increasing compensation for these team members will have a positive impact on our business.
I also believe that by paying the higher minimum wage to our hourly employees, we will have a competitive edge in recruiting new employees in a tight job market.
With that, I'd like to turn the call over to Ron <UNK>, our Chief Financial Officer, to discuss the fourth quarter operating results in more detail.
Ron.
Thank you, <UNK>
G.
, and good afternoon, all.
Let me continue with income taxes.
As we reported, our provision for income taxes included a $3.9 million charge arising from the remeasurement of our deferred tax assets because of the change in the federal corporate income tax rate.
At year-end 2017, our deferred tax assets, inclusive of this rate change, were estimated to be $32.5 million.
The effective tax rate for the fourth quarter was 53.2% compared with 39.9% for the third quarter, while the effective tax rate for the 2017 year was 42.6%, up from 36.8% in 2016.
The higher effective tax rates for the quarter and the year reflect the additional income tax expense from the remeasurement of our deferred tax assets.
The effective tax rate before this additional income tax expense would have been 37.5% and 38.6% for the 2017 fourth quarter and year, respectively.
Going forward, we anticipate our effective tax rate will be lower in the range of 27% to 28%.
Let me next turn to our net interest revenues in more detail.
Fourth quarter net interest income increased approximately 3.2% or $1.4 million to $46.3 million from $44.9 million in the third quarter.
This increase from the prior quarter reflects the continued strong growth of our loan and lease portfolio as evidenced by a 3.3% or $135.1 million increase in the portfolio average balance and a 3.8% or $1.9 million increase in interest and fees on the portfolio.
Of course, this increase was partially offset by a $331,000 increase in interest expense on deposits.
The average rate paid on interest-bearing deposits for the fourth quarter increased to 97 basis points from 93 basis points for the preceding quarter while the average cost of deposits similarly increased to 68 basis points from 66 basis points.
Since December, 2016, the Federal Reserve increased the benchmark federal funds rate 4 times or 100 basis points.
The quarterly average rate paid on interest-bearing deposits over that same time period increased 23 basis points, representing 23% of the change in the federal funds rates.
For the 2017 fourth quarter, the average rate paid on interest-bearing deposits increased 4 basis points, representing 16% of the most recent change in the federal funds rate.
The average yield on loans and leases receivable was 4.9%, up 3 basis points from 4.87% for the third quarter.
For the year, the quarterly average yield on loans and leases increased 18 basis points, representing 18% of the change in the federal funds rate.
Compared with the year-ago 2016 fourth quarter, net interest income grew 10.2% and reflects the solid loan growth we have achieved over this past year as well as last year's fourth quarter acquisition commencement of the Commercial Equipment Leasing Division.
For the 2017 year, net interest income increased 10.4% or $16.6 million to $176.8 million from $160.2 million for 2016, principally because of the 18% growth in average loans and leases.
Looking to noninterest income.
During the fourth quarter, we reported a sequential decrease of 12.9%, primarily due to an $888,000 decrease in gains on PCI loans and a $490,000 decrease in gains on sales of SBA loans.
For the full year, noninterest income increased $340,000 or 1%, primarily due to the $2.7 million increase from SBA loan gains and a $1.7 million increase in security gains, partially offset by a decrease of $3.2 million in the PCI loan gains.
Disposition gains on PCI loans were $1.8 million for the year ended 2017 compared with $5 million for the year ended 2016.
Gains on sales of SBA loans were $8.7 million for the year ended 2017 compared with $6 million for the year ended 2016 as the volume of SBA loans sold increased to $112 million from $84.9 million for the same period last year.
Noninterest expenses for the fourth quarter increased nearly $600,000 to $29.3 million from $28.7 million for the third quarter, primarily due to increases in salaries and professional fees.
Salary and benefits were up because of commissions and incentives, while professional fees were up because of year-end audit compliance activities.
As a result of the increase in noninterest expense as well as lower noninterest income, the efficiency ratio increased to 54.2% in the fourth quarter from 53.3% in the prior quarter and 51.8% a year ago.
For the year ended 2017, noninterest expense increased $5.9 million or 5.4% to $114.1 million from $108.2 million for the same period last year, primarily due to increased salaries and employee benefits expense, higher data processing fees and increased occupancy and equipment expense.
However, the improvements in revenue from the growth in earning assets outpaced the increase in noninterest expense leading to an improved full year efficiency ratio of 54.3% in 2017 from 56% for the year ended 2016.
Very importantly, asset quality remains strong with nonperforming assets at $17.8 million at the end of the fourth quarter or 34 basis points of total assets compared with 32 basis points of assets at the end of the prior quarter and 40 basis points of assets at the end of the same quarter last year.
For the fourth quarter of 2017, we recorded a provision of loan losses of $220,000 compared to the third quarter where the provision for loan losses was $269,000.
For the full year, we recorded a provision for loan losses of $0.8 million compared with the negative loan loss provision of $4.3 million for the full year of 2016.
And finally, our tangible book value grew to $16.96 per share from $16.86 per share from the prior quarter.
Our tangible common equity ratio remains strong at 10.58% as do all of our regulatory capital ratios.
With that, I'll turn the call back to <UNK>
Thank you, Ron.
The fourth quarter was the culmination of an excellent year driven by strong loan and deposit growth, sustainable expansion in core earnings and continued credit quality.
Overall, I was very pleased with our performance throughout 2017, and I believe Hanmi is well positioned to continue generating profitable growth in 2018 and beyond.
I look forward to sharing our continued progress when we speak with you again next quarter.
Thank you, and have a nice day.
Darrin, let's open up the call for questions.
Yes, Chris.
That's going to be one of our biggest challenges in 2018.
In the Asian-American banking sector, the competition for deposits is fierce.
As a result, even though our posted rates, as it relates to CDs, tend to be I would say, reasonable, we are having to defend our customer base from those other banks who have, let me put it this way, insane level of rates that they are posting for 1-year CDs.
As an example, our competition here in Los Angeles, they posted a 1.65% 1-year CD, and that's substantially higher than what we generally provide.
But to defend our customer base, we match them.
So the competition varies depending on the markets.
Whether they're Korean-American banks, in particular, the one large bank in question, the competition is very significant.
But in other markets, we are ---+ I would say we're facing more reasonable competition relative to rates.
So one of the key priorities for us in 2018 is to look for ways by which to continue to generate lower-cost deposits.
Some of that is going to be in the form of, let's say, recruiting of additional bankers, some of that is going to be in the form of acquiring other institutions that may be under-leveraged as far as use of their deposits are concerned.
But that's one of the key priorities for us in 2018.
As we mentioned before, Chris, in prior calls, our balance sheet is fairly neutral.
So rate increases driven by the Fed, et cetera, I think you've seen that we've been able to kind of hold the margin and you haven't seen much dissipation of that.
The competition question, of course, probably just amplifies that a bit.
Don't know how much that might be or when it might be, but I see the margin basically holding, drifting down slightly but not all that much.
Also, Chris, one of the issues that most banks like us have been dealing with is in a flat yield curve environment, the long end of the curve has not moved up significantly, notwithstanding the Fed's decisions.
But as you noted that recently, it appears that the 10-year treasury has been moving in an upward slope, if you will, and that may enable banks like us to start moving our pricing ---+ move up the pricing as it relates to the traditional 5-year ---+ excuse me, the commercial real estate loan product that's our bread and butter.
And so I am hopeful that there will be more relief on the asset pricing side as the long end of the curve generates a more of an upward slope.
Well, I'll let Ron speak to more of the details as far as expense issue is concerned.
But our focus in a prime choice market like in New York is continue with our recruiting efforts to bring in additional bankers to Hanmi.
We're expecting to deploy some of the benefits of this tax bill in the form of investing in additional branches in the New York City market.
So our fourth quarter noninterest expenses were just over $29 million.
So looking at 2018, I envision expenses at about the same level.
We've yet to fully explore how we may invest other parts of the Tax Reform Act into our business, so that might drift upward.
But we're not quite there yet.
So I anticipate, at least at that level, perhaps, slightly higher.
I would say the major contributing factor that impacted the lower CRE concentration number has to do with the success coming from the other asset categories that has been established over the last couple of years.
We've been very competitive in the CRE lending arena and we'll continue to do so.
But the flat yield curve and the lower returns that we can get on the CRE side has, I would say, lowered our enthusiasm in 2017.
Having said that, as the long end of the curve demonstrates an upward slope, we will be much more active and more enthusiastic about the CRE loan generation.
But having said that, though, we expect that the C&I activities in 2018 to be equally, I would say, successful or active.
And C&I includes also the equipment leasing side.
The equipment leasing and the C&I teams here in California as well as in other parts of the country have been very active and very successful, and I believe that we just scratched the surface.
So the goal for the last 3, 4 years since I've been here is to, in essence, generate a much more of a diversified book of assets.
And we're seeing progress in that regard, but over the next couple of years, we think that the CRE concentration, just from a proportional standpoint in terms of contributing to the overall portfolio, probably will go down just because of the other sectors, other earning asset categories, in essence, stepping up and growing even at a faster pace.
Yes.
The answer is yes.
But not at that level.
Not at that size level.
We had some expected runoff in our commercial real estate portfolio, so we geared up via the single-family purchases.
And that product has performed very well for us.
It comes from a very dependable source.
And from a credit quality, in the 3 years that we've been working with them, it's been basically 0 in terms of any kind of credit issues.
But having said that, though, I think 2018 is going to be much more of a challenging year for all the mortgage originators in a rising rate environment.
So given that to be the case, I don't expect us to do the same level as we did in 2018.
But it will still be part of our overall, I would say, ways by which we're going to continue to generate earning assets.
I have historically said that we are capable year in and year out of generating double-digit loan growth.
Whether it's in the low teens or mid-teens, we have demonstrated over the last 4 years that we can generate and sustain that level of growth.
So that's my hope and expectation for '18 and beyond.
Our trend has been ---+ we'll have these one-off situations.
Like in the fourth quarter, we had this one credit that basically was fully reserved for some period of time that we finally charged off.
And so periodically, we'll have these kinds of one-off situations, but there's nothing systemic, there's nothing that's at a significant level that I've seen in our portfolio that would cause me to say that there's a deterioration in our asset quality.
I just wanted to revisit the loan outlook question again.
It looks like this year's loan growth, especially given the sizable purchase in the fourth quarter, was in the ballpark of 50% versus loans, 50% net organic growth.
As you think about maybe similar or a little bit lower pace of overall growth next year with less purchases, is that driven by your expectation of being able to as you said, having a little more enthusiasm about commercial real estate with this steeper curve.
Yes, actually, <UNK>, over 2017, the proportionality between organically generated versus loan purchases varied from the beginning of the year to the latter part of the year.
As an example, first 2 quarters, the organically generated loans constituted about 85% to 88% of the total production, the balance, 12% to 14%, being the purchases.
That dynamic shifted somewhat in the fourth quarter to where 71% of the production was organically generated and 28% or 29% was purchased.
So it's not really 50-50.
It's substantially less than that.
And so I expect that for 2018 the similar kind of dynamic.
So for 2017, as an example, of all the production that we've had, increases that we've had, about 80% came from organically generated sources and 20% from purchases.
And I would say that, that type of proportionality is probably what's going to happen again in 2018.
Okay.
And then just as you've talked about uses of the additional capital generated with a tax cut.
You talked about M&A opportunities potentially in your market.
Can you just talk about the markets that you think you would have relatively greater interest in at this point.
Yes.
The ---+ we've been very active in terms of looking at M&A opportunities, both on the specialty finance side as well as traditional banking side.
And so I remain hopeful that something will happen in 2018.
And as I mentioned earlier, some of the benefits of the new tax bill probably will be dedicated to that particular endeavor.
The markets that we're interested in are California, Texas and New York and other parts of the country.
And one of the key priorities for us, as I mentioned early on, is finding partners who can, in essence, mitigate one of our key priorities or challenges in 2018, which is the cost of funds, the fierce competition for deposits.
And so there are banks out there, as an example, that could somehow provide some relief for benefits to us by having a ---+ let's say, a less-leveraged deposit base, excess liquidity and so on, we're interested.
But we're strategically looking for situations, not only in the Asian space but also in the mainstream space, to in essence, expand the franchise but to deal with some of the key priorities relating to what will be very difficult next couple of years as far as the deposit ---+ the cost of deposits are concerned.
Okay.
And so I appreciate that detail, <UNK>
G.
I thought in your prepared remarks, you've mentioned being open to some new markets.
And the markets you just mentioned are ones you guys are already in, so I'm just wondering if there are any specific markets you're thinking about.
Or are you a little more agnostic about location and more worried about the funding side of the mix.
Well, I'm not agnostic about location because it doesn't really make sense for us to jump into markets that are dramatically different than where we are today geographically or from a capability or a culture standpoint.
And so there's some ---+ there has to be some logic or rationality behind that.
But the logical markets from the Asian-American banking space standpoint includes the Southeast, New York-New Jersey corridor and the Northwest.
But it could be beyond that, depending on some of the interesting opportunities that we're getting to look at as it relates to mainstream banks.
But once again, the culture, the geography, and as I stated, one of the key priorities in '18 having to do with the deposit base, those are going to be the key drivers of our efforts as it relates to M&A in 2018.
<UNK>
G.
, given the challenges you've discussed in raising reasonable cost deposits from the Asian-American communities, does it lead you to want to potentially increase efforts to target mainstream clients.
Or is it still more cost effective to expand marketing efforts to the Asian-American communities.
Given the reputation of Hanmi Bank and the marketing strength that we have had historically within the Asian-American sector, primarily Korean, yes, I would say that our first priority is to continue to mine opportunities for lower-cost deposits within primarily the Korean-American space and, secondarily, the South Asian space.
So that's a natural extension or expansion of what we have already been doing.
But beyond that, though, we are expending a lot of effort right now in looking at some mainstream bankers and other capabilities outside of the traditional Asian sector because in order for us to make incremental, I would say, growth or generate incremental growth on a lower-cost basis, I got to look at the problem from a slightly different vantage point, and that is outside of the traditional Korean-American/South Asian sectors, if you will.
And so because of that, we're looking at some recruitment efforts, we're evaluating some recruitment efforts of non-Asian bankers who may be operating in markets that are non-traditional Asian markets, if you will.
And so we are evaluating those kinds of situations as we speak.
These kinds of investments in the business that we're talking about right now, is that something you'll be able to talk about more about on the first quarter conference call or would it be closer to mid-year.
Or does that depend on what's happening on the M&A environment.
Both.
I'm hopeful that when we talk about the first quarter results that there's something that we can talk about that's much more tangible.
And so, we'll see.
We'll see if we can get some of these things to fruition.
Okay.
And then I had a question for Ron.
Do you have the current discount on the PCI loans.
Not off the top of my head, Tim.
Again, PCI is about $7.7 million, $7.8 million.
We're down about 20% year-over-year.
You can tell from the margin analysis, I think we're at about a 3 basis point differential from reported to purchase accounting.
So PCI just doesn't ---+ it's just not going to be a big part of our story for '18.
We may, from time to time, as we did in '17, have a resolution or a payoff of a credit, and that's what causes some of the noise or the lumpiness and the disposition gains.
But it's just not a very big idea for 2018.
Yes ---+ no.
Our target loan-to-deposit ratio has been in the 95 to high-90s on a given day.
We believe that, that range maximizes the leverage and the use of our deposit base.
And so that number doesn't trouble me as much as the competitive pressures coming from these other institutions that's driving up the cost of deposits.
And that's one of the reasons why we're looking at solving that problem through a slightly different set of lenses.
Yes, I see that number moving up.
I think we should be ---+ we're targeting around $160 million of seven SBA's for 2018.
We've ---+ the head of our SBA department has been successful in terms of recruiting outside of the Asian space, and so we are hopeful and looking forward to additional contributions coming from these other bankers that have joined us within the last 90 days to drive up the SBA production and, therefore, the premium income.
Thank you for listening to Hanmi Financial's Fourth Quarter and Full Year 2017 Results Conference Call.
We look forward to speaking to you next quarter.
| 2018_HAFC |
2015 | DISH | DISH
#I would say the odds are greater that we wouldn't do something before the deadline than we would.
But you just never know.
My experience with deals are that people can sit around and talk about them and they're just not going to happen, but when somebody decides to do something, they move pretty quick.
I agree with your statement, there are a lot of complexities around this auction that are going to take some time.
I don't think that anybody really knows exactly what this auction is going to entail, including probably the FCC.
It's a courageous act on the part of the FCC to try to do it on this time line, and I commend them for that.
But it is complicated.
No.
<UNK>, sorry, can you just clarify your second part about being the front end.
Yes.
Okay.
To your first question about DVR, I think it is something that our customers do request.
And as <UNK> mentioned, we have development underway on a lot of different things that could enhance the product, whether it's multistream or DVR or other features and things like that.
There's nothing to announce right now but it is something that we look at.
What we are trying to do is trying to follow what our customers want, really, and deliver what they want.
In terms of your question about being the front end, as you see more and more these segmented OTT offerings, whether it's HBO or CBS or Showtime, I think you do get to a situation where it will become more complicated for customers to assemble their bundle that they want because they may not be all on the same devices, even.
Or if they're on the same device, you have to switch between this app and that app.
It does cause a little bit of ---+ I think it increases the complexity for content discovery.
As you know, we have HBO within Sling TV but we also increasingly participate with some of the devices on their strategy for content discovery where we will feed them all our metadata about the programming that we have so that they can surface it not only to existing customers but no non-Sling customers.
There's a lot of people that are focused on solving that problem that I think does have the risk of getting more complicated with more fragmented OTT services launching.
I think you answered your own question.
First of all, there's a ton of stuff that we need to do regardless of how we go strategically.
There's just a lot of stuff we have to do anyway.
But we don't have any particular ---+ for the most part, I hope our investors are long-term investors and people aren't trying to trade in their stock to make a quick buck.
Certainly from a management perspective we only have five rules but one of them is think long term.
And I think where we as a team have thought about things long term, it's normally paid pretty good dividends for us.
They got a different perspective.
But we are six years into a wireless strategy, I think we are six years into it.
Whether we go another year or two years or three years before we go in a particular direction I don't think is that material to us.
I know that there's always a lot of angst on the press and investors for things to happen.
We don't make a lot of decisions but the ones you do make on the strategic side better have good chance of success.
We have private conversations with people and we are not going to talk about them on a public conference call.
Look, I think that any number of companies would strategically commit malpractice if they didn't look at the spectrum position that we have because it would be a strategic advantage over their competitors.
The need for spectrum is only getting greater.
The government, congress has passed rules to go look for more spectrum, but I think it's 30 megahertz by 2022.
So, there's just not a lot of spectrum in the mid-band, high-capacity spectrum that's going to be available.
If you're in the wireless business or you use wireless spectrum, you have to look at protecting yourself.
Real estate is important and spectrum is real estate.
We are well positioned to do something with our spectrum.
We will do something with the spectrum.
It will get built out.
How it gets built out and whether we do it with somebody else or whether somebody else buys it and leases it and builds it out remains to be determined.
The alternative for us would have been to do what DirecTV did, which was just to buy back our stock and then sell to a company, sell our video business to a company, and we decided to take a longer-term strategic view of it.
