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2016 | ZBH | ZBH
#Sure, <UNK>.
Both of those dynamics are very accurate.
We've seen, particularly in the US, a step-up in large joints.
I think that the EMEA market is healthier than what we're currently experiencing, as we were just responding to the prior question on that front.
So the market is healthy in large joints, and we know that we have big opportunities in the other product categories as well, to focus on the large joint categories.
We have been improving our performance sequentially, even above the rate of the improvement in the market growth rates.
So over 100 basis points of gap closure in large joints as a whole, and that's been driven both by US and O-US knee improvement.
We see the US knees improving about 70 basis points relative to market performance, O-US knees improving about 160 basis points relative to market, and US hips as well going from Q4 to Q1 improved about 120 basis points.
So those gap closures are really important measures, as you reference, but it's always nice to be participating in a robust market itself, and both those factors contribute to the visibility that we have to improve the performance and close the gap, and as a consequence, raise our guidance for the full year to the 2% to 3%.
I think that the fundamental demographic drivers, <UNK>, I think we are seeing healthy markets, stable.
There's a bit of an offset, obviously as everyone else has been discussing, relative to certain of the emerging markets, the Latin America headwinds are still real, consistent with expectations coming into the year.
But Q4 and Q1 have been healthy markets in the developed countries, and we certainly have benefited from that.
We look to benefit to a greater extent as the quarters progress in 2016, with our execution.
Sure.
Well, we have a good pipeline, and we've made progress even in the first quarter in that regard, <UNK>.
Right now, outside of large joints on a global basis, we have round numbers, 2,000 sales reps exclusively focused in the other categories.
And between now and the balance of the decade, we look to expand that sales force in a material fashion, and 2016 represents our first installment.
So you can measure our plans in the hundreds in that regard.
In 2016, we're tracking consistent with that plan.
Step one was obviously the second half of 2015, to make the integration steps, and stabilize those sales forces.
We rebuilt the pipeline of talent, and that talent is coming to fruition.
So we're in a net add position as of Q1 even, and we would look to accelerate that for the balance of the year.
So I feel like we're executing those plans very well, and we're already seeing some of the early signs of traction.
It's part of what gives us confidence in accelerated top line growth between now and the balance of the year.
We absolutely are confident that we do.
We have the existing portfolio to compete effectively, and you're right, scale does matter and in this category, the level ones and the level twos demand comprehensive portfolios, and it's tough to be a niche player in that space.
And the combination greatly enhances our competitiveness within trauma.
The other thing that it does is ---+ and it's consistent across some of the other non-large joint categories for us, it puts us in a position to continue to innovate in a more diversified way, and get after some of the higher risk, higher return projects, to address unmet needs in that category.
And so, rest assured that not only do we expect to execute with the current portfolio in an effective manner, but our pipeline is going to be more diverse than it's ever been, and the scale gives us that opportunity.
So we would look to address unmet needs and push out and really establish ourselves as true innovators within the trauma space in due time.
Sure, <UNK>.
It's <UNK>.
I responded earlier in terms of the types of investments, so there will clearly be a focus on the R&D line.
So you can expect to see our spend at the R&D line to improve, or to expand sequentially, as we progress through the year, and that's a fairly broad-based set of investments, focused on large joints, SET, programs aimed at our personalized solutions portfolio, as we discussed.
You'll also see in the SG&A category some reinvestments, medical education and training, so that takes the form of training new surgeons around the world, capitalizing on the opportunity to cross-sell, investments in med ed in emerging markets, and specialized sales forces.
<UNK> just mentioned adding hundreds of incremental focused sales reps, particularly in the SET categories, and things of that nature.
So I think you'll see it mainly in the R&D line, but also in SG&A, as we progress through the year.
Sure, <UNK>.
I think that we had an opportunity, because of the pendency period that was prolonged for 14 months between signing and closing, to do extensive planning.
And the teams took advantage of that time and developed extraordinarily detailed integration plans to go after the top line opportunities, as well as the operating expense opportunities.
And it's pretty clear, based upon our execution, that we've been able to, if anything, retrieve and realize the operating expense synergies in an accelerated fashion, as evidenced by last year's performance in that regard.
I think to your question, you end up with the best visibility one can have in planning those top line opportunities, and now we're in a stage where we're executing.
And so we're making refinements, and part of what <UNK> is outlining, by the way of reinvestment, would include something like the products that are going, and beyond, in theory having a cross-sell opportunity, we're realizing success.
We're upping production, we're ordering more instruments.
And so that's a good example of the reality.
With any new product launch, and this as we referred to it as sort of the mother of all product launches, you end up having some surprises, both negative and positive, and where we see the positive surprises, we're going to fuel that growth.
So we've got a stable channel.
We're on a net basis adding sales reps in an intelligent way relative to our opportunity to make sure that our coverage is going to exploit fully the broad bag that we have, and then we're dialing et it up in medical training, and education, instruments and inventory, where we see the growth opportunities, because of early traction in the sales force.
And that visibility is extraordinarily helpful, gives us line of sight as to sequentially between now and the end of the year what we think we can do.
<UNK>, we're still comfortable with the previous cash flow guidance that we provided, both on an operating and free cash flow basis.
Sure, <UNK>.
We're comfortable with the consistency of the calculation and the visibility that's provided.
We had a successful quarter in managing the business in this regard in Q4, and as you know, another successful quarter in Q1 of 2016.
Some of it had to do with just our forward visibility to contracts and renewals, and what's in the pipeline.
And so we came into the year expecting minus 2.
We continue to expect something closer to that in subsequent quarters.
Q2, Q3 and Q4 of 2016 and contributing to that potential uptick relative to where we were in Q1 is going to be the biannual price adjustment in Japan, which comes online here at the beginning of the second quarter.
So that's already been quantified.
It's consistent with most of the past adjustments, say in mid single digits, based upon our product mix.
So you can look at that as being the potential for round numbers, a 20 basis point uptick on a consolidated basis, but I think that we're managing the business intelligently.
One of the benefits of the combination is the capability with this broad portfolio to product position, and with the breadth of the portfolio and the capability to tier these products, and better match the demands and needs of customers, it puts us in a better position to maintain pricing on premium technologies, for example, across the globe, that is.
And with the increased transparency on pricing across the globe, that's a big asset.
So it's a good news story.
The teams are taking advantage of that opportunity.
But again, it's two good quarters in that regard, and we don't want to call it a stronger trend at this point in time.
That probably does cause us to moderate a bit the negative 2% price expectation coming into the year, but we think that we're going to edge up above the 0.9 that we experienced in Q1, as we move into Q2 and beyond.
it's a big dynamic and a big opportunity, <UNK>, and it's so consistent with our focus on musculoskeletal care, up and down the continuum and across the episode of care with systems, solutions, and services, and this has been our strategy going back for the better part of a decade.
So we really do believe we're uniquely positioned, and these conversations and the partnerships that we're entering into reflect the fact that the breadth of our portfolio and our commitment to developing these partnerships in a manner that adds value is going to be long-term and deep.
I will tell you, every one of those conversations is validating to the work that we've done, as I said over the last decade.
I think that you can envision a day where it's very much the case that the end-to-end patient engagement is something that we're more deeply involved with, and as a consequence of the data and insights that we glean in partnership with customers that are progressive thinkers in this regard, that we're mining that data, creating the right treatment algorithms, and the right clinical and economic support, that announces where the unmet needs are and the opportunities for continuous improvement on both clinical and economic bases.
And that's our vision, and there are a lot of customers across the globe that share that vision.
And I think that, again, there are limited numbers of companies that can sit at the table with the offerings that we have to bring value to that conversation, and be able to follow through and deliver.
So we're excited about the opportunity, and you're going to hear a lot more from us going forward on that front.
You are.
I think it's deeper partnerships, <UNK>.
And I think that one doesn't want to take too superficial of a view, and jump to the monetization of that relationship.
Rather, I think it needs to be about value creation.
And if there's true value creation opportunity, and we believe that there is true value creation opportunity through those deeper partnerships, there's going to be plenty of opportunity to share in that upside, and broader relationship up and down, again, again, that continuum of care and that episode of care, and you can envision from the point of diagnosis and joint preservation through sports medicine, partial, total, revision, salvage, and the large joint, biological solutions, but interventions that make sense, both clinically and economically, we are convinced that there's value to be gathered for both parties, and all the other stakeholders, and most importantly, patients.
If we get that right, we're going to be able to figure the rest of it out.
So that's the mindset that we have in entering into those relationships.
A lot of flexibility and agility to get after making a difference for patients, and that's going to redound to all the other stakeholders' benefits.
I'm sure we'll participate in that in an appropriate way.
Leona, we have time for one additional question.
I think it's just timing to get after the opportunity more than anything, <UNK>, as it relates to the SET businesses.
The opportunity that we have with this combination to materially enhance the focus from a commercial standpoint is one that we're taking advantage of.
And we're going to start to see, in the short term as in Q2, some of the benefits in the SET categories.
And then you jump outside of the SET categories, dental, we had a you unique event with a field action back in Q4.
As we've referenced, we were working through that challenge in Q1.
We'll be out of that challenge by the end of Q2, and that's going to help enhance the performance of the dental business.
And then as we noted all along, the commercial integration on the spine side was known to be more challenging, and so we're going to like the result, but that one's going to take a quarter or two longer than the large joint.
So we're tracking very consistently with what our integration plans contemplated, <UNK>, and the teams are doing an excellent job from our perspective on the execution front.
<UNK>, I would say that our thinking on that remains as it has been, which is, we continue to be interested in smart business development opportunities with a strategic focus remaining on musculoskeletal.
We'll remain disciplined in that regard.
We'll look for targets that leverage our sales channel to drive sustainable growth and maximize shareholder value.
And we'll also stay focused, to ensure sustainable and solid returns within a reasonable time horizon.
So I wouldn't think of any shifts in that regard.
We're still very focused on driving improvements in our free cash flow yields out over time.
That will continue to be a focus and it gives us a lot of flexibility as we progress looking at debt paydown, M&A activity, dividend payment, and so on and so forth.
So we will stay very disciplined, as we always have been.
Thanks, <UNK>.
And with that, I'd like to thank everyone for joining the call today, and for your continued interest and support for Zimmer Biomet.
We look forward to speaking with you on our second-quarter conference call which is scheduled for 8:00 AM on July 28th.
I'll turn the call back to you, Leona.
| 2016_ZBH |
2016 | KEY | KEY
#Good morning, <UNK>.
Sure.
When we talked about the $300 million of incremental revenue synergies, we said that that would typically be in a three- to five-year type of time period.
And so we'll have to continue to monitor that, but that's our initial assumption going in.
In addition to the residential mortgage, one of the big areas for us is our cash management services, Treasury management services for the commercial side.
And as we take a look at the activity levels that we're seeing right now, we're seeing a nice increase as far as potential referrals and pipeline associated with that.
I think we've got over 200 First Niagara customers that are at least talking to us about adding additional Treasury management services, and so that would be another category that we also have potential growth and a number of other products and services, some of which came from First Niagara and some of which are for legacy Key.
<UNK>, anything else you'd want to add there.
In the product capabilities, again, a robust offering for the commercial customers would also include what we put in our corporate services income of FX and derivatives and a broad suite there.
We also look at wealth management and private banking, and within that, we have investment management and other services that I think will be a good fit, again for their consumer, as well as business customers within Key.
Really again, I think it falls back to we think it's a three- to five-year time period, so you can think about that ramping up over that time period.
So I would say that we'll provide a little bit more guidance as we get into the fourth quarter call in January and provide more clarity as far as the timing and the level of recognition associated with those revenue synergies.
Thank you.
Again, we thank you for taking time from your schedule to participate in our call today.
If you have any follow-up questions, you can direct them to our Investor Relations team at 216-689-4221.
And with that, that concludes our remarks and our conference.
Thank you very much and have a great day.
| 2016_KEY |
2016 | BID | BID
#Great.
Thank you, Candace.
Good morning, and thank you for joining us today.
With me here are Tad <UNK>, Sotheby's President and Chief Executive Officer; and Dennis <UNK>, Interim Chief Financial Officer.
GAAP refers to Generally Accepted Accounting Principles in the United States of America.
In this call, financial measures are presented in accordance with GAAP and also on an adjusted non-GAAP basis.
Also, during the course of this call, that Company may make projections or other forward-looking statements regarding future events or the future financial performance of the Company.
We wish to caution you that such projections and statements are only predictions, and involve risks and uncertainties, resulting in the possibility that the actual events or performance will differ materially from such predictions.
We refer you to the documents the Company files periodically with the Securities and Exchange Commission, specifically the Form 8-K that was filed this morning regarding this announcement, which includes an explanation of the non-GAAP financial measures used on this call, as well as a reconciliation to the comparable GAAP amount; and the Company's most recently formed Form 10-Q and 10-K.
These documents identify important factors that could cause the actual results to differ materially from those contained in the projections or forward-looking statements.
I should also remind people that the transcript for the prepared remarks are available on our website.
Now, I will turn the call over to Tad.
Thank you, Jennifer.
Good morning.
Thank you for joining us, and also for your interest in Sotheby's.
This morning's call is to discuss a number of announcements.
First, I will begin with the pre-announcement our fourth-quarter earnings.
Of course, these pre-announcement figures are preliminary, and subject to change given the year-end financial close and review process, as well as events occurring after this call.
We plan to have a full report of earnings in late February, as regularly scheduled.
Adjusted net income for the fourth quarter of 2015 is estimated to be $75 million to $79 million.
And adjusted diluted earnings per share is estimated to be $1.11 to $1.17, which is largely flat on the adjusted net income line, and likely to be slightly better on the adjusted EPS line due to the share repurchases we made late in 2015.
Adjusted net income and adjusted diluted earnings per share were $78 million and $1.12, respectively, in the fourth quarter of 2014.
Fourth-quarter adjusted net income is impacted by a decrease in Agency segment gross profit due to a lower level of various owner auction sales, as well as income statement charges related to the Taubman Collection.
We now project to lose approximately 1%, or $6 million, of the guaranteed amount, due to a shortfall in sale proceeds.
Also, approximately $6 million of sale-related expenses were incurred in the fourth quarter of 2015, which is on the low end of the usual 1% to 2% of direct costs as a percent of sales.
The total $12 million for Taubman is included in the fourth-quarter adjusted net income.
The remaining property from the Taubman Collection, with a pre-sale low estimate of approximately $24 million, will be offered at auctions in 2016, primarily at the Old Master Paintings sale in New York on January 27, and could result in additional guarantee losses if the property offered at these auctions does not meet pre-sale expectations.
Any further loss associated with the Taubman Collection would be accrued to the fourth quarter of 2015, if material.
As a result of the guarantee shortfall, no net auction commission revenue will be recognized for the Taubman Collection in the fourth quarter of 2015, or in 2016.
With no revenue from the Taubman Collection in the fourth quarter, auction commission margin is down versus the prior year fourth-quarter.
Excluding the Taubman Collection sales, auction commission margin for the fourth quarter and full year did improve when compared to the prior year.
These factors, which unfavorably impact the comparison to the prior year, are largely offset by a reduction in adjusted expenses.
On an unadjusted GAAP basis, we expect to report an estimated net loss for the quarter of $10 million to $19 million, or $0.15 to $0.29 per diluted share, as compared to net income of $74 million, or $1.06 per diluted share in the prior year.
The estimated net loss for the fourth quarter of 2015 is due to two factors.
First, we will be recording a significant non-cash income tax charged in the quarter, which I will explain later in the call.
Second, during the quarter, we recorded a $37 million pre-tax charge, or $0.35 per diluted share, associated with the voluntary separation incentive programs that were implemented late in 2015.
For the full-year 2015, adjusted net income is estimated to be $138 million to $142 million.
And adjusted diluted earnings per share is estimated to be $1.99 to $2.05, as compared to adjusted net income and adjusted diluted earnings per share of $142 million and $2.03, respectively, in 2014.
On an unadjusted GAAP basis, we expect to report estimated net income of $36 million to $45 million or $0.52 to $0.65 per diluted share for the full year, as compared to net income of $118 million or $1.68 per diluted share in the prior year.
Second, turning from earnings to capital allocation, I said on the call early last week that due to the ongoing deal negotiations with Art Agency, Partners, we were unable be in the market buying shares when the trading window was open in December.
With the public release of information from today's call, we are able to repurchase shares at what we view as attractive prices.
On the topic of share repurchases, the Board approved a $200 million increase to our existing $125 million share repurchase authorization, which brings our current authorization total to $325 million.
We expect to begin to repurchase shares as soon as possible through open market purchases and/or accelerated share repurchase agreements, subject to the share price, the market and economic conditions, as well as other corporate considerations.
Third, this significant increase in our share repurchase program, and the need for cash in the US to fund other corporate strategic initiatives, have made it clear that approximately $381 million of accumulated foreign earnings that were previously set aside for investment overseas will instead be repatriated to the United States.
As a result of this change, we will recognize a non-cash tax charge of $63 million to $68 million, net of foreign tax credits, in the fourth quarter of 2015 as we change our APB23 assertion.
The specific timing of the repatriation of these foreign earnings and cash payment of the associated US tax is currently being evaluated.
We will continue to review our projections and planned uses of US and foreign earnings to determine whether our future foreign earnings will be reinvested overseas.
If we conclude that our future foreign earnings will not be needed to fund US operations or commitments, and will be reinvested outside of the United States, our effective income tax rate will decrease in 2016 and future years when compared to 2015 and 2014.
Fourth, and staying on the theme of optimizing capital for shareholders, yesterday our Board decided to eliminate our current $0.10 quarterly cash dividend, effective immediately, and allocate the capital to repurchase shares instead.
Fifth, with respect to 2016 and looking ahead to the current, seasonally quiet first quarter, there are a few items I would like to highlight.
A year ago, our first-quarter results for our second-highest in Company history, only eclipsed by a record-breaking 2007, and included a number of very strong events, such as record London February Impressionist and Contemporary sales of $533 million; robust New York March Asia Week and January Old Master sales; as well as the London contemporary single owner Bear Witness sale last March, which totaled $50 million.
We have recently published the catalogs for our February Impressionist and Contemporary sales in London.
And midpoint estimates are down 23% from last February's record actual sales totals ---+ record actual sales totals ---+ and 16% from last year's mid-point estimates.
We will have more to share with you about the market on the full earnings report next month, once we have some more data points in 2016 to digest.
But I can say that we anticipate a more typical net loss quarter for the first quarter of 2016, as in six out of the last eight first-quarters.
In terms of other upcoming auctions, this morning we announced the sale of property from the personal collection of one of Britain's most beloved figures ---+ Deborah, Duchess of Devonshire ---+ the youngest of the legendary Mitford Sisters who, for more than half as century, stood at the center of British rural, cultural, and political life, and was also the mother of our esteemed director, the Duke of Devonshire.
While the value of the collection is less than $1 million, given the public's fascination with the Dowager Duchess, our expectation is that our exhibition and auction at the beginning of March will draw significant attention, and provide opportunities for engaging with a broad cross-section of both existing and new clients.
We will have a better idea of how the first quarter is shaping up when we next speak.
The bulk of today's call was about capital allocation, which is one of the four key priorities I outlined back in March.
As we have taken a number of significant steps, I thought it might be helpful to turn things over to Dennis to talk about the process we undertook to evaluate our position before we moved forward.
Dennis.
Thank you, Tad.
Good morning.
First, this is not a normal course earnings call or detailed capital review announcement, so I will keep my comments brief and high-level.
I do want to begin by saying that our ongoing capital allocation process is thorough, detailed, and thoughtful.
The capital allocation framework considers our various capital needs, including amounts to support our business requirements and opportunities, pursue growth initiatives, and, importantly, we ensure appropriate liquidity for any environment.
It also includes a comprehensive examination of Sotheby's capital structure, our liquidity, our cost structure, and opportunities for growth.
Additionally, the review leverages off all of the hard work done in our detailed annual financial planning process for 2016 that was completed last month.
We stress-tested the business throughout the cycle and under different market conditions over the last 10-plus years, ultimately getting very comfortable that we can break even on a cash basis on significantly lower net sales levels.
A significant component of this framework is guarantees.
As an update, as of today, our outstanding guarantee position, net of irrevocable bids and other hedges, is a relatively modest $92 million, which we expect will be reduced by $30 million to a $62 million balance after next week's sales of Old Master Paintings, and includes guarantees also that are related to her February auction.
We are actively soliciting consignments for the May auctions in New York, and are comfortable with our capacity to take on a prudent level of guarantee risk.
As always, strategy, opportunity, sound judgment, and sensible risk management will guide our use of guarantees.
At December 31, we estimate we have approximately $849 million in cash.
After taking into account funds held for consignors, we estimate approximately $570 million of Sotheby's total cash is available to support our capital needs.
For me, this detailed examination of our capital structure has demonstrated the resilience of the business through an economic cycle.
This has been quite a robust process, and I have a good deal of confidence in our results.
Lastly, we would like to provide some brief estimated balance sheet data in advance the 10-K filing next month.
At December 31, our balance sheet reflected as follows: cash and cash equivalents, as mentioned, $849 million; accounts receivable, $876 million; notes receivable, $714 million; inventory, $215 million; consignor payables, $979 million; finance segment revolver borrowings, $542 million; and, finally, long-term debt of $615 million.
With that, this concludes our prepared remarks.
But I should remind everyone that this announcement is a change from our normal practice, and we do not plan to regularly pre-announce earnings in the future.
We don't have much more on fourth-quarter revenues or expenses that we're prepared to discuss with you at this time.
We would like to thank you, at this point, for your time.
And Tad and I are happy to take your questions.
Yes.
With respect to the first part of your comment, I think in prior earnings calls I have been clear, or certainly tried to be clear, that more and more of our performance will guide our compensation.
And I think you are beginning to see a little bit of that in the most recent quarter.
With respect to the second part of your question, it's a little early for us.
And I think we'll tackle both of those as soon as we can, potentially in the next earnings call or thereafter.
I don't think they were materially better than the fourth quarter, a year ago.
And since the clear priority of ---+ one of the several priorities of the Art Agency, Partners, transaction was to accelerate that.
And, by the way, if you look at that fourth-quarter versus fourth-quarter, say, between 2011, 2012, and 2013, it was ---+ or certainly the full year of 2015 versus 2011, 2012, and 2013, it was down.
So I think there's a lot of opportunity there.
I'm joined by Amy <UNK> and Adam Chinn of Art Agency, Partners.
Amy, do you want to comment, generally speaking, on how you see the private sales market.
Or feel free to pass if you don't; but if you want to add something, feel free.
Well, the first thing is, no, the CFO transition does not have an impact on the timeline there.
Let me step back and just address the philosophy of the real estate, before I directly answer your question.
One way to think about this is, with respect to New York, we own our house and we have a mortgage on it.
Because we own our house, and each day it is satisfactory to us, there is no compelling reason to go buy another house.
There are some good reasons that we need to think about improving our work environment, improving how we operate with customers.
We can do those in our own house with some investment, or we could find another suitable location.
But I think it would be fair to say that the philosophy of our management here is that if we were to go look for another house, we would not be looking outside of our budget at all.
And, moreover, we would be very mindful of alternative uses of our capital before we either deployed it in our existing house or deployed it looking for another house.
So one of the things to think about is capital allocation, as we think about it, is a dynamic thing.
And you might make a different decision to accelerate or delay certain things, given what your alternative opportunities for the uses of cash are.
That would be far more impactful on the management team and the Board than, say, an interim CFO, although our Interim CFO is excellent.
I hope that was clear, <UNK>.
Let's go first to Kevin <UNK>, our Controller, for the first question.
And then [Jerry], if you want to tackle the second one ---+ [Jerry <UNK>] heads financial planning.
Kevin, over to you.
And Jerry, do you want to comment on the margins, ex- the effect of Taubman, please.
I'm perfectly happy to, but let's pass that one over to Amy <UNK>, who is closer to it, and knows it well.
That one is on the list of things that I'm interested in discussing more at the earnings call at the end of February.
Some things I want to do with the earnings call at February, by the way ---+ not only give you the detailed picture, the actual earnings ---+ but I think we will have a better picture of how the first quarter is going.
And we have a number of key performance indicators in the Company that I think we'd like to share.
And so we are already thinking about that issue.
We know it's a clear and present issue on the minds of investors, and we'd like to be helpful.
But we're not going to do it in this call.
Yes, this is Dennis.
On the repatriation effort, one of the driving factors, frankly, was the stock repurchase.
The capital that was overseas and available to us, we believe, is best utilized in the stock repurchase.
And that's a big part of the reason why we upped the repurchases from $125 million to $325 million, is the ability and the current stock price, and bringing that capital home to be utilized.
No, it's non-cash tax charge in the quarter of 2015.
There will be a cash impact of the taxes potentially, and that's still to be evaluated.
That's very important.
It's only what was in 2015's fourth quarter is a non-cash charge to represent the taxes.
But there will be a cash impact of it, and that's still being evaluated.
Right.
We're strategically looking at when that cash comes over, based on redemptions and other capital needs.
And you're correct: as the cash actually comes over to this country, then there will be a cash tax liability.
The way you phrased you question: you said, beyond the current investment opportunity in the stock, meaning the current share price.
Meaning you're looking for us to find another reason, other than the fact we think that the share price repurchase right now is attractive, and the Board thinks it's worth doing.
And we think it's consistent with our having stress-tested our financials under multiple scenarios, as well as being comfortable with liquidity.
In my mind, that alone is sufficient to proceed, and certainly was in the Board's mind.
I see.
I'm sorry, I missed the nuance of your question.
I got it.
Let me separate what you're suggesting, which is about looking forward in the art market, and maybe turn it around to what we see in our business.
What we found in our business ---+ and Dennis, feel free to comment on this ---+ is when we went through this process, it was very rigorous.
And we came away with a really high degree of comfort that our business is remarkably resilient in the face of variability on sales.
Really quite ---+ in fact, a substantial amount of our costs are variable, and can be variablized; and, moreover, that management can take actions to find cash when it needs to as things go along; and, by the way, that we have available pockets of liquidity when we need them.
So that was the first revelation.
The second revelation is that, contrary to some instances, we're in the unusual situation right now where our guarantee position, net of hedges, is really quite low.
So, what otherwise might be a problem as you head into weather, something that could range from a rain shower to a gale, we have a tremendous amount of financial flexibility.
And we're going to preserve that as we proceed on this.
So I look at it and I say, even if the art market blows in ways that we can't really see, or even if Amy turns out to be wrong and it's substantially worse than we think, we're ready for it.
So it's really more insight on capital allocation opportunities and how we think about the business and how resilient it is, rather than exogenous observations about the art market.
Dennis, do you want to add anything.
Yes, I think to add a little bit to Tad's comments, we feel that from an operational perspective, that the operations can exist comfortably from a liquidity standpoint through the cycle.
And we aren't trying to predict the cycle, whether the cycle is down; if it is down; and for how long it's down.
If it does go down, is it six months.
Is it a year.
Whatever, we don't ---+ we're not predicting that.
We're just looking at this from a long-term perspective to say that through this cyclicality, we believe that there's an opportunity for share repurchases.
And we don't know exactly how long ---+ we're not trying to predict the cycle or anything like that.
But we believe that we have the liquidity to make it through an extended downturn.
Hopefully that answers your question.
We have the ability to repatriate.
Exactly when we do that is still up in the air.
That's going to be subject to ---+ and be kind of an iterative process.
Yes, we're just ---+ yes, we're not going to ---+ that's not coming back over tomorrow.
That's going to be very selective ---+ what countries, et cetera.
So that's a little bit more complicated process that we're going to be working on continually, as needs arise.
Yes, a small amount.
That's a good question, and one we have thought about and talked about at the Board level for a number of years: what is the meaning of the dividend, and how do our shareholders look at it, how does it benefit our shareholders.
And we believe that, at this time, the best benefit for the shareholders is to use that capital to buy back shares.
That's a better result for them, as opposed to paying the dividend.
So, that's the conclusion of management and the Board.
Thank you once again, investors and analysts, for joining us on relatively short notice.
We appreciate it.
There will be no calls until the normally scheduled one at the ---+ I think it's the last day of February, is it not.
Plus or minus.
We're not sure yet, excuse me.
And we wish you a great Friday.
Thanks for calling in.
| 2016_BID |
2015 | PERY | PERY
#Well, we're seeing Walmart has intensified the whole health and wellness business and especially on making a strong commitment to the whole at-leisure activewear business.
So I think that halo effect and the in-store developments of what they're doing has helped Ben Hogan as well as our product.
We work very closely with Walmart in developing all of our business.
The acquisition has been a stellar acquisition.
We acquired the brand 3.5 years ago.
Very little business being done in the United States and today it's a international and domestic brand with Walmart and there's continuous growth.
We're very excited about what's going on in Canada and as well we started delivering now to the Walmart Europe as the stores.
And the results have been strong and we feel that we can continue to show substantial growth with this partnership, as well as our partners that we have recently bind licensees, either domestically or internationally look to be doing extremely well also.
So it's been a win-win situation for us with the acquisition.
We don't currently ---+ we do not do business with Target or Costco.
But I understand they're doing extremely well and ---+ at retail from what I see in terms of what their comp numbers are.
We own the Laundry brand and we also license it.
On the Laundry brand, the excitement has really ---+ the brand is anchored by a big dress business.
So our dress business has been very strong, as well as our ---+ the dress side, the evening side, the social side, has seen a lot of strength.
A lot of retailers have spoken about their dress department.
We've heard about it's been a strong initiative at Macy's and a strong seller.
And for us, the product has done extremely well.
We've expanded the brand to include a suit business and we have seen growth in that business as well.
And we'll continue to expand on the Laundry brand as we go into next year with a collection in sportswear which hopefully we'll be able to start showing retailers and launching by first quarter of next year.
And the brand has strong momentum on licensing side, which we continuously increase the penetration of the brand by having strong licensing partners.
Our outerwear licensee has done an exceptional job, as well as we just signed a new bedding partner and our girls' dress licensee is doing well.
We feel there's still a tremendous amount of potential with the Laundry brand.
Linen is an important fabric to the Perry Ellis Collection.
We are the go-to vendor when it comes to linen, both in shirts and pants and jackets and any product category that we can actually make with linen.
We do a great job in the 100% linen fabric and it's been one of the strong mainstays for the brand.
And it's on a hot trend right now, so we feel that's a continuous opportunity for us as the linen continues to trend extremely well at retail.
And being that it's nice and hot across the country, it even welcomes the opportunity further for the linen fabric.
Thank you.
So as you heard today, we're back on track for the future.
But this quarter is clear proof of the truth of our hard work and all our shareholders and employees and associates.
We have full confidence in the capacity of our people and organization to achieve what we set out to do years ago, making this Company a preeminent player in the apparel industry.
Thank you for your support, for your patience, and your interest in our Company.
Have a good day.
| 2015_PERY |
2018 | SPPI | SPPI
#Thanks.
Good afternoon and thank you for joining us today for Spectrum's Fourth Quarter 2017 Financial Results Conference Call.
Our press release is available on our website at www.sppirx.com.
Joe <UNK>, our CEO and President, will start the call today and provide an overview.
This will be followed by a financial discussion by our CFO, <UNK> <UNK>; and the discussion of our operations by our COO, Tom <UNK>.
During this call, we will be making forward-looking statements.
These statements are not guarantees of future performance and undue reliance should not be placed upon them.
Such forward-looking statements necessarily involve known and unknown risks and uncertainties, which may cause actual performance and financial results in future periods to differ materially from any projections of future performance or results expressed or implied by such forward-looking statements.
With that, let me hand the call over to Joe.
Thank you, <UNK>, and thanks to everybody for joining us on the call today and for your wanting to hear about Spectrum today.
This is my first call addressing you as the CEO of Spectrum.
It's an honor and responsibility that I'm humbled to have.
I thank the board for the appointment, and I want to give shareholders the confidence that I will drive this organization forward with the focus, discipline and accountability needed to take Spectrum to the next level of growth.
In addition, let me offer perspective on how we'll execute these quarterly calls moving forward.
I expect these calls to be concise, transparent and focused around the key drivers of our progress.
2017 was a breakthrough year for Spectrum, driven by significant advancements in our pipeline along with solid operational performance.
We continued to aggressively develop poziotinib and ROLONTIS, which puts us in a position to start 2018 with stronger momentum as we reach the important development milestones with both programs.
The milestones in 2018 will provide significant insight in unlocking the potential value of these assets.
Key goals for 2018 include, first the aggressive development of poziotinib for exon 20 insertion mutations.
This includes rapid enrollment of our multicenter study in non-small cell lung cancer, continued collaboration with MD Anderson and working with the FDA on an optimal regulatory pathway.
This year, we expect to have new and updated data on response rates, duration of response and PFS in both EGFR and HER2 exon 20 insertion mutations.
In addition, we believe there is strong clinical potential of poziotinib across solid tumors where exon 20 insertion mutations exist.
This is exciting.
Secondly, we plan to file the BLA for ROLONTIS in Q4 of this year.
We have made significant progress in our development with ROLONTIS, as we've just recently announced that we met the primary endpoint of our ADVANCE study, and we have completed enrollment in our RECOVER study.
We have over 600 patients enrolled in our Phase III program.
We recently announced top line data on 400 patients and the team is now focused on completing the trials and preparing the BLA package for submission by the end of this year.
I believe 2018 will provide and prove to be another important year for our exciting late-stage assets.
Now I'm going to hand over the call to our CFO, <UNK> <UNK>, to talk about the financials.
Thanks, Joe, and good afternoon to everyone on the call today.
I'll begin with some comments on revenue.
Total revenues for the fourth quarter were $28.6 million and of this, product sales were $27.9 million.
I want to provide some clarity around our 6 marketed products.
The strategy of the company has been to utilize the revenue from our commercial infrastructure to offset our development costs.
Our marketed products are small oncology, hematology drugs that are either late in their life cycle or developed under the 505(b)(2) pathway that is inherently competitive.
Aggressive discounting from the generics has virtually eliminated the margin in FUSILEV.
And as a result, we do not expect to sell much of this product going forward.
EVOMELA sales are also negatively impacted by pricing pressures associated with the new generic entrants in developed land market.
While we believe that we have a better product and will maintain a premium price, the pricing pressures are real, and we believe that fourth quarter sales are more reflective of what you will see from this product going forward.
As we look ahead to 2018, I expect product revenue to be between $90 million and $110 million due to the factors that I just described.
As we look ahead, we expect gross margins to improve driven by a new manufacturing process for EVOMEL<UNK>
We continue to expect R&D expenses to increase as we accelerate the spending on our pipeline drugs, poziotinib and ROLONTIS.
SG&A expenses were abnormally high in the fourth quarter due to a $7.1 million charge for onetime severance and legal costs associated with the termination of our former CEO.
We ended the year with $228 million in cash.
Cash burn for the quarter was $20 million, which included approximately $13 million burn from operations and $7 million with a burn from financing activities as we repurchased a portion of our debt, which was partially offset by some share reissuance.
With that, let me turn the call over to Tom.
Thank you, Tom.
Thank you also <UNK> and <UNK>.
And I'd like to now open it up to questions at this time.
I'll start, <UNK>, and how are you.
At AACR, we do know that there will be preclinical data presented on HER2 exon 20 insertion mutations from the MD Anderson trial, most of it being preclinical.
There may be a mention of the one compassionate use patient and actually in human, but for the most part, it's a preclinical presentation at AACR.
It's a great question.
Let's study the facts.
I know that from our trial, we won't have any data from the Spectrum trial, okay, to present this year, at least because we just started to enroll.
Now on the MD Anderson trial, because they own the data, I can't tell you if and when there'll be anything in between.
Now you've got to think of medical meetings, take a potential publications that could come up, but that will come out of MD Anderson.
For sure, I'm very confident, you asked for my confidence level, <UNK>, I'm very confident at World Lung that you will see data.
That for sure I think is a pretty sure bet.
<UNK>, I'll just add this.
We've done extensive research on ---+ and our homework on what it takes for breakthrough therapy, et cetera.
We certainly feel that potentially we meet those criteria, and we're going to work hard to go through the process to do just that, we hope.
<UNK>, I'll take the first part.
We will go around the horn here.
Thanks for the question.
One thing for sure, I think ---+ obviously, I'll have a different style.
I'll start with that, I think.
You always have a different style with different people.
I'm very data-driven, and I expect the company to make decisions based on science and data, and that's the way we will do it.
As far as our strategy goes with our 2 big projects, I was working on that in my old role as operations.
I think we have great strategies there.
We are executing very well.
I feel really good on enrollment.
I feel good about our work towards filing the BLA with ROLONTIS.
We're already doing everything we can to get that going in the right direction.
With poziotinib, as you know, our trial is enrolling.
We're going to be increasing our sites for poziotinib with the ---+ on the exon 20 insertion mutation, we just talked about, we hope to take all the right steps to get us to a therapeutic breakthrough designation, we hope.
So all of that is good.
I'm a guy who expects accountability.
I expect people to do their jobs, and I hold people very accountable.
One change I will mention, you may have seen the press release, we just added a person to the board.
This person has great expertise that I think we'll need.
He is an example of I think making the board better, by having somebody who understands both the reimbursement and has worked with the federal government extensively.
I think these are important factors as we go compete in these bigger markets.
So that certainly is something that's different.
And I just ---+ I have a very focused mentality.
And I will say we've made some changes in structure on several departments already and some people.
So in a nutshell, that's the first pass that we're doing, and I'm excited about where we're going.
I will let <UNK> now answer the second question.
Yes, thanks.
So, <UNK>, what we're trying to do is give you some sales guidance.
And then on the other areas, our guidance here is more directional in nature.
And it's going to be a function of how aggressively we can enroll patients.
So I think we will limit our guidance in the other items to what I'll call directional guidance.
I'll add <UNK>.
We did, at World Lung last year, we began discussions for KOLs in Japan.
As you may know that in Japan that the actual rate of recurrence is much higher for some reason in Japan.
So that's an important market for exon 20 insertion mutations.
And we've begun discussions with the KOLs in Japan, and they're pretty excited about it.
So that's good news.
Yes.
I agree.
I think Tom's spot on.
Yes.
Good question.
Actually, it's 33.
Ed, how are you doing, by the way.
There were 33 in the first cohort.
And you're right, it was at a 24-milligram dose, and it was 2 weeks on, 1 week off on the schedule, and we did switch to a 16 continuous.
So you're spot on.
Yes, we probably confused you a little bit.
When we said that nobody's been enrolled yet, that's on a new trial we're doing in second line with a T-DM1 and much sooner in the algorithm in the second line.
So that's what Tom meant by no enrollment yet.
We are currently enrolling in the Phase II third line at the new dose of continuous 16.
There will be data coming out sooner on the first cohort in Korea.
And I can't give you the exact date, but soon there will be the data released on the first 33 patients.
But keep in mind, the doses scheduled are going to be quite different on the second, and that's HER2-specific in third line breast cancer.
I'll will start and let Tom, because he's working on that.
First, I got to tell you when I speak to the people at MD Anderson who are working on this and have the background, they get out of their chair because they're excited about the non-small cell lung cancer.
But literally, they stand up and they get so excited, because what they have and they'll be publishing this at some time Ed, they have a lot of data that shows across many solid tumors that exon 20 insertion mutations are expressed in both EGFR and HER2.
Now it's different levels on all these different tumor types, but it's amazing how many of the solid tumors do show that.
And again, they're going to have some data come out on that.
So we are now working with MD Anderson and other KOLs designing that basket trial because this is really exciting, because we're madly excited about the non-small cell lung cancer opportunity here.
But this could open the floodgates to many, many more potential patients.
Tom, I don't know if you want to add anything.
Yes, it's a top priority.
I will let Tom talk about ---+ tell you about the search.
But we're actively looking.
And Tom, you want to give any update.
On a GAAP basis.
I mean, on a GAAP and non-GAAP basis.
| 2018_SPPI |
2015 | ACLS | ACLS
#Thank you, Michelle.
With me today is <UNK> <UNK>, Executive Vice President and CFO, and <UNK> <UNK>, Executive Vice President of Corporate Marketing and Strategy.
If you have not seen a copy of our press release issued earlier today, it is available on our website.
Playback service will also be available on our website as described in our press release.
Please note that comments made today about our expectations for future revenues, profits, and other results are forward-looking statements under the SEC's Safe Harbor provision.
These forward-looking statements are based on Management's current expectations and are subject to the risks inherent in our business.
These risks are described in detail in our Form 10-K annual report and other SEC filings, which we urge you to review.
Our actual results may differ materially from our current expectations.
We do not assume any obligation to update these forward-looking statements.
During the first quarter, execution across the business was solid, driven by continued momentum of Purion sales and strength in both the memory and non-leading edge foundry and logic segments.
Revenue of $73.3 million, driven by a 42% quarter-over-quarter systems increase, was above both Company guidance and analyst consensus estimates.
Earnings of $0.02 per share were at the top end of guidance and above consensus estimates.
For the second consecutive quarter, system revenue was split nearly evenly between the memory market at 55% and the non-leading edge foundry and logic market at 45%.
We expect this trend to continue into the second quarter and likely throughout the year.
The balanced revenue between these two markets, combined with our lower exposure to the turbulence of the leading edge FinFET based foundry logic market is providing a more stable environment for Axcelis to ramp Purion.
As a result, we expect second quarter revenues between $69 million and $74 million.
Gross margin is expected to be approximately 33%.
Operating profit is expected to be $4 million to $6 million with an EPS ranging from $0.02 to $0.04.
Our cash balance will be approximately $80 million.
As we discussed last quarter, the introduction of the Purion H high current implanter and the Purion M medium current implanter has opened an additional 85% of the market, giving Axcelis access to 100% of the nearly $1 billion ion implant systems market.
According to market share data from Gartner, Axcelis' ion implant market share increased from 8.8% in 2013 to 12.3% in 2014.
Based on current Purion momentum and the strength of both memory and non-leading edge foundry and logic markets, we expect Axcelis will exit 2015 with between 17% and 20% share of the ion implant market.
The commonality of the Purion platform, combined with our innovative scanned spot beam, advanced energy filter, and Eterna ELS source, has enabled the Purion product family to rapidly gain momentum with our customers.
Two customers in the memory market have all three Purion products running in production and are experiencing the full power of Purion.
The Purion H high current tool is now installed and running production in four fabs at two customers.
Memory customers ramping 20 nanometer DRAM processes are using Purion H extensively for advanced material modification implant applications.
These applications benefit greatly from the precision of the scanned spot beam and from a lower cost of ownership due to the long lifetime of the Eterna ELS source.
In addition to its strength in the memory market, the industry leading Purion XE high energy implanter continues to penetrate new customers in both 200 and 300 millimeter.
These customers manufacture products such as sensors, power devices, and specialty logic chips, supporting automotive, mobile, and the internet of things.
These customers benefit from the productivity advantages of the Purion platform.
Image sensor customers also see significant yield advantages as a result of the low metals contamination inherent in the Purion design.
Additionally, during the quarter our legacy products and used tools also saw significant activity within this segment.
Strong customer support has been a key to the early success of Purion.
Customers value the competition and innovation.
We expect the rapid adoption of the Purion H to continue with additional penetrations and sales into 2015.
Our customers are very vocal about wanting two strong implant suppliers to evenly split their business.
Our strategy for 2015 has not changed since the last quarter.
Our main objective is expanding our memory footprint and growing our topline by gaining share with Purion, especially the Purion H and the very active cooling and memory market.
Our other objectives include targeting placement of at least one Purion H evaluation unit at a leading edge foundry or logic customer, maximizing the revenue opportunity at customers using non-leading edge process technology by selling Purion systems, legacy products, used tools, and upgrades, maintaining our strong GSS business and preparing for growth in service as the increasing install base of Purion products exit the warranty period, maintaining tight control of operating expenses and cash during the aggressive Purion H ramp, and driving gross margin improvement initiatives to deliver high mid-30% gross margins by Q4, with a path to greater than 40% gross margins in 2017.
With that, I'll turn it over to <UNK> to discuss our first quarter results, including a detailed update of our gross margin improvement initiatives.
<UNK>.
Thank you, <UNK>.
We are pleased with our Q1 financial performance and guidance for Q2.
Revenue in Q1 was above Company guidance and analyst consensus, driven by the continued ramp of Purion H.
Gross margin was slightly ahead of our improvement plans, fueled by lower material and labor costs and a broad product mix, and quarter end cash was $74.5 million, which includes positive cash flow from operations, in addition to proceeds from the sale of our headquarters.
Current cash is at the highest level net of debt since 2002.
Looking at our first quarter results, revenue finished at $73.3 million, up 17.2% from $62.5 million in Q4 and above our guidance.
System sales were $42.5 million, up 42.3% from $29.9 million in Q4.
GSS revenue finished at $30.8 million, down 5% from $32.7 million in Q4.
Q1 sales to our top 10 customers accounted for about 81% of our total sales, compared to 70% in Q4, with one of these customers at 10% or above.
Q1 system bookings were $65.9 million, compared to $56.1 million in Q4, with a Q1 book-to-bill ratio of 1.46 versus 1.72 in Q4.
Backlog in the quarter finished at $60.1 million, compared to $37.9 million in Q4.
Q1 combined SG&A and R&D spending was $19.9 million, compared to our guidance of $19 million.
Higher costs were mainly due to unplanned proxy fees and incremental R&D spending to support the rapid ramp of Purion H.
SG&A in the quarter was $11.7 million, with R&D at $8.2 million.
In Q2, we expect SG&A and R&D spending to return to our model of approximately $18 million.
Gross margin in Q1 finished at 31.9% and above guidance, compared to 30.1% in Q4.
Lower than planned material and labor costs on our Purion products and higher overall factory efficiency drove this improvement.
In Q1, we also took our final charges for capitalized variances that were accrued during the 2014 pause.
Gross margin improvement remains a top focus across the business and I am personally involved in critical programs that drive lower product cost.
As highlighted in our last call, gross margin improvement roadmaps take advantage of Kaizens that optimize factory and supply chain efficiency, Purion platform commonality that provides supply chain leverage through higher part volume, launching ship-from-cell on all Purion products to shorten manufacture and cycle time and improve labor productivity, and implementation of factory and supplier Kanban programs to improve inventory turns in our cash-to-cash cycle.
Operating profit in Q1 was $3.4 million, above our guidance, and compares to $0.4 million in Q4.
Q1 net income of $1.9 million, or $0.02 per share, was at the high end of our guidance, compared to $0.2 million, or $0.00 per share in Q4.
Q1 inventory ended at $109.5 million, compared to $104.1 million in Q4.
The increase in inventory was primarily driven by field stock to support the increasing number of Purion shipments.
<UNK>wever, inventory turns did increase in the quarter, driven by improving factory cycle times.
Q1 accounts payable were $30.5 million, compared to $21.6 million in Q4, due to higher manufacturing volume and the timing of material purchases.
Q1 receivables finished at $42.8 million, flat with Q4.
Q1 cash and cash equivalents finished at $74.5 million with no debt and well above our guidance of mid-60s, driven by the proceeds from the sale of our headquarters and cash generated from operations.
This compares to a cash balance of $30.8 million in Q4.
We expect Q2 cash flow to remain positive and to increase cash to approximately $80 million.
In summary, I would like to direct you to the business model in our investor presentation as a way to look at Axcelis financially.
The model shows our target quarterly revenues for 2015 are in the $70 million to $75 million range with gross margins in the mid-30% range.
Combined SG&A and R&D spending should be modeled at approximately $18 million.
This model results in quarterly net income of approximately $5 million to $7 million.
Based on our Q2 guidance we are approaching this model.
Looking forward, the longer term model highlights the amount of leverage in the business.
Axcelis will generate significant profits in cash as gross margins move towards 40% and beyond.
Implementation of the programs I discussed will fuel a steady improvement of gross margin while the success of Purion will drive the revenue growth.
With that, I will now turn the call over to <UNK>, who will discuss current market conditions and opportunities for Axcelis.
<UNK>.
Thank you, <UNK>.
The memory market continues to be strong for Axcelis.
In DRAM, the 20-nanometer ramp continues in multiple fabs where the Purion H is the tool of record for critical material modification implants.
The 3D NAND ramp is beginning, but expected to be more weighted to Q3 and Q4.
The Purion XE plays a critical role in this process ramp.
There continues to be turbulence in the leading edge foundry and logic market.
We are focused on placing a Purion H evaluation system at a leading edge foundry logic customer during 2015 that will drive revenue in 2016 and 2017.
The non-leading edge foundry and logic market is extremely active and has represented nearly half of our revenue for the last two quarters.
So we thought it would be worthwhile to spend a few minutes to discuss the issues these customers face and the solutions that Axcelis provides for them.
We define this market segment as customers producing 28-nanometer and older products on either 200 millimeter or 300 millimeter wafers.
These customers are building advanced devices, but on older technologies for a variety of reasons.
These products could be analog devices, mems, power devices, specialty logic, or sensors, supporting markets such as the internet of things, automotive, mobile, wearables, and consumer electronics.
Many customers in this market are four-wall constrained, making productivity their number one buying criteria.
Others, such as those building advanced image sensors, need capability only available on a modern implanter, and thus are driven by technical criteria.
Axcelis offers this group of customers four choices to address their needs.
For the customer with a more strategic focus and in need of the highest level of productivity or the lowest levels of metals contamination, Purion is the best solution for both 200 millimeter and 300 millimeter.
Customers in need of additional capacity and a shorter qualification time can choose to buy a new legacy tool exactly like the tool they are currently running.
If a customer has time and budget constraints, a used legacy tool upgraded and refurbished by Axcelis is often the best choice for this market.
And lastly, for a customer that needs incremental capacity or incremental performance capabilities, Axcelis offers upgrades to their existing install base.
This is a very active market segment and one that will provide a nice balance in the memory market for Axcelis for the foreseeable future.
Now I will turn the call back to <UNK> for her closing remarks.
Thank you, <UNK>.
Our Purion products are highly competitive and are rapidly gaining market share.
To drive our revenues and share gain in 2015, we are focused on two very active market segments - memory and non-leading edge foundry and logic.
Our highly leveraged business model is in place.
Our streamlined cost structure and margin improvement initiatives will yield strong earnings and generate significant cash in 2015.
And most importantly, we continue to have strong customer support.
Our customers want to divide their implant business equally between two strong suppliers.
Ensuring we meet our current customers' expectations with respect to the ramp of the Purion H in 2015 while expanding our Purion footprint is our top priority.
We thank you for your continued support.
And with that, I'd like to open it up for questions.
Yes.
So for shipments, if you take a look at memory, we were at about 55%, and the non-memory, which is foundry logic business, is 45%.
Well, the DRAM spend is on 20-nanometer and seems to be pretty strong---+continuing to be pretty strong.
Purion H is a product that they are using in 20-nanometer and it's a new product.
So even if it was moderating a little bit, at this point we're not seeing that as a result of the new product penetration.
3D NAND looks like it's ramping more for the third and fourth quarter of the year.
I think originally or last quarter we had talked about it being more of a middle of the year and that seems to be stronger now in the second half, really beginning in the third quarter.
In fact, if I look at our bookings, and we've said before that our bookings aren't necessarily indicative of the future because often we book and ship in the same quarter.
But if we look at our bookings for the quarter, our---+there's a slight shift towards in fact the foundry logic away from the memory.
It's about 55% to 45% memory.
And as I look at the memory split, it's still very heavily DRAM oriented.
So that supports what <UNK> is saying, that there is still a significant amount of DRAM spending going on, at least relative to Axcelis' opportunities, and the flash will ramp up later in the year.
Well, I think, <UNK>, the leading edge processes we'll be looking to implant as they reach higher levels of yield in order to fine tune that and improve their overall bin splits and so forth.
Likely they're---+they'll be using them for material modification implants and electrical tweaks, for lack of a better word, on the parametrics to give them better performance and better yield in those more valuable bins.
Well, <UNK>, in terms of the Q1 numbers, we did see some improvement on the material side and on the factory side in labor.
But as you know, the volumes continue to pick up because of the commonality across this Purion platform.
This is going to be something of a continue to run right on to 2016.
So if you look at kind of what we've been saying this year starting off a little slow, finishing in the high mid-30s, kind of a mid-30% gross margin year, and then kind of wrap this up to us saying we're going to get in the 40s in 2017.
It's kind of a gradual path that gets you there.
And the material---+so the material will continue to work in our favor as well as some of the labor pieces.
And then, the other important part to the drops off in the first half is some of these expediting fees we have been talking about and some of the rework just on the first units going out.
That should be behind us.
So that will help continue to move this up.
But Q1 it was mostly the labor and materials, starting to see that a little bit sooner than we anticipated.
Okay.
Thanks.
At this point, we see DRAM, especially for Axcelis, relative---+especially relative to Purion H, being there for the entire year.
And so, what that means in terms of the overall market, again we're---+we may be a little bit disconnected, <UNK>, because of the new product penetration with Purion H and its importance in these material modification implants at 20 nanometer.
And so, both---+so we see it pretty steady through the year.
So our customers have been saying that to us now for several years since we've had the Purion platform.
I think they've been excited about the platform and as we've rolled out each additional tool, we've also increased the opportunity that we have to actually achieve that 50% of the market.
I think we have a very good chance of hitting that goal.
And we've talked about this in our model that we expect by 2017 we can actually have up to 40% of the market.
And if you look at the mix among the competitors, 40% of the market could actually be a leading market share.
So that's our goal.
We're focused on that.
We think with the progress that we're actually seeing now in the first half of 2015 that will get us halfway there by the end of this year, which is really I think accelerated versus I think what many people had anticipated.
So halfway there by the end of this year, and onwards to 40%-plus by 2017.
Thank you.
We've been talking about this.
We actually were in a range of 20% to 24% market share back---+just as we were coming out as a public company, so the early 2000s.
So we're pretty excited about this, because getting back up to 20% is getting us into what we consider to be a more normal range for Axcelis.
And with the toolset that we have right now with the Purion platform, we think we can do even better than that.
Yes, I think that's exactly right, <UNK>.
The longer the turbulence stays in the leading edge, the more established Purion H gets with both memory and with the non-leading edge foundry and logic customers, which then proves the tool solid for both logic and high volume and makes it easier for those customers to make a decision to go with the tool.
Couple that with its technology advantages for material modifications and angle control and so forth, and I think the turbulence is going to be a positive thing as well.
Well, we can't comment specifically on the customer's process.
But it is a step which Purion H has a significant performance advantage over the competition.
And as a result, the customer has been moving it into multiple fabs as they've rolled out the 20-nanometer process in multiple fabs.
We have.
There---+if you look at that market in terms of installed implanters that these customers are using, it's measured in the thousands.
So there's a fair amount of opportunity in terms of upgrades, replacement, refurbishment, and so forth.
And any one of these customers who purchases a Purion to replace the tool, that generates a used tool opportunity as well.
So it's a nice market and we expect as a result of the internet of things and the automotive market especially, that this will be a very active market at least through the end of this year and likely well into next.
Thanks, <UNK>.
Thank you, Michelle.
We will be attending the B.
Riley Conference on May 14 in Los Angeles, the <UNK> Hallum in Minneapolis on May 26, and the CEO Summit in July at SEMICON West.
We will also be on the road during the month of June.
And we're looking forward to catching up with all of you.
Thank you.
| 2015_ACLS |
2015 | MDP | MDP
#Sure, <UNK>, I think we've said this pretty publicly.
About 30% of the TV revenue is now from ---+ by that we're including the acquisitions we did from Gannett in St.
Louis and Phoenix, as well as Springfield and Mobile.
So, about a 30% lift in TV ad revenue.
Just a second correct.
We go to a different place in the data.
As <UNK> mentioned, we are actually seeing national strengthening.
As we mentioned in Q3, we were down about 1%, in total, local was down and national was up.
Local down single digits.
National up single digits.
In the fourth quarter, we are seeing a similar trend, I think as a Steve mentioned.
We expect fourth quarter to come in flat to up slightly or down slightly, it's a little early to tell.
Right now local is pacing down 1%.
National is pacing up 2%.
Similar trend, maybe a little bit closer to flat in the fourth quarter, right now, versus the third quarter, we are a little bit more spread between local and national.
<UNK>, do you want speak to what you feel about auto in the marketplace.
I think particularly on the local side what we experienced in the last quarter, particularly in many of our markets who experienced some bad weather, we were just seeing, not that budgets were cut, but they just stopped completely.
In those East Coast markets and markets where they had a lot of bad weather, we saw the automotive business drop off pretty dramatically.
We are starting to see that come back now into this quarter as the weather has gotten better.
But, yes, I don't think there's any question that there is a shift to some digital spending.
In our cases, though, we're very actively trying to save those dollars and move them into some of our digital products.
So, traditional core television viewing or television advertising for automotive is moderating, or it's down just a little bit, but then we're certainly increasing our digital presence with our automotive advertisers.
And it is a lot stronger, <UNK>, in the digital pacings in Q4 than in Q3.
So, there may just be a bit ---+ it's always so hard to tell in the early goings of a calendar year, we may have a bit of shifting between the quarters as we get a little further out here.
There's not really anything on the table at the moment with Time, Inc.
I want to be very clear about that.
But absolutely, <UNK>, we would be very open-minded to a larger transaction.
Now, you have followed us a long period of time, you know that we took a number of runs at the Gruner & Jahr properties and finally brought those on board.
And at that time, we actually doubled the size of that business.
The challenge is, there is not a lot of scale players, and it always takes an agreeable buyer and an agreeable seller.
So, we are the agreeable buyer, but there haven't been those kinds of scale opportunities available in the marketplace.
We continue to be active.
We continue to be in dialogues, and I would say dialogues that are very broad ranging as long as we can deliver shareholder value.
So, the arrangements with Martha is a little bit unusual, but I think if you follow Martha and you follow Meredith, it's been good for both, and so we are in all kinds of discussions.
We would love to do a scale transaction.
But, there's not a whole lot of them in the marketplace.
The vast majority of that, <UNK>, is the CW station in Phoenix.
You may remember we tried ---+ we did acquire KTVK, the independent, and we were trying to acquire KASW, which was the CW.
That was right around the time where the FCC came out and tightened, clamped down on ownership rules, and so we were forced to sell it.
We luckily and felt very good about finding a buyer with Nexstar, and I wouldn't say all, but it's for sure the bulk of those proceeds.
Thanks, <UNK>.
Hi, <UNK>.
I would say couple of things in that regard.
You're very spot on with what is going on in the marketplace.
And, we really look at that video content in all sincerity very similar to we would look at other digital print or television content.
Can we find a scale opportunity that we think we can monetize against our female audience.
And, we have a monthly meeting, a monthly strategy meeting, and actually had a couple players in, in the last couple of months that we are considering.
At the same time, we are aggressively ramping up the content that we create, and it is a high-class problem that we continue to be fully monetized on that video content.
So that is where a lot of our resources are focused at this point.
We think Kim will be able to help us in that regard.
But, <UNK>, we would also be very interested in a bolt-on acquisition that would accelerate that trend.
Because, at the moment, we are able to monetize all of the audience, and as you know, better CPMs than some of our other digital traffic.
Well, first of all, most of our sites are in responsive design, so we don't have that Google issue right at the moment today.
But I will tell you, as you are, I'm sure, clearly aware, that we have an aggressive effort on keeping a close watch on how Google continues to adjust those algorithms, because that's clearly an important part of the traffic generation.
So, I think that's the answer to the first piece of your question, which is a good one.
And then, again, with the acquisition of Selectable Media, that also allows for a much, much more aggressive move into native, which is clearly an important part of what is going on in the marketplace.
And, that's all about the ongoing transition of moving from larger run of network opportunities at much lower CPMs, to much more targeted advertising in a better context that we can get a higher CPM for.
And, that's really why we did that acquisition, that was really more of a technology play than it really was a traffic play.
Thank you.
I'll start, and then certainly ask <UNK> and <UNK> to comment here.
On the advertising question you had, really, it's at all levels.
And the sophistication varies a lot from dealer to dealer.
But, the most important and most powerful part of the local television brand, and that is really a combination of what happens over the air and what happens digitally, is that it continues to be, without a doubt, the most successful mechanism that is used by the auto industry to cause the consumer to come into the showroom.
And, the consumers are ---+ the dealers, rather, that we work with have a very sophisticated conversion mechanism.
If they have a consumer in the showroom, they know how many cars that they're going to sell on a Saturday.
That's been the beauty in recent years of television, especially with weakness that has been experienced in the newspaper marketplace in most of the markets across the country.
Then, when you talk about the scale question, from a high level, scale, in fact, does matter, without a doubt, on the revenue side of the transaction.
And, we do see that, as we get into different acquisitions and acquisition opportunities, where there can be a variation in revenue depending upon how much clout you have with the provider.
That's an important reason that, in fact, there's been a lot of consolidation in the marketplace.
And, <UNK>, whatever you'd like to add to that conversation on retrans revenue, based on your dealings in the marketplace, but scale matters on that side of the equation for sure.
There is no question that scale does matter.
However, having said that, I think where we are with our portfolio, we are a significant enough player that we're still going to be able to make the deals we need to make and get done what we need to get done.
And it speaks to really the quality of our stations as well.
There is no question scale matters, but it's also incredibly important to make sure that you have a strong portfolio station, so that in each individual markets, you represent a very strong presence in a station that the cable operator feels that they have to have.
Does that help.
I did not, but I think we do have that somewhere.
<UNK>, hold on for just a minute and <UNK> will dig that up.
Going on a comparable basis, which is what you are interested in, it was down about 7% to 8%.
So, kind of high single digits, <UNK>.
Exactly, pacing better in the fourth quarter, but still has brackets around it.
First of all, Shape has no impact on that, and Shape is actually, I don't want to be confusing to anyone, Shape has not gotten off to a slower start than we anticipated at all.
And, by the way, we really only got one issue that we have closed at this point in time, so really doesn't have anything to do with Shape, <UNK>.
We try to do our best and we feel that the total year is really coming in more or less where we thought, and interestingly enough, pretty much where the Street thought.
We had a stronger Q3 than we had anticipated, and we just basically adjusted the range to where we thought Q4 was going to be.
But I don't think we feel like there's been any major shift in the marketplace compared with what we would have said when we started the year.
It's always a little tough to figure out where it's going to be, and probably the only thing that I would say is that as the quarter, the third fiscal quarter for us moved forward, television probably ended up being a little weaker than we might have anticipated.
And then, as we go now into the fourth quarter, I would say that print is maybe weaker than we would have thought when we were at the beginning of the calendar year.
Because, the first quarter of the calendar year, or our third quarter, in print, was so much better than it was a year ago.
But, it kind of looks like the fourth quarter is going to look sort of like a year ago, but again, we've got kind of 1.5 set of issues closed, so that is probably ---+ TV a little weaker in Q3, print a little weaker in Q4.
But, on balance, when we get to the bottom line, not too far off from where we thought.
I guess the only thing I would say, I think across the industry, and <UNK> can certainly comment on that, I think there is a tremendous amount of integration work going on.
There were a lot of really big deals of that were done over the last 12 months.
And a lot of work going on there to bring all of that together.
It feels to me maybe like a bit of a little quiet before the next big storm, while that gets assimilated.
And I continue to believe, and I would really say this, <UNK>, across the entire enterprise, that there will continue to be significant consolidation.
And obviously, we have been and continue to be very aggressive in the marketplace to make sure that we have the opportunity to play when those things make themselves available.
It is pretty quiet night right now, but it might be quiet before the next big round, in my sense.
<UNK>, I don't know if you want to add anything to that.
Yes, I think the only other thing I would add would be that as people look ahead to the potential of a spectrum auction in either the first quarter or perhaps second quarter of 2016, I think people are trying to weigh how important that could be or what role that might play.
And I think, as we get past the auction, I think you will see the flood gates open, relative to deal flow.
<UNK>, do you want to start on TV, and then, <UNK>, I'm going to ask you to comment on the digital side of our national business, where clearly, that's a factor at play.
But, <UNK>, have you seen any programmatic coming forward at this point.
Yes, and the way we're approaching it, we have taken the position that we think it's going to be a part of our future.
We do think, though, that it is important to limit and to restrict the day parts that are going to be put into a programmatic pool so that the inventory that we'll make available, perhaps, would be daytime, late-night, weekends.
And then, we will still keep our premium inventory: local news, primetime, sports, that will be separate.
We really don't want to negotiate that in a programmatic fashion.
But, we do think there's a lot of inventory in each of our stations that would probably benefit from being part of a programmatic mix.
On the national media group side, we're obviously participating now, this fiscal year, in the programmatic marketplace in our digital space, and it's working out very well for us.
We see it as an opportunity to leverage some lower performing revenue inventory and actually increase our yield.
So, we've added it some resources from selling resources, and we think it's going to be a growth area for us in the next couple of years.
Correct, yes.
You know, <UNK>, we'll have to dig that out.
We have all of that data for advertising, but we really don't ---+ I guess <UNK> thinks he does have it.
<UNK>, when you look at the year over year, we are basically flat.
For the most part, it was LHJ going out, Martha coming in.
The organic was down about 3%, largely newsstand.
You are probably hearing about newsstand continuing to be soft.
On the subscription side, it was flat to just down a hair.
Flat overall.
Overall flat.
Down 3% was newsstand.
Thank you.
Thank you, all, for participating today.
We certainly appreciate the questions, the interest and the input.
And, as always, <UNK> and I remain available for the balance of the day.
If anybody has any follow-on questions, please don't hesitate to reach out.
Thank you very much.
| 2015_MDP |
2017 | LQDT | LQDT
#Thank you, <UNK>.
Good morning, and welcome to our Q2 earnings call.
I'll review our Q2 performance and provide an update on key strategic initiatives.
Next, Mike <UNK> will provide more details on the quarter.
Finally, <UNK> <UNK> will provide our outlook for the current quarter.
Liquidity Services reported Q2 results in line with our GMV guidance and above the guidance range on adjusted EBITDA, driven by growth in our GovDeals state and local marketplace and our strong GMV in our Network International energy marketplace.
Our DoD marketplace GMV was down 21% year-over-year, reflecting lower volumes and a less favorable product mix.
The focus of our long-term strategy remains the growth of our commercial and GovDeals state and local government marketplaces.
And we're pleased to report that aggregate GMV in these marketplaces grew 14% organically over the prior-year period.
This marks a return to top line organic growth for the second consecutive quarter in this focus area, and demonstrates our ability to attract new clients and expand existing relationships.
The rise of e-commerce is driving the need for our marketplace channels and services.
For example, our return to management solutions are well suited to the rapid growth of product returns, which totaled $260 billion of merchandise in 2016 according to the National Retail Federation.
During Q2, our retail supply chain group signed a number of online retailers, omni-channel retailers and manufacturers who will use our return to management and marketplace solutions to reduce the number of product touches and transportation costs incurred with these products.
Our fully integrated solution provides the space, returns credit reconciliation, reporting and best-in-class B2B and B2C sales channels to maximize value for retailers and manufacturers of all sizes.
Another driver for our business is the trend of globalization and the need for manufacturers to constantly rebalance their supply chain and factory and production equipment in response to changes in technology and consumer demand.
Our solution provides clients the global marketplace, services and infrastructure to manage, value and sell their capital equipment in every major industry vertical to lower costs and drive efficiencies.
During the quarter, our commercial capital assets business benefited from strong activity with corporate consignment accounts, particularly in the energy vertical, which was up 108% year-over-year.
We added 32 new commercial accounts during the quarter, and have expanded our sales and business development teams within our capital assets group to capitalize on our success and reputation for delivering strong results.
Our GovDeals state and local government marketplace also outperformed our expectations, growing 30% year-over-year organically, to a record $64.3 million in GMV as more sellers utilized our platform and value-added services.
We added over 300 new agency accounts during the quarter, and are still less than 10% penetrated among all state and local agencies in the U.S. and Canada.
This quarter, we also continue to make steady progress with our LiquidityOne transformation program.
We are on the cusp of delivering a new mobile-first e-commerce marketplace solution that will integrate our business processes and expand our ability to provide our clients and buyers with an improved user experience, enhanced functionality and greater access to buy and sell surplus assets on a global scale.
We are busy preparing the launch of our Network International energy marketplace on our new e-commerce platform and ERP system for this summer.
This deployment will support over 32,000 sellers and buyers transacting across 37 countries in over 240 asset categories.
All property management, customer management, transaction management and financial settlements will occur in our integrated LLC platform and will replace numerous legacy systems and manual processes.
Our new marketplace will also have multilingual capabilities to support our international buyers and sellers.
We exited the quarter in a strong financial position to pursue our growth initiatives, with $116 million in cash and 0 debt.
In addition to funding our platform investments, we intend to invest in new products and services organically and via acquisition that will enable us to consolidate the large, fragmented reverse supply chain industry.
Looking ahead to the second half of fiscal '17, we expect solid organic top line growth in our commercial and GovDeals marketplaces.
Our near-term outlook reflects significant current investment on our part that does not yet reflect the benefit of new products, capabilities and business expansion opportunities we are building at Liquidity Services.
In closing, continued investments in our people, processes and platform will enhance the value we bring to clients as the leading solution provider in the $100-billion-plus reverse supply chain market.
As we begin to harvest the investments we're making over the next few years, we are excited about the tremendous potential to grow our business.
Macro trends and the growth of e-commerce, globalization and sustainability initiatives will drive the need for our platform and services.
Liquidity Services is committed to driving innovation and significant value creation for our customers and shareholders as we execute our long-term growth strategy.
Now let me turn it over to Mike for more details on Q2 results.
Good morning.
Reflecting on our first half fiscal year 2017 results, our commercial marketplaces, combined with the GovDeals states and local government marketplace, have achieved double-digit organic GMV growth for the past 2 quarters as we continue to build more depth in our client base and grow our network of relationships within our core vertical markets.
As we implement our new platform to combine and leverage our buyer base across our marketplaces for our seller clients, we anticipate benefits that will position us to continue to grow our GMV activity.
As Bill has indicated, we are advancing our long-term growth strategy and transformation plan to deliver the most trusted, integrated e-commerce marketplace solutions and services, to manage, value and sell inventory and equipment for our clients with self-service to full-service solutions across industry verticals that include energy, industrials, consumer goods, technology, government, and others where we have domain expertise to value and manage assets and our seller needs.
Looking towards our second half.
We will reach a major milestone as we launch our Network International energy marketplace onto the new LiquidityOne platform and ERP system to drive a better user experience and more efficient operations to help grow our buyer and seller base in the U.S. and internationally.
Additionally, we are ramping up our efforts to complete the design and deployment of our remaining commercial marketplaces onto the new e-commerce platform, including the architecting of our expanded self-service and return to management solutions.
This increased project activity will result in higher spending associated with our LiquidityOne program as we ramp up project resources and incur higher integration and consulting expenses.
We are also creating a new data warehouse product to supply data reporting services to our marketplace clients and third parties.
We expect our LiquidityOne IT projects expenses to range between $2 million to $3 million per quarter for the remainder of 2017, higher than recent quarters, as we are entering the final UAT and go-live phase of our energy marketplace launch and the acceleration of preparing our next marketplaces for go-live.
Our third quarter guidance currently anticipates year-over-year, comparatively stable GMV performance, as our growth in current and new seller accounts in our GovDeals and retail marketplaces is offset by lower volumes in our DoD Surplus contract and the wind down of our TruckCenter marketplaces.
Our bottom line results are anticipated to be comparatively down year-over-year, as one, our DoD Surplus and Scrap Contracts have completed transitioning to new pricing terms and we have completed the sell-through of backlog surplus property acquired under the old, more favorable terms.
Two, some higher pricing for inventory purchases, where we expect to experience bottom line pressure while we adjust our related operational costs during the next 2 quarters.
Three, as mentioned, the ramp-up of activity and spending in our LiquidityOne transformation initiative.
And four, a tough year-over-year comparison in our commercial capital assets principal deals business, which was exceptionally high in the third quarter of 2016, and will continue, by its nature, to vary quarter-to-quarter.
Management's guidance for the next fiscal quarter is as follows: we expect GMV for the third quarter of 2017 to range from $170 million to $190 million; a GAAP net loss is expected for the third quarter of 2017 in the range of negative $10 million to negative $7 million, with a corresponding GAAP loss per share for the third quarter ranging from negative $0.32 to a negative $0.22.
We estimate non-GAAP adjusted EBITDA for the third quarter of 2017 to range from a negative $7 million to a negative $4 million.
A non-GAAP adjusted loss per share is estimated for the third quarter in the range of negative $0.29 to negative $0.19.
This guidance also assumes we have diluted weighted average shares outstanding for the quarter of approximately 31.4 million.
We will now take your questions.
Yes.
And one of the things that I think I've mentioned in the past is that we tended to be on the low end of that $1 million to $2 million range.
And what we've done is that we're ---+ we wanted to go at a faster pace plus entering into the actually go-live and UAT testing is ---+ you get to this phase of the project and it's all hands on deck, plus a couple of other new initiatives like the data management that I mentioned.
I think this all is coming together that I think is prudent to increase the range.
I'm still hopeful that it won't be on the high end of that range as we manage the expenses through that, and getting our ERP solution online is also a big part of that cost.
So yes, the $2 million to $3 million, I think is a ---+ is prudent.
So I certainly think we're going to be at or above the $2 million of the range that we had previously given.
We're really focused on having the aggregation of our buyer base visible to our customers in fiscal '18.
There are lots of nuances related to the sunsetting of back-office tools.
Our target is to continue to do that through this year and fiscal '18.
There's potentially, depending on risk mitigation, there's potentially scenarios where there could be a tail of back-office tools beyond fiscal '18.
But I think that the real value-add for us is having the supply and demand generation in a single e-commerce stack.
And that's our focus for fiscal '18.
Sure.
Well, we're a data intensive business.
We've continue to grow our valuation services.
We've done it at a number of global asset valuation projects to help clients understand what's in their supply chain and help them bring those assets to market.
We've also done a nice job of integrating returns management solutions with and into our marketplace solutions for the sale of assets.
As you know, the growth ---+ the secular growth of online retail continues unabated.
And coming out of the last holiday season, where we got a lot of very nice coverage, the focal point for many of the retail clients and their vendors has been how to manage this increasing volume of returns.
Returns volumes are exploding as a result of the growth of online retail.
We position ourselves, <UNK>, to handle the physical flow of those returns, the identification and in some cases value-add to those returned items, the credit reconciliation so that both sellers and manufacturers can close their books.
And then we provide disposition recommendations on how to recover value from those assets.
And these could range from home goods, consumer electronics, heavy tools and equipment.
You've seen do-it-yourself home improvement stores.
And we're positioning the business to continue to provide this turnkey returns to management and asset disposition solution to solve the needs of the retail supply chain industry.
So we'll ---+ and during the last quarters, I noted in my remarks, we brought on a number of pure e-commerce retailers who are growing in their categories.
Omni-channel retailers that are providing both buy online, buy in the stores, and in some cases return at the store or return through online solutions.
So that creates a need for our services.
We're also working with manufacturers.
Manufacturers want to make sure that they understand the volume and nature of what is being returned.
And they want compliant disposition channels to protect their brand image in the secondary marketplace.
We're well positioned to deal with those issues for manufacturers.
Well, I think as we look through fiscal '17 into the fiscal '18, you're going to have continued spend on ERP and marketplace rollouts.
I think you'll see some tapering as we consolidate systems and reduce the number of consultants and launch activities.
And at the same time, we'll be continuing to market to buyers and sellers the benefits of these new systems.
So I would say you'll have some tapering in the second half fiscal '18 as we take the onetime project cost and conclude those project costs.
But there is still important work in integration that we're doing.
And we wouldn't say full normalization during fiscal '18.
Well, we've always managed both.
I think in the state and local marketplace there is a secular shift underway and we're leading that.
Of the 60,000-or-so public sector agencies, we're closing in on about 10,000.
So we have another growth opportunity in Canada.
And on a combined basis, we're less than 10% penetrated.
We're picking up larger municipalities and agencies.
So for example, we signed the City of Boston; we signed a contract with the State of California.
We're working to expand west of the Mississippi and we feel good about the Pacific Northwest.
And that brings us north of the border to Canada as well.
So we're a best practice.
We're bringing greater value, greater convenience and then there's the network effect of both the buying and selling on the platform, but also the decision makers who are managing operations and (inaudible) from these public sector agencies who are talking to their peers, looking for best practices in GovDeals, is at the top of that list.
With respect to returns management and what we're seeing there, I think, again, you have supply chain professionals who are running their businesses and looking for cost control, looking for maximum utilization of their distribution centers and retail stores.
And so the fact that we have a national distribution center network, we can relieve them of their space constraints.
We can handle the physical flow of goods, the financial settlement and reconciliation of returned product, and then also we have value recovery channels that are unmatched, 3 million registered buyers.
So we're able to take product in large volumes and velocity and move them through our B2B channels.
We also have the ability to segregate high-value assets and even do repair and refurbishment and move those through B2C channels.
We actually connect client products to over ---+ up to about 18 B2C channels now.
So there's a lot of opportunity to continue to build that area.
On the industrial side, we noted our energy supply chain business grew 180% year-over-year.
These are large global companies.
They need the project management support, the evaluation expertise and then the buyer base to recover value.
And I think as energy prices have stabilized, there are more buyers willing to invest capital in the line pipe and drilling equipment and heavy equipment that we sell for the energy customer.
So there's more liquidity in the marketplace.
And we're doing very large-scale projects, measured in the many millions of dollars for the top exploration and production companies, and then the second tier of upstream and downstream distributors who have a lot of capital in distribution pipelines, storage assets and the like.
So we think there is a cyclical recovery going on in energy.
And that's benefiting estimates.
And the rest of the industrial supply chain, these are companies that manage factories and are managing the machines and production equipment in those factories.
In some cases they're ramping up factories in one location in the world and then ramping down in another.
We help them redeploy assets, or where economic we'll sell those assets.
And we're doing it with uniform service on a global basis.
Clients want those global master service agreements.
They want compliance management.
They want their brands protected.
That's why they're choosing Liquidity Services.
And then lastly, as <UNK> alluded to, we're building out self-service functionality on top of our marketplace, so that clients, if they would desire, can manage the process themselves and then load assets into our marketplace and take advantage of our buyer base and our marketing programs.
GovDeals, for example, is self-service.
Clients are responsible for using our menu-driven system to catalog and upload their assets.
We think that has broad application in the commercial sector as well.
| 2017_LQDT |
2015 | ADI | ADI
#Let me talk about the geo thing a little bit.
I think overall, just to give you a little bit of color there, so Europe I would say, not surprisingly, the industrial sector is a little weak.
Europe tends to take a pause.
And I'd say the industrial sector in particular was maybe a little weaker than we had expected.
So I think as well, North America and industrial was also relatively weak; some sectors were better than others.
And I think when you look at China and Asia Pacific, automotive was quite soft.
And it's well-publicized that the communications infrastructure was weak, but at least the pattern was stabilized there.
And then in response to the 10% customer, we did have one customer for the quarter that was greater than 10%.
Thank you, CJ.
I think that was two questions, so.
No re-queuing for you.
You violated the rule.
We were in the mid-70s for utilization this quarter.
That was similar to where we were last quarter.
I don't remember if I said it before, but we are probably going to take utilization down a little bit in the fourth-quarter.
All of the ramp in revenue for the fourth-quarter, at least on a front end ---+ from a front-end perspective, will come from foundries.
So it won't affect utilization in any way on the front end.
Sure.
Now ideally, over time, we're working to get that utilization up, and it has been I think if you look at it on a year-over-year basis, it has been steadily moving up a little bit and it has been helpful to gross margins.
So that is our goal, to make better use of our existing factories to drive gross margin expansion.
Our goal is we won this business; our goal is to keep it.
And the good news is we think it's technology that has a lot of legs to it, that is highly differentiated, and as a result, the customer values it and pays a premium for it.
So we're not ---+ our anticipation is that we will not lose it nor will we have massive ASP erosion as a result, but that will be borne out over time.
Look, I think another aspect of the strategy here is that a lot of technology trends center around these types of consumer systems being able to see, being able to hear, being able to feel.
And I think there's some great macro trends there that speak very well to the types of technology that we have, the intersection of the physical world, and the world of the digital.
So as the performance goes up, the space is getting tighter and tighter.
Battery-powered efficiency has got to become greater and greater.
There's some really chunky problems to be solved there.
So and not just one type of problem; there's many, many different problems.
So we seek, as we do across all our businesses, we look for diversity in each application in terms of the types of technology that we can apply, the number of products that we can develop.
And so it's not a tale of one product, one customer.
It's a tale of many, many different types of technologies across many, many different modalities there in terms of intersection of the physical and digital worlds.
<UNK>, you're asking me to whip out the crystal ball here, which I don't know, it might be on the fritz.
I would say that sitting here today with almost no backlog to really tell for certain how things are going to progress, that the first quarter, which is typically down mid-single digits, given that there's a more significant percentage is likely to be in the consumer space in the fourth-quarter, and that that has normally a more dramatic seasonal decline in the first quarter.
We're likely to be more than mid-single digits down sequentially in the first quarter, but I'm not certain of that.
And then in the second quarter, generally consumer seasonally is relatively flat first quarter to second quarter, but we have this lift in industrial, this tends to be our best quarter for industrial in the second quarter.
And that gives us a good lift for the second quarter sequentially.
And so, that is how I would model it out right now, having limited information as to how things behave.
I don't think I would suggest that the back half of the year we're ever going to have any specific additional platforms, but our goal over time is to expand in every end market in terms of opportunity.
So over time, I think there is an opportunity to do that.
I do think that the industrial business for us is made up of these broader market end markets and then these more ASSP-oriented markets.
And I think it's safe to say that the broader markets were a bit weaker and that the ASSP or vertical markets did a little bit better.
And I think somewhere in Vince's remarks, he talked a lot about diversity.
I think also <UNK> talked about it as well.
That's the benefit of diversity, is we're in so many different parts of the industrial space, both the broad market and very interesting verticals and some do better than others and depending on the quarter.
But I think that really, if I had to line our performance up in the third quarter relative to what I saw from some of the other players, I would say where we outperformed seemed to be in some of the specific verticals like aerospace and defense and energy and so forth.
As you know, we are on a sell-through basis across the globe as well, so the transparency that we have around demand and supply is very, very strong.
So our sense is that there's a good balance between consumption and supply at this point in time.
And we, as a Company, measure only end-customer bookings, because that's what we base our understanding of demand on.
And so what we're reflecting to you is what we see.
| 2015_ADI |
2017 | MCY | MCY
#Thank you very much.
I would like to welcome everyone to Mercury's first quarter conference call.
I'm Gabe <UNK>, President and CEO.
In the room with me is Mr.
George Joseph, Chairman; Ted <UNK>, Senior Vice President and CFO; <UNK> <UNK>, Vice President and Chief Product Officer; and Chris <UNK>, Vice President and Chief Investment Officer.
Before we take questions, we will make a few comments regarding the quarter.
Our first quarter operating earnings were $0.20 per share compared to $0.13 per share in the first quarter of 2016.
The improvement in operating earnings was primarily due to an improvement in the combined ratio from 103.9% in the first quarter of 2016 to 103.1% in the first quarter of 2017.
Our results in the quarter were negatively impacted by $30 million of catastrophe losses and $4 million of unfavorable reserve development, the majority of which was attributable to higher-than-estimated development of property losses from storms in December 2016.
This compares to the first quarter of 2016, which had $8 million of catastrophe losses and $40 million of adverse reserve development.
Rainstorms in California accounted for $23 million of the $30 million of catastrophe losses in the quarter.
Storms in Georgia and Texas made up the majority of the remainder of the catastrophe losses in the quarter.
Excluding the impact of catastrophe losses and unfavorable reserve development, the combined ratio was 98.8% in the quarter.
Our homeowners results were significantly impacted by the record rainfall in California during the quarter.
Our calendar year homeowners combined ratio was 129.6% in the quarter compared to 99.8% in the first quarter of 2016.
Our calendar year auto combined ratio was 98.5% in the quarter compared to 105% in the first quarter of 2016.
To help offset increasing loss trends, we have been increasing rates.
In California, we received approval for a 6.9% personal auto rate increase in California Automobile Insurance Company effective in May and a 6.9% rate increase in our homeowners line effective in August.
In addition, a 5% rate increase is pending approval with the Department of Insurance for Mercury Insurance Company.
Personal auto premiums in Mercury Insurance Company represents about half of our company-wide premiums earned, and California Automobile Insurance Company represents about 14% of our company-wide premiums earned.
California homeowners premiums represent about 11% of our company-wide premiums earned.
Premiums written grew 1.7% in the quarter, primarily due to higher average premiums per policy.
Company-wide private passenger auto new business applications submitted to the company decreased approximately 16% in the quarter as we focused on improving profitability in our private passenger auto line.
Company-wide homeowners applications increased about 2% in the quarter.
With that brief background, we will now take questions.
Ted, do you want to handle that.
Yes, the overall frequency was obviously elevated due to the cat losses, but when you strip out the cat losses, the trends vary a lot by state.
We try to sort of focus on California because that's our largest state.
So California personal auto, frequency's up slightly in the quarter, and we're seeing severity increases in the mid- to upper single digits, so pure premium kind of the mid-upper single digits.
I think the latest Fast Track had annual pure premium at about 10% for California.
And that's reasonably comparable to the trend we've been seeing for the last few quarters.
Yes, they've been getting many of them, and from what we can tell, many are getting increases, including us, so the department had been approving rate increases.
We've been seeing that in the marketplace.
And I will note that in this quarter, our private passenger auto results actually were ---+ in California, we booked a 97.2% combined ratio in the quarter with pretty heavy weather, as Ted was mentioning.
So we feel that with a 6.9% rate increase that we got coming here in Cal Auto, that's going to continue to improve the results we have of 5% pending that will probably come later in the year, and we have a 6.9% in our homeowners book that we got approved that is going to go into effect in August.
So obviously, the heavy rains in California definitely had a very big impact on our homeowners line this quarter.
Yes, outside of California is definitely having a much bigger impact than California.
If you take a look at our new business volume this quarter, our app counts for California, they were down 3% ---+ 3.4%, but outside of California, they were down like 38%.
And that is a result of us just taking aggressive action in some of these states outside of California to improve the combined ratio, which we are seeing quite a bit of an improvement in the combined ratio in some of these states outside of California as a result.
But it's obviously having an impact on our top line.
In our case, and I think we said at the end of last quarter, at the end of the fourth quarter, we basically told everyone that we thought that the growth was going to be relatively flat, we felt, in 2017.
So we refinanced all of our short-term bank loans, and we closed that transaction at the early part of March with a 10-year senior debt offering.
And the short-term loans were a spread over LIBOR, so we're being priced off of short-term rates.
We were in the process of renegotiating that debt.
Those rates were going to go up due to higher spreads required by the banks as well as LIBOR rates have been going up as well.
So we thought that we would lock in some long-term rates over a 10-year period with these senior notes.
And because of that, you are going to see higher interest expense.
It's fairly easy to calculate now.
It's 4.4% times $375 million of outstanding debt.
Yes, Greg.
Last year was one of those periods where there was ---+ we were at kind of at a pivot point.
And where rates started the year, it certainly was at a rate or at a level that would be accretive, but we've ---+ rates have come back down.
So I'm kind of tempering my excitement for the year, but I think that we'll definitely grow income over last year.
But I do have an internal goal, and I think it may be challenging, but I think we may still get there.
So I'm cautiously optimistic.
I mean, I think the after-tax yield this quarter was the same, if I ---+ 3.1, is that right, Ted.
So the after-tax yield has stabilized, and it had been declining for, as you know, Greg, for some time now.
But this latest quarter compared to the quarter in 2016, the average annual yield on investments after income tax was steady at 3.1.
We're hopeful that that stays at that level or possibly higher, depending on what interest rates do.
We do expect, at some point, to ---+ for interest rates to rise.
They backed up here a while ago, but now they've come back down a little bit, so we'll have to wait and see what happens with the interest rates.
Do you want to talk about that, <UNK>.
Yes.
This is <UNK> <UNK>.
It varies from state to state.
I think we're ---+ we've taken rate maybe in advance of the market in a number of these states, so we've seen our conversion rate generally lower, but we're again cautiously optimistic as the market catches up, and we're seeing other carriers taking rate action that will move back to more normal levels.
Quote volume, I think, has been fairly steady, fairly even.
I don't think we've seen a big uptick in shopping at this point.
Well, we just got it approved.
Yes, and what I was going to say is like what we did in MIC is we just got MIC approved not too long ago.
And right after we got that approved, we ---+ a few months later, we filed for a 5%.
So we're going to evaluate basically this quarter.
We do quarterly indications, and based on that quarterly indication, we'll make an evaluation.
But it ---+ let me just put it this way, it would not surprise me if we filed, within the next 90 days, another rate increase in Cal Auto.
Well, I think if loss costs don't continue to go up at these high rates that we've seen, absolutely.
I mean, as I mentioned earlier, our combined ratio in California was a 97% ---+ 97.2% this quarter with a lot of weather.
So ---+ and we still have the 6.9% that's going to be coming into effect for Cal Auto, and we got the MIC one coming on the heels of that hopefully later this year.
So if trend continues at 10% a year, then we're going to ---+ 8% to 10% a year, then we're just going to hold steady, right.
But at some point, we don't think that trend's going to continue at these elevated levels, and you'll see the combined ratio go down even further.
We'd like to thank everyone for joining us this quarter.
We look forward to speaking with you again next quarter.
Thank you very much.
| 2017_MCY |
2015 | COP | COP
#Yes, thanks, <UNK>.
So we are running several different pilots in the Eagle Ford, in particular in the Upper Eagle Ford we are running I think it is seven different pilots across different parts of the Eagle Ford to test the triple stack concept that we talked about.
And just to understand what parts of our geographic extent of the Eagle Ford is going to be amenable to the triple stack development.
So those pilots are going to be drilled as we go through this year.
And we will start to see results as we head into next year.
So I don't expect it to draw any definitive conclusions on just how much of our aerial extent will be developed that way until maybe the later part of next year, frankly.
Because a lot of this is understanding do the wells begin to interfere with each other and you don't see that early in the well's life.
And of course we are still running the stimulated rock volume pilot that we talked about.
And we're going to get a lot of new information from that this year that will be important from a longer-term basis in terms of optimizing the Eagle Ford as a whole and other unconventional plays that we have in the portfolio.
Yes, the initial results from single well pilots in the Upper Eagle Ford basically showed the production was the same as the Lower Eagle Ford.
And but we haven't tested yet is when those are drilled in the context of a pattern of wells do we see interference.
And that is what we are testing with these seven pilots that we are running now.
No, I don't think we went into that yet, <UNK>, because we really need to understand the nature of these pilots, how they perform when they are confined with other wells.
We didn't actually make any real prediction about what we expect to find.
We would rather do that after we have seen the pilot test results.
Yes, it is possible but it may take even longer than that.
We don't want to jump the gun on it.
We are definitely encouraged, as we said a few weeks ago.
But we want to make sure that we are calibrating properly before we make any claims about what the incremental reserves will be, for example.
We are not in the operating phase yet for APLNG, so I don't have the operating cost number off the top of my head.
The tax regime is a tax and royalty regime with the royalties at the Queensland level and taxes at the federal level.
This is actually not fully resolved yet.
There are some discussions still underway with the Queensland government on the nature of how the royalty will be calculated.
So I can't really give you a definitive answer on that yet, <UNK>.
(Multiple speakers) I will add a little bit to what <UNK> said on the tax side.
The taxes are actually paid down at the APLNG kind of corporate level.
And there is going to be, as you can imagine with a big capital investment project like that from a cash flow perspective, a fair bit of tax shield from depreciation on the investment particularly in the early years of the project.
I don't know that I could give you precisely of a number, that depends upon price levels as well.
But if we had current kind of prices that is probably not a bad assumption.
Yes, the Eagle Ford was around 175,000 barrels a day in the first quarter and the Bakken was around 55,000 barrels a day in the first quarter.
The Permian was less than 10 on the unconventional side.
We also have significant conventional production, but on the shale side it was less than 10.
So what we expect to happen, <UNK>, is we ---+ the aggregate production from the unconventionals is going to grow a little bit into the second quarter.
And then it's going to gradually decline as we exit the year.
So the fourth-quarter exit rate is going to be quite similar to the first-quarter rate on aggregate for the shale plays.
It depends a bit on the pace of the build of the rigs back up.
But you should really assume that it is going to hold it flat.
Because by the time we get the wells back and running again we're through the drilling and completion and hook up and bringing them onto production.
We're actually going to see the declining production from those plays continue into the early part of 2016 and then start to increase towards the end of 2016.
And based on our current assessment of how we will put rigs back to work there, we'll probably be relatively flat from the average of 15 to the average of 16.
Yes, we are always with a portfolio of our size looking at what can we do in the way of portfolio optimization.
As we go forward we are not going to be pre-announcing that we are marketing particular assets.
You will hear stories probably out in the marketplace that we are testing values on that and that is what we will always be doing as part of a prudent optimization of the portfolio.
As we have said, I think it is prudent to think in terms of a company our size will do something with its asset portfolio every year.
And we talked about it, whether that is $1 billion or so a year is probably a good go by.
It really just depends on whether we are getting full value for the assets.
It is always about whether we can sell the assets for at least what we think we could receive for them in value if we kept them in our portfolio.
And we don't know what that number is going to be.
But there will be some level of asset sale.
So we expect with the major projects that we are doing and the development drilling that we are doing in Alaska that we are likely to hold production relatively flat for the next three years and beyond that actually.
And we have a reasonably good representation of the overall Alaska production because we are in all three of the big production areas there, Prudhoe, Kuparuk and Alpine.
So I think if you are looking at sort of a macro view of Alaska that wouldn't be a bad basis to think about that.
In terms of realizations, I think currently realizations for ANS crude are about $2 or $3 below Brent.
We have taken one cargo this year to Asia and one last year.
We always have that option if that is what we choose to do.
I think our first reaction to an increase in prices is going to be to reduce the amount of cash we use and the amount of debt we might borrow.
Particularly as we think about activity levels in 2015 and 2016.
I think in the near term I am not sure we see a price level that would cause us to reaccelerate.
We are going to want to see what ---+ that if there is some acceleration of prices that it has got a more lasting effect as well.
I mean we are taking ---+ as you think about what is going on with our capital program, as <UNK> mentioned earlier, we have a couple billion dollars rolling off from Surmont and APLNG and we are in our plans already accelerating capital spending in places like North AmericaN unconventionals as we go into 2016.
It is a bit of a ---+ I don't think I can actually quantify that because the rating agencies won't tell you exactly what number that is.
I think we would characterize it the same way we characterized it on our call last time.
We think the amount that we do borrow is going to be ---+ it could be enough that it would cause us to see a one notch downgrade from what is currently A1 at Moody's and A ---+ the middle single A with Standard & Poor's and with Fitch.
And as you have seen, all the agencies do have our credit rating outlook on a negative so they are anticipating that.
But once ---+ if that were to happen that would move us into a range where we are comfortable that there is plenty of space there to meet whatever borrowing needs we might have in 2015 and 2016 as we head towards cash flow neutrality in 2017.
We are continuing to work through our optimizations, <UNK>, that we discussed a little bit a few weeks ago, optimizing the completion design and the well end, the well placement and so on.
I wouldn't say there is anything fundamentally different going on there.
But we are moving towards more pad drilling, 90% of our wells will be from pad drilling.
But there is not a fundamental change there, the guys are just executing well.
I feel pretty comfortable about the ---+ the answer I gave earlier on what we expect of our Eagle Ford and Permian and Bakken production to do this year and into next year, assuming that we do increase our rigs the way that we intend to next year.
So peak ---+ on both of them really for different reasons, peak operational cash flows in 2017.
For Surmont 2 it is because it takes a while, as you know, to build the steam chambers and ramp up production in the SAGD project.
And in the case of APLNG we will bring the first train on this year; it will be next year before we bring the second train on.
So the first year that will have both trains running will be 2017.
So in both cases it will be 2017 before they are fully contribute in their plateau rate and of course that rate will continue in both projects for decades.
Let's see, I would say we are probably ---+ overall we are probably running three or four.
It varies a little bit, but I think three full-time and four if we ---+ occasionally.
So that is our total spread to support those rigs.
The Vali well that we are drilling is actually testing a different play than the Omosi and Kamoxi wells were, so we will see how that goes.
No, we have not impaired Libya.
For us we would have to see that there was some kind of view that there was a permanent loss of that concession before we would really need to do an impairment.
I don't know that I know that number off the top of my head.
It is on the order of $0.5 billion.
But I wouldn't ---+ I am not sure exactly what that number is.
No, we take a portfolio approach to thinking about our cash flows.
So we wouldn't really think about doing it for one particular part of our portfolio.
Generally our philosophy that we have talked about before hasn't changed.
But we feel like hedging is by definition a kind of zero sum game in terms of value and one of the reasons we keep a strong balance sheet is being able to handle the fluctuations in commodity prices.
<UNK>, I can't speak for the industry as to what price signal they might be looking for and the same would be cash flow will have a big impact on that as well.
But in our plans we are planning the increases in 2016 modestly but we are going to increase as we move into 2016.
And that is in the anticipation that there will be some continued recovery in prices.
In terms of the capacity, clearly we have laid down quite a bit of rig and completion capacity.
And that can be brought ---+ that can be brought back relatively quickly as a flexible industry that we had in the Lower 48.
So exactly how quickly people bring these back on will be a function of the cash that they want to put back in and what they see as being an efficient and safe way to bring the rigs and the completion crews back to work.
So I don't think I answered your question very satisfactorily, but that is about the best I have got.
No, our intention is to make that commodity agnostic for the most part where we are looking to get sustainable cost reductions through this effort.
We are going to get some fluctuations associated with exchange rates and with changes in the deflationary environment.
But our focus is on getting structural cost reductions that we can sustain through the cycles.
So, what we saw in the first quarter was that realizations were probably weaker than what people were expecting primarily in the Lower 48.
For example, I think our Lower 48 crude oil realization was closer to $40 where WTI was like at $48.50 or so for the quarter.
What we are seeing is just a tough quarter for realizations, a lot of supply in the marketplace.
Kind of the differentials that we are seeing are not that different ---+ that we saw in the first quarter are not that different when we were in a $50 price environment than they were when we were a much higher price environment, it is still kind of that same level of differentials.
I think we would expect to see kind of differentials improve in terms of kind of percent of marker realized and maybe some slight improvement in kind of absolute levels of differentials as well.
The differentials were tough because they were kind of tough across all commodities for us in the Lower 48 as well.
It was tough on NGLs, oil and natural gas.
Yes, it is a little bit just that is just what the market was in the first quarter.
There is nothing really that fundamentally changed in our product mix or the quality of any of the products that we are selling that would lead to that kind of differential.
Yes, <UNK>, I mean it helps, the UK sector needs as much help as it can get.
So the help on the tax rates was welcome.
The simplification and broadening of the uplift on capital is going to help us as well.
It is about a 12% uplift now on capital when you go through the math.
So we will build that into our thinking as we are thinking about our overall investment portfolio over the next few years.
But it certainly was a move in the right direction by the UK government.
Yes, it does.
By its nature the dry hole cost is going to be pretty lumpy.
And we happen to have both the Harrier well and the Omosi well in Angola hit in the first quarter.
You could have quarters where the number is really low if no well actually gets to TD during that quarter and it could be lumpy again later in the year.
But as we look at the overall kind of balance of the year we think the guidance that we gave at the analyst presentation still makes sense.
Are you talking about operating cost, <UNK>, or capital costs.
Yes, so what we are seeing is a more rapid response in the Lower 48 than in other parts of the company.
We expect to see some deflation kicking in and we already actually have seen some in our international business, but it is coming more slowly, which is what we would anticipate.
It's coming more slowly from the International business, but it has come very rapidly in the Lower 48.
But we are building ---+ we've built that sort of trend as we anticipated into our expectations of deflation.
And we do expect to see those reductions coming in the international over the next several months.
So we have been running some re-fracs in our portfolio, some using the (inaudible) technology, some just basically straight pump and new fracs with existing perfs and some with new perfs.
So we've been testing a few.
The area that we are seeing the best uplift is, as you would expect, are older wells where we pumped smaller jobs with wider spacing.
So we see some potential there in this, particularly in wells that were drilled a few years ago.
Not in more recently drilled wells.
So we are continuing to evaluate that.
But there is some ---+ there is certainly some upside potential.
That is terrific.
Really we appreciate everybody's questions and comments.
Obviously feel free to come back to us if you didn't get your questions answered.
But we are going to give you back a little bit of time here.
Again, thank you for participating and we look forward to staying in touch with all of you.
Thank you.
| 2015_COP |
2016 | GBCI | GBCI
#That will certainly be contemplated, you bet.
To the margin this quarter, purchase accounting was four bips.
You know, last quarter it was eight.
So it was about half of what we experienced in the second quarter.
I would think we have consistently told the Street, <UNK>, that we expect a pretax hit of somewhere in that $10 million range, so call it $6 million after-tax.
I don't see anything right now that would change our analysis.
Certainly, <UNK> always says that hope is not a strategy, but we could certainly hope that something would get done there and that atrocity would get removed.
But, you know, that's ---+ you can't plan on that and you can't design a strategy around that.
So right now, we're assuming that, yes, you're right; if we cross over by December of 2017, then we're going to ---+ July 1, 2018, that would be impactful for us.
But, you know, <UNK>, you bring up non-accruals and I wanted to make sure that ---+ and <UNK> and myself talked about this this morning, we want to make sure that, you know, as you look at our non-accruals for the quarter, and our NPAs, our NPAs were up a total of a little bit over $2.6 million, call it $2.7 million for the quarter.
But during the quarter, we brought on one large credit and moved it to nonaccrual.
That one credit was approximately $9.6 million, $9.7 million.
So, on the one hand, without moving that one credit to NPA and nonaccrual status, we would have had a heckuva quarter for reducing our NPAs of almost $7 million, and getting back to what <UNK> said earlier, we would have really started to make an assault at that goal of ours of 65.
But that's neither here nor there; that wasn't the case.
This large credit was moved to nonaccrual.
Now, that large credit was an OREO property that we had during the credit crisis.
We sold that OREO to a group, and this is maybe one of the first times where the Canadian dollar and what's gone on in the slowdown in Canada has obviously caused some impact to our credit quality.
That was a group that took that OREO property over, and with what's gone on up in Canada over the last 18 months or so, we felt it prudent to move that credit to nonaccrual status, because they are experiencing some slowdown and some issues up there, and as a result this credit, we felt, needed to be moved to nonaccrual.
The good news is, again ---+ now, that's not what we like to see, and we certainly hope that over time that we can work through this one, too.
But the good news on even that credit is the condition of this collateral and the amenities that have been added to that project in the last five or six years since we originally sold that OREO and it was been taken over by this group are far, far superior to what we sold back five or six years ago.
So, we are ---+ and we feel we are in much, much better shape collateral wise.
The property is in much, much better shape.
There are far more amenities that exist today that did not exist back then.
And so as a result, it's one of those good news/bad news things.
You know, the good news is the property is in really good shape; the loan-to-value, we believe, is far below what it was five, six years ago.
The bad news is, you know, there is a slowdown and there is some stress on this particular project, and we did decide to move it into a nonaccrual status.
With that said, as I mentioned earlier, without that one credit coming on, we would have this quarter seen approximately about a $7 million reduction in NPAs.
So, there's again a full disclosure.
I wanted to make sure that that small increase in NPAs this quarter was not camouflaging what was a large credit that got moved to nonaccrual status, and I just wanted to make sure that everybody understood that.
Well, just a clarification; it wasn't $4 million in the quarter.
It's been $4 million so far this year, for the nine months (multiple speakers)
(multiple speakers) for this quarter, yes.
You know, again, we have ---+ we're complete right now, but we had one more roll this quarter.
So, with that roll obviously came a lot of the CCP expenses that we've seen every quarter during the first three quarters of the year.
And this was a roll that once again had another relatively large bank of ours that rolled.
Now it was only three, but in addition we are converting Treasure State here this weekend.
So, you know, call it four conversions, anyway you want to slice or dice it.
There's still a lot of work and effort and expense that's going to have to go into that.
So, I don't know.
I would suspect that it's not going to be too different.
I just think that what we've seen in the first, second, and third quarter and what we know has taken place and will take place this weekend, we should still be right in that ballpark.
<UNK>, do you want to comment on what you see for next year.
I mean, these ---+
---+ should be done, pretty much.
Should be, I think you're right, you know, that you think four is kind of the pace we've been on for the year, so the expense should be consistent with what you've seen in the past.
And then, we're going to do everything we can to make sure there's no trailing expenses, and we don't see it in 2017.
But, you know, knowing how these things work, there's probably going to be a little bleed-over in the first quarter, and then I hope we've seen the end of it.
On the new production, well, sitting here we know we probably have that number here, <UNK>.
We're all kind of scrambling to see, but it looks like for the third quarter it was new production was right around [456].
Thank you.
I'll let <UNK> chime in here, too, but going forward we've done ---+ I think we've done a remarkable job, truly, of maintaining this margin through this entire time period.
I mean, if you go back, we had a 4% margin for the quarter, but so far for the first nine months, our margin has been at 4.02%.
And that compares to, like, 3.99% for the first nine months of 2015.
So, rather than our margin actually decreasing, we've actually been able to step it up by three bips over the last ---+ over the course of 2016 versus the same period in 2015.
I think, again ---+ in my mind, that's been pretty remarkable.
You know, I think there's some things that we continue to do that certainly support the margin.
Our banks aggressively go out and try to generate checking accounts.
Zero cost dollars into this company, and they've done a really, really good job of doing that.
The numbers through nine months are as good as any we've seen in the last three or four years, as far as number of new accounts.
That's helping because, on average, all these new accounts truly maintain about the same average balances.
So you get some growth, and <UNK> alluded to that.
Just by increasing your customer base, you're going to get some level of additional non-interest-bearing deposits, and we're certainly seeing that.
That has helped.
The remix has probably been one of the biggest things, though, because when you're taking lower yielding securities ---+ as I mentioned earlier, we've gone from 36% to 32% of total assets, and when you take and remix that balance sheet and put on yields that are arguably about double what is paying off and what's paying down, or what's moving off of the books, that certainly lends a great deal of support to that margin also.
There's no doubt in my mind that those two issues are the main reason why we've been able to maintain this margin.
Will that continue going forward into 2017.
Who knows.
I mean, I'm not that smart to figure that out.
But if we stay somewhere in this tight range, I can probably assure you that we are going to be out there wrestling for every new checking account.
And I think we'll continue to be successful in that arena, like we have been in the past.
We still do have another ---+ I believe we've got easily another $500 million, $600 million that could move out of the investment portfolio and move into the loan portfolio.
Or we could use that cash flow out of the investment portfolio to fund our loans.
That, next year, will go a long ways.
In my mind, <UNK>, those are going to be the drivers.
And if those drivers stay intact and in place, our goal is to try to keep that margin in or around that at 4% level.
And we've been able to do that pretty consistently for a number of years.
Now, the wildcard is, do we get a rate increase.
We don't know.
I mean, speculation is that if you're betting right now, you're betting that probably in 2017 you are going to see higher interest rates, to some level.
But we thought that same thing this time last year and look at what we've got.
So, we don't bet the bank.
We don't try to change the balance sheet or we don't try to formulate strategy based on speculation of where interest rates are going.
We try to deal with the reality at hand, and right now I think we're all preparing for a tight band of interest rates and us doing much the same as what we've been able to do these last two or three years to maintain that margin where it is.
For the most part, we are neutral.
I mean, we've always managed the balance sheet to more of a neutral position.
With that said, the latest numbers we have at our disposal show us slightly asset sensitive.
But it's ---+ we're not one of those banks, <UNK>, that an increase in rate is going to move the needle dramatically.
You know, like day one we're going to have hundreds of millions of dollars of assets that are going to move higher like other banks are positioned.
That's not us; it's never been us.
But we should ---+ over a 12-month, 18-month period of higher rates, we will benefit, simply because ---+ and I've said this for many, many, many, many years, we've built this very, very valuable DDA base of customers and that's where we'll get the benefit.
<UNK>.
Yes, I would add, you know, if you look back in the fourth quarter last year, December rate increase, our bank ---+ our division presidents did a great job of not passing on those rates to our depositors.
So we'll benefit on the asset side, to <UNK>'s point, but equally as important is to control the rates on those interest-bearing deposits in combination with growing the non-interest-bearing.
So it will help, but, as <UNK> said, it won't move the needle real dramatically.
But if all taken together, it's very helpful.
Well, that's very kind and thank you very much, <UNK>, and it's been a pleasure working with you over the years, too.
I would say that given what we've seen come out of that market as far as the size of some of the transactions and the respective underwriting and credit quality characteristics, it's been a positive.
I wouldn't say I'm totally surprised, because that same scenario happens with most of our acquisitions, where you have a small community bank limited by the legal lending limit, and there's really two benefits.
They can go out and solicit larger transactions, more complicated transactions; and the second thing is we can repurchase some of the participations they've sold over the years.
We can bring those back into the portfolio, so we can get that little benefit.
But in the case of the Colorado acquisition, it truly has been on the growth side, some very large transactions that they've been able to generate some volume out of, through either some quasi-public entities, some municipal financing.
We've had some success there that they just haven't been able to source at those borrowers before, so I anticipate that's going to continue as that franchise down there continues to grow.
The lenders we have brought across, top-notch, good-quality lenders.
And we're really kind of pleased with their performance.
They've done a good job down there.
You know, I think, <UNK>, if there's one addition to what <UNK> said is we do have great lenders down there, very talented.
We may be probably, over the course of the next year, may look to add to our resources down there.
That's a very, very, very big market.
There's a lot of things going on, and I suspect that with us we'd like to maybe capture even a little bit bigger share of that market.
And that's probably only going to get done if we probably can find a couple of additional lenders.
Because I think the talent and the people we've got down there are doing a great job, but they can only handle so much volume, too.
So, I think if we're going to really continue to take advantage of what <UNK> just said, the things that we bring to the table, we may need one or two more lenders in that market.
Yes, <UNK>, I think the ---+ you know, one of the things that the acquisition did I think with Canyon has really got us into the Springs market.
I mean, they were in the market, but much less so than they are right now, and that's a 600,000-population market, so I think a lot of opportunity there.
And that's ---+ a fair aspect of the incremental growth we're seeing is the products and the approach has opened up some new opportunities down there.
That's a great question (laughter).
That's kind of a double-edged sword, too, though.
You know, on the one hand, <UNK>, as you know, we've always kind of wanted to play around the edges of the bigger markets.
And you're absolutely right.
It is the biggest market.
I believe the Colorado Springs market is even bigger than Boise and Spokane, the other two larger markets that we operate within.
And we've had great success there, so it probably does beg the question you just asked, well, why not ---+ if you've had success, why not go after more of those.
There are a couple of other markets that we think are similar to a Colorado Springs, a Boise, and that that certainly we would be interested in.
And if those opportunities arise, I think you're going to see us ---+ and we have already attempted, in a couple of cases, to move into a few of those markets; just haven't been successful.
So, it's not for lack of trying, but just more of the fact that we do what we do and we are willing to pay what we're willing to pay.
And in some cases, it doesn't always work out totally in our favor.
But I think there are some other markets like that that if we do get those opportunities down the road, they could have a similar outcome as to what we're seeing currently in the Colorado Springs market.
You know, I don't think our philosophy or our strategy about going into metropolitan markets has changed much.
Over my 40-plus ---+ or close to 40 years, I have learned never say never because you'll always be proven to be a liar.
But, you know, it's still ---+ those metropolitan markets, we realize that maybe the model that we have, the things that we rely on to make this company a very good company, you need different attributes, and maybe this model doesn't play as well in metropolitan areas where scale, presence, things like that are more important, a wide breadth of product offerings and different types of financial services.
That's not us.
I mean, we know that.
We know who we are and we accept who we are, and we've been very good at what we are.
Going into the metropolitan areas, I don't know if that's necessarily in our best interest, but certainly playing around the edges.
Markets, <UNK>, the size of Colorado Springs, I don't think we're a bit afraid of moving into those markets because I think down the road they could be good for us.
Well, you know, 51% of our portfolio is centered in Montana, with the bulk of that at Glacier Bank is about $1.8 billion.
So, you know, that would be probably ---+ that portfolio is probably influenced more than any other in our organization.
Now there's always some drifts out.
There's some snowbirds that come out of Canada and would impact some of our other markets, but that would be the bulk of it.
It's about ---+ a little over $1 billion would be my best guess.
(multiple speakers).
That's just at Glacier; that's not Canadian influenced.
Right.
Tourism was an absolute blowout this year.
It was fantastic.
I think we're going to see where Glacier, Yellowstone, just about every national park in the western United States, Dan, is going to crank out all-time attendance figures.
I know that Glacier and Yellowstone are.
I mean, that was almost baked in at the end of September, and in fact in one case was already baked in.
So, it was a wonderful, wonderful tourist season, and I think that some of the numbers that we went through earlier with the growth in (multiple speakers) and some of that that we've seen through the third quarter, that's all part of what we saw from the tourists coming in.
There was just so many individuals, and I've heard countless stories from those people in that industry that it was just a really, really solid, great year.
And I think you could see that from here; you can see that into Yellowstone, Grand Teton.
You know, a lot of the other parks and tourist destinations that make up the six states that we operate within, I think they all experienced the same thing.
We were a little bit concerned last year that maybe Glacier, with the reduction in the Canadian dollar, maybe fewer Canadians coming down in the Glacier Park and into the Flathead Valley was going to really hurt tourism.
And I do believe that there was some of that and I do believe that they did come down in probably smaller numbers, although we saw a lot of Canadians still down here all summer long.
But they were more than, and that slowdown, if it really was much of a slowdown, was so far made up by people coming from other countries and other parts of the United States to these destinations.
And it really, really was a nice, nice benefit for us.
And not just Glacier, but a number of our banks throughout the Rockies.
No, I think we've been pretty consistent about saying that we know, Dan, who we are.
We know the type of deals that we are good at doing and the type of deals that we have historically done.
I think in the prior calls we have mentioned that, could we do a bigger deal.
Well, of course, we could.
And yet, not so sure that a lot of those deals necessarily exist in our part of the world.
But we certainly believe that there is still a lot of opportunities to do deals, but they probably are going to continue to be of the smaller variety, and as we have said countless times, if those are the types of deals that present themselves, and in our minds strategically, those are the deals that we have historically done and have built this <UNK> on, we're willing to continue to keep doing things the way we've always done it.
I don't believe that any of us on the management team, any of the bank presidents or the Board feel that there's an urgent need as we approach $10 billion to change strategies and to move in an entirely different direction.
The fact is we have got to go out there and do something transformational.
That's not us.
That's not probably the way we see this playing out.
And we're certainly not ---+ we're not expecting that that's the way it's going to be.
You know, Dan, I think ---+ <UNK> and I have talked a lot about that.
I think we are very much on the same page there and we have a very disciplined approach to acquisitions.
And we don't think it's in our best interest of the <UNK> to change that just to leap over an artificial number.
So, we'll continue to do what we do, and certainly if something big comes along, we'll look at it, but it's got to fit what our typical approach has been and our metrics, to make sense for us.
<UNK> and myself talked a lot about this.
You know, I'm going to stay on the Board, and you don't work in all these states and in this market for 40 years and not build up a lot of relationships with a lot of banks, a lot of ownerships, a lot of Board members.
And I've mentioned to <UNK>, I've mentioned to the Board, that I'm more than willing to do whatever I can on the M&A front.
Again, I know a lot of people.
I've been doing deals for 25 years now, and there's a lot of deals that we haven't done, but those deals haven't gotten done yet, either.
So those things are still out there potentially down the road, and these are many times deals that I've had lengthy and detailed conversations with these people before.
And so, I would hope that whatever value I can bring on the M&A front, I'm more than willing to do that.
And I would just work at the pleasure of the Board and of <UNK> and the rest of the management team to do whatever I can to do to help add some of these great franchises down the road to the GBCI family.
Well, very good.
And again, thank you all very much for the time that you've spent today.
I just have a few final thoughts that I wanted to go through with everyone on the phone.
You know, like we've said, after 20 years, this is my final earnings call, but before we close today, I wanted to thank a few groups.
First of all, I'd like to thank the investors.
And I know we have a number of investors on the line today.
I'd just like to thank you for the faith and support that you've given us in the past.
Some of you have been invested in this <UNK> for many, many years, and we can't thank you enough, and hope that we have provided you in some small way with the growth and the returns that you expected.
So to all of you investors out there, thank you very, very much.
Next, to the analysts, and you heard on the call today a number of them.
These are analysts that some of them have covered us for many years, some of them are newer to the <UNK>.
But I also want to extend this remark to all those analysts that covered us in the past, because over the last two decades or longer, we've had a number of other analysts that have taken the time and resources to cover Glacier Bancorp.
I'd like to thank all of you for the time and the energy that you've put in to getting to know our Bank, our markets, and our community bank approach to doing business.
You know, I've enjoyed the many road shows and conferences that we've had together, and through good times and those that were more challenging, I always thought that we were treated very fair by all of you.
When we messed up, you called us out on it.
And when things went well, you were also there to congratulate us, and that's all we could ever ask for.
And then, finally, to the 2,300 individuals who make up Glacier Bancorp, I've said it hundreds of times and I'll say it again.
You're simply the best.
You can't produce the type of results this <UNK> has produced the past 32 years without talented and committed people, and we certainly have that.
This point was never more evident, and we certainly ---+ this point was never more evident and we certainly saw this the past two years during this massive core consolidation project.
To achieve this level of performance, while planning and completing what turned out to be 15 ---+ if you add Treasure State and Canyon ---+ 15 data conversions, is absolutely remarkable.
And although we had some challenges along the way, we learned from them and we moved forward.
But what we really learned was the character and commitment we have from this terrific group of people.
So with that, I'd like to say goodbye, thank you for your support, have a wonderful weekend, and go Griz! Thank you all very much, and, again, have a terrific weekend.
Bye now.
| 2016_GBCI |
2016 | ALGT | ALGT
#I think the productivity gains will come from simplifying the fleet allocation.
So, once we go back to a single fleet type, we'll dramatically improve.
Right now it's taking about four months to get a pilot through new hire.
So, we should be able to compress that.
<UNK> alluded to Helene's question about our capabilities to train.
We're opening an East Coast training center.
It'll be similar in size and footprint of what we have out here in Las Vegas.
If you look at a just the single fleet type, trying to expand the funnel, push pilots through, get AQP, which allows us to utilize TDs as opposed to full-motion sims, I think that's where you're going to start to see the productivity come from.
Joe, it's <UNK>.
Understand, though, there's a lot of training to do as we move from 50 MD-80s to a like kind Airbus, moving those guys over.
And it will take us, as <UNK> said, to the end of the decade to do it.
The activities going to be more robust than it has been historically.
So, we'll have to pay for that transition but it's certainly worth the investment.
We're still working through it.
Nothing really new to report.
If you look at the maintenance expenses related to the Airbus fleets, are all going to be called the back half of the year before you're going to see any impact in the P&L.
But we stand by the fact that there are acceptable methods similar to our peers out there and it's just a process we're working through.
As we get some more clarity here, within this quarter, you'll likely see something coming out.
We've already committed to retiring a couple 757s, so we could probably safely depend on about six to eight aircraft net growth for full-year 2017 based on where we are today.
We'd like that to be happening at the same time as we are transitioning over.
So, that would require a couple more transactions out there that we're working on today.
It's in the cards.
We're studying it.
I think the model that we have in BWI where we are flying noncompetitive markets with the theory that would include both originating traffic out, in the case of BWI, the Baltimore-Washington area, and also providing leisure opportunities for inbound traffic.
That's basically what we're testing that would also be applicable to Newark.
I think, Importantly, we're not really interested in flying New York area to Florida.
But, yes, I think you're on the right track there.
It is experimental.
Those are a very small part of what we do.
And you're right, those two markets you highlighted.
There's a couple other that are in that category that don't really fit into our traditional model of highly directional service to leisure destinations.
And in some cases it does allow routings and utilization.
But we've been really successful in Reno-Vegas for a long time now.
Not really successful, but we've been successful.
And, by the way, Destin and Lauderdale is selling really well.
There doesn't exist any service on it today.
Providing service between mid-sized cities is something we've talked about for a long time.
If there's enough PDUs on a whole week we feel like we can aggregate them on twice-weekly service at low fares and stimulate and make that a business.
That kind of service isn't too different from some of our other expectation in places like Austin-Cincy, or Austin-Memphis.
We are authorized at $100 million back in 4Q last year.
We exhausted a little bit of that in the fourth quarter and the rest of it in the first quarter.
So, this would be a net new $100 million as we move forward from this point.
One of the main challenges we're having with that airplane is lack of OEM support.
So, Boeing and also, importantly, Pratt & Whitney, but some smaller component manufacturers like wing heater blankets, or some components in the EE bay, all of which are difficult for us to find support there.
We depend on the OEM, in many cases, as the sole provider of parts.
So, a deliberate plan to retire the airplane will allow us to support ourselves, in some ways, with parts off retired aircraft.
So I think, give or take a year from when Delta moves out of the fleet, we'd be comfortable with.
But we have to be marching along that path now because we don't want to shrink.
So, we're going to be growing the airline.
We want to stay with our strategy of buying used aircraft in the spot market.
So, that's going to be inherently a little bit unpredictable.
So, I think it's just prudent for us, as we sit here today, in spite of our growth opportunities and margins, to go ahead and continue to push out MD-80s in a very planned and deliberate method.
It's not a great thing.
And in spite of our success we're always going to have a good deal of paranoia as a management team, as you'd expect.
But I want to highlight the structural advantages that our business has over a Spirit or Frontier, namely we have a closed distribution system which allows us to have a direct relationship with our customers.
We have ancillary revenues that are trending in the right way, as opposed to what Spirit is experiencing today, which is largely due to our launch of a loyalty program which will happen in the third quarter of this year.
And, most importantly, we can schedule to peaks, without affecting our unit costs.
In the case of Spirit and Frontier, they depend on high utilization to achieve their unit cost objectives and that requires them to put a lot of flying into unproductive times of day and days of week and seasons.
So I think that structural advantage remains.
And so long as we maintain our really low fixed cost base, we're going to have that advantage and we're going to be successful.
Another point on that is that I'm not so concerned about encroachment into our existing market because of those strengths that I listed there already.
Really, the concern is about overlapping growth opportunities between us and them.
It's why we've been exploring growth in new ways, not the least of which has been the expansion in some of our smaller destination markets.
Which isn't something I would have predicted a year ago, like growth into Destin and Savannah, and making destinations out of New Orleans and Austin and Jacksonville; all of which have been really successful.
So, we continue to find ways to grow in markets that just aren't that inviting to those two guys.
Cincinnati to Vegas and Orlando, definitely that's on their radar, but I don't think Cincinnati to Destin is anything they would intend to do any time soon.
As far as risks go, as a management team we're much more focused on internal risks today, like operational excellence, systems and process optimization, labor relations, and cost discipline.
And I think risks that we get asked about often but that we don't worry much about, really, are fuel price, availability of aircraft for growth, and encroachment into our existing markets.
There's a lot there.
First of all, we're revising up capacity growth, which is going to have a negative influence on unit revenue.
That's absolutely logical and earnings accretive.
We have a lot of the same characteristics causing revenue weakness that we've talked about in past quarters, like weakness in [middle] economies, which make up about 5% of our ASMs.
Those economies still remain challenged.
We have had some challenges with markets that depend on Canadian travelers crossing the border and Mexican travelers crossing the border.
Markets with those characteristics are struggling because of the currency issues.
And then for us, we're flying more often when last year at the same time we would have sat aircraft.
And that's just because we're adjusting to availability of pilots and availability to make money at today's low fuel prices.
Most of the revenue weakness we have is generated by our own actions.
As we've talked about in the past, we still have some catchment area issues.
Philadelphia has really low fares right now.
We have markets like <UNK>town, for example, which is under a little bit of pressure to Florida because it's drive distance from really low fare environment in Philadelphia.
But that's not getting worse.
So I think that's a constant.
And then growth, particularly ULCC growth into Vegas and Orlando, and increasingly so into LA, puts pressure.
That's mainly hub to hub fare pressure.
But, for example, on the West Coast, if we see severe discounting to, I don't know, Salt Lake City and Seattle from Vegas, that's going to put pressure on flow itineraries coming out of Montana that compete to fill some of those seats that are in a little bit of distress.
But we remain in our own little world over here finding new market opportunities, for the most part, that are not affected by the competitive environment.
Our response to competition is what it's always been, that there's a capacity change that we can do to maintain our success.
So, I'm very positive on where we are today.
I think it took us a little while to adjust for the environment, certainly over the last several quarters when we were revising done outside of our initial expectations for unit revenue.
But we're on the right path now, and certainly through the end of this year I'd expect us to move closer and closer to flat year-over-year unit revenues.
Don't hold me to that, but I think we'd be certainly in the low single-digit range by then.
That doesn't include anything that can't be predicted, like changes to the external environment.
But based on the schedule that we have loaded today, which slows growth a bit and optimizes around our experience in our new markets, then, yes, I would expect us to be able to produce low single-digit TRASM declines by the fourth quarter.
<UNK>, I think it is.
I think it's a long way off for us, though.
It's probably way down the list of other ancillary initiatives that we would like to do in the short term.
And a lot of our resources today are focused on the operations.
So, I think experimenting with rebundling ancillary products is a long way off for us.
But, yes, but I think there's opportunity there.
I think it's relatively small though.
Steve, it's <UNK>.
That's an easy one.
The end of Hawaii was dictated to us by retirements of the 757, which is the only aircraft that we have in its current configuration that can serve the islands.
So, the original plan was to end Hawaiian service with the end of our Hawaiian-based aircraft on Labor Day of this year.
Hawaii has since overperformed our expectations and, therefore, we've decided to continue to run Hawaii out of Las Vegas, with the Las Vegas-based airplane, on Wednesdays and Saturdays.
It's just the best thing we can do with that airplane on Wednesdays and Saturdays based on current fuel prices and the yield environment in Hawaii.
Hawaii is really one of the only US domestic markets that has yields that are holding up really well in a low fuel environment.
So, we intend to be there so long as we keep the airplanes around.
But the fleet plan dictates us leaving Hawaii, and that hasn't changed.
And the reason we're getting out of the airplane where we are, as you said, is because of the really significant maintenance that we would have to invest in that airplane over the next 18 months.
First on aircraft type, we're really not constrained by the MD-80 because we're committed, for the most part, to schedule aircraft in such a way that they come home to base every night.
And that's on about an eight hour and 15 minute block hour round trip based on the current 117 rules.
And that prevents scheduling transcontinental flights and things like that.
We'll revisit that from time to time but right now that's plenty of opportunities.
On the growth question, I would basically just look at Cincinnati as an example of where we can take growth over the next several years.
Today we have 14 destination markets served out of Cincinnati.
We continue to expand that with our relationship with Apple and growth into other markets.
I think internationally we could certainly look at that, as well.
So, if you take Cincinnati network and put that into a bunch of other mid-sized cities into which we're building a presence today, that's the growth thesis for Allegiant for the next several years.
We continue to have a mix of markets that are new to our network that include some small cities and some mid-sized cities and some rather large cities, as well.
I don't look at it as we've tapped out all the small city opportunities.
We continue to find new ones as they present themselves to us, either because other people leave them, like what happened in Flint and Dayton, or because we finally get the right contract from the airport, or because there's a structural change in the airport that allows us to serve it today where it wasn't possible operationally in the past.
That would be Santa Rosa.
So, you're going to continue to see a mix from us.
I wouldn't consider the small city opportunities to be exhausted.
I think we're going to continue to find other small cities.
We're targeting 10% growth rate annually.
And as the airline gets bigger, a twice-a-week market is just difficult to find enough twice-a-week markets that can provide that 10% growth rate.
So, inevitably we will have some larger markets in our network over time.
There's certainly a price point where we would consider it but Airbus is nowhere near that price today.
They don't have any problems selling airplanes today.
I think that's probably the scenario we need to be in for us to push forward a new aircraft deal.
Utilization constraints come in two forms.
One is the revenue opportunities of off fleet flying.
And then the second one is the operational reliability of the airplane type.
On that last point, with our used Airbus and getting them to where we think they should be, I think that there's really very little constraint on where we can take utilization.
Certainly with some of the newer equipment that we're getting it, I think we can fly 9 to 10 hours a day, if necessary.
And we do that in our peak periods today.
On the revenue environment, I think we're always going to be ---+ not always but for the foreseeable future ---+ we're going to be an airline that focuses on volatile demand patterns associated with leisure travel, and, therefore, there's no opportunity to add a third frequency into some of our markets.
So, our Tuesdays, Wednesdays, and Saturdays will be always be lower utilization than what we have today.
That puts a more practical cap on fleet utilization.
I'd put long-term fleet utilization goals, with a single fleet type, at more like seven hours a day.
David, it's <UNK>.
Even if we wanted to push up the utilization, that's such a structural change because you have to hire pilots, flight attendants, that now become fixed costs.
And so once you commit to that, you are in for a penny, in for a pound, at that point.
You've made a very fundamental change to the way our model works.
Flying [200] hours in September is one thing but flying them consistently more would be a big structural change.
No.
The maintenance trend is the one that's most volatile.
Other the things that we've already guided on the full-year basis being D&A is relatively flat.
Sales and marketing continues to be a relatively good guy as it relates to the surcharge on a full-year basis.
Stations, there's some pressure but we're working through that.
There's some new agreements that were in place but we're managing more aggressively, managing our providers.
But short of maintenance you shouldn't see any other line item with that severe volatility.
No.
Flat to up for a full year we think is still a decent range, despite the incremental capacity that you put in the schedule.
A lot of carriers are leaving the charter space and we think, then, that there's an opportunity for us to come in and backfill some of those opportunities.
And it also gives us a good way to launch a new base in the mid-continent where we can combine scheduled service usage on the airplane with charter commitments and get really good utilization out of the airplane, allowing us to test markets essentially risk-free.
So, we're working with Apple and some other charters to try to expand those relationships, and hopefully you'll see more on that.
But the expense in fixed fee flying has to do with Apple replacing our prior Peppermill commitment, which Apple is more productive.
And then also, particularly in the first quarter, we just had a lot of opportunities with March Madness that we didn't predict having, as pilots matriculated through training and were available so that we could take those ad hoc opportunities.
We continued to see a lot of traction in the ad hoc business into the second quarter, and we're investing a lot in that direction.
We think it's a good opportunity for us.
Fixed fee will always be a pretty small part of what we do but it's a great way to use surplus aircraft and crews, and we intend to do it for a long time.
We're not trying to be coy there.
We really don't know.
It depends on how quickly we're able to get adoption from our customers.
What we know is that it will launch in the third quarter.
The technology is on track and the marketing plan is in place.
We're working with our flight attendants to help market the card on our aircraft.
But there's still going to be a little bit of uncertainty about when the revenue shows up.
And we won't know that until it's out there and we're selling it.
Let me comment on the structure of the charter contracts and then I'll turn it over to <UNK>.
Just like all our charter agreements, we don't take risk on the fuel price.
So, that will cause some reporting challenges because there's an ex-post settlement on the actual fuel price paid.
But, as you point out, it's very important to us because of that risk transfer onto whoever's chartering the airplane.
So, you're right there.
On the ASMs per gallon, first quarter you saw a 3% increase year over year.
I think as you move through the year, it's likely you'll see a 2% to 3% increase year over year for Q2, Q3, and Q4.
2017 is a little more convoluted with the retirement of the 75 fleet and getting out of Hawaii, so it's going to negatively impact ASM per gallon metrics, not to mention some Airbus units that we'd like to put in if there available.
Thank you all very much.
Appreciate your time.
If you have any follow-up calls, please talk to <UNK>.
We'll talk to you in 90 days.
Thank you again.
| 2016_ALGT |
2015 | CRI | CRI
#<UNK>, two questions.
Q4, our AUR was up low single digits.
In terms of Canada, Target Canada, we had worked hard on that initiative to support them the last two years.
We did about $10 million in business up there last year.
Had good sellthroughs and actually we were a bright spot in their business.
So we felt good about that.
But we are going to move forward.
We are expecting that demand over time will shift into other channels.
Who knows where exactly, but our best guess would be Walmart would be an opportunity.
We are talking to them about that.
And hopefully in our own stores and direct-to-consumer businesses up there.
For Walmart, we launched that in 2014.
Our first full assortments hit those stores for this fall.
So that's going to be meaningful business for us up there in Canada and we do plan to expand that as much as we possibly can and believe that some of that Target business will certainly go in that direction.
It's modest.
The information we have would suggest there's been a slight increase in the number of births, but I'd say it's comparable year-over-year.
Thank you.
Sure.
So on the first, on the pricing, thankfully, we are entering a more favorable cost environment.
Cotton prices are lower.
Fuel prices are lower.
Capacity in Asia is greater because global demand generally for apparel is not robust.
So we don't anticipate that there is going to be much need for raising prices over time.
The thing we continue to keep an eye on is rising labor costs in Asia.
And so that won't be an issue unique to us, so if we start to see some pressure on cost, we will be thoughtful in terms of the price increase.
Our focus, as you know, is building our operating margin every year.
So we have no interest in operating a lower margin business.
So if costs move up, we will do our best to cover those costs with price adjustments, but thankfully near term we don't anticipate a need to have to do that.
And then with respect to traffic to outlet, I think generally you have to assume that traffic is not going to be up.
I'm looking at performance in December.
Thankfully traffic to our stores was up in December.
It was up in January, but what we saw is traffic was down some portion of 4% for both brands last year.
We did see a pickup in traffic to the outlets in December with lower gas prices.
We saw that for OshKosh, and OshKosh has a heavier mix of outlet stores relative to brand stores.
So we saw good traffic for OshKosh both in December and January.
But consumers are making fewer trips to stores, they are more productive trips, they are shopping online, browsing at home online and then coming into the stores and it's a much more focused visit.
So we are anticipating that traffic will still be a bit under pressure and that's why we are doing some better things with respect to marketing in the in-store experience.
Thanks very much.
Thanks, everybody, for joining us on the call this morning.
We appreciate your interest in our business.
We look forward to updating you again in April.
Goodbye.
| 2015_CRI |
2017 | ABT | ABT
#Yes, thanks for the question.
Yes, I will tell you what, Absorb has become very much a niche product that's for sure.
And I would have wished for it to be a lot bigger than that.
But XIENCE remains best-in-class stent, that is still true.
Do we need a bioabsorbable coated stent.
I'll tell you I think the bigger issue is I think we need an even more deliverable stent.
The issue right now with physicians is deliverability and I think that's been one of the hallmarks of Boston's SYNERGY stent is the deliverability.
So I think the issue is more the deliverability than the coating.
And we will launch early next year Sierra, our next generation of XIENCE which will address that.
So that's what I think is our single most important focus right now.
Do I think long-term there's still improvements and performance improvements and so forth to make in stents, whether it's coating or material or deliverability, etc.
.
The warning letter doesn't have to be lifted; the FDA has the ability, if it chooses to, to license it if they are satisfied with remediation actions and so forth.
They always have that ability.
So it's not dependent on particular formal lifting of warning letter.
At the same time the FDA always has the right to decide what it wants to do.
And I'd say with regard to expectations at this point, we've said second half or year-end and I think that's probably ---+ for right now, at least as modeling and planning purposes go, probably a fine assumption.
I can't be more specific than that because I can't read their minds and don't want to forecast them and put them in a tough spot.
So I would say as far as modeling goes, model second half somewhere and year-end, but I don't know that I can give you anything more precise than that.