In answer to your second one, Viacom has been a long-term partner so it would take a lot for us not to do a deal with them.
But they have to be realistic that their ratings have deteriorated over the last three or four years, in some cases in a material way, and that the world has changed somewhat.
And to the extent they were given a fair deal, I think, and there's a reality embedded in that deal, I think we will get a deal done with them.
My challenge to our team is look for every reason that you can to do a deal with Viacom.
Internally we are not looking at the alternative of not doing a deal with them.
It's just that we know what bureau measurement is, we know, within our consumer base, what people watch and place a value on.
We know there's alternatives for their product today that weren't there three or four years ago.
You can get kids programming on YouTube and Netflix, and it's quite good.
And some of it's even Viacom product.
So, the world has changed a little bit.
But, on the other hand, they have great content.
They still are big part of what we have done.
They have helped us.
I think we are a pretty loyal company.
They have helped us be successful so it would take a lot for us not to do a deal, but those things can happen.
What was the other question.
Oh, the cable industry ---+ it's probably a better question for the cable industry.
First, there's consolidation in the industry, and is that allowed to take place or not, and if so are there conditions and what are those.
But I think the cable industry is potentially poised to be a serious competitor in the wireless industry.
They certainly have the ability to put their toe in the water and just do an MVNO deal.
The cable industry has had stumbles in the past in the wireless industry.
In fact, they have sold out of it.
So, whether you jump back in again with both feet or whether you maybe look at the MVNO deal and see how it goes, they have a lot of options as to what they may or may not do.
To the extent that they got in the industry, obviously it would put pressure on the incumbents, and certainly put spectrum pressure on the incumbents.
I feel like we are positioned pretty well.
The details are pretty similar, the two cases.
The one difference is that Charter doesn't own NBC.
Other than that, it's the exact ---+ if you look at what the FCC and the Justice Department said, there's nothing about the Charter deal that varies from that to be allowed.
As we know, Washington picks winners and losers.
I'm sure that Charter is well aware of that and they will spend a lot of time getting their deal done.
Which essentially means consumers have one choice for broadband, and broadband has become ---+ you only have one choice for electricity but that's regulated.
So, an unregulated market where you only, from a practical reason, have one choice of broadband is a serious issue and something that this Administration has been very focused on.
But it will have repercussions throughout the industry, for sure, either way that they decide.
It's certainly, I believe, is a path of where video is going to go.
In China already the vast majority of viewing minutes are on mobile devices for video.
If you're a content company, you just can't ---+ again, it would be malpractice to put your head in the sand and not think about how you're going to get on mobile devices.
And, of course, the advertising for mobile devices is now close to 80% of Facebook's revenue and it was 0% three years ago.
All the trends are moving in that direction, <UNK>.
Obviously, one of our visions was to use our spectrum for video because it's, again, high-capacity spectrum.
I think some companies will see it get there sooner than others and they will set the rules.
I don't think you want to be a follower in that.
The way I would say it is we have some of the building blocks of that in terms of we have technology, we have spectrum and we have video customers, we have an in-home installation network, we have encryption, we have billing, we have customer service.
So, we have a lot of the building blocks but we don't have all the building blocks.
We don't have things like back haul and WiFi and things that the cable industry has.
No one company today has all the building blocks.
AT&T is probably closer today than they were before the DirecTV acquisition.
We just think that ultimately that's going to sort its way out.
And typically what happens is something happens in the industry and somebody makes a move and somebody starts gaining market share because of it and the other people have to react to it.
And whether we are on the front end of that or the back end of that, I would much rather be on the front end of that.
But whether that happens or not, I don't know.
| 2015_DISH |
2015 | RGS | RGS
#Sure, so we were lucky enough to get Annette Miller.
And Annette started with us right after the first of the year.
She comes with a terrific background from Target, and has actually proven to be a great partner on the leadership team.
She's doing a lot of work around three areas.
She's working very hard on something that we call combo sales.
One of the things that we believe is a quick way to grow our retail business is that when somebody is in getting their hair cut, we want to make sure that they buy product.
She's come up with some very creative ways to help educate and incentivize the stylists.
She's also work on assortments.
We have pretty much a one-size-fits-all across our salons and she's been much, much more thoughtful about that.
Then also on inventory management, not only in our warehouse but at the salon level, making sure that we have the right in-stock on our best sellers.
We have a pretty good replenishment program, but again, it was sort of a one-size-fits-all.
So she's been very, very thoughtful about how we can drive retail with tools like that.
She's done a lot of good competitive assessments too on the category as a whole.
We need to give her time to put it in place.
As you know, with any kind of retailer you can't just make plans with your suppliers and change things the next day.
You need time to get it to work through the system, get the right POS in the salons.
I think the things that Annette and her team are doing are really thoughtful and will have a nice impact on our retail business over time.
We bought about just over 900,000 shares.
The average price was in the mid $14 per share range.
It's actually in our 10-K.
We don't actually spell out the exact amount, but actually throughout the year, as our execution has been improving in the salon, we've been seeing tremendous compliance from a cycle count perspective.
That's been through, the years, starting to give us a lead indication that our shrink rates were improving.
In the end of the year when we actually trued up the full book-to-physical, we saw the benefit of that.
It was the large impact that really helped our retail margins in the quarter.
We don't give guidance, but what I'll tell you is that we probably had some deminimus margin deterioration because of the mix of business, the combo versus retail only.
The combo ticket is a little bit lower.
Other than that, not much else.
I'll take that one, <UNK>.
Good question.
We have, over the last couple of years, really accelerated the growth of our franchise business for a couple of reasons.
We saw that there was an opportunity to protect markets that we were in.
We did see that there was also an opportunity to grow revenues out of that.
The franchise business today performs better than we do, so while we have hunkered down and focused on fixing the salons we have today, we have been growing the franchise business aggressively.
So, if I read between the lines and make sure that I get your question; if we were going to take a large number of our shares and convert them to franchise.
No, we believe that we can fix them.
We believe that ---+ we know that when we run a salon well, we generate an awful lot more cash flow from a salon we run well than we do from a franchise.
We think that we're an interesting hybrid.
We like both, but we believe that we can fix the base business and that we can generate a lot of cash as a result of fixing that base business.
Thank you.
We don't give guidance as to our cost structure, but what I'll tell you is a couple of things.
One, to the extent we are making investments or continuing to make investments next year, we're funding it through our cost structure.
So we're continually looking for ways within our own cost structure to offset the impact of future investments in our business.
But where we get the real leverage in the business is by growing.
I think when we suddenly see our business grow in that 1.5% to 2% range, that's when we begin to see leverage of growth.
Well, I won't speak about it from a guidance perspective, but what I'll tell you is minimum wage is, in the short term, what I would call our headwind and in the long term it's our opportunity.
In the short-term when we're not executing as well as we would like to be, a larger percentage of our stylists are not commissioning.
So as a result, when minimum wage goes up, it creates cost pressure for us.
In the long term, when all of our portfolio is executing as well as the half that <UNK> referred to earlier, a greater percentage of our stylists begin to commission, and then minimum wage becomes a theoretical argument because they are making more than minimum wage once they're hitting the commission scale.
Does that help.
It's a combination of the two; it's a mix.
What we are seeing, though, that once somebody gets into the online booking tool, be it through the mobile app or through the website, is they become a consistent guest.
It's a really easy way to get a service from Supercuts.
I think our marketing team did a great job building out both the website and the mobile app and we'll continue to bring improvements to that.
I saw some improvements yesterday that I was really excited about.
I think that, while we're pleased with where we are today, I think we're just scratching the surface of where we can go with that technology.
Okay, thank you, Cassandra, and thank you, everybody, for joining us today.
We look forward to talking to you again in a couple of months.
Have a great weekend.
| 2015_RGS |
2016 | OFC | OFC
#Thank you, Jasmine.
Good afternoon and welcome to COPT's conference call to discuss the Company's first-quarter results for 2016.
With me today are <UNK> <UNK>, President and CEO; <UNK> <UNK>, Executive Vice President and COO; and <UNK> <UNK>, EVP and CFO.
In addition to the supplemental package and press release related to first-quarter results, we have posted a flip book on our website that accompanies management's remarks.
As management discusses GAAP and non-GAAP measures, you will find a reconciliation of such financial measures in the press release and on the investor section of our website.
At the conclusion of management's remarks, the call will be opened up for your questions.
We remind you that statements made during this call may be forward looking within the meaning of the Safe Harbor of the Private Securities Litigation Reform Act of 1995, and that actual results may differ materially due to a variety of risks, uncertainties and other factors.
Please refer to today's press release and our SEC filings for a detailed discussion of forward-looking statements.
With that, I will turn the call over to <UNK>.
Thank you, <UNK>.
Good afternoon, everyone.
The positive momentum with which we ended 2015 carried into a solid first quarter, the results of which are summarized on slide 4.
FFO per share of $0.47 was in line with our expectations, and same-office cash NOI grew a very strong 6.4%.
Additionally, cash rent spreads on renewing leases turned positive, and GAAP rent spreads were in the low-double digits.
These and other aspects of our first-quarter results affirm that real estate fundamentals in our markets are rebounding.
Our dispositions are progressing, and we are pleased with the depth and quality of the potential buyer pools.
We have over $600 million of assets in the market to ensure we hit our disposition goal of $440 million this year, and also have optionality on what we sell.
Interest from all-cash and leverage buyers is strong, and we are confident that we will hit our target.
By extension, we have a high degree of confidence that we will achieve our year-end leverage targets with sufficient proceeds to also fund development, nearly all of which will be at Defense/IT locations that serve critical missions involving intelligence, surveillance, reconnaissance, and cyber security aspects of assuring national security.
With that, let me hand the call over to <UNK>.
Thank you, <UNK>.
I'll begin by providing more color on our same-office cash NOI results.
As slide 4 shows, same-office cash NOI grew 6.4%.
Now that space give-backs by defense contractors have abated, we expect same-office cash NOI results to continue benefiting from this stability.
Based on the strength of our results, and our confidence in our leasing forecast, we are increasing our guidance for same-office cash NOI growth for the year by 50 basis points to between 3.5% and 4%.
Leasing activity in our markets continues to rebound.
We see increased demand in our Defense/IT locations for new, efficient space from contractors who, in response to DoD budget clarity, now operate in a more normalized business environment.
Job growth in the mid-Atlantic, where 90% of our assets are located, led the country in March.
Based on data from the Bureau of Labor Statistics, the mid-Atlantic region produced over 91,000 office-using jobs last month, representing an annualized increase of 11.6%.
Among the 14 markets that compose the region, Baltimore ranked first, producing over 21,000 office-using jobs for an annualized increase of 18.6%.
The majority of the job gains were in the private sector, predominantly professional and business services.
Fundamentals in the BW corridor, where over 50% of our portfolio is located, continued to strengthen.
Within the corridor, our Class A vacancy in the Howard County stands at 6.6%, which is the lowest rate since 2000.
Big blocks of space command a premium because they are scarce.
These fundamentals support an increase in net effective rents, and we are also pursuing build-to-suit opportunities for cybertech companies that are quickly outgrowing their current space.
We leased 545,000 square feet in the quarter.
Rents on renewals grew in nearly every segment, averaging 2% on a cash basis and 11.4% on a GAAP basis.
Our original guidance for the year for cash rents to roll down between 3% and 2% ---+ based on first-quarter results, we now expect a more modest roll-down and are revising our guidance on cash rent spreads on renewals to between negative 2% and negative 1%.
Tenant retention in the quarter of 64% was in line with expectations.
Three-quarters of the non-renewing space was or is in the process of being backfilled by new tenants with expanding business opportunities.
For the year, we continue to forecast the retention rate of 65% to 70%, including 100% renewal rate on the large lease expirations this year, which are shown on slide 7.
Moving to slide 8, we completed 163,000 square feet of development leasing in the first quarter, and have great confidence that we will achieve, and in all likelihood exceed, the 700,000 square feet of development leasing in our 2016 plan.
This confidence in development leasing is based on the depth of our shadow development pipeline, shown on slide 10.
Most of the demand revolves around Redstone Gateway and our data center shell business.
We are also pursuing an opportunity to pre-lease the final redevelopment building at [Evercress], which will support a stronger disposition valuation.
The transactions summarized on this slide represent a solid runway of external growth from build-to-suit and highly pre-leased developments.
With that, I'll turn the call over to <UNK>.
Thanks, <UNK>.
First-quarter diluted FFO per share as adjusted for comparability of $0.47 was in line with the mid-point of our guidance.
Same-office cash NOI growth of 6.4% exceeded our internal forecast.
Nearly 200 basis points of that growth was due to cash rent commencements.
We also benefited from lower seasonal operating expenses versus the first quarter of 2015.
I'd like to highlight capital markets activities, and our balance sheet and credit metrics, which are addressed on slides 11 and 12.
In March, we sold $5.7 million of land in Colorado Springs.
In May, we expect to complete the refinancing of the secured loan at M Square.
This 10-year fixed-rate $45 million financing will be priced at approximately 3.75%.
At March 31, our debt to EBITDA was 6.9 times and our debt to adjusted book was 43.6%.
These ratios and other balance sheet statistics exhibit seasonality, with the first-quarter statistics typically exhibiting the highest levels.
By year end, we expect to improve our debt to EBITDA to 6.1 times and our debt-to-adjusted-book ratio to 39%, as pre-lease development projects come online and as we pay down debt with asset sale proceeds.
Slide 12 depicts our debt maturity schedule.
Approximately 88% of our debt is fixed rate, and our total debt has a weighted average maturity of nearly six years.
Additionally, we have no unfunded balloon maturities until 2019.
Slide 13 provides our sources and uses of capital for the year.
As <UNK> highlighted, we are marketing over $600 million of transactions in order to ensure we complete the $440 million of sales in our 2016 plan.
Because negotiations are in progress, we are not going to comment on specifics today, and instead we will press release and discuss transactions as we complete them in the coming months.
Slide 14 summarizes our second-quarter and full-year 2016 guidance.
Diluted FFO per share as adjusted for comparability for the second quarter is expected to be between $0.48 and $0.50.
For the full year, we are reiterating our prior guidance of $1.95 to $2.05.
I would remind listeners that while the mid-point of our full-year guidance for FFO per share is essentially flat versus 2015 results, we continue to forecast AFFO growth in excess of 4%.
To get from the $0.47 in our first quarter to the $0.49 mid-point of our second-quarter guidance, add $0.03 for NOI resulting from higher occupancy and lower seasonal operating expenses, and subtract $0.01 to account for the sale of a portfolio of assets in May.
With that, I'll turn the call back to <UNK>.
Thank you, <UNK>.
So, those of you who know me would never accuse me of having the gift for gab, so I'd just like to thank everyone, <UNK>, <UNK> and all the COPT employees, and the investment community for making these last 30 years both challenging and wonderful.
I'm grateful for and humbled by the journey I've had with COPT.
With that, operator, please open up the call for questions.
It's really the mix of leasing, <UNK>.
We had a significant amount of leasing in the BW corridor where are conditions are stronger.
Later in the year we're going to have some leasing renewal activity in our Navy support group that won't be quite as strong.
There are two separate situations, <UNK>.
With regard to 310, it was just a longer procurement cycle.
That activity is in process and we expect it to be resolved this summer or third quarter.
With regard to NOVA B, there was a change in the ultimate user of NOVA A, which really propelled us to win NOVA D, on a build-to-suit, but we had already built B and now we are working with that customer to put a related entity into NOVA B.
So it was a delay, but a good news delay.
<UNK>, this is <UNK>.
We have not had any buyers have any difficulty in the financing markets in the transactions that we have in the market.
We have some transactions that are all cash buyers for those who are looking to put their capital stack together, debt and equity.
We have not had any issues with those buyers accumulating those stacks as they have gone through the process.
And we continue to be encouraged by that depth of the market that we see and the number of buyers looking at each of the individual assets that we have in the market.
With respect to timing, we have for the $440 million, I would still expect sort of an average number for the year, so you can average that over the balance of the nine months for planning an impact to FFO for the year.
For gap leasing spreads we would expect them to be in the 7 to 8% range for the entire year.
Positive.
Yes.
Sure.
There's actually three buildings.
Two are US government buildings, one at the NBP, one in Howard County.
It's just early in the cycle for them to be processed.
They'll be funded with 2017 money and will be renewed.
The last building listed ---+ the 152,000 square foot building labeled TBD is a large contractor at the National Business Park who's competing on a major contract.
If they win it, we anticipate them keeping the building.
If they lose it we would expect to get about half of that space back, but I would point out that there's only one other competitor and that competitor would need the space.
So we are pretty confident we are going to be in good shape there.
We really do believe that we can maintain the pace that we have currently listed on our development schedule through next year.
We have significantly more development opportunity in conversations, or early discussions, than we list on our shadow development pipeline.
So we have high confidence we will continue to be able to develop successfully.
Thank you.
First of all, I'm not acknowledging those three letters.
The US government is in Air Square 10 and 20.
We use some of those buildings, <UNK>, and we understood before I joined the Company that long-term those buildings would not support the users that were in them and they are being relocated to other secure campuses that the government leases.
They're moving to more efficient campuses like we have at NBP where they can put multiple buildings in a campus and achieve economies of scale from their security.
With regard to Boston Properties building, I'm not sure I really want to touch that, but that building is developed with a different kind of occupancy model.
That contemplated renting space by the seat, and having the landlord, in essence, provide all of the tenant improvement and systems for a secure operating environment.
And I believe that the government customer is just weaning themselves off of that rental model.
Thanks, <UNK>.
Well, unquestionably.
If you look at the magnitude that we have listed down at Redstone Gateway, there's quite a bit of discussions and activity in play, even exceeding the amount that we listed.
And that's driven by the improved spending environment in the DoD and the need for new efficient space.
And having both government and contractors confident that they'll get the funding they need to address their mission needs in new buildings.
But additionally, at the National business Park, we preleased half of 540.
We have tenant demand for the balance of it and also in our northern Virginia locations, both from the data shell standpoint and our government customers, we continue to have discussions about further demand.
Our leverage targets that we've outlined will really be accomplished by the end of the year with the proceeds from the asset sales, so our targets of where we want to operate the Company long-term are debt to EBITDA of 6 times, and debt to adjusted book in the 38 % to 39% range.
By year-end, we expect to be down to those levels.
Which, again, will be achieved with additional proceeds from the asset sales above and beyond what we need to fund the development pipeline.
Thank you all for joining us today.
If your question did not get answered, most of us are here in the office and available to speak with you later today.
Good day.
| 2016_OFC |
2016 | PGNX | PGNX
#I, <UNK>, did not ask them that.
There was nothing in our interaction with them that would lead us to believe that that's not the case, that they're not committed to the SPA and to the 25% response rate endpoint.
You know, as I've mentioned many times, I think that you can't just do the math and say that we only need, say, one more responder, because we want to see that this drug works in our hands as well.
But I continue to believe this is highly de-risked.
And the regulators are standing behind the SPA, and so we have a clear target to hit.
Yes, we did not see any significant impact in the fourth quarter.
So that is what's leading us to feel that the issue may be behind us, but I'll just repeat my caution.
It's just one data point.
It could be.
It does seem consistent with the IMS data that we have seen, but again, just one data point.