Yes.
Well, I think that depends on a whole lot of things including the businesses.
I think it depends on what's happening with global markets, etc.
That's always our goal.
We are always ---+ our goal ---+ we always start every year with the notion that we are going to grow profits double-digits.
And to do that you've got to a fundamental revenue growth, as you know.
And as we look at the mix of the business I think the observation you make is correct.
I'd love it if everything grew like Neuromod but it doesn't.
And there's some of these businesses that I'd say are much more mature, like CRM and even the stent business, much more mature.
The good news about those businesses is they are extremely profitable and they generate high cash flow.
So, in the mix of our portfolio that's positive, that's a good thing.
On the other hand, if you are maintaining a growth profile you've got a have a lean toward growth in the mix.
And we've got a pretty good lean toward growth.
I'd say of late the one that's got my attention from a longer-term perspective is nutrition, particularly internationally, and what I've seen there as a slowing.
Now I think that business longer-term or at least on a stable basis for now looks like it's going to be a low- to mid-single-digit business, call that 3% to 5%, something like that, 3% to 5%.
But that's a mix.
There are some countries that are 1% or 2%.
There are some countries in geographies that are double-digits.
The global volume growth in that business for infant formula, for example, tends to be 3% to 3.5%.
And the biggest change in the growth has been price.
And not that the price has come down, it just isn't going to go up much.
And I think that that's perhaps indicative of some maturing in some of those markets.
We are looking at that pretty closely right now, so as I forecast it interestingly enough it's also very profitable and a high cash generator.
And as I've talked about Nutrition in the past, in the mix of Abbott Laboratories, it's been one of the biggest cash generators in the Company for a long time.
I used to refer to it as the bank as it funded a lot of M&A.
So it's a very healthy business that way.
I think our questions right now are assessing the shift of market tone.
China for example is actually much more stable than the last 12 to 18 months.
I like what I'm seeing in China right now.
We still have the government regulation kicking in and it's impacted competitors.
There's a lot of reaction to the shrinkage of the number of SKUs in the market and so forth, and we have talked about that.
But as far as what we are seeing in 2017 here, we are performing according to our expectations.
I think the comps obviously get better here in the second half.
We will see.
So as I look forward, yes, it is our goal to be a healthy grower, to be able to generate that double-digit bottom-line growth.
I think that we've got to continually look at the mix, as you suggest, how many growers we've got.
As you observe, the growth rate of something like Neuromod will come down simply because it gets bigger in the base.
But it's actual raw dollar growth I don't see changing for quite a while.
So I think that's a plus and I think we are seeing improved growth in other areas.
So, I know there's a lot of ins and outs there, but at the end of the day we are always looking to build our Company, grow the Company, expand the Company, gain market share for the Company.
And the acquisitions of St.
Jude and Alere were part of building that core leadership base in the businesses that we are in to continue to drive that growth and the goal hasn't changed.
We'll take one more question, operator.
I think, to your last question, you will see sequential improvement from Q3 to Q4.
There are a lot of items that <UNK> talked about in the acceleration including new products and just the momentum of our businesses.
So I think that's a fair assessment.
With respect to your question on gross margin.
Our operational improvements and gross margin underlying continue to be there that we've talked about before.
You do get a little noise around the mix of FX and what that does and that's just simply math there.
Nothing has changed about our aspirations to continue to expand our gross margins on an underlying basis probably 50 to 75 basis points on that, <UNK>.
Okay, thanks.
No, I will tell you in the grand scheme of things with Diabetes Care, I don't think we need to have a pump.
But I think there's a strategic ---+ what would I call it ---+ change happening or that will happen over the next couple of years in the market, particularly for type 1 diabetics and for multiple daily injectors, which could be type 2s that are insulin-dependent.
What's interesting about Bigfoot is they are taking a different approach to the ease and the integration of what those multiple daily injectors have as solutions to manage their disease separate from pumping.
And it's a fairly clever service and approach that I think will create not just an alternative that makes the management of the disease or management of someone's insulin easier, but I think the value proposition of it is going to be pretty compelling.
And I think that will change the competitive dynamics in that realm that is pumping.
The penetration of pumps or pumping relative to the market size of multiple daily injectors is really quite small.
You'd say, wow, there's a lot of potential for further penetration.
The question is the value proposition.
A lot of times the reason it hasn't penetrated further is it might be too costly or viewed that way.
And I think what Bigfoot is doing, if I could comment on it from a distance, because I've never had a conversation with them myself, is they've come up with a pretty unique value proposition that not only is good from the standpoint of the patient or even the payer, but also just in general in the cost of managing the disease for a diabetic.
I think it's a pretty interesting use of technology to make it simpler, easier and affordable.
Now I probably sound like a brochure for them.
I just think their approach is interesting.
And in our case the technology that is Libre is a component of that and a fairly compelling piece of it that expands the use of Libre beyond what Libre can even do today.
And then beyond that there's other expansion and improvements to Libre that aren't just in that segment.
But I think the sensor technology and the nature of the way Libre works has a lot of applications beyond how it's used today.
And the Bigfoot approach is just one of those and I think it's a pretty unique, compelling idea that puts Libre as a part of the competition in that pumping or multiple daily injector world ---+ that it's a great opportunity for us and I think it further enhances the management of the disease for patients.
Thank you, operator, and thank you for all of your questions.
And that concludes Abbott's conference call.
A replay of this call will be available after 11 AM Central Time today on Abbott's Investor Relations website at AbbottIntestor.com.
And after 11 AM Central Time via telephone at 404-537-3406, pass code 41003454.
The audio replay will be available until 4 PM Central Time on August 2.
Thank you for joining us today.
| 2017_ABT |
2015 | LYV | LYV
#You are good, <UNK>.
We will stick to our knitting right now.
We support Jay and all of our artists and any of their endeavors and we will do anything we can to help Jay succeed and those artists, but we think we have a great runway ahead of us, just doing exactly what our core business is.
On a global basis, we have lots of opportunities to scale and continue to grow our concert business, new ticket markets, new ticket products, and then later on, the advertising on top of that.
We think that our best strategy is to use our resources to keep right down the fairway, continue to consolidate and organically grow our core business and we'll leave the streaming hardware to others right now and we'll worry about selling concert tickets.
One of the advantages of Ticketmaster and our new platform we've been working on ---+ obviously, Ticketmaster Plus was the first new product we were able to introduce having a more robust platform.
But we do also look at a lot of these opportunities with Apple and others that we now have a platform with an API and an ability to distribute a buy button, so we look at some of these streaming sites just as great distribution outlets that we currently will either have an affiliate or a buy button strategy to increase our reach and increase our conversion.
But not a core business that we would be looking to tackle at this point.
<UNK>, your first question on Artist Nation SG&A, that's really driven by, we've talked about the fact that we've been adding some key managers to the business, and so it's just timing of those costs coming in versus when the artist ---+ the activity is coming in from the artist in terms of commission.
There is no one way to answer here.
Festivals range, there's small city ones up to big ones.
They may look easy to replicate and grow, but it's not that simple.
We look at festivals at the end of the day, there are hundreds of little festivals happening at all times that are generally a labor of love, not generally much of a real business.
Our business, at the end of the day, on a global basis is we like those festivals with scale, 30,000 plus, obviously, because then they become truly advertising units and also most of where the talent leverage we have is on that end.
So, if anything, lots of people out there as festival producers, very few make it to the top of the Bonnaroo and the C3, Coachella and Insomniac level.
We think those are the ones that we want to be participating in and provide us the best return on our capital, and we generally don't look to launch and take a lot of risk every year on launching a lot of them.
We organically launch three or four every year in a very structured and risk adverse manner and seeing if we can self brew some of them.
But at this point, it's an expensive game to scale from scratch, and given we already own 60 for many years in our European platform, adding on a few quality high-profile ones in our US platform was just a continuation of a long strategy we started in Europe.
I would not want to be sitting here today trying to figure out how to buy and/or build 60 festivals with over 5 million customers.
That would be a very expensive proposition.
We've built a fairly unique global business at this point.
We tend not to chase deals.
We tend, whether it's a management company, on the case of Super Fly, and their comment this week that they mentioned this week to the press, we tend to believe we are a place where an entrepreneur who maybe has already had some success, when looking at the scale that we can bring to their resources, can take Bonnaroo, C3, or Insomniac to new levels.
We think we're in a unique class in that point.
So whether it was Insomniac or C3 or Bonnaroo, I would say, I don't think in many cases there was much of a bidding war.
Others were interested, but those founders believed that we probably could provide them the best opportunity to grow their businesses and using our assets.
| 2015_LYV |
2016 | FRED | FRED
#Thanks, Craig.
I believe that the front store and pharmacy teams are poised to accelerate our turnaround efforts and drive increased sales, profit, and shareholder value.
Our go-forward mantra is to optimize, focus, and grow with discipline.
I look forward to seeing you later this year at our Analyst Day as we lay out our long-term roadmap.
Thank you for your time today.
And now I will turn the call back to the operator for Q&A.
<UNK>, it's Rick.
We do see a little difference in the cadence.
We did mention that we thought the third quarter would be a little worse than the fourth quarter.
However, I think you are aware of the fact that the environment has changed for us.
There is a lot more competition in our category.
And even though it looks like the comps may be all right ---+ certainly better than they have been on the incoming trend ---+ I think, with the investment in price, we don't expect any big improvement in the bottom line.
Yes; and I would also add, <UNK>, as it relates to the back half, our non-consumables business is actually doing fairly well.
We are seeing low-single-digit-comps in our non-consumables business.
And so coming into the back half with the heavy seasonal period ---+ holiday, Halloween ---+ we are encouraged by the back half.
Thank you, <UNK>.
<UNK>, it's Rick.
As we mentioned, in the quarter, the benefit from the front end was basically offset by the decreases in the pharmacy.
And I think that, over time, we are seeing severe reimbursement pressure in Medicaid, Medicare Part D, including those clawbacks.
That is not going to change overnight.
I think, over time, we will develop some better strategies to hold our ground.
And I think that as specialty begins to grow again, we should get some relief there just on the margin dollars.
But, in the front end ---+ and I think Mike will jump in here in a second ---+ we would expect that we have ways to go there, and we expect to get further benefits on the cost side of goods.
And then, again, I am probably jumping on Mike here, but he has some pricing models that are rolling out that should help us also on the margin.
Yes.
So I guess a couple of things, <UNK>.
As it relates to the front store, you heard Craig talk about a lot of the initiatives, whether it is Hallmark, McLane; we talked about promotional activity.
Our e-auctions will continue; private brand penetration improvements; import direct overseas to manufacturers will continue.
So we will continue to see expansion in front store margin ---+ unfortunately, as Rick just mentioned, offset by the continued pressures in pharmacy.
Sure, <UNK>.
It is Mike.
And Craig and Mary Lou can jump in, as well.
So it is not our strategy.
We have talked on previous calls about some of those categories that we have struggled in, we have pulled back promotionally.
We are excited about the upcoming activity for those ---+ all of those categories that we have talked about will be reset in the third quarter.
And if you remember what I said on a couple of calls ago, <UNK>, we actually had to stop our category resets because of our JDA implementation.
So we have had no planogram activity in our stores until, I believe it was, late July ---+ mid to late July.
So we are just now ramping up on food, which is a 97-foot reset in our stores.
Candy just got completed.
We exist in our markets for value-based general merchandise and consumables.
I will tell you that our pricing strategy, we are going to stick to it.
We are a value retailer.
We will invest where we need to invest.
And we will make up for it in other areas, like some of our margin expansion initiatives and some of the second-tier and tertiary type items, where we might be able to raise a little bit.
So we will continue to invest.
You know, the market's heating up.
Everyone is reading the same information I am reading about 450 items being invested in by one retailer and Walmart.
And we are on top of that.
We started this price strategy ---+ I don't know, 12 to 14 months ago.
We watch our pricing quarterly through comp shops, which is fairly new for Fred's, and we make adjustments where necessary.
And we have made adjustments this year.
We will continue to make adjustments where we need to to remain competitive and make sure that we are there for our consumers.
We know what they want; we know what they need.
And we will be there for them.
Sure.
It is a great question, we spent a lot of time; and, I think, as proven by our recent hire with Kris McDonald, we have taken ---+ we are taking a different look at real estate.
Here is what I know, <UNK>: we need to win in the markets where we can win.
And we will focus on core markets where we will defend our turf.
We will continue to grow in those markets and win in those markets.
We will, in fact, ---+ and we talked about ---+ I mentioned growing with discipline.
We have got a lot of stores ---+ we have got several hundred stores in this Company that are extremely profitable.
Unfortunately, we have got some stores that are holding us back.
We will review those stores.
We will understand what markets those stores are in, and how to address those stores.
And we will talk more about that at our Analyst Day later this year.
But we talk about optimizing, then we are also are talking about growing with discipline.
So I think you can sort of see between that that we have got some stores that are underperforming we need to address.
And, in the same respect, we have got some markets we know ---+ we know the characteristics of a successful store.
And so we know, going forward, where to build stores and where to open stores that will give us the highest likelihood for success.
And that is what we will do.
Hi, <UNK>.
It's Mike.
A couple of things.
One is, in addition to the pricing environment, you need to understand our consumers going through some challenges as well.
Everybody has mentioned it; we are feeling it.
There is price deflation on ---+ for us, specifically, milk and eggs is a big impact on our business.
So that is one.
Two is the SNAP benefit.
When a customer loses, I don't know, $100-and-some a month in SNAP benefits, that is our consumer.
That is going to have an impact on us.
And, as you know, the competitive environment ---+ I think, when I look back at it, when I saw the biggest change, it was around the end of June, July 4 time frame, moving into July.
It certainly has kept pace in August, and we anticipate that is going to happen throughout the end of the year.
And that is what we are gearing up for and hunkering down for.
And, like I said, the most important thing to remember here is we will compete in our markets.
We will be priced appropriately for our consumers, and continue to promote and compete with the best of them.
This is not new.
I have been through this throughout my career.
It is cyclical.
And, like I said, we are here to defend our turf in those markets where we can win.
It is, <UNK>.
Again, I hate to keep sounding repetitive.
It is those four or five categories, especially in the front store, that is the anchor.
And, in August, in non-consumables, I think we had a low- to mid-single-digit comp in non-consumables.
So that is not our challenge right now.
We need to exploit that and have that grow even faster.
But we need to fix these businesses.
And that is why we hired Kimberley Felice-Dooley with a lot of experience.
We have got Mary Lou, who has run some of these businesses at CVS as well.
And, quite frankly, we have got to get back into the planograms and execution at store level and promoting where appropriate.
And that is what is in front of us.
Yes, <UNK>, we do.
We do think that is the right prototype.
Of course, we continue to refine.
Prototypes, you always refine prototypes; they are never complete.
We keep learning.
Right now, we really only look at the stores that we completed in February, March, and April.
The rest of them are still fairly new.
You have got to give the stores a few months to come out of the remodel and the assortment.
And remember what I said on the previous calls, and that is that while we have gone in and remodeled these stores, and we have changed the adjacencies and the layout and the checkout and all of those physical plant structures, we are just now in the process of going back and adding the assortment.
And we are pretty excited about that.
That is where we are seeing the biggest win.
I know I have said this on previous calls, and I know it is only a couple of stores, but in the couple of stores where we have our assortment, the results are pretty spectacular.
Unfortunately, we made a decision not to add that assortment to put the inventory in our DC ---+ in both DCs ---+ for 25, 30, 40, 50 stores, until we had critical mass.
And I would tell you today, that was a mistake.
If we could roll back time, we would go back and move that assortment in when we started.
Thank you, <UNK>.
I appreciate the kind words, and I will be around.
If you have any questions, let me know.
But I greatly appreciate all the support that I have received from you.
Yes.
Stores with pharmacies tend to perform better than stores without pharmacies because of the relational purchases with scripts in healthcare, and et cetera.
And just traffic; when you have more script traffic, you get more traffic in the front store.
And I would tell ---+ and I think we've mentioned this on previous calls, as well ---+ our go-forward strategy is to do everything we can to provide pharmacy service in stores that currently don't have pharmacies that, again, as we define these core markets, how do we go back and backfill or provide pharmacy service in these stores.
And I think, <UNK>, I would also add that we have specifically added resources in this area to help support Tim's efforts.
And, in addition, the sales reps we have added, the four sales reps, are now starting to ramp up as well.
So that takes a little bit of time to take hold.
You have known me for a long time, <UNK>; and, yes, I am.
Sure.
<UNK>, let me start with McLane, and others can jump in.
So the businesses that we will be moving to McLane will specifically be refrigerated and frozen, tobacco, candy; and then phase 2 of this will be cookies and crackers, and potentially some snacks.
The reason we are moving to McLane is ---+ there is several factors.
One is assortment.
We will improve our assortment by moving to McLane.
We will have a more consistent assortment, and the assortment that our customers are looking for, versus the local wholesalers that don't always have the right items for our consumers.
It is more based on what is right for their financial model versus what is right for the consumer.
Second, service: we will now get weekly service in every one of our stores.
And this is something I have experienced in the past at my previous retailer that I was ---+ where I was at.
You leverage your higher-volume stores to support your lower-volume stores, which creates the weekly service availability that some of our stores are not getting today.
And so that helps.
The third is ---+ so service, assortment ---+ oh, and freshness.
We will have more current ---+ I think you have heard me talk about this in the past.
We have had trouble shipping candy through our distribution centers during the summertime.
McLane has refrigerated and frozen trucks.
So we will now be more consistent with deliveries through the warm months ---+ and I don't have to remind you, we are in the South.
Second is, from an inventory perspective and cash flow perspective, this is also a win for Fred's.
We will be moving these categories out of our DCs ---+ candy, cookies, crackers, snacks ---+ out of our DCs.
We will no longer warehouse inventory for that.
So by default, we will see a reduced inventory and improved cash flow on that front.
Yes.
I mean, clearly, it is margin accretive, which is ---+ in our pro forma.
It is margin accretive, but we are not going to break that out separately.
Yes.
I will start.
Look, our core customer continues to be challenged.
Yes, there is puts and takes.
And there is fuel, and then they take money away from her in SNAP and then, yes, but there is food deflation.
Look, she is challenged.
And it is our responsibility, as her go-to store in these small real markets where we operate, to continue to provide value for her.
And we take that very seriously, here at Fred's, to be able to reduce costs.
It is exactly why we go direct to manufacturer for imports.
It is exactly why we moved to e-auctions and reduced our cost of goods.
But she continues to be challenged.
Now, the other piece of this that I would bring up is that the piece of this model that keeps me getting up every morning and excites me is the fact that we have got the healthcare component in these markets, and for our consumer.
And we have got that, and others in our markets don't.
But she is challenged.
Price competition, sure; I mean, look, I don't think we necessarily expected the price competition to be as hot and heavy as it is.
But, like I mentioned earlier, we are going to continue to hunker down and make sure that we are right.
And we are going to stay on our strategy and continue to provide value.
The one thing that we can't let happen is to lose our value perception with our consumer.
(multiple speakers).
Yes, John is probably closer to that.
I know we had to stores close completely.
And, at one point, we had how many stores impacted.
We had five that were impacted.
We had five that were impacted; two stores that are completely closed.
So, yes, we had an impact in those markets.
Yes.
So I think as COO, the initiatives that were getting executed were actually fairly tactical on the front store side.
This was about ---+ these were margin initiatives.
These were lowering our cost of goods, and e-auctions, and importing and all of those.
As CEO, the initiatives I've mentioned on the call are actually broader and more strategic in nature, where you start looking at, again, optimizing fleet and defining our core markets, the markets where we can win; network optimization in our supply chain.
So much broader, more strategic initiatives to sort of help us through this turnaround and help us generate more profit.
Yes.
Without a question.
Folks, thanks for joining us today.
We look forward to speaking to you again soon.
And, as Mike stated earlier, we also look forward to seeing you later this year at our Analyst Day, as we lay out our long-term roadmap.
Have a great day.
| 2016_FRED |
2016 | ANIK | ANIK
#Okay, I will address the CINGAL trial and those issues and <UNK> will come back to the margins.
And I'm fighting a bit of a cold, so hopefully I don't have a blip in the question like I did in the prepared remarks.
We finally were able to have the meeting with the FDA, and as you well know, that took quite a bit of time.
I think we had a meaningful discussion, and I think we made a lot of progress.
A lot of people participated in the meeting from the FDA as well as from Anika with clinicians and all kinds of folks adding input.
With regard to the trial that we need to do now, we are still discussing, and they are evaluating a proposal that we made about how that trial should be constructed, and basically what the endpoint should be.
And we expect to hear back from them fairly soon, within a couple of weeks, as to their position on some of our proposals.
And then we go from there to continue to negotiate whether it's through a submitted IND and use that as a vehicle to negotiate, or ---+ which would allow us to give a lot more information that, one, they don't currently have, or some other vehicle.
Now, to the trial size, the first trial was somewhere on the order of 350 patients, and it had three arms ---+ MONOVISC, CINGAL and saline.
This trial will at the very least have CINGAL and the steroid and may or may not include MONOVISC.
And we see no reason that we would ever run saline again.
So, if we make the assumption that we're going to have approximately the same number of patients, then the cost issue the first time I think was around $5 million or $6 million.
So, we would assume a similar level.
We would also assume that we would go back to virtually all of the sites that performed well in the first trial to help us speed up enrollment.
So, I don't know if you have additional questions to the information I just gave you and you want some more clarification (multiple speakers)
That's what we will put in front of the FDA.
As you well know, there's no requirement to run the trials for approval in the United States in the United States.
We also have some people in Canada that have had really good success with the product, are interested in participating in the trial as well, so we may have some Canadian sites as well.
And it's possible, maybe we will have some US sites, and that would be good to build up KOLs.
However, we're talking about trying to expedite this whole trial process such that we gain approval in the shortest possible time.
And the quality of the data that we received out of the European sites the first time vis-a-vis dropouts and other types of things was just absolutely excellent, so there's no reason to suspect that this trial will be any different.
<UNK>, regarding the product gross margin question, so we are quite pleased with the Q3 results at 81%.
The main reason, the primary reason, for the favorability this quarter is the increase in production volume, a large increase in the production volume in the quarter, compared to prior year, as well as earlier quarters in the year that allowed us to lower the per-unit cost because the fixed costs and labor costs can be spread over more units.
I don't think that this quarter's margin is indicative of all future quarter results due to a number of factors, including production volume variability and revenue mix.
So, for the year, we are still maintaining the product gross margin percentage to be in the mid to high 70%-ish range.
So that is the summary related to your second question.
You mean contribution to revenue.
Contribution ---+ you're correct.
This is the first quarter with some real meaningful CINGAL revenue because the product was launched in Canada and Europe, I think, in late Q2.
So, with regards to revenue for the year-to-date, obviously there were no activity in Q1 and then a little bit in Q2.
Revenue is about $0.5 million to $1 million range.
So considering the size of the European market, the limited number of countries that had initial launches, and looking at the lower pricing in Europe, I think this is pretty good results for a little over three months of activity.
I would add something to that, and there's a couple of facts that I'll put on the table that make us quite encouraged about these results.
One, unsolicited pretty much, we are getting just tremendous feedback from the physicians.
Their comments go around, boy, we are very impressed with how fast the effects of CINGAL take over, and two, we are equally or even more impressed with how the patients respond and how they get back to normal activity so quickly.
So, this is really differentiated from any other product out there, in their minds at least.
We happen to believe that, too, but this is the feedback we are getting.
The second thing I would throw on the table is that, if you remember back when we launch MONOVISC in the United States, recognizing of course that Canada and Europe and other countries are slightly different than the United States, but the first whole year, we got up to about 1% market share or so, I believe.
And it was in the second year where we shot up from 1% to 5% or greater.
So, these things take time when you introduce them to the market.
So having only been out there for one quarter and getting this kind of enthusiasm around the product, we are pretty excited.
That's correct.
The reasoning for adding the steroid in there was to get the short-term results, and the reason for having the MONOVISC or the HA portion is to have those sustained long-term performance results.
So yes.
Could you ---+ I think I know what you mean.
Could you ask that question in a different way.
Okay.
Well, there is a large number of studies done with the steroid, as you might imagine.
And there have even been some pilot studies done with HA and the steroid.
So we are looking at all of that data, and it's fairly clear that the steroid effect is at best a three-month period.
So, what we are trying to understand in the short-term and try to take a look at maybe a little more closely is how does the steroid increase the very short-term effect in the first couple of weeks, and we are trying to tease out ---+ we will try to tease that out with the new study.
We've already got data on that because we measured MONOVISC versus CINGAL, so we've got that piece.
So we'll put that together.
With regard to beating the steroid in the long-term, I don't think that there's too much worry about CINGAL beating the steroid at all.
So if we just had the CINGAL versus the steroid, the study could be quite small, depending of course on the endpoints.
But if we are looking at short-term effect and long-term effect, we won't need a lot of patients.
If we have to also include a MONOVISC arm, which I don't really see the value of, but we may have to do that anyway, that will bring the patient numbers up.
But we are looking at ---+ and we haven't reached full agreement on the size of any differences that we would have to measure, which of course then goes directly to the powering of the trial and the number of patients that you would need in each arm.
So, we are still working on that.
But it would be hard to imagine that we would end up in a situation where we would have to power the trial a certain way and result in having substantially more patients than we've already investigated.
One thing you have to ---+ okay.
Let me throw a little bit more information out for you.
First of all, the one thing that you have to remember is that we have two approved products put together.
That is MONOVISC and the steroid, which was commercially called Aristospan.
We also have a strong data package which shows that they do not interact the two mixtures.
Okay.
That is very different from what Carboline was trying to do, because that was a new drug entity.
Because they didn't have an approved HA, they were trying to introduce the steroid in a controlled delivery fashion.
It was a very complicated system.
Ours is much more simpleminded.
The steroid is introduced fundamentally at the bolus.
It's just like injecting steroid without the HA.
And we are looking only for short-term effects.
And the long-term pain relief is going to come from the HA, which is well-established because we have an approved product called MONOVISC.
So, it's a different situation than Carboline.
I mean we are well down the road.
There's not going to be any more pilot work required.
It's been on the market a couple of years.
It was introduced, launched in April of 2014.
I'll let <UNK> kind of answer most of this.
I'll put in a paid political announcement at the beginning.
It's a very good product and it works really well.
That's my paid political announcement.
And I'll have a little color after <UNK> finishes, but go ahead.
Thank you Chuck.
So to answer your question, <UNK>, yes, the increase in MONOVISC is due to volume increases and share increase.
We are seeing very good responses in the market, both in the markets both domestically and internationally, for MONOVISC contributing to the 33% in the quarter from a revenue growth standpoint.
And year-to-date, it's well above 50% from a revenue growth from this particular product.
So yes, go ahead.
Yes.
You want to do it.
Go ahead, I'll add the color.
In the United States, we, as we said, launched the product about a couple of years ago and the product, both from an efficacy and from a safety standpoint, had a number of features that are really superior to other competition products.
And together with Mitek's, our commercial partners, sales and marketing abilities, we were able ---+ because they are really the only ones in the marketplace that have a portfolio of multi-injection and single-injection.
So the combination really positions Mitek well, and the design and the efficacy of the product allow them to effectively gain share.
As I mentioned in the scripted section, we have, in recent periods, seen some price erosion on both ORTHOVISC in MONOVISC.
But the important thing here is, from a volume and from a revenue standpoint, we see a combined increase from the two products and the growth rate for ORTHOVISC and MONOVISC is at a higher growth rate than the market growth rate.
So we are taking share.
And that's the positive point for the domestic market.
Internationally, most of the ---+ or the main reason for the revenue growth is due to expansion into new territories as well as gaining shares in some existing territories.
And we are seeing MONOVISC being a more innovative product in the marketplace.
Where most of the countries are saturated with generic multi-injection products, we are a lot more competitive on the single-injection front.
So those are kind of the two different dynamics, domestic versus international.
So Chuck may have additional points to add.
Yes, I have a couple of points to add.
In the US, it is way, way too early to tell, but in our conversations with our partners, Mitek, they think that maybe there is a little bit of movement toward the single-injection product category.
Maybe.
And we can talk more about that in the fourth quarter and we will have some more data to see whether that's true or not.
So I would throw that out.
Internationally, in a lot of territories, countries, there are lots of multi-injection products, and some of them are essentially generics and priced very, very low.
So, where we can differentiate ourselves really is in the single-injection market.
And our partners have been pretty successful with doing that.
Also, there are some markets, not all but some, where there is no real viable competitor.
And some of those markets have the Synvisc I product there, but quite frankly, that in some of those markets, that product doesn't have a very good reputation.
So it's ---+ we've been somewhat successful at gaining some share against Synvisc I.
So I guess that's ---+ in summary, US is different from the international markets.
I think our most competitive products internationally will be MONOVISC and CINGAL.
Unfortunately, because of the pricing situation, ORTHOVISC, even though it probably works extremely well, is less competitive because of pricing.
The US a slightly different there because of the pricing in the US.
But anyway, we are ---+ the products of the future are clearly going to be MONOVISC and CINGAL, and we think we are on a pretty good track.
So, part penetration ---+
By the way, you asked about seven questions.
In terms of current penetrations, the comment is going to be mostly for the first half of the year, because we are still waiting to receive additional reports from competition, including Hennessey, Genzyme Synvisc and Synvisc I.
So, as far as we can tell, based on our information and information available in the market, we are in ---+ we currently have about [57%] of the overall viscosupplementation market for MONOVISC.
And the US market is essentially 40%/60%, so 40% on the multi-injection side and 60% on the single-injection size, although recent data seem to suggest that the single-injection is growing faster, and thus the point that Chuck mentioned earlier.
And it's a trend that we pay attention to and monitoring closely.
So, with that said, you can tell that, on the single-injection space, there's a fair amount of room for us to grow.
And we do believe that, in the immediate term, MONOVISC gaining share will contribute to our topline revenue growth, and will be the main driver, and obviously it's supplemented by international MONOVISC growth as well as the CINGAL launch outside of the United States.
Yes, I would just make a comment about MONOVISC internationally, which you could also apply to CINGAL, but it's much earlier on, is that, in certain countries where we exist in Europe, be it Western or Eastern Europe, we are doing pretty well.
And the major growth ---+ growth will continue to be there, but the major growth probably won't come from there.
There are pretty significant markets in Europe which are very price-sensitive, France being one of them, where we don't even play.
Spain is another one where we are trying to up our performance there.
And so from Europe, it's a point of getting into more valued countries, and gaining sales that way.
Outside of Europe, we talk about Australia.
We talk about India.
We haven't mentioned China but we are working through the regulatory process there with our partner.
So probably the biggest growth, at least for MONOVISC, other than the United States, is going to come through expansion.
We just recently ---+ we've partnered with Mitek for Brazil, for instance, for both ORTHOVISC and MONOVISC.
We just got approval for MONOVISC, so we haven't really generated any sales yet, but we are on our way.
So that would be an upside for us in 2017.
So most of, in my opinion, the MONOVISC growth is going to come from expansion and getting into territories where it can be competitive but we are not there right now, and good-sized markets.
So, at a high level, I would say that this is working, and the reason is because of the increase in overall revenue from the ORTHOVISC and MONOVISC franchise in the United States.
(multiple speakers) and the growth in terms of share faster than market.
In terms of which accounts and the order of magnitude of the price concession, that is a level of information that we do not have access to.
We have qualitative information or color from the partner, but we don't have that level of specific ---+ the account by account price concession information.
But we can add a little more information there, I think.
Procedures are definitely growing, but we look at the market pretty much in terms of revenue.
So, procedures are growing, but the pricing is probably coming down a little bit.
As <UNK> said, we don't have account by account information.
We just have generalities and the total picture.
But from what we have, it looks like the pricing for MONOVISC may have come down a little bit, but over the last couple of quarters, on average, it seems like it's holding pretty steady and is still quite high.
So the reduction, I don't know, it was maybe less than 10%.
Yes, from a price standpoint.
So, as far as price reduction, I guess there's some, but maybe it's not quite so significant at this point.
The future is the future.
In aggregate, MONOVISC is the main growth driver.
I'll point to that one.
The volume year-over-year nine months in terms of end-user volume, not the volume that we sell to Mitek, the end user volume went up 80% because of the share taking and so forth.
If you look at the price for the same period, it's come down like 5% to 8%.
So, that's kind of the ---+ if you need quantitative information, that's the level that we are talking about.
The other thing I would say is that we don't want to leave you with the wrong impression.
While we don't have individual account versus individual pricing at our fingertips, this is a topic that we meet with Mitek fairly regularly, and this is a topic that we talk about all of the time.
So we are getting ---+ we're trying to be as on top of this as we can.
Mitek has done this a lot.
They are making the final decisions, but we are definitely getting more plugged into understanding the market through enhanced communications.
So, I didn't want to leave you with the impression that we were hands off of this whole process.
But it's always a concern in a competitive market that pricing will go down.
I think, to some degree, Mitek has used some price reduction selectively to gain more share and that seems to be working fairly well.
Yes, correct.
Sorry, I'm just flipping to Page 6, the advancing pipeline slide that you are referring to.
So CINGAL, I think Chuck adequately addressed that.
MONOVISC hits is from (technical difficulty) Mitek, so we do not expect incremental spend.
How fast can and will be, as we talked about earlier in terms of acceleration of patient enrollment and so forth, can be in the low double-digit million dollars from an incremental spend standpoint.
Tendinopathy is a project that we, as you recall, we received IDE approval earlier in the year, and we have a protocol which is ready.
From a business priority standpoint, as we recently came out with a positive discussion with the FDA, the CINGAL program obviously is underway.
And the Company prudently decided that it is best to make sure that we focus on the top-most important programs, namely CINGAL and HYALOFAST.
So, in terms of timing of tendinopathy, I do believe that, sometime in 2017, we will pick up the spending on that, and perhaps toward the second half instead of the first half.
And as far as the rate of spending, I think, at this particular point, I'm not in a great position to comment because a lot of it depends on the exact timing that we decide to submit this trial.
From a UMass program standpoint, we do believe that we will pick up some additional spending on this program.
Currently, we have a contract in place with UMass to fund this RA drug delivery program, this innovative early-stage program.
Work has been done and we are looking at some increased activity.
And keep in mind, beyond these listed programs on Page 6, we also have other development products and projects that we are working on but we have not discussed publicly because of a number of reasons, IT and other reasons.
So, those programs will be contributing into the increase in research and development expenses in the future, but most of the spending will likely be from CINGAL.
Yes, I would just add a little more qualitative color since <UNK> is the master of the quantitative.
But with regard to CINGAL, we have to move that quickly.
We want to move that quickly.
So where we can, we may outsource some of the activities that are necessary to put the IND together, to get the sites up and running as rapidly as we can, etc.
, etc.
So the rate of spending that is historical for us should go up.
And once we have real clarity on where we are headed there, which should be fairly soon, we can open the spigot on the expenses and move that.
And it's our goal to move that as fast as we can.
We are starting to ramp up HYALOFAST, and of course, if you have a trial underway and you don't have any patients included, you're not spending much money.
So we are hoping that we can rapidly increase that, and therefore spend more money on that trial.
Once we get those two under control, where we figure we are on a trajectory that we want and is acceptable, we're going to initiate the tendinopathy trial.
So, I see expenditures in 2017 actually going up a fair amount.
And I can't speak to your modeling, but I would think that it would be our goal to move those programs quickly, which then would mean that we would be spending much more money next year than we did this year.
Sure.
I would say that it's on the middle burner in that, internally, we've actually got some ---+ we've assigned responsibilities.
We've got some active activity going on there with a team of three or four people.
So, that is not to say that we will find anything, but I think we are more active now than we were a year ago for sure.
But again, our priorities are to ---+ for the Company are to of course run it properly as we have in the past years, but to bring CINGAL to the market and get HYALOFAST headed towards the market as rapidly as we can.
And if M&A gets in conflict with that, then it will be the M&A activity that gets slow down.
I'll let <UNK> address the reimbursement coming down issue, the first part of the question.
I'll talk about the proposals, the value-based things, going forward.
If you look at that, what we hear from Mitek is that most of those ---+ this Part B reimbursement and all that is stalled.
There's not a lot going on.
I guess some of that is ---+ there's some controversy always in Congress, and there's not a lot of real activity with the FDA.
So it looks like and they feel that nothing is really going to happen there next year or possibly not even the year after.
However, if you look at those proposals and you look at how that might affect our products in the pricing proposal schemes that they put out there, at least the change from 6% to 2.5% with an added fee, it's not really impactful.
It's pretty small at the pricing levels because the impact increases as the price goes up.
And so we are in the zone where, regardless of the way it gets reimbursed, it's not a big impact.
So anyway, that's qualitative.
But so far, from what we can tell from Mitek, who keeps their finger on this pulse very carefully, there's not a lot going on to move that progressively forward.
Now I'll turn it back over to <UNK> to see if she has any comments.
<UNK>, just so I'm clear on the question, when you said reimbursements, are you referring to the CMS reimbursement.
MONOVISC ---+ correct.
When MONOVISC was initially introduced or launched, it was close to $1,000 as a starting point.
And currently, we are at the $900 range that you mentioned.
So that is part of the kind of price erosions that we have been seeing, and which has been reflected in the revenue for MONOVISC for us in each of the quarters during the last couple of years.
And from a trend standpoint, as of right now, we do see that there is some pricing pressure.
So, we think that it will maintain or perhaps be slightly lower.
But the important part about the MONOVISC story is that the volume and the share growth is very positive and strong, and it's more than offsetting the price decline.
So, I think that is key to remember.
And secondarily, the MONOVISC pricing at $900 per unit is still at a very strong premium comparing to the other competition products, which are in the $600, $700 per unit.
And thinking about the fact that it's premium priced and still be able to command good share take I think puts MONOVISC in a very good spot.
Okay.
Back to my prepared remarks, and hopefully I don't stumble this time, but I want to thank you all for spending time on the call today.
I thought the questions were excellent, and provided, through the answers and the questions, provided a much clearer view of our business and where it's headed.
I'd say that we are pretty happy to deliver another quarter of growth.
We are certainly excited about the potential to bring new and innovative products to the market and accelerate our growth moving forward.
So, <UNK> and I both look forward to updating you again on our next earnings call, and have a great day.
| 2016_ANIK |
2015 | XOM | XOM
#Yes, so in terms of the earnings impact from our asset sales in the second quarter, it was about $490 million.
A majority of that, <UNK>, was in the chemical business.
In terms of Kearl, in total as I said, is producing about 130,000 or in the second quarter it was producing about 130,000 barrels per day.
The phase 1 or the initial development was around 100,000 barrels, and phase 2 was around 30,000 barrels.
On Kearl.
No, I don't have anything to share at this point.
Yes, <UNK>, that was similar to an earlier question.
As I said earlier, I would just say that we keep alert to where we've got value propositions.
And the way I clarify that is bolt-on acquisitions that have natural synergies with our business, long-life assets that we think that our expertise and operating experience will bring intrinsic value associated with it, it's not focused on a specific resource type, but it's really focused on where we think that our unique experiences can add value, that others can't see.
<UNK>, I don't really have much to add on there.
That's really a function of the transactions.
Certainly, staying in a lower price environment is going to encourage both buyers and sellers to find closure.
Yes, well, as I said, we're certainly very encouraged by the first well.
It is one well in a very, very large block.
We are currently evaluating that well, and we're laying out, if you will, the plans moving forward.
You can expect the intent for us to not only to further appraise the discovery, but pursue other opportunities on the block.
I want to be clear though, that we follow all the laws within the host countries and international law, that we're operating on this block under license from the government of <UNK>ana.
And the border matters are really a function, or should stay with the governments to address through appropriate channels.
Yes, obviously our objective is to make sure that we're capturing all those opportunities, both structural and market out there.
And at the same time, ensuring that we maintain the high integrity of our operations.
I think, <UNK>, the ultimate measure here is our industry-leading unit cost performance, that we've seen over the last several years.
And while it's still early, I don't want to go too far with this, we are seeing the unit cost on a downward trend year to date, almost 9% down from where we were last year.
But that's about as far as I'll quantify at this point.
Obviously, this is a key element to ensuring that we remain a leader in unit profitability as well.
Sure.
Broadly speaking, as you know, LNG is a key component of our portfolio, and it's an important part of our margin generation.
As I said earlier, we've got a very good inventory, and included in that inventory is a number of LNG projects, and it's all based on our assessment, as I indicated, that gas will grow by about 1.6% per year between now and 2040, and more specifically, LNG demand will triple from 2010 to 2040.
So that is the value proposition we're pursuing, we've got a number of projects moving forward concurrently.
We're going to be very selective in what we'll invest in.
To your question about what does it take to make sure it goes forward, it's all the things you mentioned.
It's making sure we got a competitive cost structure, that we've got stable, transparent fiscal terms to underpin a very capital intensive investment, and that's why we're progressing several of them at the same time.
I would tell you that the brownfield type expansions are probably going to be the lowest cost LNG add.
By way of example, our Papua New Guinea project, just a phenomenal outcome, started up ahead of schedule, very, very good reliability.
Very well positioned to compete in an expansion, should we identify a sufficient resource.
Having the assets that we have in the US positions us very well.
Alaska, West Coast of Canada continue to progress.
Those opportunities will require more of what we were talking about, in terms of cost, in terms of fiscal terms.
Regulatory environment.
So in short, what I'd say, <UNK>, is that the demand projections there, we've got the ---+ obviously we've got the capability to participate in that, and we're very well positioned, with a very good inventory of high-quality opportunities, to meet that demand growth.
Yes, so just again, taking a portfolio look, <UNK>, we regularly evaluate our assets, our various business lines, for where we can grow earnings or optimize the long-term value of it.
And in the downstream business, it's focused in the following areas: expanding our logistics, expanding our feed stock, reducing our overall cost structure, and importantly, increasing high-value product yields.
You'll see that those ---+ one of those areas, or one or more of those areas, will underpin the investment projects that we have communicated, have been through FID such as the Antwerp investment.
As it pertains to Beaumont, we typically assess those activities.
I understand that there ---+ that may include some discussions with the regulators.
It doesn't indicate that we've made a discussion, and when we get close to an FID, and we've made that decision, then we'll communicate that accordingly.
Yes, so good question, <UNK>.
I mean as you all know, the Plains All American pipeline was down due to a failure of the line in the second quarter.
We've looked for options to go ahead and keep our facility on, without that pipeline running, or until we're able to find an alternative export route.
SYU will be shut down.
Before it was shut down, it was producing somewhere around 30,000 barrels a day.
In fact, that was a 2014 number.
So we'll keep focused on it, we'll keep working with the regulator, as well as the All American pipeline to identify the earliest restart.
<UNK>, we're in the risk management business.
Everything that we do has a level of risk that we've got to judge, whether it be geopolitical risk, economic risk, technical uncertainty, and that is the world we live in.
And I think the organization has demonstrated over the years that it's got the expertise and the capability to take on these more challenging resources, and convert them into value propositions for our shareholders.
So the areas you talked about, take a look at Papua New Guinea LNG.
No infrastructure.
We were able to build that up to a very successful project that's going to supply an important part of LNG demand in the future.
We have a good track record in all of these areas.
We're very good at capturing the learnings and transporting those learnings into our future resource development activities, to make sure that we maximize return.
And as I said to <UNK> earlier, if we don't see the value proposition there, we will find other ways to monetize that asset.
Well, remember, these projects that you referenced earlier are multi-year projects.
They happen over a period of time.
And we're looking for not only the market savings, but I'll stress again, the structural savings.
And let me use an example of what I'm talking about.
We went forward with both the [Kutandagi] and Hebron developments concurrently, because we saw a very consistent development option, and the tremendous benefit that we get by learning curve advantages.
So both JBS, we used a comparable design shop for both of them.
We used the same JBS contractor.
We used the same top side contractor, and we capture that immediate learning curve benefit.
On top of that, in a lower price cycle, as I said earlier, we're very well-positioned with a global procurement organization to be first in line in capturing those market savings.
And if, given our long-term investment and our expectation of what demand is going to do, we're very confident that over the timeframe, the things we're investing in today, some of them we won't see production on for five or ten years.
We're very confident in our demand projections and our ability to turn that into accretive financial performance.
<UNK>, just broadly speaking, we keep focused globally, and we've got those type of opportunities in other countries that we'll naturally maintain a line of sight on, should the right value proposition come forward.
And if you want to focus in the unconventionals, certainly.
The ownership structure in the Permian by way of example, is very diverse.
And where we can find natural synergies, over the last several years, we've made a number of bolt-on acquisitions that have increased our acquisition there.
And you get value uplift when we're able to do that, where it's within our operational structure.
That's correct.
Yes, well, obviously that's an annual process.
And we're ---+ we've fully replaced our production for 21 straight years.
We've got a very good inventory that we're working on, to convert to an FID decision in proved reserves, as well as a very active exploration program.
So we've been very successful, as the history shows, and I'd say that the prognosis in the future will remain the same.
Not off the top of my head, <UNK>.
No.
<UNK>, I'd just tell you that the organization wants to keep focused on the structural improvements as well as that market capture.
Everything is under focus constantly, even when we're at $100 per barrel.
But I don't have any specific numbers to break out on the benefit to date.
You know, remember it's all premised under very strong demand growth.
And our investments are strategically placed, in order to make sure that we can compete competitively over that time frame.
I think we're very, very well positioned in both the commodity and specialties markets.
I think it's an excellent question, <UNK>, because I think this is just one example of what we do across our whole global portfolio.
I talked about, by way of another example, we've shown you the XTO example.
In my prepared comments I talked about Erha North phase 2.
Last quarter, I talked about the start-up of the [Kazama Satellites] phase 2.
But that's another really good example, that instead of ---+ that we've sequenced the resource development in a manner that we can fully leverage a fixed investment over a period of time, and what that does is that lowers our overall cost structure.
Our E&D costs globally.
And in a deepwater environment where we've got to be very careful that we've got very good execution plans, and that we execute flawlessly.
So it's a very strong focus across the world, whether it's in the deepwater with the Kazama Satellites phase 2, and Erha north phase 2, or we're talking about the subarctic like in Kutandagi and Hebron, there is an ongoing emphasis to try to get that cost structure down.
That's why I made the point earlier that this is something that we have to work 365 days a year.
It's not driven by the price environment, it's driven by the need to be ever more productive and to compete in a market that there's a lot of investment dollars going in.
So we keep the line of sight on where we've got cost opportunities.
It's another good question, and you may recall, back in the analyst presentation, we spent a little bit of time, the chairman showed a chart that tries to ---+ goes to quantify the volume add that we make, with our focus on reliability.
We are making very significant gains on improving overall operating reliability, and I'll emphasize, not only in the upstream, but also across our manufacturing business as well.
As we focus intensely on cost structure, we do the same on uptime and reliability.
And really try to transfer those learnings quickly across the corporation, to make sure that once again, we're best in class.
Well, there's two parts to your question.
One is, if we've got resources that are in a resource base that ultimately we don't see the long-term value, as I indicated earlier, <UNK>, we will look for ways to monetize them, which may include some level of divestment.
In terms specifically of impairments, as you know, we live in a commodity price environment that has great volatility.
But as I've said several times in our annual outlook, the longer-term market fundamentals remain unchanged, and the lifespan of our assets really are measured in decades.
Therefore, long-term price views are more stable, and quite frankly, more meaningful for future cash flows and market value.
So we expect the business to more than recover the carrying value of the assets on the books.
Obviously in the course of our ongoing asset management efforts, we do confirm that asset values fully cover carrying costs.
Yes, <UNK>, I think it's just too early.
I look forward to that time that I can have more discussion about it, as well.
But as I said <UNK>, one well in a 6.6 million acre block, it's a very good start.
And just watch that space.
There's more to be said there, I think.
Well, to conclude, again, I want to thank you for your time, and your very thoughtful and insightful questions this morning.
We appreciate the opportunity to talk about the business, and really share the successes of our people that work day in and day out, to make sure that we're creating shareholder value.
So thanks again, and we look forward to further discussion in the future.
| 2015_XOM |
2015 | TDS | TDS
#So let me start with the auction question.
You listed many different factors that all go into the great big black box to see what comes out but as we think about it, we want low band spectrum everywhere and with our 850 and the 700 A-block licenses that we have, we have a real nice kind of coverage over most of our markets.
There's a few that we don't have any 800 or 750 blocks, and so those would be the first targets for the 600 auction so that we can ensure that we've got the coverage everywhere.
After we've got the coverage spectrum, then we start thinking about capacity and to date we've got AWS and PCS, and other higher band frequencies but our engineers are working on carrier aggregation.
And some of the recent work shows what we were concerned about in the past which was called the low-low aggregation, after the aggregating multiple lower bands of frequency together is looking more promising.
So some of the 600 actually could be capacity additions for us.
So, all that says is, we've got the 600 coming up.
We are preparing both from a liquidity financing standpoint, as well as from an engineering and analytical standpoint to be ready for that auction once it gets here.
In terms of M&A, or use of cash, I'm going to throw that question over to <UNK> <UNK>, who is in the room, from TDS.
Hi <UNK>.
How are you.
As far as M&A, we're absolutely still interested in acquiring additional cable companies to help improve our returns.
Obviously, we haven't done any of that this year.
We're committed still to the 75/25 invest in the business return to shareholder strategy.
We've said consistently that we would do that pretty modestly, moderately, and we're doing that at any point in time.
We may be in or out of the markets for a bunch of different reasons.
Good morning, <UNK>.
<UNK>, asking me to talk about engineering, and technical conclusions is probably not the best idea.
But Mike <UNK>, who is our CTO is in the room.
I'll let him talk about it, but the big thing is, we think that there's a lot of work going on that's going to make that low-low more concerned applications.
Mike.
Good morning, <UNK>.
Certain low-low combinations, we believe, are easier to carrier aggregate than others and it has to do with filtering limitations, and I would say that carriering aggregating 600 and 700 is probably one of the more challenging low-lows to be addressed but there's a lot of work going on to improve filtering, improve antenna bandwidth, to make all low-low combinations possible but definitely 600 and 700 is one of the more challenging low-low combinations.
We're seeing progress, even on the standards front, to include that in the standards.
So we're optimistic.
Sure.
I think the activity you've seen in the cable acquisition space says a couple of things.
I think it says, one, obviously, how competitive the space is and, then two, more importantly, I think how attractive the space is.
As you know, our strategy is around growing that broadband opportunity and so as we're looking at ---+ and I think we've been clear about that ---+ as we're looking for cable acquisitions and we continue to be disciplined buyers, and we'll only do the deal if we can make it work.
But overall, we really like the business and the opportunity from the broadband growth perspective.
I don't know that I can do justice to that question.
Right now, our focus is more in the connected device space, especially bringing efficiencies to operations in some of our local government operations.
We're seeing strong receptivity to solutions, that help, whether it be the county government or the city government here, operate their fleets, operate and provide information to their citizens in a more efficient basis.
Where that evolves long-term into, really, M2M stuff, we're more of a ---+ as I think about our customers in that area, they are more followers than they're going to be leaders.
Right now it's all about connected devices.
I don't know that I'm more conservative than my peers.
I think that we are appropriately conservative and when we recorded EIP transactions, we're looking a residual value of 20% at the end of ---+ effectively, year one, the way it works under our original offerings.
What that means in terms of margins or whatever, I think about it that you really don't know until after you played through your first cycle of EIPs, but in our case, the first upgrade eligible ones were about four months ago.
And we're seeing a much lower and slower upgrade on those than we thought.
But I don't know that I can convert, do a---+ this is what some one else says, this is what I said, and work it down to the bottom line.
I think we are ---+ until we get enough history with these, we don't want to be in a position where we've got a great big surprise that's a balance sheet someplace.
I'm not suggesting anybody else has one.
I'm just basically saying that our team here, <UNK> and <UNK>, have been working to make sure that we don't wind up with one.
Now you are getting to the tough questions.
What we're doing is a lot.
One of the big opportunities for us was just awareness still of customers outside our base of the availability of the Apple products.
<UNK>, why don't you talk about what we're doing there.
We're using all of the standard vehicles obviously.
We have a tremendous amount of win back direct mail campaigns, to <UNK>'s point, relative to making the ---+ continue to make the awareness grow relative to our iPhones.
We've got our second tranche of Apple -related TV that hit the air recently and we're extremely that it is Apple.
Excited about the caliber and the quality of the spots that we're putting out there We've got ongoing pulsing of our tablets sales, which really have just been about a year in the market for us in an aggressive way.
As I mentioned, TV, print, radio, all of the standard methodologies have really been our focus this year and we will continue with the strong portfolio in that effort going into Q4
The other thing, Mike ---+ not Mike, Mike's right here.
Other thing, <UNK>, what our study shows is that most customers, or prospective customers, will shop online before they ever hit a store.
They will still buy in the store but they shop online.
Part of our whole pricing strategy is making sure that we get ---+ that we stay in the consideration set.
That's why we're just under Verizon and AT&T in networks that are similar in quality to ours so when the customer is looking at it online but they see that value difference and keep us in the consideration side.
Well, that's the whole strategy.
That's the whole sort of challenges in front of us, right.
As you said the churn is down.
That was something that was up; we've addressed it.
As you said, the financials are better than they were.
We have addressed that.
Our local positioning, our continued investment in network quality, our local and convenient distribution and the increased focus on small and medium-sized businesses are all the next steps that we're taking around continuing to grow the business.
So as you said, no matter what you've done, there's always something else that needs to be done and that's where our focus is now.
If you're talking about our investment in Advantage Wireless, that's the ---+ it's their spectrum.
They are the owner of that.
They were in the auction and we know that they've got ---+ they are working with the FCC around getting the license grant but I don't know what the timing is of that and until such time as I hear from them, I'm here just on hold.
Not that I'm aware of.
Let me try it from the cellular standpoint and take them one at a time.
So let's talk about the minority investments.
When you talk about those, you are talking about investments.
Primarily the biggest one is LA.
It is a very nice annuity that has paid for many, many years.
They just bought a big license out there, so for the first time in as many years as I can remember, the cash flow has been redirected for this one year.
But we fully expect to see the same level of cash coming out of that in the future as we have and that's been running $60 million, a zero tax base asset that has ---+ you can run your numbers and put a value on that.
And until such time as there's another way to get similar value out of that to monetize that at some much lower potential return, it just doesn't make sense.
Towers, told you, we just finished the LTE roll-out but we're about to start down the VoLTE trial and what we're seeing in VoLTE is more cell site modifications that are needed and to be able to do those on at least half of our cell sites without incurring substantial lease renegotiation fees as well as give us some leverage on those.
Those remain a strategic asset and I don't see that changing right now.
I think, as <UNK> pointed out, as we think about the auctions coming up between cash balances, what did you say, <UNK>.
$300 million of EIP-related receivables, unused lines of credit; I think we're pretty well there.
In terms of other uses at TDS, I'm going to punt on that one because there's people on the other side of the table.
Mike, it's <UNK>.
As far as TDS, we don't look to any assets that US Cellular could or potentially sell or finance as a source of course for TDS to invest in cable.
Cable acquisitions, we look in the same place as the cash available on our balance sheet, potentially accessing the debt markets if we have to.
We think they are available to us but we would not be selling assets at US Cellular to fund cable acquisitions.
There are many factors that the Boards look at to evaluate the performance of this business and the management team here.
One that we have talked about in the past that we continue to focus on but it's not the only one but a very, very critical one to the Board is return on capital and making sure that we are on a path to change that result.
Thanks, Mike.
Have a great weekend
We'd like to thank you all for joining us today and please let us know any follow-up questions.
Have a great weekend.
| 2015_TDS |
2015 | ZBRA | ZBRA
#So just as a reference point, so when we announced the deal, the euro was basically $1.33 and we're at [a base] roughly $1.10 up to $1.08.
So as you can imagine it, has a big impact on our top line and our profitability.
That said, we still expect at the end of three years, which is when we said we announced the deal, that we would get to the 18% to 20%.
So my point would be is, even with that FX, we feel confident with the synergies that we're doing, with leverage on the business ---+ in other words, our OpEx is going to grow at a slower rate than our revenue.
And that's because of a lot of integration efforts that are going on, we still feel comfortable with the 18% to 20% that we quoted, when we announced the deal, even with the FX.
Yes, one point to add maybe here.
Most of our competitors are dollar-denominated companies.
And I would say, pretty much everybody's supply chain is predominantly dollar-denominated.
So there's nobody who really gets a windfall by having a lot more costs in Europe, say.
There's certainly some who have more costs in Europe.
But it's on the margin, so I think that everybody is more or less in the same boat.
To that point, as again we mentioned a quarter or so ago, that we increased the prices in Europe.
Nice thing is our business continues to grow very strongly even with those price increases.
So I think that's another positive thing for our ability to drive towards the 18% to 20% EBITDA margin.
Well, I think a couple things.
Number one is in the first quarter and the second quarter, we had a fair amount of costs that didn't come over.
So for example, we didn't have a full complement of finance people.
So when you look at our expense, even though some of these areas will increase as the year progresses a tad, relative to what the baseline was when we acquired the business, it's still below what that baseline was, that pro forma number.
The other piece is our top line continues to grow at a rate much faster than our OpEx.
So that by definition gives us our ---+ helps us drive our margin improvement.
I think one thing we're trying to be clear on, is that we're driving towards net synergy improvement.
So if you really look at it gross, we're doing very well in things we have identified, but we need to make sure that after the increases that we're still net $150 million of savings in year two.
So that's why you're seeing not the savings in absolute dollars from the first quarter, because some of those costs really didn't come over when we acquired the business.
The net number is what we expect to pull out of the business, and the target I would suggest you focus on is the EBITDA margin of 18% to 20%.
So the point would be is, as we drive and are more successful in some of these synergies, we really want to invest IT in the business.
So for example, we're continuing to invest in our mobile computer business to expand Android, be able to provide good Windows solutions.
So it's not like everything comes down necessarily to the bottom line in terms of dollars, but when we get the EBITDA margin of 18% to 20%, that's sort of the hard target, I think as an investor you should focus on.
Next question, please.
Our debt to EBITDA has improved modestly from, obviously when we did the deal.
Again, we paid down $130 million.
We see the second half that we'll continue to generate strong cash flows to further pay down our debt.
But as far as buying back shares, I think we're ---+ I don't want to say I think, we are absolutely committed to reducing our leverage to 3 times debt to EBITDA over the next three years.
So I don't think anybody should expect us to be buying back stock for the near-term.
So there's a lot of things that separate those.
One of the accounts we talked about was actually a win-back, that had already installed a very prominent smartphone, and we were able to win them back to our platform.
So it was not say, an incumbent Zebra account.
The reason they did that, was they recognized that our total cost of ownership turns out to be much better.
Our devices are much more designed for the use cases that these customers have, particularly within the Enterprise.
So a greater control of the operating system environment, much greater security.
You can control the applications they use.
The ruggedness of the device.
You have battery life that lasts the entire shift.
Many of these customers are also heavy scanners ---+ use the device for scanning, and our scan capability is much improved, compared to any consumer device.
So we have probably 10 different features or functions that really distinguish us, compared to our smartphone competitors.
I would add two more.
Especially as ---+for those customers who consider Android, remember there are two choices, Windows 10 and an Android.
For those customers that consider Android, we've invested heavily in extensions to Android that ensure the security and the longevity of the platform.
And those are key factors when people make decisions that they don't find to the same degree on consumer devices.
We're making good ---+ we're making very good progress.
I think one thing we recently completed was implementing CRM program that's supporting the sales group, it gives <UNK> and his team visibility to the pipeline.
So as <UNK> was talking about visibility, I think one thing is we [have an] integrated tool, that was his plan.
I think, generally everything is on plan.
We realize that this is a big task, but we have the right people working on it.
So I think we're generally on task for what we're looking to accomplish.
As a percentage of growth, obviously the third quarter last year was much stronger.
So as we mentioned, the second half as far as year-over-year growth is going to be a little bit more difficult than first half as we go forward.
I think we give a range, because we know that some of these large deals are very binary, you either win them or you lose them.
I think in the second quarter, we ended up winning a deal, which by the way the customer requested.
I don't want to use the word demanded, but they strongly requested that we deliver in the quarter, which was different than our forecast.
So a lot of this stuff is very lumpy.
I don't know <UNK> or <UNK>, if you have any more color on the back half.
I think, we believe that ---+ we started off with a very strong backlog.
We had good backlog going into Q3, and the bookings trends certainly support the guidance we've given.
But you also got to remember that Q3, particularly Q3 last year from an enterprise perspective, there was a big bounce-up from Q2.
So the two comps are a little bit harder, but we still feel we have very good sales momentum.
The pipeline is very good for Q3 and for Q4 and beyond.
So we feel good about where we are from a revenue perspective.
And if we go back to when we first combined the businesses, I think that was one of the big concerns that, could we get growth out of the business.
And I feel good at what we've been able to achieve so far, and the trajectory we are on, that we are growing healthily.
We are able to compete against consumer devices, and create the very solid, very profitable business.
It was a little stronger than what we would normally see.
But we still have to win the majority of the business in the quarter.
It's not like it's orders of magnitude ---+ the difference.
Thank you.
This concludes our call for today.
Thank you for joining us.
| 2015_ZBRA |
2015 | VECO | VECO
#So, no, we are not seeing that on the other end because a lot of the backlog is related to EPI<UNK>
We are seeing requests for further accelerating that so on the shipment side we are not seeing any deceleration of shipment.
That comment applied mostly in terms of challenges, in terms of accessing credit or capital applied mostly toward booking.
Thanks, <UNK>.
The recent orders have been really new fab expansions, no significant amount of replacements at this point.
I think it's going out exactly as expected, and in general there's been pull to go faster more than anything else, so it's ---+ I think it's happening right on plan for us.
It is.
There is variation, and there is ---+ there are some unproductive tools in Korea also.
But the Tier 1s are relatively up there around 90%, some a little higher some a little lower.
Thanks, <UNK>.
We will take some of those tools and convert them into revenue, and at this point we are not adding to the deferred revenue bucket, because most of the tools that we ship now are getting recognized as revenue upon shipment.
So what I can say to you is that it's going to come down over time.
Most of these should get recognized by the time the year ends.
And as I've said previously, we gave the deferred revenue guidance because we had just released a new product, and it was difficult for the street to understand the activity level going on in the Company.
So respectfully I think I would decline to provide the guidance, <UNK>.
Well the customer base with the customer consolidation, the number of substantial orders per quarter now is two to four customers in a typical quarter here, and whereas if we go back three or four years it would be 15 to 20.
So there are substantially fewer players down to a number of companies that are striving to be world class leaders.
I think that makes the business more lumpy, and that will continue as we serve a smaller customer base.
I think regarding EPIK, when we look at the orders, it's over 80% of our orders now I would say in MOCVD, so the market has moved quickly to purchases of EPIK, more quickly than past product transitions that we've seen.
And I would add to that that EPIK really enables our customers to compete effectively in this low price end device market, so that's why we are seeing a pretty significant pull on EPI<UNK>
Okay.
With that, we will close off the Q&A session.
Thank you for joining us.
Look forward to seeing you in the coming weeks and months.
Thank you.
Thanks.
| 2015_VECO |
2017 | HRS | HRS
#Thank you, Bill, and good morning, everyone
As a reminder, discussions today are on a non-GAAP basis and exclude Exelis integration and other costs
Turning now to segment details on slide 6. Communication Systems revenue in the quarter was $449 million, up 3% versus prior year
Operating income for the segment was up 22%, resulting in margin expansion of 500 basis points from higher tactical radio volume, integration savings and the benefits of operational excellence initiatives
Legacy tactical revenue grew 28% in the quarter and was about flat for the year versus previous guidance of down low-single digits and down high-single digits at the beginning of the year
This strong performance in legacy Tactical resulted in full year segment revenue down 6% versus our previous guidance of down 7%
Following the end of the CR, DoD tactical procurement picked up with the Air Force placing a $23 million order for radios for MRAP vehicles, and we ended the full year revenue growth of 3%, better than our previous expectation of flat revenues
In international Tactical, revenue was up 37% in the quarter over a relatively weak compare from last year
As expected, Eastern Europe continues to be an area of strength and we also saw positive signs in the Middle East with an order from Iraq and growth in the Asia Pacific region
Improving conditions in the international tactical market throughout the year resulted in full year revenue being down 1% versus our prior expectation of a mid single-digit decline and a mid-teens decline at the beginning of the year
Regarding the Australia opportunity, in June, we have received a $19 million order to conduct risk reduction and planning activity for Australia's Phase 3 modernization program
And in mid-July, the program was approved by Australia's DoD Investment Committee
Following that, letter of intent was issued to Harris for an order of approximately $260 million for part of the Phase 3 modernization
This order is expected sometime later in the first quarter
For full year fiscal 2017, segment revenue was $1.75 billion with operating margin of 29.9%, up 80 basis points versus prior year
This margin improvement was driven by synergies and the team's continued focus on cost and operational excellence
Book-to-bill for the segment was well above 1 in the quarter, with strong bookings in PSPC and legacy Exelis Signal and greater than 1 for the year even with Australia moving base to the right
In Public Safety, although revenue was down 8% in the quarter and down 5% for the year, we had a solid book-to-bill driven by a $75 million contract from a utility company to upgrade the legacy analog system to a digital network
Additionally in July, Public Safety was awarded a five-year, $461 million IDIQ contract with an initial $10 million order from the U.S
Army to upgrade and modernize existing land mobile radio infrastructure
Electronic Systems on slide 7. Electronic Systems was up 4% for the quarter and the year versus full year expectation of up 3%, driven by continued strength in electronic warfare, the ramp of UAE battle management system and a strong fourth quarter in avionics
Operating income in the quarter declined 15% as the ADS-B program continues to transition from build-out to sustainment
For full year fiscal 2017, operating income was up 5% with margin expansion of 30 basis points from 20.3% to 20.6%, driven by solid program execution, a contract adjustment in the second quarter, and higher pension income
This was partially offset by the ADS-B program transition
Book-to-bill was slightly than 1 for the quarter, but above 1 for the year
In addition to the new avionic content wins in F-35 that Bill spoke about, the avionics business also received a $30 million order from the Navy for 300 ejector racks for F-18s, and an initial $10 million order to develop ejector systems on the Korean Next-Gen Indigenous Fighter with significant future production potentials
We also continued to see positive momentum in other parts of the segment, including $64 million order for the U.S
Army's MET terminals and a $36 million award to implement surveillance capability at seven airports
Space and Intelligence Systems on slide 8. Revenue in Space and Intel was down 4% for the quarter and as expected was about flat for the year
We saw continued solid demand in the classified programs, offset by the wind down of some environmental programs, particularly in the back half of the year
Segment operating income in the quarter was flat
The full year fiscal 2017 revenue was about flat, operating income was up 8% with margin expansion of 120 basis points from 15.2% to 16.4%, driven by solid program execution and higher pension income
Book-to-bill was slightly less than 1 for the quarter and the year while we continued to see strong bookings from our classified customers, including for space superiority programs like the SENSOR contract, where we received additional orders of $63 million from the U.S
In other areas, we received a $51 million production order for payloads on GPS III vehicles 9 and 10, and a $32 million follow-on contract for the GOES-R program
Moving to slide 10 for fiscal 2018 guidance, today, we initiated fiscal 2018 revenue guidance in the range of $6.02 billion to $6.14 billion, up 2% to 4% for the year, and EPS in the range of $5.85 to $6.05, up 6% to 9%
We expect total company margin to be between 19% and 19.5%
Fiscal 2018 EPS guidance reflects about $150 million in share repurchases for the year and an effective tax rate of 28.5%
2018 tax rate is consistent with our performance in fiscal 2017 and reflects the effect of the stock compensation accounting change which we adopted in fiscal 2017 and the benefits of various tax planning activities
We also expect to pay down $600 million of debt in fiscal 2018, which will achieve our debt repayment commitment and we would not expect any further net reduction in debt over the medium term
We expect free cash flow to be in the range of $850 million to $900 million
We ended fiscal 2017 with working capital of 43 days, a six-day improvement over 2016. And fiscal 2018 guidance reflects continued improvement in working capital performance and capital expenditures of about $130 million
For segment guidance, growth in all the segments
Communication Systems revenue is expected to be up 3% to 5%, with DoD up double digits, from growth in modernization revenue and International about flat to down modestly
Modernization growth in DoD will primarily be in the second half of the year, as we start to ship handheld radios for the Special Forces and manpack for the Army
The guidance for DoD and International includes both legacy Harris and Exelis product line, reflecting the integration of the two legacy operations and our current management of the business
Slide 14 provides historical orders, revenue and backlog for the combined legacy Harris and Exelis businesses, which we expect to report on a consolidated basis going forward
Public Safety is expected to be about flat
Segment operating margin is expected to be between 29.5% and 30.5%, reflecting the impact of new program starts and incremental systems work, offset by benefits from operational excellence programs and fixed cost leverage from higher volume in the Rochester factory
Electronic Systems revenue is expected to be up 3% to 5% driven by higher avionics revenue from backlog growth in fiscal 2017, strong electronic warfare revenue and the continued ramp of international battlefield management system
Segment operating margin is expected to be between 19% and 20%, reflecting the remaining transition of the ADS-B program from build-out to sustainment, partially offset by volume growth and additional pension income
In Space and Intelligence Systems, revenue is expected to be flat to up 1%
Classified business representing about two-thirds of the segment is expected to grow mid single-digits as we leverage (18:42) synergies between Harris and Exelis, build on strong customer relationships and benefit from growth in the intelligence budget
However, this growth will be partially offset by program transitions and incremental budget softness in the environmental business, which is expected to last for most fiscal year
Segment operating margin is expected to be between 16.5% and 17.5%, reflecting operational efficiencies and additional pension income
Turning now to fiscal 2018 EPS bridge on slide 11. We expect the ADS-B transition to bring EPS down by $0.22. We started seeing the impact of the transition in the second half of 2017 and it will continue through first half of 2018. This headwind will be mitigated by lower share count and interest expense from our capital allocation actions in fiscal 2017. Increase in segment operating income from higher volume operational efficiency savings and increase in pension income will contribute an additional $0.30 to $0.50 to EPS, resulting in EPS guidance of $5.85 to $6.05. With that, let me now turn it back to Bill
So your question, <UNK>, was on the fiscal 2017 free cash flow or fiscal 2018?