Well, I'm not expecting that, <UNK>.
And I do think that RELISTOR is quite important to Valeant.
You know, obviously, they're going through their issues.
We know so many good people at Valeant, so definitely feel for them.
And I know that they're going to put the effort into this to make it a success.
We have tools as well.
So we are going to make sure that all the effort that can be is put behind it.
And as I mentioned earlier, the disease and awareness work that was done for the Movantik drug has created great momentum, I think.
So the timing is good.
And as we further our discussions with Valeant, and as their plans crystallize, we'll share with our shareholders the level of effort that we expect to see.
Yes, <UNK>, I don't have any data on that.
The anecdotal information that we're hearing ---+ when we ask, why do the RELISTOR Sub-Q sales look to be, continue to be strong in the face of oral competition.
The answers that we get when we ask that question tend to be more focused on the onset of action: that RELISTOR is maintaining usage because people like the quick onset of a bowel movement that comes from the Sub-Q RELISTOR.
So I don't think I can really give you more color into who is getting the drug.
We can see some of that from the doctors who are prescribing it but I think it's too soon to tell if that's made a big difference.
But clearly the mechanism of action of RELISTOR is top of mind when people think about that.
Yes, I ---+ again, I think we'll be learning this from Valeant as we interact with their commercial teams in the coming weeks.
I love that pain sales force that Valeant established for the promotion of RELISTOR.
And we do see, as we look at these subscribers ---+ the prescribers in the IMS data, some trends there.
But I'm kind of reluctant to overstate that, because we're reading some tea leaves there.
But we do see a widening of the types of prescribers, for example.
So that is good news.
Well, they announced that they had entered into a distributorship agreement with this company Sobi, a Swedish orphan company, for the distribution of the Sub-Q.
We are learning about that arrangement.
What we know about it is it's a distributorship-type arrangement.
It's relatively short-term.
And we expect to learn more from Valeant about what their long-range plans are.
And key will be to get the oral submission made in Europe, because I think that will be an excellent value creator.
We saw ---+ with respect to the Movantik drug, Nektar in AZ entering into a lucrative European arrangement with ProStrakan.
And so I continue to believe quite firmly that there is excellent opportunity in Europe for opioid-induced constipation treatments.
So I continue to have strong hopes that we'll see a strong collaboration in Europe for RELISTOR.
But still work to be done there, including on the regulatory side.
Well, we're not planning Super Bowl ads for pheochromocytoma.
And this would not be a drug that you would have a launch party in the Arizona desert for.
The key thing, I think, in promoting AZEDRA will be the connection with the patients.
And the clinical trial that we've, you know, just completed enrollment has given us great insight into those patients and what's important to them.
So we continue to believe quite firmly that the best way will be a focused, small sales force, really more MSL types.
<UNK> <UNK> comes to us from NPS, and so I think we've got the benefit of <UNK>'s background from a finance perspective in how you commercialize an ultra-orphan drug.
And we're not really seeing significant costs.
There could be, or there will be, some costs associated with the manufacture of the drug.
But because it's a radiopharmaceutical that's made to order, you won't see the kind of costs, for example, to build up inventory in advance of launch.
But to have the adequate capacity to manufacture the drug commercially could result in some expenses in 2017.
<UNK>, would you agree with my assessment of that.
Yes, I think we have ---+ looking at our options.
And we definitely could add some cash costs.
I'm not sure how it will flow through the P&L, because this is a capital item, <UNK>.
So we'll be looking at that 2016/2017.
Some impact on 2016, but I would think it's modest.
In 2017 ---+ you know, we're talking single-digit millions in 2017.
So on the latter question, the worldwide rights are held by Valeant.
And so they are responsible for exploiting the asset in other territories.
There are existing distributorship arrangements in place, for example, in Australia.
And I think that Japan is a good market for an opioid-induced constipation drug.
Of course, the Japanese people are not high consumers of opioids, but we do see changes in the Japanese market with respect to ---+ by the use of opioids by cancer patients.
So the Japanese market is really an advanced illness market, but I do feel that there would be strong potential there.
It will be for Valeant to do the licensing there.
And as I mentioned in the prior discussion, I see a really excellent opportunity in Europe, and that was just validated by the ProStrakan deal that was done for Movantik.
So we'll be discussing with Valeant that as a really prime topic, to make sure that we are getting the best value out of Europe.
Could other territories generate significant revenues.
Perhaps, but as you look at opioid usage, really it's the US and Europe that will be the value drivers.
And then, forgive me.
I've forgotten your first question.
So we're beginning to do the BD work, business development work, around ---+ and again, I think the focus is Europe; but also significant opportunity in pheochromocytoma and paraganglioma in Japan, where these are rare diseases of interest.
And I think that the value will be strongest in partnering into those territories when we have the data.
So the business development effort ---+ focused on identifying potential partners, talking with them about how they would want to participate.
Where the drug is manufactured is a really important issue, because we make it to order.
So deals in Europe and in Japan will also clearly involve the manufacturing side of the drug.
And we would hope that we'll be able to conclude those kind of arrangements as soon as we can, after we are able to show the data from the US trial.
Well, it is long been a hallmark of mine that I like to do separate deals in the Japanese market, because I think that it's a very substantial market.
There are unique regulatory requirements there.
And so local knowledge is critical, and I think that's even truer when you're talking about a radiopharmaceutical, where local manufacturing and distribution will be advisable.
So I would look at the Japanese market as stand-alone.
And Europe has long experience with radiopharmaceuticals, and there are many accomplished manufacturers in Europe.
So I don't think we would be looking to compete with them, and would be looking to partner with someone in Europe who was able to cover that entire territory.
So I think an ideal situation for me would be for us to commercialize here in the US on our own, to have a strong European partner, and a strong Japanese partner.
That would be our goal.
I think we have nothing further to say.
So I'll thank you all and wish you a wonderful day.
| 2016_PGNX |
2016 | ESE | ESE
#I\
I think after we've taken these actions, we're looking more 13% plus margin in the Test business.
I mean, this was a ---+ between taking costs out with the two international operations some of the initiatives we have under way to reduce cost at our domestic locations and some of the things we're doing at our plant in Austin, I think we have a very clear path of sustainable 13% or 14% margin in that business.
I think if we're able to get some growth this next year, we should be able to hit those types of margins in 2017.
I'd have to go back and look and see exactly how much growth we got here, but we certainly will see growth over what we have this year.
I mean just based on the things that we have ---+ the fact that we'll have Plastique for a full year.
So I would say that we will see some growth going into 2017.
I really don't talk about how much yet because we spent all our time recently talking about the fourth quarter and so we get everybody back together in late August early September to talk about 2017.
Yeah, obviously we talked about that, we're given up an early sense of that but at that time we will kind of firm up what our outlook's going to be for 2017 and we'll talk about that on our next call.
The thing I will say.
<UNK>.
I mean I feel really good about some of the actions that we've taken to get our cost in line.
If you look at the fact ---+ I mean it is obvious to everybody that sales aren't as strong as maybe anticipated this quarter even, but the facts are we've really done a good job.
The Company's done a good job of controlling costs, making sure that's in line.
So the great thing about that is we go into next year the growth that we get we should be able to leverage pretty significantly, so that's one of the things that's very encouraging to me, the hard work that they've done this year we should get additional benefits going into next year.
Yes, well we have to address it across each of the businesses.
I think that within the filtration business it is very quick.
And we don't have a big capital appetite, filtration, all the stuff we need is done so the conversion rate there is in the high 80s to low 90s relative to its EBIT contribution again because we carried the tax burden at corporate.
So I put them in the high [A-plus] bucket on how they quick turn that plus the customers.
We have the air buses and Boeing's believe it or not paid on an efficient basis so the conversion is really quick.
In Test it is kind of an anomaly because on some projects you get advanced payments, and then on other ones you get retention on the back end until everything is certified.
So you might get 20% of the cash up front and then you might run eight months with no cash in and you get 60% at completion and then the other 20% upon sign off the contract.
So that's a real hard one to predict because it is really a function of what projects you have running through the pipeline.
And then go to the Plastique ---+ the packaging business that's kind of somewhere between because we have these long runs of programs; things like [KAZ] we get paid quickly on.
And some of the medical ones where you are running that program for 90 days and you really don't bill the customer until the 91st day and then you collect a little after that.
So I put the filtration in the 90% bucket.
I put Test in the 40% or 50% bucket on a conversion; again it is time phased.
And then Plastique ---+ or the packaging group I'd put probably in a 75% conversion because there is a capital appetite there relative to the efficiency (inaudible) off the machines, so there's a little higher capital appetite than the other places.
And I'd say Doble's conversion rate can range from 50% to 90% because even though we're a critical customer to them, utilities don't always pay as quickly as you think they would.
And again we have some leverage over them and we choose not to use it.
And so, you bring all that stuff ---+ (interruption) ---+ particularly international.
And then when you bring that all together I would say if you were just picking out one number and said 75% would be the conversion across the platform, that would be out the right way to think about it.
And so ---+ well that's again a lot of data you really need to understand the four components of that before you say well 75% is not very good.
What these really are are ruggedized computers that have very specific application.
So the specific product itself is not that expensive but typically utilities you're going to buy enough of these to outfit a large number of their (inaudible) engineers.
This is something I think is in kind of the initial forecast that $7 million or $8 million a year after we get it up and running which we should be up and running late next year.
We're getting really good at the option rate on that and so we think it's got a good future.
And the biggest reason, I mean it's a great product first of all but there's a lot of regulatory pressure for utilities in a certain area which you satisfy so and then that kicks in, in April so I think a lot people are going to be charged last half of next year (inaudible).
Okay, so again I'll let <UNK> talk about each of the businesses.
With the fluid flow business I don't think it is really big issue there at all, so I think we are both comfortable with that.
The packaging business probably the same way.
I mean there has been good longer term contracts there, good backlog, good insight into what the customer wants.
With Doble, solid business.
We have seen some pressure on the hardware side of the business.
The utility budgets are just little tighter than they have been historically for a lot of reasons.
What we tried to do to address that are couple things and we've been working at the last couple of years; one is developing new products as we just talked about so this may be a very temporary thing as something new products kick in.
Our M7000 which we introduced last year we're way ahead on sales on that product versus where we thought we were going to be going at this point in the year, so it's not like all hardware's sales are soft.
So anyway new products on the hardware side.
We've really expanded our offerings on the software side and that's been partially through internal development and partially through acquisition.
(Inaudible) acquisition we did a couple years ago has been a real success.
It's fully integrated both within our hardware and some other people's hardware, so that's been a great thing for us as well as the arms product.
And the other thing is the service side of it.
And the service side is something else we've emphasized.
And a lot of times what you'll see with utilities is they don't have hardware budgets, they may have service budget.
And while they may not be able to buy the equipment, they still need the test done and so they'll reach out and work with us on that.
So while our hardware (inaudible), the other pieces (inaudible) stronger.
So net-net, I think we'll be fine.
And then the other thing as I mentioned in my prepared remarks is really a renewed focus on international business and that's something we're working on as well.
And so that leaves the Test business.
And always the Test business is the one that's probably the toughest to predict.
Having said that if you look at the orders that we had this year we have really not had big orders.
And so the biggest orders we've had are $3 million or $4 million ---+ as we said here today, we're bidding a number of larger projects going to next year so you can anticipate that we will continue to get the type of orders that we've gotten this year in addition some of these larger projects may come in.
But those are the most susceptible obviously to some of the budget constraints that are out there, so short answer is a little bit concerned at Doble, a little bit concerned at Test.
But we think we understand those and we think there are other opportunities to offset what we are seeing.
The other two businesses I think we are pretty solid in.
Sure.
So they're just in way of background we're coming up toward the end of year two of the Saudi contract, which is the largest contract we have there.
They are exceptionally happy.
In fact we have two people there today working on the extension of the third year of that contract.
We completed a job at Marafiq which is another Saudi utility, and we had [Paul Griffin], one of the guys that is responsible for that area over there, well he spent two months ago and he had probably eight meetings with eight different utilities; a lot of interest in what we're doing.
I think as we get through this process with Saudi and people see the results we are able to get that we will continue to get good traction.
It will be such a big opportunity for us and obviously Saudi very well respected in the region as far as what we are seeing on the utility side.
And then kind of the kicker with that as well, everything we're doing today it is primarily services.
We have sold them maybe $2 million of hardware as well.
If they go into the next phase more and more equipment will be sold to support their ongoing operations.
What they're really trying to do is kind of get a baseline and then bring a lot of that in house and for them to be able to do that they will need to have the equipment that were using to complete our piece of the process.
Yes, obviously we have to be a little careful on what we say but we're pretty far along on one opportunity and there's probably three others that we know are coming to market that we are very interested in over the next four or five months.
Correct.
Okay.
Well, I do want to make one clarification.
I guess we talked about DUCe, an [essential ruggedized] computer; obviously enthused about that from a hardware perspective but what really drives it is our software that we put on that.
So it's not like we're just reselling somebody else's computer, we are really putting a lot of intelligence into that product.
So with that I'll just thank everybody for their participation.
I look forward to talking to you in the next call.
| 2016_ESE |
2017 | REX | REX
#Good morning, and thank you for joining REX American Resources' Fiscal 2017 First Quarter Conference Call.
We'll get to our presentation and comments momentarily as well as your Q&<UNK>
But first, I'll review the safe harbor disclosure.
In addition to historical facts or statements of current conditions, today's conference call contains forward-looking statements that involve risks and uncertainties within the meanings of the Private Securities Litigation Reform Act of 1995.
Such forward-looking statements reflect the company's current expectations and believes, but are not guarantees of future performance.
As such, actual results may vary materially from expectations.
The risk and uncertainties associated with the forward-looking statements are described in today's news announcement and in the company's filings with the Securities and Exchange Commission, including the company's reports on Form 10-K and 10-Q.
REX American Resources assumes no obligation to publicly update or revise any forward-looking statements.
I have joining me on the call today, <UNK> <UNK>, the Executive Chairman of the Board; and <UNK> <UNK>, Chief Executive Officer.
I will first review our financial performance and then turn the call over to <UNK> for his comments.
Sales for the quarter increased 12.9%, primarily due to increased ethanol pricing and production.
Sales were based upon 63.3 million gallons this year versus 58.7 million gallons in the prior year first quarter.
Dried distiller grains sales were down $1.9 million or approximately 11%, reflecting a $25 per ton decrease in pricing.
Gross profit increased 48% on a quarter-over-quarter basis.
The crush spread was approximately $0.23 in the current year versus approximately $0.10 in the prior year.
The gross profit was positively impacted by ethanol pricing and volume, but negatively impacted by DDG pricing as well as natural gas pricing.
SG&A increased in the first quarter from $4 million to $5.4 million, primarily reflecting increased railcar repair costs as well as higher professional fees and incentive comp.
Equity method income for the first quarter increased from $233,000 to $700,000, primarily reflecting improved industry dynamics for the first quarter over the prior-year first quarter.
Our tax rate for the first quarter was approximately 34.5% net of minority interests, which approximates to prior year first quarter rate.
Our net income for the quarter increased 60% to $4.5 million versus $2.8 million in the prior year.
Diluted earnings per share for the quarter was $0.69 versus $0.43.
I'll now turn the call over to <UNK> for his comments.
Good morning, everybody.
During the first quarter 2017, we made total capital investment of approximately $5.9 million and to date approximately $9.3 million.
We added ferm tanks, boiler, cooling towers, centrifuge and energy-saving equipment.
These are the main capital investments we had.
The construction work is now rapidly progressing and is expected to be completed by the beginning of fourth quarter.
As we continue to increase ethanol production, we will continue to monitor crush margin.
NuGen is also producing export-grade ethanol.
NuGen sold more than 19 million gallons of export-grade ethanol this year, compared to last year, we sold about 8 plus million.
So as the construction will increase, and I think it also depends on the weather and how the weather, rain, continues, but we expect that by the end ---+ by the fourth quarter, construction will be completed, and at that time we will start producing close to a 150 million gallon rate.
I think as <UNK> mentioned about the exports, since I said we are exporting it, we expect the ethanol export will increase to Brazil, Canada, Mexico and India.
Mexico will be potentially replacing MTBE.
Ethanol export for the first quarter of 2017 was 387 million gallons, according to Renewable Fuel Association.
Export to Brazil for first 4 months of this year totaled 220 million gallons compared to only 59.2 million gallons during the last ---+ during last year in the same period.
So we expect that this year export will be approximately 1.3 billion gallon or more.
<UNK>.
Yes, that's right.
First quarter, we spent about $5.9 million.
But I think to date, we have $9.3 million.
So construction work continues.
And we expect by the fourth quarter, we will be able to start full production.
And as you know, again, it depends on a lot of things, also on weather and some of the equipment delays.
So ---+ but that's what we're hoping, by that time we will complete.
I think we have ---+ as we said previously, it will about $10 million to $15 million for each location.
So we are expecting somewhere $20 million to $30 million for the both of them.
And I think that will lead us to production of growth of to 150 million gallon.
Correct.
Each, yes.
Not really.
I think that what we have done this ---+ this is also our shutdown month because with both locations, we shut down in the month of May.
When we shut down during that period, we added extra tie-ins, and when you try to do a tie-in, and then some equipment was added this month, so it took a little bit longer for us to come back into full production than normally, after the shutdown we come back.
So that certainly affected some in this month.
But we try to do all this tie-in during the shutdown.
But otherwise, no, it does not affect overall our production.
Thanks you, operator.
Thank you, everyone, and we very much appreciate your listening to us.
And we'll talk to you again at the end of next quarter.
Thank you so much.
Bye.
| 2017_REX |
2016 | HMST | HMST
#Hey, <UNK>.
Yes.
We do, internally.
I think it's safe to assume that, given our guidance on loan growth, that that needs to be supported primarily with deposit growth.
Right.
We are right around 100% loan-to-deposits and we don't intend to go too far over that.
It's important that we grow our deposits, consistent with our loan growth.
Obviously, we have to be focused on funding, when you look at our strategy for growth.
Part of that funding strategy will have to be made up with time deposits.
We are seeking to keep that composition from rising much, though, that assumes that, as the total grows, the absolute total of time deposits, as well, will grow.
More importantly, though, our branch-opening activity and retail strategy, along with our commercial banking strategies, expected to grow the lion's share of the deposits, going forward.
We may add to that with acquisitions; we have in the past, of branches and deposits, and it's an opportunistic activity.
Obviously, M&A can help that funding equation, as well and, we continue to look at deals that exist in the marketplaces in which we are interested, and so, I would expect that the answer to that lies both in organic growth and in M&A.
It was ---+ there was a retail component.
There was ---+ what would I call this one.
It was an institutional component.
There's an institution of peer-to-peer market for CDs that was a substantial part and then about $100 million of it was brokered.
It's all in-house, directly originated.
I'm sorry what.
Right.
I was excluding that.
Our strategy does not include, nor need, secondary-market purchases of any loan type.
It will be, but let me say about syndicated loans, at some point we will have some syndicated lending activity.
To date, I think, now that I think about it, we did do one small syndicated participation.
I think that will be opportunistic when really attractive deals come across the bow.
Our business is primarily direct to the customer.
That is purely commercial real estate; permanent commercial real estate lending in, primarily, multifamily.
It's a local originator.
But ---+ local originator, but with a Western States book of business.
Good morning <UNK>.
Thank you for asking that.
I have been beating up my internal people about how we report.
If you look at our core-efficiency ratio I think we quoted it ---+
It's on page 17 on the earnings release.
So, this ratio excludes M&A-related expenses.
It is more core.
There are some others, sort of nonrecurring things, even things like intangibles amortization, that other people do not include in their calculation of operating efficiency, that we still do.
But, we are expecting this ratio, the core ratio, to fall to the low 60% range by the fourth quarter of this year, mid to low 60%.
Yes.
So, keep in mind, in this quarter, we had the overhang still from the remaining OCBB expenses that we will bring out.
I should say this quarter, being the first quarter, relative to this quarter that will come out.
We also had five new office openings in the quarter, so that impacted it.
And, additional FICA expenses, seasonally.
And additional FICA expenses.
Now, you will see, in the second quarter, obviously, the full quarter impact of some of those additional offices from the first quarter, but as <UNK> mentioned, as we move throughout the course of the year we anticipate the efficiency ratio improving quite a bit.
Correct.
No, I take that back.
The other significant item in the quarter was, really, the absence of any material loan sales or securities gains.
If you look at the fourth quarter, as an example, we had eight-point-some million dollars of non-interest income, most of which $7 million or so, which was related to sales of Fannie Mae DUS loans, or SBA loans.
We had very little of that activity in the first quarter, but we expect to have a substantial amount of that activity over the remainder of the year.
So, you have two affects, both a change in operating expenses and a pretty substantial increase in revenue driving that change, that expected change in the operating-efficiency ratio.
Consolidations, no.
We have not ---+ we don't expect to acquire any that would be consolidatable.
And those that we open are in new markets.
It will, but not as quickly as revenue.
So, we expect that operating leverage to not only improve earnings, but the ratios related to them, like operating efficiency.
Yes.
We are expecting somewhere in excess of $200 million.
Obviously, it depends on the market and market timing.
We have seen premiums run from, let's say, 2% to 3%-plus.
So, when you look at our net-interest-income sensitivity, we do see that we have more liabilities refunding and repricing in zero to three months than we do assets.
A number of that is our federal home loan bank advances repricing, and then, the remainder would be to higher cost of deposits.
Thanks, <UNK>.
That's going to be ---+ it could be lumpy.
The timing of not just the origination but the sale of loans may not be really even.
I would say ---+ so, <UNK> mentioned, as well, that last quarter was a high-water mark, with respect to that non-interest income coming through that segment and the first quarter is a low-water mark, so, I think it's fair and reasonable to take the average of the two quarters, in terms of expectations, going forward.
In total, in addition to the DUS sales, the other multifamily sales, as well.
Right.
So, depending upon the level of activity, that number could range from $2 million-$5 million, depending on the quarter.
Including multi, right - sort of all in - and, including SBA, actually.
Sure.
It's a little bit typical seasonality.
The fourth quarter, typically, has a lot of activity, loans that investors or buyers of property, or people refinancing, want to get concluded by year end, so there is always a rush to close as much of the pipeline as possible for customer purposes, as well as our own.
And, typically, in the first quarter, there are not as many sales transactions.
People are just starting the year and activity is seasonally slower.
So, we expect the remainder of the year to be more typical, seasonally, with higher activity.
But the fourth quarter is always busier, and the first quarter is typically slower.
So, for the Orange County Business Bank acquisition, we are still expecting that acquisition to be accretive this year.
Some 3%.
We will have some transition expenses in the second quarter, but by the end of the second quarter, all of the expense savings will have been realized.
So, from third quarter forward, we should be at the run rate we expect out of that acquisition.
With respect to de nova branch openings, that occurs over a more lengthy time frame, because it's related to the acquisition of deposits in the marketplace.
Typically, we expect branches to be breaking even, depending on how you calculate the interest rate associated with the deposit, at about two years.
Fully-funded, or fully grown, I guess, in about five years.
Our branch has been running ahead of that number, typically, I think all but two cases are well ahead of the deposit acquisition pace that we expect.
So, with respect to new branches, that is the timeframe.
With respect to other positions that may relate to corporate infrastructure, they may not be revenue-producing positions, but they may have to be added as consequence of our growth, so those ads are related to current growth in other areas.
It might be in compliance or legal or county finance, some of these areas ---+ Human Resources ---+ that ultimately become sort of size denominated.
Our lending centers, however, are expected to be profitable within a couple of months of opening, so any of our expansion expenses invested in new lending centers, whether it be single-family, homebuilding or commercial real estate, are expected to be profitable in a relatively short period of time.
Thank you.
Again, we appreciate your patience your attention this morning.
All of the great questions.
We look forward to talking to you again next quarter.
Thank you.
| 2016_HMST |
2016 | MDU | MDU
#Thank you, and welcome to our first quarter earnings release conference call.
This conference call is being broadcast live to the public over the Internet, and slides will accompany our remarks.
If you'd like to view the slides, please go to our website at www.mdu.com and follow the link to the conference call.
Our earnings release is also available on our website.
During the course of this presentation, we will make certain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934.
Although the Company believes that its expectations and beliefs are based on reasonable assumptions, actual results may differ materially.
And for a discussion of factors that may cause actual results to differ, refer to item 1A, risk factors, in our most recent Form 10-K and Form 10-Q and the risk factors section in our most recent Form 8-K.
Our format today will include formal remarks by <UNK> <UNK>, President and CEO of MDU Resources, followed by a Q&A session.
Other members of our management team who will be available to answer questions during the Q&A session of the conference call today are <UNK> <UNK>, President and CEO of Knife River Corporation; <UNK> <UNK>, President and CEO of Montana-Dakota, Great Plains Natural Gas, Cascade Natural Gas, and Intermountain Gas; <UNK> <UNK>, President and CEO of WBI Energy; <UNK> <UNK>, President and CEO of MDU Construction Services Group; and Jason Vollmer, Vice President and Chief Accounting Officer and Treasurer for MDU Resources.
And with that, I'll turn the presentation over to <UNK> for his formal remarks.
<UNK>.
Thank you, <UNK>, and good morning everyone.
We appreciate you joining us today to discuss our first quarter results.
We're off to a good start in 2016.
On a GAAP basis, we had earnings of $24.7 million or $0.13 per share.
That's a significant turnaround from last year when we had a loss of $306.1 million or $1.57 per share, largely due to a non-cash write-down at the E&P business that we have sold since then.
Consolidated adjusted earnings were $32.6 million or $0.17 per share compared to $20.9 million or $0.11 per share for the first quarter in 2015.
Adjusted earnings do not include our refining segment or discontinued operations.
Our work to restore earnings to a satisfactory level is beginning to produce results.
Our utility group is seeing benefits of their record level investment to serve customers.
Utility earnings increased by 22% over last year and the electric utility group had a record first quarter.
Our construction materials business is off to their best start in nine years from an earnings standpoint and has a record first-quarter backlog at now $831 million.
Our construction services group has been successful at rebuilding their backlog as well, which at the end of the quarter stood at $530 million, a 65% increase from last year.
Our combined construction businesses have built an impressive backlog now of nearly $1.4 billion, which is 38% increase from first quarter of 2015.
And at our pipeline business, we recorded record transportation volumes for this first quarter.
And as we announced last month, we have completed the sale of our marketed Fidelity oil and natural gas production assets.
Aggregate sale proceeds from and related tax benefits were approximately $500 million.
More importantly exiting the E&P business lowers our risk profile and allows us to focus more on growing our other lines of business.
The principal disappointment for the quarter is that market conditions continue to challenge our investment at the Dakota Prairie Refinery.
I will talk about this more in just a few minutes.
And as we look ahead, we will continue to build on the momentum at our business units by focusing on the factors that we can most directly influence, controlling costs, expanding margins and growing earnings.
So let's take a look at how our individual businesses performed this past quarter.
Our utility business reported earnings of $36.3 million, a 22% increase over last year.
A big factor in the success of our regulatory staff in pursuing recovery of investments made to serve a growing customer base.
Last year alone, the utility invested a record $464 million.
Since January 1 of 2015, the utility has implemented now $73.2 million in final and interim rate relief.
They currently have requested $49.7 million of rate relief in pending cases and this includes $37.3 million in implemented interim rates and $12.4 million in rate relief from additional pending cases.
The electric utility had a record first quarter and revenue increased 15%, even though retail sales volumes declined by 5%.
Regulatory recovery was a factor along with production tax credits associated with the newly installed 107.5 megawatt Thunder Spirit Wind Farm that went into operation late last year.
With that addition, our renewable energy now accounts for 20% of the utility's electric generation capacity.
At the natural gas utility, retail sales volumes increased by about 3% year over year.
In addition to rate recovery weather played a factor.
Temperatures in Idaho, Oregon and Washington were 11% colder than the first quarter of 2015.
This [low] was offset in our eastern service territory where temperatures were about 9% warmer than the prior year.
Overall, our weather was 5% to 19% warmer than normal this quarter.
These factors were partially offset by higher O&M, depreciation, depletion, as well as amortization costs.
Looking ahead, the utility expects their 1.05 million customer base to continue growing between 1.5% and 2% annually.
Over the next five years, they expect to invest nearly $1.5 billion to maintain safe and reliable service across our eight-state service territory.
As a result, they expect their rate base to grow by about 7% compounded annually over the next five years.
Their anticipated investments include 160 miles 345 KV transmission line that is expected to be completed in 2019.
Along with this, additional generation and pipeline projects to enhance the reliability also with deliverability of it on the system.
It does not include any impact from the clean power plan given the uncertainties surrounding the plant.
Now turning to our pipeline and midstream business, earnings here for the quarter were $5.3 million, down from last year's first quarter.
The principal reasons for the decline are lowering gathering and processing volumes at our Pronghorn facility in which we have a 50% interest and lower gathering volumes due to the sale of certain nonstrategic gathering assets that we've sold last year.
The Pronghorn volumes were affected by a number of wells that were temporarily shut in to facilitate the addition of a new six-well pad.
These results were partially offset by lower depreciation, depletion and amortization costs and a lower O&M as well.
In addition though, total transportation volumes increased 11% for a first-quarter record.
Looking ahead the pipeline and midstream group has three expansion projects currently underway here in North Dakota.
Two of them are expected to be completed this year.
Our North Badlands, which has about 70,000 dekatherms per day of capacity under contract along with Northwest, North Dakota.
They also are working on a line Section 25 expansion involving additional compression.
This incrementally will add another 22,000 dekatherms per day of capacity and is scheduled completion in the summer of 2017.
As a result of lower natural gas prices and wider seasonal spreads, interruptible storage service injections have now increased to 4.7 million dekatherms.
This is a significant increase from the 344,000 dekatherms we saw last year and we expect this trend to continue into the second quarter.
The group is also assessing additional potential projects and will continue to look at potential opportunities that might allow them to apply their expertise outside their traditional northern Rockies base.
At our construction materials group, Knife River narrowed its normal seasonal loss to $14.5 million, the best first quarter in nine years.
The group experienced higher construction revenues and margins partially offset by lower aggregate margins and the effect of a large precast project that we had in 2015.
You might recall that Knife River finished 2015 with a record year-end backlog.
They have kept up this momentum with a record first-quarter backlog now standing at $831 million.
This is 25% higher than the first quarter of last year.
Our construction services group increased earnings to $6 million this quarter.
They had higher inside construction workloads and margins, partially offset by lower equipment sales and rental margins as well as lower industrial construction workloads and margins.
This group is successfully rebuilding backlog now ending the first quarter at $530 million, up 65% from the $321 million of last year.
So looking ahead between our two construction businesses, we now have a combined backlog of nearly $1.4 billion, and that's 38% higher than last year.
So clearly, they're off to a great start here in 2016.
The construction materials group this year has been awarded major projects that include a $63.4 million, I-29 project in Iowa, along with this a $30.5 million bypass in Oregon and a $25 million I-35 projects in Minnesota as well.
The construction services backlog demonstrates this group's diverse capabilities.
Confidentiality agreements prevent me from naming specific customers but the work involves a utility-scale solar farm, a government research facility, a 345 transmission project along with a corporate campus expansion and utility maintenance contracts.
As we said on our February conference call, both groups expect margins also to be slightly higher this year.
At our refining segment, we experienced a $7.2 million loss associated with our 50% interest in the Dakota Prairie Refinery.
The refinery began operating just one year ago today and since then commodity market conditions have considerably deteriorated.
The Bakken basis differential from WTI pricing has narrowed, which increases the refinery's cost for crude oil feedstock.
In addition, the demand for diesel and naphtha has declined.
Due to current market conditions, we have lowered our assumption for the refinery utilization this year to about 75% of capacity down from our earlier assumption of about 90% and we're currently processing approximately 15,000 to 16,000 barrels per day at the plant.
In light of current market conditions, we are assessing various options with respect to our ownership interest in the refinery as well.
Now I'd like to turn to our earnings guidance and based on our first-quarter results, we are reaffirming our guidance for 2016 earnings.
On a GAAP basis, earnings per share are expected to be in the range of $0.85 to $1.10 and adjusted earnings are expected to be in the range of $1 to $1.15 per share.
And so to wrap things up, we are firmly focused on continuing to improve our financial performance to grow our businesses and we are off to a good start this year.
The combined backlog at our construction businesses is approximately $1.4 billion on a combined basis, up 30% from last year.
Our utility group is working hard to recover its investments to serve our customers with $73.2 million of rate relief implemented since January 1 of 2015.
Our $355 million capital investment plan for the year does include $260 million at the utility which won't require issuing equity.
And last week, our Board of Directors approved a quarterly dividend, a commitment that we have been paying uninterrupted dividends now for 78 years and increasing them for the past 25 years.
I very much appreciate your interest and commitment to MDU Resources and we'd be happy to open the line at this time.
Operator.
Good morning, <UNK>.
Thank you very much.
Hey, <UNK>.
This is <UNK>.
Currently obviously the market pricing for diesel and naphtha is very depressed.
So given where the margins are, it makes more sense to run at a lower volume.
And currently the plant, the lowest we can run without causing problems is between 14,000 and 15,000 barrels per day, and so that's why we're operating in that range.
Yes, the first-quarter results were in line with our expectations, but pricing has continued to decrease through the first quarter in terms of diesel and naphtha with the slowdown, especially in the rig count.
I mean, we were at over 85 last year.
[Last I looked] we were down to 26 rigs.
So obviously a lot of production, especially on the diesel side, is very Bakken dependent and so it moves with that.
And so with the decrease in rig count, we've seen that continue to be challenging.
Yes, a couple of things, <UNK>.
On the midstream side with Pronghorn you're going to see a pickup in the next quarter with the new well pad and the wells that were shut in coming back on line.
So we think we're on line with that through the rest of the year.
On the transmission side, given where our pipes are located in kind of the key counties, giving the gas flaring regs, we continue to believe we'll see increased volumes.
And then the other thing we've got going is storage spreads have picked up.
So we've got a lot of folks transporting to storage and we continue to believe we'll see that at least through the second quarter here and it'll remain obviously that is spread dependent.
Hey <UNK>.
This is <UNK>.
Yes, the margins in our backlog are close to what they've been in historical past.
Execution is going to be key.
Some of our higher-volume areas in our business, such as our service work, our non-backlog areas, our equipment sales and rental have been temporarily slow.
We've had a little bit of additional competition in those areas, but we're feeling confident in our backlog, the margins we have and where we are positioned to be able to focus on our execution and bringing those margins at or above our plan.
I think it's just a temporary slowdown.
We're seeing strong signs from our customers in that industry and it improving through 2020.
Our volumes are slightly lower, but we've made capital investment in this area in our Company and it's going to pay off.
We're adjusting some internal processes to make our business more competitive, but also improving on our successful reputation we've earned through our relationships and our people.
And we're providing great equipment and tools and service for this area and we've made some adjustments for this temporary period, but we think it's going to be, again one of our strongest areas of our Company.
Yes, <UNK>.
This is <UNK>.
When you look at the electric side of the business, we did see milder temperatures than we saw last year, which did impact our volumes as you saw.
But on an overall basis, our electric business had a very strong quarter as <UNK> alluded to.
So the volume impact was really offset by the regulatory activity that we saw on the electric side of the business.
So overall, our volume decline was not overly material to the electric side of the business.
And now on the gas side of the business, we really saw a 11% colder than last year weather in the western states of Idaho, Oregon and Washington.
And then, kind of the reverse effect in the Montana-Dakota and Great Plains territory.
So, we haven't really quantified those numbers in total, but both of the businesses are up.
And I guess, what I would comment on is when you look at the temperatures compared to normal phenomena comparing to last year and comparing to normal, we saw a warmer than normal weather.
And so to the extent that we could see normal weather throughout the remainder of the year, obviously that would provide some upside to the earnings.
Hey, <UNK>.
At this time, just kind of ---+ what Calumet said, they put out an 8-K that said they may divest a certain non-core asset, including Dakota Prairie Refinery.
Obviously, we are having ongoing discussions and we're looking at all the options, we're evaluating them at this time.
So not really in a position at this point to give you a clear direction.
We'll keep you in the loop.
I can give you a little color on what we're doing short term.
The team has actually been doing a really good job out there.
Since December 6 we've been running operationally fine.
The other thing we're doing is we're focused on controlling what we can control, obviously the cost to run the process of working with all our vendors to see if we can get to a cash flow break-even with them, providing us some assistance given where we're at.
So hope that helps a little color.
We'll keep you in the loop, but the process is really ongoing right now as we speak.
Okay.
Thank you, <UNK>.
You broke up a little bit there, <UNK>.
Could you repeat the question.
Are you thinking more materials or services or sum of both.
Okay.
We'll start with <UNK> <UNK> talking about his backlog, that $831 million a bit and then we'll move on to <UNK> <UNK>.
Hi, <UNK>.
I would definitely expect our revenues to go up as backlog has gone up.
We are expecting, we've added a lot of backlog to that record backlog we've had in March and we have a good schedule out there.
I expect record backlogs almost every month going through to June.
So, yes, I would expect the revenue to be going up in the construction materials.
I don't know if we're giving guidance on that, but I just did I guess.
Yes, well we are in a sense, but it's early in the year, which is why we held it flat at this point, but clearly backlogs are a nice indicator of what could grow into revenues.
<UNK>.
And for us, we expect most of the projects that we have in our backlog are going to be monetized this year and the key is going to be execution and it's early.
Well, thank you.
And as we noted earlier, our first-quarter results represent a good start here in 2016.
We are committed to continue building on this momentum by focusing in the factors that we can most directly influence, controlling costs, expanding margins, as well as growing earnings.
And again, we appreciate your participation on this call today and thank you again for your continued interest in MDU Recourses.
Operator.
| 2016_MDU |
2015 | BGG | BGG
#Good morning, and welcome to the Briggs & Stratton fiscal 2016 first quarter earnings conference call.
I am <UNK> <UNK>, Chief Financial Officer, joining me today is <UNK> <UNK>, our Chairman, President, and Chief Executive Officer.
Today's presentation and our answers to your questions include forward-looking statements.
These statements are based on our current assessment of the markets we operate in.