Yeah, absolutely
So the big thing – so there are two ways to look at this, <UNK>, one going from kind of 2017 to 2018. The big piece is we were targeting about three days improvement in working capital, and we got six
So, it was slightly increased benefit from working capital in fiscal 2017 versus fiscal 2018. And most of that was driven by some collections that we are forecasting in July that came in early in June
So that creates a little bit of headwind for us
Also keep in mind that our revenue is growing up
So, as we continue to improve working capital base, the contribution from working capital in dollars will not be that much
So, as we look from 2017 to 2018, the big drivers will be reduction of integration and restructuring cost that we had this year, about $10-ish million of working capital dollar improvement, while we continue to improve our days, and does get offset by some increase in CapEx
So that's kind of the bridge between 2017 and 2018. And going from net income to that, I mean it's depreciation, and basically offsetting some of the non-cash pension income and some improvement in working capital and the D&A
So, it's pretty standard stuff
So, longer-term, it's the same, the drivers of getting to $1 billion (25:02) have not changed
As we look from where we end fiscal 2018 and going to $1 billion, it will be driving working capital improvements, and continuous improvement in capital efficiency
I think Bill has mentioned before, I think in the last four years, five years that we've done a great job of reducing our CapEx
And as we've taken 2 million square feet of our floor space, out of our consolidated business between Harris and Exelis, that continues to drive a lower CapEx
And then growth in top line will drive earnings growth
So, those are the big pieces of getting to a $1 billion
And the only other thing, <UNK>, I would say is that given the order that we got in fourth quarter allowed us to keep the program on track with some of the development, risk reduction, and other work, so that way the slight delay in order did not impact the revenue profile, so that was important
You bet, <UNK>
So, <UNK>, ADS-B, I mean I think this contract goes back to 2007, 2008, when Exelis started it
The first phase ended, which was kind of the build out phase, ended in September 2016. So, it ended kind of Q1 of our last fiscal year
Then, we got some extension and one-time award and all that for settlement
So, realistically speaking, it kind of ended Q2 last year
So, we started seeing the ramp down on margins, and it's a fairly – because it was build out, going to more sustainment, there're still very, very healthy margins, but it's not at that level that we've been getting
So that's – we've kind of been talking about it
We spoke about it in the Q3 call as well as we were seeing that come down
So it creates whatever $0.22 of headwinds on EPS for us and to be largely be in the first half and then the margins stabilize and kind of stay at that level for going back next four years
It'll be slightly north of $100 million in fiscal 2018.
There will be dividends
So, we expect to generate between $850 million and $900 million
We typically keep kind of $300 million of cash
We ended the year with $484 million
So, we've got about $200 million extra as we start the year and we will deploy that about $600 million for debt, $150 million for stock buyback and about $270 million-ish for dividends
So, that's the layout
| 2017_HRS |
2016 | GRMN | GRMN
#Thank you.
It seems like we don't hear <UNK>.
So in terms of product placement, certainly, there is puts and takes but we think we are generally represented well in every major retailer.
And we also have a very strong presence with the products that you mentioned, particularly, in the fitness and outdoor area, and specialty retailers.
So generally, we've been working hard on expanding our retail presence.
We've been working hard on improving the presentation of our products at retail over the past year.
We think that we've made a lot of progress.
In terms of integration of our apps with others, we already do quite a bit of that since we have integration with MyFitnessPal for nutrition tracking and we also have integration on the cycling side with Strava as well.
So we're very open to partnerships and we've been demonstrating that.
Well, I think we're our strongest marketing.
We're focused on the Garmin brand and we're focused on partnerships that enhance the Garmin brand.
Yes, so in terms of where we're at, it's probably difficult to precisely nail it down but we think it's somewhere in the 20% to 25% equipage that's occurred so far in the market with the vast majority of the equipage yet to come.
I think pilots and aircraft owners are just like everybody else.
They will probably ---+ a lot of them will wait until the last minute so we do see a building momentum as time goes on as we lead up to the 2020 deadline.
In terms of how we're doing, I think we're doing very well.
It's one of those areas where it's difficult to precisely nail down market share but we believe our share so far in the equipped airplanes is north of 70%.
It's in line.
Thank you <UNK>.
| 2016_GRMN |
2018 | NWN | NWN
#Thanks, <UNK>, and good morning, everyone.
I'll start today with highlights from the quarter and then turn it over to <UNK> to cover our financial performance.
And then finally, we'll come back and I'll wrap up the call with an update on some of our key projects and objectives.
The year, frankly, is off to a good start.
Our financial results were solid, and we're making significant headway on a number of key objectives.
For the first quarter of 2018, net income increased $1.2 million to $41.5 million.
The utility performed well as customers continue to convert and build new homes with natural gas.
Our economy remains very strong.
Oregon posted a favorable 4.1% unemployment rate for the first quarter of 2018, which is on par with the national rate.
The job market continues to expand.
Oregon job growth was 2.2% over the last 12 months while the U.S. increased 1.5% over that same time period.
Oregon building permits increased 9% in the first quarter compared to where we ended 2017.
And while Portland single-family building permits were off slightly from the fourth quarter, the most recent Oregon forecast projects housing starts to pick up for the rest of the year.
Here at Northwest Natural, we've added nearly 12,000 customers over the last 12 months, which results in a growth rate of 1.6%.
As you know, in late December 2017, we filed a general rate case in Oregon.
This past March, we lowered our request to incorporate the effects of federal tax reform.
With that change, we are now requesting a 4% or $25.7 million increase to the company's revenues.
All in all, we're very early in the stages of the rate case and will continue to work through things as the schedule progresses.
The Oregon Commission has 10 months to review this case with an order targeted for October, and of course, new customer rates effective November 1.
With that, let me turn it over to <UNK> to cover the financial details.
<UNK>.
Thank you, <UNK>, and good morning, everyone.
Before we go through the drivers of operating results today, I want to comment on the effects of the new revenue recognition accounting standard and tax reform.
Like others, we have implemented the new revenue standard this quarter on a prospective basis.
While our financial results are not impacted by the standard, there is a presentation change to our income statement.
We are now presenting revenue taxes grossed on our income statement.
In prior periods, revenue taxes were netted with operating revenues and have not been restated.
This change did not impact the utility margin, which we continue to present net of revenue taxes and is comparable period-over-period.
Regarding tax reform.
Until we reset customer rates, we will defer into a regulatory liability, the difference between a 35% tax rate currently used in customers' rates and a new 21% tax rate.
This deferral reduces operating revenues and utility margin, which, over the course of the year, will largely be offset by lower income tax expense.
All things considered, tax reform results in higher net income in the first and fourth quarters and lower tax benefits in the second and third quarters, with little change anticipated to full year results from the utility.
We'll get into the specific numbers on this in a moment.
Now moving to financial results.
Note that I'll describe individual earnings drivers on an after-tax basis using the statutory tax rate of 26.5%.
Overall, results met our expectations.
We reported net income of $41.5 million or $1.44 per share for the first quarter of 2018, an increase of $1.2 million or $0.04 compared to net income of $40.3 million or $1.40 for the same period in 2017.
The increase in net income reflects stable utility earnings and lower depreciation expense at our Gill Ranch facility.
Focusing on the utility segment.
Net income remained largely unchanged as a $6.9 million decrease in margin and slightly higher O&M and depreciation expense were offset by a $9 million decrease in tax expense.
Strong customer growth, which contributed $1.2 million to margin, was more than offset by the effects of weather.
Weather in our service territory was 5% warmer than average in 2018.
By contrast, 2017 weather was 26% colder than average.
While the weather normalization mechanism in Oregon provides a large degree of margin stability, weather does affect results as we do not have a normalization mechanism in Washington, and a portion of Oregon customers have opted out.
Also affecting margin this quarter was the revenue deferral related to tax reform, which decreased utility margin by $4.7 million.
As noted, we also recognized a $9 million reduction in our income tax expense related to tax reform.
The resulting $4.3 million net benefit from tax reform in the first quarter will largely reverse by year-end as the revenue deferral continues to grow with volumes throughout 2018.
Turning to cash flow highlights.
During the first quarter, the company generated $105 million in operating cash flow.
We reinvested these proceeds back into the business with $57 million in capital expenditures, including $21 million for the construction of the North Mist storage expansion.
Our balance sheet remains strong with a solid capital structure and ample liquidity.
With regards to tax reform.
Looking forward, we continue to work with our regulators on the means by which we will return the deferred tax benefits to customers.
Several workshops with all of the utilities in Oregon have been held, and we anticipate incorporating these customer benefits with our new rates in Oregon this fall.
Another important aspect of tax reform is its impact on cash flows.
The elimination of bonus depreciation for assets that go into service on or after September 27, 2017 will result in higher cash tax payments for a couple of years.
We continue to estimate that cash from operations will be approximately $40 million lower during the 2018-'19 period as we transition away from bonus depreciation.
In summary, our thoughts on tax reform have not changed from the last quarter.
We continue to work through the details with our regulators seeking to balance our opportunities and obligations.
We continue to see tax reform as generally favorable over the long term with some modest near-term cash flow impacts.
Moving to the 2018 guidance.
Capital expenditures for the year are expected to range from $190 million to $220 million, including about $25 million associated with completing our North Mist Expansion.
For the 5-year period ending 2022, we estimate utility capital expenditures to range from $750 million to $850 million.
While tax reform enhanced earnings this quarter, we expect the benefit to reverse as we move through the year.
We anticipated these impacts, and the company reaffirmed 2018 earnings guidance today in the range of $2.10 to $2.30 per share.
Guidance assumes continued customer growth from our utility segment, average weather conditions and no significant changes in prevailing regulatory policies, mechanisms or outcomes or significant laws or regulations.
With that, I'll turn the call back over to <UNK> for his concluding remarks.
Thanks, <UNK>.
Let me give you an update on our North Mist Expansion Project.
As you know, we've been operating our natural gas storage facility in Mist, Oregon for nearly 30 years.
The Oregon storage market is uniquely situated.
With just a single pipeline serving the region, storage is essential to support reliable service and thus is extremely valuable.
Our Mist capacity is in a premium location with limited competition from other storage facilities and consistently provides high-value long-term contracts.
The majority of the facility, around 11 Bcf, is used for our core utility customers.
Over the last several years, we focused on expanding this facility with the construction of the North Mist gas storage project.
The project will support grid reliability by supplying unique, no-notice storage service to Portland General Electric, allowing them to balance the variability of additional renewable power on the electric grid.
The estimated cost of the expansion, which includes the development of a new 2.5 Bcf reservoir compressor station and a 13-mile pipeline, is $132 million.
To date, we have completed the pipeline from the North Mist facility to PGE's industrial park.
At this stage, we're connecting the pipeline to the wellheads.
And while slightly delayed, we expect to begin free flow injections into the reservoir in the coming weeks.
Another key aspect of the project is the completion of the compressor station.
All major plant components have been delivered to the site, and we expect construction to be completed this summer.
We are approaching the final stages of this project.
It is essential that we move from free flow injections to compressed injections this summer to meet a December 2018 in-service date.
This team will ---+ our team will be driving hard to reach that goal.
As a reminder, when the expansion is placed into service, the investment will immediately be rate based under an already established tariff schedule that has been approved by the PUC.
The facility is contracted for an initial 30-year period to PGE with renewal options up to 50 years beyond that.
Before we close out the call today, I want to provide a quick update on our water utility strategy.
In December, we announced agreements to acquire 2 utilities in Oregon and Idaho.
We continue to progress the regulatory dockets for those acquisitions and expect them to close in the second half of 2018.
Although the financial implications of these transactions are small, I continue to believe this is an exciting opportunity for the company over the long term.
As we've discussed in the past, we strive to provide stable, growing gas utility earnings while seeking to add earnings streams that have a similar risk and cash flow profile as our regulated gas utility.
We will remain disciplined and focused as we continue to pursue this strategy.
Overall, I feel very good about the opportunities in front of us.
We remain focused on working with policymakers and customers to continue providing value for both our customers and our investors.
Thanks again for taking time to join us this morning.
And with that, Steven, I think we're ready to open it up for questions.
Yes, not a lot to update at this point, <UNK>.
As you know, we took a major impairment of the asset in the fourth quarter last year and also indicated to the market and others that the asset is no longer strategic to us.
Obviously, it's still in the portfolio.
We'll continue to run it very safely and do what we need to do to serve customers.
But at this point, there's no update on long-term outcome of that asset.
No.
Again, I didn't say that.
What I did say is that it's no longer strategic to the company, and at this point, we don't have any updates for you.
Yes.
No, it's a good question.
We're ---+ as I indicated in my prepared remarks, we're really early in the process, <UNK>.
And if you've looked at other rate cases, and specifically, in Oregon, this is not an unusual pattern that when the first round of testimony comes out from staff and, to some degree, intervenors, it has a lot of items in there that, over the period of time, will hopefully be reconciled.
And it's normal items.
The good news is, on our rate case, it's a fairly straightforward rate case.
It's really more about rate based and expenses.
There's not a lot of policy-level items in there.
So typically, with the first round of testimonies come out, people are questioning CapEx, and they're questioning rate-based levels, they're questioning expense levels.
And we're just, right now, in the process of going back and making sure people understand this is the numbers we filed, this is the level of rate base we have, this is why it's in the rate case and things like that.
So at this juncture, it's fairly early.
It's obviously ---+ we'd like it to be going a little bit quicker than it already is, but this is just part of the process that you go through.
And we'll continue to move through and work through the parties, which include meetings this week and continue the process.
And hopefully, our goal, frankly, would hopefully be able to settle.
But in the event that we can't settle, then we'll go to full route as we have in the past with the commission.
All right, Steven.
Well, that was quick.
I hope everybody has a great day.
If you have any questions, reach out to <UNK> <UNK> directly.
I will be happy to follow up.
And for a lot of analysts out there, we look forward to seeing you at the American Gas Association Financial Conference here in a couple of weeks.
Thanks, Steven.
| 2018_NWN |
2017 | AGYS | AGYS
#Thank you, Jonathan.
Good afternoon and thank you for joining us to review our fiscal 2017 third-quarter results ending December 31, 2016.
Joining me on the call today are <UNK> <UNK>, our interim CFO, and <UNK> <UNK>, our CTO.
I'm happy to be with Agilysys and with all of you here today.
We are at a good stage now in the history of Agilysys.
A tremendous amount of investment, hard and smart work during the past few years have created significant competitive advantages for us, which we can now leverage to improve financial performance and enable significant value creation in the near- and long-term.
I'm grateful to our Board of Directors, management and other teams in Agilysys for this opportunity, to use the experience gained during my past successful stints at similar situations in enterprise software companies and to leverage the previous investments already made here to lead Agilysys to greatness.
I've been here for about 1.5 months now and, while I am still in the process of learning and getting my arms around all the details, the opportunities for disciplined revenue and profitability growth are quite clear to me.
I don't expect a turnaround to happen overnight, but I'm confident that it will happen in the near-term.
There will be a transition period both for myself and our team members as we look at approaching and handling many parts of our business differently.
During the recently concluded December quarter, revenues increased 7% to $33.4 million with recurring revenues posting a quarterly record of $16.2 million or 49% of total net revenue.
Subscription-based SaaS revenues, which is one of the significant parts of our recurring revenue base, increased by 48% year over year.
Gross margin during the quarter was 48.6%, reflecting the impact of amortization of software development costs, for rGuest platform and a product suite.
This led to a net loss during the quarter of $1.7 million or $0.08 per diluted share, compared to a net loss of $1.7 million and $0.07 per diluted share during the prior year period.
Adjusted EBITDA was $3 million compared to $0.6 million during the same period last year.
We continue to make good progress in growing our subscription-based SaaS revenue.
The total contract value of subscription-based SaaS bookings for rGuest and other previously well-established products have nearly doubled during the first nine months of fiscal 2017.
With respect to our installed base, we ended the third quarter with more than 38,000 point-of-sale endpoints, up 15%, 1-5% from the same period last year.
Nearly 248,000 hotel rooms are now being managed by our lodging solutions, up 6% from the third quarter of fiscal 2016 and representing 5% of approximately 5 million hotel rooms across the United States.
During the December quarter we secured 29 contracts with new customers.
The total contract value for subscription-based SaaS bookings for new customers increased 16%, 1-6% compared to new deals in the third quarter of last year and represented nearly 59% of new customers for the quarter.
Before I turn the call over to <UNK> for additional commentary regarding our financial results, let me take a couple more minutes to share with you some of my initial thoughts, observations and expectations based on my first five weeks here.
Agilysys is in a great position to grow as an industry leader in hospitality solutions and deliver significant added shareholder value.
I had the opportunity to meet and speak to our customers during our recent user conference Inspire, and many of them are keen on increasing their business levels with us if we could show some improvements in our product and solutions delivery velocity.
The revenue growth opportunities are clearly there before us.
It was also clear that many of the customers [are] open to replacing competitive products with Agilysys solutions.
The combination of our strong and well-established product solutions like LMS and InfoGenesis, along with our newer rGuest product suite which will redefine the future of hospitality solutions and set the technology standard in many different ways, that combination gives us the ability to meet both the short-term and long-term needs of our customers and their guests.
Some of our customers are also encouraging us to get our international expansion plans into high gear.
As you know, international growth is a revenue stream we have barely scratched the surface of so far.
We are fortunate to be serving markets which are healthy, growing and in need of improved solutions to keep up with the fast-paced technology changes that our guests expect and have become accustomed to.
Our customers are in markets which are growing and becoming increasingly competitive, creating a growing need for hospitality solutions.
In lodging there are now over 53,000 properties in the US alone.
And the restaurant industry, which we can do a much better job of serving in the future, has over 1 million locations across the United States.
I expect that we will significantly improve our internal productivity levels across the entire range of product development and delivery, customer services and support, sales and marketing and all other departments to take advantage of the opportunities in front of us.
We believe we are currently at the peak of our cost basis as a percentage of revenue in virtually every category of spend.
Going forward, it is more a matter of managing productivity of output per unit of spend and getting more done in better cost effective ways.
Going forward, I expect our revenue growth curve to be steeper than the cost growth curve.
We will be equally effective with execution and innovation and will not sacrifice one for the other.
Our customers expect both solid execution and great innovation from us.
And I know from experience that there is no better way to create great shareholder value than exceeding our customer expectations in both execution and innovation.
We will be coming to today's innovation leaders in this industry and drive the rGuest product suite forward at an accelerated pace.
Based on customer demand, we will also increase our product enhancement and delivery velocity on our well-established products as well.
We are currently in the process of opening a wholly-owned captive development and technical support center in Chennai, Madras, India.
We expect the center to be operational and adding significant strength to our current R&D, services and support teams by June/July this calendar year.
I've had very successful previous experiences leading the establishment of and running of such development centers for Manhattan Associates and [Value Technologies] in my prior lives.
We are confident that, apart from helping us with our immediate productivity, time to market and customer service objectives, the Chennai center will also greatly help us establish a significant market presence in Asia where we have great opportunities for top-line revenue growth.
We are continuing to make good progress with new business opportunities with a couple of large global hotel operators.
On the new business front we recently announced that the Mark Hotel in New York City has selected InfoGenesis point-of-sale and InfoGenesis Flex to streamline food and beverage operations at their world renowned 150 room luxury property, further solidifying our leadership position in the upscale hotel and resort market.
Other notable new business wins include: Cypress Bayou Casino Hotel in Louisiana selecting a comprehensive suite including InfoGenesis POS and Flex as well as rGuest Analyze and rGuest Pay; the Horseshoe Bay Resort in Horseshoe Bay, Texas incorporating VisualOne traditional; (inaudible) Casino and Hotel in Iowa choosing Stratton Warren SaaS; Rosewood Sand Hill in Menlo Park choosing InfoGenesis SaaS; Spirit Lake Casino and Resort in North Dakota incorporating VisualOne SaaS and rGuest Pay; Wallowa Lake Lodge in Oregon choosing rGuest Stay and Pay along with InfoGenesis SaaS; and the (inaudible) Resort and Golf Club choosing InfoGenesis SaaS and rGuest Pay.
With that, let me turn the call over to <UNK> who will review our financial results for the quarter.
<UNK>.
Thanks, <UNK>, and good afternoon, everyone.
Beginning with a review of our income statement, third-quarter fiscal 2017 total revenue was $33.4 million, representing a 7% increase from total net revenues of $31.3 million in the comparable prior year period.
Breaking down our revenue mix, product net revenues, which is comprised of both third-party remarketed products, including hardware and software, and on-premise proprietary software license sales, decreased 16% to $10 million and represented 30% of total revenue during the quarter compared to $11.9 million and 38% of total revenue during the prior year period.
The decrease compared to the third quarter of fiscal 2016 is related to a reduction in third-party remarketed products.
Q3 of last fiscal year included a couple of outsized third-party product deliveries which we were able to benefit from.
On a sequential basis product revenue was flat.
Support, maintenance and subscription revenue or recurring revenues grew by 9% to $16.2 million and represented 49% of total revenues compared to 48% in the third quarter of fiscal 2016.
Driven by a 48% increase in our subscription-based SaaS revenue which itself accounted for 24% of support, maintenance and subscription revenue or approximately $3.9 million compared to $2.6 million, or 18% of support, maintenance and subscription revenue in the fiscal 2016 third quarter.
Going forward, we expect support, maintenance and subscription revenue will show similar growth trends and that we will end fiscal 2017 with a 4% to 6% year-over-year growth rate.
The ongoing growth in our subscription revenues is creating a larger base of recurring revenue that we will be able to recognize in coming quarters.
Professional services revenue grew 61% to $7.2 million compared to $4.5 million in the third quarter of fiscal 2016, reflecting a greater utilization of our services resources and increased capacity in support of new installations along with a $1.1 million services revenue related to revenue previously deferred for services provided in the past where contractual commitments precluded revenue recognition until this quarter.
Year to date overall revenue has increased by 10% with product revenue almost flat, support, maintenance and subscription revenue up 6% and professional services revenue up 48%.
As it relates to the rGuest products, these revenues comprised 6% of total fiscal 2017 third-quarter revenue.
We did today revise our full-year revenue guidance as we now expect fiscal 2017 revenue will be in a range of $128 million to $131 million, modestly below the previously anticipated range of $132 million to $136 million.
This decline in the Company's revenue outlook is attributable to a reduction in realized and anticipated upfront product sales in the last half of the year, while support, maintenance and subscription services revenue, including SaaS revenue as well as professional services revenue, remain strong.
Moving down the income statement, cost of goods sold increased approximately 16% to $17.2 million.
This increase contributed to a 2% decline in total gross profit from $16.5 million to $16.2 million for the third quarter of fiscal 2017 and gross profit margin fell by 410 basis points to 48.6%.
This decrease in gross profit and gross profit margin was primarily driven by the impact of an incremental $2.1 million of developed technology amortization costs as a result of certain rGuest products being placed into service in the first half of 2017.
We now expect gross margins will be just below the 50% range due to the lower full-year revenue outlook related to the continued shift in revenue towards more subscription-based sales from traditional software sales that is occurring faster than we anticipated.
Operating expenses inclusive of product development, selling and marketing and general and administrative expense was $15.5 million in the third quarter of 2017.
This compared to $17.1 million in the third quarter of fiscal 2016 and represented 46% of total net revenues versus 55% in the prior year period.
Product development expense in the third quarter of fiscal 2017 decreased 2% year over year to $6.8 million and represented 20% of total revenue, slightly below the 22% in the third quarter of fiscal 2016.
Sales and marketing increased $0.4 million, or 8%, in the third quarter of fiscal 2017 compared with the third quarter of fiscal 2016.
The change is primarily the result of an increase of $0.2 million in employee wage-related expenses as well as increased spend in advertising and promotion of $0.2 million related to new lead generation investments in content, search engine marketing and target prospect databases in order to accelerate the growth in lead acquisition and pipeline velocity in support of future revenue growth.
This was partially offset by a decrease in general and administrative of $1.8 million, or 33%, in the third quarter of fiscal 2017 compared with the third quarter of fiscal 2016.
During the third quarter of fiscal 2017, we recorded $1 million in forfeiture credits related to unvested share-based compensation expense and a $0.2 million reversal of accrued incentive awards for the Chief Executive Officer and Chief Financial Officer whose departures from the Company were announced during the third quarter of fiscal 2017.
An additional reduction of $0.2 million was related to reduced incentive expense for other employees for the full-year fiscal 2017 as compared to the full-year fiscal 2016.
This led to an operating loss of $1.6 million for the third quarter of fiscal 2017 compared to an operating loss of $1.7 million in the prior year period.
Net loss for the third quarter was $1.7 million or $0.08 per diluted share compared to a net loss of $1.7 million or $0.07 per diluted share in the third quarter of fiscal 2016.
Adjusted EBITDA increased by approximately $2.4 million in the third quarter to $3 million versus $0.6 million in the third quarter of fiscal 2016.
Moving to the balance sheet and cash flow statement, cash and marketable securities as of December 31, 2016 was $52.7 million compared to $60.6 million at March 31, 2016.
The decrease in cash reflects approximately $10.3 million of spending related to ongoing product development investments.
Net cash provided by operations was $5.4 million compared to the prior year period of $8.3 million of net cash provided by operations.
Adjusted for nonrecurring items, net adjusted cash provided by operations for the first nine months of fiscal 2017 was $6.2 million compared to $8.9 million in the prior year period.
In terms of NOLs, we have $190 million on our books for which we can attribute a full valuation allowance and which will help us remain liable for just taxes paid in foreign jurisdictions along with minimal state taxes for the foreseeable future.
Looking ahead to the balance of fiscal 2017, we continue to expect full-year revenue growth in the 6% to 9% range with continued growth around subscription-based contracts, which result in both professional service revenue and remarketed product revenue upfront and software license revenue over the term of a contract.
To wrap up, as we get ready to close fiscal 2017 we remain well-positioned to take advantage of many revenue growth opportunities in front of us.
With that, Jonathan, we can take some questions.
Hey <UNK>, nice to talk to you again.
Thank you very much, I appreciate it.
Yes, there are lot of parallels, not only with Bally systems, but before that about seven years with Manhattan Associates when that Company group its revenue like seven times in seven years or so.
So there's a lot of parallels here.
Both are in the B to limited B, it's not B2B like big companies like Microsoft or Oracle, but B to limited B enterprise software.
There's a lot of similarities among Manhattan, Bally systems and this.
And when I look at the current situation where we are, both positives and negatives, and how much improvement is possible, both from the top line and in profitability, there are a lot of parallels.
And I hope I've learned my lessons well and I hope I carry a few lessons well with me that I can bring to bear in this situation.
Yes, hey <UNK>, thanks for the question.
Like you said, we are not providing specific EBITDA guidance for this year.
What I can tell you is that we will be a few million dollars off of our original estimates due mainly to two things.
There's a couple million dollars related to the reduction in revenue that you mentioned and that we guided to in the press release.
That's mainly due to lower product sales.
The other thing that will drop our EBITDA down a little bit is a couple million dollars of extra expense that we didn't originally plan.
That's necessary in order to help expand the business and that's related to the investment we talked about on the last call.
Yes, you kind of broke up a little bit, <UNK>, in between your question.
You are talking about extra spending on what, please.
Okay, got it.
So as far as the large-scale hotel operators, the larger deals that you are talking about, those opportunities continue to grow for us.
And InfoGenesis product line is our top focus area there.
And implementations on the initial properties of those large-scale operators are already underway and that will be an important component of our top-line growth going forward.
Now with respect to the extra spend, and I will also kind of connect this with <UNK>'s question before about lessons that I've learned before, a lot of what we are facing now is being more cost-effective with what we do, focusing on our productivity levels, generating revenue from our previous well-established products as well.
So there are a number of areas that this Company can improve a lot without any big extra spending.
So, when you think about cost structure in all areas, whether it is in product development or any other area of the business, in every category of spend I expect cost as a percentage of revenue to start going down.
So you look at our overall cost part of which is in cost of goods sold and part of which is in operating expenses, our overall cost as a percentage of revenue will start declining now.
So from a revenue percentage standpoint, there is no more major extra spend that we need to do to bring home a lot of the new opportunities that we have.
As revenues grow I expect costs to grow but at a much lower rate.
So the cost growth will be at a much lower rate than the revenue growth rate.
So, relative to revenue level, there is no extra spending contemplated going forward.
But as our top line continues to grow we will make the prudent investments in the appropriate areas.
But more and more at Agilysys you will see the gap between revenue and cost [increasing].
Does that make sense, <UNK>.
We expect to get to free cash flow positive within the next ---+ we can't guide to an exact time period on that.
But we are putting in place various changes and various initiatives to improve productivity and cost effectiveness.
That will get us to a free cash flow positive stage in the not too distant future.
I will leave it at that.
<UNK>, this is <UNK>.
We don't ---+ <UNK> has only been here call it six weeks.
We are in the early stages of our fiscal year 2018 planning process.
And at this point we just don't want to give guidance for next year or the future.
But to <UNK>'s point, our goal is cash flow positive and we expect that cost as a percentage of revenue will continue down from this point; that's a big focus for us.
Yes, we've still got right around 30, a little bit over 30 quota carrying reps which hasn't changed much in the last couple quarters.
And there is no current term plan to change the structure of our sales force.
We feel like we have got a pretty good base of quota carrying reps.
But as we enter into the new fiscal year anything is possible, so we are going to look at that as part of our planning process.
So, when we talked about reducing spend as a percentage of revenue, CapEx is part of that conversation as well.
So we are looking at total ---+ all cost of the business, OpEx, cost of goods sold, CapEx.
So, that's a big part of our business.
We spend a lot of money on CapEx and we are going to be laser focused on that particular area and do what we can to make that follow the same trend as the rest of our cost.
And, <UNK>, please don't interpret that as any reduced focused or any reduced, quote/unquote, reducing the investment.
We just want to be more cost-effective with the investments we have made and the investments we will continue to make.
And relative to revenue, we will continue to get to a better place as far as our overall spend is concerned.
But all the focus areas that have been mentioned before remain and we just get better at doing more with the amount of money we spend.
Yes, so number one, we need to be a lot more cost-effective with what we do in terms of being more productive, because in terms of all the investment, everything we need to do to grow our kind of business, we've made all the right decisions so far.
So they are all there.
It is a matter of doing more with what we spend.
We also need to increase our product delivery velocity.
We need to ---+ we have significant investments in R&D obviously and we just need to deliver products at a quicker pace.
Now in terms of lessons learned from my previous lives, like <UNK> was asking me about, there are more revenue levels to be made from our currently established products as well.
So our top-line revenue growth can come from are currently established products and from our new rGuest product line.
And I think we have room for improvement in customer centricity, remaining accessible to customers, taking both their short-term and long-term needs more seriously.
So, in terms of customer centricity, product delivery velocity, increasing the cost effectiveness of what we do, those are all areas in which we can get much better as an organization which will result in much better profitability.
This is <UNK> <UNK>.
Just to add a couple things there from specifics, when we talk about moving to these large-scale estates and where you are managing thousands of outlets from a single site versus hundreds, there is a number of configuration management items that need to happen so that you can actually manage an enterprise from a single location.
That's one of the core things that we are working on as well as necessary international expansion.
Those are the two big areas from I would say feature bucket perspective.
Sure.
So part of that ---+ the slight reduction, it's about 3% or so delta that we are talking about here, part of that decreased product sale has to do with the fact that certain hardware pieces that we used to sell before, as we move more and more to subscription-based SaaS revenues, that hardware sales will reduce.
And I think part of it also had a little bit to do with the leadership change uncertainty and there were some customers who we thought delayed their buying decision just to see how smoothly the leadership transformation happened.
And that went very well in the user conference so that confidence should come back.
And also the fact we are switching to SaaS-based subscription revenue also had a little bit to do with it.
Yes and, <UNK>, the majority of the component of product revenues that's going to come in lighter than we expected is hardware.
There is also a component that is proprietary software.
And as we switch to SaaS, and that switch is happening faster than we planned for this year, we are seeing less proprietary software and more SaaS bookings.
Thank you, Jonathan.
Thank you all for your continued interest in Agilysys.
Please rest assured that we will continue to work hard and smart to improve our sales in all the various business areas.
We are well-positioned to drive home the various advantages we worked diligently to build.
Also a special thanks to our talented and dedicated Agilysys teams, to all our customers, partners and shareholders.
Thank you all for your support and we look forward to reporting on the next stage of our progress soon.
Thank you.
| 2017_AGYS |
2017 | GFF | GFF
#Thank you, Tracy.
Good morning, everyone.
With me on the call is Ron <UNK>, our Chief Executive Officer.
Our call is being recorded and will be available for playback, the details of which are in our press release issued earlier today.
As in the past, our comments will include forward-looking statements about the company's performance based on our views of Griffon's businesses and the environments in which they operate.
Such statements are subject to inherent risks and uncertainties that can change as the world changes.
Please see the cautionary statements in today's press release and in our various Securities and Exchange Commission filings.
Finally, some of today's remarks will adjust for those items that affect comparability between reporting periods.
These items are explained in our non-GAAP reconciliations included in our press release.
Also, please be reminded that with the adjustment of the Plastics sale transaction, we have classified Plastics as a discontinued operation.
Now I'll turn the call over to Ron.
Good morning.
Thanks for joining us.
Fiscal 2017 has been a transformational year for Griffon.
We're pleased with our results for the fourth quarter and the full year, reflecting the continued strength in our Home & Building Products segment.
Telephonics, our defense electronics business, is positioned to benefit from the expected increase in defense spending in the next few years.
Overall, Griffon's full year revenue increased 3% on a continuing operations basis.
Segment-adjusted EBITDA on a continuing basis was $173 million, increasing 3% over the prior year.
Segment-adjusted EBITDA including Plastics was $225 million, in line with our guidance and an increase of 3% over the prior year.
Before turning to my segment-level comments, I'd like to provide an update on our process of evaluating strategic alternatives for our Clopay Plastics Products segment, our acquisition of ClosetMaid, along with some color on our capital deployment activities and our return of cash to shareholders.
Earlier today, we announced that Griffon has entered into a definitive agreement to sell our Clopay Plastics business to Berry Global for $475 million.
The transaction is subject to customary closing conditions and is expected to close in the first calendar quarter of 2018.
As <UNK> mentioned in his opening remarks, Plastics is now classified as a discontinued operation.
So moving forward, we'll be reporting our business in 2 reportable segments: Home & Building Products, which includes AMES, Clopay Building Products and ClosetMaid businesses; and Telephonics.
Expect more in the years to come.
The divestiture of Plastics will unlock value for Griffon shareholders while providing enhanced opportunities for growth and value creation for Plastics and its customers and employees under Berry's ownership.
After the Plastics transaction closes, we'll evaluate the use of proceeds, which should provide a substantial amount of liquidity to either invest in opportunities that diversify Griffon's portfolio of companies, deleverage our balance sheet and/or return capital to Griffon shareholders.
On October 2, we completed the acquisition of ClosetMaid from Emerson for approximately $200 million or $175 million, inclusive of the net present value of the tax benefits.
Griffon expects 2018 ClosetMaid revenue and segment-adjusted EBITDA of $300 million and $25 million, respectively.
ClosetMaid complements and diversifies our portfolio of leading consumer brands and products.
We're proud to add the ClosetMaid brand to our family of iconic brands, including AMES, True Temper and Clopay.
In addition to his Senior Vice President of Operations role at Griffon, Mike Sarrica has been appointed President of ClosetMaid.
Mike, along with the strong leadership team at ClosetMaid, is well positioned to enhance ClosetMaid's growth and profitability, and we look forward to many years of success there.
Also on October 2, we closed on a $275 million add-on offering of our 5 1/4% senior notes due 2022.
We saw a significant demand for the offering, and we're able to upsize it from its originally announced $200 million offering.
We used the proceeds to finance the ClosetMaid acquisition and reduce our outstanding revolver balance.
Moving to capital deployment and return of cash to our shareholders, since 2011, we've repurchased $262 million of our common stock, which represents 20.4 million shares at $12.81 per share.
We've not repurchased any common stock since the first quarter of this year.
As of September 30, 2017, $49 million remains under the August 2016 board authorization.
In addition, since November 2011, we've been paying quarterly dividends.
This morning, we announced a quarterly dividend of $0.07 per share, a $0.01 increase or 17% increase over the prior quarter.
Since its inception, our dividend program has grown at an annual compounded rate of 23% per year.
I'll provide an update on our segments before turning the call over to <UNK> for more a detailed discussion of our financial results and outlook.
Clopay doors and AMES saw a strong growth during the year, with full year 2017 segment revenue improving 7% to $1.1 billion over the prior year level.
Full year 2017 segment-adjusted EBITDA of $127 million was a 10% increase over the prior year.
We remain very positive on the outlook for Home & Building Products as we continue to grow sales and improve our profitability through product innovation, acquisitions and efficiency initiatives.
We continue to see underlying strength in the U.S. housing market, with the slow but steady multiyear housing recovery contributing to our improved results.
Single-family residential construction continues to improve.
However, annualized starts remain below historic norms.
The best is yet to come.
The U.S. Census Bureau recently reported that home ownership increased 40 basis points from the prior year to 63.9%, third consecutive quarter of increase.
Year-to-date, single-family housing starts have increased 9% over the prior year period.
These data points further indicate that the housing market continues to improve.
We expect our Home & Building Products segment to further its revenue and earnings growth in the years ahead.
Also, AMES has acquired 3 businesses since the end of the third quarter.
On July 31, AMES acquired La Hacienda, a leading United Kingdom outdoor living brand of unique heating and garden decor products, for approximately $11 million.
The acquisition broadened AMES' global outdoor living and lawn and garden business and supports AMES' U.K. expansion strategy.
The acquisition is expected to generate GBP 14 million of revenue, in annualized revenue, for the coming year.
On September 29, AMES Australia completed the acquisition of Tuscan Path, a leading Australian provider of pots, planters, pavers, decorative stone and garden decor products, for approximately $18 million.
The acquisition of Tuscan Path broadens AMES' outdoor living, lawn and garden business and will strengthen AMES' industry-leading position in Australia.
Tuscan Path is expected to generate approximately AUD 26 million of revenue in the first 12 months after its acquisition.
And on November 6, AMES acquired Harper Brush for approximately $5 million.
Harper is a leading U.S. manufacturer of cleaning products for professional, home and industrial use.
The acquisition broadened AMES' long-handle tool offerings in North America to now include brooms, brushes and other cleaning tools and accessories.
The acquisition is expected to contribute $10 million in revenues in the first 12 months after its acquisition.
All 3 of these transactions are expected to be accretive to earnings in our first full year of ownership.
We'll continue to search for acquisitions that add both product and geographic expansion, particularly in Australia and the United Kingdom.
Let's move to Telephonics.
Fourth quarter revenue increased 11% over the prior year.
Full year revenue decreased 5.5% from the prior year, reflecting the current slow pace of U.S. defense spending and the timing of international orders.
During the year, Telephonics was awarded several contracts and incremental funding on existing contracts approximately $342 million.
Congress continues to indicate an increase in defense spending, which includes investments into the naval fleet.
Telephonics is well positioned to benefit from the additional helicopters on these ships and carriers.
We also continue to see many international opportunities, though these generally take longer to turn into funded orders.
We still hope mobile surveillance and border security turns out to be a growth business for us.
In 2017, Telephonics achieved a significant milestone under its multiyear company-funded research and development for our active electronic scan array technology, known as AESA, with the first flight of the AESA multi-mode radar.
This patent-pending technology will become the enabler for the MOSAIC line of radar sensors with applications in intelligence, surveillance and reconnaissance.
There are a number of Department of Defense demonstrations planned for fiscal 2018.
This technology represents a unique application of leading-edge technology to meet current and future surveillance, imaging and tracking requirements for a range of environments and missions.
We are positioning Telephonics for a better future by leveraging our U.S. and internationally based incumbent positions with market-leading technology and battle-proven, cost-effective, intelligent surveillance and communication solutions.
Turning to Plastics, which has now been reclassified as a discontinued operation.
Our full year revenue was $461 million compared to the prior year period of $480 million and was driven primarily by lower volume in our European market.
Full year segment-adjusted EBITDA improved 5% to $53 million compared to the prior year period of $50 million.
2017 overall has been an exciting and transformational year for Griffon, and we have acquired several complementary businesses in our Home & Building Products segment, with diversifying our product offerings, coupled with the announced sale of our Plastics business.
As we shift our sights now to 2018, we're laser-focused on integrating our recent acquisitions into the Griffon platform while we search for new opportunities to grow.
I'm very pleased with the work of our team, and we look forward to the upcoming year.
With that, I'll turn it back to <UNK> for a closer look at the numbers.
Thank you, Ron.
I will provide results including and excluding Plastics so that you understand how the business performed in 2017 and provide an indication of how the business will look going forward.
Full year 2017 revenue, including Plastics, of $2 billion increased 1.5% over the prior year, and segment-adjusted EBITDA increased to $225 million or 3% over the prior year.
GAAP net income and EPS were $15 million and $0.35, respectively, compared to $30 million and $0.68, respectively, in the prior year.
Adjusted net income and EPS were $37 million and $0.87, respectively, compared to $37 million and $0.84, respectively, in the prior year.
Fourth quarter 2017 revenue, including Plastics, of $550 million increased 10% over the prior year, and segment-adjusted EBITDA increased $67 million or 11% over the prior year.
GAAP net loss and EPS were $12 million and $0.29, respectively, compared to net income of $6 million and $0.13, respectively, in the prior year.
Adjusted net income and EPS were $16 million and $0.36, respectively, compared to $12 million and $0.27 in the prior year quarter.
Now moving to continuing operations results.
Consolidated full year 2017 revenue increased 3% to $1.5 billion compared to the prior year, driven by a strong performance in our Home & Building Products segment, partially offset by lower sales of Telephonics.
Our full year segment-adjusted EBITDA was $173 million, an increase of 3% over the prior year period of $168 million, again, driven by Home & Building Products.
Income and EPS from continuing operations were $18 million and $0.41, respectively, compared to $21 million and $0.45, respectively, in the prior year.
Full year adjusted income and EPS from continuing operations were $19 million and $0.44, respectively, compared to $19 million and $0.43, respectively, in the prior year.
Consolidated fourth quarter 2017 revenue increased 15% to $431 million compared to the prior year, driven by both the Home & Building Products and Telephonics segments.
The fourth quarter segment-adjusted EBITDA was $53 million, an increase of 13% over the prior year period of $47 million, driven by Home & Building Products.
Fourth quarter and EPS ---+ sorry, fourth quarter income and EPS from continuing operations were $2 million and $0.06 respectively compared to $4 million and $0.10 respectively in the prior year.
Adjusted income and EPS from continuing operations were $12 million and $0.28, respectively, compared to $6 million and $0.15, respectively, in the prior year.
By segment, Home & Building Products fourth quarter revenue increased 17% to $287 million compared to the prior year quarter.
Full year revenue increased 7% to $1.1 billion compared to the prior year.
Fourth quarter, revenue increased 17% to $126 million compared to the prior year quarter, driven by increased U.S. garden tool and wheelbarrow sales, improved Canadian snow tool sales, U.K. market expansion and benefits from our acquisitions.
Full year AMES revenue increased 6% to $545 million for the quarter compared to the prior year.
In our doors business, fourth quarter revenue increased 17% to $163 million compared to the prior year period, driven by increased volume, pricing and favorable mix.
Full year doors revenue increased 8% to $568 million compared to the prior year.
Home & Building Products fourth quarter segment-adjusted EBITDA increased 28% to a record $34 million over the prior year period, driven by the benefits of increased revenue and favorable product mix, partially offset by increased steel and resin costs.
Full year segment-adjusted EBITDA increased 10% to $127 million over the prior year.
Turning to Telephonics, fourth quarter revenue increased 11% to $144 million compared to the prior year quarter due to increased revenue from multi-mode radars and dismounted electronic countermeasure systems.
Full year revenue decreased 6% to $412 million compared to the prior year.
Fourth quarter segment-adjusted EBITDA decreased 6% to $19 million compared to the prior year quarter, primarily due to program mix.
Full year segment adjusted EBITDA decreased to $46 million from $53 million.
Fourth quarter orders of $140 million increased $134 million ---+ I'm sorry, increased from $134 million in the prior year quarter.
Backlog stood at $351 million, with 70% expected to be fulfilled over the next 12 months.
Recent levels of orders and backlog are due to timing of U.S. and international orders and the continued effect of sequestration.
Based on our pipeline of opportunities, we expect improved orders in 2018, driven by the second half of the year orders.
Moving back to consolidated results, gross profit for the quarter was $115 million compared to the prior year level of $104 million.
Gross margin for the fourth quarter declined 130 basis points to 26.5% compared to the prior year level of 27.9%, primarily driven by unfavorable program mix in Telephonics.
Gross profit for the year was $408 million compared to the prior year level of $401 million.
Gross margin for the full year declined 30 basis points to 26.8% compared to the prior year level of 27.1%, with the decrease driven primarily by unfavorable program mix at Telephonics.
Fourth quarter selling, general and administrative expenses were $98 million compared to $80 million in the prior year.
Excluding $9.6 million of acquisition costs and Telephonics' contract settlement of $5.1 million, current year selling, general and administrative expenses were $83 million or 19.2% of revenue compared to $80 million or 21.4% of revenue in the prior year, with the dollar increase primarily due to increased sales activity.
Full year selling, general and administrative expenses were $339 million compared to $318 million in the prior year.
Excluding the $9.6 million of acquisition costs and the $5.1 million Telephonics contract selling costs, current year selling, general administrative expenses were $324 million or 21.2% of revenue compared to $318 million or 21.6% of revenue in the prior year, again, with the dollar increase primarily due to increased sales activity.
Our effective tax rate, excluding the adjusting items to reconcile to adjusted income for items that affect comparability, for the current year and prior year, were 39.7% and 41.3%, respectively.
For the full year fiscal 2018, we expect the tax rate, excluding items that affect comparability, to be approximately 37%.
As is always the case, geographic earnings mix and legislative actions may impact rates.
For the full year 2017, capital spending was $80 million inclusive of Plastics and $35 million excluding Plastics.
For fiscal 2018, we expect capital spending to be approximately $45 million, inclusive of ClosetMaid and excluding Plastics.
The full year fiscal 2017 depreciation and amortization was $48 million.
We expect fiscal 2018 depreciation and amortization to be $57 million, inclusive of and subject to finalizing the purchase price allocation of ClosetMaid.
As of September 30, 2017, we had $48 million in cash and total debt of $979 million, resulting in a net debt position of $931 million.
We had $192 million available for borrowing under our revolving credit facility, subject to certain loan covenants.
Corporate unallocated expenses for the full year 2017 were $42 million, including all equity compensation for the company and the effect of discontinuing Plastics.
We expect approximately $45 million of expenses in 2018.
Turning to our guidance for 2018, we expect approximately 22% revenue growth, inclusive of the $300 million of ClosetMaid revenue.
By each segment, we expect Home & Building Products to grow approximately 33%, inclusive of ClosetMaid and the recent AMES acquisition.
And we expect Telephonics to decline approximately 10% due to current levels of backlog.
In providing this guidance, we are mindful of the risks and impacts of weather to AMES, the health of the housing market on Home & Building Products, U.S. Department of Defense budgets on Telephonics and foreign exchange and commodity costs on Home & Building Products.
Based on revenue guidance and with consideration of continuing improvements in our operations, we expect segment-adjusted EBITDA of $205 million in 2018, inclusive of ClosetMaid.
This compares with $195 million in 2017 on a pro forma basis, adjusting for the sale of Plastics and inclusive of ClosetMaid.
I'll now turn the call back over to Ron for his closing comments.
We've been very busy.
This is a great moment for us.
Fiscal 2017 and the start of this year has proven to be pivotal for us, and we've completed 5 acquisitions and today announced the divestiture of our Plastics business.
We continue improving our businesses' profitability while focusing on delivering shareholder value.
As we shift into 2018, we are looking to improve our segment results through sales diversification, efficiency initiatives and refining our operations as we integrate the recent acquisitions.
Our expected EBITDA growth in 2018 comes with higher free cash flow, which has us very excited about our future.
Finally, I want to thank our employees around the world for their dedication and perseverance in closing out another successful year.
And to the employees of Clopay Plastics, we thank you for the many decades of contribution to Griffon.
With that, operator, we'll open it up for questions.
Congratulations on realizing some strong value in Plastics.
Thank you, Bob.
Yes, so just starting there, and I know that tax legislation may change next year, so we don't know what you'd pay in taxes.
But what's roughly, this might be for <UNK>, the cost basis for Plastics so that we can make an estimate of the gain on sale, if there is any, that you will be paying taxes on.
Sure.
So we'll have approximately $85 million to $90 million of taxes to pay on this.
The book basis for a GAAP reporting standpoint is roughly $320 million.
But that fluctuates, of course, with time and fluctuations in exchange rates.
Yes.
We're hoping for 20% corporate tax, which will change that number significantly.
We'll see what Congress comes out with.
Yes, absolutely.
Okay.
And then shifting over, appreciate the big transformation you're making.
It's very exciting.
The ClosetMaid acquisition, can you just give us an update on that.
You obviously amended the purchase price.
I guess, the biggest question is does the small changes that occurred there have any impact on the future expectations and future synergies.
If you could talk around all that for us, please.
Look, we think the combination of ClosetMaid into our company is going to be productive to be able to both grow revenues and, over time, take expenses out.
So we're very optimistic that the $300 million run rate that we're buying the business at has room for growth.
But we also believe that this is a business like everything else that we've been able to do across both our doors business, the AMES business.
This is a better than 10% EBITDA margin target, so we're very focused near term on the costs of separating it out of Emerson and including it into our company.
So for the year ahead, we budgeted it at a $25 million contribution.
We expect it to be a significantly higher in the years to come.
Okay, great.
And then you touched on this a little, but maybe you could expand upon ---+ given the proceeds from Plastics and then the investment in ClosetMaid, you still have significant liquidity.
You've actually added materially to your liquidity.
If you could talk a little bit about what else you see out there.
You've made some really nice tuck-in acquisitions in the quarter in HB<UNK>
Is it more like that on the horizon.
Are there any opportunities in Telephonics.
Are there large opportunities you're looking at.
Maybe just give us a sense into your kind of road map for the next year or 2, 3.
Look, this has been an evolution over the 9 years that I've been CEO of a company.
We've been transforming the businesses.
We've clearly added around our garage door business to believe in this around-the-home strategy, buying AMES and now buying ClosetMaid.
And the ongoing tuck-ins that we see for all of those companies really are something that we're excited about.
The value proposition for us has been in buying product diversification.
And as we go on this international expansion around the Australian businesses and the U.K. business, we see a number of ways to continue to grow that segment of our company.
That's been an ongoing set of our strategic initiative.
Telephonics is going through what we view as a multiyear process of defense spending bottoming, with an increase coming in 2020 and beyond.
And we're positioning the company to be able to be as profitable as it can be through a down cycle in defense spending, with the inevitable upturn in intelligence, surveillance and reconnaissance products.
The big opportunity for us that the sale of plastic represents is not just the balance sheet strength and liquidity that it's going to provide.
It's ---+ when we look at our free cash flow generation and how we look at delivering value for our shareholders over time, the ability for us to generate not just EBITDA but EBITDA minus CapEx, and to be able to generate free cash flow is significantly enhanced as we exit a business that, while it's an excellent business, we just don't have the scale that Berry will be able to provide to that business.
So this is one of those opportunities where we see this as incredibly opportunistic for us, and we think it's a fabulous opportunity for Berry to be able to take the company and bring it to a new level.
So we're very excited about what this does for us.
And the ability for us to invest the capital on our balance sheet and to further acquisitions and diversifications remains to be seen.
But we're clearly setting that up as how we'd like to grow the company in the future.
Congrats on a good fourth quarter and getting to the announced sale of Clopay Plastics.
I guess, my first question was on the sale of Clopay Plastics, I just want to make sure I understood correctly.
So you're expecting $85 million to $90 million of cash taxes.
And if it's a $320 million book, does that mean that the taxable book was lower to create such a high cash tax expected outflow.
Yes, that is exactly correct.
Our tax basis is lower than our book basis.
Okay, great.
And then could you ---+ are you able to comment as to whether or not there were any other parties that sort of bid on Clopay Plastics alongside Berry Plastics.
I'm sure there were other companies looking at it, but as it relates to the competitive bidding activity.
We have a definitive agreement with Berry.
We're very excited about doing this transaction with them.
Okay, understood.
Secondly, moving on to the quarter, the strength in Home & Building Products, could you break out for us how much of the strength in AMES was inorganic and perhaps how much of the strength in garage doors related to the pass-through of steel costs versus volumetric effects.
Sure.
I don't have the exact stats in front of me at the moment.
The acquisitions perhaps put 1 point or 1.5 points on the revenue line.
As far as steel costs, I don't have those numbers in front of me, I'll have to get back to you.
But there was an impact from them.
Okay, if the acquisitions were 100 to 150 basis points for the segment, then it would probably be around 300 basis points for AMES, in particular.
I'm sorry, I gave you the [on] AMES number.
Oh, it was only 100 to 150 basis points.
So the organic impact was around 15%.
Okay, great.
And then just finally, looking to the guidance for the September 2018 fiscal year.
If I back out the $300 million of ClosetMaid revenue, it looks like you're projecting about 3% growth for the legacy Home & Building Products businesses.
I just wanted to make sure that was correct.
And if that is the case, and if Telephonics revenue steps decline 10%, how does sort of that flattish sort of legacy revenue picture translate into $10 million of EBITDA growth.
Sure.
So first, the organic, meaning before the acquisitions growth, is about 2% to 3%.
With the acquisitions, excluding ClosetMaid, you have another 2% to 3%.
And then you have ClosetMaid, so just to clarify that.
Second, it's really a matter of leverage.
As these businesses increase sales, we are able to use our existing footprint to lever and improve margin and earnings.
In addition, we continue to innovate on products which are at higher price points and better profit.
Okay, and would you expect the Telephonics EBITDA profile to sort of be flattish against the declining revenue but maybe higher mix, or how should we think about the Telephonics EBITDA for the coming fiscal year.
You'll see improved margin in the coming year on that lower revenue.
So yes, EBITDA will be plus, minus in the same range you saw it in 2017.
Yes, which <UNK> speaks to the efficiency initiatives, the ---+ that we've already undertaken.
And as I've said, we're very optimistic about where Telephonics is heading.
But 2018 and 2019 are going to be transitional years.
And the backlog numbers reflect the decline in defense spending.
We see that picking up.
I can't tell you when it's going to actually happen, because it's entirely dependent on budgetary resolutions that, at the moment, while there's been lots of talk over the last year about increased defense spending, infrastructure spending, lower taxes, none of those things have happened.
Sorry, in addition, I would just say we have obviously ---+ not obviously, we have not lost any business or any platforms.
In addition, we anticipate being able to keep the historical margins that we've had with good management and good program mix on the lower revenue.
Sure, so the revolver balance at year-end, I believe, is about $144 million.
Post year-end, with the proceeds from the bond offering, we used $60 million or $70 million ---+ $60 million, $65 million ---+ I don't recall the exact number, to pay down the revolver.
And it goes from there.
So assume the revolver goes to 0.
We're going to continue to look for opportunities to grow the company, invest our capital into operating businesses.
We have no current intentions of deleveraging, but we'll see what the future holds for us.
Sure, so for our businesses, we didn't have any significant impact from the hurricanes.
AMES does benefit somewhat with cleanup wheelbarrows, rakes and shovels and things like that.
As far as resin and steel, I can't predict the future.
We have a structure that can handle the current prices, and if prices increase, we will certainly consider that in our pricing to customers, as we have in the past.
Thank you.
This has been a terrific year, and we are very excited about making 2018 as big a success as 2017 and to the new directions that we might be able to take from the sale of the Plastics business.
Thank you, all.
| 2017_GFF |
2016 | NPO | NPO
#<UNK>, why don't you address that.
<UNK>, we are making great progress at CPI.
Our team is energized there.
As I mentioned in my comments, the operational improvements that have come, in part, from our cost reduction initiatives have also led to much better improvement in the plant, on-time deliveries being up, and we are seeing some commercial wins.
And so, for CPI, with our cost restructuring progress to date essentially complete ---+ we will have some small restructuring charges in Q2.
At this point it's mostly about volume.
And so, without some help from volume, we are going to have better results than we had last year, but we need some volume help as well.
So <UNK> is here with us and, <UNK>, I don't know if you have any other comments about the progress that we are seeing.
No, I completely agree, <UNK>.
The team is performing very well.
We've got the restructuring behind us for the majority of the case.
We think we have a little bit to do, as <UNK> mentioned, but the heavy lifting is behind us.
Now it's more ---+ it's all about growing in our current customers and delivering our new customers.
And in addition to the on-time delivery improvement, we're seeing shorter lead times which is allowing us in local markets to win business that we would not have won before.
So very encouraged by the team and the work that we are doing and the heavy lifting on the restructuring is all behind us.
<UNK>, we had said before that we expected in the segment, with the restructuring about CPI and some of the facility consolidations underway at GGB, that we expected $3 million to $4 million of cost savings from those initiatives for the year.
And so, we are right on track.
That's going according to our plans.
Yes, <UNK>.
First of all, heavy-duty is essentially all we do in Stemco, so it's all Class 8 equipment.
Our exposure to trailers, particularly ---+ both in the aftermarket and OE ---+ is considerably higher than our exposure to the truck or tractor, the power unit.
What we've seen in the OE world is the decline has been so far in the truck area, where we have a lower exposure.
So far, the trailer volume is essentially still at a cyclical high.
We have not ---+ the backlogs are strong.
So we actually don't see a forecast in the near-term, which I'll say is the next two to three quarters.
We don't see a decline in the trailer OE the production.
And our aftermarket is still hanging in there.
Obviously, the aftermarket is just almost completely driven by US GDP ---+ how much freight is moving.
And while it's certainly not any stronger than it was last year, maybe marginally weaker, and we see that kind of continuing on.
We don't see any signs that that's ready to fall off the table top.
So we feel pretty good about the Stemco business, which as you know is in sealing products.
And as I mentioned our team has done a really terrific jobs at air springs.
You'll know because you follow us, that when we bought that business, we didn't pay much for it on a multiple basis, and it's a fairly low margin product line.
Because of the way that the seller and the market chose to compete.
We're competing in a completely different way and, quite frankly, most of it we've had ---+ we've been working very, very hard on supply chain savings, which will be substantial for that business relative to the profitability that we bought.
But that all requires substituting new suppliers for rubber and steel components and so forth for the air spring, which requires testing, and in many cases customer qualification.
So we are well into that, so we haven't started actually seeing any savings come to the bottom line, but what we are ---+ well, we've got to qualify.
We've just begun to get some products from new suppliers that is much lower cost, better quality, and all the rest.
So by the second half of the year we should be cranking along with much better margins in that acquisition, which will ---+ and we'll also have the facility moved that we need to move ---+ the R&D and testing and administrative facility that I mentioned ---+ that was colocated with the seller's building.
So part of the acquisition from the beginning was that we had to move that.
And so we are in the process of doing that.
I would say that we should be at a much better run rate on the air springs business by the second half of the year which, frankly, was always part of our integration plan.
We knew it would take a fairly extended period of time to get new suppliers identified, qualified, and so forth.
That's the situation on heavy-duty truck.
<UNK>, let me jump in with one additional comment, just as a data point.
As <UNK> said, our business even on the OE side is not affected as much as the headlines that you see on tractor orders and production facilities.
There's one data point; if you look at just the core wheel-end products of Stemco, our OE business in the quarter year-over-year was down only about 10%.
The aftermarket side of our business for the wheel-ends was up 6% or 7%.
So, pretty good results relative to what the headlines are about the heavy-duty truck industry.
<UNK>, I think from this point forward we won't see any ---+ <UNK>, I don't know if you have handy the ---+ we are mostly affected by the euro, <UNK>, as you know.
I'm not looking to at the sheet that has the FX comparisons, but you might be, <UNK>.
But my guess is that we are now stable relative to where we were for Q2 and beyond last year.
In fact, I think we are right at the same level.
So I wouldn't expect any FX headwinds on a period over period basis going forward for the rest of the year.
<UNK>, is that fair.
Yes, I think that's fair.
Clearly there was some this quarter, as we mentioned.
Sales in total on a pro forma sales affected us by about $5 million.
But it's a smaller impact than we've seen over the last few quarters of last year, and some kind of modest impact on our earnings as well.
So, I agree with that.
Starting with Q2 when we look on a year-over-year basis, unless something changes dramatically, we wouldn't expect as much noise around FX.
It's a good point, <UNK>.
Look, I think we try to look beyond the near term business cycles when we think about M&A.
And it has more to do with the strategic fit.
Quite frankly, the place where demand feels the most stable and has the most tailwind, which it's not a huge tailwind, but it is actually Europe, Western Europe.
We are actually feeling just a little bit of strength over there.
I think now we would be very open to acquisitions over there because of the ---+ but we would use cash that we have in Europe.
So, yes, there's an FX benefit, kind of, but frankly if we are using euros to buy euro sales and earnings, it really kind of neutralizes.
So it's really more ---+ we don't really factor that in.
That said, we've certainly rethought our strategy in Asia because I think that's a much longer term trough that we're in.
I don't see that turning around anytime soon.
You may recall that a few years ago we bought a few small operations for Garlock in that region to try to grow our footprint in Asia.
Not just China, but in Taiwan and Singapore as well.
Those are going okay.
They were small acquisitions, so we didn't have a lot of exposure there.
But the fact of the matter is that whole region is feeling the weakness of China.
And the other place that we have really withdrawn from is Brazil.
We had both a Garlock and CPI presence in Brazil and we have exited both.
Again, they were small.
We had hoped to grow those over time.
We were investing not a lot of money but a fair bit of human capital and time in trying to move those operations forward.
We have exited both of those, so the only thing left that we have in Brazil is a GGB facility, which has always done well and continues to do decent for us.
It really supplies a lot of the automotive production in Brazil and we are able to take advantage of some low-cost production there for export into other markets.
But that's all we have left in Brazil.
I'd say it has not really affected our thought process too much about Western Europe, but it has really in South America and Asia.
Does that answer your question.
Let me address that, and <UNK>, then you can chime in.
That is the key that affected our results, <UNK>.
You've honed right in on it.
And what it was, quite frankly, is volume in some of our most profitable lines in Garlock as well as in Technetics, quite frankly.
We saw weak volume in Garlock.
There's just no way to work around it, that all through last year ---+ and I'm talking about all of Garlock, all of last year.
As we were seeing declines in oil price our volumes slowed, and as well as steel.
Garlock supplies a lot of seals into the steel industry, as well as ---+ and we have a big presence in oil and gas.
A big presence in refineries.
A big presence in chemical.
A big presence in metals and mining, and so forth.
So Garlock is just right in the teeth of the most significant hydrocarbon price reduction that we are seeing.
And throughout last year we were able to do a pretty darn good job, to be honest with you, of matching cost reduction with this declining volume.
And we've gotten that organization so lean, going into this year we were hopeful that demand would stabilize, and we had a weak first quarter.
And there's just not a lot of additional cost that we can take out.
We did not see pricing degradation.
What you're seeing there is just the cold leverage of some of our most profitable product lines.
In addition, in the Technetics Group, we saw a mix shift because our nuclear business was down a little bit.
That is more as I've explained in the past.
The timing of the ---+ it's not like nuclear demand goes down, but it actually varies a fair bit quarter to quarter.
And it depends on reviewing schedules in nuclear plants around the world, maintenance schedules in nuclear plants around the world.
And some of it was timing for us in Q1, stuff that got pushed to Q2.
That was unfortunate but it just ---+ customer demand.
But some of it is just the normal fluctuations that we see quarter to quarter.
So that compounded the effect of volume and margin decline in sealing.
We don't see that part of it really continuing or repeating, if you will.
We think that will be solid going forward.
But the Garlock piece, really we need ---+ that's just a function of the market, and we need the oil price to stabilize.
We need maintenance work to start picking up again in those hydrocarbon and basic commodity and metals markets.
<UNK>, do you want to add anything to that.
I think you've covered it.
It really comes down to volume in some of our higher ---+ most higher-margin product lines.
So I really don't have anything else to add.
We did see just ---+ we're looking for the bright spots that might be signals.
We don't know if this is one, but we did see some higher maintenance activity in the North Sea, although that accounts for a small part of our volume.
We are not seeing the turnaround season yet, at least higher than normal, in other markets.
So that's where we are keeping our watch on.
Well, that's what we have trouble with the visibility on, <UNK>.
I don't think it's too late to still have a slightly better second half.
I would still anticipate it, but we haven't yet seen any real tangible signs that that's going to be the case.
So I don't know if it's just my optimistic thinking or the fact that I can't imagine that things would get any weaker in these commodity markets we've seen here in the last, really, four weeks.
A little bit of rebound in the oil price; that's going to have a positive effect for our volume.
And we are going to see in the second half some of the improvements that I mentioned in the air springs business come through, which will certainly benefit sealing as well.
We're still working hard to try to meet the guidance that we had given before, but certainly ---+ we certainly saw a weaker first quarter than we were expecting.
Well, I think it's only natural, <UNK>.
Any time competitors ---+ any time volume shrinks, that's the tendency.
That's what free markets do, right.
However, given the nature of our products, the critical nature of our performance, the brand names, where we compete ---+ we haven't actually seen, in our numbers, a reflection of that.
We certainly hear that from our guys, right.
That, oh, things are tough or tougher etc.
, and I'm not disputing that.