Actual results could differ materially from any stated or implied projections, due to changes in one or more of the factors described in the Safe Harbor section of yesterday's earnings release, as well as our filings with the SEC.
We also make reference to certain non-GAAP financial measures during today's call.
Additional information regarding these financial measures, including reconciliations to comparable US GAAP amounts, is available in our earnings release and in our SEC filings.
This conference call will be made available on our website or by phone replay, approximately two hours after the end of this call.
Now here's <UNK>.
Good morning everyone.
Thank you for joining us today.
As you saw in our earnings release, first quarter consolidated net sales were $290 million,a decrease of $3 million, or approximately 1% from the same quarter last year.
As we had expected, the strengthening of the US dollar had a significant impact on our year-over-year sales in the first quarter.
Net of offsetting price increases, the weakening of foreign currencies negatively impacted net sales by approximately $11 million in the first quarter.
Excluding currency impacts, net sales increased by $8 million, or 2.6%.
This increase was driven by acquisitions we completed last year, as well as a solid late season demand in our major lawn and garden markets, particularly in the US.
The improved late season helped drive increased sales of small walk mower engines to OEMs, as well as high end residential and commercial lawn and garden equipment through our North American dealer channel.
Somewhat offsetting the increase were lower sales in certain international markets.
The consolidated adjusted net loss for the first quarter was $15.2 million, an increase from the adjusted net loss of $9.3 million in the first quarter of fiscal 2015.
The adjusted net loss excludes restructuring charges, and certain other charges, as described in yesterday evening's earnings release.
The adjusted diluted loss per share for the quarter was $0.35, higher than last year's adjusted diluted loss per share of $0.21, but beating our expectations.
The higher adjusted net loss for the quarter reflects several factors we discussed during our last quarterly conference call.
First, production volumes were lower in our engines and products businesses.
Last year, we had accelerated manufacturing into the first quarter, in order to build inventory to facilitate the closure of the McDonough plant, and to launch our new EXI engine.
Second, the strengthening of the US dollar had an unfavorable impact on adjusted net income of approximately $1.2 million.
Third, our pension plan expense increased by approximately $1 million related to the implementation of new mortality tables.
Despite these anticipated headwinds in the first quarter, we're very encouraged by the sustained, improved profitability of our products business.
While we are not yet satisfied with the results, the business continues to head in the right direction.
A large driver of the profitability improvement was the incremental restructuring savings as a result of closing the McDonough plant.
A lot of hard work has done into transitioning production to our Wauwatosa, Wisconsin, and Munnsville, New York, plants.
In September, we began riding mower production in Wauwatosa, which was the final product line to be transitioned.
While there is more work to be done to complete the project, we're very pleased with the early results.
I would like to thank all of our employees who made this possible through their great efforts.
In conjunction with right-sizing the footprint and related cost structure of the products business, we have been focusing on selling higher margin products, the addition of Billy Goats, specialty turf care products which are geared toward the professional landscaper and rental markets, played a part in improving our product segment margins in the first quarter.
Similar to our Ferris commercial cutting equipment, the sales of Billy Goat equipment benefited from the strong, late season.
The integration of Billy Goat is proceeding very well.
The innovation that the Billy Goat team launched this fall is outstanding.
We have even more in the pipeline which fits well with the innovation culture of our Company.
I would like to thank our team for the hard work that is allowing Billy Goat to be a key part of Briggs & Stratton.
It was a year ago in the first quarter that we entered the job site products category with our acquisition of Allmand Brothers.
At the time, a large portion of Allmand's business sold into the domestic oil and gas industry.
With the significant decline in oil prices over the last year to below $50 per barrel, capital spending of domestic and oil gas companies has reduced considerably.
While this headwind has had the near-term impact of reducing Allmand sales and profitability, we continue to be impressed by the strength of the Allmand brand, and the long-term opportunity presented by the job site category.
We have been working diligently this past year to further diversify Allmand sales into domestic construction and infrastructure markets, as well as into many of the international markets which Briggs & Stratton has served for many years.
In addition, this past quarter, we added a new portable heater product line to our Allmand branded portfolio through a small asset acquisition.
This new product line offers a flameless heating solution to improve safety on the job site, and helps expand our Allmand product offering.
I'll turn it back over to <UNK>, to walk through our financial results for the first quarter of fiscal 2016.
Thanks <UNK>.
As <UNK> noted, our first quarter consolidated net sales were $200 million,a decrease of approximately $3 million, or 1% consolidated net sales in the first quarter of last year.
First quarter consolidated net loss on a GAAP basis was $18.2 million,a decrease of $3 million from a GAAP net loss of $15.3 million one year ago.
As a reminder, we typically report a net loss in our first fiscal quarter, due to the seasonal nature of our engines business, and the related lawn and garden portion of our products business.
In the first quarter, we incurred restructuring charges of $2 million pre-tax related to executing the restructuring actions we announced last year, with respect to narrowing our lower margin Snapper product lineup, and closing our McDonough, Georgia, facility within our product segment.
We incurred approximately $300,000 of purchase accounting charges in the first quarter of 2016 related to the acquisition of Billy Goat this past May.
We also incurred approximately $1.4 million of restructuring charges in our engine segment.
These charges related to a reduction in force at our plant in Chongquing, China to offset lower production of engines used on snow throwers, and changes to certain salary positions in the US.
The engine segment also incurred an $850,000 litigation settlement charge in the first quarter.
Excluding these restructuring, purchase accounting, and litigation expenses, the adjusted net loss for the first quarter was $15.2 million, or $0.35 per share, an increase from the adjusted net loss of $9.3 million, or $0.21 per diluted share in the first quarter of fiscal 2015.
Engine segment sales for the first quarter were $150 million, a decrease of $3 million, or 2% compared to the prior year.
Unfavorable foreign currency net of offsetting price increases, negatively impacted net sales by approximately $5 million,largely due to the weakening of the euro.
Total engine shipments were higher than last year by approximately 6%.
This was largely due to higher shipments of small engine used on walk mowers, due to the improved lawn and garden markets in North America and Europe this past season.
Partially offsetting the increase were due shipments of engines used on snow throwers, due to adequate channel inventories in Europe, as well as lower placement in North America.
Sales of engines used on our pressure washers were also lower, as last year at this time we were building water pressure inventory in order to facilitate the closure of the McDonough plant.
Following the late season sales, we believe the channel inventories of lawn and garden equipment are at a normal level heading into the fall and winter season.
For the first quarter, the engines adjusted segment loss was $18.6 million, a decrease of $4.9 million from the adjusted engine segment loss last year of $13.7 million.
The engine segment adjusted gross profit rate was 16.2%, a 200 basis point increase from 18.2% in the prior year.
The gross profit rate decreased by 250 basis points due to unfavorable foreign currencies, particularly the weakening of the euro.
Units produced in the quarter decreased by 7% to approximately 1.6 million units.
As <UNK> mentioned, last year we increased first quarter engine production to have adequate inventories in advance of changing over to our new EXI small engine platform, and to support the closure of the McDonough plant.
Total engine inventories at the end of the quarter were approximately $1.7 million units, which is a decrease of approximately 360,000 units compared to the end of the first quarter of 2015.
We continue to anticipate that fiscal 2016 year end inventories will be slightly lower than fiscal 2015 year end inventories.
Partially offsetting the reduced gross margin rate was the benefit of improved plant efficiencies, and slightly lower material costs.
Engine segment ESG&A had a modest increase in the first quarter of 2016, due to higher pension costs, offset by the benefit of weaker foreign currency rates.
In the product segment, sales for the first quarter were $163 million, a decrease of approximately $4 million, or 2% from the prior year.
Unfavorable foreign currency net of offsetting price increases, negatively impacted net sales by approximately $6 million,primarily related to the weakening of the Australian Dollar and Brazilian Real.
Excluding currencies, products net sales increased by $2 million, or a little over 1%.
This increase was primarily driven by higher sales of lawn and garden equipment through our North America dealer channel, and the results of acquisitions we completed in fiscal 2015,particularly Billy Goat, which we acquired in the fourth quarter of last year.
We owned Allmand for roughly 30 days of the first quarter last year, during a time period when the oil and gas sector was more robust.
Partially offsetting the increase in net sales, were lower shipments of snow throwers into Europe, following two seasons of below average snowfall, as well as lower sales overall in Latin America, due to economic instability in the region.
Sales were also lower due to reduced sales of generator, as the market continues to decline given no major power outages in the US over the last few years.
Our planned actions to narrow the assortment of lower priced Snapper consumer lawn and garden equipment also resulted in lower sales.
Inventory of lawn and garden equipment in the dealer channel is consistent with last year.
We have seen dealers in North America stocking up for the snow season, after their inventories were largely sold through during last winter here in the US.
In Europe, we believe the channel inventory of snow stores are adequate, given relatively little snowfall in Europe the last two seasons.
Excluding pre-tax prestructuring charges of $2 million, and Billy Goat purchase accounting charges of approximately $300,000, the product segment had adjusted segment income of $2.4 million in the quarter,an increase of $1.5 million from the first quarter last year.
Product segment adjusted gross profit margin of 18.1% increased by 160 basis points from the prior year.
The improvement in gross profit was related to incremental restructuring cost savings, and improved manufacturing efficiency, which contributed 180 basis points.
Favorable sales mix also drove higher gross margins, as we continue to focus on selling higher margin products through the dealer channel and the addition of Billy Goat.
Partially offsetting the improved gross margins was a 90 basis point headwind due to lower production levels.
In the prior year, we had accelerated production in the first quarter to facilitate moving production from the McDonough plant to Wauwatosa.
Product segment ESG&A expenses increased slightly in the first quarter of 2016, due to the ESG&A associated with the Allmand and Billy Goat acquisitions, partially offset by the benefit of lower foreign currency rates, mainly in Australia and Brazil.
Turning to the balance sheet, net debt at the end of the first fiscal quarter was approximately $209 million,an increase of approximately $46 million for the first quarter of fiscal 2015.
The majority of the increase was due to cash used to purchase Billy Goat in the fourth quarter of fiscal 2015, as well as slightly higher additions to plant and equipment.
The end of the quarter we had $38 million drawn on our $500 million revolving credit facility.
Cash used on operating activities for the quarter was $83 million,primarily related to seasonal build of inventory levels, and reduction of Accounts Receivable in the quarter.
Last 12-month cash provided by operating activities was $114 million, and last 12-month free cash flow was approximately $38 million.
Depreciation for the quarter of $12 million was consistent with capital expenditures for the quarter.
Last 12-month average leverage and last 12-month EBITDA as defined by our credit agreement in place at the end of the quarter were $271 million and $146 million respectively,resulting in a leverage ratio of 1.86 times, which is well within our covenants.
That concludes what we wanted to say about the first quarter financial results.
So I'll turn it back to <UNK> for his concluding remarks.
Well our first quarter results were better than our expectations, as we said earlier.
Our first quarter is typically our lowest in terms of sales and profitability, due to the seasonal nature of our business.
Normal levels of lawn and garden channel inventory this time of year are encouraging for the upcoming season.
However, we are increasingly cautious about the global economy, and its potential impact of further weakening foreign currencies, and continued weakness in the oil and gas market.
For these reasons, we're reaffirming our fiscal year 2016 projections for net income to be in the range of $54 million to $61 million, or $1.20 to $1.36 per diluted share, prior to the impact of any share repurchase activity, and costs relate to the our announced restructuring programs.
Our fiscal 2016 forecast contemplates the US and European lawn and garden markets being higher by 1% to 3%, assuming a normal start to the selling season.
As a reminder, our second quarter sales tend to be slightly more weighted toward international regions, and therefore we're more exposed to currency headwinds in this quarter.
Discussions with our customers regarding product lineups for the 2016 spring and summer selling season are wrapping up in the coming weeks, and we'll be in a position to provide an update on placement fornext season, during our fiscal 2016 second quarter conference call in January.
Consolidated operating margins are forecasted to be in the range of 4.8% to 5.2%.
Interest expense which is projected to be approximately $21 million is increased from fiscal 2015, due to expected higher seasonal borrowing levels in fiscal 2016.
That concludes our prepared comments.
I would like to open the call up for questions.
Good morning.
So let me start with kind of how the quarter progressed, <UNK>.
And try to go through the different aspects of your question.
If I miss anything, let me know.
That is okay.
The quarter progressed, as you look through the quarter, it was a little bit slow early on in July and August,especially here in the US and in Europe.
Because the weather was a bit drier, and so we started to see a bit of a slowdown, if you will, in shipments July and August.
Once we got into September, we started to see improved weather here in the US, across the country, as well as over in Europe, and we did see then an uptick with regards to lawn mowers and commercial mowers especially.
It continued very strongthrough the month of September.
When you look at that.
That was a little bit better than net/net, to where we thought it was going to be.
We knew that there were going to be some headwinds, as it related to the currencies and the pension and the other things we had talked about, so all-in-all, the way the quarter ended up, it was better than what we had anticipated.
Now when you go to the inventory levels, so in terms of share pickup, or anything like that, I would tell you that it was our share was our share throughout the season, and because the market seemed to pick up here a little bit later on, that's where we started to see a few more sales into the OEMs.
I would not characterize that as share gain.
I would characterize that as they continue to produce to supply then as needed to the retailers.
With regards to what's normal anymore in inventories, you are right.
We have been through about four abnormal years, simply because we had the drought going all the way back to 2012.
That has a couple of year impact.
I would tell you as we look at inventories, historically, we think that they're pretty normal.
When we say historical, we go well beyond the last four years.
And so when you lock at inventories where they would have been coming out of a drought year, for example, coming out of the year after the drought, for example, they're lower.
We believe they're lower.
We don't have full visibility throughout the channel.
But based on what we know, we believe that they are lower than they would have been the last few years.
And approaching levels as to where they would have been say six, seven, eight years ago on a little longer term view.
So I would tell you that i think sequentially, if you think about the year-over-year, I think certainly inventories are, we believe inventories are in a better position now than they would have been any time over the last say three years.
Yes, things really start to slow down in October, <UNK>.
So it is one of those things where I wouldn't tell you that, it seems to be pretty normal.
Well, on the engine margin front, what we work on in improving margins is number one, the new products we've come out with, and attempting to achieve higher margin rates than the products that we've replaced.
And we also work on efficiency gains in our plants, and we always enter the year with a sizable amount of cost reduction takeout that we want to have.
Those are the upsides.
The challenge that we have as we came into the year mainly has to do with the foreign exchange rates, which are significant impact, particularly as you look at the year-over-year and its impact on our engine.
So you've got to think about those things net together, as you think about the overall profitability change in the engine business year-over-year.
In acquisitions, we haven't broken that out specifically.
We've commented on Allmand has essentially $60 million in net sales, and Billy Goat has approximately $30 million in net sales.
So if you break that out, doing the math, that should get you in the neighborhood of what the impact is.
With the little bit of color that we've added here, that we've got some caution on the Allmand business given its historic, heavier weight to the oil and gas sector.
And it is really important from a strategic perspective that we help diversify the revenue stream of that business into the construction and infrastructure markets, as well as international.
To the extent, the speed of which we can diversify that, will depend on whether we can maintain that approximate historical sales volume level, as clearly oil and gas at $45 a barrel presents quite a headwind.
Thank you.
Doing well, <UNK>.
How are you.
No.
We haven't changed anything.
Dave's comments were more in context to the midpoint of our range.
That was a lot of our discussion around how we laid forth the outlook for next year.
But the 4.8% to 5.2% range is very much in line with the net income and EPS guidance that we gave back in August.
Now, the additional factors of caution that we added this quarter was the continued impact of foreign exchange, and some of the difficulties in the global markets, particularly Latin America, and we're keeping a close eye to see how those markets progress as we go throughout the year.
As I just mentioned, oil and gas is clearly a challenge in our Allmand business that we need to work against.
The other thing we added into the information was more information on interest expense, which is going to be a little bit higher year-over-year because of the acquisition levels we did last year, as well as a little bit higher capital spend.
And we're also projecting a little bit lower other income from our joint ventures, as that just tends to vary year to year.
300,000.
What we said is we intend to take out working capital of up to $20 million of the total Company year-on-year, as we come to the end of the fiscal year.
The other thing to keep in mind is we came into the year quite a bit lower inventory-wise.
And then the impact in first quarter impacting inventory.
Last year we were a little bit high, as we were ramping up to launch the EXI engine, as well as the transition.
So indeed, I think you're on the right track.
Last year inventory was a little bit high.
But i wouldn't tell you that it's a one for one as to how it will track through the rest of the year.
Not at this time.
No.
I don't have that real handy.
The snow tends to be a smaller part of our overall business though, is the context I would provide to that.
Thank you for joining today's conference call.
Our next quarterly earnings conference call will be in January.
Have a great day.
| 2015_BGG |
2015 | RHT | RHT
#Thank you.
Sure.
Let me start off saying, we just had our Strategic Advisory Board, but I also go out and see a lot of customers' containers, and thinking about how to consume and manage containers is the single biggest topic that comes up among what I think of as leading kind of technology leading, so financial services, technology and telco customers, without a doubt.
More than frankly I even hear about OpenStack.
And so certainly, certainly far beyond web companies.
One public example is Amadeus is building their new platform for their new workloads around OpenShift 3 and their desire is for all their new workloads to be running [doperizing] containers on OpenShift V3.
So it is something ---+ and what you actually hear is even the infrastructure people at financial services institutions, I was talking to one week ago, 1.5 weeks ago, and he was basically saying, I don't have a choice because my developers are delivering containers and I am going to have to be able to manage them.
So Red Hat, run as fast as you can because it's not just about taking the container, as you said, it's about security, it's about management, all of the telemetry you need to understand performance bottlenecks and all of that work that still is being done.
And so the Atomic platform that we talked about is something a lot of customers are interested in, literally every industrial, all walks.
Again, not because the infrastructure people necessarily want it, but the developers are picking it up because it's so much more productive for developers.
So the interesting thing about containers, I want to emphasize this over and over, is you can build a story around efficiency of running your infrastructure.
That is not what's driving this.
Developer efficiency is what is driving this.
And literally I had a CIO tell me, I've lost control.
Really.
Developers are going to do this.
We have to make sure that we can consume these.
On your security point, there are several issues around security.
The point you made about what's in the container is critically important, and virtualization does nothing to help you with that, right.
You've got to recognize that what's in the container is basically the user space side of the operating system.
We did an analysis where we wrote a hello world app in four different languages and looked back, what packages would need to be subsumed into each of those, we did like Java, node, so Java script, we did PHP.
And we looked back over the last year, how many security updates have been made that would affect those containers.
And depending on the language it varied from 30 to 50 in the last year.
So understanding what's in the container and understanding how you can push updates into that is critical.
Obviously as operating system vendor our ability to do that we believe is far superior to anyone else because we obviously track these packages and know kind of what ---+ when and how security updates need to be pushed.
So we actually think that's, as a commercial vendor, that is a very, very good thing for us because that allows us to kind of tell a security story.
Now, you are right.
There's a separate set of security which does come around bare metal versus virtualized, which is around certain name spaces, ability to get to certain IO file systems and making sure those are separate.
There's two parallel paths there.
One is to run it virtualized, because we've had a lot of that virtualization and certainly many of our customers are running OpenShift on OpenStack as a way to resolve that, or you can run it on VMware as well.
At the same time obviously the Linux community is driving towards bare metal solutions to that same set of problems as we continue to push that forward.
And if you look at RHEL7.2, there's several kind of steps forward in the technology around security around containers.
So yes, security is an issue.
To some extent that's a good thing for Red Hat in that it allows us to shine with what we do, both in terms of manageability and security updating, et cetera, et cetera.
Sorry.
That's a long answer, but it's a subtle but important point.
<UNK>, the contract duration in Q1 and Q2 was both 20.
In terms of OpenStack, again we are still with what I would say the earlier adopters running OpenStack.
And some of the deals are quite large because they're large implementations, but they are very lumpy as well.
The total dollars is not of a size like the public cloud revenues.
So until it's a little bit more of a business that ---+ a little more stable, has a little more visibility it really wouldn't be appropriate to share that.
In terms of your question around when is it going to be a material chunk of revenue, we're ---+ hard to say.
It's starting to pick up, but we're still a little ways away before it's a, I'll say, truly material contributor.
On $2 billion.
Yes, on $2 billion of revenue.
I'll start on the breakdown and then <UNK> can get into impacts around some of the profitability.
It is obviously highly skewed to one very large private ---+ or public cloud provider, as you could imagine.
They are a large share overall, but I think our share reflect that as well.
I don't think we're skewed otherwise relative to their share.
But there is one cloud provider that's well ahead of the others that I think you all know.
Beyond that, there are a few, what I'll say a collection of seven or eight cloud providers that I would say are more enterprise-focused.
You can kind of imagine who a couple of those are who target ---+ these are enterprise names that target enterprise.
Those we have much larger than, I would say, our normal share.
And then there's a long tail of others out there that just kind of spreads out.
We do well on the true enterprise-focus ones and then AWS, I shouldn't say, the large cloud provider on the West Coast.
And so I don't know, probably the top 10 represent 90% of the business, 85%.
I don't have the numbers exactly in front of me.
As far as the profitability, we don't necessarily break out segments of the business and look at individual P&Ls but I will tell you, just on what I've learned in the last couple of months here, and this is part about the subscription business, I would not think it would be materially different, the profitability of the cloud business versus the rest because if I look at the overall margins, the subscription business, it's been pretty much in line with that 94%.
And even as the number has been growing, it really hasn't had any material impact on the overall margin.
So I'm pretty comfortable that's probably consistent.
Well it would hurt cash flows.
It hurts cash flow because, again, people are paying as they go versus upfront.
So it would be ---+ if we weren't growing, it wouldn't matter but because of our growth rate, it certainly kind of, in the short run in the ramp phase, it reduces billings and cash flow a bit.
Versus if we were to do it otherwise.
Right.
Just because we're charging as we go versus charging a year upfront.
Thank you, <UNK>.
Yes.
I don't know if I have a good number that I could share around that.
I mean, we have hundreds of POCs working their way through various parts of the system.
So it's certainly hundreds, and I would say most major names that you can imagine are in some level of trial around it.
I don't have a good number, other than something kind of in the hundreds at some point in the sales cycle.
Not just like POC all the way through.
So again, it's going really nicely from our perspective.
But in terms of out the other side, a lot of production running, I just don't have a set of numbers.
We don't quite track it that way to be able to give you a sense.
I'll try to do better with some more numbers on that side next quarter.
There you go (laughter).
As far ---+ your question as far as the opportunity, I mean, I think I mentioned this at the Summit when we had the analyst meeting.
And I can really say this again now, having been a part of Red Hat for three months and also looking at it when I was at Cisco.
The key thing I see here is just the opportunity for further growth.
I heard it, as I mentioned before, last week with some of the customers that we had at the Customer Advisory Board.
I see it, whether it's in ---+ we are talking a lot today about OpenStack and OpenShift.
We talk about our storage business, we look at middleware.
And you look at where CIOs and companies are going to be making their investment.
I think we have a huge opportunity from that perspective.
And the key thing for us is going to be able to scale to meet that opportunity.
And that's clearly where I hope to play a key role.
Well, we want to serve our customers needs, flat out.
So with customer demand, we will work to be where our customers want to be.
It's hard for me to talk about a specific provider.
We have over 100.
We just recently added VMware, vCloud Air.
So you can imagine Microsoft and the history around it is a different beast, but I hope we can.
We expect to and will have our platform running anywhere our customers want to run it.
Next question.
I'm sorry.
Go ahead.
Well, I think they figured out there's a lot of amazing technology that's out in the open driven by user-driven innovation, and some of that they need to consume themselves.
So I think they're certainly much more pragmatic around open source than perhaps they were a couple of years ago.
And I think this is a prime example where there's a set of things they need around Azure, and it's kind of already best provided in open source.
And so I'm actually very encouraged with ---+ by Satya and his stance around open source.
We have time for one more question, operator.
Well two things.
First off big data, right.
Big data has a natural affinity to Linux because of Hadoop and all of those things were originally were written and are kind of native on Linux.
But the big one is just all of these new kind of, whether it's we'll call systems of engagement or Mode 2 in general, which are these scale-out infrastructure type of workloads, those are ---+ I don't want to say exclusively on an open platform but the vast majority are on an open platform.
So again, as people are thinking about their next generation, whether it's a mobile workload, if they think about whatever that next kind of cloud or web-type workload, it's highly, highly likely that that's going to go on Linux not on Windows.
And obviously for enterprise customers, that's very highly likely that it's going to be the Red Hat stack.
So that's why obviously we are working hard around containers, around OpenStack because there is a natural affinity to the rest of our product suite in that.
As customers think about mobile, and most of the mobile things out there are happening in languages frameworks, et cetera in open, we are already moving towards open, you're probably running that on open source infrastructure where we benefit.
I would say at this point 50/50 is probably the best guesstimate that I would give right between on the subscription side versus the services, but that will change over time.
One last thing, I just want to bring up separate from that because it wasn't asked, just so it's out there.
The DSO number that we had for the second quarter FX-adjusted was 58 days and that compares to 60 days of Q2 last year.
So just in case there's any questions on that, I thought I'd put it out there.
Great.
I'm afraid that's all the time we have left.
We look forward to speaking to everyone later on.
And if you have any questions, please let us know.
Thank you, operator.
| 2015_RHT |
2016 | ENTA | ENTA
#Thank, <UNK>.
Afternoon everyone and thank you for joining us today.
I'm pleased to report on Enanta's financial results and to update you on our R&D progress.
Enanta remains in a very strong position to advance our pipeline.
Our cash position of approximately $245 million and a recurring revenue stream from our successful HCV collaboration with AbbVie, allow us to fund our business operations and R&D initiatives for the foreseeable future.
Revenues from AbbVie's initial HCV regimens that contain our protease inhibitor paritaprevir continue to continue to provide substantial royalty cash flow to Enanta.
Enanta has earned approximately $45 million in royalties for the first nine months of our FY16.
AbbVie is also developing a pangenotypic next-generation regimen containing our second protease inhibitor ABT-493 and ABT-530 which is AbbVie's second NS5A inhibitor.
This regimen currently in phase 3 trials has demonstrated very high cure rates and earlier HCV trials, often with as little as eight weeks of treatment.
AbbVie has guided the data from the trials will be reading outs later this year and that marketing approval is expected in the US in 2017.
As a reminder, commercialization regulatory approval in major markets would make Enanta eligible for up to $80 million in milestone payments as well as additional tiered double-digit royalties from 50% of the net sales of this two DAA product.
Given our strong financial position we have grown our internal R&D efforts.
Our most advanced wholly-owned asset is EDP-494.
This cyclophilin inhibitor is now in a proof of concept study in GT1 and GT3 HCV patients measuring viral load reduction.
We recognize that the current HCV market is very competitive and the next generation of regimens and development is demonstrating very high cure rates.
However, we believe there still exists an unmet medical need for those HCV patients who have failed or will fail therapies or for those tough to treat patients with specific resistance mutations.
To address this small but important part of the HCV population we are developing EDP-494 which is a host targeted approach.
Earlier this year, and most recently at EASL in April, we presented excellent preclinical data demonstrating pangenotypic activity and uniform activity of EDP-494 against many of the non-resistance associated variants, or RAVs, across all the DAA classes, namely NS5A, NS5B, both nuc and non-nuc, and NS3 protease RAVs.
As of today we've completed the SAT and MAT portions of the first in human study.
Among 72 healthy volunteers dosed, there were no safety concerns at any dose administered following up to 14 days of dosing.
Next our proof of concept study of EDP-494 is ongoing in patients with HCV genotype one which is the largest HCV patient population and genotype three, considering the hardest to treat HCV genotype.
If this study demonstrates good results we would expect to study EDP-494 in combination with one or more DAAs in a pangenotypic once daily treatment to target RAVs, DAA failures, and other hard to treat HCV patient populations.
We also have research programs in three other high valued disease areas HBV, RSV, and nonalcoholic steatohepatitis also known as NASH.
Of these programs the most advanced is for NASH.
Our first NASH candidate EDP-305.
Preclinical data demonstrate the EDP-305 is a highly selective FXR agonist.
It shows more potent activity in a variety of in vitro and in vivo NASH models compared to Intercept's OCA which is the most advanced NASH candidate in development today.
We expect to share more comparative preclinical data regarding fibrosis next quarter at AASLD.
Recall that fibrosis is been shown to be the key predictor of clinical outcomes in NASH patients.
This and other data give us the confidence to move ahead with EDP-305 and we remain on track to initiate clinical development in the coming months.
We're also advancing additional series of FXR agonist and have generated several other promising FXR agonist leads.
Both bile acid and non-bile acid-based and we expect to have further information on these later this year.
Some of these leads are over 10,000 times more potent than OCA.
In addition our work is resulted in an emerging intellectual property estate of over a dozen patent applications related to FXR agonist.
We'd now like to shift to RSV and HPV.
We've made significant progress in discovering, characterizing, and seeking patent protection for new core inhibitors for HPV and for new non-fusion inhibitors for RSV.
We expect to have some initial preclinical data later this year consistent with our plan to initiate phase 1 clinical development in at least one of these new programs in 2017.
In summary, we believe the best way to create value for shareholders is to use our strong balance sheet and our strong drug discovery expertise to focus on therapeutic areas with high unmet medical need.
This approach is already been proven with our success in HCV and we aim to duplicate this success with our earlier pipeline programs which continue to advance as expected.
We remain on track to initiate a phase 1 study in the coming months with EDP-305, our FXR agonist for NASH and PBC.
Next quarter we expect to announce clinical data in our cyclophilin inhibitor program as well as data from AbbVie's phase 3 trials of it's next-generation HCV regimen containing our second protease inhibitor, ABT-493.
Looking ahead to 2017, as several leads advance within our HBV and RSV programs, we anticipate a phase 1 start in at least one of these programs and also in 2017 we look forward to US regulatory approval of AbbVie's pan-genotypic next gen HCV regimen containing ABT-493.
Additionally our financial resources will allow us to keep our options open for future business development opportunities and also to find other ongoing programs within our core areas of virology and liver disease.
I'd like to pause here and have <UNK> <UNK> discuss our financials for the quarter.
<UNK>.
Thank you, <UNK>.
I would like to remind everyone that Enanta reports on a fiscal year schedule.
Our fiscal year end is September 30 and today we are reporting results for our third fiscal quarter ended June 30, 2016.
Enanta ended the quarter with approximately $245 million in cash and marketable securities as compared to $209 million in our September 30, 2015 fiscal year-end.
We expect that these cash resources will be sufficient to meet our anticipated cash requirements for the foreseeable future.
Revenue consisted of $14 million of royalty income earned on AbbVie's net sales of its HCV regimens.
Milestone payments, royalties and other payments from collaborators have varied significantly from period to period and we expect that variability to continue and to cause us to have a net loss in some periods such as this quarter.
Moving on to our expenses research and development expenses were $10.8 million and $6.3 million for the third fiscal quarters ended June 30, 2016 and 2015, respectively.
The increase in the recent three-month period was due primarily to increased preclinical and clinical costs associated with our wholly-owned R&D programs.
We expect that our R&D expenses in FY16 will be within our previously stated guidance of $40 million to $50 million as we continue our cyclophilin inhibitor clinical studies, advance our NASH program and expand our R&D capabilities.
General and administrative expense was $4.3 million for the quarter ended June 30, 2016 and $3.6 million for the comparable quarter in 2015.
The increase in G&A in the three-month period is due primarily to higher stock-based compensation expense driven by headcount.
We incurred a net loss for the third quarter of $1.1 million as compared to a net income of $2.4 million in the third quarter of 2015.
Income tax expense for the three months ended June 30, 2016 was $400,000 compared to a benefit of $400,000 for the corresponding period in 2015.
During the three months ended June 30, 2016, Enanta increased its estimate of its annual effective tax rate for FY16 to approximately 33% which resulted in an income tax provision, despite a pretax loss for the quarter.
Further financial details will be available in our Form 10-Q for this fiscal quarter.
I'd now like to turn the call back to the operator and open up the line for the Q&A.
Operator.
Hello there.
Sure.
Well, there's obviously preclinical differentiation, which is about all we can do now.
And then obviously the real differentiation will come in the clinical arena.
We'll actually have more data on 305 coming out later this year at AASLD.
We will have several abstracts at that conference.
And I think you begin to see some of the aspects of the FXR arena that we're capturing.
Obviously we want to be highly selective, highly efficacious, selective not only for traditional FXR receptors that are nuclear receptors.
We don't want cross talk into a whole litany of those receptors, but we also don't want cross talk over into other bio acid receptors, like TGR5.
So I think we've dialed all the selectivity in to 305.
It is ready to go.
We've taken a close look at several other models, trying to glean any other things we can look at pre clinically and markers we could capture with the understanding that we would build this into a full development plan.
We will have more details on the development plan coming up later this year when we roll into clinical studies.
Suffice it to say I think there it will be a lot of things that we'll be able to look at in the early development, including the triggering of the receptor itself and looking at various markers from that.
Obviously those are markers that can give you helpful insights around dose selection, and even some aspects of feel activity vis-a-vis potentially off-target effects that might occur with pruritis.
Again safety and efficacy markers dose ranging, using those markers to the best of our abilities and other kinds of parameters will be things we will the looking for in the early development program.
Good.
Thank you.
Yes we will have data at the liver meeting at AASLD.
Exactly how much data will have an HCV patients remains to be seen.
We just started enrolling a little bit ago, and we're not going to break the blind prematurely on that study.
So at the very least I think you can look forward to SAT and MAT.
If we are able to put some patient data in by then, that would be what we would try to do.
Yes.
Yes so it's a very interesting question <UNK>, and one that we asked here lots and lots of times over the last couple of years, even before it became public that we were working on HEP B.
There is a thread out there any use of cyclophilins inhibitors in Hep B.
Certainly we and others have looked at that.
I think some of the literature data out there is a little bit mixed.
What appears to be that we can say about it, and even 494 that appears to be an entry inhibitor.
But I don't ---+ we don't quite yet know if the activity with cyclophilin and Hep B is quote profound enough for us to pursue it.
I think our Arbutis had a cyclophilin inhibitor in clinical development were ---+ no I'm sorry ---+ it wasn't in clinical development.
But we had a preclinical program and Hep B and they ultimately dropped it because they couldn't convince themselves.
Believe me I would love for it to be true if it were because we would have multiple mechanisms that we could carry forward, but suffice it to say we're looking at that.
We've looked at it reasonably hard.
But so far I'm not ready to say that 494 has an alternative path available to it and ---+ and Hep B.
You're welcome.
| 2016_ENTA |
2016 | BA | BA
#We broke even late last year.
Yes, so obviously as we move forward with the supplier step down ---+ contractual step down pricing ---+ we improved productivity.
But even more, as I mentioned at the investor conference, around the mix is a big play in here going forward.
So getting these Dash 9s into the production that we have ---+ and you heard me talk about the unit cost recently and where they are getting that Dash 10 in, they're obviously big drivers of cash flow going forward.
The program margin did go up slightly in the quarter overall.
It's still very low single-digits.
I'm not really completely following your math there, <UNK>, but I would just tell you we took $1 billion out, obviously, and put it into R&D, so obviously research and development went up and the overall program margin went up slightly as a result of that move.
But again, these are obviously two aircraft that we've been heavily utilized in flight test and we made the right decision because it was the time to start spending Company funds to modify those airplanes.
And a limited marketplace for them.
So we made that decision and re-classed them.
It was absolutely the right thing to do.
Yes.
Later this year.
There's actually was still escalation pressure in the quarter across all of the programs.
Not as much as prior quarters, but there was; and then the balance of that was offset by improved productivity and mix.
Those are really the big drivers in there.
I'm hoping very soon.
But, again, we saw it minimize this quarter, and we will have to wait until the publications come out for third quarter.
But you're right ---+ the fundamentals are heading in the right direction.
So we should start to see this as a bit more of a tailwind versus a headwind.
You bet.
<UNK>, I will take the first part and then ask <UNK> to take the second part.
On the MAX, as you've noted, we have the opportunity to accelerate EIS, and we originally planned third quarter of 2017.
We now have publicly talked about that as first half of 2017.
I won't be specific to individual customers as we have a number of discussions ongoing.
But we have opportunities to accelerate into the first half of the year.
What you should read through that is that the MAX development program is going very well.
And running on cost and ahead of schedule.
We've got all four test aircraft in the air, more than 300 hours on the airplanes, and the performance is looking solid and the development program is clean.
And more broadly, to get to your underlying question, I think this is a good example of how we can and should perform coming out of our development program excellence initiative.
This is about understanding statement of work clearly upfront, managing that statement of work, keeping it balanced, doing the right systems engineering work, working with our supply chain.
This is about disciplined innovation.
We are going to bring a product to the marketplace that has a great value add for our customers and do it in a way that is disciplined and on cost and schedule.
That formula that we've put in place now with our development program excellence initiative ---+ we know it works.
And we've taken the lessons learned from MAX and we are cross-deploying those now into programs like the 787-10, the 777X, and into our future defense development programs.
Our objective here is very clear, and that is to have disciplined effective development programs that perform on cost and schedule that allows us to do reliable R&D planning and allows us to make best use of our innovation investments.
So it's a good signpost for us, <UNK>.
I think clearly a step in the right direction and we're going to leverage lessons learned from MAX across the whole enterprise.
<UNK>, you want to hit the second.
<UNK>, with regards to the non-production, it's the same approach.
We're really trying to look at just even functional costs across the enterprise, and looking at what is market-based affordability.
What's best-in-class look like for an industrial Company.
And challenging ourselves and where we are, versus where they are, and trying to learn from some best practices and then trying to implement them.
Now some of this is still in the planning stage.
Certainly not all of it is implemented, so I would not run with any of it.
But that's the framework, and that's the operating around it, but it's all about how do we compete in the marketplace no matter what marketplace we are in, across the portfolio.
How do we generate cash in order to invest in our future as we have.
And then deliver value to the shareholders.
Those are the, I'll say the framework, that's around the approach, but it goes back to my comment about no rock left unturned.
So whether it's a functional cost that are supporting a program or program-specific, everybody has an affordability target.
Again, different levels of maturity; some are making more progress than others.
But the focus and the operating rhythm is all around that.