But when we look at the numbers that are generated, we're not seeing a reduction in price effect on our market.
It is volume and what you are seeing there is how those products leverage when you have ---+ when we have really, in our view, hit the bottom of what we are able to do on the cost side, other than materials and efficiencies and so forth and so on.
We just can't take a lot more labor out than we did throughout last year.
We pulled the trigger on the CPI.
I think you could argue maybe we should have done it quicker, but I'm certainly glad we pulled the trigger when we did.
Our team has done a great job of executing that restructuring.
As you guys know, because you follow us, we've moved ---+ we really had the equivalent of four plant relocations last year in GGB as well.
Those are all done as well, as we sit here today.
We're in decent shape now from a cost position across the Company, and hopefully that will clean out some of the restructuring noise and other cost noise that we've had in the last couple of quarters.
We should have a much better, cleaner look going forward, and obviously our numbers this quarter were affected by the ACRP settlement.
I think ---+ and we also had the unexpected requirement to settle this lawsuit in FME that ---+ obviously we were working on that.
But as that case progressed towards trial, we concluded that we needed to settle it because we felt like the exposure was larger obviously than we ---+ potentially larger than we settled it.
So that was kind of a one-time thing.
That was a contractual dispute from many years ago, and so obviously that won't be recurring either.
<UNK>.
Yes.
<UNK>, we are not disclosing the price, per agreement with the sellers, but just to give you some direction.
We paid roughly 6 to 6.5 times trailing EBITDA.
And we've indicated in the announcement about the acquisition that we had sales of about $17 million in that business.
<UNK>, do you want to take that.
Let me take the EDF part of it first, and then we can go back to <UNK> with any other questions.
EDF in the quarter ---+ if you just looked at the year-over-year ---+ I mean in the quarter, the impact of the foreign exchange, as you know ---+ I think you understand the background, <UNK>, of how we are accounting for this.
When the swing in foreign exchange last year threw us into a loss position on the contract, the accounting policies require that the full loss be recognized for the entire contract, even though it's a multiyear contract.
I think you understand that.
Since then, quarter to quarter we have been looking and recognizing the impact on the P&L of the change in foreign exchange on the contract based on the euro to dollar rate in effect at the end of the quarter.
So if you look at the impact of just the foreign exchange part in the first quarter of this year, it was a positive.
Because the dollar weakened from the end of the year through the end of the first quarter.
It was a positive $3.3 million, approximately.
Due to our estimated costs to complete going up for the contract, we offset that so we recognized no income nor loss associated with the contract.
So, EDF had a zero impact for the first quarter.
Now, if you look at going forward through the balance of the year, we are going to continue to be recognizing the sales on a percentage of completion basis as we go.
And we'll be doing our estimated cost to complete.
And the combination of the estimated cost to complete and the exchange rates at the end of each quarter, the combination of those two, will determine what the P&L impact is on the EDF contract for the balance of the year.
So that's EDF.
And so let me jump in, <UNK>, here.
<UNK>, we said at the beginning of the year one of the things that will affect power systems this year is we have $40 million, roughly, of revenue that's zero margin stuff.
Probably roughly half of that is EDF and half of that is two other completed contract engines that have to ship this year that we built several years ago and are just holding, waiting to deliver to the customer.
These are commercial engines into the nuclear reprocessing facility that Shaw runs for the US government.
And we took a charge for those because a couple of years ago, actually, when we realized that cost to produce those engines was going to be significant.
So we are not going to lose anything when we ship them; they're on completed contract; they will ship in Q2 and Q ---+ one in Q2 and one in Q3, I believe, is the current schedule.
So we have still ---+ we've shipped ---+ where we booked $10 million of percent completion EDF in Q1.
So we had $30 million more through the balance of the year for both the Shaw engines, as well as other percent completion that we forecast for.
For EDF it will be zero margin new engines.
So that's what's affecting the margins and mix in FME.
Now, in addition to that, we'll see a little bit higher expense, but not much, for OP2 development this year versus last year.
So, the R&D expenses should be ---+ I would imagine through the balance of the year relatively similar.
Maybe $1 million more or something like that, would be my estimate of that.
And that's really the effect for FME.
And R&D, just to round out some of your other sub-questions ---+ R&D was up about $700,000 over the first quarter of 2015.
And that's largely because of the spending on the OP 2.0 engine program.
Warranty costs were up on a specific ---+ one specific project that we've dealt with and it's behind us.
Should not recur.
No, there's no cash now.
And yes, the pro forma financials now anticipate the plan that we have agreed to in the consensual settlement.
Now, the only possibility is if for some reason we can't get that plan approved by the court.
But assuming that that ---+ which is unlikely.
It's at this point highly likely because we have a consensual deal with both the current claimant's committee as well as the future claimant's representative.
Which is why it was such a big deal, what we announced March 17.
But what's in the financials now reflects the completion of that.
It really reflects as if that plan would have already been adopted.
So that's what we anticipate happening, and none of it will be cash until the final plan of restructuring is approved, closed, and we reconsolidate and create the actual trust, which is likely to be sometime next summer.
| 2016_NPO |
2017 | CVX | CVX
#Sure.
Base declines have actually been quite good.
The shift in strategy as we've moved from the heavy new greenfield investments into a focus on leveraging maximum value from our installed infrastructure base, our installed base business, has been paying big dividends.
So the infill drilling programs, the focus on reliability, the workover programs, have been really sustaining our production better than we would have expected, given the amount of capital and costs that we've pulled out of the system.
We have the advantage of a portfolio that has a lot of young assets.
So as we start taking advantage of things like Jack/St.
Malo and the other projects I mentioned that are coming online this year and next year, as well as Gorgon and Wheatstone, we are seeing a very young portfolio; lots of continued opportunities for infill drilling and brownfield expansions.
And there's a lot of value in that, even at today's prices.
Sure.
In the Partition Zone, the stopping of production continues.
There's been no restart activity.
There are continuing negotiations and dialogue between the two governments.
We continue to advocate for a return to the status quo, get the field back in production while the longer-term issues are addressed.
But at this point in time, there has not been any movement towards a restart.
It is somewhat perplexing to us, but we'll continue to play the role of facilitator and see if we can get the fields restarted.
I think it's in everyone's best interest.
In terms of Venezuela, we have continued to be operational.
We do not have major impacts on our operations at this point in time, and it's just a situation we continue to monitor.
Our priority is on maintaining safe operations and protecting our people and assets.
And in Nigeria, we continue to see good performance coming out of Nigeria.
There are disruptions from time to time, but it has not had a material adverse effect.
Well, I think that would be an intuitive outcome if we have a little bit less spending.
I think the larger flywheel for us here may be the timing of asset sales during the second half of the year.
As I mentioned, many of those are international transactions.
And getting a bead on exactly when they will close, whether they will close in fourth quarter 2017 or perhaps move into first quarter 2018, there's still some uncertainty around those.
When we've talked before about how we look at the Permian, we look at the whole value chain.
So everything from our development, operating costs on the front end, to the realizations we get on the back end.
And we've done a lot of good work to open up multiple pathways to get our products to market so that we can take advantage of the different variations in the markets.
So we have been working to stay ahead of our buildout curve.
At this point we don't see any constrictions on our ability to grow, as we've discussed, in the Permian.
And this is an area that we will continue to stay focused on and seek the best realizations as we move forward.
Thank you.
When we are talking about 30% returns, we're basing that on a $50 WTI price, $2.50 gas, $25 NGLs.
And what we are doing is looking at our all-in costs, so we're not cherry picking just development costs or anything like that.
But this is what we really expect to see full returns, fully burdened.
Yes.
We do completely believe that R&M should be a core part of our portfolio long-term.
We like our integrated model, not only for the hedge that it provides in terms of offsetting commodity price impacts on the upstream side, but we also leverage it to facilitate knowledge transfer between downstream and upstream for the efficient operations of plants and facilities.
So it's a core part of our business.
I think we have been very successful over the last decade improving the returns of downstream through transactions, fine-tuning, and optimizing the portfolio, plus significant efforts around cost management and cost containment.
It's also a growth opportunity for us, if you are including the chemical sector.
So I think it's a key part of our portfolio going forward.
And we would look to expand and evaluate its investment opportunities for future growth projects, just the same way we would look at other opportunities.
The chemical sector in particular would compete for capital for future investments.
Absolutely.
Yes, <UNK>.
So obviously this is a topical area.
We're certainly very much aware of the opportunity, and we have evaluated it.
But I think the best I can say at this point is we don't have any plans for anything like this.
So as we look at the different assets that we have across North America, one of the things that we are very active on is sharing the information and best practices that are being developed in each area with the other unconventional areas.
So we've seen development costs come down in the Duvernay.
We've been largely involved in an appraisal program, in a land tenure strategy.
But now with the results that we're seeing, we have a good-sized resource there.
And we are evaluating, as <UNK> mentioned earlier, our business plan at the current time on just what we want to do there, but it's very encouraging.
We'll give you more details on each of those in the SAM Meeting next year.
In terms of the Marcellus, we've also seen our cost structure come down significantly, as well as our drilling efficiency improve.
So that also has some promise, especially with the recovery in gas prices.
As to whether or not we hedge, that's something that we'll evaluate as part of putting together our strategy going forward.
Another key area for us is the San Joaquin Valley, where we continue to run a very efficient operation in that area.
The strategy there has been a drill-to-fill strategy.
So we're really utilizing the existing installed infrastructure base, and we see very good returns coming out of our San Joaquin area.
It builds on our heavy oil expertise, and provides a very good return to us.
So North America overall looks very strong in the onshore areas.
Yes, thanks very much.
It's a good question, and there are a lot of different things being tried in the Permian on a real-time basis.
And as I mentioned earlier, our strategy ---+ we've been criticized for it maybe a little bit in the past, but it's proving to be a very good strategy ---+ is to let others do some of the experimentation.
And then we watch and see what performs well, and then build that into our basis of design.
Right now our focus is on 7,500 to 10,000 foot laterals.
We will wait and see if those really turn out.
But as you get longer and longer laterals, it gets very difficult to get good returns throughout the length of the well bore.
So our focus is on getting the ultimate return for the capital invested.
And that's really what's going to drive us, more than any other single parameter.
<UNK>, I'm going to go back and just reiterate our priorities that we've had.
Dividend increase would be the first priority, as soon as we can ensure it is a sustainable increase, meaning supported by cash flow and earnings.
After that, the priority becomes the capital program, and where we have incremental opportunity for investments.
You've heard about how strong an opportunity queue we've got sitting in the Permian.
We do want to keep a strong balance sheet.
I think that's important.
And it's particularly important being in the commodity cycle, and we've learned in the past that when oil prices are high, it's good to shore up a little bit.
When oil prices are low, you use your balance sheet.
So we want to make sure that we are prepared through the thick and thin of the cycle.
I do see share repurchases as the last use of cash.
And I think those, at this point in time, with the view we have of commodity prices, are fairly remote for us.
The 20 is really based on the fact that we want to be bringing on rigs in a steady, orderly fashion so that we can continue to increase the organizational capability around those rigs, and make sure we're continuing to use each incremental rig very efficiently.
So if you think about all the work that has to go on from establishing the land position, coring up, getting ready for the design of the development area, all through the procurement and then into the offtake afterwards, we want to make sure that we're keeping the organization and the factory healthy around each incremental rig.
What we are finding is that, in addition to increasing the rigs, the amount of production each rig is generating is higher and growing as the efficiencies improve.
So part of it is increasing the rigs.
But part of it is also getting more out of each and every rig that we apply.
And the fleet is becoming more productive, so we're balancing all that.
And as I said, because we get data on virtually a real-time basis, we're able to make decisions now, look forward, and decide do we want to continue the pathway higher.
Or do we want to go ahead and hold at any particular number of rigs.
Capital is not the issue; it's really making sure that we're delivering the financial performance that we're looking for.
It's a Board call [on the dividend], and I think it's not just what current prices are, but it's the outlook for future prices as well.
It's the sustainable support level for the dividend that's important.
So it's a combination of the commodity price outlook that we have, the capital program we are expecting, and the cost structure we are seeing [that influences the decision].
And as I said, we made tremendous strides over the last couple of years to get into a much more cash balanced position.
And we're cognizant of our 29-year history, and would love to be able to take it to a 30-year history.
But we're only going to do that when we have full confidence that it's a sustainable increase.
Okay.
All right.
I think we've got time for one more question.
It's early days in terms of Tengiz.
We carry a good contingency.
And we make sure that when we run our economics, we really take into account what we think it could cost, not just what we want it to cost.
We are taking all the steps we talked about in previous calls in terms of making sure the design assurance, our contract strategies, our execution, and our quality management are all in place.
It's got our full and complete attention, so we're really working hard to manage this project.
We're off to a good start.
Projects of this nature are so large, there are always going to be challenges.
And our goal is to address those challenges and minimize the use of contingency.
But it's too early to give any other guidance than what we've given so far.
I think the best I can do is just say we're in the midst of our business planning cycle here, and we'll come out with our C&E plan for the 2018 year around December.
Typically that's when we would do it, after we've had a chance to go through the full business planning cycle.
I don't have any different guidance other than to say what we've said.
<UNK> just went through it, but for every dollar that we're spending, we're getting much better response out of the Permian.
So the capital efficiency per dollar is really increasing, and that will all be taken into account as we're doing our revised planning.
It is important for us to be cash balanced; this year with asset sales and next year without asset sales.
And so those are primary objectives that we will be trying to balance as we put next year's capital plan together.
Okay.
Thanks very much.
I'd like to thank everybody for the time on the call today.
We certainly appreciate your interest in Chevron.
And we appreciate everybody's questions on the call and participation.
Thank you.
Jonathan, back to you.
| 2017_CVX |
2016 | LGIH | LGIH
#Thank you, <UNK>, and welcome to everyone on this call.
We appreciate your continued interest in LGI Homes.
During today's call, I will summarize the highlights from the first quarter of 2016.
Then <UNK> will follow up to discuss our financial results in more detail.
After he is done, we will conclude with comments and what we are seeing for the second quarter and our expectations for the remainder of 2016 before we open the call for questions.
To begin today, we are pleased to announce that LGI Homes was recently named as the 15th largest builder in the United States according to Builder Magazine, based on our 3,404 home closings in 2015.
This considerable jump of six spots on the Builder 100 ranking would not have been possible without the commitment and dedication of our loyal LGI employees.
I'd like to take a moment to extend a special thank you to everyone at LGI.
Because of you, we have been able to realize strong growth throughout the years and have great momentum to build on as we continue to deliver results and move up the Builder 100 list.
Looking at the first quarter of 2016, the year is off to a solid start.
We closed 844 homes, generating just over $162 million in home sales revenues, which represents a 26% increase in homes closed and a 35% increase in revenues over the first quarter of 2015.
As we enter the new year, we continue to demonstrate our ability to expand our business to new markets.
We ended the first quarter with 56 active communities, which is an increase of 12 over the 44 active communities that we had at the end of the first quarter last year.
These 12 communities were spread throughout the country with three in Dallas, two in Charlotte, and one each in San Antonio, Fort Meyers, Tampa, Atlanta, Phoenix, Denver, and our newest market, Jacksonville.
Breaking it down by market, let's first take a look at highlights in our Texas operations.
The fundamentals of this division have remained solid, generating 410 closings and representing approximately 49% of our total closings during the quarter.
This represents a 7.3% increase in closings in Texas over the first quarter of last year.
In addition, the absorption rate in Texas averaged 5.6 closings per community per month which is [very much] in line with our past experience and expectations.
We continue to geographically diversify our operation.
Our concentration outside of Texas increased during the first quarter and was 51% of our closings compared to 43% of our closings in the first quarter of last year.
This was the first quarter in our history in which the majority of our closings came from outside the State of Texas.
The Southwest division represented 20% of our home closings.
The Southeast division represented 19%.
And the Florida division represented 12%.
As we have discussed on previous calls, we anticipate our percentage of closings outside of Texas will continue to increase.
Absorption remains strong in the first quarter, averaging 5.1 closings per community per month, consistent with 5.3 closings per month for the first quarter of last year.
Our top three markets for the quarter, including Charlotte leading the way, was 6.8 closings per community per month, and Houston and DFW remaining solid at 5.8 closings per community per month.
Homeownership demand is alive and well in our markets across the country.
We continue to market directly to renters living within close proximity to our communities.
Our advertising produced over 66,000 inquiries in the first quarter strengthening our belief that there remains a strong demand in the first-time home buyer segment.
In addition, our markets continue to have strong housing demand drivers, including national leading population and employment growth trends, general housing affordability, and desirable lifestyle characteristics.
With that, I'd like to turn the call over to <UNK> <UNK>, our Chief Financial Officer, for a more in-depth review of our financial results.
Thanks, <UNK>.
As previously mentioned, home sales revenues for the quarter were $162.5 million based on 844 homes closed, which represents a 35% increase over the first quarter of 2015.
Our average sales price was $192,491 for the first quarter, a 7% year-over-year increase and approximately 4% increase over the average sales price for the fourth quarter of 2015.
This is largely attributable to changes in product mix, price points in new markets, and a favorable pricing environment.
For example, our comparable entry level product in Denver had an average sales price of over $300,000.
Our adjusted gross margin was 26.7% this quarter compared to 27.8% for the first quarter of 2015, a 110-basis point decline.
The decrease in adjusted gross margin is primarily due to a shift in geographic mix as Houston declined from 29% of our overall closings in the first quarter of last year to 17% in the first quarter of this year as a result of closing out of two high-volume communities in the market.
Houston historically has been one of our highest gross margin markets, and the closeout of these communities directly impacted the overall margins.
In addition, we experienced higher indirect overhead charges in the first quarter of 2016, primarily due to timing and costs related to our expansion.
Adjusted gross margin excludes approximately $1.8 million of capitalized interest, charged cost of sales during the quarter, representing 110 basis points.
Combined selling, general, and administrative expenses for the first quarter were 14.8% of home sales revenue compared to 16.4% in the prior year.
We typically expect the first quarter to have the highest SG&A ratio as it generally results in the lowest closings on a per-community basis during the year.
As a percentage of home sales revenues, we believe that SG&A will vary quarter to quarter based on home sales revenue and remain within our previous guidance of 13% to 14% for the full year.
Selling expenses for the quarter were $14.1 million or 8.7% of home sales revenue compared to $11.6 million or 9.6% of home sales revenues for the first quarter of 2015, which is a 90 basis point improvement.
Selling expenses as a percentage of home sales revenue improved primarily as a result of operating leverage realized related to advertising costs.
General and administrative expenses were 6.1% of home sales revenues compared to 6.8% for the first quarter of 2015, a 70 basis point improvement.
This decrease or flexed leverage realized from the increase in home sales revenue during the first quarter of 2016 as compared to the first quarter of 2015.
Pre-tax income for the quarter was $17.8 million or 11% of home sales revenue, an increase of 130 basis points over the same quarter in 2015.
We generated net income in the quarter of $11.7 million or 7.2% of home sales revenue, which represents earnings per share of $0.58 per basic share and $0.57 per diluted share.
First quarter gross orders were 1,468, and net orders were 1,135.
Ending backlog for the first quarter was 814 homes compared to 601 last year.
And the cancellation rate for the first quarter of 2016 was 22.8%.
We ended the first quarter with a portfolio of approximately 25,500 owned and controlled lots and as of March 31, approximately 11,700 of our 17,800 owned lots were either raw or under development.
Turning to the balance sheet, we ended the quarter with approximately $48 million of cash, $561 million of real estate inventory, and total assets of $653 million.
On January 6, 2016, we increased our revolving credit facility to $300 million in accordance with the accordion feature of the credit agreement.
At March 31, we had $248 million outstanding under the facility as well as $85 million in convertible notes.
Our gross debt to capitalization was approximately 55%, and our net debt to capitalization was 51%.
During the first quarter, we issued 150,000 shares of our common stock under our ATM program generating net proceeds of approximately $3.5 million.
At this point, I'd like to turn it back over to <UNK>.
Thanks, <UNK>.
In summary, we had another successful quarter and a great start to 2016.
Let me provide some guidance and thoughts on what we are seeing thus far in the second quarter and looking ahead into the remainder of the year.
The second quarter is off to a strong start with 341 closings in April, up 28% from the 267 closings in April of last year.
The 341 closings came from 55 active communities resulting in a very solid absorption pace of just over six closings per community per month.
Based on our backlog, we expect to close more homes in the month of May than in April, keeping our absorption pace north of six closings per community per month and right on track to meet our goal of closing between 4,000 and 4,400 homes for the year.
We expect to see continued demand for our new homes in Houston.
As <UNK> noted earlier, some of our Houston communities sold out earlier than originally expected, reducing our community count from eight to six.
We expect to close more than 60 homes in these six active communities in May of 2016, averaging more than 10 closings per community for the month, demonstrating continued strength in the Houston market.
Our expansion efforts are already generating closings for the second quarter of 2016.
Our first project in the state of Washington, Evergreen Point in Olympia, had a very successful grand opening in March which generated five closings for the month of April.
Producing five closings in a new market in our first month is a great accomplishment by our team in the Northwest and again proves that we have the systems and processes in place to get out to a fast start in new markets.
We expect to have closings in at least two other projects in the Seattle area before the end of 2016.
Additional highlights of our growth and expansion across the nation include our presence in Nashville where we have started construction on our first five homes.
In this new market, we expect to open for sales in the third quarter and close on our first homes in the fourth quarter.
We are also making progress in Raleigh, North Carolina, and have our first two projects under contract.
We expect construction to start in the third quarter, sales to begin in the fourth quarter, and our first closings in Raleigh to take place in the first quarter of 2017.
Our acquisitions committee has also approved our first deal in the Portland market.
We anticipate closing homes in this new market in the first or second quarter of 2017.
We expect community count at the end of the year to be between 62 and 67 active communities.
This quarter, we saw nearly a 4% increase in average sales price over Q4 2015.
We believe our average sales price in 2016 will continue to increase as a result of product and geographic mix as well as the market conditions increasing on average by 1% to 2% per quarter, ending the year with an overall average sales price between $190,000 and $200,000.
Although we continue to expand into new markets and deliver homes at higher price points, we will remain focused on serving the entry-level buyer.
We expect adjusted gross margin, which excludes the effects of interest and purchase accounting, will continue to be strong.
Although the first quarter adjusted gross margin of 26.7% was near the low end of our guidance, we believe that our year-end adjusted gross margin will be in our target range of 26.5% to 28.5%.
Based on our expectation of delivering between 4,000 and 4,400 home closings along with an increase in average sales price, consistent gross margin, and realized SG&A leverage, we believe our first-quarter results and our strong start to the second quarter keep us on track to deliver basic earnings per share for the full-year 2016 between $3 and $3.50 per share.
These expectations are based on the general economic conditions and our experience for the remainder of the year being similar to 2015 and our results to date in 2016.
In summary, we are very pleased with our results and our ploy to take advantage of continued growth opportunities in existing and new markets.
We believe we are well positioned to continue to grow our revenues, community count, and earnings in line with our guidance, allowing LGI Homes to achieve our long-term goals and objectives of market leading returns for our shareholders.
Now, we'll be happy to take your questions.
Thanks, <UNK>.
This is <UNK>.
I'll start.
As far as Houston goes, as we mentioned in our remarks, Houston coming in at 17% of the overall closing total compared to 29% last year.
And you're right, historically Houston has been at or near or above our stated gross margin guidance range, so we did have a couple communities that were nearing the end of their cycle closeout.
So mathematically replacing those closings with other markets that had slightly less gross margins had an impact on the overall gross margins, so we believe that is somewhere in the 30 basis point range related to the impact of the Houston mix falling off.
So that's how we see the Houston impact.
And <UNK>, this is <UNK>.
I can add a couple things to that.
First of all, we're comfortable in our range, 26% to 28.5% was what we thought about last quarter.
We came in obviously on the low end of that range at 26.7%.
But we put a pretty good size range out there because we were comfortable even under the scenario of mix and not sure exactly what market the closings are coming from, and every market is slightly different on the gross margin.
We are comfortable we would be in that range.
And the bottom line is we just really didn't raise prices fast enough to keep up with costs.
We always raise prices on a quarterly basis and look at our costs.
Costs have been going up for us as well as other builders.
We implemented in a lot of our communities somewhat of a mid-quarter price increase over the last three weeks.
We're comfortable.
We've looked at the preliminary numbers for April, and we're comfortable that the second quarter is going to be higher than the first quarter and the additional volume is going to help that as well.
I think we're in good shape in gross margin going forward and very comfortable in our range for the year.
Sure.
Typically, the first quarter bears a greater proportionate share of indirect overhead as a percentage of revenues due to the fact that the closing volume is historically the lowest for the quarter for the year.
So this particular quarter, we saw about a 20-basis point increase in the indirect overhead.
This quarter over first quarter of last year.
And just primarily due to timing on how new markets come in.
We opened Jacksonville this first quarter.
We also opened up an additional community in Colorado.
<UNK> had went through in his comments on some of the other markets we went through.
It's really more directed towards just timing getting our primarily superintendents onboarded, getting trained as we get them on and working in our communities as we work to open other communities throughout the rest of the year.
We'll be increasing our community count issue.
The reason we wanted to make six is really positive.
We just had a very strong 2015 in the Houston market as well as a lot of markets in the country.
But the replacement projects for those two that sold out were just not ready yet because we increased the absorption above what was expected.
So we're down to six communities right now.
That's going to ramp up by the end of the year to at least seven and possibly eight before we get into closings.
We'll start construction on project seven and eight before the end of the year, but probably seven or eight by the end of the year.
And the next question you may have is Houston as a percentage of overall.
We expect Houston to be off 15% to 20% of our closings for this year.
That's getting real specific on guidance, <UNK>, but we definitely expect the second quarter to be higher than the first quarter.
The mid-quarter price increase, that's not going to have a big effect on the second quarter since our pipeline is pretty full for the second quarter already.
But sales over the last couple weeks, we'll get some of those closings in June but certainly relative to the third quarter of this year.
So I think our adjusted gross margin, what I would believe is it's going to continue to go up throughout the year.
Getting 80 to 100 basis points in one quarter might be at the high end of what I would suggest.
But <UNK> and I both are comfortable that we're heading in the right direction on gross margin.
The second quarter should be higher than the first quarter.
This is <UNK>.
That's fair.
What we're saying really is that the first quarter is typically on the highest end of the range and that's why 14.8% came in above the full year guidance of 13% to 14%.
But I think as we go throughout the year, it's going to be primarily driven on where we land in the closing guidance range.
Obviously on the lower end of the closing guidance, the full-year SG&A will likely be on the higher end of the 13% to 14%, and then on the high end of the closing guidance it will likely end up down at the lower end of the range.
I think we'll definitely see on a quarter-over-quarter basis, I would say that's fair.
It will be more dramatic in the first quarter as we've seen than it would be in the quarter-over-quarter comparisons for the remainder of the year.
Great.
Yes.
That's what we talked about.
It's going to be on a lower comp, close to 155 homes in May, so as a percentage increase, it's going to be dramatically higher.
It's month-to-month volatility based on last year's comp, but I can tell you that sales have been extremely strong over the last couple months and we are very positive about the second quarter and very comfortable telling everyone that closings in the month of May are going to be higher than April.
No impact from weather on closings at LGI.
And also very happy to report most of the people heard about some big storms we had in the Houston market and no LGI Homes or communities either past or present had any flooding or any damage to the homes at all.
Yes, I think it's very positive for LGI as most everyone on the call knows, we tend to be in a little bit further out locations and the Grand Parkway is adding another ring of highway to the Houston market.
So one of our projects, Bauer Landing, for example, the exit off the Grand Parkway to the front entrance of that project is about three or four miles and it's just created a more convenient access point for our customers.
And sales are very strong there and continue to be so the Grand Parkway opening in Houston is certainly positive for LGI and those of us to develop a little bit further out.
I'll start and <UNK> can add to it if he likes to.
Yes.
I absolutely believe our return on equities can be sustainable.
We are going to be diligent in our acquisitions committee.
That's one of the metrics that we look at.
And also, and it does impact gross margin.
As we've been expanding outside of Texas, we have been more likely to develop ---+ to buy finished lots from a developer and not take that development risk and all the upfront capital in these new markets.
Our gross margin hurdle is lower on a finished lot deal than on a development deal we take, but it certainly is accretive to the return on equity metric.
Good question, <UNK>.
Appreciate the question.
Houston has traditionally run at the high end of our range at 28%, 29%, and these new markets, when we go into a market, we're modeling those closer to 25% gross margin and that increasing prices and increasing our gross margin as we develop.
That would be accurate.
It depends on a little bit on the market but Colorado is 50% higher than the Houston market.
So it's a little bit market specific, but generally speaking most of our other markets are higher average sales price than Houston and the gross margin dollars, you are correct, would be higher, even if the percentage is lower.
No, this is <UNK>.
No, we just increased our credit facility as we mentioned to 300.
We continue to work with our lenders as we evaluate our capital needs, same approach in terms of evaluating our acquisitions and our acquisitions pipeline.
We also have our ATM program.
Cumulatively we've used about $13 million total of the $30 million.
So we have about $16 million or $17 million left available to us in that program, and then having the shelf registration filed as well.
Thanks, <UNK>.
Appreciate it.
Thank you, everyone, for participating on the call and for your interest in LGI Homes.
We look forward to sharing the achievements of 2016 throughout the year.
Have a great day.
| 2016_LGIH |
2017 | ECHO | ECHO
#Thank you, and thank you for joining us today to discuss our first quarter 2017 earnings.
Hosting the call are Doug <UNK>, Chairman and Chief Executive Officer; Dave <UNK>, President and Chief Operating Officer; and <UNK> <UNK>, Chief Financial Officer.
We've posted presentation slides to our website that accompany management's prepared remarks.
And these slides can be accessed in the Investor Relations section of our site, echo.com.
During the course of this call, management will be making forward-looking statements based on our best view of the business as we see it today.
Our SEC filings contain additional information about factors that could cause actual results to differ from management's expectations.
We'll also be discussing certain non-GAAP financial measures.
The definition and reconciliation of each non-GAAP financial measure to its most directly comparable GAAP financial measure is contained in the press release we issued earlier today and the Form 8-K we filed earlier today.
With that, I'm pleased to turn the call over to Doug <UNK>.
Thanks, and good afternoon, everyone.
The first quarter was a continuation of the recent trends that we've been talking about.
The freight market remained quite tepid and the capacity relatively loose.
This dynamic compressed our net revenue margin by about 200 basis points over the prior year, and in large part is a primary driver of our performance.
At the same time, we continue to have success growing our managed transportation business and we signed a record amount of new business in the quarter, reflecting synergies we're achieving with our acquisition of Command.
We'll get into the numbers in a few minutes, but first I want to cover a few of our strategic initiatives and the progress we are making.
Last quarter, we talked about our integration with Command and some of the change management challenges our teams were facing.
Those challenges were a mix of new technology, new truckload processes and the general teamwork challenges you might expect when combining our 2 truckload operations which were 2 businesses of effectively equal size at the time of integration.
We've completed 19 acquisitions prior to Command.
Many of them were flat or down during the first year after acquisition, only to have strong and consistent growth in the years following.
The other point we've highlighted is that this integration did not just impact Command but it impacted all of Echo's employees that sell or operate truckload.
Since we're multimodal, that's pretty much all of our sales and operations teams.
While we acquired Command almost 2 years ago, we are only 6 months into the full integration.
Our internal expectation is that we are through the most difficult adjustments and our proficiency from a system and process perspective are near 100%.
This leads me to the next thing I want to talk about, our technology.
First, I want to remind all of you of something we've been saying for a long time.
Our proprietary technology gives Echo a competitive advantage in the marketplace.
And this is true for 3 reasons.
First, it's a multimodal platform, enabling our salespeople to offer a full suite of transportation modes to shippers.
This enables our salespeople to penetrate a supply chain with the right services for different segments of the market.
LTL and truckload for small to midsized customers, truckload and intermodal for large companies and a managed transportation offering across all segments.
While it's true a select few of our competitors may have similar capabilities, the vast majority do not, and this differentiates Echo in a big way from the broader market.
Number two, our LTL capabilities are robust, unique and we have a high degree of integration with both carriers and customers, enabling very efficient operations.
We serve small companies with a portal giving them self-service capabilities.
And I'm excited that we're about to launch a new improved portal which we're calling Echo Ship.
This new portal will be even easier to use, more intuitive and offer our customers a very efficient, one-stop shop to move their LTL freight.
We're also serving large LTL shippers utilizing our incredibly efficient managed transportation platform.
Number three, our truckload capabilities are among the best in the market.
When we acquired Command, we acquired not only talented know-how, but a system to enable us to interact with carriers to improve the utilization of their capacity in ways that many of our competitors cannot.
Now that it's fully integrated, we can continue down a path of driving new features and ideas into our platform and this is what we're doing right now.
In fact, in the first quarter, we integrated our new web-based dispatch portal and our new driver mobile app, Echo Ship, to improve our interactions with carriers.
Initial feedback from our users has been tremendous and we plan to continue to roll this out throughout the year.
These apps will improve our internal process around tracking, scheduling and collecting documents, which all serve to further automate our internal marketplace.
And that automation will give accurate, real-time information to our shippers that enable them to better manage their supply chains while providing Echo with efficiencies and operational cost savings.
So now let's move on to Slide 3, where I'll give more specifics on our first quarter results.
Revenue was up 2.6% compared with the same quarter last year at $416 million.
The productivity of our brokered sales force has improved since the fourth quarter and our managed transportation business grew nicely during the quarter at 13%.
Net revenue was $74.5 million, declining 7.8% over the prior year, but up 4% sequentially.
The driver behind the year-over-year decline in net revenues was our margin decrease of 202 basis points, again reflecting a difficult year-over-year comp and challenging brokerage environment.
On a sequential basis, margins were up 29 basis points.
Non-GAAP EBITDA declined by 39% to $10.0 million.
GAAP fully diluted earnings per share were a $0.10 loss per share compared to $0.01 per share in the prior year period.
Non-GAAP fully diluted earnings per share were $0.09 per share.
We ended the quarter near the midpoint of our guidance for both revenue and G&A spend and we're seeing signs of improving performance out of our teams, a comfort level with the new systems and processes and an acceleration in productivity with growth on our managed transportation.
I will now turn the call over to Dave, who will discuss our Q1 results in more detail.
Thanks, Doug.
I'll start by thanking our employees for working very hard over the last few months, to get our clients and carriers first while we were adjusting to our new systems and processes.
I've been very impressed by the work ethic, dedication and capability of our team as we've united our business technologically and culturally.
On Slide 4, we've got a comparison of our results by transportation mode.
So starting with truckload, our revenue increased by 2% to $280 million in the first quarter.
This increase was the result of a 50-basis-point increase in volume and a 1.6% increase in rates.
There are few key factors impacting our growth, most of which we highlighted on our last earnings call.
Those primary factors are relatively soft truckload market and the remnant impacts of our integration.
On the market, demand has been relatively soft.
As we've discussed in the past, most of our truckload business is transactional in nature, either spot or small to midsized company transactional.
So our propensity to provide services in this portion of the market have been met with a clear cyclical headwind.
At the same time, we've gone up market over the years and our business with larger shippers has increased.
Today, this business is quite competitive as asset-based carriers and other brokers are fighting for increased share.
Our strategy remains consistent which is to say, we compete and offer our capacity in places and situations where it makes the most sense to us and our carriers.
Speaking to the second factor, we're through the most difficult phase of the integration.
We mentioned on our last call that we thought we had a couple of months left of adjustment for our people and we've seen that play out.
Our growth rates were escalating, and we're on the right path to drive ongoing consistent growth.
In terms of the modest rate increase.
Fuel is the primary factor driving rate growth and in fact, line haul rates were slightly down in Q1.
Our LTL revenue was up 7.6% on a year-over-year basis, totaling $114 million.
LTL volume grew 4.2% during the quarter and LTL revenue per shipment was up 3.3%.
We're excited about the growth we see in the LTL space both through our brokered sales force and our managed transportation offering.
On the intermodal side, our revenue was down 13% at $15 million for the quarter due to lower volume, partially offset by higher revenue per shipment.
Consistent with recent quarters, the excess capacity in the truckload market continued to impact the volume in this portion of our business.
Slide 5 breaks out our revenue by customer type.
Our transactional revenue, which represents 80% of our total revenue, increased by 30 basis points on a year-over-year basis, totaling $333 million in Q1 '17.
This is heavily impacted by the overall trend in our truckload business.
We ended the quarter with 1,643 sales reps which includes both client, sales and ops and carrier sales.
This is a decrease of 8 people from a year ago and an increase of 32 people sequentially.
The year-over-year decrease is all attributed to client sales as the size of our carrier sales team remained flat.
Continuing our recent trends, we had strong gains in our managed transportation business.
Total revenue was up 13% to $83 million.
Our transactional sales people are doing a great job of identifying and cultivating opportunities.
And with the help of our solutions and business development teams, we're bringing many of these opportunities to fruition.
None of these will be possible without the dedication of our managed transportation operation staff.
They work tirelessly everyday to drive client satisfaction, simplifying transportation management for our clients.
These efforts led to another 11 new accounts during the quarter which represents $56 million of new business for Echo.
Congratulations to everyone involved here.
This is a record for us.
This is the largest MT closings we've ever had and a good portion of this was driven by synergies from Command.
As you all know, integration of these new accounts can often take a couple of quarters but a few larger ones have already begun implementation and started shipping in the beginning of the second quarter.
To make this happen, our integration teams along with our clients have done some outstanding work in short order to automate critical components of the transportation process.
In addition, our pipeline and new opportunities are strong.
We're optimistic about our opportunity to continue to drive growth in this portion of our business.
Slide 6 highlights our net revenue and net revenue margin.
Our truckload net revenue margin declined on a year-over-year basis by 275 basis points, but improved sequentially by 42 basis points.
The year-over-year decline was driven by 2 factors: low prices to shippers due to increased competition, bolstered by the lackluster demand in loose capacity and increasing fuel costs.
The sequential improvement is a sign of stabilization, consistent with the sequential trend from last quarter.
On the LTL side, net revenue margin declined 55 basis points over the prior year, and increased 22 basis points sequentially.
Rising fuel prices is again a primary factor in the modest deterioration of the LTL net revenue margin.
I'll now turn it back over to <UNK> to review the details of our financial performance.
Thanks, Dave.
On Page 7 of the slides, you'll find a summary of our key operating statement line items and I'm going to highlight a few of those.
Commission expense was $22.4 million in the first quarter of 2017, decreasing 10% year-over-year.
Commission expense was 30.0% of net revenue, representing a 70-basis-point decrease from the first quarter of 2016.
Non-GAAP G&A expense was $42.1 million in the first quarter of 2017, up 7% from the first quarter of 2016.
Depreciation expense was $4.5 million in the first quarter of 2017, increasing 26% year-over-year.
And that increase is primarily the result of our headquarters expansion in Chicago and then other recent technology infrastructure upgrades.
Our cash interest expense was $1.7 million during the first quarter of 2017 which is flat with the year ago period.
And our non-GAAP effective income tax rate was 34.2% for the first quarter of 2017.
During the quarter, we benefited slightly from the favorable outcome of a recent state tax audit.
As Doug mentioned, non-GAAP fully diluted EPS was $0.09, decreasing 63% from the first quarter of 2016, and the primary differences between our GAAP and our non-GAAP EPS in the first quarter of 2017 are $3.6 million of amortization of intangibles from acquisitions, $2.0 million of noncash interest expense and $2.7 million of stock compensation expense.
Moving to Slide 8.
We have cash flow and balance sheet data.
In the first quarter of 2017, we had free cash flow of $10.1 million and operating cash flow of $14.1 million.
Capital expenditures totaled $4.0 million in the quarter.
On the balance sheet, we ended the quarter with $24 million in cash, $233 million of accounts receivable and nothing drawn down on our $200 million ABL facility and we continue to be in full compliance with all the covenants related to our borrowing facility.
During the quarter, we used $851,000 to repurchase 37,000 shares of our common stock at an average price of $22.94, which marked the completion of our authorized buyback program.
We continue to evaluate the most appropriate use of our capital resources and our free cash flow for reinvestment in the business, M&A activities and additional buybacks.
I'll now take a moment to reiterate our 2017 full year guidance, all of which remains consistent with our prior call.
Total revenue of $1.85 billion to $1.97 billion.
Commission expense of 29.5% to 30.5% of net revenue.
G&A cost of $165 million to $175 million.
Depreciation of $19 million to $20 million.
CapEx of $15 million to $20 million.
Cash interest of $6.7 million.
And a tax rate of approximately 37.5%.
As it relates specifically to the second quarter of 2017, we expect total revenue between $455 million and $485 million; commission expense should continue to be between 29.5% and 30.5%; G&A costs should be between $42 million and $43.5 million; depreciation expense, approximately $4.6 million; cash interest expense, proximately $1.7 million; and we expect our tax rate to be approximately 37.5%.
Excluded from our non-GAAP calculations, we expect amortization of about $3.6 million, noncash interest of $2.0 million and stock comp expense of $2.5 million.
Thus far, in the second quarter, our revenue growth has been about 3%.
And as Dave mentioned, just last week, we went live with 2 of our bigger new managed transportation account wins, which will add to our revenue growth in the quarter.
So far through the first 3 weeks in the second quarter, we've seen our gross margins decline modestly sequentially from the first quarter.
I'll now turn the call back over to Doug.
Thanks, <UNK>.
When I break down the business, I see 3 critical components that drive Echo.
Those components are: our truckload business, our LTL business and our managed transportation business.
While we do have other pieces, those are the keys for right now.
Our truckload business is doing well given internal and external challenges, opportunities and conditions.
We have a slowed growth rate, mostly due to market conditions and the integration as Dave discussed.
We can't do much about the market, but we can work on the integration which we have done.
Our people continue to adjust, we are through the toughest phase of the integration, so I'm very optimistic about our future here.
I'm thinking about the broader truckload market, clearly the brokerage environment has impacted both volume and margin.
On the volume side, when capacity is looser for sustained periods of time, fighting for contract freight can be more competitive.
We've chosen to remain committed to taking appropriately priced freight to ensure high service levels for our clients.
In an environment with less spot market freight, this impacts our volume growth.
This dynamic is also impacting margin as participation in the routing guide is more price competitive and spot rates still depressed.
Moving to the second key driver of our performance, our LTL business is doing quite well.
We are continuing to grow and take market share despite the potential for distraction as we integrate.
The combination of our LTL offering and our truckload offering give us a very strong multimodal capability that is attractive to the middle market, where we do business everyday.
Our managed transportation business is thriving.
This has always been at the core of what we do as we have grown through acquisition this component of our overall business has declined as a percentage of our entire business but it has delivered double-digit growth consistently over the last 5 years.
One of the items we talked a lot about is the time of the Command acquisition were the revenue synergies.
These were to be achieved by one, selling multiple modes and managed transportation solutions through the Command sales force.
And two, growing our truckload business through better technology and a larger, more competitive carrier network that will lead to better capacity sourcing abilities.
We're doing great on the first item and we're continuing to work on the second.
We've closed over $60 million of managed transportation deals, delivered over $10 million of additional partial and LTL business and cut overhead by $3 million, all while completing the integration.
The downside is the market conditions have reduced or slowed our ability to achieve the truckload network synergies as well as induced some margin compression.
We still believe we'll get there, but it'll take a little more time or different market conditions to catapult us there.
The long-term strategic benefits of this deal remain compelling.
With the recent margin compression and our facility expansion in Chicago, we are seeing reduced operating leverage.
This is something we've talked a lot about as we're investing in the long term.
When margins are up 1 point or 2, the positive impact is significant.
When we are feeling a squeeze, we continue to evaluate our level of investment and growing our sales headcount and our technology platform to offset the margin decline.
At the same time, we're investing for the long-term growth to ensure we maximize our competitive position, our truckload network and drive the kind of automation that's required as our business grows.
As we talked about last quarter, we're planning to update our long-term guidance later this summer.
And with that, I would like to open it up for questions.
Yes, that's ---+ it's a good question.
And if you think about ---+ we talk about investing for long-term growth and so there's some different components of that.
There's technology infrastructure and services.
There's the facility expansion that we've recently built out and there's continuing to add to our sales force.
So those are all areas of increased cost this year.
Another area is adding operational support to manage our significant level of new managed transportation wins.
So when you break that down, the variable cost could be the decisions to add or not add as many salespeople, but our operational support for our customers and the investments we've made in technology and infrastructure are much more fixed.
And then obviously, on the commission line, that's 100% variable there.
Sure.
So in terms of how much of our total increase over last year, which is roughly $20 million once you pull out the integration costs, 2/3 of that relates to increased headcount both operational and sales investment or investment in sales personnel.
Sure.
So as you know, we don't give specific cash flow guidance but this is a good cash ---+ free cash flow generating business.
And I think that when you look at the Q1 cash flow, that profile looks a lot more normal than what we saw last year which included integration costs and a decent amount of additional capital investment as we brought the 2 companies together and expanded the facilities.
And obviously, that quarterly cash flow is impacted on the seasonal growth of our business and the organic growth of the business, so as we grow faster and obviously implied in our guidance later this year, we do expect that to happen.
That does cause us to invest a little more in working capital since we generally pay our carriers faster than we collect from our customers.
But I think you'd see a cash flow profile relative to EBITDA that looks a lot more like it did in '15 and '14, than what you saw last year.
Yes the ---+ a couple of questions there.
I think in terms of the second half of the year, we would anticipate growth coming across all segments of the business.
So it's not isolated, so to speak, to the managed trends.
Part of the business I'd expect to see growth in, certainly in the truckload and LTL modes as well as in the managed transportation component of our business.
In terms of the impact on managed transportation margins, the $56 million that we talked about, and that will phase in throughout the year, that's the gross revenue component of that.
So I didn't give this quarter, we didn't ---+ I think all of our deals would be kind of gross revenue deals, so we didn't have any additional freight under management.
So as we move forward, that could have a modest drag on the margins but it's still not a huge number relative to the overall total.
So I wouldn't expect that to be too material.
And I'd just add ---+ I'd add one thing, <UNK>, just on the first part of your question in terms of our guidance for the full year.
We've built in to that guidance kind of low-single-digit LTL rate growth, and in the first half of the year similar truckload low-single-digit rate growth, and in the back half of the year, kind of mid-single-digit rate growth, just to give you an idea of how we're thinking about the market environment as it impacts that guidance.
Yes, <UNK>.
I think that the fact that those 2 companies are interested in brokerage just speaks to the size and the attractiveness of the market.
We've always said that it's a very, very big market, there's lots of competitors from the time that we started Echo.
We've had stiff competition, and I don't see that changing at all even as there's a consolidation in the industry.
It's still the same people that we're competing against.
So I don't know what their plans are but I think that they've got a lot of their own freight that they're probably interested in taking some cost out on.
And I don't know how much impact that would have on us, but I think it just validates the size of the market and the fact that outsourced 3PL transportation continues to grow at a rate that's faster than the overall freight market.
While most of that business that we've talked about winning has not actually come online yet.
We mentioned that there's some that just started shipping in the early part of April, but Q1 did not actually include any of that business in the revenue line.
Yes, we stopped throwing that number out about 2 or 3 quarters ago.
So we're just not disclosing the numbers anymore because we felt like it was less relevant disclosure and not necessary to continue.
So it differs by mode.
I mentioned in my prepared remarks that the LTL shipments were up I think 3% and truckload shipments were basically flat, 0.5% up.
Sure.
I'd be happy to.
Let me ---+ I want to clarify a question <UNK> asked, it's 4% on the LTL side with the shipment growth not 3%, so and I had that in the prepared remarks.
So <UNK>, I think that when we initially completed the acquisition of Command, one of the things that we felt was very valuable and their sales force thought would be really valuable was the opportunity to sell a managed transportation offering.
I think that what we've seen in the marketplace over the years is that more and more companies outsource and that's one of the ways that they do it is through coming to a company like Echo and outsourcing the entire portion of their transportation spend.
So one of the things that we've done is we've taken a very aggressive path in terms of educating our people on what our capabilities are, gaining confidence with our sales folks that our execution capabilities are very solid, making them familiar with our technology and how we operate so that when they have opportunities for customers to present these capabilities, they can spot those opportunities and we team them up with a team of our internal experts who help them work with potential clients to go through a traditional sales cycle.
So I think it's kind of got 2 key factors.
One, it's education of what we have to offer, which we've been doing on an ongoing basis.
And then two, it's just the capability.
We've got lots of sales people touching lots of clients all the time and so the value proposition is very strong.
Our teams are learning how to spot good opportunities with us, whether it's the good strategic fit between our company and the target and then obviously developing a value proposition that helps save money for our shippers and delivers a high degree of automation.
And I'd just add, I think there's a level of excitement with the former Command reps that this is a new product to offer to their customers so they can leverage existing long-term relationships and bring something new to the table and it's a long-term commitment.
So it's not a transactional shipment-by-shipment type of business, it's a long-term contractual business.
I think starting with the fact that we know it's a cyclical market and it ebbs and flows and we want to make sure that when the market rebounds, which we believe will happen in the not too distant future, we're poised to take advantage of that.
Secondly, we invest today in headcount that takes a period of time to get productive.
So there's the continuous growth of our people.
Their productivity improves as they gain tenure.
So we've got to continue to make that investment to hit next year's growth numbers.
And it's also just the size of the market.
We've got a CRM system with millions of customer leads in it.
We're active with about 40,000 shippers, so there's lots of opportunities to knock on doors and call on new shippers and introduce them to Echo and move their freight for them.
So I think it's combination, <UNK>.
It is ---+ we do have easier comps that start to work in really in Q2, later in the quarter and then kind of stay that way throughout the rest of the year.
And we do anticipate tightening later in the year due to regulations in ELDs, so we expect a combination of those to get us to that kind of mid-single-digit number.
I wouldn't say that there's any new players that we're running up against.
I just think that the pricing in those routing guides is very aggressive and that's how we feel the competition right now.
So it's more associated with the supply and demand dynamics and how people are pricing.
Well, we've thought it all along that we're a technology company and from the beginning, we've invested in technology and we continue to do so to this day, and in my prepared remarks I mentioned 3 new applications that we rolled out this quarter that we think put us on the leading edge with customers and carriers, and also bring internal efficiency.
So we're all about technology.
We're all about improving our effectiveness and our efficiency and our productivity.
And there's a lot of talk in the market these days about tech startups but I think we've had a lot of tech for a long time and we've got our own marketplace with 40,000 shippers and 40,000 carriers.
And so I think we're well positioned with our technology and with our marketplace.
I think that ---+ I'll give you a little insight.
I think that today capacity remains pretty loose, and so everyone's speculating as we have been for probably the last 6 to 12 months on the impact of ELDs.
I was with 1 customer yesterday and they were telling me that for the past couple of years, one of their primary objectives was to reduce the number of brokers in their routing guide.
But they said that because of the potential for a capacity crunch coming up within the next 6 to 12 months, they thought that, that strategy was no longer appropriate.
So it's pretty interesting in terms of companies out there starting to think about the future ---+ the potential for rate increases and the capacity crunch coming in connection with ELD implementation.
Now having said that, everyone's kind of working off estimates that I don't think anybody's quite certain of to the magnitude of the impact, but I would say that shippers are asking questions about it, kind of they're certainly very aware that there's a potential for a capacity crunch around the corner, but the precise amount of that and the timing of that is still a bit uncertain.
So I don't know that I'd ever want to pick a top or a bottom for the margins, and where we're going to be a few quarters out.
One of the reasons we don't give margin guidance for the next quarter is because it is very challenging to put your finger on that because there are a lot of moving parts and the market really impacts that.
So trying to go out to Q3 or Q4 would be real challenging.
You are correct that the comps get a lot easier.
So I guess I'd say on Q2, it's not unusual to see a little margin compression in truckload but we're only a couple of weeks into the quarter so I wouldn't want to use that as a prediction for which way margins will trend through this quarter or in Q3 or Q4.
I guess a couple of things that I would add to that, if we add truckload faster than we add LTL, which wasn't the case this quarter, truckload margins are typically lower, so that would put some downward pressure on margins and managed transportation business can come in different forms.
And as one question referenced earlier, sometimes we will have fee-based revenue in managed trans that is very high margin.
And other times, because of the very significant automation involved in the managed trans contract, it might have a little bit lower margin.
So there really are a lot of moving pieces in addition to the market so it's hard to pinpoint that for you for later in the year.
So you're saying given where the mix was at the end of this last year or where we are today at kind of an 80-20 mix, what does that look like later this year.
Or at the end of this year.
Without putting precise numbers on it and not having targets for you because we are trying to grow both as quickly as we can and take advantage of really both that transactional product and the managed trans product.
Having said all that, when you look at the amount of wins that we've had in managed trans and the success that we've had without additional acquisitions and factoring in how that might impact the mix, managed trans will be a higher percentage at the end of the year.
All right.
I want to thank you for joining us today.
We mentioned that it's a tepid market but we feel like we're well positioned to really exploit an improving market when the market turns and take advantage of a lot of spot freight and our ability to operate efficiently and effectively.
So we're looking for that later this year hopefully and thanks for joining us.
We'll talk to you next quarter.
| 2017_ECHO |
2015 | NI | NI
#Thanks, <UNK>.
Good morning, everyone.
Thank you for joining us.
Today, we'll briefly cover our third-quarter 2015 results and earnings drivers before discussing specific highlights for several of our utilities.
We'll close with a review of our investment proposition and long-range business plan.
We'll leave plenty of time for your questions.
As you'll hear throughout today's call, our results and our look ahead reinforce the strength of our 100% regulated utility business model.
During the quarter, we continued our disciplined execution of infrastructure and environmental investments complemented by regulatory initiatives, which are providing long-term safety and reliability and environmental benefits for our customers and the communities we are privileged to serve.
Let's first highlight a few key takeaways for the quarter on slide 3.
Our results were solidly in line with our expectations.
The NiSource team delivered net operating earnings of $0.06 per share in the recently completed quarter versus a loss of $0.03 per share in the same period in 2014.
In addition to the successful separation of Columbia Pipeline Group, the NiSource team sustained execution of our well-established plan during the quarter.
For example on the regulatory front, in Massachusetts we received a final order from the DPU approving our base rate case settlement.
The approve settlement supports our effort to modernize and replace aging pipeline infrastructure to ensure continued safe and reliable service.
In addition, we reached a settlement agreement with parties in our Pennsylvania base rate case filed earlier this year.
And also received final Commission approval of a settlement in our Virginia base rate case, as well as approval of a five-year extension of our infrastructure modernization program in Virginia.
In Indiana, we filed our first electric base rate case in five years.
I'll provide additional details on these regulatory developments later in today's call.
On the capital investment front, across all of our Companies, we remain on track with our planned total capital spend of approximately $1.3 billion in 2015.
Before turning the call over to <UNK> to highlight our financial results in more detail, I want to reinforce our 2016 guidance and long-term outlook.
As previously announced, we expect to deliver non-GAAP net earnings per share of $1.00 to $1.10 in 2016 with planned infrastructure enhancement investments of approximately $1.4 billion.
In the years ahead, we remain committed to our annual projected dividend and earnings growth range of 4% to 6%.
Now, let me turn the call over to <UNK> to review our financial results in more detail, which are highlighted on page 4 of our supplemental slides.
Good morning, everyone.
As <UNK> mentioned, we delivered non-GAAP net operating earnings of about $19 million or $0.06 per share, which compares to a loss of about $9 million or $0.03 per share in the third quarter of 2014.
On an operating earnings basis, NiSource was up about $31 million.
As a reminder, these results no longer include the CPG reportable segment financials, which are classified as discontinued operations.
The continued solid financial performance you see today is driven exclusively by our utility businesses.
On a GAAP comparison, our income from continuing operations was about $15 million for the third quarter versus a loss of about $17 million for the same period in 2014.
Now, let's take a closer look at the third-quarter operating earnings performance at our two business segments.
Our gas distribution segment came in at about $22 million, compared with $1 million for 2014.
Net revenues, excluding the impact of trackers, were up nearly $19 million, primarily to increases in regulatory and service programs in Ohio, Virginia and Pennsylvania.
Operating expenses, excluding the impact of trackers, decreased about $2 million.
Our electric operations delivered nearly $102 million in operating earnings, compared to about $90 million for the prior-year period.
Net revenues, excluding trackers, were relatively flat due to increased infrastructure investment revenues offset by lower industrial load.
Operating expenses, excluding the impact of trackers, decreased by about $12 million, primarily due to lower employee and administrative costs.
As <UNK> mentioned, these results are solidly in line with our expectations.
Full details of our results are available in our earnings release issued and posted online this morning.
Now turning to slide 5, I'd like to briefly touch on our debt and credit profile.
Our debt level as of September 30 was about $6.7 billion, with a weighted average maturity of approximately 14 years and an interest rate of 5.86%.
On the liquidity front, our $1.5 billion revolving credit facility went into effect at separation.
At the end of third quarter, we maintained net available liquidity of about $1.6 billion.
Our credit ratings at the three major agencies are solidly investment grade, something we remain committed to as we continue to execute on our $30 billion in infrastructure investment opportunities.
As you can see, the financial foundation for our continued growth as a pure-play utility is strong, on track and consistent with our investment proposition.
Now, I'll turn the call back to <UNK> to discuss a few customer, infrastructure and regulatory highlights across our utilities.
Thanks, <UNK>.
As noted, our teams remain on track with our utility investments.
These investments further improve reliability and safety, enhance customer service and reduce emissions, all while generating sustainable long-term shareholder value.
Let's turn to a few highlights from our gas operations on slide 6.
As I mentioned at the start of the call, in early October, the Massachusetts Department of Public Utilities approved the settlement that Columbia Gas of Massachusetts reached with parties in its 2015 base rate case.
Rates went into effect on November 1.
The approved settlement provides for an annual revenue increase of approximately $33 million, with an additional $3.6 million annual increase expected in November 2016.
In August, Columbia Gas of Pennsylvania reached a settlement in its base rate case pending before the Pennsylvania Public Utility Commission.
The settlement provides for a $28 million increase in annual revenues and notably also includes mechanisms to support the expansion of natural gas service into unserved areas.
A Commission decision is expected to authorize new rates by the end of this year.
Also in August, Columbia Gas of Virginia received final approval of its 2014 base rate case.
The Virginia Commission reaffirmed the $25 million annual revenue increase that went into effect in October 2014.
The difference between the settled amount and as filed rates is now being refunded to customers following the final order.
The order supports continued capital investments by CVA to modernize its system and accommodate customer growth, as well as initiatives to enhance safety and reliability.
More recently, the Virginia Commission approved a five-year extension of our SAVE program, with our proposed 20% increase in annual investments.
As a reminder, the SAVE program is our infrastructure modernization plan in the state.
One item worth noting on CVA's modernization plan, in the past few weeks, the team completed all planned cast-iron pipe replacement in the state.
At NIPSCO Gas, we filed our semiannual tracker update in August, which provides support for the remaining five years of our seven-year $817 million natural gas system modernization program.
This program involves enhancing existing gas infrastructure and extending gas service to rural areas.
Before moving on from gas operations, I'd like to say how encouraged we are by our strong performance across the board on the recent JD Power natural gas customer satisfaction surveys.
In fact, Columbia Gas of Pennsylvania is a JD Power award winner for the second year in a row.
Columbia Gas of Virginia was recognized as one of the most improved brands in the nation.
They also ranked as a top brand nationally in communications.
This strong performance is a demonstration that our ongoing infrastructure programs are designed to benefit customers and that our team of approximately 7,500 employees is focused on the right things and that's serving our customers safely and reliably each day.
Now, let's turn to our electric operations on slide 7.
Consistent with the May 26 settlement NIPSCO reached with the Indiana Office of Utility Consumer Counselor and NIPSCO's largest industrial customers, the Company filed a base rate case on October 1 and is expected to file a new seven-year electric infrastructure modernization plan with the Indiana Utility Regulatory Commission or IURC by early 2016.
NIPSCO's first electric rate case in five years seeks to recover the current costs of generating and disturbing power plus ongoing investments, which are delivering substantial benefits to customers, including a 40% reduction in the duration of power outages.
The request also seeks to create a bill payment assistance program for low income electric customers during the summer cooling season.
A decision by the IURC is expected in the third quarter of 2016.
NIPSCO's Flue Gas Desulfurization unit, at its Michigan City generating facility, is set to be placed in service by the end of the year, on schedule and on budget.
The approximately $255 million project, supported with cost recovery, improves air quality and helps to ensure NIPSCO's generation fleet remains in compliance with current environmental regulations.
It also helps ensure that NIPSCO can continue offering low cost, reliable and efficient generating capacity for its customers.
Progress also continued on two major electric transmission projects designed to enhance region-wide system flexibility and reliability.
Right-of-way acquisition, permitting and sub-station construction are underway for both projects.
These projects involve an investment of approximately $500 million for NIPSCO and are anticipated to be in service by the end of 2018.
We believe our investments are paying off for our customers in Northern Indiana.
We saw evidence of that in the recent JD Power residential electric customer survey.
NIPSCO's electric overall customer satisfaction index score increased 30 points over 2014 and was among the most improved electric utilities in the Midwest.
So as you can see, our teams continue to execute on our well-established infrastructure, environmental, customer and regulatory plans.
Before turning to your questions, I'd like to reaffirm the value proposition that we believe differentiates NiSource.
Following the separation of Columbia Pipeline Group, we are well-aligned with our aspiration to be a premier regulated utility Company.
Our plan represents a best-in-class risk-adjusted total return proposition, with continued progress on our $30 billion of long-term 100% regulated utility infrastructure investment opportunities, with significant scale across seven states, transparent earnings drivers and constructive regulatory environments.
To that end, we're focused on leading in the areas that matter most in our industry: enhancing value to our customers and communities; stewarding our assets to ensure safe, reliable, affordable and efficient service; engaging and investing in the communities we serve; and ensuring through disciplined execution that we deliver on our financial and other stakeholder commitments.
This transparent, sustainable growth is expected to drive enhanced shareholder value well into the future.
Thank you all for participating today and for your ongoing interest in and support of NiSource.
We look forward to sharing continued updates on our progress.
Now, let's open the call to questions.
Andrew.
No.
Nothing substantial in terms of the shift in the rate design on the LDC side of the business, just continued execution of the investment plan and regulatory cadence across really all of the states, with a mix of base rate case outcomes and tracker mechanisms contributing to the revenue side of the equation.
I would add disciplined expense control across the business as well.
Those are, as you know, very important customers to us, a critical part of the Northwest Indiana economy.
We've been very tuned into the pressure they've been under from international trade and have seen signs of moderation in that this year.
But still a very flat load profile on the industrial, particularly the steel side.
It's important to note that 2014 was a bit of an anomaly in terms of the load from that sector, with them depending more on our generation than their own internal generation in that year, due to weather conditions and operating conditions.
But nonetheless, on a moderate to mid term basis, we are off by probably 7% or so on a year-to-date basis on the steel load in Northwest Indiana and would expect slow recovery, slow and steady recovery.
The other side of that though, <UNK>, is we are seeing really strong signs of economic development in other parts of the Northwest Indiana economy that ---+ while not completely offsetting the steel issues, it certainly provides some stability for us.
Well, the open market these days is a pretty flat in the MISO region.
In the short-term view, I'd say that's not a very favorable equation in general.
But, I couldn't give you offhand a difference in the margin between the two.
It's certainly part of the electric rate case that's filed that's in front of us for next year.
Thank you, <UNK>.
Have a good day.
Yes, that's exactly right.
Last winter with the harsh operating conditions and the weather, some of the industrials were not able to run internal generation.
So we served that load.
That contributed to an uptick in the 2014 industrial load profile relative to what I would call normal in the prior couple of years.
So if you looked to 2015 over ---+ versus maybe a three- to five-year strip of the prior years, it's pretty consistent with the prior years in general, but off of 2014 because of that.
Yes.
That's a good, probably a good representative indicator of what we might see in a quote-unquote normal year.
Yes.
I call it relatively flat on a normalized basis right now.
The outlook would be continued relatively flat load from that sector.
It's always a part of any rate case, just in terms of revenue allocation across different customer groups.
Keep in mind, the test year goes through end of March of this year, 2015.
So that's the load profile that's the starting point for the rate case and reflects a little bit of that, but doesn't give you a full picture of the outlook for industrial.
So you'll see a little bit of that in the rate case; a little bit of adjustment for that.
Yes.
I haven't seen anything that would double but that would be interesting.
I won't speculate on M&A, <UNK>.
Certainly, we are watching with interest, the recent announcements in our space.
But we remain very focused on our plan, which delivers sustained growth through the clearly identified $30 billion of regulated infrastructure investments.
As you know, that's well supported by our stakeholders.
We are well-capitalized with significant scale to continue to execute on that.
So that's what we are focused on.
We'll remain focused on that.
Yes.
I'd say we are on plan, as we speak.
As we look at the 2015 performance year-to-date, we are on plan.
Little puts and takes within the plan, but certainly right about where we would expect to be.
Our outlook remains confident around the range we provided for next year, as well as the long-term growth rate of 4% to 6%, EPS and dividend growth.
Yes, <UNK>, that's a way to describe it.
We've always portrayed the electric TDSIC as ramping up over time.
In the original filing, the original plan, that's what it reflected.
As you know, we'll file a new plan starting with 2016 investments by the beginning of next year.
You would expect to see that same kind of a ramp rate in that plan as we go forward.
We remain very committed to those investments.
We think they are essential.
It will basically fill in, if you think about NIPSCO's total CapEx profile, it will basically fill in over time as the generation investments ramp down and ramp off.
Yes.
We haven't stated that.
We haven't indicated that we put a specific two-year plan in place.
But I would say, the $1.4 billion that we've committed to for 2016 is a good indicator of where we expect to be over the long run, with a modest general upward bias to that number.
Yes.
In general ---+ you said on the electric side, in general, across NiSource, we are going to run 6% to 8% rate base growth over the long run.
That will move a little bit between electric and gas.
But it's a good range for both segments.
All right.
Look forward to seeing you.
Yes.
That's a fair question.
We are not yet ready to narrow or revise guidance for next year; so certainly not in that position yet.
I think you've fairly characterized some of the major drivers.
If you look at really any given year in our planning horizon, regulatory outcomes are the likely swing factors within the guidance.
So as we look at the electric case at NIPSCO, certainly one of the factors that could move the needle a bit within guidance.
But we are confident in that range and very confident in the middle of that range.
We have not decided that yet.
We certainly guided early for 2016 because of the separation.
We thought it was appropriate to come out as we separated NiSource and CPG for both sides to give a good look at the first full year of operations.
Whether we will look that far out in the future is yet to be determined.
Thank you.
Have a good day.
All right, Andrew.
Thank you very much.
Thank you all again for participating today and for your ongoing interest in NiSource.
We certainly look forward to sharing continued updates on our progress and meeting with many of you at EEI next week.
So have a great day.
Take care.
| 2015_NI |
2017 | MGLN | MGLN
#Good morning, and thank you for joining Magellan Health's First Quarter 2017 Earnings Call.
With me today are Magellan's Chairman and CEO, <UNK> <UNK>; and our CFO, Jon <UNK>.
The press release announcing our first quarter earnings was distributed this morning.
A replay of this call will be available shortly after the conclusion of the call through May 26.
The numbers to access the replay are in the earnings release.
For those who listen to the rebroadcast of the presentation, we remind you that the remarks made herein are as of today, Wednesday, April 26, 2017, and have not been updated subsequent to the initial earnings call.
During our call, we will make forward-looking statements, including statements related to our growth prospects and our 2017 outlook.
Listeners are cautioned that these statements are subject to certain risks and uncertainties, many of which are difficult to predict and generally beyond our control.
These risks and uncertainties can cause actual results to differ materially from our current expectations, and we advise listeners to review the risk factors discussed in our press release this morning and documents we filed with or furnished to the SEC.
In addition, please note that Magellan uses certain non-GAAP financial measures when describing our financial results.