I think the R&D profile will be similar to what we outlined.
I don't see that changing.
On the G&A ---+ quarter over quarter, as you know you're going to see it move around a little bit.
Some of that certainly is sustainable and some of that is just timing.
You're welcome.
Operator, we have time for one more analyst question.
Certainly, something, <UNK>, we're watching.
Obviously with the transition that we made from the defined benefit, defined contribution, that certainly helps us going forward when it comes to pension contributions.
But we are certainly monitoring the interest rate environment.
This year is obviously minimal.
As I see it today there will be contributions required next year.
They'll be again in the hundreds of millions ---+ not more than that.
And see that in the year following; but, again, we will have to see where interest rates fall and we will make the required contribution.
But we'd run that at various levels.
Again, because of the pension turnover, I don't see it obviously at that headwind that I would have normally seen as far as required contribution if we were stuck with a DB plan for the next five years.
Thank you.
We will continue with the questions for <UNK> and <UNK> now.
If you have any questions following this part of the session, please call our media relations team at 312-544-2002.
Operator, we're ready for the first question; and in the interest of time we ask that you limit everyone to just one question, please.
<UNK>, as we announced the decision we made here, it takes into consideration a sluggish cargo market and our projections for our future production rates.
And the decision, in essence, that we made was to maintain our current production rate of half an airplane per month that we're implementing this year.
And to extend that out into the future, rather than assuming we would ramp back up to one a month in 2019.
That's the fundamental assumption change here and it reflects what we see in the cargo market.
Now we still see a cargo or freighter aircraft replacement cycle out in that 2019, 2020 timeframe.
We have a number of ongoing customer discussions in the cargo marketplace in addition to the two Air Force One airplanes that you referenced.
So a number of very viable campaigns underway to fill to that half a month production rate.
That said, we still have our work cut out for us.
Cargo is a tough market right now.
I will say that the decisions we made on 747 put that program on a much more solid footing for the future; it's aligned with the marketplace.
As noted, we also wrote off any remaining deferred production inventory, so we've significantly de-risked that program from a financial standpoint for the future and we're going to continue to work to fill out the skyline.
Good morning.
<UNK>, I guess I would start with, obviously we are in a competitive environment.
It all starts with market-based affordability and how does that then impact your business.
As I indicated, when it comes to working capital, we are looking at where we are on different measures around working capital and where everybody else is in this industry.
And certainly the two suppliers you called out are great suppliers to us and we have been working with them over the last year on transitioning to a more, I will say, industry standard around payments.
And we were paying daily.
Millions of transactions, and we were paying daily ---+ that's not an industry-standard.
We're going to twice a month.
And then, we're looking at terms ---+ again, to be competitive, manage our working capital efficiently, and allowing us to invest in our future that ultimately everybody will benefit from, from our customers down to our suppliers.
These are important partners but we've got to face into the environment that we're in and be efficient across the board.
And as you know, under partnering for success, this is also us reaching back in the supply chain, taking best practices that we have encountered in other parts of our business or supply chain, and sharing those with the supply chain to ultimately make them better.
So I would say it's across the board, and again it's all about being a market-based and facing into those realities ---+ and frankly, in this case, just getting the industry standards.
Hey <UNK> ---+ first of all, more broadly we're still targeting a book to bill of one-to-one for the year.
And again, we don't get too encumbered with the exact timing of those orders.
It's very clear that this year's order cycle is more favorable on the narrow bodies.
And so if you're looking at numbers of aircraft, we expect the predominance of that orders flow this year to be in the narrow-bodies arena.
That all said, we are going to continue to work hard to fill out the wide-body skylines as well.
We don't need to make drastic changes to pricing in order to capture market share.
We're not going to be driven to just get market share for market share's sake.
I will say in the wide-body marketplace, even though we are seeing some hesitation in buying, there's a value proposition of our airplanes is holding up well.
This is all about a look ahead to efficiently managing our production skyline and keeping supply and demand in balance.
And clearly we've got more work to do on the wide-body front while narrow-body orders are trending to be very healthy and continuing to be healthy this year.
So that's our headset.
As normal we do a lot of scenario planning around this.
And different assumptions around wide-body orders and what that future skyline will look like.
As you heard earlier, our commitment is to make the decisions that allow us to make the transition on the 777 efficient and productive.
And we will do that.
Operator we have time for one last question if there is anyone remaining in the queue.
They are all sold.
So they will deliver here over the next couple of years.
That concludes our earnings call.
Again, for members of the media, if you have further questions, please call our media relations team at 312-544-2002.
Thank you.
| 2016_BA |
2015 | VRSN | VRSN
#Thank you, operator, and good afternoon, everyone.
Welcome to VeriSign's third-quarter 2015 earnings call.
With me are <UNK> <UNK>, Executive Chairman, President, and CEO; Todd Strubbe, Executive Vice President and COO; and <UNK> <UNK>, Senior Vice President and CFO.
This call and our presentation are being webcast from the Investor Relations section of our verisign.com website.
There you will also find our third-quarter 2015 earnings release.
At the end of this call, the presentation will be available on that site, and within a few hours, the replay of the call will be posted.
Financial results in our earnings release are unaudited, and our remarks include forward-looking statements that are subject to the risks and uncertainties that we discuss in detail in our documents filed with the SEC, specifically the most recent report on Forms 10-K and 10-Q and any applicable amendments which identify risk factors that could cause actual results to differ materially from those contained in the forward-looking statements.
VeriSign retains its long-standing policy not to comment on financial performance or guidance during the quarter, unless it is done through a public disclosure.
The financial results in today's call and the matters we will be discussing today include GAAP and non-GAAP measures used by VeriSign.
GAAP to non-GAAP reconciliation information is appended to our earnings release and slide presentation as applicable, each of which can be found on the Investor Relations section of our website.
In a moment, <UNK> and <UNK> will provide some prepared remarks, and afterwards we will open up the call for your questions.
With that, I would like to turn the call over to <UNK>.
Thanks, <UNK>, and good afternoon, everyone.
I'm pleased to report another solid quarter for VeriSign.
Third-quarter results were in line with our objectives of offering security and stability to our customers while generating profitable growth and providing long-term value to our shareholders.
We reported revenue of $266 million, up 4.2% year over year, and we delivered strong financial performance, including $157 million in free cash flow.
We processed 9.2 million new registrations during the third quarter and added 1.68 million net new names ending with 135.2 million .com and .
net domain names in the domain name base.
Our financial position is strong with $1.9 billion in cash, cash equivalents and marketable securities at the end of the quarter.
Our commitment to returning value to shareholders continued during the third quarter as we repurchased 2.3 million shares for $156 million.
As of September 30, 2015, we have 605 million remaining in our share repurchase program which has no expiration.
We continually evaluate the overall cash and investing needs of the business and consider the best uses for our cash, including potential share repurchases.
As discussed on our last call, we're making progress as we prepare to launch the internationalized domain name versions of .com and .
net.
Our launch preparations are proceeding according to plan as we prepare to begin a phased rollout of the IDNs towards the end of this year.
We will provide more information on our launch plans when appropriate.
I will comment now on third-quarter operating highlights.
At the end of September, the domain name base in .com and .
net was $135.2 million, consisting of 120.1 million names per .com and 15.1 million names for .
This represents an increase of 3.4% year over year as calculated including domain names on hold for both periods.
In the third quarter, we added 1.68 million net names to the domain name base after processing 9.2 million new gross registrations.
In the second quarter of 2015, the renewal rate was 72.7% compared with 71.8% for the same quarter of 2014.
While renewal rates are not fully measurable until 45 days after the end of the quarter, we believe that the renewal rate for the third quarter of 2015 will be approximately 71.8%.
This preliminary rate compares to 72% ---+ 72.0% achieved in the third quarter of 2014.
As we discussed over the last few quarters, there are many factors that drive domain growth.
These include Internet adoption, economic activity, e-commerce activity, and registrar go to market strategies.
During the third quarter, we saw strength in gross additions coming out of emerging and international markets, particularly in Asia.
While we believe these markets will continue to perform well, we believe the pace of activity we saw during the third quarter will slow sequentially in the fourth quarter.
Also, due to seasonal factors, the fourth quarter tends to have fewer net additions than the third quarter as was seen in the last two years.
Based on these and other factors, we are forecasting fourth-quarter 2015 net additions to the domain name base to be between 1.1 million and 1.6 million names.
As noted in prior calls, updates to the domain name base are posted on our website at least once per day and reflect the definition change to include on-hold status names as we discussed during our February earnings call.
Our website allows you to track the domain name base throughout the coming quarter.
And now I would like to turn the call over to <UNK>.
Thanks, <UNK>, and good afternoon, everyone.
During the third quarter, we generated revenue of $266 million, up 4.2% year over year and delivered GAAP operating income of $154 million, up 10.7% from $139 million in the third quarter of 2014.
The GAAP operating margin in the quarter came to 58.1% compared to 54.7% in the same quarter a year ago.
GAAP net income totaled $92 million compared to $95 million a year earlier, which produced diluted GAAP earnings per share of $0.70 in the third quarter this year compared to $0.69 for the third quarter last year.
As of September 30, 2015, the Company maintained total assets of $2.6 billion.
These assets included $1.9 billion of cash, cash equivalents and marketable securities, of which $794 million were held domestically with the remainder held internationally.
Total liabilities were $3.6 billion at the quarter end, up from $3 billion at the end of 2014.
I will now review some of our key third-quarter operating metrics, which are revenue, deferred revenue, non-GAAP operating margin, non-GAAP earnings per share, operating cash flow and free cash flow.
I will then discuss our 2015 full-year guidance.
As mentioned, revenue totaled $266 million for the third quarter.
60% of our revenue was derived from customers in the US, and 40% was from international customers.
Deferred revenue at the end of the third quarter totaled $940 million, a $50 million increase from year-end 2014.
Third-quarter non-GAAP operating expense, which excludes $12 million of stock-based compensation, totaled $99 million, down from $102 million in the second quarter of 2015 and compared with $101 million in the same quarter a year ago.
Non-GAAP operating margin for the third quarter was 62.7% compared to 60.6% in the same quarter of 2014.
Non-GAAP net income for the third quarter was $103 million, resulting in non-GAAP diluted earnings per share of $0.78 based on a weighted average diluted share count of 131.7 million shares.
This compares to $0.70 in the third quarter of 2014 and $0.74 last quarter based on $138.1 million and $133.3 million weighted average diluted shares respectively.
Operating cash flow and free cash flow for the third quarter were $155 million and $157 million respectively compared with $168 million and $150 million respectively for the third quarter last year.
Also, as we discussed on recent earnings calls, we expect our cash tax rate to stay below our tax rate used for non-GAAP calculations for at least the next several years.
In 2015, we still expect to pay cash taxes of approximately $35 million to $45 million.
Substantially all of the expected cash taxes in 2015 are international.
With respect to full-year 2015 guidance, revenue for 2015 is now expected to be in the range of $1.050 billion to $1.055 billion, representing an annual growth rate of 4% to 4.5%.
This revenue range is narrowed from the $1.045 billion to $1.055 billion given on our last call.
Non-GAAP gross margin is still expected to be at least 80%.
Full-year 2015 non-GAAP operating margin is now expected to be between 61% and 62%.
This has been narrowed from the 60% to 62% range given on our last call.
Our non-GAAP interest expense and non-GAAP nonoperating income net is now expected to be an expense of between $104 million to $108 million narrowed from the $104 million to $110 million expense range given on our last call.
Capital expenditures for the year are now expected to be between $37 million and $42 million, changed from $40 million and $50 million range given on our last call.
In summary, the Company continued to demonstrate sound financial performance in the third quarter.
We have grown non-GAAP operating margins and non-GAAP net income.
We have maintained a strong financial position and expect strong operating cash flow generation to continue as a result of our financial model.
Now I'll turn the call back to <UNK> for his closing remarks.
Thank you, <UNK>.
During the third quarter, we furthered our work to protect, grow and manage the business while delivering value to our shareholders.
I would like to expand a bit on what we think that actually means.
I believe the best way to do that is to offer some long-term perspective on VeriSign's performance since the completion of our divestitures five years or 20 quarters ago.
Our goal then was to simplify the Company's business through divestment of non-core assets and to focus on profitability and value creation.
Since then, revenue has grown sequentially for 20 straight quarters.
Non-GAAP EPS has grown steadily from $0.31 in Q4 to $0.78 in Q3 2015.
Free cash flow has grown steadily and was $612 million over the trailing four quarters.
Non-GAAP operating margin has risen steadily from 44.3% in Q4 2010 to 62.7% in the most recent quarter.
Over the last 20 quarters, we've returned $4.2 billion to our shareholders.
We repurchased over 69 million shares for $3.22 billion, which exceeds our domestic free cash flow for the same period.
And in that same timeframe, we returned $982 million in special dividends excluding payments to convert holders triggered by that special dividend.
Our $2.75 per-share dividend in 2011 was a 100%, tax-free, return of capital.
We believe the long trend lines of growth in the top and bottom line, along with a consistent track record in returning generated value to our shareholders through effective capital allocation and an efficient capital structure, are what matter most to our shareholders.
We believe that proper balance within our strategy framework ---+ protect, grow, and manage ---+ is what makes it possible for us to deliver this type of consistent long-term result and simultaneously serve the interests of our shareholders, employees and customers.
We intend to continue our steady focus on long-term consistency.
We will now take your questions, and operator, we are ready for the first question.
Sure, <UNK>.
This is <UNK> <UNK>.
As we mentioned in our prepared remarks, we did see 1.68 million net additions to the domain name base and as you pointed out, there were 9.2 million gross additions in the third quarter.
During the third quarter, we saw continued strength in additions coming out of international markets, particularly Asia.
Now that region includes markets such as China, India, Indonesia, Vietnam, etc.
, and all those regions we have seen good growth in those regions.
We also mentioned that while we believe these markets will continue to perform well, we also believe that the pace of activity we saw on the third quarter will slow sequentially in the fourth quarter.
We did give guidance of 1.1 million to 1.6 million.
The midpoint of that is about 1.35 million.
If you recall last year, we did about 700,000 names in Q4 2014.
So we do expect to have good net adds in the fourth quarter.
When you say out of the norm, registrars do run promotional activities.
I believe there's a few registrars that do some around certain holidays, but in most of our market programs, we put those in place throughout the year, so we continue to have a consistent level of spend or activity in those markets, but nothing unusual that I'm aware of from a marketing perspective.
Sorry, I would just add to that nothing extraordinary, and I feel I would be remiss if I didn't just underlie <UNK>'s comments with the fact that .com is just a strong brand, and it typically performs well, and we see it continue to do so.
Yes, so it's relatively flat year over year, <UNK>.
We had 72% last year at this time, 71.8%, so we're talking about 20 basis points.
But really the renewal rate is speaking to the registrations that were registered a year ago.
We are seeing a little lower tick in the first time renewal rate, but again, that's more as we shift geographies and sell more into what we've talked about, emerging markets, international markets.
Some of those markets have lower first-time renewal rates, but ---+ which have improved during the year.
But at least year over year, we expect it to go ---+ to be flat.
But seasonally, it tends to go down a little bit in the third quarter based on our historical activity.
Sure.
So as far as the strong adds in the quarter, again, we saw good activity coming out of international markets, primarily Asia.
But those markets ---+ I talked about earlier, China, India, Indonesia, Vietnam, we've seen growth in all those markets.
So we are very pleased with that growth over there.
It seems to accelerate in the quarter.
We're having a good month to date as well over there, so we will monitor that activity.
But we've guided up for the fourth quarter versus last year.
We are guiding 1.1 million to 1.6 million, but good demand out of the Asian region is what we are seeing over there.
And this is <UNK>.
If I can just answer the second part of your question or your second question about IDNs.
So the news this quarter is that we are on track to begin a roll-out and launch before the end of the year.
I think it's early at this point to speculate about how they will perform or provide any sort of guidance or revenue forecasts.
I will say that I think when we're talking to you a quarter from now, obviously the beginning of the rollout with the first IDN or IDNs at that time will give us some things to talk to you about, and I'm sure when we're talking about Q1 2015, by then we will actually have been in market.
We will be beyond rollout, and we will be in market, and we will certainly have more data for you and more to talk about then.
So early now to speculate about any of those things.
I think the important news is that we are on track, and we're still tracking on our commitment of last quarter to begin our rollout before the end of the calendar year in 2015.
That answer your questions.
Thanks, <UNK>.
So yes, I think the first part of your question had an implicit assumption that is correct that we are rolling them out in some sequence.
I don't want to say that we are certainly not rolling them all out at the same time, and I don't want to say that we're going to roll them out one after the other individually and have 11 separate rollouts.
There is going to be a phased rollout that is based on our preparations, market analysis, readiness, ICANN process, a lot of different factors that will go into that.
What we do know for certain is that we will begin with at least one IDN before the end of the year.
So there is some ICANN process that does play out here.
There is an early period where grant holders have the ability to come in.
There may be some early access opportunities for those who wish to get into the store early, so to speak.
But that process will have begun before the end of the year.
I expect that certainly by the turn of the year and in Q1, we will be with at least one, I think that's the only thing I can say comfortably without speculating, in market.
So we will be selling, and there should be activity, and we should be learning, and we will have more to talk about when we do talk about Q1 certainly; more to talk about after Q4, but a lot more to talk about after Q1.
Well, I can give you a general high-level update.
There were some delays associated with dot brands in particular as ICANN recognized that dot brands had needs that were different beyond what ICANN had originally anticipated, different needs as opposed to those who are getting into the business of selling domain names.
So some contractual issues were worked on between the brand community and ICANN, and additional time was given to the brands, I believe.
I don't have a specific number for you, but a number of brands that engage in that process, some did sign contracts by deadline.
I believe there was another extension for some additional work by some brands who had special conditions.
But we haven't seen a lot of them out in the market yet, but some of them have certainly announced their intentions to roll out their brand TLDs.
So they are not visible.
It's not that active.
But there was some ---+ quite a bit of activity, mostly contract signing with brands.
So I would expect that next year you'll see some dot brands in the market.
I certainly think so.
I think ---+ there are a lot of different ways to think about this.
But there's just so much investment in the brand and in the .com registration for most of these large brands.
I think if ---+ to use a metaphor that may not be exactly perfect but I think will give you the idea, if you had a telephone number that you had invested in heavily for years, extensively in creating awareness for people to call you and order your product, and you ---+ a different number became available and you opted for that, if it costs you $7.85 a year to continue to forward your old number to your new one, you do that for as long as you have any number of people calling it.
But there are ---+ in some cases of these global brands, an extraordinarily large amount of traffic associated with their current domains.
So it is very easy for them to simply redirect that traffic to it.
So this is ---+ I think you're getting to a question that I've answered in the past which is that I don't expect these people who get a dot brand to abandon their .com.
They are certainly not going to do that.
It is their brand.
It's inexpensive for them, and there is a heavy investment in branding and traffic.
So I expect it to be either an experiment or a complimentary registration, and we will see how it plays out in the years ahead.
But I certainly don't expect people to abandon their .coms.
I just don't think that's going to happen.
Well, DDoS is one of the products that has been around for a while and is a main contributor to the product sales in our security services unit.
The DNS firewall is new.