Specifically, we refer to segment profit, adjusted net income and adjusted EPS, which are defined in our SEC filings and in today's press release.
Segment profit is equal to net revenues less the sum of cost of care, cost of goods sold, direct service costs and other operating expenses and includes income from unconsolidated subsidiaries but excludes segment profit from noncontrolling interests held by other parties, stock compensation expense, special charges or benefits as well as changes in the fair value of contingent consideration recorded in relation to acquisitions.
Adjusted net income and adjusted EPS reflect certain adjustments made for acquisitions completed after January 1, 2013, to exclude noncash stock compensation expense resulting from restricted stock purchases by sellers, changes in the fair value of contingent consideration, amortization of identified acquisition intangibles as well as impairment of identified acquisition intangibles.
Please refer to the tables included in this morning's press release, which is available on our website, for a reconciliation of these non-GAAP financial measures to the corresponding GAAP measures.
I will now turn the call over to our Chairman and CEO, <UNK> <UNK>.
Thank you, <UNK>.
Good morning, and thank you all for joining us today.
During the past several years, we have repositioned our company and laid the foundation for growth ahead.
Our value proposition, integrated approach and decades of expertise working with special populations have all converged to position Magellan as a leader in providing solutions for managing complex populations and conditions across the healthcare continuum.
I'm pleased to report that we continue to see solid results in the first quarter.
We reported net revenue of $1.3 billion, net income of $17.7 million and EPS of $0.74 per share.
Our adjusted net income was $26.1 million or $1.09 per share, and we achieved segment profit of $69.8 million.
We are reiterating the 2017 guidance provided during our year-end earnings call in February.
Jon will provide more details later in the call.
I will now discuss highlights for our healthcare business, beginning with an update on the commercial market.
We recently extended the behavioral health contract with our largest commercial customer through 2021.
It was originally expected to run through 2019, but we were able to extend it as a result of our strong performance.
In addition, effective January 1, 2017, this customer implemented our musculoskeletal product, which helps to manage spine surgeries and interventional pain procedures.
It's an example of our efforts to add new product sales to existing customers.
We continue to see interest in expanding services that control healthcare costs and increase the quality of care for our members.
In the government market, we are working closely with Virginia to implement their Managed Long Term Services and Supports program, also known as the Commonwealth Coordinated Care Plus program, and we are on track for a go live in the first region on August 1, 2017.
As you will recall, the program is scheduled to be phased in through January 1, 2018.
Our Florida health plan for individuals with serious mental illness continued to perform well, and we are preparing for the state's expected rebid this summer with an effective date of January 2019.
We feel very good about our current success in Florida, but, of course, there are no guarantees with any reprocurement.
I am pleased to share that Magellan Behavioral Health of Pennsylvania, our business serving health choices members in the Commonwealth, has received full managed care ---+ managed behavioral health organization accreditation from NCQA.
We're honored to receive this recognition, which sets rigorous and important accreditation standards.
Achieving full accreditation demonstrates our continued commitment to delivering high-quality care to help the individuals we serve.
Turning to our pharmacy business.
Sale execution has been strong, and we've seen solid growth in our membership base.
We ended the first quarter with 1.9 million commercial PBM members and 13.7 million medical pharmacy members.
In our Medicare Part D plan, we are working to ensure strong service levels to handle our rapid growth in membership, which currently stands at approximately 96,000 lives.
Earlier this month, we released our seventh annual Medical Pharmacy Trend Report, a leading source for payers and other industry stakeholders to analyze high-cost injectable drugs paid under the medical benefit.
Among the report's findings, we noted that commercial medical pharmacy spend increased by 55% from 2011 through 2015, or an average of 12% annually.
Importantly, of the commercial health plans surveyed, 90% have not implemented any advanced medical pharmacy program beyond standard utilization management, and 20% of plans surveyed are not managing this spend at all.
These findings underscore the tremendous opportunity we have to sell our industry-leading specialty capabilities, which strengthen our value proposition as a full-service PB<UNK>
If you would like to read the full report, you can access it by going to www.magellanrx.com.
Lastly, I'm pleased to share that we were recently reaccredited by URAC for pharmacy benefits management for our commercial and managed care lines of business.
As you know, URAC is the independent leader in promoting healthcare quality through accreditation, certification and measurement.
This demonstrates our comprehensive commitment to quality of care, improved processes and better patient outcomes.
Across the healthcare industry, there's a great deal of focus on enhanced innovation and consumerism, bringing healthcare to individuals where they are and when they need it.
When you look at what you can do with apps on your cell phone and consider how little of that is healthcare focused, you begin to see how far the industry needs to move to catch up.
At Magellan, our innovation labs accelerate innovation on behalf of our customers and members.
We are collaborating with Click Therapeutics to create a suite of FDA-approved mobile apps for people challenged by conditions such as insomnia, substance abuse, depression and anxiety.
This collaboration is a great example of how we're working with other innovative companies to bring healthcare solutions to people in a convenient and very personalized way.
Several studies published in peer-reviewed journals have demonstrated through randomized controlled trials that digital therapy may have outcomes that are as effective or as or better than other options.
Magellan has been the leader in the use of digitally based therapy tools for several years.
This includes having some of our software included in the Substance Abuse and Mental Health Administration's, or SAMHSA's, National Registry of Evidence-based Programs and Practices.
Our program is the only one of its kind to achieve the highest rating under SAMHSA's new stringent guidelines.
In pharmacy, we are exploring breakthrough digital healthcare tools to improve the member and patient experience and overall clinical outcomes.
With nearly 50% of patients not taking their medications as prescribed, addressing nonadherence is a critical focus for us.
Along the lines of personalized medicine, we are launching a new genetic testing pilot to learn more about one's ability to metabolize medications and the impact it has on drug effectiveness, health outcomes and costs.
Now I'd like to provide context around some of the legislative and regulatory changes being discussed in Washington.
While the initial repeal and replace legislation was withdrawn by Republican leadership last month, healthcare reform discussions continue in Washington as senior administration and congressional leaders have revived efforts.
This is partly due to the connection between changes in spending contemplated with healthcare reform as a way to fund tax reform.
We believe there is potential for movement in the near future.
Across the country, many states are wrapping up their annual legislative sessions, and they continue to look for ways to improve the quality of care and reduce costs for their Medicaid populations.
CMS has expressed a willingness to consider waivers and is encouraging states to include personal responsibility and member copayments in expansion plans.
States like Florida, Texas and Virginia are planning to expand or enhance their managed care programs.
Magellan has demonstrated meaningful ways to bend the cost curve and improve the member experience for specialty populations, and we are using this experience to help states shape their programs.
Leading humanity to healthy, vibrant lives is a pursuit that guides our growth and inspires us.
We will continue to provide innovative solutions for the fastest-growing, most complex areas of healthcare.
At this point, I'd like to turn the call over to our Chief Financial Officer, Jon <UNK>.
Jon.
Thanks, <UNK>, and good morning, everyone.
For the quarter, revenue was $1.3 billion, which represents an increase of 16.9% over the same period in 2016.
This increase was mainly driven by business growth and the annualization of revenue from prior year acquisitions, partially offset by the impact of contract terminations.
Net income was $17.7 million, and EPS was $0.74 in the current quarter.
This compares to net income and EPS of $13.2 million and $0.54 per share, respectively, for the first quarter of 2016.
Adjusted net income was $26.1 million, and adjusted EPS was $1.09 for the first quarter.
The adjusted net income increase of 34.5% from the first quarter of 2016 was mainly due to higher segment profit and a lower effective income tax rate.
Segment profit was $69.8 million for the first quarter, an increase of 16.5% from the prior year quarter.
For our healthcare business, segment profit for the first quarter of 2017 was $47.2 million.
Results included $13 million of favorable prior period items, comprising approximately $8 million of revenue retroactivity and $5 million of care development.
Segment profit increased 27% over the first quarter of 2016, mainly due to improved results in our government markets and net favorable out-of-period items, partially offset by the impact of the Health Insurer Fee moratorium in 2017.
Now turning to our pharmacy management segment.
We reported segment profit of $29 million for the quarter ended March 31, 2017, which was an increase of 1.6% from the first quarter of 2016.
This year-over-year increase was primarily due to new business sales and earnings from the Veridicus acquisition, offset by contract terminations and higher administrative costs to support growth initiatives.
Regarding other financial results, corporate costs inclusive of eliminations but excluding stock compensation expense totaled $6.4 million, which represents a $600,000 increase as a result of onetime expenses to support acquisitions.
Excluding stock compensation expense and changes in fair value of contingent consideration, total direct service and operating expenses as a percentage of revenue was 16.2% in the current quarter, which is comparable to the 16.5% ratio in the prior year quarter.
Stock compensation expense for the quarter ended March 31, 2017, was $10.1 million, an increase of $1.3 million from the prior year quarter.
This change is primarily due to the timing of equity award vesting and higher annual grants in 2017.
The effective income tax rate for the quarter ended March 31, 2017, was 40.3% compared to 47.3% for the prior year quarter.
This decrease is primarily due to the Health Insurer Fee moratorium in 2017.
Our cash flow from operations for the quarter ended March 31, 2017, was a net use of $31.1 million.
As a reminder, cash flow from operations in the first quarter includes the impact of the timing of variable compensation payments.
As of March 31, 2017, the company's unrestricted cash and investments totaled $288 million, which represents a decrease of $5.9 million from the balance at December 31, 2016.
Approximately $121.5 million of the unrestricted cash and investments at March 31, 2017, is related to excess capital and undistributed earnings held at regulated entities.
Restricted cash and investments at March 31, 2017, of $299.3 million reflects a decrease of $16.6 million from the balance at December 31, 2016.
This decrease is primarily attributable to the use of restricted cash and investments for the payment of claim and other liabilities associated with terminated contracts.
We are reiterating the 2017 guidance provided during our year-end earnings call in February.
Specifically, we expect revenue in the range of $5.8 billion to $6.1 billion and segment profit in the range of $329 million to $349 million.
In addition, we expect net income in the range of $90 million to $114 million, adjusted net income in the range of $123 million to $145 million, EPS in the range of $3.72 to $4.71, adjusted EPS in the range of $5.08 to $5.99 and cash flow from operations in the range of $150 million to $182 million.
Compared to the first quarter of 2017, we expect the segment profit run rate to increase for the remainder of the year due to the following factors: timing of new business implementations, timing of rate changes, normal earnings seasonality in our Part D plan and timing of customer settlements across our businesses.
In summary, I'm pleased with the solid results we recorded this quarter and our continued success in executing on our growth strategy.
With that, I'll now turn the call back over to the operator for questions.
Operator.
Josh, on Virginia, we're going through, through the month of May, basically, the readiness reviews, as everybody is, and then the state will then allocate or go through the algorithms and assign plans as we understand it based on their readiness.
And so we don't yet have that understanding of how they'll be allocated and the flow goes across the months between the implementation on August 1 through the 1st of January, 2018.
So that's not known.
And it probably won't be known until we get much closer to the implementation date.
Yes, Josh, it's a great question.
I would say it's a little bit of both.
As a general rule, we've not ---+ we would not forecast any IBNR development since, any point in time, we're recording our best estimates for IBNR.
But there are other things that lead to prior period adjustments such as some customer settlements and revenue adjustments that we might project in our guidance or in our outlook as we go through the year.
And I would say, this quarter, it's probably about 50-50.
We had both customer settlements, revenue-related items and IBNR in the $13 million.
Yes, I mean, again, probably closer to 50-50, but you have the general idea.
Yes, it's coming out near the end of the year.
So you never know about these things, sometimes they take a little longer.
But we wouldn't be surprised to hear later this year or in the first quarter of next year, dependent upon their decision process.
You bet, <UNK>.
Let me address the issue of kind of the contract terminations.
We have, on any given basis, we win contracts.
There are a few contracts that leave due to a number of issues.
Typically we don't have contracts that leave due to service issues.
We really differentiate ourselves.
We have the top Net Promoter Scores, how our clients perceive us in terms of quality, of service, and we take great pride in that.
So typically, there are circumstances which ---+ where they have other contractual relationships or it might simply be a price issue as well on occasion.
But generally speaking, you'll have some low level of contract terminations.
You'll have, on occasion, a larger one.
We talked about one, I think it was last summer.
It didn't have much of an impact on our bottom line, but it certainly was a larger top line revenue impact.
So that ---+ it's just kind of a normal but really a de minimis churn in the contract base.
Now relative to the differentiation, when I mentioned before about the Net Promoter Scores, we're thought of as very high performers in the industry.
We take great pride in our service levels, our execution, both in the implementation.
We're also very focused on being highly ---+ we're very happy to be able to customize and be very flexible with the customers we work with in terms of their plan design and implementation.
We could typically react far more quickly than the larger PBMs, and so people see us as very flexible, again, just excellent execution of implementation and the plan designs.
The other thing that's very different about us and how we differentiate ourselves, particularly relative to larger players, is that as you know, we've really focused on the specialty component of it.
About 50% of the spend, we're about there now, and some of our customers are already there, but it will get there for virtually everybody within the next year or so, is specialty, and that's really where we've cut our teeth and where we're well known.
We mentioned in the earnings call, we have nearly 14 million covered lives on the medical pharmacy benefit.
Most of that spend is specialty, and that's where the action is.
And so as larger health plans, employers look at trying to control that segment of the spend, the specialty spend, they more and more are focused on guys like us and specifically us, I think, because of our expertise in that space.
And so we're very different.
The way we go about managing those costs is dramatically different, and hence, the reason why you see us having nearly 14 million lives versus just a very small, a percentage of that held by others, even the big guys.
So those are the large ---+ I would say, those are the headlines.
<UNK>, you make a very interesting point in that we try to be very selective as to the types of contracts we take, so that they truly are profitable and sustainable for us over the long term.
At a certain point in time, particularly with very large MCOs, the contracts are literally at no margin and sometimes, subterranean margin, less than 0 with the hope that, that volume will buy you something in the future.
We think that, that actually just traps a PBM because it's very difficult to make that up with ---+ the larger player, certainly, won't be able to make that up because the market's too competitive.
And then the midsized employers, there are not enough of them, and certainly the smaller ones, there are not enough of them to make up that differential.
So we try to be very selective about the generic PBM kind of a business.
That said, if you ---+ as we take a look at our client base, we have quite a few substantial MCOs in our client base.
But instead of taking the bread-and-butter pharmacy claims administration business and plan design business, we focus on the specialty because that's where the money is.
And so we will continue to do that and not really take contracts that compromise rapidly our overall margin but really focus on the high-margin specialty subset of the pharmacy business.
In terms of our approach to the marketplace, we're likely to continue that.
We think that we'll see great growth.
We've said over the last several years, certainly, I think in mid-2013 that our margins, ultimately, as we move upscale into the midsized employers with a few larger employers, a few larger health plans, not the mega health plans, but a few of the larger ones, the margin would likely compress and get into the range of what the larger PBMs are.
Historically, they have been 3 to 5, they're 3 to 6.
You probably, no doubt, have noted, with the recent large ---+ who lost a significant contract, I think everybody knows what I'm talking about here, we always feel sorry when that happens, but it underscores the importance of not having so much of your business tied up with one account, one customer, and secondly, the impact on margins that has on a business.
So we don't have that kind of exposure here at Magellan, and we're likely not to have that kind of exposure, but you will see those margins, I think, over time be in that 3 to 5 to 6 kind of normalized range, very similar to what you see with the other larger PBMs.
Let me take the first part of the question, which is relating to the loss ratios for the quarter.
I would say that the way I'd depict it is the majority of the improvement we're seeing year-over-year, if you look at it versus last quarter, is coming from the public business.
It's just primarily the Magellan Complete Care business and, to a lesser extent, some of the remaining Public Sector behavioral business, where again we're seeing the continued benefit of many of the care management initiatives we've put in place over the last year as well as continued good operational execution.
And then, <UNK>, on your good question about how the state perceives the plan.
ACA is just an outstanding job, and the governor, Governor Scott, in leading the country in terms of these very innovative plan designs that allow them both to control the cost but increase quality and provide services to those who ordinarily wouldn't receive services.
Nationally, they're seen as a thought leader and, indeed, within the state, we have a great partnership, and they've been highly complementary to the work that we've done in advancing and refining the approach there in the state.
So we think that we're in good stead.
Again, there are no guarantees, but the work that we've done with them, we've advanced the cause, and created the first of its kind in the country.
I think ACA takes pride, as they should, in having sponsored that, envisioned that and created that, and we feel very fortunate to be their partner.
Even states like Virginia, as they were going through the decision process, they look to Florida, and there were significant conversations with the leadership in Florida.
And as you know, we were awarded the business also in Virginia, along with others.
But again, it's a clear indicator of how the state thinks about us.
We do think that states will follow their lead.
Just as a quick commentary on healthcare policy, I had this conversation with Governor Scott and other governors as well, one of the governors specifically, regarding how they think about the Medicaid population and the ---+ trying to control the costs, having the federal government basically give states greater flexibility and be far more open about creative plan designs.
So I think what you're going to see are more states will do what Florida is doing, what Virginia's doing, and you'll see the states have more control over their future.
The reality is, in these states where we have these populations, where 5% of the population spent 45% of the premium dollars, you simply have to focus on that most ill part of the population which have more seriously mentally ill, intellectually development disabled ABD population, you have to have specialists to focus on those.
That's what we do, and that's our great strength.
So we think what Florida's done is not only ---+ not only plays well in Florida, but plays well fairly in Virginia, and we'll play that out as we implement there.
But we think we will see that trend, where states are getting being far more creative and being allowed to do so by CMS.
Okay, Dave, I'll try to ---+ this is Jon.
I'll try to capture all your questions here.
First, in terms of revenue on the pharmacy side, I would really kind of depict it in 3 pieces.
One, this is new business, and we have seen strong sales results, both as we went through 2016, which we're now getting the full annualized benefit of, and in 2017.
That's really across employer health plan in specialty specifically on medical pharmacy, we've had some good results.
It's also ---+ also, Medicare Part D, we've continued to see growth as we've come into this year.
I think <UNK>, on the script, talked about the membership growth there and then the Veridicus acquisition, those are really the 3 primary drivers.
Now if you look at revenue versus segment profit, there's always a little bit of noise in comparing one quarter to another because there's puts and takes and always some volatility and nonfundamental items.
But largely, the general trend you're noting is really a shift in business mix, where we're seeing more growth in both Part D and the traditional PB<UNK>
And as <UNK> mentioned in his comment in response to an earlier question, that's the trend that we've expected, meaning that as we get more into the PBM business and continue to further our strong growth there, we will see some reduction in margins as a percentage of revenue.
But of course, the revenue there is higher because we're counting the cost of drugs versus some of the fee-based revenue in our traditional specialty pharmacy business.
So those are the main drivers.
Part D, in general, you'd asked about that.
We had, in our guidance, and continue to have something close to breakeven for full year for Part D.
As expected, we had a slight negative margin in the first quarter.
As I'm sure you're aware, the seasonality of Part D, because of the benefit structures, is such that the earnings improve as you go through the year as a percentage of revenue.
So that's not material, but small negative contribution in the quarter.
Yes, it's really a combination of things.
So it is both staffing up to support new capabilities and new customers, really for those growth initiatives, including Part D, where we've seen, where we've obviously seen growth over the course of the last year, but as well on the managed care and the employer side to support that growth.
And then we are continuing to build out our clinical capabilities and other capabilities in the specialty arena as well.
Let me again kind of take those questions sequentially.
First, in terms of new business, we continue to make good progress in new business.
So we're above 50% now, call it in the 60% range.
Importantly, though, our pipeline continues to be very strong, and our sales results continue to be strong.
I think in terms of exactly how this year plays out, it will depend on timing of implementation, both of business we've sold already and business that we're well along with in the pipeline.
But we feel very good about both the results to date and the prospects as we go forward.
In terms of parsing the out-of-period adjustments, look, there's ---+ we have a guidance range.
There's always going to be puts and takes within that range.
I think we're probably being a little bit overly precise to kind of think about is $5 million or so of prior period items going to push us up or towards the upper end of the range or where exactly we'll be in that range.
But obviously, it's good news to have that momentum coming into the year.
But I wouldn't read in that it's conservative or aggressive at this point.
We have the range, and we're comfortable with that at this point.
Yes, Dave, it's really both.
Indeed, internally, we have rebuilt the ---+ we've rebuilt the product line and kind of modernized the entire product line.
We've expanded the product line.
There are new services, for example, musculoskeletal, that didn't exist, I want to say 2 years ago, and now we cover 7.5 million covered lives.
And it also creates additional stickiness and introduction into new clients as well.
And so that's good example of kind of an enhanced product and a new product.
But even our core products of the company have been substantially modernized over the last 2, 3 years.
And then in addition to that, we have built a sales force.
Three years ago, we had virtually no sales force.
And we have great people out there serving our clients in a client service capacity.
But I think nationally, we had 2 people.
So that just is not enough of a sales force to be able to tell the Magellan story.
So it's been basically a rebuilding of the company's capabilities, both by getting modernizing existing product, increasing product and the quality reporting, kind of moving to the new world in terms of the types of risk deals.
We continue to take and expand risk deals with our clients.
They like that, and so ---+ and we can tell the story far more effectively.
The second part of it is the part that you point out.
Unlike virtually any of the time we've seen in the last several years, given the pressures exchanges have caused on the part of regional health plans particularly, even national and regional ones, they're looking for solutions, and they realize that in order to come up with the kind of expertise and sophistication of product that we've been able to develop over years, that's very difficult to do on your own internally.
Plus the fact that they, like others, they like to delegate risk, they like us to take the risk for accomplishing the goal, to have them meet their financial goals for the year, for this year and for the next few years.
And so that drive, that initiative has been very, very different.
As you recall 2 years ago, particularly, it went the opposite direction because people thought that with exchanges, they were so focused on coming up with the exchange product, they really didn't pay attention to doing these ---+ focusing on these services, which really are part of the costs, and that's really changed.
Today, they see that they have this real need of greater expertise.
And the last point that I would make, over the last 1.5 years, 2 years, we've seen a real emergence of a recognition of a linkage between behavioral health and physical medicine.
We're seeing it in the public markets and hence, the Florida, Virginia, we'll see others that will implement as well we believe over the next while.
But you're also now seeing it in the commercial marketplace.
Again payers realize that unless there's expertise and linkage between the behavioral health product and the physical medicine, they can't achieve the results they want to achieve, certainly not on BH side and certainly not on physical medicine side.
So the products are far more integrated and kind of digitally driven and consumer oriented than they were 2, 3 years ago.
It's a very different marketplace.
So it's a very interesting topic, which we'll talk more about during our Investor Day coming up in June.
All right.
Now <UNK>, good to have you on with us this morning.
Is this question more focused on the PBM side.
Yes, absolutely, <UNK>.
Let me kind of take them one at a time.
We do have a focus on regional health plans, and many of the national players.
Either contracts are so large that it would dwarf us and/or the pricing is so challenging it just isn't that appealing to us.
It's not that we wouldn't do specialty things with those players, and we do, but we would focus more on specialty rather than general PB<UNK>
Because of that, you see us have a very significant presence within the Blues world.
Interestingly, for ---+ well, the last many, many years, we've had a strong presence in the Blues world and continue to have that presence.
What's happened is that with over the last again 3 or 4 years, with building the sales force, we've seen a lot of linkage, increasing linkage between, at least relationship-wise and also product-wise, between the healthcare services offerings as well as the PBM offerings.
And so while they have different CEOs, we talk to the same players, the same leadership in the plan.
And if a healthcare services client is thrilled with our service, they'll be more amenable to listening to our story on the PBM side and vice versa as well.
So we see a lot of cross marketing going on increasingly over the last several years.
Again, Blues versus non-Blues, we have a major footprint in the Blues world, but we also have broken out over the last, I would say, 6 months, 1 year, 1.5 years to increasing our sales focus on non-Blue accounts as well.
So it's kind of a mix, probably more dense Blues but also other regional MCOs that we focused on as well.
Now relative to Prime, Prime is a great provider.
We know, I know Jim DuCharme well.
He's the CEO up there in Minnesota, good quality outfit.
As you know, they're owned by several Blues partners, and so those partners typically use Prime for their services.
And that's fine, I think Prime does fine job.
What we do that's a little bit different than Prime, including with the relationship with Walgreens, is again, as I said earlier, we're so focused on the specialty piece and on medical pharmacy.
That's fundamentally not what Prime does or what ---+ they're not known for that.
Again, good quality leadership and great services.
So we fundamentally have kind of a different way of going about things in terms of our offerings and, indeed, with several Prime customers, we offer the specialty medical pharmacy benefit.
So that's a, not an atypical way for us to work side-by-side with Prime.
Relative to their agreement with Walgreens, as you know, both Walgreens and CVS are duking it out for market share, and it's a very competitive world.
And with the acquisition ---+ who knows what's going to happen, obviously in the Right-Aid deal with Walgreens.
But again, those 2 players, you almost have to have one or the other in your network.
And so as Walgreens formed a relationship with Prime, it helps Prime in terms of some economics, but fundamentally, we compete very effectively the same because we have relationships with Walgreens and CVS as well.
And so it hasn't really changed the dynamics in the marketplace to have Prime have that relationship with Walgreens.
At least we haven't seen it yet.
So I don't know if I ---+ did I cover the landscape on your questions, <UNK>.
Excellent.
Well, we again are thrilled to have you with us here today.
Just one moment.
I'd like to remind everybody that our 2017 Investor Day will be held on June 22 in New York City.
We all hope to see you there.
Thanks for calling in today and joining us.
Bye-bye.
| 2017_MGLN |
2015 | CBRL | CBRL
#Good morning.
Yes.
We have said that we anticipate going forward that our regular quarterly dividend, which currently has a payout ratio in the low 60% range, would be growing roughly in line with the long-term growth of our earnings per share.
Concern about raising our regular dividend much further is that there tends to come a point where your dividend payout ratio gets that it's difficult to convince the market that it's sustainable, and we are mindful of not getting it to that point.
As far as the opportunity to repurchase shares, as long as we have a 19.9% shareholder and we have a shareholder rights plan with a 20% threshold, and I'll remind everyone that our shareholders overwhelmingly approved a shareholder rights plan with a 20% threshold, the view that we have is that we need to find alternatives to share repurchases to return capital to shareholders, which is the reason for our first special dividend that we announced this morning.
Yes.
Stephen, it's difficult to comment at this stage about what our actuarial experience may be as we move forward.
We had until the end of the 2014 calendar year, and it is important to emphasize here that it's a calendar year which is relevant for our benefits plans not our fiscal year, through the 2014 year we had an employee healthcare plan that was insured by a major insurance company, but that had a retroactive adjustment feature.
We have gotten the benefit of the positive claims experience in the 2014 calendar year in the form of those retroactive adjustments, some of which occurred in FY14, most of which are occurring in FY15.
As we go forward, we have now in compliance with the Affordable Care Act, have a self-insured plan that tends to have higher deductibles than the 2014 plan did.
So it is still relatively early to assess what the likely claims experience is going to be and the implication that that might have on next year's plan.
Thank you.
The dining room management is not contributing at all to that yet.
So we are in the process of rolling it out.
I think there is about half the chain maybe in the process of installing it.
We should be largely done by the end of the fiscal year, and then there'll be ---+ they'll have to understand how to use it.
I do anticipate a future labor savings tied to that initiative.
Bob, a couple of things there.
We have historically used our five menu promotions a year for the purpose of providing something new for our core customers and something different for our occasional customers.
From a financial standpoint, we have always targeted our promotions to be gross margin neutral on a dollar basis, not a percentage basis.
Now since the promotional items tend to have a higher menu price, at a constant dollar margin it means that they tend to have a lower percentage margin, which is the reason why we have reported for at least each of the quarters of 2015 a relatively high mix benefit in our comp store sales.
But you've not necessarily seen that in our restaurant food margin.
As a percentage.
Yes.
And the ribs at a $11.99 ---+ I'm sorry, at a $10.99 price point are a compelling value as compared to what some full-service restaurant companies are offering ribs for.
Again, we expect it to be gross margin dollar neutral, which means it may from a percentage standpoint ---+ from a margin standpoint be slightly negative.
Go ahead, <UNK>.
It's <UNK> <UNK>, yes.
It is half of slab.
St.
Louis style.
Yes.
Thank you, Bob.
The store is nearing completion of construction.
It is in Morganton, North Carolina and we expect to open on June 22.
I'm pleased with the way the construction progress is going.
And we're really excited about the learnings that are going to come from the new design.
That will give us an opportunity to improve new stores going forward, but it will also allow us to begin to understand better potential retrofit opportunities.
Well, thank you all for joining us today.
As we head into the final quarter of the year, I'm pleased with the sustained progress we're making on our strategic priorities and with the momentum we are carrying.
We remain well-positioned with a strong brand, talented management team and more than 70,000 engaged employees committed to providing a great guest experience.
We appreciate your interest and support.
Thank you.
| 2015_CBRL |
2016 | DY | DY
#Thank you, <UNK>.
Good morning, everyone.
I'd like to thank you for attending this conference call to review our fourth-quarter fiscal 2016 results.
During the call we will be referring to a slide presentation which can be found on our website's investor relations page under the heading events and presentations, investor calendar.
Relevant slides will be identified by numbers throughout our presentation.
Going to slide 3, today we have on the call Tim Estes, our Chief Operating Officer; <UNK> <UNK>, our Chief Financial Officer; and <UNK> <UNK>, our General Counsel.
Now I will turn the call over to <UNK> <UNK>.
Thanks, <UNK>.
Now moving to slide 4 and a review of our fourth-quarter results.
As you review our results, please note that we have presented and are releasing comments.
Certain revenue amounts, excluding revenues from businesses acquired during the fourth quarter of fiscal 2015 and the first quarter of fiscal 2016, adjusted general and administrative expenses, adjusted EBITDA, adjusted net income and adjusted diluted earnings per share, all of which are non-GAAP financial measures.
In addition, we utilized a 52-, 53-week fiscal year ending on the last Saturday in July.
As a result, the fourth quarter of fiscal 2016 contained 14 weeks compared to 13 weeks in the fourth quarter of fiscal 2015.
For clarity and to enable comparability between periods, our comments with respect to organic revenue growth rates will adjust for the additional week in fiscal 2016.
See slides 13 through 19 for a reconciliation of non-GAAP measures to GAAP measures as well as a calculation for the adjustment of the 14th week in the quarter.
Revenue increased significantly year over year to $789.2 million, an increase of 36.4%.
Organic revenue grew 20%.
This quarter reflected a broad increase in demand from several key customers as we deployed 1-gigabit wireline networks, grew core market share, and services for wireless carriers surged.
Gross margins increased 34 basis points as a percentage of revenue, reflecting solid operating performance.
Several large programs accelerated and a number of new contract commenced meaningful activity.
Adjusted general and administrative expenses improved year over year, decreasing 42 basis points.
All of these factors produced adjusted EBITDA of $126 million, or 16% of revenue, and adjusted diluted earnings per share of $1.64 compared to $0.97 in the year-ago quarter.
During the quarter, we closed the acquisition of certain assets of Goodman Networks, a provider of wireless construction services in Georgia, Texas and California, and NextGen Telecom, a provider of wireline construction services in the Northeast.
Operating cash flow was robust, totaling $182.5 million.
This cash flow was sufficient to entirely pay for the quarter's $108.4 million in acquisitions and $43.2 million in net CapEx.
Despite the significant investments during the quarter, cash and availability under our credit facility increased sequentially by $228 million to $426 million at the end of the quarter.
We are currently authorized to repurchase up to $100 million of shares over the next 14 months.
Going to slide 5, today a number of major industry participants are deploying significant wireline networks across broad sections of the country.
These newly deployed networks are generally designed to provision bandwidth enabling 1-gigabit speeds to individual consumers.
One industry participant has articulated plans to deploy speeds to 10 gigabits, while others are preparing to do so.
These industry developments produce opportunities across a broad array of our existing customers, which, in aggregate, are without precedent for the industry in our experience.
These opportunities are currently expanding.
We are providing program management, engineering and design, aerial and underground construction, and fulfillment services for 1 gigabit deployments.
These services are being provided across the country in dozens of metropolitan areas to a number of customers.
Revenues and opportunities driven by this industry standard accelerated meaningfully during the fourth quarter of fiscal 2016.
Customers are continuing to reveal with more specificity new multi-year initiatives that are being planned and managed on a market-by-market basis.
As our calendar 2016 performance to date and outlook continue to demonstrate, we are currently in the early stages of a massive investment cycle in wireline networks, which is already more meaningful than the one that occurred for us in the 1990s.
While we certainly don't possess a monopoly on perspicacity and welcome thoughtful challenges to our views, recently we have been puzzled with the asymmetric application of skepticism that has led in several instances to highly reliable data from customers, peers and other industry participants being myopically discounted in favor of the anecdotal and incomplete.
Finally, we remain confident that our competitively unparalleled scale and market share, as well as our financial strength, position us well to deliver valuable services to our customers and robust returns for our shareholders.
Now moving to slide 6.
During the quarter we experienced the effects of a strong overall industry environment, organic revenue grew 20%, our top five customers combined produced 73.9% of revenue, increasing 44% organically, while all other customers decreased 18.5% organically.
Of note, four of our top five customers grew organically for the last five quarters.
AT&T was our largest customer at 28.1% of total revenue, or $221.6 million.
AT&T grew 82.9% organically year over year.
Growth in wireline services was accompanied by the resumption of strong growth in wireless services.
Revenue from Comcast was $112.7 million, or 14.3% of revenue.
Comcast was our second largest customer and grew organically 45.3%.
Revenue from CenturyLink was $110.7 million, or 14% of revenue.
CenturyLink was our third largest customer.
Verizon was Dycom's fourth largest customer for the quarter at 12% of revenue, or $95.1 million.
Verizon grew organically 67.7%.
And finally, revenue from Windstream was $43.5 million, or 5.5% of revenue.
Windstream was our fifth largest customer and grew organically 32%.
We are particularly pleased that we have continued to gain market share and expand our geographic reach.
In fact, over the last seven quarters we have meaningfully increased the long-term value of our maintenance business, a trend which we believe will parallel our deployment of 1-gigabit networks as those deployments dramatically increase the amount of outside plant network that must be maintained and as customers increasingly require their maintenance providers to be of substantial scale.
Going to slide 7, backlog at the end of the fourth quarter was $6.031 billion versus $5.649 billion at the end of the third quarter of 2016, an increase of approximately $381 million.
Of this backlog, approximately $2.323 billion is expected to be completed in the next 12 months.
Both backlog calculations reflect outstanding performance as we continue to book new work and renew existing work.
We continue to anticipate substantial future opportunities across a broad array of our customers.
For AT&T, we extended our wireless construction services agreements in California and Nevada, Arizona, Texas, Kentucky, Georgia and Florida.
Construction and maintenance services agreements in Kentucky and Tennessee and engineering services agreements in Texas.
From Comcast, we received construction and maintenance service agreements in Michigan, Maryland, Virginia and Florida.
For Windstream, we secured a construction services agreement in Nebraska.
For Charter, we extended construction and maintenance service agreements in Texas, Missouri, Illinois, Kentucky, Tennessee and Alabama.
And finally, from various customers we received CAF II-related construction services agreements in Colorado, South Dakota, Minnesota, Wisconsin, Nebraska, Pennsylvania, West Virginia, Virginia, Tennessee and North Carolina.
Headcount increased during the quarter to 12,777.
Now I will turn the call over to <UNK> for his financial review and outlook.
Thanks, Steve, and good morning, everyone.
Going to slide 8, contract revenues for Q4 2016 were $789.2 million, and organic revenue grew 20%, reflecting solid growth from several of our top customers.
Acquired businesses contributed $44.8 million of revenue in the current period.
Adjusted EBITDA increased to 16% of revenue, or $126 million, compared to 15.3%, or $88.5 million, in the year-ago period.
This represented an increase of over 42%.
Gross margins increased 34 basis points year over year from a solid performance at higher revenue run rate.
Adjusted G&A decreased 42 basis points year over year from improved operating leverage as the Company efficiently increased in scale.
On a full-year basis, our effective tax rate was 37.6%, and it was slightly lower for the quarter as we benefited from tax credits in relation to pretax operating results.
Non-GAAP adjusted EPS was $1.64 per share, compared to EPS of $0.97 in Q4 2015.
Now moving to slide 9.
Our balance sheet and financial profile continue to reflect the strength of our business.
Our liquidity exceeded $426 million at the end of the quarter, consisting of availability from our credit facility and cash on hand.
We reduced borrowings on our credit agreement by $17.8 million during the quarter, and we ended the quarter with $346.3 million outstanding as a term loan and no revolver borrowings.
Operating cash flows were robust at $182.5 million.
During the quarter, we began participating in a customer-sponsored vendor payment program whereby accounts receivable are collected on an expedited basis pursuant to a nonrecourse sale of the receivables to a bank partner of the customer.
This is a well-established program of the customer, and we expect to continue in it during fiscal 2017.
As a result of participating in this program and improving our overall cycle time, our consolidated DSOs were reduced by 11 days sequentially to 85 days.
We believe this DSO level can be sustained as we continue on with the program.
We do incur a slight discount fee associated with the collection of the accounts receivable that we reflect as an expense component included in other income net.
During the quarter, we completed two acquisitions for approximately $108 million.
This included the purchase of certain assets of Goodman Networks and NextGen Telecom.
Capital expenditures made to facilitate our growth and maintain our fleet represent key investments for us.
CapEx net of disposals were $43.2 million during Q4 2016, and gross CapEx was at $47.3 million.
As we look ahead for the full fiscal year of 2017, capital expenditures net of disposals are expected to range from $175 million to $185 million.
In summary, our cash flows were robust in the quarter, and we funded $108 million of acquisitions, $43 million of CapEx and over $17 million of debt repayments.
We continue to maintain a strong balance sheet, which has enabled us to effectively invest in growth opportunities that provide for solid returns and increased long-term valuation.
Now going to our outlook on slide 10.
As we look ahead to Q1 of fiscal 2017, we currently expect revenues which range from $780 million to $810 million.
We expect a broad range of demand from several large customers, robust 1-gigabit deployments, cable capacity projects in CAF II accelerating and core market share growth.
This outlook includes an expectation of approximately $55 million of revenue from businesses acquired during the first and fourth quarters of fiscal 2016, which includes our expectations for the operations of Goodman Networks.
In the year-ago Q1 period, comparable acquired revenues were $29.9 million.
As we outlined in our press release yesterday, the recently acquired operations of Goodman Networks are expected to produce lower revenue in fiscal 2017 than initially anticipated but are expected to achieve higher EBITDA margins sooner than initially anticipated.
We currently expect these operations to produce revenues of approximately $100 million during fiscal 2017.
Beginning in the second quarter of fiscal 2017, these operations are expected to produce EBITDA as a percentage of revenue in line with Dycom's consolidated EBITDA as a percentage of revenue.
On a consolidated basis for Q1 2017, our gross margin percent is expected to increase slightly compared to Q1 2016, reflecting a solid mix of customer growth opportunities.
Total G&A costs as a percent of revenue are expected to be in line with the year-ago period and include $5.7 million of share-based compensation compared to $4.5 million in the year-ago quarter.
Depreciation and amortization is expected to range from $35 million to $35.7 million and includes amortization of $6.2 million.
The quarterly amortization for fiscal 2017 of the Goodman intangibles included in this amount is approximately $1.6 million.
Adjusted interest expense of approximately $4.5 million will include the cash coupon on our convertible notes, interest on our credit facility, amortization debt issuance costs ---+ of debt issuance costs and other interest.
Adjusted interest expense excludes $4.3 million of interest for non-cash amortization of the debt discount.
Other income net is expected to range from $200,000 to $600,000 and is net of a discount fee of approximately $700,000 associated with the anticipated collection of Accounts Receivable for a customer-sponsored vendor payment program.
Our effective tax rate is expected to be approximately 37.5% during Q1 2017.
These factors are expected generate an adjusted EBITDA margin percent, which is in line or better than the Q1 2016 results, and non-GAAP earnings, which are currently expected to range from $1.55 to $1.70 per diluted share.
This range of non-GAAP earnings per share excludes the non-cash amortization of the debt discount on our senior convertible notes.
We expect approximately 32.2 million diluted shares during Q1 2017, with shares gradually increasing in subsequent quarters.
Now going to slide 11, looking ahead to Q2 of fiscal 2017, our outlook reflects normal winter weather patterns, and we currently expect total revenue growth in the high teens or slightly better as a percentage of revenue compared to Q2 2016.
We expect a continuation in Q2 2017 of the growth drivers evident in Q1 2017.
Our outlook includes an expectation of revenue of approximately $20 million in Q2 2017 from businesses acquired in the fourth quarter of fiscal 2016.
For comparison purposes in Q2 2017, there were no acquired revenues to adjust for in the year-ago period.
We expect gross margins to increase over the Q2 2016 results.
Each year our second-quarter gross margins decline sequentially from our first quarter due to seasonality.
Our results are impacted by inclement winter weather, fewer available workdays due to the holidays, reduced daylight work hours and the restart of calendar payroll taxes.
G&A expense is expected to be in line as a percent of revenue year over year.
Non-cash stock-based compensation is expected to be approximately $5.2 million, and the adjusted EBITDA margin percent is currently expected to increase from Q2 2016.
Other factors influencing results include depreciation and amortization, which is expected to range from $35.5 million to $36.2 million.
Adjusted interest expense is expected to be approximately $4.3 million, excluding $4.4 million of interest for the non-cash amortization of the debt discount.
And other income net is expected to range from $200,000 to $700,000.
Now I will turn the call back to Steve.
Thanks, <UNK>.
Moving to slide 12, within a growing economy we experienced the effects of a robust industry environment and capitalized on our significant strengths.
First and foremost, we maintain strong customer relationships throughout our markets.
We continue to win and extend contracts at attractive pricing.
Secondly, the strength of those relationships and the extensive market presence they have created has allowed us to be at the forefront of evolving industry opportunities.
The ad market drivers of these opportunities remain firm and are strengthening.
Telephone companies are deploying fiber to the home and fiber to the node technologies to enable video offerings and 1-gigabit high-speed connections.
These appointments are accelerating and impacting our business.
Some of those telephone companies previously deploying fiber to the node architectures have definitively transitioned to fiber to the home deployments, while others are beginning to provision video over their fiber to the node architecture and selectively deploy fiber to the home.
Cable operators are continuing to deploy fiber to small and medium businesses and with increasing urgency.
Some are doing so in anticipation of the customer sales process.
Overall, cable capital expenditures, new-build opportunities and capacity expansion are increasing.
Dramatically increased speeds to consumers are being provisioned.
Projects resulting from the Connect America Fund II are in planning, engineering and construction.
Activity accelerated during the quarter.
These projects are deploying fiber deeper into rural networks, and more are expected as new multiyear opportunities emerge through the balance of the calendar year.
Additionally, for one recipient we are executing meaningful assignments to perform fixed wireless deployments.
Customers are consolidating supply chains, creating opportunities for market share growth and increasing the long-term value of our maintenance business.
Within this context, we believe we are uniquely positioned, managed and capitalized to meaningfully experience an improving industry environment to the benefit of our shareholders.
We remain encouraged that our major customers possess significant financial strength and are committed to multiyear capital spending initiatives.
These initiatives are meaningfully accelerating and expanding in scope across a number of customers.
We remain confident in our strategies, the prospects for our Company, the capabilities of our dedicated employees and the experience of our management team as we grow our business and capitalization.
Now, <UNK>, we'll open the call for questions.
I think we just had good performance across a number of customers in the quarter, and we're happy to beat to our expectations going in.
But there really weren't any surprises other than that the urgency of the customers probably to get the work done was a little more than we expected.
I think with respect to smaller customers, keep in mind ---+ and <UNK> will give us the balance of the top 10 ---+ we did have two ---+ the customer is not in the top five but in the top 10, two had either just closed a merger transaction or were in the process of closing one during the quarter.
And, not surprisingly, revenues for them were a little bit off.
And so, we don't particularly see anything out of that impact.
We expect both of those customers, and they said so publicly, to have accelerating activity either in the back half of this year or certainly in calendar 2017.
So, <UNK>, why don't you give us the balance of the customers.
Sure.
Good morning, Will.
Charter Communications was at number six at 4.8% of revenue.
Customer number seven was at 3.6% of revenue.
This is from a customer who has requested that we not disclose their identity.
Frontier Communications was number eight at 1.4% of revenue.
Crown Castle was number nine at 1.2% of revenue.
And Questar Gas was number 10 at 0.9% of revenue.
Then, the split between the customers' telco was at 69%, cable was at 22%, facility locating was at 6.1%, and electrical and other was at 2.9%.
When we gave our original expectation, that was about six weeks before we closed the deal.
It's not unknown in the marketplace that the ---+ that those assets and that company was having some financial stress at the time.
So, the business was a little more stressed than we had expected initially.
As we've gone through the integration, we've been pleased with the customer perception of the transaction.
We've been pleased that we've been able to integrate it quickly, which meant we've been able to get the margins to our margins faster than our original expectation.
And if you think about it in the big scheme of things, because the substantial portion of the purchase price was intangibles, which are deductible for tax purposes, the all-in net of the tax benefit, the purchase price was about $75 million.
We think this can be a $200 million, $300 million business when we get it fully integrated, when we exploit the opportunities that the much larger geographic footprint present.
And when we see opportunities developing in wireless generally and in our own business, where we saw north of 50% organic growth year over year, this thing will be what was a fair price that we are going to execute well against it in the intermediate term.
We'll take some ---+ we'll try to answer those questions in sequence if we got them right.
So, with respect to one of our customers that was a little bit slower last quarter, we expect them to pick up in the first quarter and in through next year.
We have a growing relationship with them that's good.
With respect to Google, as we've said before, we're not going to admit nor deny whether we do work for them.
We're happy to comment on what is out in the industry.
And I would tell you that San Jose news wasn't news to us.
If you look at what AT&T and Verizon are saying in the US about the opportunities around wireless, they'll fund an extremely robust platform of fiber.
They are exploring it.
If you look at what Telus and Bell Canada are saying, they are exploring it while they are significantly deploying fiber networks.
If you look at what's going on in Europe with Vodafone is the biggest wireless carrier in the world, but they are buying fixed wireline assets.
So, from our perspective, this is just a healthy exploration of new technology.
We've seen it before when 3G came out and was going to obsolete cable modems, and 4G that came out was going to obsolete fiber.
So, we've been through these cycles before.
But it's just a healthy ---+ I think just a healthy exploration of some new technologies.
But no matter who you talk to in the industry, particularly the wireless carriers, all of these new technologies have to have a very robust and extensive fiber network very near to consumers, and that fiber network doesn't exist today.
So we think it's an opportunity, not a challenge.
<UNK>, I don't know how to answer that question other than say that there are some industry experts that said that if for a 4G LTE network about 90% of the communication path is wired.
And for a 5G millimeter wave communication path, it could be 95% or more of the path is actually wired.
So, if fiber was not the foundation of 5G networks, I don't know why all of the US domestics who are in both businesses are expanding their fiber presence even through acquisition.
Then if you look globally, you see the exact same behavior, even in markets where they don't have an attacking new industry participant like Google.
I think to some degree to place the San Jose news in context, you probably need to understand what's going on in Vancouver, Calgary, Montreal and Toronto to have a balanced perspective than to spend a whole lot of time on individual announcements.
Well, we have substantial growth opportunities, <UNK>.
We look at it as sustained operating cash flow.
So, we'll do with it as we have, which is we'll have a capital allocation strategy that first and foremost supports organic growth, of which we see substantial future opportunities.
We'll take a look at what we need to do in terms of balancing buying back the shares versus M&A opportunities that we see available in the marketplace to grow the footprint and the relationships in the business.
So, there will be no change.
We will just have more cash with which to pursue it.
Yes, substantially the 10G upgrades are really in the central office and at the site of a house in the LNT.
So, I think from that perspective there are certainly some opportunities there.
They are not all that significant inside the entire business, but we do see some opportunities there.
I think what it highlights to me probably more importantly is we always get in these technology discussions about how can technology five years from today satisfy current demand for bandwidth.
And then five years from now, the standard for bandwidth is some number higher.
And that's why 3G didn't replace cable modems and 4G didn't replace fiber.
Because we always see this continual increase in what expectations are from the network.
So, I think the fact that customers are spending R&D dollars on 10G tells you that they must see a need to deploy it.
And when they do, we think that will be an opportunity as another more application growth that drives the value of fiber connections.
There's clearly ---+ when you are growing quickly, <UNK>, there's always some pressure on gross margin.
You know, we have to hire staff.
We have to secure additional facilities if we are not in that geography.
We don't go out of our way to highlight it or even to calculate it with precision because for us it's all about making our numbers despite the growth challenges.
And we didn't see anything in this quarter to particularly call out one way or another.
I think with respect to the customer rotation, I think what's really informative is if you look at the mix of our customer revenue year over year, it has changed.
We have had some that have gone substantially; a couple that, at least in the first half of this calendar year, have been a little bit slower.
But we've been able to consistently produce the results that we expected out of the business, which I just think goes to the breadth of the market opportunity and the amount of capacity that customers in aggregate need the industry to create.
I think the relationships are increasingly national when you have big national programs.
For example, CenturyLink rolled out a couple of weeks ago on their earnings call their first three-year outlook for fiber to the home, as well as a pretty significant improvement to their copper network where they are not doing fiber.
And I think those kind of initiatives are generally managed from a national perspective.
We still come to the marketplaces as individual contracts on a region-by-region basis.
And, <UNK>, what we've always said is the key to success in the business is to be well-respected locally, well-respected at the corporate office, and that's a compelling combination when it comes to demonstrating your value to the customer.
And also, it's a compelling combination of ensuring that you're providing the service that they expect.
So, from our perspective, as the customers have gotten larger, their perspective on who they like to deal with has changed to larger suppliers.
But that doesn't relieve us of the responsibility of performing on a local basis every day.
This is daily business.
I think with respect to potential competition, we are performing well.
The industry is growing; that typically attracts some competition.
But I think competition without our existing local footprint or the magnitude of that footprint will be challenged in addressing big programs for customers.
When we can put a process in place that pleases a customer in Eastern North Carolina and improve our service in Seattle the same day, nobody else can do that.
There continue to be some smaller opportunities in the business.
Every time we do one, we learn something from that business, no matter how small it is.
Clearly, it's an industry that's been consolidating now for more than 20 years, so there's certainly less today than any other time.
But we continue to see it, and I think we continue to be a preferred partner, particularly for private companies that would like to continue operating the business.
So, I think we still have some good opportunities there.
I think the opportunities ---+ while the themes are global around fiber deployment, I think the magnitude of the opportunities here close to home and our competitive advantages here are so compelling that we see no need to look anywhere else.
It's hard for us to parse that out, <UNK>.
I would just say that we are pretty good operators in the business.
We saw some things that could be fixed quickly, probably more quickly than what we expected.
We have a great relationship with the primary customer.
This gets us involved in a number of regions of the country that we were not involved previously.
And it's 4% of revenue or 3% of revenue.
It's important to us.
We expended shareholder capital on it.
It's going to earn the returns we expected or better.
But I don't know that there's a whole lot more to say.
Well, if you look at our business plus of the assets we acquired from Goodman and the exposure nationally, these are businesses that, on a combined basis if you go back when the wireless capital expenditure environment was more robust, were much bigger businesses.
So, I think ---+ to get to that number, I think we have a reasonable tailwind in the business, which we've seen a little bit in our business with pretty substantial organic growth, we think we grow into that 2018, 2019.
As you see the advent of 5G, which we do see as an opportunity for both wireless and wireline, we think that having a bigger presence there makes sense.
We've historically grown organically.
That doesn't mean that we wouldn't look at more acquisitions.
But we do think that with this acquisition and our existing footprint we are in a pretty good position to compete for new business.
No.
Typically, if you look at a fiber deployment, the vast majority of our revenues are going to be in the engineering and construction of the fiber that passes a home.
We do some but very limited amounts of work inside the home.
Typically, customers do that with their own employees.
And we do some but not a significant portion of work from the curb to the house.
So, all put together, is it a 2%, 1%.
I mean, this is not a big business for us.
Charter has been pretty open that their first priority going into the calendar year is to take the Time Warner systems all-digital.
That requires the deployment of customer premise equipment that we do do for Charter and did do for Time Warner.
So we think there are some opportunities there.
There are also some buildout requirements that Charter committed to with the FCC in terms of deploying plant to new customer locations over a four- or five-year term.
We think that's an opportunity.
And we do think that just there is a general opportunity, as we are seeing with Comcast, on aggressive deployments of fiber to small and medium enterprise and even some larger customers, particularly as Charter's footprint is very substantial post the closing of the merger.
Outsourcing in the industry is something that has been gradually increasing over literally decades.
So we do see some signs of that.
There are some opportunities there.
I would just say that, as the capabilities of the network and the current competitive environment become ever more crucial to all of our customers, and as they become larger, it's just easier for them and the systems that they have to deal with larger participants that can cover multiple geographies.
So, I think, once again, that's been a trend that's been evident in the business for literally a generation, and it continues.
All right.
Well, thank you, <UNK>, and thanks for everybody for your participation on the call.
We look forward to discussing our next quarter's results the Tuesday before Thanksgiving.
Thank you.
| 2016_DY |
2015 | MYGN | MYGN
#Yes, we have obviously been closely monitoring what incoming sample trends look like associated with the time frame upon which there was additional celebrity publicity.
We really haven't been able to discern any sort of impact from that publicity.
Certainly by now we had seen some very strong signals.
The last time we went through a similar event ---+ and we haven't been able to see that discernible change associated with this particular time.
That's not unexpected on our part, given the fact that the story had quite a bit of play the first time.
This focus was more on ovarian cancer as opposed to breast cancer which generally probably merits less attention from patients.
And so we are not anticipating any sort of publicity effect from this particular round.
We're going to be getting more clarity in terms of the guidance at our August earnings call.
So I would ask you to be patient with us and wait until there and we will be able to, I think, give you a better feel for the international revenue
I think that it would be a little granular for us to probably lay out exactly what will happen in Q4 and Q1.
Obviously we've just turned the team loose and they are now starting to enroll physicians into that.
So I would expect relatively even transition these next two quarters.
But it's a little early to know exactly what that's going to look like as we start to enroll physicians just in the last few weeks
Thank you, Jodi.
This concludes our earnings call.
A replay will be available via webcast on our website for one week.
Thank you again for joining us this afternoon.
| 2015_MYGN |
2016 | KBR | KBR
#Morning, <UNK>.
I think initially more from the domestic side just because that's its brand and its customer base does there.
I think if we give a range, there's a number of things that (inaudible) today [that we are tendering or converting one] contract mechanism to another so really it relates to timing.
And I think the opportunity that affords Wyle at the moment is to press on and not get distracted and make sure it delivers these in a timely fashion and that will push the numbers up to the higher end of that range.
Yes.
The project is ---+ I'll answer the second one first, if you don't mind.
The ammonia project is at the final close of commissioning and performance testing that the expectation is that will be, that the project we finished early in Q3.
So that's very near the end is answer to the question, thankfully.
And then I guess, in terms of the other piece of the question, <UNK>'s probably better placed to answer that.
It is not a profitable job now.
Good morning.
Well, we really can't comment more than we have about opportunities on M&A until we actually have a transaction.
What we can say is you need to have multiple opportunities and multiple targets for you to get one over the goal line into the end zone.
We are looking at opportunities across a number of those target areas, as <UNK> said, very focused technology and technology doesn't have to be an acquisition.
It can be a partnership, an alliance agreement in licensing of technology so there are multiple angles to attack technology.
On the high-end government services and the turnaround maintenance, et cetera, we have a number of opportunities that we're considering, but as you know, <UNK>, until you get one closed, you can't predict what it's going to be.
And then obviously, each one of them has got its own characteristics.
We really like much more the revenue, the strategic opportunities rather than doing an acquisition focused primarily on cost reduction.
I think pretty much to plan.
As we said, there's not a lot of overlap and that was on of the big attractions for us in this acquisition.
So it makes the integration that much easier.
So far, so good.
Very much according to plan, no surprises.
We're still looking at that.
That's more of a longer-term project.
As a matter of fact, one of the things we are looking about ---+ does it make sense for us to transition our government services activity to their platform.
So, as we said, they were a standalone company.
They've got their own system, so that's not an immediate decision that needs to be taken, but it is something we are looking at going, frankly, the other way, since they have more customized systems for government activity.
So that is an opportunity for us maybe to move our historic government activities to their platform.
Well, <UNK>, as we said at the end of the first quarter that we would be relatively flat for the balance of the year.
So down a bit for the year, because the first quarter was negative and that holds pretty much true as of today.
Obviously excluding the acquisition and the use of $200 million for Wyle and it also would exclude if we were able to close on any additional acquisitions between now and year-end.
It should be better.
We get these, the power project behind us and the ammonia project will be behind us, so clearly, cash flow should improve.
Thank you very much for taking the time to listen in.
We appreciate it and I'm sure there will be lots of follow-up calls.
As I say, a solid quarter from an earnings perspective and hopefully, we've given you more color into 2017 earnings.
So thank you again and I look forward to talking to some of you individually during the course of the next day or weeks ahead.
Thank you very much.
| 2016_KBR |
2018 | WIRE | WIRE
#Thank you, Ellen.
I'm <UNK> <UNK>, President, CEO and Chairman of the Board of Encore Wire.
With me this morning is <UNK> <UNK>, our Chief Financial Officer.
We're pleased with our results in the first quarter with some key items to note.
Net sales dollars increased in the quarter, driven primarily by the higher copper raw material prices.
Copper margins increased strongly in the quarterly comparison for 2018 versus 2017.
One of the key metrics to our earnings is the spread between the price of copper wire sold and the cost of raw copper purchased in any given period.
The copper spread increased 10.1% in the first quarter of 2018 versus the first quarter of 2017.
The copper spread expanded as the average price of copper purchased increased 18.3% in the first quarter of 2018 versus the first quarter of 2017, while the average selling price of wire sold increased 15.6%.
The percentage change on sales is on a higher nominal dollar amount than on purchases.
Therefore, spreads change on a nominal dollar basis.
Unit volumes in the first 3 months of 2018 decreased 7.9% in copper pounds shipped versus the first 3 months of last year.
We believe volumes were impacted primarily by rough winter weather that slowed construction projects, particularly in January.
U.S. economy appears strong, as is construction activity.
We believe that some of our financially stressed competitors have struggled and acted erratically in what we consider a strong business environment.
Based on discussions with our distributor customers and our contractor customers, we believe there's good outlook for construction projects for the next year and beyond.
We continue to strive to lead and support industry price increases in an effort to maintain and increase margins.
We believe our fill rates continue to enhance our competitive position.
As orders come in from electrical contractors, the distributors can count on our fill rates to ensure quick deliveries from coast to coast.
We believe our performance is impressive in this environment.
We thank our employees and associates for their efforts.
We also thank our stockholders for their support.
<UNK> <UNK>, our Chief Financial Officer, will now discuss our financial results.
<UNK>.
Thank you, <UNK>.
In a minute, we'll review the financial results for the quarter.
After the review, we'll take any questions you may have.
Each of you should have already received a copy of our press release covering Encore's financial results.
This release is available on the internet as well, or you can call [Elizabeth Campbell] at (800) 962-9473, and we'll be glad to get you a copy.
Before we review financials, let me indicate that throughout this conference call, we may make certain statements that might be considered to be forward looking.
In order to comply with certain securities legislation and instead of attempting to identify each particular statement as forward looking, we advise you that all such statements involve certain risks and uncertainties that could cause actual results to differ materially from those discussed here today.
I refer each of you to the company's SEC reports and news releases for a more detailed discussion of these risks and uncertainties.
Also, reconciliations of non-GAAP financial measures discussed during this call to the most directly comparable financial measures presented in accordance with GAAP, including EBITDA, which we believe to be useful supplemental information for investors, are posted on www.encorewire.com.
Now the financials.
Net sales for the first quarter ended March 31, 2018, were $291.4 million compared to $279.4 million during the first quarter of 2017.
Copper unit volume measured in pounds of copper contained in the wire sold decreased 7.9% in the first quarter of 2018 versus the first quarter of 2017.
The average selling price of wire per copper pound sold increased 15.6% in the first quarter of 2018 versus the first quarter of 2017.
Copper wire sales prices increased primarily due to the higher price of copper purchased, which increased 18.3% versus the first quarter of 2017.
Net income for the first quarter of 2018 was $11.4 million versus $13.6 million in the first quarter of 2017.
Fully diluted net earnings per common share were $0.54 in the first quarter of 2018 versus $0.65 in the first quarter of 2017.
On a sequential quarterly basis, net sales for the first quarter of 2018 were $291.4 million versus $301.3 million during the fourth quarter of 2017.
Sales dollars decreased due to a 3.9% unit volume decrease of copper building wire sold offset by a 1.3% increase in the average selling price per pound of copper wire sold on a sequential quarter basis.
Copper wire sales prices increased primarily due to an increase of 2.2% in the price of copper purchased.
The net income for the first quarter of 2018 was $11.4 million versus $28.5 million in the fourth quarter of 2017.
Fully diluted net income per common share was $0.54 in the first quarter of 2018 versus $1.36 in the fourth quarter of 2017.
Our balance sheet is very strong.
We have no long-term debt and our revolving line of credit is paid down to 0.
In addition, we had $107.8 million in cash at the end of the quarter.
We also declared another cash dividend during the quarter.
We want to remind you this conference call will be available for replay after the conclusion of this session.
If you wish to hear the tape replay, please call (888) 843-7419 and enter the conference reference 66 ---+ 6783418 and the pound sign.
Or you can visit our website where the call is available.
I'll now turn the call back over to <UNK> <UNK>, our Chairman, President and CEO.
<UNK>.
Thank you, <UNK>.
And as <UNK> highlighted, Encore performed well in the past quarter.
We believe we're well positioned for the future.
And Ellen, we'll now take questions from our listeners.
<UNK>, it sounds like January was more of an outlier for volume.
Can you just talk a little bit about kind of the trends through the quarter.
And I guess, kind of the second part of the question here, this down 8% for unit volume.
I mean, is that representative of the market as you see it.
Or is there a little more to it maybe from a competitive [standpoint].
January clearly was the weak point as far as volume went, and sticking to Q1, it's not representative of the way business was or is going.
I think it's the best way I can answer it.
There were jobs that we had.
We had the product.
We were ready to ship.
It's all sold.
It's all buttoned up.
Job sites were not physically able to take the material and/or physically able to get delivery to the job sites.
So it was pretty significant.
It was quite a bit of volume that we ---+ and again, we invoice when we ship, so the way the sales ran, clearly, January was an outlier.
And <UNK>, is that mostly the Northeast or other areas of the country.
Well, we even had some in the state of Texas, believe it or not.
There were some job sites that were too wet.
There was too much water, what have you, but there really wasn't one specific geographic area.
It seemed to be different pockets around the country.
It could be ---+ we even had some mudslides.
I mean, there was quite a variety reported back as to pushing those deliveries out.
Cleanup.
When our product enters into the construction cycle, that cycle is completely disrupted, so some of the job sites had to go backwards a little bit, and things were pushed out into as late as March and beyond March on some of those deliveries that were scheduled early.
Okay, okay.
And then any status on the antidumping duties with respect to aluminum, I guess, particularly any sense of a time line there in terms of an announcement.
<UNK>, do you have the aluminum wire sales as a percentage for the quarter.
Sure.
Aluminum for the quarter was 6.8% of dollar sales.
On the tariff piece, <UNK>, the 232 that came out and then was amended and followed up with the 301, the attention immediately became from other industries that are impacted, in their mind, maybe negatively in some fashion, whatever.
We're on the other side of that.
We're all for the tariff to include insulated aluminum building wire.
We've got 2 companies that we've talked about in the past on the calls, without naming them specifically, that continue to bring in product from China at well below raw material cost.
We had an increase through the quarter per pound of aluminum and saw the price erode to near breakeven levels.
That's not something that we're excited about.
It's not something that's new.
We went through this in the past.
14, 15 years ago, we had some issues in the markets but from China.
It has to be dealt with.
I think the correct industry associations, or there's some activity there.
It seems to be pretty good from The Aluminum Association specifically.
There's other organizations that represent a broad range of industry members that are not so quick to act in that direction, but we're clearly participating in providing factual information to the right associations to get this thing addressed.
It's not positive for anyone.
And it's really not even necessary.
Business is really good in the U.S. Once the weather cleared, and as you guys probably know, aluminum typically favors outdoor installation versus under the roof of a house or a building.
So there's a lot of things going on there that I think will clear themselves up in pretty quick fashion, but I appreciate the question on the tariff.
Our position is we need to clean up this Chinese product that's being imported and passed right through with 0 value added into our industry on a daily basis.
Okay.
I appreciate that color, <UNK>.
One more, <UNK>.
Tax rate was higher than I was thinking about for the quarter.
Is 24% what we should thinking about going forward.
Well that 24% is a compilation of the 21% federal rate and a 3% add-on for all the state and local taxes we pay to all the various jurisdictions we conduct business in, which was consistent with where we were last year.
We had a federal tax rate of 35%, but the Jobs Creation Act, which we were a big user of that deduction, brought us down to about 30%, 31%, and then the 2% to 3% add-on got us back to 33%, 34%.
So net-net, you got to the right place.
Does that make sense.
Yes.
I mean, you're thinking 24% going forward.
Sorry.
I think that's about right.
As far as we know at this point, yes.
Correct.
That's exactly what occurs.
Yes, that's exactly what occurs.
Typically, it's when the ---+ it's in the first 45 to 60 days pushed out.
Some will leak over in the next 30 days type thing.
And the thing is, the product is purchased.
It's ready to go, but again, we don't invoice until we ship it.
We don't ship it until they can unload it.
So in that scenario, 45 to 60 days out is typically when the volume gets pushed to.
Yes, similar trends, but again, the aluminum volume piece is a big part of this story.
There's some posturing in the market when a quote comes out.
If it gets to the point where it's below breakeven for us in some manner, we may pass on it, right.
So we're taking the orders that we feel our strategic for us to not lose out on the copper business, and then the ---+ some of the stand-alone aluminum type orders get beat up pretty good in the marketplace.
We may choose to pass.
There's an art to it, and there's a science.
And unfortunately, we've got a couple of importers that are doing some things in the marketplace.
They're super disruptive, and then occasionally ---+ but for the most part, I have to say, in the first quarter, the flip side of that is we had very disciplined business in the first quarter as far as copper goes.
So the 1 or 2 guys that we compete with consistently from the copper standpoint that also ship and sell aluminum, very disciplined in the first quarter.
It's not a ---+ I think it's a temporary situation on the aluminum piece.
It just can't continue as it is based on someone importing, adding 0 value and just basically cutting price.
Well, there was a couple of little things.
One of them was freight.
As a lot of people were talking about even at your conference, <UNK>, in New York, freight is up nationally, and we saw a ---+ on an apples-to-apples basis about a $0.07 impact of increased freight rates in the quarter.
We saw a couple little things with stock options and a sale of some land we did last year that we didn't repeat this year that also added to the SG&A, but <UNK> might want to add some color on the freight.
Well, the freight thing in the first quarter, again, the volatility in the market and getting trucks in and holding trucks that can't ship, can't deliver, what have you, and with the increase in overall business around the country, there's several loads per available truck in the marketplace.
So there was some posturing, obviously by carriers and trucking companies, and there was a ---+ some laws that were instituted and changed as far as electronic logs, and there was a lot of impact to the trucking industry exclusive of and including products that we ship on a ---+ in the 50 states.
So the available equipment in the U.S. on a truck basis, which we ship ---+ all of our outbound freight is by truck.
We do not ship outbound by rail because the delivery requirements and the lead times that are required.
So there was some adjustment there.
Some new companies are starting to pop up out of that demand, more so February/March than January.
We put in some price increases.
Some of them held; some of them didn't through the quarter.
And 2 or 3 of those specifically were geared toward the increase in the freight rates.
The good thing about it is, it's an industry issue.
The bad thing about it is trucks are tight.
It's a ---+ they get to name what they agree to haul the freight for type deal.
So in that scenario, we've been able to establish rates going forward and build those into the pricing that we quote into the marketplace.
So the freight issue ---+ you can read anything you want to about it in the news.
It's an issue, no question.
But for the service levels that we require, we're going to pay a little bit more.
In the meantime, as indicated, we're going to build that into the price and keep going.
Yes, <UNK>, it's been really positive, actually.
We're in the field quite a bit with folks, job sites, negotiations, whatever, on ---+ [for] huge business, whatever, and so from a volume standpoint ---+ in that ---+ in those conversations, there's only 2 topics that sell building wire and 1 of them specifically is delivery, and they get that.
They understand it.
They see it.
They're dealing with the same issues on other materials that come in.
I believe that freight pretty much across the board ---+ flatbeds, drive-ins, refrigerated trailers, whatever the situation is, there's increases.
So they get it.
It's not a huge discussion topic as it was in, say, late January, mid- part of February.
It was kind of a shocker to make the argument for freight increases because, typically in our industry, at least from my 29, 30 years, has been price increases that are blamed on raw material cost or copper or whatever it might be, unless there's actual pain and recognition for that cost on their side, it's ---+ you're not able to pass it through.
Fortunately for us, they see this across the board in other products and categories, and so the freight conversation has been ---+ I don't want to say it's easy, but it's been relatively business like with the customers.
Okay.
I'll start with a number.
Right now, our best estimates at this point of the year is that we'll spend between $28 million and $33 million.
And Bill, we haven't announced anything publicly yet.
We've got some projects that we're looking at, working on.
As you know, we've got a pretty aggressive attitude toward what we can do from a service and offering standpoint.
And that's probably what I should leave it at till we make any announcements.
I mean, we're looking at different areas, specifically in the service and offering categories.
There's a couple that are pretty hot.
One will probably win out over the other.
I like to do one project at a time, and that's kind of where we're at.
A quick follow-up.
<UNK>, can you remind us sort of where you're at in terms of the buyback authorization, what you've got left on there.
And I guess, a ---+ just given what seems to be sort of short-term headwinds here in the quarter, any thoughts on the reaction of the stock today ---+ context to that.
Well, number one, we have a 10b5-1 plan in place where the company adjusts at almost every board meeting or discusses, at least, adjusting the [structure] in which the company will automatically buy back stock supported at certain levels that the Board deems appropriate.
Number two, we can always go back into the market and buy more with a quick board phone call, and that's always an option.
Number three, I think at least on my behalf, I think the market is somewhat overreacting today, but that's their call.
Might be a buying opportunity for some people.
The bottom line is, as <UNK> emphasized, I think a key takeaway here is to have volumes on the copper side, which is 94% of our business ---+ 93%, let's say ---+ go up ---+ our volumes go down 8% but spreads go up 13% really tells us something positive about what we and the industry were doing with pricing on the copper side, and we were quite enthusiastic about that.
Sorry about that guys.
I had a little bit of technical problem there.
Well, we're fighting it on this end, too.
I mean, we don't even we have a good line.
We couldn't hear you guys earlier.
But hey, we're getting through it.
Evidently, these lines we're on must be aluminum or something.
I don't know.
We'll have to wait for the algorithms to read the transcript of this call for them to find out that <UNK> thinks the stock's a buying opportunity.
So obviously, the market's reacting to the headline miss, and obviously volumes are ---+ everybody's keen on the volume.
So let me try to skin that cat a different direction here.
<UNK>, do you happen to know what copper volumes were down link quarter from the fourth quarter to the first quarter.
What were copper volumes on a link quarter basis, please.
Yes, on Q4 to Q1.
Yes, sir.
Copper volumes were down 3.9%.
Got it.
Okay, so down 4%.
So help me understand this a little bit then, and this might help people kind of put the puzzle together.
So accounts receivable were up 9% from the fourth quarter to the first quarter.
Revenues were down 3%, so likely ---+ in lockstep with the volume number on the copper side.
So that obviously paints a picture of a significant ramp into the latter part of the quarter in terms of volume.
That's a great question, and you just answered it.
That our AR is not only a function of the total sales for the quarter but how the sales were loaded in the 3 months.
And to <UNK>'s earlier response, January was very bad in terms of volume.
It's.
.
That's my point.
So <UNK>, my point is, I mean, volumes were down double digits in January maybe upwards as much as 15% year-over-year.
Yes, yes.
And so March volumes would have been ---+ volumes could have been up as much as 15% year-over-year.
Yes, February and March certainly returned to a more normal basis.
And so in that we give terms in this industry that easily extend 45 to 60 days or more, if you're selling in the last 45 to 60 days of the quarter, that money is still sitting on our balance sheet in receivables as opposed if we had, had a huge first month of the quarter and we would have collected some of that.
Okay.
So it was ---+ so clearly, just to be clear then, so the linearity within the quarter, obviously, January very weak and February/March much stronger, so the optimism you have for end market conditions really reflected in the pacing of the business as kind of the quarter progressed and as you exited into the second quarter, correct.
Correct.
Well said.
Okay.
So the other observation I had on the quarter, which I thought was kind of both ---+ to say the least was highly encouraging was volumes in the quarter were pretty weak, and historically in that environment, you would see competitors bringing the knives out and really having an impact on spread, and so for volumes to be down and spread to be up, I mean, that really paints a picture of an improving competitive dynamic perhaps.
Yes, sir.
As I mentioned earlier, I'm just telling you, we've got a few competitors out there that are doing great things and, to complement those guys, when the shoe fits, wear it, right.
So really good from that perspective.
Those guys doing a good job.
Everybody's shipping like they're supposed to.
Everybody's getting paid like they're supposed to.
And then you got a couple of outliers in this aluminum piece on the import deal that need to be addressed.
And just to back up a bit, Brad, you hit it on the quarter.
I mean, look, I'd like a way to explain it somehow better, but the fact is ---+ and we're pretty transparent about this, January was awful from a volume standpoint.
However, the spreads in the quarter held.
That's to the credit of the discipline in the market on the copper side.
It magnifies the issue that we have with the other guys on the aluminum piece that are doing the importing.
They clearly have no direction from my perspective, and this is just an opinion, but when business is this good and things are going along like they should, I don't know what their motivation is.
I don't know if they're trying to get larger and poorer or what the issue is, but that's not my style.
Okay.
Thank you for that.
I really appreciate the color.
And then my last question really is just along the lines of clearly, at least on the copper side, it seems like metal volatility perhaps is ---+ amongst other things, are causing some better competitive dynamics.
Where ---+ do you think, <UNK>, I'm curious, where does aluminum have to go where ---+ on a pricing perspective, from a raw material perspective where it ---+ where copper becomes a preferred metal versus aluminum in the marketplace.
I mean clearly, we've seen this huge spike with the Rusal news on aluminum price, and I gather that, that does have a positive benefit in terms of perhaps favoring copper.
Well.
I favor copper anyway, but to answer your question more directly, even to point out specifically what was going on with copper in the quarter, copper trended down in the first quarter, and we still had that price discipline.
So that's another phenomenal sign.
When you start the quarter at $3.19 COMEX, and you end up March at $3.06, $3.07 and still have your spread, that's really indicative of the business environment, which exaggerates, again, and puts the focus on what the (expletive) ---+ heck are these guys doing with ---+ I'm sorry ---+ on aluminum piece.
Today, we don't have the pressure, if that's the right term to use, when the jobs come out and you start the quote process, if they start off copper on the feeder, we stay with copper throughout the project.
As you know, in the past, you get, I don't know, $0.85, $0.90 aluminum and you get $3.20, $3.25 copper, then the discussion starts about should we use aluminum conductor versus copper on some of the larger sizes, and so there's a lot of discussion in that valuation, if you will, to go from one to the other.
That's not the case in the market today.
If we start quoting copper, we stay copper throughout.
That's another good sign.
So even though the aluminum piece is what it is, it's not on an across-the-board scenario.
It's on the product categories, they're the A, B, C items on an inventory situation, not the deeper aluminum products that you can't get type deal.
So there's a lot going on there, Brad, but we're not seeing the push ---+ the switch or to substitute at this point.
Super.
I just had one last one that occurred to me.
So I mean, anybody who is surprised that freight costs were a headwind has obviously just crawled out from underneath a rock.
But ---+ so [someone] said headwind in the quarter is ---+ is what it is, at the end of the day for Encore, based on your fill rates and superior customer service, I mean, at the end of the day, demand being reasonably good and freight being tight, I mean, that's a recipe for Encore to take market share, is it not.
Well, I'm supposed to only speak to the first quarter, but the best answer to what you said is, yes.
Well, we just appreciate everyone who joined in the call, and we look forward to talking to you again next quarter.
Thank you.
| 2018_WIRE |
2016 | SPPI | SPPI
#Good afternoon, ladies and gentlemen, and welcome to the Spectrum Pharmaceuticals First Quarter 2016 Earnings Call.
At this time, all participants are in a listen-only mode.
Later, we will conduct a question-and-answer session and instructions will follow at that time.
(Operator Instructions) As a reminder, this conference call is being recorded.
I would now like to turn the conference over to your host, <UNK> S.
<UNK>, Vice President of Strategic Planning and Investor Relations.
Thanks.
Good afternoon, and thank you for joining us today for Spectrum's first quarter 2016 financial results conference call.
I'm <UNK> <UNK>, Vice President of Strategic Planning and Investor Relations for Spectrum Pharmaceuticals.
With me today are Dr.
<UNK> <UNK>, Chairman and CEO; <UNK> <UNK>, President and Chief Operating Officer; <UNK> <UNK>, Chief Financial Officer; <UNK> <UNK>, Chief Commercial Officer; and other senior members of Spectrum's management team.
Here's an outline of today's call.
First, Dr.
<UNK> <UNK> will provide you with the highlights of the first quarter and discuss our overall direction and strategy.
<UNK> will then provide a summary of our first quarter financial performance.
Following this, <UNK> will review the company's operations, and clinical update.
We will then open up the call to questions.
Before I pass the call to Dr.
<UNK>, I would like to remind everyone that during this call, we will be making forward-looking statements regarding future events of Spectrum Pharmaceuticals, including statements about the product sales, profits and losses, the safety, efficacy, development, timeline, and clinical results of our drug products and drug candidates that involve risks and uncertainties that could cause actual results to differ materially.
These risks are described in further detail in our reports filed with the Securities and Exchange Commission.
These forward-looking statements represent the company's judgment as of the date of this conference call, May 5, 2016, and the company disclaims any intent or obligation to update these forward-looking statements.
However, we may choose to update them, and if we do so, we will disseminate updates to the investing public.
For copies of today's press release, historical press releases, 10-Ks, 10-Qs, 8-Ks and other SEC filings and other important information, please visit our website at www.sppirx.com.
I would now like to hand the call over to Dr.
<UNK>.
Thank you, <UNK>, and thank you everyone for joining us this afternoon.
These are exciting times for the Spectrum.
I am pleased to share with you five major accomplishments in the first quarter of this year.
First, our product sales were up compared to last quarter driven by strong demand for our PTCL franchise.
Second, we started enrolling patients in the registrational Phase 3 trial for SPI-2012, which is our most exciting drug in late-stage of development.
Third, we initiated a Phase 2 trial with Poziotinib in breast cancer patients.
Fourth, we signed a strategic partnership with Servier Canada to develop and commercialize four or our drugs in Canada.
Finally, we launched EVOMELA soon after its approval.
We now have six anti-cancer drugs on the US market.
The revenue from these drugs pays for most of our drug development costs.
We are now focused on developing three anti-cancer drugs that target large indications such as breast cancer and bladder cancer.
If any of these drugs are successful, I believe it could transform Spectrum.
This year our highest priority continues to be SPI-2012, a novel long-acting G-CSF, which recently entered Phase 3 trials.
We are pleased to see strong clinical interest in SPI-2012, approximately 60 US sites are now opened for enrollment.
We believe this drug by itself can change the pace of the company because our drug has excellent clinical profile, it targets a multi-billion dollar market and we have deep knowledge and understanding of this space.
Another drug that can be transformative for the company is poziotinib a pan-HER inhibitor.
This is a multi-targeted oncology drug that has shown the potential to be best-in-class.
We have started a Phase 2 trial assessing poziotinib's potential in breast cancer patients.
Thirdly, I am very excited about our recent approval of EVOMELA.
I am personally very proud of our team at Spectrum as we have worked swiftly to launch the product and EVOMELA is now available to treat patients.
Already signs from the recent launch are encouraging.
This weekend the Annual American Urology Association meeting is taking place in San Diego.
The clinical data on apaziquone in bladder cancer will be presented at an oral session.
As you know, we are expecting an advisory panel and an FDA decision on our apaziquone NDA for treating bladder cancer by December 11 of this year.
Overall, you can see why we believe that 2016 is going to be such an exciting year in Spectrum.
We are laser focused on advancing these three drugs; SPI-2012, poziotinib and apaziquone.
We now market sixth FDA approved anti-cancer drug in the United States and the revenue from these drugs helps us to invest in the development and potential expansion of our portfolio targeting larger markets.
Now, I will have <UNK> provide you more details about our financials and after that <UNK> will talk more about our operations and clinical update.
Now let me hand over the call to our CFO, Mr.
<UNK> <UNK>.
<UNK>.
Thank you, <UNK>.
Good afternoon to everyone on the call.
First, I'm pleased to announce that total revenues for the quarter were $43.9 million.
Of this, product sales were $35.2 million, which is slightly higher than last quarter.
Licensing revenue was $8.6 million.
And this was comprised of $6 million in licensing revenue from Servier in Canada and in addition to the Servier deal, we had licensing revenue of $1.9 million associated with our co-promotion deal with Eagle Pharmaceuticals, which kicked off in the first quarter.
Our business development efforts are infusing non-dilutive cash into the company to assist with our development objectives and this remains a high priority for the company.
Let me just say a few additional things about our sales this quarter.
We had a strong start to the year from our PTCL franchise.
The combined sales of FOLOTYN and BELEODAQ this quarter were $16.3 million, 35% higher than the $12.1 million in the first quarter last year driven by strong demand.
FUSILEV sales were $15.2 million, compared to $20.2 million last year.
Of the $15.2 million in recorded sales, $9.1 million was from actual shipments in the quarter while the remaining $6.1 million came from the recognition of previously deferred revenue.
We continue to expect FUSILEV sales to drop significantly based on increasing generic competition in the marketplace.
Moving on to expenses, I just want to point out that the new cost of service revenue line item in our income statement represents the cost of our sales team that is working on the Eagle co-promotion deal.
These costs would have otherwise been reported in the SG&A line.
With that, let me hand the call over to <UNK>.
Thank you <UNK>, thank you Dr.
<UNK>, and thank you <UNK>.
Most of all thank you everybody who is on the call today.
We developed several drugs that have the potential to improve the treatment of fatal disease.
We believe that success even in one or two areas will transfer the company into a relatively short period.
Several achievements are behind us and even more milestones are ahead of us.
I am extremely proud of our team and the dedication I have seen across multiple departments that has brought us to where we today.
That said, there is much more to do to transform our company.
Let me talk about the progress that we made over this quarter.
We recently received approval of EVOMELA two months earlier than expected.
Our team is now on the ground pursuing a focused strategy that we have laid out for this product.
They are well trained, laser focused on targeting high volume customers.
The Melphalan market is around $100 million and has concentrated in just over a 100 transplant centers across the country.
The Top 20 centers represent over 50% of the business.
Reality of the hospital market will require some runway in terms of revenue.
E&T committees, clinical alignments and contract negotiations are all critical components in these major institutions.
While it' very early in the launch, we're seeing positive signs.
I want to highlight the fact that we received approval for use in two indications, not one.
First, uses of high-dose conditioning treatment prior to stem cell therapy in patients who have multiple myeloma and second, for the payload of treatment of patients with multiple myeloma for whom oral therapy is not appropriate.
This is the only product that the FDA approved for the high-dose conditioning indication in multiple myeloma.
We are now a company that markets six FDA approved drugs and a revenue from those products are fueling development of our promising pipeline.
The highest priority in the company is SPI-2012.
This novel long-acting GCSF or Granulocyte Stimulating Factor targets a multi-billion dollar market.
Our Phase 2 data demonstrates that SPI-2012 was non-inferior to pegfilgrastim at the mid dose tested, and statistically superior in terms of duration of severe neutropenia at the highest dose tested.
We obtained special protocol assessment from the FDA and started enrolling the Phase 3 study recently.
This is a randomized, controlled trial, which will evaluate SPI-2012 as a treatment for chemotherapy induced neutropenia in around 580 breast cancer patients.
It's early in the enrolment cycle, but I am pleased with our progress to date.
In a short period, we now have approximately 60 centers opened for enrollment.
With this as our top development priority, it's important to remember that this registrational trial, unlike many oncology trials, has a relatively short endpoint, assessed by blood testing of absolute neutrophil counts over the course of a couple of weeks.
Our plan is to rapidly enroll this important study within approximately 18 months, quickly analyze the data and then expeditiously file the BLA.
Moving on to another high priority in the company, poziotinib, our novel pan-HER inhibitor.
We believe poziotinib has the potential to be a best-in-class drug.
Poziotinib has demonstrated strong Phase 1 clinical data in breast cancer patients with a response rate of 60% in patients who had already failed other HER2-targeted treatments.
Our Korean partner Hanmi is studying this drug in Korea in several mid-stage studies in different tumor types, including breast cancer, non-small cell lung cancer and gastric cancer.
Our Phase 2 trial is an open label study that will enroll approximately 70 patients with HER2 positive metastatic breast cancer, who have failed at least two prior HER2 directed therapies.
We are focusing our efforts in breast cancer because of the exciting data we have seen from this compound.
Our strategy is to first get this drug approved in patients who have failed prior therapies and who therefore have few options left and then continue to develop them from larger indications in combination with other therapies.
Lastly, let me talk about apaziquone, our potent tumor-activated drug for bladder cancer.
In the first quarter, the FDA accepted our NDA filing and provided us with a PDUFA date of December 11, 2016.
The FDA also indicated that it plans to hold an advisory committee meeting regarding the NDA.
Our team is already preparing for that advisory committee meeting.
Overall the first quarter has been productive and we keep progressing our late-stage pipeline.
We are focused on developing three drugs that target large indications such as breast cancer and bladder cancer.
I am really enthusiastic about our portfolio of late-stage drugs.
If any of these drugs are successful, it could transform Spectrum as we know it today.
We remain focused on the goals ahead and look forward to updating you on our progress.
With that, I'd like to turn the call back to Dr.
<UNK>.
Thank you, <UNK>.
In conclusion, I would like to reiterate our belief that Spectrum is poised for transformation within next few years based on the fact that the three drugs in Phase 3 and Phase 2 clinical development address significantly larger markets and even if only one of these drugs was to be successful it could make a huge difference for the Spectrum.
In addition of course, this year we have added one more drug adding to the revenue that we will bring to the company that pays for the development of most of our drugs.
I want to thank you for your interest in Spectrum and with that let's open the call for questions.
Operator.
(Operator Instructions) <UNK> <UNK>.
Nice quarter again.
First on the SPI-2012, could you talk a bit about how enrollment is progressing.
And then secondly, CMS seems particularly focused on Part B drugs.
How do you see the environment affecting 2012 when it is marketed if at all.
Thanks.
In SPI-2012 we just started the trials in the first quarter and we have been very busy lining up investigational sites.
We now have nearly 60 sites opened for enrollment in the United States and we are expanding these trials into Canada.
HPV has just ---+ we have been approached, I don't think we have been approved yet, but we are about to be approved.
In fact, I have visited Toronto myself and met several investigators who are very excited about starting to work with SPI-2012.
Today we are not going to give you any update on the number of patients enrolled.
However, I'll ask <UNK> or <UNK> to talk about the CMS Part B question of yours.
<UNK>, this is <UNK>, how are you.
Regarding the CMS reimbursements proposed legislation were watching that very closely.
As we've said in the past, what's exciting about SPI-2012 being a novel agent it will enable us to see the reimbursement landscape once that Phase 3 trial and of course assuming successful approval from the agency we will be able to access the market landscape and adjust our strategy accordingly.
But this was something that we had seen coming and are monitoring closely.
Okay, thanks.
So in terms of any reimbursement changes, do you expect it to have market impacts or is that needs to be determined.
I think that's going to be to be determined.
I think there is a common period now and we have to see what actually comes to fruition as it relates to that and then seeing (inaudible) actual ability to see the impact of that as the market progresses.
Hey <UNK>, this is <UNK>.
I'll just simply add to that, even in the proposal what they proposed was potentially going to two regions of the country and trying it there even as a test.
So we don't know what is going to happen with (inaudible) but I will say what the legislation does say today as far as reimbursement.
Remember we will not be tethered to the innovative product, that's another good position to be in.
I want to stress that.
Hey, thanks and then if I can get a follow-up on poziotinib, understandably it's an interesting target.
How do you see it fitting in vis-a-vis just the changes in the breast cancer landscape and especially versus other pan-HER2 inhibitors that are in development.
As you know, in oncology all of the improvements that have taken place in last 60 years have been in the smallest steps.
We had first pan-HER inhibitor was lapatinib.
And then neratinib has been making lot of noise, has been making lot of progress in their clinical trials and we believe that our drug has the potential of being best in class.
And breast cancer, mind you, breast cancer continues to be a challenge.
In spite of the fact that almost 700 patients are newly diagnosed each day in the United States alone with breast cancer and 110 patients die each day, there is hardly anything that has made the difference in survival of these patients.
Yet still this is one of the largest ---+ one of the single biggest killer of women in the United States.
So I believe that if the drug offers efficacy that we have seen ---+ we saw 60% response rates in Phase 1 trials.
And we have seen ---+ we are watching carefully both the efficacy and the safety of this drug and we are quite excited the way our partner Hanmi has been developing this drug in Korea.
In fact Hanmi has multiple tumor targets that they are developing in addition to breast cancer trial.
They have trials going on in other indications including gastric, colorectal cancers.
So we are quite excited about this molecule.
RK, HC Wainwright & Co.
I have a couple of questions.
The first one is on the EVOMELA launch.
Could you give us a little bit of a color as to how it's progressing and what kind of headway has been made in the Top 20 centers that you referred to which makes up the 50% of the market.
RK, I will just add, please keep in mind that this is the first time after nearly three decades that we have melphalan, which is our most active drug in multiple myeloma that we can supply it without propylene-glycol, which is toxic, number one, and number two, this is the first time that we give to these centers a drug that has long shelf life.
They don't have to run to give this drug within 30 to 60 minutes.
In fact, they have several hours of window of opportunity here.
So I would be very surprised if every single clinician does not find value in our product as compared to the genetic melphalan hydrochloride.
Yes, this is the safety and efficacy data from our trials that were completed in the past and that data is being presented at an oral session this Sunday in San Diego at the American Urological Association meeting.
And I'll be there.
If you are there, we will be pleased to share with you.
Well, clearly we are very excited about the data we have submitted to the FDA.
It is because of our excitement.
It is because we have convinced the drug is safe and effective that we have put together the NDA and we are very pleased that the FDA has accepted it for review and have now given us a PDUFA date.
So these are all exiting times, exciting signs for the drug; however, much will depend on the PDUFA date and I have no idea how the PDUFA, I mean the ODAC panel will.
One of my concerns has always been that the ODAC panel consists of oncologists.
However, apaziquone is a drug that is to be used by urologists and urologists are the ones who treat bladder cancer.
So time will tell.
I am hoping that the ODAC panel will see what we are seeing that the drug is safe and effective and there is unmet medical need.
Don't forget in the last 40 years no drug has been approved for non-muscle invasive bladder cancer.
There is definite unmet medical need.
So we are being quite excited about the data and about the upcoming ODAC panel and PDUFA date.
<UNK>.
Yes, not in the first quarter, mind you, we got approval on March 10 and all the ---+
To date, the answer is yes.
My preference would be to stay within the US and Canada.
This is a very important study for us and no matter what the people say that you can do trials all over the world, yes you can.
My preference is to stick to North American sites.
However, if you saw the enrollment wasn't picking up at the rate that we wanted it to be, then we are prepared to go to one or two countries where we have worked in the past and we can be sure of the quality of the data.
Right now the focus is on the United States and Canada.
And just to give you an idea, yes we are planning to open 100, 150 sites, that's correct.
Opening a site requires that our people, clinical people and the QA/QC people visit the sites physically, meet with the clinical investigator and the coordinator and sign off on their site to start enrolling patients.
And that's what I meant while the 60 sites have been qualified and they are opened for business.
However, there are several other sites that are in the process.
So in other words right now we don't have 100, 150 sites open, but I am hoping that in the next several months we will have more sites added and qualified to start recruiting patients.
Not yet, we haven't yet decided.
We haven't heard as to what the date would be, but (inaudible) the PDUFA date in December, I think the date will have to be sometime in September or October time frame.
Well, thank you once again.
We look forward to updating you in the near future on the progress that continues.
Thank you.
| 2016_SPPI |
2016 | ULTI | ULTI
#There's a firm employee per month on each module.
We're not going into the pricing of every single module but the cumulative amount of the modules is (inaudible), like I said, is around $30.
When we look at modules, we look at the value to our clients and what's right in the marketplace.
And that's how we price.
And then sometimes we try and, you know, dig into the modules to make them worth more.
A specific module, which have done in the past, and gotten some other modules that might of started out at $1.00 per employee per month and became $2.00 per employee per month because of the features and functionality we added to it.
So same game plan as we've been doing since 2002 when we were the first [tasks] vendor out there.
Yes, it's just, <UNK>, we're really talking about very small dollars here so, and it's happened in the past.
And, I wouldn't, yes, there's plenty of backfill for it but, again, that goes to the comment about the 99% return revenue guidance.
(Inaudible).
Yes, when you have the best first quarter that we've ever had it obviously filled a lot of the, you know, rest of the year and that.
And then, you know, we have to execute in Q2, Q3, and Q4 like we always do.
It's been consistent and it's been pretty consistent about 65% of our business comes from service bureaus, nothing's changed.
Yes, I hate talking about what our competitors do.
But obviously for someone to look at anyone in any business, your client has to be dissatisfied with something and if they're dissatisfied, then they may start looking.
In any business if someone doesn't keep their clients happy, then they might go out there to look and as people go out to look and we get the opportunity to run our process, we have a very high rate to get the business if they're interested in payroll, HR and HCM function.
Obviously I think we're the best out there so we need the opportunity and if anyone out there is not keeping their clients happy, that puts them in play and that's good for us
Thank you
I think I said that on the ERP side, the percentage of business, especially in enterprise that we're getting from the ERPs, has grown over the years.
So I think there are, you know, ERPs in general I think when renewals are up, that some of them tend to be looking and so I think it gives us an opportunity.
So I think the percentage of business we do get from them has grown from the past.
And I believe will continue to grow.
I think we can sense that it will continue to grow
I think that the major part is the on premise and to a less, much lesser extent right now, the people who signed up for other staff over the last few years.
Once you sign up, it does take a while to go through the initial implementation starts so I would say to a much lesser extent that.
Sales and marketing, again it's marginally lower but, you know, our marketing department deploys different marketing programs depending on what they feel is the best thing to do.
It's fairly small.
Some of it has to do with, you know, company-wide our medical insurance came in, you know, our medical costs came in better than we expected.
You know, does that turn around.
We don't know.
But again it's relatively small in the scheme of things.
And, <UNK>, he was asking about the cadence of business.
What.
Cadence of business.
A year ago it was driving it, the year before it was driving it.
I mean we basically over we've gone 14 years at 25% recurring revenue growth.
I think one year we were at, like, 23% and so I just think it's the growth of the company, the growth of the sales organization, maintaining 97% client base, retention of our client base.
Having a 95% reference level client base.
Keeping, 94% retention of our people, keeping our team strong.
So if that's cadence, then our cadence is really good and it's getting better all the time.
We appreciate you all on your time.
Mitch, thanks for 73 great earnings call.
See you next time.
Thanks.
All the best.
| 2016_ULTI |
2015 | STT | STT
#I guess the only thing that I can think of, <UNK>, maybe by the nature of my hesitation here, is it is not much.
I think about commodities, and in particular oil and some sovereign wealth funds that have downward pressure based on a $45 to $50 a barrel oil pricing and the need to continually fund ongoing operations.
That's probably the place that it binds mostly and I would say it is a discrete set of customers; important, but I would say in the overall scheme of things, our exposure to commodity prices directly is not that material.
Let me start with ETFs and then I will broaden it out.
Our ETF strategy is, we have come from a place where most of our ---+ originally our business was more institutionally oriented and we're moving to more retail oriented business which requires that you hire wholesalers in this country in intermediaries in Europe in order to distribute that product.
We've made pretty big investments over the last 18 to 24 months to increase our distribution sales force in the US and we're doing something similar in Europe.
So the strategy is multi-fold.
One it is to, in addition to the institutional world, orient towards the retail world and with that, bulk up our distribution.
That distribution would be to financial planners, advisors, broker dealers, private banks.
The other leg of the strategy is really around the product side.
You noted in the beginning of your comment that we've introduced quite a few products.
The orientation of the new products that we are bringing to market have characteristic ---+ have the characteristic of less pure beta, more involved strategies and therefore higher fees.
So the one that I spiked out in my comments was the product we did with DoubleLine.
We have several other products, one with Blackstone, a bank loan fund.
We're orienting towards maybe more sophisticated and higher-yielding products.
The last point I would make is we have been open and continue to be open to package somebody else's investment expertise in our ETF structuring here and distribute it through the distribution force that I just mentioned.
I guess if I broaden the question out, the other main emphasis of the SSGA strategy that I would put a bright light on is the whole solutions world, which for us 401(k) has been a big area of success over the last couple years.
Ron has a big history on that and even more broadly, just packaging solutions for not only the institutional but the retail world and we think with our combination of beta and many flavors, ETFs as vehicles, that were well-positioned to succeed in both ETF and the solutions world.
Yes, appreciate the question.
Broadly, we have been, even though we don't talk about a lot on these calls, we haven't lost our way with regard to continuing to invest in things that will be the future growth drivers of the business.
The one I like to point to, enhanced custody, four or five years ago, a vision that took a couple years for it to incubate, and now, as you know, it's driving most of the growth in our securities lending business.
That's one example.
There several examples around.
If I go to the third pillar of the strategy, the data and analytics business, which we launched two years ago now, there's several strategies that we are focused on there.
At the core, it is this data aggregation piece so if we are dealing with an asset manager or an asset owner, the ability to aggregate up data, not only our own data but data from other sources through a data warehouse, cleanse it, make sure that it is available real-time, is the foundational stage of that business.
And then on the back of that, risk tools, we recently introduced a stress-testing tool for fund products where it is really a big data application where we see subscription and redemption history.
We know the characteristics of the underlying funds.
We can predict or allow a customer to predict how much liquidity is required given the likelihood of redemptions.
Interestingly, the SEC and increasingly other regulators are leaning into the asset management industry to get more sophisticated about liquidity stress testing and fund products, so that converges nicely with that.
That's just one example, <UNK>, but it is clear as day to me that the future is going to be defined by who wins that space, who can digitize their data and who can develop those analytic products that are the value add to customers in addition to all the custody and operational activities that we conduct.
Sure, <UNK>.
First on the revenue side, at this point, and I acknowledge that things can change in the future.
At this point, I don't expect other second-order impact from the deposit actions other than the lost NIOR on the excess deposits themselves.
At this point, again, we are not expecting, for example, to lose client relationships over this, although again, it is something we are very sensitive to and that's why we've taken the measured approach that we have.
As it relates to the hedge fund and private equity deposits, as we've talked about before, while historically a chunk of those have ---+ we've considered to be operational deposits because they are, in fact, a part of the normal operations and part of the custody relationship and we do believe to be sticky, they don't count under the LCR rules as being operational deposits.
A portion of those we have seen decline, so it portion of the excess deposits for those clients are included in the deposit reduction that I mentioned, but as you would expect, a portion have remained sticky and we do expect that they will remain sticky going forward and will continue to look at the all-in economics of those relationships, but expect them to be sticky.
No, it does not.
We view that as a very attractive segment.
<UNK>, it is <UNK>.
First of all, you are asking the kinds of levels of detail that we intend to cover as part of our Investor Day presentation and I suspect we will give some overview on the Q4 call.
I just think it is better laying out the entire plan to then talk about some of the specifics around things like equity market help or the market interest rate environment.
I think it is better handled over the course of a multi-hour Investor Day than on this call.
In some respects, <UNK>, it doesn't matter the asset type, the asset class, the geography.
To me, it is really reflective of this pretty cumbersome Western world financial landscape that we've created.
What we are talking about enhances the value of a passive fund, an alternative fund, a private equity fund, if we can move things through here without human touch, it benefits everybody.
To the point of ---+ this is where the world is going, not just financial services.
Everybody's looking at digitize their environment and it is hard to do and I think that we have a huge benefit in that we're a large global Company, but we have laid the foundation long ago ---+ common systems, common processes to get there first.
Today's announcement is really a reflection of needing to pull it in so that we can get there first because of somewhat the environment, which puts pressure on cost.
I think has the attendant benefit of cost saves at the same time it accelerates our product strategy and should make us a more valuable counter-party to our customers.
I'd rather not go into a huge amount of detail, but it is fair to say that we did have a processing error related to a significant, once in many, many years, maybe decades, kind of class-action situation.
So as result, of course, we reimbursed the funds that were impacted so that it was our loss, not theirs.
<UNK>, I would say that losses or gains get extreme scrutiny around here, not just to ---+ well, to do two things, to figure out what happened but also to make sure that it can't happen again.
We take great pride in our record of low operating losses so when an event like this happens, we turn the place upside down to make sure that everybody understands what happened and why it won't happen again.
Sure, <UNK>, this is <UNK> and <UNK> can add to this.
It is very much a bottoms-up exercise.
We have hundreds of people and hundreds of work streams that are looking at ---+ I'll take the simple one.
When an electronic trade comes in, that end-to-end process, how many breaks are there in it, what technology needs to be applied, what process needs to change in order to affect what outcome.
We have measured the breaks, the outcomes, the cost saves, the people, the systems.
It is an a lot of detail and very much bottoms up.
You can't just dictate top-down a number and expect that people are going to figure it out.
We have spent the better part of a year and doing the analysis that leads to today's announcement.
<UNK>, you want to add anything.
What I would add is that remember, this does build off the backbone of the IT and ops transformation program.
So one of the infrastructures that was created as part of that is as we moved to, for example, centers of excellence and as we did the detailed process improvement work from that program, as <UNK> indicated we got very specific, very granular on our unit costs for providing different services along the chain.
As <UNK> indicated, the $500 million stems from a review of those different links in the chain, if you will, and how much we expect to save through particularly applying additional technology to those various links.
Again, the piece that is specifically we are going to focus on over the next three months will be the pacing and sequencing.
Again, I know several of you are interested in, well, what does that mean for 2016 and that is work that we need to do some additional vetting around.
Then there will also be some additional investment cost restructuring programs, et cetera, that we've got some additional detail to build up as well.
Thank you.
Thanks, Stephanie.
I want to thank everybody for their questions and attention today and we look forward to speaking with you after the fourth quarter.
Thanks.
| 2015_STT |
2016 | WTR | WTR
#Yes.
I would expect it will be fairly consistent until the next Pennsylvania rate case.
And in that Pennsylvania rate case I would see somewhat of a change, not more than a few percentage point, but certainly more than what we have seen recently.
So I would say fairly steady until we get to that point.
Yes.
I would say no.
You know, we're sticking with the guidance that we provided at the Analyst Day that we would like to think of a [disc] sometime in 2017 or 2018 and then a rate increase sometime in 2018 or 2019 and that's still where we see it right now.
Yes.
That's right.
Yes.
I guess frankly I have not seen that particular piece from the commission so I can't comment directly on that.
But I guess from what we know and what we are aware of from the legislation and our discussions at the commission level we we remain very confident that this will be a great tool for continued growth and maybe expanding growth.
Okay.
The deal pipeline I will tell you is strong, but as you probably are aware, as we think about the discussion with municipals, <UNK>, it's a long lead time and there's a vote and in many occasions we're seeing the need for referendum.
So I don't see in the coming two quarters a major, that's why we have given the guidance.
You have seen the guidance, but we have some, I'll call it sizable, opportunities in our pipeline and we have a relatively high level of confidence about some of those.
So I guess I will leave you with we see activity, we see greater size, and we feel like the pipeline is strong for next year.
That's ---+ I think that's fair to say.
All right.
Thank you very much.
Appreciate your time.
| 2016_WTR |
2016 | ROCK | ROCK
#Thanks, <UNK>.
Good morning, everyone, and thank you for joining us on our call today.
Gibraltar delivered another quarter of strong results that included earnings above our guidance, plus top- and bottom-line growth over comparable period last year.
We reported a more than 300% increase in GAAP net income and a 90% increase in adjusted net income.
This earnings beat was largely a result of the accelerated traction with our 80/20 initiative, as well as our team's ability to effectively manage the impact of market dynamics.
Additionally, RBI continues to be accretive, as it has been since acquired in mid-June 2015.
We have continued to make excellent progress in executing on our transformative four-pillar strategy, and we're focused on transitioning resources to our most significant opportunities and achieving results from operational improvement initiatives.
And, as a result of our progress, we're raising our annual earnings guidance.
I'll speak more about our strategic progress and guidance expectations after <UNK> reviews our financials.
<UNK>.
Thank you, <UNK>, and good morning.
I'll start with slide 4 in the presentation, our consolidated results.
Second-quarter revenues increased 4% with RBI being the major contributor to revenues as it continues to grow.
And, as cited on the slide, we have two unfavorable comparisons: the divestiture of the European Industrial business and a sales contract for residential postal products that was completed last year.
The combined effect of both on 2Q revenues was $23 million in last year's 2Q that did not repeat this quarter.
Without those two items in last year's quarter, consolidated revenues would have increased 14%.
We continued to have a strong bottom-line performance from the combined contributions of our base businesses and RBI.
And, their combined results significantly increased earnings-per-share.
And, although not shown on slide 4, the Company's consolidated gross margin improved meaningfully by 780 basis points to 25.2% on a GAAP basis.
GAAP operating margin in the second quarter grew 540 basis points to 9.8%, and adjusted operating margin grew 380 basis points to a little over 10%.
The profit and margin improvements continue to be a direct result of our successful execution on the four-pillar strategy.
We are allocating internal resources to our largest operational opportunities and realizing benefits from executing on the 80/20 initiatives, which were 170 basis points of this quarter's margin expansion.
<UNK>so not shown on slide 4 is our 2Q results compared to guidance.
Our results did have softer revenues in our Industrial and Infrastructure segment, as we focused on serving key customers amid weak end-market activity.
However, despite a bit lower revenue, our second-quarter profitability was higher than guidance on better-than-expected traction from 80/20 projects within Residential Products segment, plus synergies within the Renewable Energy segment.
Let's turn to slide 5, the performance of our base businesses.
This slide represents the results of the Company excluding RBI.
As expected, revenues were unfavorable due to primarily two factors that continue to prevail.
First, we had 2015 revenues not repeating this quarter that involve the divestiture of the European Industrial business and the sales contract for residential postal products completed last December.
The second factor: sales to Industrial and Infrastructure markets were weaker due to lower shipment volumes and the effect of reduced steel costs on customer pricing.
Energy-related market activity remained weak, in part, affected by the continuing low level of oil prices.
Nonetheless, there was substantial profit outperformance by our base businesses.
Supplementally, we've also realized reductions on our balance sheet from 80/20 simplification.
Most noteworthy is the reduction of inventories, which for our base businesses went down $30 million in calendar 2015, and an additional $10 million in the six months just ended.
This was accomplished while also maintaining or increasing order fulfillment rates for customers.
Next I'll talk about each of our three reporting segments, and I'll start with the segment discussion on slide 6, the Residential Products segment.
Revenues for this segment decreased 11% to $120 million, all of that difference being a completed two-year sales contract for centralized mailboxes that we finished up last December.
That contract provided second-quarter 2015 with revenues of $15 million and without any meaningful profit contribution.
Apart from that completed contract, this segment has continued to see steady demand for its roof-related residential products, largely in line with the gradual improvement in the repair and remodeling activity.
This segment's operating margin increased substantially from the continuing and incremental benefits of improved operational efficiency and its implementation of the 80/20 simplification program.
Turning to slide 7, the Industrial and Infrastructure Products segment.
The revenues of this segment continue to be affected by three key factors.
First, we divested its European business in mid-April 2016, so 2Q of 2015 benefited from its then revenues and small operating loss.
Second, lower shipment volume continues from weak end-market conditions, primarily commodity-related and upstream energy markets.
And third, lower average selling prices due to the lower raw material costs, which have a correlation to average selling prices.
Yet, regarding profitability, profit dollars and margins increased.
This segment's profit improvements stem from a variety of increased efficiencies in its North American business.
Of this segment's 230 basis point increase in GAAP operating margin, the 80/20 related simplification projects contributed 180 basis points of it.
Now turning to slide 8, our third reporting segment, the Renewable Energy and Conservation segment.
Since Gibraltar did not own RBI for the entire second quarter last year, slide 8 presents RBI's pro forma results for the 90-day and 180-day period ended June 30, 2015.
This was made in order to provide an apples-to-apples comparison between the time periods.
As you can see, revenues continued to grow as expected, although Q2 2015 benefited from the completion of key projects.
Operating margins increased meaningfully.
<UNK>though the 80/20 program within RBI began just this year, its margin expansion is evidencing procurement synergies with which Gibraltar is assisting and trending towards our expectation of its operating margins rising into the teens.
At this point I'll turn the call back to <UNK>.
Please turn to slide 9, continued progress on value creation strategy.
Thank you, <UNK>.
Our ongoing strong financial performance is a direct byproduct of our team\
Yes, I think reflecting on when we first looked at the portfolio in early 2014, and what we thought we had in terms of a balance sheet, and how we could leverage that going forward in a thoughtful way in terms of the four-pillar strategy, certainly that five-year projection was, we thought, relatively aspirational at the time.
It depended on a lot of people doing the right things at the right time.
And certainly the track to the blue line we thought would have been ---+ represented a fairly dramatic transformation of the Corporation's financial results and hopefully put us more into best-in-class against the evolving peer group.
I think approaching two years into the process ---+ and I would emphasize just the approaching side ---+ is that it's still relatively early days.
But certainly at the end of 2016, we'll step back and reflect on whether or not that five-year projection needs some revision.
And if we think that's the case, we'll probably take steps to communicate that to the investor world in a more ---+ in a similar fashion that we did originally during our Nasdaq presentation.
But, yes, we've still got the back end of 2016 to complete.
Certainly we feel confident about how the various strategies are playing out and expect to see continued improvements in future years.
So I think it's a legitimate point.
The two subcategories that had the most favorable comparisons were the commercial side of commercial mailboxes.
So we sell to others than just that one contract we completed, and that balance of other customers had increased orders in the quarter.
And on the residential roof-related products, those also benefited from low double-digit improvements.
We had ---+ and that was on balance for the whole US; there were certain pockets of the country that were stronger than others for our roof-related products.
But those two subcategories were favorable this quarter compared to Q2 last year.
You were not mistaken.
In our view, if we remove those anomalies of incentives that affected different contiguous time periods, the market still continues to grow right around the 10% rate, absent those incentive aberrations that have affected.
And RBI has continued to participate fully in that.
While also, as you can see on the margins, they are focused on getting higher returns, so they are adjusting their sales prospecting and filters in order to optimize the resources and get higher returns while also participating in the market lift.
I think, <UNK>, the second part of your question is that certainly 2016, because of the bubble in 2015 has some limit ---+ some downward pressure on it, combined with <UNK>'s comment on being a little bit more strategic about which type of businesses and work we want to allocate our resources towards.
The byproduct of that is they're making a significant amount more money, combined with some of our synergistic activities.
For 2017, we expect the market to continue to grow at 9%, 10%, 11%, and we don't expect ---+ the whole bubble effect will have migrated away and we should be closer to market and hopefully above market, if we develop incremental strategies to drive share gains.
So we think this is kind of a 'one year off'.
We knew it going in.
What we knew going in was we thought credits were going to come off, and we expected to see an opposite effect.
But now that they've held, you get this artificial bubble for a very short period of time.
But the guys are doing a nice job working their way through that.
Well, I'll let <UNK> jump in as well.
We have ongoing product development processes that ---+ the whole balance-of-systems cost within the context of us getting solar installation has come down probably 75% over the last five years or so.
Getting closer and closer to grid parity.
We're down to the last final piece of that puzzle in terms of taking additional cost out from a systems perspective.
Balance-of-systems is part of that.
Our component within racking, we certainly are in the process and have taken additional costs out that will, number one, not only enhance our operating profit going forward, but also allow us to participate in the market in terms of remaining price-competitive.
So we're in very good shape from that perspective.
And that's something we knew going in, and our people have executed very nicely on that.
Yes.
As well as, <UNK>, we had 2015 ---+ at least it was the first half of 2015, RBI had some significant contracts that they were able to complete, and the size of which aren't nearly the same magnitude as we had this year and other small details.
The UK was a strong market in the front half of 2015, as they had a very strong governmental push to install renewable energy.
We participated in that in calendar 2015, and those features are not generally the same this year.
So that's an element of it.
And we have ---+ the team that leads RBI is doing a nice job in ---+ as <UNK> cited ---+ being more targeted in what projects they pursue and close out this year, in order to drive their margins up.
You can see the margin performance has been outstanding for them.
So we're ---+ it's all in the backdrop, though, of a market that continues to participate and grow and expand.
And RBI is doing a really good job participating in that and driving their profitability up while being selective on what they design, fabricate, and install for customers.
Ask that question again, <UNK>.
It is, but the duration and size of contracts aren't substantially different than their historical profiles of what they were installing.
And the backlog that they continue to have in any given day still approximates three- to three and a half months-worth of revenue.
So the highway of headlights beyond that is still dependent on securing new contracts.
I would say the ---+ a split answer, <UNK>.
Surely on short-term tactical capital expenditures, we do have dollar thresholds above which projects are reviewed and supported out of the Corporate office.
And there's been vetting since last fall through now as ---+ when we built a plan for 2016 and now as projects come up for formal approval, certainly circumstances can change and market conditions can change, where we favored something last fall but now we favor emphasizing some other piece of the plan or a new element of the plan.
There have been examples in 2016 where new projects not heretofore contemplated or presented or considered are now coming before us for approval.
And we have largely supported those because they are driving a new product or they are driving an increase in cost-reduction opportunities that have been identified by engineering folks or redesigns in response to customers.
So we're reacting tactically but still within an envelope that we ---+ of aggregate CapEx spending this year that's in the tens of millions to spend.
On a longer window of how we're spending capital for the portfolio management aspect of the Company, all of our potential prospects in the acquisition arena do involve the Corporate folks.
And there are times when we have multiple opportunities at the same time, and we're weighing where the most optimum returns and likelihood of returns that we can get.
And so we'll deemphasize certain opportunities while we go strong on the ones that we think we can be successful on and have high returns in the ownership period under Gibraltar.
Yes, I think that would be a ---+ obviously, there's overlap.
Some of the businesses are further through the early innings a little bit quicker than other businesses, simply because they're simpler businesses or they got started earlier.
So there is some overlap.
The second phase of tools, which we are well into in 2016, we're getting the benefits, some of the early inning work carrying over into that $16 million.
And we're getting some of the early benefits later in the year of the middle work, which is the in-lining MRD.
Where we're focused in those middle innings is the in-lining MRD.
Manufacturing A items for A customers in more of an in-line basis versus a batch-based process, not only is going to allow us to shed more unproductive inventories in various forms, as we get more focused at just making the top products in a more repetitive in-line basis, we fully expect to see lower manufacturing costs on some of our even biggest runners.
So our cost of goods sold should go down to some degree, and we're in the process of quantifying the magnitude of that going forward.
The other side of that, if we get focused at manufacturing A items, there may be other items that need to stay in the product line to support ultimately the end user who has to build a house.
We can't just sell them the high runners; we also have to sell them some of the slow runners.
We'll treat those differently.
We'll either make them in a batch-based process or outsource them.
And to be quite honest, I think our history of trying to do everything for everybody probably provides us some cost-reduction opportunities not only in the manufacturing of the A items but also the outsourcing of the B and C items as well so.
We're going to get some structural benefits in terms of reduced inventories.
We're going to get some lower costs that certainly weren't in the first year of $12 million in savings and, by and large, not in the second year of $16 million.
So we are going to exceed our $25 million.
To what degree.
I think we'll have a better understanding of that over the coming months, and we're certainly getting it sooner.
I think the other aspect ---+ and it goes to your question on capital allocation as it relates to at least supporting the businesses we own today.
What will come out of this is, to a large extent, quite a bit of excess capacity.
So as we move equipment around and get it more focused at manufacturing A items, we'll also find that we've got a fixed-asset base that's probably somewhat inflated over what our real needs are.
So that also suppresses some of the capital spending in future years as well.
And understand the number <UNK> has quoted of $15 million or $16 million of capital spend, that now includes RBI in that as well, not just the legacy businesses.
So it's quite a bit of improvement from the team.
The order activity continues to be elevated because of states doing some budgetary planning and estimating on key projects, as they involve general contractors in the planning effort.
So much like we described in our first-quarter call, we're expecting that elevated level of quotation and estimating to translate into bids, and then subcontracts that we bid on, and winning our portion of those so that we enter 2017 with a higher backlog.
And it will affect higher revenues in 2017.
But 2016 is largely and continues to be a planning effort for states to prioritize, particularly, their longer and more expensive projects.
I think as a general note, if you follow the press, there's been some various articles where the U.S. Postal Service has begun to change some of their policies on a federal level.
Whether or not they actually get embraced at the state level and various regions around the country becomes another issue.
I think ---+ so the general momentum in terms of the environment is, I think, moving in the direction that we expect: that over time all the regions will be adjusted in some way, shape, or form to utilize more centralized mail than home delivery mail, as first-class mail has quickly gone away.
What we see at an ever-increasing rate ---+ and certainly that shows up in our commercial core numbers in the mailbox, which is primarily centralized mail ---+ most new home construction starts get associated with centralized mail versus additional home delivery mail.
So that's certainly a rising tide as we continue, as you see new home construction, whether it's multifamily or single-family.
That becomes a greater and greater percentage of centralized mail delivery versus single-family mail.
<UNK>l that being said, to our knowledge there is no specific issue where a particular region is over the next ---+ over the coming months are going to try to take mail delivery away from an established group of residents in continental United States.
I gave it the top banner in the prepared remarks, Dan, about procurement savings.
But given Gibraltar's larger size and wider base of raw material and logistics providers that we utilize, we brought that to bear to the procurement of those same items that RBI utilizes for its customers and products.
So RBI is realizing some lower points of raw material costs and freight in-and-out costs because of attaching themselves to our greater purchasing power.
And yes, I do and we do think that this is going to be a sustainable level of profitability for them.
I think that's probably what we identified as a third of the opportunity in terms of transforming RBI's rate of return from a 10% to a 15%.
Another third would have been some project initiatives that they are taking to refine their ongoing product design in order to maintain a competitive position in the marketplace while also increasing their margins.
They've done a nice job executing on that.
And that new product, those new product revisions are becoming a larger and larger piece of their ongoing cost of goods sold.
And we expect that will probably peak at some point in 2017.
So we think ---+ we know we'll see some additional and meaningful benefits out of that next third.
Then I think the last third is the work we're doing on the 80/20 process that we're still very early days of looking at how those tools can be applied to a completely different business model that they have from a value proposition perspective.
And we're starting to see some opportunities present themselves, but I would argue that we're not getting any financial benefits on the 80/20 tools at this point.
We're still early days.
But we're feeling very good about RBI's top-line growth opportunities relative to the market, not only growing share within a rising tide, but also they have some adjacent markets, whether it be residential or commercial rooftop or the larger tracker space.
So we're feeling good about the top line, and we certainly are confident that they are going to continue to improve their operating returns going forward.
Let's see.
I'm thinking back on the prospect list.
They are pretty evenly distributed, although if there was one weight it could be in ---+ probably is Residential and Renewables where we have a slight advantage.
But all of those targeted categories do have prospects for us that are of high interest.
Oh, man.
I'd say it's ---+ if we didn't have the discontinued products or the completed projects contract that we finished last December, I'd say that segment would probably be up 5% or so this year compared to last year.
We did not.
But in answer to your question because that was not in my remarks this morning, that's a little over 200 basis points of the improvement, Mike, came from their 80/20 implementation.
Mike, we generally don't go into that level of detail for competitive reasons and others.
We booked approximately half of it through the income statement.
Of what was actually realized.
But several of those projects that have got initial traction in the first half have further benefits coming up in Q3 and Q4, and there's also identified projects yet to start that will be impactful for our second half.
Yes, I think certainly that would be an accurate conclusion that we're going to get ---+ probably be able to close out 2016 after two years of work, primarily out of the early innings, topping out the $25 million.
And then we're going into this Phase 2 of structural changes where we've got to ---+ and starting that process now and setting up 2017 where we'll start to focus on the in-lining and MRD and outsourcing programs which, to this date, we haven't.
We've done some conceptual work from a quantification perspective.
We think those are meaningful dollars.
But ---+ so we expect to get more and do it sooner than what we expected over the five-year cycle.
Well, the divestiture had essentially breakeven operating results.
So there was no contribution in the prior-year periods.
So the removal of that related revenue had no bearing, at least the absolute dollars of last year's profit.
Amazingly so.
At this point, all the businesses are making meaningful progress in terms of making more money at a higher rate of return and more efficient use of capital.
And we continue to support all the businesses in the near term.
And as they work their way through the 80/20 process, even the businesses in what we would have assumed are more commoditized markets from a couple years ago are finding opportunities for growth and transforming themselves in terms of reallocating their time and their capital.
So I think it's certainly early days to conclude that the portfolio ---+ if the portfolio changes going forward it would be the byproduct of new acquisitions as opposed to divestitures at this point in time.
Thank you, everyone, for joining us on our call today, and we look forward to speaking with you about our third-quarter results.
This concludes our call.
| 2016_ROCK |
2016 | HFC | HFC
#I think on the RIN cost, it really hasn't changed much over the last few quarters.
It runs about mid $40 millions, $40 million a quarter.
So, what I would say is, we have seen it be as high as $54 million in a quarter, at least over the last 1-1/2 years.
I think as <UNK> said mid $40 millions, Q1 ---+ you do think there is some averaging that goes on in terms of the RIN cost, where you purchase them, so some carryover that might have been used in previous years.
What I would say is that approximates mid-$50 millions RIN price for that $46 million we spent this quarter.
Current market is higher than that, in the low to mid $70 millions.
As we burn through our lower cost RINs and start getting into the higher price RINs, you'd expect that number to creep up into the next quarters going forward.
No.
Nothing one time would highlight a big portion, about 40% of the decrease of cost was due to natural gas or fuel cost.
So that is running about [$2, $1 million] for natural gas
I think that's exactly right.
That's a year end run rate.
I think, again, the two biggest pieces to that are the Woods Cross expansion that we've highlighted in the past is 480 million to $100 million of that $200 million.
And then as far as the rest of it, we tried to give you a feel for that with the Tulsa modernization being $20 million and the El Dorado crude expansion being another $20 million.
So those are the largest components of that.
I think our yield of asphalt typically runs about 1% to 2% of our crude rate.
I think asphalt demand is looking pretty strong so far this year and we have a low price environment, this fixed state budgets further obviously as a lower cost of asphalt.
Asphalt's typically running in about 80% WTI.
$130 a ton, so if you want to divide that by 5-1/2 to get it to dollars per barrel.
In addition to asphalt, we sell a lot of roofing flux out of Tulsa and that typically commands appreciable premium say, $100 to $150 a ton over asphalt.
Usually with a lot of these asphalt contracts, <UNK>, there is an escalator that is associated with the crude price.
So it should be agnostic to the margin, should adjust for the increasing crude price.
Could you go back to the first part of your question.
I'm not sure I followed.
I think if you want to model it in, I would stay on the conservative side and say that the EBITDA starts in the third quarter.
So that $80 million to $100 million run rate that we just talked about, I'd model $40 million to $50 million of it in the second half of this year and then $80 million to $100 million starting for full-year 2017.
I'm sorry.
And then I think on your UNEV question and the impact on local markets, we would view the majority of our expansion gasoline and diesel production going down UNEV.
We might be able to squeeze some more into the Utah and Idaho markets, but those are well served now obviously, so incrementally I think it is safe to assume that the majority of expansion volume is going to go down UNEV.
I think the view on M&A is it is very opportunistic, you never know when an asset is going to become available.
I think if and when assets become available that are attractive to us, we are going to look at them.
And obviously when we are in a tighter refining margin environment like we are now, it makes you think even harder about it.
But again, these properties don't come up available for sale very frequently.
So, again if an asset comes up that's appealing to us, we're going to pursue it.
As far as the brent WTI spread, I think it being around the $2 level it is now.
Same thing for the coastal differentials for WTI, say in Houston and [LLS].
All those should be in that $2 region.
I think fundamental transportation costs would argue for a wider differential for WTI in Houston, but I think there is excess capacity both from pushing in Midland to get WTI barrels from those two locations to Houston.
So the differential is trading below full transportation costs.
I still think $2 is a good number.
And I'd echo that and say that obviously we read what you guys write and appreciate that there is a trend towards preference for Gulf Coast refining and siding with the lower US production could lead to tightening of that spread.
And we've seen that some already, as <UNK> has talked about, we've seen some fluctuation in that spread.
And short term you can see anything in our opinion.
At the end of the day if you're inland producer, do you really want to put a barrel on a pipe and pay a tariff to move it to the gulf coast and get a lower net back, ultimately when you get there.
We think as we said now even dating back to the time when pipelines are been reversed in 2013 and 2014, that eventually that spread should look like a transportation differential.
And so we think our geography suits as well in terms of being close to that crude barrel, depending on which refinery we are talking about.
And our guess is probably slightly more educated than most, but that is where we think it is, as <UNK> said, maybe $2 this year.
And probably growing between flat to $4 long-term, just depending on where the crude is being produced and what different discounts are there.
We will send you a petition.
<UNK>, we saw your note this morning and as we work through the math think maybe somebody had the signs reversed.
We calculated our effective tax rate being about 34% for the quarter, and that is slightly below what you would have expected to see as a 38% or so tax rate.
Because HEP, which we get favorable tax treatment on, was a larger percentage of our earnings this quarter.
So we would be happy to work through that with you, but the HEP earnings being a larger percentage we also had a small number in terms of manufacturing tax deductions that slightly lower the rate.
But we show it at 34% and <UNK> would be happy to walk through that with anyone.
That is correct.
No, we don't think so.
We are buying ethanol at market and we're selling our products at market.
It is the same market that everybody else is buying and selling into.
Again, it's a big proportional impact on us because, again margins are small, so you're dividing a relatively fixed number in the RIN charge anyway, by a smaller gross margin number.
The percentage looks exaggerated because, again you are dividing by a small gross margin number if you will.
We've said the past that we blend about half and sell about half, both as clear barrels.
Remember, again, <UNK>, this is the first quarter in a longtime that ethanol margins have been negative.
Again, it was driven primarily by the low crude price dragging down the gasoline price with it.
So, the other relevant point here to remember is even if peers that have retail associated with them, they are buying ethanol and blending it as well, and again, we are not overpaying for ethanol and not under ---+
Thank you, <UNK> for your thoughts.
It's in cost of goods sold.
I think round numbers OpEx reduction target was right around $100 million.
And I think what we've explained in the past is that we achieved about $30 million of it last year.
I think we're seeing some of that come through in the first quarter here.
One of the reductions we had in operating cost was about the same magnitude as natural gas, was lower maintenance related, what we call XO or extraordinary projects, so that been the savings was about the order magnitude of lower fuel costs this quarter.
About $10 million for the quarter.
<UNK> has a breakdown that she can provide, but again, overall we are doing well and the OpEx portion of our business improvement plan.
And a lot of that as you noted is reliability related, when you run your plants reliably you need less maintenance cost and that's less of this XO project category that we just finished talking about.
As far as opportunity cost that, I think the best way to think about that ---+
Opportunity capital.
I think, thinking about that as being $50 million of EBITDA each year from last year through 2018.
So we're going get $200 million in that bucket in $450 million annual additions.
I think if anything I am more optimistic in what we are seeing because of projects like the El Dorado crude expansion that we just highlighted in our prepared remarks.
That one was a phenomenal effort by operation and engineering teams again to get 6000 barrels per day of additional crude rate out of the units that we've run historically at 138.
With nominal, less than $1 million of capital.
That is really an outstanding application of intellectual capital to replace capital investment.
I think Q1 the margins were a little bit better because crude prices lower, and whenever there is a crude movement those prices are stickier than the crude price.
I think the crack very good, the crack was down, flat to down slightly, with fourth quarter was actually pretty good too.
We actually made basically 1 percentage point more, the cracks were marginally down.
So net-net it was a wash basically versus the previous quarter.
That would be our expectation.
I think the biggest difference is RBO, that was published in November was higher than anticipated, so that drove the RIN price from roughly $0.50 per RIN at that time to the $0.70 level that it is now.
The other point is, when you look at first quarter, ethanol margins were negative so you compare the two, you compare the cost of the RIN versus blending and that's the other component.
That's quarter on quarter.
I think one of the things you are seeing there is we implemented a project last year that allowed us to draw more diesel off of the crude pillar.
That diesel draw allowed us to increase our crude rate.
Maybe on a percentage basis the distillate yield went up, but on absolute volume basis that allowed us to run more crude at the refinery.
Yes, I'd say as a blanket statement that is true.
In an acquisition for a period of time would you go higher than that if there was reason to do so.
I think potentially, but probably not more than 1-1/2 times for that instance and then obviously the big question is what is EBITDA.
But what we laid out at Analyst Day, I think was generally $1 billion of debt sort of in the outlook time we were looking at, which was from now until 2018.
And I think we still feel like that is the appropriate amount of leverage.
Yes.
Everything is going well.
Thank you everyone for joining us today.
As always if you have any follow-up questions or would like to discuss any of these other items in the Q&A in detail I will be around all day, just reach out.
And with that I will look forward to sharing our next quarter results with you in August.
Have a good day.
| 2016_HFC |
2016 | DEA | DEA
#<UNK>, as we continue to grow the business and increase the scale of the business, I think you're going to see a modest increase in cash G&A.
Obviously, nothing that outpaces the growth of our top line.
The level in the third quarter is in line ---+ excuse me, in the second quarter is in line with our guidance for the year.
Sure.
I will say, to begin with, we were quite gratified to win the FDA Alameda.
By the way, it's the only development that would fit within our bullseye since we went public ---+ the only one.
It took well over a year in discussions.
Obviously, with Mike Ibe, who runs our development and acquisition team, who has developed over 25 of these properties, we were confident that we were going to come up with a good bid and work well with the federal government.
When it comes to pipeline, obviously we do have a number of lines in the water at all times and are entertaining buildings that would fit within that very targeted area that works for us.
Consider ---+ basically, we are building, in this case, to a 20-year firm term lease with 100% occupancy on this property.
It's very difficult for us to forecast projects, as the government needs and timing are not necessarily congruent with quarterly earnings.
But you can certainly assume that the Easterly team over the next four to five years are going to be doing some terrific development projects that I think will be quite accretive to our earnings going forward
I don't think Mike's momentum has slowed, knowing Mike Ibe pretty well.
I'd say the federal government's appetite for new buildings certainly was curtailed with that little incident that occurred between 2008 and 2010, with the massive slowdown.
But I will say that the federal government has its needs; buildings are getting older obviously.
Obviously, our buildings are very young in our overall portfolio.
But there are important facilities, certainly laboratories, and I'd also mentioned FBIs and so forth, where the government continues to invest in their important mission-critical infrastructure.
So, I think we will begin to start seeing some more development projects going forward.
Obviously, we are seeing a lot of really terrific products in the VA area, as that's an agency that understands the importance of our servicemen and women over the decades to come.
So we are seeing some development there.
But you can be assured that we are concentrating on anything that would fit within our bullseye.
We do believe that we're going to start seeing some more projects certainly in the next two to three years.
Thank you.
<UNK>, I'd say that, once again, to mention, 85% of our purchases were off-market.
So if there were obviously conversations with people on buildings and maybe there was a couple that we did not close because obviously we are price-sensitive.
We said to The Street that we want to purchase buildings between 6.75% and 7.25%, I am pleased to say we have done that.
From a standpoint of marketed deals, we did win the FBI Richmond.
I think that was ---+ we were very gratified to get that.
There were some other properties that were larger that we felt that we did participate in from a marketed standpoint and did not purchase them because we're very disciplined on what we're going to pay for the properties.
I think as we look at the properties, we can certainly continue doing what we have told The Street and indicated for the foreseeable future in the range that we're talking about.
Obviously, there will be opportunities as we go forward for buildings that are perhaps 20-year leases, 15-year leases, that might be at the lower end of that range.
Obviously, if the cost of capital is appropriate, we will consider them.
But from a standpoint of competitive, that's what our team does all day long is going and meeting with the owners ---+ I think we have a terrific relationship with them.
We like to get there certainly ahead of others.
We do not see any new competitors from where we started.
We have been doing this for about five years now, the same usual folks.
We are very gratified to be in that middle zone, where we are not competing against the largest REITs and again, not competing against the lower end, the doctors and dentists indicators.
| 2016_DEA |
2017 | PCG | PCG
#Thanks, <UNK>.
Good morning, everyone.
I\
Thank you, <UNK>, and good morning, everyone.
I'll start by covering our second quarter results and then provide a couple of updates to our guidance for 2017.
Slide 4 shows our results for the second quarter.
Earnings from operations came in at $0.86.
GAAP earnings, including items impacting comparability, are also shown here.
Pipeline-related expenses were $29 million pretax for the quarter.
Our legal and regulatory related expenses came in at $3 million pretax.
For the Butte fire, we recorded insurance recoveries of $46 million pretax this quarter, including the receipt of $32 million from one of our contractor's insurers.
This was partially offset by legal costs of $17 million, for a net favorable impact of $29 million pretax for the quarter.
Finally, we have a new item this quarter related to charges associated with the planned closure of Diablo Canyon.
During the quarter, we reached a settlement with parties in our joint proposal to retire Diablo Canyon, along with several other intervenors, which provides clarity on the recovery of previously incurred license renewal costs and costs incurred for projects that will be canceled as a result of the retirement.
As part of that settlement agreement, we have recorded a $47 million pretax charge for the unrecoverable portion of these costs in the second quarter.
This settlement agreement was filed with the CPUC in May, and we expect a final decision later this year.
Moving on.
Slide 5 shows the quarter-over-quarter comparison for earnings from operations of $0.66 in Q2 last year and $0.86 in Q2 of this year.
Consistent with last quarter, we were $0.15 favorable due to the timing of 2015 GT&S rate case decision, which was received in August of last year.
This year-to-date favorable variance of roughly $0.30 will fully reverse in the fourth quarter.
Rate base earnings were $0.07 for the quarter.
Since we did not receive the 2017 GRC decision until May of this year, our second quarter results reflect 2 quarters of incremental GRC rate base earnings.
You can expect to see about $0.05 in rate based earnings for each of the next few quarters for a total of $0.20 for the full year.
A number of small miscellaneous items totaled $0.04 positive for the quarter, most of which is timing related and is expected to reverse by year end.
There were 2 additional items from the 2017 GRC decision that contributed to a negative $0.04.
As we mentioned last year, our GRC revenues were adjusted in 2017, resulting in a loss of incremental tax repair benefits of roughly $0.25 annually, including $0.07 this quarter.