Still a bit early to really talk in any level of detail or sort of any generalized trends that we see.
The reception is certainly good in the market I will say that.
And overall the security services unit continues to grow, not at the point where we are reporting it separately, of course.
But it is growing, and we will have more to say about that when it gets to a point where we can.
So your first question was on the operating margin.
Again, our operating expense for the quarter was $99 million, and if you look a year ago, that was about $101 million.
So it's not ---+ it's been around $100 million for a while.
When I look sequentially of changes, there is really nothing that jumps out at me per se.
In our core, we had a little bit lower depreciation, maybe a little lower travel in our sales and marketing while it was down sequentially.
If you look at the year-to-date nine-month period, is relatively flat.
There's really a timing of when we would roll those expenses out.
We have rolled them out, those programs a little earlier this year than previous years.
So you have some intra-quarter variances, but overall year to date from a sales and marketing, we are pretty much on track.
R&D we are down a little bit.
We've optimized some of our spend in our R&D area, and we have a slight headcount decrease, and in G&A, we had some legal expenses increase.
But overall, you read our 10-Q.
We expect those major categories to be consistent over the next quarter or so with what we've just rolled out there or just produced.
And I would just add to that, with respect to the comments that I made earlier, there isn't a specific focus on the operating margin per se by itself.
The operating margin is a fairly consistent trend line if you draw it over the last five years into 20 quarters moving slowly and steadily in a positive direction.
And it's ---+ the real focus for us is that it allows us to move the important trend lines of topline revenue and profit forward and pursue our long-term strategy.
I think those are really the important issues.
There are always gives and takes, as <UNK> said, but again, from $102 million in the year ago quarter to $99 million this year, I think is roughly equivalent in our view.
It allows us to continue the trend lines that we are really focused on.
We will give you guidance next quarter on our views on 2016, <UNK>.
We can just tell you if you look at this year, clearly Q1 was a strong quarter from a net adds perspective, and Q3 clearly was ---+ Q2 tends to be a little bit lower because of how the deletes come into the base with a lot of the strong adds in Q1 with the 45-day grace period.
It tends to slightly increase at least a little bit in the second quarter and in the fourth quarter.
December has a lot of holidays in the month and globally a lot of countries take holidays off.
So Decembers tend to be a short month for us, and so we tend to see the fourth quarter seasonally be a little lower sequentially than third quarter.
But we will give you some more color on our views on 2016 next quarter.
Yes, thanks, <UNK>.
So there was no conscious effort to pull any programs.
As I mentioned earlier to a caller, if you look at the nine-month year-to-date expense in sales and marketing, it's relatively flat.
We did this year roll some expenses ---+ I'm sorry, roll some programs out a little earlier in the year.
It's a little bit frontloaded if you look at it on a quarterly basis.
We had slightly higher sales and marketing in Q1 and Q2.
It's just kind of how it fell this year.
We constantly evaluate our programs, but they seem to be performing well.
As far as Q4, we expect the expense in sales and marketing to be consistent with what it was this quarter.
Thank you, operator.
Please call the Investor Relations department with any follow-up questions from this call.
Thank you for your participation.
This concludes our call.
Have a good evening.
| 2015_VRSN |
2016 | SONC | SONC
#Thank you, Joe.
I would say it's about 1.5% to 2%.
Not necessarily from what it's been.
What we're seeing, if you peel away the layers, <UNK>, is that we're getting leverage from our crew labor with the investments.
So we invested ---+ our first big investment was last year, if you'll recall during this time of year, when we saw a noticeable increase in our monthly unit volumes for the second fiscal quarter.
And at that time, we made some significant investments in retaining more people at the crew level so we could sustain a quality workforce as we headed into the spring and summer months.
As we headed into this fiscal year, we enhanced their compensation with the employee meal program but then are now focused on the assistant manager piece.
So as you look at, we've gotten leverage from crew and that's really offset by the employee meal program and then the compensation program from our multiunit partners and managers and then assistant manager.
Go ahead.
And I think you're getting some of them confused, because the big change that we made back during 2009 and 2010 is when we reverted our partnership program for our managers to a regular compensation program and, in essence, they became our employees as opposed to operating equity partners.
What we did back at that time was shift their guaranteed base to a materially higher amount and lowered the incentive piece, though the incentive portion of their compensation was still very meaningful to them in their individual compensation.
Over time, the references <UNK> is making today have to do with assistant managers rather than the key manager, the number one person, and they also have to do with multiunit supervisors rather than a single unit manager.
So it's different people and different objectives at different times.
Exactly.
The one additional note I would add, <UNK>, is that for our multiunit partners, our compensation package effective March 1, continues to be, bar none, above the industry average, so incredibly competitive as we look at it across our peers.
Sure.
Great question.
Of that piece, we've tapped into our variable funding note to the tune of about $70 million to $72 million to take care of the share repurchases.
So that $425 million, $268 million will be to refinance the 2011 notes and then we'll use $72 million of the remaining proceeds to pay down that variable funding note.
So then we'll have the excess cash will be available ---+ after we pay any associated fees, will be available to deploy.
I don't have the breakdown for you by market as we sit here today.
We do have that data and we have shared that data internally.
I can tell you that earlier as we came out of the recession, the greater portion of the new store development and the commitments for new store development was core markets.
And as we particularly in 2013 and 2014, as we shifted dollars toward national media and now have probably 85% of our marketing dollars spent on national media, with the growth in sales and profitability and the fact that we're on 12 months out of the year multiple promotional rotations every quarter, we began getting a lot more inquiries and then we've also put more human resource behind franchise sales across the country, not just core markets.
So as time has passed and that pipeline has stepped up, as you've seen, it is a good combination of core markets, new markets, and in the more recent past also what we would refer to as developing markets, those with light or moderate market penetration historically and lower AUVs.
But the AUVs in the developing markets have come up very nicely in the last three years and so we're seeing new store commitments in core, developing, and new markets, all three.
The promotion of the mobile app, more active national promotion will begin next month.
So utilization immediately; functionality growing over time.
But your question was likely impact on what.
Second fiscal quarter.
It did not have any material impact on the second fiscal quarter since we haven't rolled it out nationally.
The POPS system really doesn't require the franchisee to do anything.
It is a customer interface.
As it has gotten rolled out within a marketplace, there are some consequences that we see that may have to do with types of transactions or dayparts that are a nice surprise, you might say, but we have not previously published anything about here's what you will get from that, we've not published that to the marketplace.
And what we will get from it, in our view, is it is kind of the gift that keeps on giving as we integrate it with these other ICE elements, the app and mobile otherwise.
So not much more of an answer to your question than that, except that our view is that our vendors that are helping us pay for it, it is helping drive their business too and by the end of next year we'll have the whole system.
The answer is as it gets rolled out across the marketplace, we do get benefits from it we would not get if it's an isolated single store.
Yes.
Okay.
Couple of things.
One is, the way we look at what drives our business ---+ we don't look to single thing cause and effect, which is one of the reasons why we put in our presentation the series of initiatives that from our standpoint help drive the business.
So those can be media and different forms of media.
It's promotion.
It's the nature of the promotion.
It's who the targeted audience is.
It can be product line and why a product line makes more sense at one time of the year than another.
It could be daypart and why daypart in the year makes more sense at one point in time of the year versus another.
So there's a whole series of elements that go into this and it's a little ---+ it would be a little ---+ I'm not sure what the right word is.
It would be difficult and probably not even correct for us to look at it and say it was this product or it was just that commercial or it was the fact we're on that medium.
So the color I would give you is that in the recent past or in this quarter all dayparts are positive and we're pushing product across a variety of product lines.
So the business is healthy and it's very good for us to have this BLADE strategy, breakfast, lunch, afternoon, dinner and evening.
As we promote that in every three- or four-month period hitting on each of those dayparts and products aligned with them.
It really keeps our busy healthy and allows us to move around what some of the competition may be focusing on, differentiation from a product and usage standpoint.
Beyond that we don't ordinarily talk about sales by daypart nor by product line, but there's a variety of things that positively impact this so we keep developing products aligned with various dayparts and in various product lines for that kind of freshness to the business.
You bet.
One of the things, <UNK>, that this is ---+ I know we got into some specifics on this several years ago, but from our standpoint it remains true about the business.
The customer's perception of value, that's often translated as just meaning discount and yet our view of that, because it is a consumer's view, it is what you pay for what you get.
And so we've approached, over time ---+ though very early in the recession we did put in place a so-called value menu, we have found other ways to approach that over time to all the while measuring our customers, our actual customers' and potential customers' perception of our value.
So we get read from them on a regular basis on that issue.
And even as we have done things that have really increased the cost or expense of products, like going from ice milk to ice cream, even as we've taken steps like that, we have seen consumers' perception of value that we offer, in fact, improve over time.
And so, in a way, that general description I'm giving you is, in a way, a description of our strategy, which we may have periodic pricing activity or we may have laddered pricing now which we didn't have five or six years ago, but what we have worked not to do is just simply say here's a whole lot of food, cheap.
And this strategy has worked for us for a variety of reasons and we're still on it.
Well, so observations about where the investments are, our rule of technology applies.
Takes longer, costs more than you thought it would when you started out.
This is, in fact, what we have experienced.
But in terms of the plumbing, you might say, the plumbing and wiring, we are getting that rolled out nicely across the system now with our POPS and POS infrastructure.
A large part of the infrastructure that we're going to be leveraging is everyone else's investment, smartphones and otherwise.
So our expectation is that, particularly with the millennial population, that the utilization of the app should be very positive for our business.
Let me give almost a 20th Century parallel here.
When we rolled out our credit card readers at the stall, our PAYS program, the Pay At Your Stall, PAYS, before we rolled that out, 2001, 2002, we had $2 billion in sales, 5% credit cards.
We rolled that out across the system.
So if in 2001, we had $2 billion in sales, $100 million in credit card sales out of $2 billion.
Today we have about $4.5 billion in sales and almost $2.5 billion come from credit cards.
So what we offered to our customers was a different way to engage with us.
In that case it was how to engage from a payment standpoint and they liked it a lot better when they didn't have to turn loose of their credit card.
This has been a great way to engage the consumer on that from an ease standpoint.
The millennial consumer in particular is quite accustomed to utilization of tablets, smartphones and otherwise for review of consumer data and even placement of ordering and payment processes.
So our belief and expectation is just as the millennial population will become a larger and larger portion of our employee base and our customer base over the next 5, 10, and 15 years, that utilization of this technology for understanding where a Sonic drive-in is, keeping records about what you ordered last time you were at a Sonic drive-in, applying same orders, payment processes, sending gifts, meaning gift cards to relatives or otherwise, that just as the credit card piece was an explosive part of the business over the last 15 years, this integrated piece, however much a customer uses, chooses to use it off lot versus on lot, these integrated elements of app to POPS and points in between will be a significant grower from a convenience standpoint, significant contributor to growth over the next 5 and 10 years.
One of the things that our payment process didn't have anything to add to it and this infrastructure will have to do more with the relationship management and the promotion to a customer really in a one-on-one fashion in a way that the payment process, oh, may have allowed you to do a little bit indirectly.
This will allow us to do a lot directly.
So I think the impact on our business is going to be very material and it's going to grow over time it will take on forms five years from now that I certainly can't even anticipate today.
But I think it's going to be enormously positive for our business.
Allow us a level of customization engagement with the customer that we could not approach otherwise.
Sure.
So with respect to traffic and check, I would tell you a little less than half of our same-store sales growth was comprised of traffic and then there's check.
I think what's exciting about that for us, is that, again going back to <UNK>'s point on our product and daypart strategy, is that we've reached a really nice balance over the past couple of years of being able to grow our business by selling more premium products, namely in the chicken and ice cream category.
But also continuing to drive traffic with targeted value and what we've seen with that is that they're not just buying the items that we're promoting but really trying out a broader base of our business, whether it's premium products or add-ons.
So we continue to see that dynamic, which is really healthy.
With respect to weather, we didn't see ---+ I would tell you weather did not play a significant impact, either positively or negatively, on the quarter.
It ended up being pretty neutral overall, maybe slightly positive but nothing anything worth noting.
Sure.
So with respect to vanilla, I would need to get back to you on that.
I can tell you the biggest piece we look at when we're looking at ice cream is butter fat.
That has been a slight source of pressure as we go into the year, but we've locked in a portion of that.
And certainly as we get into the summer months, we've locked in a portion of that and they're below market prices at this point, so we feel very good about that and we continue to evaluate the market.
Thank you.
At this point what we're looking at, Bob, is we're just looking ---+ this is <UNK>, obviously, not <UNK>.
Just to be clear.
So we are looking at those packages, but really all we're doing is we're just going to be shifting.
We're comfortable with the overall compensation package.
It's just a matter of shifting what component is fixed versus variable.
The guidance that we provided incorporates a little bit of that, but we don't anticipate seeing any adverse impact from that shift.
First of all, in terms of discussion along those lines internally or with franchisees, the answer is no.
Secondly, it's going to be incumbent upon us for them, as that development occurs, to help them develop a pricing models, et cetera, that work for them in such a way that it does not disrupt their business at an individual store or on a broader enterprise basis.
Now that will be our objective to assist our operators in that process.
We did the same thing with our operators as it related to the Affordable Care Act.
Now many of whom confronted that with fear and trepidation and we spent a long period of time showing them how to utilize it, what to think about from a pricing standpoint, how to engage their employees, and certainly not to start cutting back employees' time because we were concerned it would negatively impact service and then, in turn, their sales and profitability.
I can say that those who listened to us on that point and embraced the approach that we proposed ended up, in the ensuing summer in particular, with higher sales and profitability and it kind of moved right through it.
So I'm not suggesting that it's not a challenge to move into that kind of pricing, that kind of hourly wage pricing component, but these are being proposed on a multiyear staged basis and there's no doubt that it's going to be kind of inflationary as it relates to consumer product.
That is how we'll approach it and we've heard no feedback from operators about concerns regarding development.
I should also say our new markets, new stores, have sales volumes in excess and well in excess of our average store.
And so from that standpoint, present more of an opportunity for management of those costs anyway.
Thank you for the question.
I think that's our last question for the day and our operator might ordinarily say something, but since it was announced this is our last question, I'll pick it up.
We appreciate your participating in the call today and hope you have the sense of confidence that we do have in our business.
We're really hitting on all cylinders at this point and all aspects of our business are really going quite well.
We're very pleased with it and hope you are, to the extent ---+stockholders on the line, hope you're very pleased with the performance of the business as well.
We look forward to talking to you along the way.
Thank you very much.
| 2016_SONC |
2017 | PAHC | PAHC
#Thank you, <UNK>.
So first of all, congratulations on a win on Sunday.
I'm surprised you're on the phone.
I imagine that's why Brett's out on the road.
He's still in Boston, right.
Anyway.
Brazil has had a ---+ getting back to the business, Brazil has had as we all know and gone through a lot of political and economic crisis in the last year, particularly in the ag industry.
Due to weather challenges, they lost a corn crop.
Now Brazil, unlike the US, has two corn crops a year which gives them a unique ability to have cheap input costs.
They didn't get a lot of rain last year.
They did get it this year.
So last year the price of corn in Brazil was 2x to 3x higher than the rest of the world.
And they can't easily make up for it by importing corn because of port congestion, infrastructure, et cetera, et cetera.
So they had a difficult year in terms of input costs as well as currency and the local economy.
So domestic consumption in Brazil was down.
Export markets were harder to do, because of their high input costs.
That's getting better now.
Again, they had the second crop, so we think it will return.
But that's basically been the driver and if you see it's true for everybody selling for the ag market in Brazil.
This is across the board.
This is a problem we've all faced this year, last year.
We continue to be very bullish on the Brazil market.
It's an ag powerhouse in many ways, but we're being cautious as to when the protein producers will start to see their demand pick up and therefore drive our demand.
The cattle business in the US is not a huge segment for us.
It's an important segment, and more on the minerals side.
I think we're seeing more animals on feedlots.
I think they're think they're staying on feedlots longer.
And just what we're hearing in the tradable arena, I think they expect to have a decent year in business.
And I can't get really ---+ we are not that close to that industry to give you much more in depth.
I think the swine market remains strong.
Exports remain very, very strong.
China, which is overall the largest importer around the world of swine, have kept their numbers down.
So they continue to import.
They do shift that around whether to import from the US or from other markets.
But China remains a very, very strong market and overall our hog industry is growing and people are putting on more packages in the United States.
So we expect that business to continue growing positively.
Yes, I think the comps are going to be negative on the domestic side and the comps are going to be negative, certainly through June and possibly through September, but somewhere in that range.
We'll see negative year-over-year comps.
So on the guidance piece, we've had very cash flow than we expected this year.
So we're seeing interest running below guidance.
So I think what we're running net interest year-to-date is probably what we're going to run the rest of the year.
So we'll be favorable on that line of the P&L.
On the competitive landscape, I'll let <UNK> comment.
So I think the consolidation we've seen have been a lot more on the companion animal side.
I think that's been the driver.
There's been some shift and when you consolidate and you do change ownership of the production animal side, but it hasn't really done a lot to sort of get rid of competition.
So I think competition remains, as always, fierce.
But again, we're an industry that's driven by population, wealth, and production growth, and we continue to see that.
We continue to see that in the US.
We continue to see that around the world.
So the unknown out there I'd say in the poultry side is the avian Influenza which moves product prodduction around but ultimately the consumption around the world of all these proteins continues to grow.
I think the global dairy industry has seen pricing recover recently.
Pricing in the US for fluid milk was as low as in the $13 and change range.
It's now up to between $16 and $17.
So at $13, dairymen were losing money.
At the current rate, they're making some money.
They're back, they're certainly back on the black.
It's not the bonanza they had when milk was up into the low $20 range a year or two, a couple of years ago.
So we are seeing improved demand for our products in the dairy industry and in the markets we serve, which are primarily the US and there's some select international markets where we're expanding.
So I think the dairy industry is, it's not out of the woods yet completely but better than it has been in the recent past.
I think we continue to see double-digit sales growth.
It won't be the 45% of ---+ I can tell you it won't be the 45% of the December quarter but it will ---+ we'll continue to have double digit top line growth in vaccines.
Yes, it's both those species.
Our vaccine portfolio is fundamentally to those two species, poultry and swine.
And we've got a good portfolio of products and we're out there selling more volume both in the US and in a number of international markets.
I think that's exactly right.
I think we also and this is something that we've worked on for years and sort of thought about in terms of product development as well as production.
When you remove antibiotics ---+ the general use of antibiotics from whether it's the chicken house or from the swine barns, there were also diseases people are seeing.
So there is an increased demand and there's a preference on the consumer side to see vaccines.
So we think we're well placed to sort of satisfy some of this demand both with our US vaccine business and with our overseas vaccine business.
Sorry, and the last little point is that remember we had stopped production in our Israel Beit Shemesh plant in order to upgrade our manufacturing (inaudible).
So we were shut down for a while, so that overlap we're seeing will continue as we go ahead over the next ---+ well definitely for this year and into next year as well.
Yes, we had somewhat depressed sales because of supply constraints in the second half of last year, of our last year, our last fiscal.
All right, everyone, thank you for joining us this morning.
And we'll talk again in another 90 days.
Take care.
Bye now.
| 2017_PAHC |
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