This was partially offset by $0.03 favorable for incremental revenues to recover depreciation and interest costs that we incurred in the first quarter.
Lastly, we had $0.02 negative related to the issuance of shares.
Transitioning now to Slide 6.
Today, we are reaffirming our guidance for earnings from operations of $3.55 to $3.75 per share.
On Slide 7, we've outlined the underlying assumptions for that guidance.
I'll reiterate that it remains our objective to earn the CPUC-authorized return on equity across the enterprise in 2017.
One adjustment to our plan that I'll note here is we are reducing our 2017 CapEx range from approximately $6 billion to roughly $5.9 billion, which primarily reflects the shift in some of our gas transmission and distribution work into 2018.
At the same time, we have increased the CapEx forecast for 2018 to $6.1 billion, on Slide 10, to reflect this adjustment.
Turning now to Slide 8.
There are a few changes in our items impacting comparability in 2017.
Butte fire-related insurance recoveries net of legal costs reflect recorded proceeds and costs through the second quarter.
The shareholder derivative settlement was approved by the court on July 18, and we expect to record a net benefit of $65 million pretax in the third quarter.
Lastly, we've included the $47 million for the Diablo Canyon-related charges that I mentioned earlier.
Moving now to Slide 9.
I'm pleased to share that the high end of our equity range has decreased from $600 million to $500 million.
With 2 quarters under our belt, we have better line of sight into our financing plans for the year, coupled with the shift in some capital to 2018.
On Slides 10 and 11, we've updated our CapEx and rate base to reflect the changes I shared earlier.
Additionally, as <UNK> mentioned, we filed our TO19 case with FERC yesterday, which includes a roughly $200 million increase to CapEx over our TO17 settlement.
This is reflected in the high end of our CapEx and rate base ranges.
Finally, let's move on to Slide 12.
At the end of May, we announced that we were raising our quarterly dividend $0.04, to $0.53 per share.
On an annual basis, this increases our dividend by 8%, from $1.96 per share to $2.12 per share.
This is another step in our commitment to target a 60% dividend payout ratio by 2019.
I'll close by echoing <UNK>'s comments about how pleased we are with the results this quarter.
With favorable regulatory decisions in 2 of our most important cases, the General Rate Case and cost of capital, great reliability despite a record heat wave and we're continuing to provide shareholder value with another increase to our dividend.
We continue to be confident in our ability to deliver on our plans as we evolve with a changing energy landscape.
And while we aren't providing guidance beyond 2017, our objective is to earn the recently authorized return on equity across the enterprise for 2018 and 2019.
With that, let's open up the line for questions.
<UNK>, this is <UNK>.
It really is ---+ we started to bundle some of our work on our gas transmission and distribution business so that we could better execute that work.
As a result, this is really just sort of a timing shift where the final execution of that work will fall into 2018.
That's why we're really just highlighting its timing and nature.
That's right.
I mean, we have better visibility to our financing plan with 2 quarters under our belt.
So we have a final decision in the GRC.
We've resolved a number of our pending items impacting comparability which we started the year with.
So we have a better line of sight to the equity needs for the full year here in 2017.
<UNK>, this is Steve <UNK>.
In terms of where the proceedings sit, so yes, we ---+ the record in the proceeding is now closed, and we're awaiting a proposed decision from the judge.
It has evolved and changed pretty substantially since it was originally filed.
So as you noted, we filed a settlement with the joint parties to withdraw some of the procurement that we have proposed to do in this proceeding and instead defer that to the commission's integrated resource plan proceeding.
So we still have the energy efficiency replacement that is in this case, but we've deferred the remainder to the IR<UNK>
In the case, we still have the costs for the employee retention programs as well as the retraining programs.
We have the community mitigation payments that we proposed.
And as <UNK> mentioned in the call, we recently filed an additional settlement that resolved some of the uncertainty around ---+ that would resolve some of the uncertainty around both the license cost recovery as well as canceled projects.
So at this point, we're awaiting a proposed decision from the judge on all of those items.
Yes, so this is Steve <UNK> again.
Let me just give a quick update on that.
As we mentioned, in the original proceeding the power cost indifference adjustment, the PCIA, is really designed to ensure that the state law is fulfilled to maintain indifference as some customers choose to leave bundled service and go to either CCAs or direct access.
As we have pointed out, and as I think the joint utilities pointed out, the current mechanism as it stands today does not fully allocate those costs.
So for us, about 35% of those costs really remain with bundled customers, which needs to be corrected, as CCAs continue to become a bigger and bigger part of load.
With the PCIA OIR that the commission recently launched, we view that as a real positive.
The commission's clearly recognized the need for reform in that proceeding and has laid out some guiding principles that highlight the need to really maintain what we call bundled customer indifference which ensures that the state law is followed.
So the commission has not yet issued a schedule, but in many different proceedings and areas, they have mentioned the desire to handle this on an expedited basis and move through that quickly.
So we're very hopeful that, that comes to pass.
And we'll see and follow this proceeding as it goes.
I would expect it will hopefully be resolved sometime in 2018.
<UNK>, this is <UNK>.
I think it's way too early to tell.
I mean clearly when we litigate cost of capital they're going to look at the equity ratio; they'll look at our return on equity; they'll look at the adjustment mechanism.
But frankly, I think it's just way too early in the process to think about what's going to happen 2 years down the road.
Couple of CapEx questions.
Just in the TO cases, and if you don't mind address TO18 and TO19, the one that just got filed.
What is the CapEx for those TO cases relative, I think it's to the roughly $1.1 billion that you're assuming in 2017.
<UNK>, this is <UNK>.
In TO18, we filed for a CapEx of $1.3 billion.
As you know, that case is still pending.
Hearing is next ---+ the first quarter next year.
Currently, we're forecasting spend for this year on our electric transmission business of $1.1 billion.
That compares to what we filed in TO19 of a CapEx of $1.4 billion.
So you filed for TO18 of $1.3 billion, TO19 of $1.4 billion.
If you were to get actually get that CapEx spend, that adds another $500 million to $600 million to your CapEx and then after bonus, [P&A] and all that good stuff, it kind of creates an uplift potentially to rate base.
It does create potential upside.
But obviously, we're going to have to work through the hearings process, and we just filed the TO19 case.
So we'll have to work through what we anticipate to be settlement discussions early on, and I think a lot of this will be tied up to the resolution of TO18.
Got it.
Okay.
And finally, <UNK>, when you look at other opportunities for rate base growth, and you lay several out on the slides, which ones do you think have the potential to be the most material.
Meaning when I think about it on a dollar of capital invested, which ones do you see that are not in your current CapEx forecast where you could see, hey, that could wind up being a pretty big number over time.
Yes, the ones we've talked about historically which are outside this period is what ultimately happens with the high-speed rail, what ultimately happens with some of these really large state-sponsored projects.
I think that provides an opportunity.
More near term, I continue to think that there's great opportunity around electrification of transportation.
I think at this continued improvement or opportunity for us to continue making investments in our bread-and-butter work, modernizing the electric lines and modernizing our pipes.
So longer term, it's the things that are outside the range, like the high-speed rail, short term it's our bread-and-butter work.
Yes, we're still signaling to earn the CPUC-authorized return on equity in '18 and '19, which is 10.25%.
We did file a TO19 for 10.75%.
That's the 10.25% plus the 50 basis point adder for participant in the competitive transmission process.
But the electric transmission rate base still represents a little less than 20% of the overall rate base.
So that differential isn't very significant to earnings.
<UNK>, this is Steve <UNK> again.
So thanks for the question.
I should say another important part of the existing proposal that I failed to mention before actually is the mechanism to ensure that the rate base for Diablo Canyon is appropriately depreciated through the rest of its useful life.
So under our proposal, the ---+ we will put in place the mechanisms to ensure that the depreciation is fully recovered in that plant by the time it shuts down.
So that's part of the proposal we have now.
On the decommissioning, as you know, that's going to be a very long-term endeavor at Diablo Canyon as we go through that.
We have regular proceedings to look at the cost of decommissioning.
We recently had the decision in the current case that did not fully support our estimated cost.
But we will have the opportunity in 2018 to come back and refile that.
And as a part of our plans for decommissioning, we're now going to be conducting a site-specific study, which will look in detail at the estimated cost.
So we will be litigating that again in 2018.
Yes, this is <UNK> <UNK>.
We have already actually been depreciating Diablo to fully recover the asset balance by the end of its current license term.
So there's no increase necessarily in depreciation as a result of that path.
Correct.
So 2.2 roughly in Diablo rate base today, we hope to be ---+ or plan to be at 0 by the end of the current license term.
| 2017_PCG |
2016 | ACHC | ACHC
#Thanks.
Thanks everyone for their interest in Acadia.
I know we spent most of the time talking about financial and processes that we do on the business side, but I do want to thank all our employees and clinicians in the field, for their dedication to our patients, and getting them better, and working with their families.
That's what makes Acadia successful, is delivering quality care to our patients, and the families, and it takes, we now have over 35,000 employees now, and it takes a lot of effort, and I very much recognize every day the work you all do in the field, taking care of our patients.
So once again, thank you for what you're doing.
Thank you all for your interest in Acadia, and we'll talk to you at the next quarter.
| 2016_ACHC |
2016 | LAMR | LAMR
#Thank you and good morning, everyone, and welcome to Lamar's Q1 2016 earnings call.
2016 is off to a great start.
For the full year we see real acceleration in our pacings.
Q2 is pacing measurably better than Q1, and Q3 is pacing better than Q2.
We are feeling very good about how 2016 is shaping up.
The integration of the new Clear Channel market is ahead of plan, and their performance is also exceeding expectations.
Consequently, as we sit today we are confident that we are tracking comfortably at the top end of our AFFO first-year guidance, which is approximately $5 a share.
I will now turn it over to <UNK> to walk through the numbers.
Good morning, everybody.
Just a couple of bullet points with respect to the press release.
On the first page of the release at the very top we have the results for the quarter, the three-month results and then the pro forma results.
I'd just like to make sure everybody is clear, the three-month results are our results actual Q1 of last year compared to the Company's results for Q1 of this year and that includes the Clear Channel markets that we acquired in the first quarter.
We did not have those markets obviously last year in Q1.
The three-month pro forma results, as has always been our practice, we fold in the performance of any acquisitions that we make into our history ---+ our core history, and then we compare our results against our history.
So the three-month pro forma results include the performance of the Clear Channel markets that we acquired in Q1 of 2015 compared against our performance in Q1 of 2016.
A note on our consolidated expense growth in the quarter, it increased 2.3% that is a little higher than we normally run.
We're normally at about 2% or sub 2%.
There was $1 million worth of severance that the Company paid out in Q1 that was related to the Clear Channel acquisition that was a one-time event and that is over going forward.
Without that $1 million, our consolidated expense growth would have been 1.8%, which is generally the range that we have been running.
Last, the AFFO, which is on page 8 of the release, the last page, I'd just like to mention that on the maintenance CapEx, we were down for the quarter over last year about $7 million.
The CapEx that's spent is mainly determined ---+ the timing of is determined by the operations guys in the field.
Corporate allocates the capital at the beginning of each year, and the profit centers decide when they are going to actually spend that depending on the need, the weather, et cetera.
You may see some peaks and valleys in that number, but just to make sure everybody knows, our target maintenance CapEx for the year is $45 million, and we track that very closely here at corporate to make sure that we do not go over that number on an annual basis.
With that, I will turn it back over to <UNK>.
Great.
Thanks, <UNK>.
Let me hit just a couple of the operating metrics that we usually cover on these quarterly calls.
We ended the quarter with 2,488 digitals up and operational.
Of course a good chunk of that increase came from the Clear Channel acquisition; in fact 171 of them came from the Clear Channel acquisition and 33 were put up organically.
The story on same-store revenue for digital units is quite good.
We were up same board 3.4% and very pleased to see that performance, it gives us a great deal of confidence going forward as we continue to deploy in 2016.
We anticipate something around 150 greenfield new units this year.
We feel comfortable since we are seeing that kind of performance.
On local and national, the local book was up 4.5%, outstanding strength in Main Street, USA.
National was actually down about 1% that was primarily in the auto category where we had a spot buy drop out on us unexpectedly.
But for that it would have been flat, and that is what we were expecting on the national side.
Going forward, national is much stronger in Q2 than Q1.
Speaking of the categories, we had some real good performers; restaurants were up 4%, service was up 13% and is now 12% of our book, hospitals and healthcare was up 7%, and real estate continues its recovery.
Real estate was up 12% Q1 2016 over Q1 2015.
In terms of our large verticals, but for the one spot buy that dropped out in the first in automotive, all of our top verticals are performing very well.
The automotive category is going to perform well the rest of the year.
That was a little bit of anomaly.
With that, I'm happy to open it up for questions.
We are in that mid-single digit zip code.
So we feel good.
Local is really strong.
Again, we had that one spot buy drop out, and that customer is coming in the rest of the year.
It was a little bit of an anomaly.
And, keep in mind, in the first, we were comping against 5.2% up, right.
So pretty tough comp.
And the book is strong.
I think you're going to hear it from ---+ you've heard it from Clear and you're going to hear it from out front that the national book is firming up and, in our case, the local book is likewise exceeding our expectations.
No, we don't think so.
On the last call, you asked what our expectations were for the year, and we said we had been running sub 2% for the past several years.
So, I just threw out that 2% would probably be the max.
But, no, we don't see any ---+ on a pro-forma basis we don't see any unusual items that would cause that to spike above that point.
Sure.
There should be no difference in the seasonality.
And what was gratifying to us is the performance of those assets almost mirrored our traditional outdoor assets that we've owned for such a long time.
As I mentioned, they exceeded our expectations.
We got it back when we bought them to about 2.5% pro-forma growth for them for the year, if you recall on that call back in January.
And they did 2.9% in the first.
So, we are happy, and their pacings are exceeding our expectations thus far.
Sure.
I think it's a little early in the game to declare recovery in the oil patch.
Not only do you have to have the price of oil go up, you have to have business confidence follow.
And I'm not so sure that, in places like Oklahoma City and Houma and Midland, that they are ready to declare all clear just yet.
No.
I mean, that's basically tied to AFFO as well.
We use the same numbers pretty much to get to both of those metrics.
As <UNK> said, we feel very good about our guidance at this point in time for both of those.
Yes, thanks.
What we're seeing there is ---+ and these are small numbers, but we are seeing each month a little more billing flowing through that platform.
So, for the month of March, just to give you an order of magnitude, about ---+ a little better than $80,000 went through our automated buying platform.
Again, it is growing.
It is growing every month.
Our philosophy on it is that we are trying to develop our platform so that any buying platform can plug into it.
And so, in terms of the initiative, we started out with a single vendor, and that vendor has grown its book of business, as I said, month over month, gradually.
But we are working with other vendors that can plug and play into our platform as well.
And, I believe, on the last conference I was at I gave a shout out to one that we are working with now called Ayuda that we hope can help us grow that business.
Again, it is something that we believe is going to play a role in our future, and we are going at it in what we believe to be a thoughtful way.
With one caveat, which is I don't want folks to view us as an ex-political medium like they view TV and radio, because it is not that order of magnitude.
That said, political is going to play a bigger role in the back half of our year, unquestionably.
We began seeing a little bit of a shift in the cycle four years ago, and I think it had a lot to do with how much money is now involved in presidential races given the Citizens United case.
But, undoubtedly, there will be lots of money spent and some of it will come our way.
Certainly not the same order of magnitude of what goes to TV and radio, but it is going to help our pro-forma performance come the third and fourth quarter.
Yes, we were up same board 3.4% on our digital platform, and the second quarter looks equally as strong if not stronger.
So we feel, like I said, really good about where that platform is and where it could go.
We've owned it now for something in the neighborhood of eight months.
The business ---+ when we bought it I think we told everybody that we expected something in the neighborhood of $23 million, $24 million in revenue contribution for 2016, and something in the neighborhood of $2.5 million in EBITDA contribution.
So, that's the base upon which we are going to grow.
We see that performance happening this year.
We are comfortable with it.
It is a good business.
I wouldn't call it material to our activities to date, but we hope to grow it.
Great.
Thank you all for listening, and we look forward to getting together next quarter.
| 2016_LAMR |
2018 | ASH | ASH
#Thank you, <UNK>, and good morning, everyone.
In the first quarter, the Ashland team took important steps forward to build the momentum needed to deliver our fiscal year 2018 commitments as outlined during our November earnings call.
Each of our 3 segments showed growth in sales and adjusted EBITDA even before including the positive impact of foreign exchange and acquisitions.
As a company, aggregate price exceeded raw material inflation, asset utilization had a positive impact on earnings and adjusted SG&A as a percentage of sales was down 110 basis points versus prior year.
In addition, as expected, the integration of Pharmachem and the Etain composites facility, both made strong positive contributions to Ashland in the quarter.
As a result, in total, Ashland increased its sales by 20%; improved gross margins ---+ gross profit margins by 50 basis points; increased adjusted EBITDA by 25% and adjusted EBITDA margin by 70 basis points; and delivered adjusted EPS of $0.42, which includes a $0.04 per share negative impact from our tax rate.
Within Specialty Ingredients, the team focused on driving volume/mix gains.
As a result, we delivered solid top line growth across a number of our key end markets.
We saw strong growth in the personal care segment with sales up 5%, driven by significant gains in the biofunctional ingredients area.
New capacity has enabled us to begin meeting robust demand in pharma, where sales grew by 4% in the quarter.
And after a slow fourth quarter, we drove 12% sales year-over-year growth in coatings.
This growth was led by key customer wins and favorable order patterns.
From a margin perspective, Specialty Ingredients experienced $8 million of year-over-year raw material inflation in Q1, and that's approximately $5 million more than what's anticipated at the start of the year.
While this had a negative impact on margins in the quarter, we took additional pricing actions.
We made great progress in personal care, pharma and adhesives.
That said, pricing within the cellulosics portion of industrial specialty remains a challenge.
In the first quarter, the team drove favorable volume/mix but did not fully offset raw material inflation.
Moving to asset utilization.
In the fourth quarter of fiscal year 2017, Specialty Ingredients drove an $8 million benefit from our asset utilization programs.
This initiative had minimal impact in the first quarter of this fiscal year as we chose to complete multiple shutdowns during what is typically our slowest demand period.
The good news is that with these shutdowns behind us, we expect ASI's asset utilization to be strongly positive in the second quarter and for the remainder of the year.
The ASI team did a good job in managing cost during the quarter as SG&A increases were driven primarily by acquisition and currency.
Combining the base business and acquisitions, Specialty Ingredients revenue and EBITDA increased 14% and 11%, respectively.
Also note that excluding the dilutive effect of acquisitions and divestitures, EBITDA margins in the base ASI business was up approximately 50 basis points year-over-year.
In addition to gains realized in the base ASI business, the integration of Pharmachem is going well.
We have now identified approximately $15 million of annualized cost synergies to be realized by the end of year 2.
And after owning Pharmachem for just over 7 months, its EBITDA contribution, excluding corporate allocations, is approximately $35 million.
Moving to Composites.
The team turned in another strong performance.
Volume and mix was positive year-over-year.
The team drove strong sales increases in all key end markets and saw strong growth in North America and Europe.
The acquired Etain facility in France also made a positive contribution in the quarter and accounted for 10 percentage points of Composites' sales growth.
More impressively, the Composites team fully priced through to offset approximately $16 million of raw material inflation versus prior year.
Thus, net-net, the team did a great job of generating sales and earnings growth, with sales growing 32% and adjusted EBITDA increasing by 10%.
Moving to I&<UNK>
The team delivered a 30% increase in sales.
Volume and mix improved sales revenue by 7%.
Disciplined pricing drove a 16% increase in sales and contributed approximately $9 million to earnings.
Asset utilization in the business was up substantially, and that was driven by focused network optimization activities and turnaround timing, which resulted in a positive year-over-year benefit in Q1 by $8 million, and this gain will be offset by approximately $5 million of increased year-over-year turnaround expense in our second fiscal year quarter.
Together, I&S's adjusted EBITDA climbed to $16 million, up from near breakeven in the year-ago period.
All in all, Ashland's total sales increased 20%, and adjusted EBITDA rose 25% to $136 million.
Both sales and earnings were up year-over-year in all 3 reportable segments in the first quarter, setting the stage for us to reaffirm our full year outlook for each segment in fiscal year 2018.
I'll now turn the call over to <UNK>, who will share some important financial details from the quarter.
Thank you, Bill, and good morning, everyone.
Adjusted EBITDA in the quarter was $136 million compared to $109 million in the year-ago period.
In the quarter, we reported a GAAP loss from continuing operations of $0.12 per diluted share.
On an adjusted basis, we reported income from continuing operations of $0.42 per diluted share compared to $0.14 in the prior year.
Ashland's capital expenditures were $24 million during the quarter compared to $33 million in the prior year period.
Free cash flow during the first quarter was negative $48 million compared to negative $93 million in the prior year.
These amounts include $23 million in restructuring payments in the first quarter of fiscal '18 and $29 million of restructuring payments in the year-ago period.
There are several areas I would like to focus on this morning: First, the impact of the U.<UNK> Tax Cuts and Jobs Act on Ashland; second, an update on SG&A; and finally, our outlook for the second quarter and the remainder of our fiscal year.
Our effective tax rate for the first quarter after adjusting for key items was 18%, which was 8 percentage points higher than we forecast last November.
As Bill noted, this higher rate reduced EPS by $0.04 in the quarter.
The increase in the tax rate is primarily attributable to U.<UNK> tax reform enacted in late December.
Furthermore, as a result of the new tax legislation, we have reset our expected effective tax rate for fiscal '18 to be in the range of 16% to 20%.
The higher ETR for Ashland may seem counterintuitive to some as there has been so much discussion and focus on companies that would realize a tax benefit.
However, the increase in Ashland's ETR reflects the global nature of our business.
We have provided an overview of the impact of the Tax Act in the slide presentation posted to our website last night.
I won't go through all the details provided on that slide, but I do want to call out a few key provisions: First, we do not anticipate a material change to our cash tax rate, meaning the taxes we actually pay.
That range is expected to remain at 20% to 25%.
Second, Ashland will clearly benefit from the ability to repatriate cash that is held outside the U.<UNK> Just this past week, we repatriated over $300 million and used it to repay debt.
And while we will pay roughly $160 million of one-time repatriation taxes over 8 years beginning next year, these payments will be largely offset by lower deferred tax payments that were accrued prior to the new tax legislation at the old tax rate.
As we have said before, our primary use of cash for the next couple of years will be debt reduction to reach our leverage target of gross debt at 3.5x EBITD<UNK>
Keep in mind that this does not preclude allocating capital to bolt-on acquisitions or share repurchases.
Regarding SG&A, we remain committed to offsetting inflation with productivity improvements.
We have taken comprehensive actions in this area, including headcount reductions, shared service expansions, increased outsourcing and facility consolidation.
For example, we continue to leverage and grow our global business centers in Hyderabad and Warsaw.
In addition, we are consolidating our Columbus, Ohio campus footprint to be done in the June quarter, resulting in an annualized savings of approximately $6 million.
During the first quarter, for the corporation, adjusted SG&A year-over-year was up $20 million, almost entirely due to the impact of acquisitions and currency.
The remainder was more timing issues.
I will mention our full year outlook for each of the businesses in a moment.
However, I think it's important to reiterate that managing SG&A costs is a critical component to meeting our full year commitments.
Based upon our current full year forecast, less the impact of acquisitions, divestitures and currency, we expect full year SG&A for the corporation will be flat.
Turning to the full business.
As you saw in the updated outlook summary we released last night, we have reaffirmed our full year adjusted EBITDA outlooks for each of our operating segments for fiscal 2018.
Based on the change in the effective tax rate to 18% for fiscal '18, we have updated our adjusted EPS outlook for the year to a range of $2.90 to $3.10 per share.
This $0.30 change in the EPS range is due entirely to the new tax rate.
For context, if the new tax legislation were applied to fiscal '17, the full year effective tax rate would have been 18% as opposed to the reported 7%.
For the second quarter, we expect adjusted earnings in the range of $0.80 to $0.90 per diluted share compared to $0.70 per share in the prior year period.
This estimate assumes an effective tax rate of 18% based on the new U.<UNK> tax legislation.
Also note that our effective tax rate in the prior year quarter was 1%, reflecting income mix and certain discrete items.
Based on where we are today, we remain confident that we can generate free cash flow north of $220 million during this fiscal year.
Lastly, we are currently evaluating possible changes to the way that we make operating decisions and assess performance within Specialty Ingredients.
This process may result in additional changes to our management structure and how internal financial information is reported and used in making decisions about the business and certain of its components.
Consequently, we will need to determine if these changes will result in the need for further segmentation of Specialty Ingredients results for external reporting purposes.
We will provide an update on this evaluation once it is completed.
Now I will turn the call back over to Bill.
Thank you, <UNK>.
As outlined at our Investor Day last year, Ashland has a clear strategy to drive strong sales and earnings growth in fiscal year 2018 and beyond.
As a reminder, we established the following financial targets for fiscal year 2018 through fiscal 2021: We intend to grow adjusted EPS by at least 15% per year, improve Specialty Ingredients adjusted EBITDA margins to above 25% and generate more than $1 billion of free cash flow.
Our performance in the first quarter reflects important progress we're making.
While we have more work to do, we are working hard to accelerate our progress and increase our momentum.
The second quarter is an important period for Specialty Ingredients.
To that end, we expect to see sustained volume/mix improvements.
In the second quarter, we also expect to realize the benefit of pricing actions taken, particularly in personal care, pharma and adhesives, and take additional pricing actions in the cellulosics portion of Industrial Specialties.
Ashland margins in Q2 should also be positively impacted by our asset utilization programs as we begin to see the impact of previously announced closure of 4 operating facilities; our detolling efforts, which are gaining greater traction; and we lower turnaround expenses, as many of our plant shutdowns were completed in Q1.
And last, but not least, the ASH team is working aggressively to drive our Pharmachem synergy action plans.
From a composites perspective, we continue to see healthy demand in the second quarter.
Just last Friday, we announced another round of price increases to help offset raw material inflation, which resulted from reduced production from several styrene producers.
I&S has again raised prices.
The benefit of this action will be partially offsetting Q2 by the impact of the planned maintenance shutdown in Marl, Germany.
We view this as just a timing impact as we saw the offsetting benefit with the turnaround in Q2 ---+ excuse me, Q1.
In the aggregate, for the fiscal year, excluding acquisitions and currency, we expect Ashland's SG&A to be flat versus prior year as we continue to drive productivity programs.
Combined, these actions make us confident that we can deliver on our previews EBITDA guidance.
More specifically, we are reaffirming our guidance for Specialty Ingredients EBITDA, Composites EBITDA and I&S EBITD<UNK>
As for our EPS guidance, we are adjusting our fiscal year outlook to reflect the new tax rate.
This impact is estimated to be approximately $0.30 per diluted share.
Thus, our adjusted EPS guidance for the year is $2.90 to $3.10.
Fortunately, as <UNK> described, while tax reform will have an impact on our book tax rate, we expect no material change to our expected cash tax rate of 20% to 25%.
As a result, we believe we remain on track to drive more than $220 million of free cash flow in fiscal year 2018.
So in summary, all 3 of our operating segments remain on track to deliver their key financial targets in fiscal year 2018.
We have more work to do, but momentum is clearly building.
Fiscal year is an important year for Ashland, and we remain committed to delivering on results.
With that, I say thank you for listening and your interest in Ashland.
And I'll turn the call over to the operator to take your questions.
Thank you.
Sure, Chris.
This is <UNK>.
If you look at Pharmachem, I'll first talk about the 7 months.
So as Bill mentioned, approximately $35 million of what I'd call contribution EBITDA, so ex any corporate allocations that the business produced.
Over that period, got $2 million, $3 million, probably, of JV EBITDA that was not there.
The delta between that would be corporate allocations.
With Pharmachem in the mix, we basically apply our methodology for allocating corporate costs to each of the businesses, and Pharmachem participates in that.
So the way to think about it is, on average, $5 million, $6 million a quarter of corporate cost would be ultimately allocated to the Pharmachem number.
If you want to apply that to the first quarter, that would imply, call it, $10 million, $11 million-or-so million of EBITDA ex corporate cost basis.
Clearly, seasonality in the business during the December quarter, as we delved into it.
And so thinking about it on a full year basis, it makes us ---+ on an overall basis, pretty confident that we're going to be able to meet our targets within that business from an economics perspective.
And we very much remain committed to managing those SG&A costs.
And as I indicated in my comments, on an overall basis, we expect the corporation to be flat for the year.
So the movement of corporate costs is really just kind of pushing water around in the balloon if you want to think of it that way.
Sure, Chris.
Thank you, that's good questions.
And in fact, it's ---+ we do see the momentum building from a demand standpoint in these key product areas that you mentioned out of Doel with Benecel and also out of our Hopewell expansions.
And Klucel is one of the products.
And these are some of our most differentiated products.
And with that, really, the gains that you see in Q1 are the result of those activities.
And we see demand building in those areas.
Our customers who we weren't able to supply effectively or consistently now understands and have the confidence to have more of that business with us.
And so I would say that a significant or a great amount of our current and targeted growth are in these more differentiated platforms.
There really, in these areas, are very few competitors, and our products are differentiated even by the nature of how they perform.
So we still have plenty of upside opportunity as it relates to utilizing that capacity.
In fact, we're still in the process of qualifying our additional Klucel capacity with customers.
So while we're able to use it today, we'll be able to use it more and even improve the mix running through those assets as we go forward.
Basically, I think what it does is it has taken the cap off in terms of limitations, at least from a production standpoint, on our growth in the pharma market.
Yes.
We saw really good volume/mix out of that business in the quarter.
Very strong performance.
And we've been bullish on pharma.
We remain bullish on pharma.
And really, it just comes down to the team executing on the new capacity and continuing to drive that value through the system.
Yes.
<UNK>, it's a great question, and its going to take us, I think, a good bit of the fiscal year to work through that.
The new tax provisions really pile a lot of complexity on top of what was already there.
The idea I think within '18 is really, in fact, not true, and so we have to work through that.
Each provision ---+ each new provision of tax reform is going to drive, in some cases, a benefit and in some cases, not.
A couple of small examples.
There's interest deductibility.
That's probably going to be something that we have to deal with because not all of our interest is likely to be deductible in the U.<UNK> However, we have new provisions around CapEx deductibility as the capital is spent in the U.<UNK> and so there's offsets to be had there.
And those are just a couple of examples of really many that our internal team and our third-party advisers are working through as we try to figure this out.
And I think a lot of companies are, frankly, in the same boat if they're as global as we are.
And so what we'll commit to is certainly providing an update as soon as we have one.
I think the way we think about it, based on where we are right now, I wouldn't expect the range to get worse.
And I think it remains to be seen if the ETR range can, in fact, improve from the 16% to 20% that we're currently using.
And again, we see no material impact on the overall cash tax rate absent the one-time repat cost that we'll be paying over 8 years, which is largely offset by a reduction in deferred tax liabilities due to the lower rate.
<UNK>, why don't you speak to the seasonality, and I'll speak to the ramp, if you want.
Yes, yes.
I mean, really, what we should see is, frankly, positive seasonality coming out of Q2 and Q3, which basically gets at the ramp concept as well.
Those are typically the strongest 2 quarters within ASI.
And frankly, Q4 isn't typically far behind.
If you look at it on an overall basis, Q2 to Q3 will be our strongest quarters.
And so it really comes down to the team continuing to execute on an overall basis.
I think manufacturing is stepping up and doing what they need to do.
We've seen good benefits from that.
We should see that accelerate through the course of the year.
The volume/mix equation is very positive.
And really, I think it comes down to executing fully on pricing initiatives and driving that through the system, and that's primarily in the industrial area.
<UNK> stated it very well, so no need to repeat it all.
I think the parts that we feel very good about, of course, is that we're seeing improvement in the volume/mix area with a particular focus on mix: good SG&A control; manufacturing, we see the momentum building there.
And what's really going to be key for us is to make sure that, especially in the cellulosics portion of the Industrial Specialties business, that we drive the pricing needed to fully offset raw material inflation.
By the way, they were the group that saw the biggest impact from the increase year-over-year.
So just in general, within ASI, some of the key raw materials are butane, which can go into BDO, of course; cotton linters, which ---+ of course; and wood pulp, which goes into cellulosics.
You have other key materials.
Polypropylene ultimately works its way through as well.
So those are some of the key raw materials that have been impacted, if you will, in the, we'll say, last 6 months or so.
And just to put it in perspective, we ---+ with the way things are right now, the raw materials that we've realized to date that ---+ versus prior year, raw material cost will be up about $26 million year-over-year.
That's assuming that prices don't go down or they don't go up further.
But that's the amount that we need to overcome with our pricing activities.
Two questions.
Can you flesh out a little bit your thinking about the ASI asset utilization and how much of it ---+ how we should think about the benefit in the back half of this year compared to in next year.
Is it a steady cadence.
Or is it ---+ or a bit of a hockey stick effect.
And secondly, can you give us some sense of the trends you're seeing in your construction and energy markets.
Sure.
I mean, from an asset utilization standpoint, we will see from quarter-to-quarter some variations just because when you do have a shutdown in a quarter, right, it depends on whether you had one in the prior year.
But in general, we really break it out into several key buckets fairly straightforward: one is spend and the other is absorption.
For better utilizing the assets, that lowers the cost across all units.
And of course, if we can reduce the overall spend rate, that's another way to make improvements.
Kind of numerator and denominator math there.
And so we're focused on, for example, in the cost portion, being better, more precise with our shutdowns, making them shorter in duration and focusing on reducing their costs and also consolidating facilities in our footprint where possible.
So we have Lean Six Sigma programs, which are also helping not only to drive productivity but to reduce the cost.
And then you have the absorption effect, which really comes from selling incremental volume to the system.
And in that regard, what you're seeing so far, you saw in Q4 and we expect to see in Q1, you will see really more of the impact of managing the cost side of that equation.
Ultimately, we expect to and need to drive greater volume growth.
While our focus is on mix over volume, we do expect to see our business grow.
And with that, that will help on the absorption equation.
So I would say overall, we anticipate it continuing through this fiscal year.
Again, it may be a little lumpy from one quarter to another, and there's no reason why it shouldn't continue next year at a rate, I'll say, at least at this point, in the similar kind of fashion.
And from a market standpoint, in the energy area, we saw demand increasing in the U.<UNK>, which, of course, is good news.
In Europe, it was a little bit softer.
And overall, we saw construction down versus the prior year.
Sure, sure.
And this is how I would characterize it as.
We have a lot of very differentiated products and a lot of contracts associated with those.
And some of those contracts, we have cycles to them.
So it takes a little time to pass those prices through ---+ or those raw material inflations through with some of our larger key customers with some of our more differentiated products because of that structure.
But in general, I think it's fair to say that in the spaces, say, portions of the construction market, maybe the mid- to lower end of the coatings market, you do see a little bit more global competition, and we're trying to fight the right balance between having the right mix, the right volume but also offsetting the raw material inflation.
And I would like to highlight, not in ---+ as an excuse or anything like that, but this is where we saw really significant increase in the quarter versus what we anticipated coming into the quarter in terms of raw material cost.
The team is out there working the equation hard.
And frankly, as <UNK> alluded to, as we look forward on the business, we run a highly integrated ASI business today.
We're going to increase our focus on the strategic imperatives in this part of the business, where, to the extent there is some greater cost sensitivity, we're going to be more aggressive, working to make sure that we are truly competitive on a global scale regardless of the segments that we're competing in.
Sure.
So ---+ and we really wanted to highlight the turnarounds mainly because given the timing, it could look, based upon Q1, like we should have a number that's much bigger for the year-end.
But again, you do need to factor in now we'll have ---+ versus last year we'll have this turnaround in Q2.
But overall, we have been able to consistently increase prices in the marketplace kind of step-by-step.
Our last increase was in January and taking place ---+ or taking effect in February.
Since then, actually, one of the other suppliers in the market is, out of force majeure, making the supply/demand dynamic even tighter.
And so we want to make sure that we're appropriately and fairly evaluating our product, and we're working hard.
We don't want to presume that there's upside at this point because we need to see how the dynamics play out, but the indications are now that pricing is holding.
We've actually seen it now translate not just in BDO but into the derivatives, which is an important element of, if you will, that equation.
And again, I just bring it up because it's a point to note.
And your information is as good as mine.
You all read about the tightening that's going on in terms of productions and emissions, standards in China and the impact that's having on, whether it be cost or excess energy and operations of facilities.
And we've been studying that and looking at that, and it's going to take some more time.
But that, I'll say, has had an impact up to this point because we haven't seen some capacity that we otherwise might have predicted would come back online at these prices.
And it may mean that there's some further upside to the cycle just by nature of capacity limitations coming out of the region.
I don't want to make too big of a deal out of that because that's uncertain.
It's just something that we're watching very carefully.
Yes.
And we'll ---+ obviously, we'll commit to.
As we get through Q2 and we get more visibility into the rest of the year, clearly, we'll update our outlook for the business based on the most current knowledge that we have.
And so you can expect to hear from us on the next call relative to that.
Yes.
In the quarter, in Q1, the turnaround expenses were about $2 million higher versus prior year.
And we do have turnarounds really throughout the year.
The ---+ you have ---+ I'll put that in 3 buckets: You have the large planned turnarounds; you have kind of shorter maintenance shutdowns; and then, you do have, from time to time, unplanned outages.
What I would say is that the great majority in ASI of our planned major maintenance outages have been completed here in Q1, and so that's why we see some upside associated with that going forward.
Right, and thanks for that question.
There's 2, I'd say, important parts in answering that, and one is, I recall, as I'm sure you did, a lot of concern coming out of our last quarter because coatings was flat.
And we had said that you shouldn't read too much into it because you do have some timing of different order patterns.
And I'm willing to acknowledge that while we're on the positive side of that coin here today, some of the orders that maybe we didn't see in Q4, you see in Q1, and that helped to create a very robust growth rate.
At the same time, this is an area where the team has been focusing extensively on trying to expand our position given our available capacity, frankly.
And there's been a lot of work on the international front, a lot of work in the Middle East and in the rest of Asia to help drive new customer wins to improve our volume/mix equation and better utilize that capacity.
So it's really, to me, a combination of the 2.
So Jeff, it was about an offset.
You're right, the Pharmachem volumes were modestly larger, I would say, than the exited JV volumes.
Keeping in mind, construction volumes tend to be pretty high for the value.
On an overall basis, the base business was pretty flat.
And just to provide a little more color around that ---+ and this is followed very closely and very logically with the mix impact we saw, the higher-value pieces of the business, care, Pharma & Nutrition and coatings, contributed strongly to the mix equation and also from a volume perspective.
And to provide just a little bit more color to the overall equation, we think about the business oftentimes as a consumer business.
And in an industrial business, we talk about it that way.
Consumer volumes tend to be much lower in higher-value.
The industrial volumes tend to be much, much higher and obviously, lower value.
Roughly ---+ it's roughly a 30-70 split between consumer and industrial.
So the point of that is increases on the consumer side really drive a lot of value to the overall equation, and the industrial is going to move around between the lower-value materials and the higher-value materials, coatings being typically the highest-value material we move on the industrial side.
And that's really how the overall equation works.
So Jeff, just to add a little more color.
And I think this, hopefully, will bridge with prior conversations that we've had about the business and some of the changes that we've been making.
We've really expanded the focus by the market-facing commercial units to focus on their commercial contribution.
And that is the combination of the impact of volume; the impact of mix; the impact of pricing versus raw material; and ultimately, the absorption effect versus what's planned in our budget.
And the equation that we hold our team accountable to is the aggregate of that, and we've actually modified our sales incentive programs to mirror that.
So we would rather drive a richer mix and earn more money than simply drive volume.
And on the other hand, if we can drive volume and mix at the same time, all the better.
And if we can do that while getting price, that's the best of all worlds.
But it's a combination that we look at in the aggregate, and that's what we hold our commercial teams accountable for.
And in the individual levers, there's some flexibility for them to determine with specific customers or in specific marketplaces what's the best formula to get there.
So that's just how we're looking at it, and I think it may be reflective in ---+ and of your broader question.
Don't know exactly what the highest tonnage is.
Nameplate capacity on our 2 plants is 160,000 tons on a combined basis.
It's 100,000 for the Marl, Germany facility.
60,000 for the Lima, Ohio facility.
We have, in the past, produced in excess of that.
You can think about it in terms of what's possible.
165,000, 100,000-or-so tons is probably about the number.
But that's a generalization, but that's pretty close.
The difference between what we sell and what we produce is really driven by the internal volume that we use as raw materials to produce the PVP and the VP polymers and changes in inventory, which can move around by 5,000, 10,000 tons depending on what demand is, where demand is and time of year and that sort of thing.
That's ---+ those are really the 3 components.
It's production, internal utilization and changes in inventory.
It certainly would be our objective.
First priority is to serve our need internally; And then, obviously, the second priority is to make as much and sell as much as possible over and above that.
Sure.
I think from a revenue standpoint, it was around 12% in the quarter, just to make sure we're taking about the same numbers here.
I would think that in the 3% to 4% range, on average, would be a reasonable number.
I would say that there are opportunities in the coatings markets in regions that we don't support throughout the globe to help to use or leverage some of our excess capacity.
So we could see some additional growth as a result of that.
But if you look at our base business, the core customers on geographies that we serve, I think that 3% range ---+ maybe 3% to 4% would be the targeted range.
We ---+ I wouldn't say that that's an unreasonable outlook.
That being said, as we've seen, especially over the last few quarters, you do see some volatility that grows quarter-by-quarter.
This is the time of the year where we're going to begin to get a much better read with what our ---+ if you will, many of our core coatings customers, is it going to be a good season for architectural coatings with our primary, if you will, main customers.
Or will it be a slow one.
I think last year, we felt that it was comparatively slower, didn't feel robust.
Obviously, we're cautiously optimistic that, that will be more positive.
But that will certainly help to determine what it will be really up towards the higher end of that range that you're thinking in your mind or more towards what we might consider to be kind of an industry average that I was describing just a minute ago.
So we'll ---+ we should have a good read on that over the next quarter here, I would think.
Well, certainly, the supply/demand dynamic has moved towards a, we\
Yes.
<UNK>, the team has been, I would say, pretty aggressive in the market and appropriately so as we've seen outages in various places and it's caused tightness.
It is a regional business, as you've indicated.
And clearly, those things have helped.
The environmental restrictions around coal-fired plants in China are, we believe, helping that business and going to continue to help that business.
I mean, one of the positive signs, and Bill mentioned this earlier, that we've seen is some pricing power in the derivatives side.
The pricing around BDO has been steadily increasing for the last 4 to 6 months, let's say.
And ---+ but we have not seen that until very recently in derivatives such as NMP and THF.
We're now seeing pricing opportunities in those derivatives, which I think is ---+ it's a positive sign.
So more to come as we work through the next few months of this business.
But rest assured that the team is very attuned to what's going on in the marketplace.
They're very experienced, and they do a great job managing this business and the customer base.
So in terms of the $5 million, I think the thing to keep in mind is that is inclusive of $5 million, $6 million of corporate cost allocation.
So on contribution basis, you should think of it as, call it, $10 million to $12 million for the quarter.
And that's what gets us to the $35 million of contribution ---+ margin of contribution to EBITDA for the year.
We would expect both the March quarter, June quarter to be stronger.
So as we move into the warmer months of the year, we would expect that to improve.
Yes.
I think the key, Jim, is like we said, if you're ---+ if you net out the (inaudible) and the role of the corporate allocations through 7 months, they're about $35 million.
And if you just extrapolate that with ---+ as we mentioned, there was some seasonality in Q4, that puts you right at about the run rate that you're talking about there, more or less.
So that's basically the math associated with it.
And as we look at the results in what will be our Q2, what would be a run rate to get us to the $60 million from the $35 million will have the same dampened effect from the reallocation of the corporate expenses that we put on the business, just like we put on all businesses.
And as I mentioned that, just want to emphasize again what <UNK> has said in ---+ earlier in this call, which is it's important, as we talk about, we have a normal allocation methodology.
But ultimately, our spend across a corporation is expected to be flat year-over-year.
And so that's not incremental and increased.
And I'm excluding FX and the direct cost of acquisitions.
But we're not increasing our spending.
We're ---+ it's just the way it gets allocated across the businesses, and Pharmachem is part of Ashland now.
So we ---+ last week, we did repatriate a little over $300 million, and we reduced debt with that cash.
As you will recall, we talked about, as we did the Pharmachem acquisition, the potential to move a large portion of that term loan A offshore and use non-U.
<UNK>
cash to reduce that debt.
That ---+ part of that was, in fact, included in our full year outlook from an interest expense perspective.
So there are a couple other components.
So we now have largely unfettered access to cash globally, although there are pockets where it's still difficult to get cash out of.
China is an example.
And so what I'll say, there's probably some upside in our overall interest rate range for the full year.
Assuming availability to that cash, absolutely, there's upside in that.
I think the caveat to that would be ---+ we have about, call it, around $700 million of floating rate debt.
And the remainder is fixed rates bond.
So obviously, the coupon doesn't move on that.
But to the extent LIBOR were to put some pressure on rates, then that could obviously be ---+ go the other way for us.
So we will continue to update throughout the rest of the year.
We're pleased to have access to the cash.
We've got another couple hundred million that we feel like we'll be able to repatriate over the course of the year.
You should expect us to reduce debt with that, which not only reduces absolute interest rate expense.
It also reduces interest rate risk, which is also a positive.
So that's just ---+ that's where we are right now.
| 2018_ASH |
2017 | SPOK | SPOK
#Good morning.
Thank you for joining us for our fourth-quarter and 2016 year-end investor update.
Before we discuss our operating results, I want to remind everyone that today's conference call may include forward-looking statements that are subject to risks and uncertainties relating to Spok's future financial and business performance.
Such statements may include estimates of revenue, expenses, and income as well as other predictive statements or plans which are dependent upon future events or conditions.
These statements represent the Company's estimates only on the date of this conference call and are not intended to give any assurance as to actual future results.
Spok's actual results could differ materially from those anticipated in these forward-looking statements.
Although these statements are based on assumptions that the Company believes to be reasonable, they are subject to risks and uncertainties.
Please review the risk factors section relating to our operation and the business environment in which we compete contained in our 2016 Form 10-K, which we expect to file later today, and related documents filed with the Securities and Exchange Commission.
Please note that Spok assumes no obligation to update any forward-looking statements from past or present filings and conference calls.
With that, I will turn the call over to <UNK>.
Thanks, <UNK>, and good morning.
We're pleased to speak with you today about our fourth-quarter and full-year 2016 operating results.
We are encouraged by our performance as we met or exceeded the majority of our key operating metrics for both the quarter and the full year.
We achieved these results as we continued to make key strategic investments in our business to enhance and upgrade our operating platforms and sales infrastructure.
And continue our transition from a telecom-based wireless company to an industry-leading software provider with the goal of delivering industry-leading unified critical communications solutions.
We believe that the investments that we have made and will continue to make in our systems and people position us well for the future.
With respect to our fourth quarter of 2016, we saw strong performance in a number of key operating areas.
Noteworthy in the fourth quarter, we continued improvements in wireless retention trends as well as solid software bookings levels.
Spok posted solid results for our wireless products and services in the fourth quarter and for the full year.
Gross disconnects improved on both a quarterly and annual basis.
As a result, annual net pager losses declined to a near historical low for both the quarter and the full year.
While our paging units and wireless revenue continued to decline as expected, we are very pleased by a much slower than anticipated rate of quarterly and year-over-year reductions.
Our performance in the fourth quarter was consistent with our expectations in the trends we typically experience during the year.
We were particularly pleased to see software bookings improved from both the prior year's quarter and prior quarter and our backlog levels remained consistent over the same time period.
Overall, we continue to operate profitably, enhance our product offerings, and further strengthen our balance sheet.
Our ability to continue to generate healthy cash flow has allowed us to execute against our capital allocation strategy and exceed the commitment we made at the beginning of 2016 to return $21 million to our stockholders.
We were able to accomplish this while adding nearly $14.5 million to our cash balance during 2016.
<UNK> and <UNK> will provide details on our financial performance and operating activity shortly, but before that I want to highlight a few key results for the 2016 fourth quarter and full year.
First, wireless subscriber and revenue trends continued to improve in 2016 as we, again, exceeded our expectations for gross additions, net unit churn, revenue, and ARPU, or average revenue per unit.
Our year-over-year rate of paging unit erosion improved to a record low 5.3% for 2016 and in the fourth quarter fell to a quarterly record low of 1.2%.
Our year-over-year rate of wireless revenue erosion was 7.9% for 2016, down from the 10.1% in the prior year.
We were especially pleased to see these positive trends continue in our top-performing healthcare segment which now totals nearly 80% of our direct paging subscriber base.
Healthcare remained our best-performing market segment in the fourth quarter with the highest rate of gross placements and lowest rate of unit disconnects.
Before I move on, let me say we are encouraged by the slower than anticipated rate of wireless paging unit and revenue erosion.
While many physicians want smart devices and secure messaging is a natural fit for them, they also want to keep pagers because they have long trusted them and want to separate their personal smartphone communications from their work communications arriving on a pager.
Also, in a true emergency situation such as severe weather or an event involving rapid deployment of first responders, cellular networks tend to get overloaded and message delivery can fail or be interrupted.
If an organization utilizes only smartphones, communications can be at risk.
Pagers still work in these scenarios because we use a separate simulcast network and multiple satellite control for redundancy.
As a result of these dynamics, we believe migration from wireless pagers will continue to occur at slower pace than in the past.
We've always come at the healthcare sector from the physician and administrative perspective.
Over the years we have seen multiple examples of organizations that have turned in their pagers to go with a smartphone-based application.
When doctors push back at losing their pagers, many of those organizations have had to reinstate that technology.
As we have said in the past, paging is not going to last forever and will continue to erode; however, I believe given the current state of wireless mobile technologies, paging has a long life left.
We at Spok are very fortunate because of that.
In the meantime, it provides a revenue and cash flow stream needed to invest in our future in our software solution development.
Next, continued demand for our software solutions and wireless services resulted in consolidated revenue of $179.6 million for 2016, a decline of approximately 5% from 2015.
Year-over-year performance was driven in large part by consistent levels of annual software revenue.
Software revenues were mostly unchanged from prior-year levels totaling $70 million in 2016 compared to $70.6 million in 2015.
Sustained annual levels of revenue is due in large part to continuing trend of very strong renewal rates on software maintenance contracts which provide a stable recurring and profitable revenue stream.
Total bookings in the fourth quarter were $20 million and were up more than 8% from the fourth quarter of 2015.
In addition, our backlog remains healthy growing to $38.3 million at year end, while our pipeline of marketing qualified leads also remains strong.
Demand for our solutions remained strong in North American markets, specifically among hospitals and other healthcare organizations where we sold solutions to critical smartphone communications, call center management, secure texting, clinical alerting, and emergency notification to both new and existing customers.
However, while domestic performed well, we continued to see sluggishness in our international markets in both EMEA and APAC throughout the year.
Though we are greatly encouraged by the revenue performance we saw in 2016, as we made continued investments in the Spok Care Connect platform and our infrastructure, we expect it will take more time for the Company to grow consistently on an annual basis.
Third, consolidated operating expenses, which exclude depreciation, amortization, accretion, and impairment, declined more than 4% to $144.4 million in 2016 from the prior year.
Annual expenses were below the low end of the guidance range we have provided at the beginning of 2016.
<UNK> will review the details in a few minutes, but essentially the lower year-over-year operating expenses reflected a cost structure that is fully aligned with the demand levels we saw during the year.
We continue to manage operating expenses closely and the efficiencies we have been able to implement across our cost structure provide a solid financial platform as we continue to make investments in areas that support our strategy for long-term growth.
Finally, we again generated healthy levels of free cash flow in 2016, returning a total of $22 million to our stockholders in the form of cash dividends declared in share repurchases.
The Company paid quarterly cash dividends to stockholders totaling $10.3 million and a $5.2 million from a special dividend we declared in December.
In 2016, the Company we purchased 388,255 shares of our common stock under our stock buyback program for approximately $6.5 million.
Also, our Board of Directors yesterday declared our next regular quarterly dividend of $0.125 per share to be paid on March 30.
Over the past decade, we have generated nearly $1 billion in free cash flow, paid nearly $500 million to our stockholders with cash dividends, and repurchased nearly $90 million of our common stock.
In 2017, we continue to remain focused on returning value to our shareholders through our capital allocation strategy, which I will talk about later on today's call.
Overall, we are pleased with our operating performance in the fourth quarter and the Company's substantial progress in 2016.
We met or exceeded our expectations on a number of key operating measures, and we achieved these results as we continued to make key strategic investments in our business.
We are focused on investments to grow our software solutions business while maintaining our valuable wireless revenue stream.
In 2016, we took steps to strengthen our leadership team.
As I previously outlined during the year, we enhanced our employee base by hiring an executive vice president of sales, a chief nursing officer, and a chief medical officer.
We also added 31 product development specialists to the staff.
In 2017, we started the year with our announcement in mid-January of a nearly 45% planned increase in our Eden Prairie, Minnesota based development staff over the next two years.
The majority of those additions will occur this year.
While we have enhanced our human resources, we have also invested in technology to support our operations in the development of our solutions.
We have also invested in our sales support and back office operations.
Our goals have been to increase not only our effectiveness but our efficiency.
Our marketing team has been busy, too.
We've attended numerous trade shows and conferences.
Last week we presented the latest evolution of our suite of integrated healthcare communication and collaboration solutions at the 2017 HIMSS Annual Conference & Exhibition in Orlando.
Spok generated tremendous attention and high approval ratings at the conference.
We intend to carry that momentum throughout 2017 in order to stimulate long-term growth.
We believe that these investments in our systems, people, and marketing programs position us well for the future.
We also move closer to our long-term stated goal of achieving long-term growth.
We are proud of this record of achievement and look forward to continued success in 2017.
I will make additional comments on our 2017 outlook and strategy in a few minutes.
But first, <UNK> <UNK>, our Chief Financial Officer, will review financial highlights for the quarter; then <UNK> <UNK>, President of our operating company, will also comment on our fourth-quarter operational activities.
<UNK>.
Thanks, <UNK>.
Before I review our financial highlights for the fourth quarter and full year 2016, I would again encourage you to review our 2016 Form 10-K, which we expect to file later today, since it contains far more information about our business operations and financial performance than we will cover on this conference call.
As <UNK> noted, we were pleased with our overall operating performance for the fourth quarter and 2016, along with the progress we made toward meeting our long-term business goals.
Revenue contributions from both software and wireless, combined with focused expense management, helped maintain solid operating cash flow, EBITDA, and operating margins for the quarter as we continued to invest in our business for long-term growth.
We also strengthened our balance sheet recording a cash balance of $125.8 million at December 31, 2016, and continued to operate as a debt-free company at year end.
As a result of this performance, we believe we are well-positioned for 2017.
In the interest of time today, I will not review our fourth-quarter and full-year income statement on a line-by-line basis, since much of that information is contained in our news release and federal filings.
However, to the extent you have specific questions about our quarterly financial results, I would be glad to address them during the Q&A portion of this call.
Rather, I want to focus instead this morning on four specific areas.
These include, number one, a review of certain factors that impacted fourth-quarter revenue.
Number two, a review of selected items that impacted fourth-quarter expenses.
Number three, a brief review of deferred tax assets and the status of our valuation allowance, along with other balance sheet items.
Number four, our financial guidance for 2017.
With respect to revenue for the fourth quarter of 2016, total revenue was $44.2 million, compared to $47.3 million in the fourth quarter of 2015, and $45.4 million in the third quarter of 2016.
We were particularly pleased with the year-over-year and sequential performance of wireless revenue, which continues to decline as expected but at slower than anticipated rates.
Total fourth-quarter software revenue reflected increases from the prior quarter and year in maintenance revenue.
Maintenance revenue increased nearly 7% to $9.6 million in the fourth quarter of 2016 versus $9 million in the fourth quarter of 2015.
The increase reflects our continuing maintenance renewal rate, an excess of 99% from our installed software solution base.
Wireless revenue for the fourth quarter remains solid, declining only 1.8% from the third quarter of 2016.
The quarterly rate of wireless revenue erosion was at an historical low and down 40 basis points from the prior-year period.
This solid retention reflected another strong performance by our sales team to again, generate significant wireless growth additions, while minimizing the churn and maintaining stable unit pricing.
Note that we have included an additional schedule detailing the components of our software and wireless revenue in our earnings release.
Turning to operating expenses.
We reported consolidated operating expenses, which excludes the depreciation, amortization, and accretion of $36.3 million for the fourth quarter compared to $37.4 million in the fourth quarter of 2015.
For the full year 2016, operating expenses totaled $144.4 million versus $150.6 million in the prior year.
And were well below the low end of our guidance range of $153 million to $159 million that we have established.
Our operating expenses in the fourth quarter of 2016 decreased approximately $1.1 million or 3% from the fourth quarter of 2015.
For the full year 2016, operating expenses were down approximately $6.1 million or 4% from the prior-year levels.
This was accomplished while we continued to invest in our product research and development to support enhancement to our Spok Care Connect platform.
Full-year 2016 R&D expense totaled $13.5 million, up approximately $3.2 million or nearly a third from the prior year.
As a result of the continued investments that <UNK> has spoken about, we would expect product R&D cost to increase by at least 50% in 2017, with additional increases in 2018.
Offsetting the increase in R&D expense were declines in all other expense categories.
Of the expense reductions, approximately 40% can be attributed to a decline in cost of revenue expense.
Cost of revenue expense reflects the cost of both internal and external implementation services, including travel, as well as third-party hardware and software purchased for customer implementations.
We have focused our expense management initiatives to rebalance the use of these third-party services and have used internal implementation employees to manage this cost.
The remaining expense reduction of approximately $4.9 million in 2016 includes lower general and administrative expenses of $800,000, as we implemented greater efficiencies in our back office.
And approximately $2.7 million in lower sales and marketing expense, due to lower headcount and lower commission expense resulting from lower revenue.
We continue to adjust our employee levels to meet the changing requirements of our business, including investments in our product development staff.
Our full-time equivalent employees, or FTEs, were 587 at December 31, 2016, versus 600 FTEs at year end 2015.
Depreciation, amortization, and accretion decreased in both the fourth quarter and full year 2016 compared to the same period in 2015.
Primarily due to lower amortization expense associated with our intangible assets.
As you may remember, due to our rebranding in 2014, we had revised the amortization period for the intangible assets associated with the Amcom name, which resulted in increased amortization expense in 2014.
Our capital expenses in the fourth quarter of 2016 were approximately $1.9 million and were incurred primarily for the purchase of pagers and infrastructure to support our wireless customers.
For the full year, capital expenses totaled $6.3 million, primarily unchanged from the prior-year level and at the low end of the guidance range of $6 million to $8 million that we had set at the beginning of the year.
We do expect an increase in the level of our capital expense requirements for 2017 as we continue to support the key strategic investments in our business that <UNK> will talk about in a few minutes.
Looking at our deferred tax asset, or DTAs, we had approximately $73.1 million in DTAs at year end.
We no longer have a valuation allowance as we fully expect to realize the benefits associated with our DTAs.
The DTAs primarily consist of net operating losses that will expire in the years 2025 through 2029.
Based on the availability of these DTAs, we do not expect to pay a significant amount in federal income taxes for the foreseeable future, as these DTAs allow us to shelter virtually all of our regular federal taxable income.
However, we are required to pay a minimal amount in federal alternative minimum tax, which we expect to be approximately $700,000 for 2016.
Turning to the balance sheet and other financial items.
The Company generated nearly $38 million of net cash from operating activities during 2016.
Of that $38 million, we returned nearly 45% to our stockholders in the form of cash dividends as well as share repurchases.
This 45% excludes the $5.2 million for the special dividend that was declared in December 2016 but was paid in January 2017.
Over 15% was used to purchase property and equipment, principally pagers.
The remaining 40%, or nearly $15 million, was retained for future use as part of the year-end cash balance of $125.8 million.
As I noted previously, $5.2 million of this cash balance was used to pay the special dividend in January 2017.
We also expect to use a portion of that cash in connection with regular quarterly cash dividend in 2017.
We ended the year with no debt outstanding and continue to operate as a debt-free company.
<UNK> will comment further on our capital allocation strategy shortly.
Finally, with respect to our financial guidance for 2017, we currently expect consolidated total revenue to range from $161 million to $177 million, with wireless revenue between $95 million and $103 million, and software revenue between $66 million to $74 million.
Consolidated operating expenses, excluding depreciation, amortization and accretion, of $153 million to $159 million, and capital expenses to range from $8 million to $12 million.
Finally, I would remind you, once again, that our projections are based on current trends and that those trends are always subject to change.
With that, I will turn the call over to <UNK> <UNK>, who will update you on our fourth-quarter sales and marketing activities.
<UNK>.
Thank you, <UNK>, and good morning.
During the fourth quarter of 2016, our sales and marketing team delivered software bookings of $20 million.
This represents a 7.3% increase over the third quarter and at 8.2% increase over the fourth quarter in 2015.
Our maintenance renewal rate remains in excess of 99%.
We also welcomed four dozen new customers to the Spok family in the fourth quarter, primarily in the healthcare and government sectors.
Healthcare is an important part of our growth and is our largest segment, comprising of 84.5% of overall bookings in the US for fourth quarter and 80.2% for the year.
We are actively pursuing new customer accounts to expand our market presence, and more than a quarter of our fourth-quarter healthcare bookings were hospitals and health systems that have never worked with us before.
For example, among the new customers joining Spok in the fourth quarter was a small regional of health system in the Midwest looking to automate their code call processes for better patient care.
This customer was searching for a comprehensive solution that would integrate with their existing environment.
We will be helping them replace many manual processes around launching and tracking codes, code calls to provide faster care for patients in life-threatening situations where every minute counts.
There is also a lot of activity with our current customers looking to upgrade and expand their systems.
A hospital located on an island in the Atlantic chose us to help them automate a manual environment with integrated technology to streamline their contact center operations, event notifications and mobile communications across the hospital.
This customer's leadership team selected Spok to continue building out their infrastructure because we offer a unified and one technology partnership.
And a final example is a health system in the upper Midwest looking to integrate their critical test results supporting process with the rest of their mobile messaging capabilities.
This long-time customer wants all of their communications including pages, secure text messages, and emergency notifications to be unified and fully integrated.
Their portfolio of Spok solutions is nearly complete.
All of these examples are six-figure deals that demonstrate the strategic enterprise-level investments hospitals are making to capture the value that a truly unified platform makes possible.
After purchasing a Spok solution, our highly skilled professional services group gets to work delivering an exceptional experience and setting our customers up for success from solution design and implementation, to ongoing system improvements after installation.
In 2016, these experts were able to further standardize product implementations and identify key process improvement areas to help customers with mobile communication deployments and faster staff adoption while achieving our customers' objectives.
Looking at customers and prospects outside of the United States, international bookings in fourth quarter were below our expectations.
To reiterate what was previously mentioned in our third-quarter earnings call, we believe we will continue to face economic headwinds in the EMEA and APAC regions and have lowered our expectations for foreign initiatives in the near term.
We are adjusting resources to reflect our emphasis on the US healthcare market and expect that our success with Spok Care Connect, along with a renewed emphasis on partner sales, will provide the initiatives the future for growth plans for international customers.
Before turning things back over to <UNK>, I want to provide an update on our marketing activities.
Our marketing team is responsible for helping us drive leads and build our reputation as a top leader in the industry.
A highly visible example is our new website that launched last month.
This new site was a year-long project for the team and includes changes to improve our web rankings and searches, provide a better experience for visitors on mobile devices, and further promotes our Spok Care Connect story.
Marketing is also responsible for planning and coordinating Spok's presence at a large number of trade shows throughout the year.
In fourth quarter Spok participated in several events for healthcare and public safety with a 20% increase in qualified leads from the same trade shows in 2015.
As <UNK> mentioned, we also just returned from HIMSS, one of our largest events of the year.
I will have more detail to share on our next call but will mention here that our presentations and the discussions with visitors to our booth have reached new levels of strategic vision for enterprise-wide communications at hospitals.
Our social media reach is continuing to grow and our social following has more than doubled over the past year.
In fourth quarter, we also published the results of a survey that asked more than 100 CIOs about their perspective on communications and healthcare.
In addition to helping us generate leads, this paper was cited in 15 prominent healthcare publications and further establishes us as an expert and industry top leader in the healthcare communications space.
Looking forward, we expect strong market demand for integrated critical communications, especially in healthcare.
As <UNK> mentioned, we are making ongoing investments in research and development as well as operational efficiencies.
Over the next two years, we are planning to hire more than 60 new employees in our Minnesota location.
These skilled professionals will help us accelerate product development to meet the demand for Spok Care Connect and enhance our solutions for clinical workflow improvements and better patient care.
With that, I will pass it back over to <UNK>.
Thank you, <UNK>.
With respect to our key goals and business outlook, a little over a year ago we undertook our project catapult plan which marks a shift in our strategic development direction for healthcare, our largest customer segment.
Catapult was initially created as a five-year plan to signal the very intentional move from offering our customers point solutions, or single-product solutions for call center software, alarm management, and secure messaging, to offering them a single integrated platform called Spok Care Connect.
We made the decision to focus on the Spok Care Connect platform for several reasons.
Number one, customer needs.
Our healthcare customers were telling us they needed a more unified approach to communications across their enterprise.
Number two, market opportunity.
Industry analysts confirm to us that there is a multi-billion dollar opportunity for this type of enterprise offering in our largest market, the United States healthcare.
Number three, business simplification.
We have been offering our customers too many different products and multiple versions on several different platforms, and this makes supporting them effectively a challenge.
We needed to develop and simplify our product offerings and to create an efficient way to develop and offer our solutions.
Number four, competitive positioning.
We concluded that a single integrated platform for healthcare communications, Spok Care Connect, would address our customers needs and create a competitive advantage for Spok.
For the past year, we've invested in additional talent, resources, and tools to implement our catapult plan.
We recruited experts for product strategy and development, created additional work teams, and devised a plan to map our existing products to the newly envisioned platform.
We recruited people with experience in enterprise healthcare sales while providing training and certification for our existing teams to increase their focus on the new approach.
We've added clinical expertise to build on our communications legacy.
With the help of our loyal employees, we've made excellent progress.
We also took our Spok Care Connect message to the market.
Our strategy of offering a single platform, single database, single technology that creates an enterprise solution for our healthcare customers has now been validated and endorsed by both customers and industry analysts.
We are confident we are on the right path for our future.
We have many loyal satisfied customers and strengths as an organization.
This is evidenced by our extremely high maintenance renewal rates and positive feedback.
However, our goal is to be the best we can be in a very competitive environment and the only way to do that is to invest in our future and take our solution set to the next level.
As we shared with you last quarter, we've revised our strategic plan for Spok to reflect our commitment to long-term success.
These additional investments beyond what we communicated in late 2015 are reflected in our guidance for 2017.
This will accomplish several key objectives.
Accelerate development, build a stronger infrastructure, align resources and focus where most needed, and increase long-term growth potential.
The linchpin of our strategy is our project catapult 2.0 plan which significantly increases investments in our healthcare platform over the next five years, enabling us to address near-term challenges and to achieve long-term organic growth.
As reflected in our guidance, our plan significantly increases developments and other investments so that we can address the significant market opportunity.
We will continue executing on our vision to build the industry-leading communications platform for healthcare, Spok Care Connect.
Our core foundation of critical communications is strong, and we are proud of the work our employees have done in support of this mission.
We've accomplished so much together since we became Spok.
We are laser focused on making Spok Care Connect the leading communications platform for the healthcare industry.
Now with respect to our 2017 guidance, last year Spok committed to investments that will support our strategy to deliver our industry-leading unified critical communications platform Spok Care Connect, in order to drive long-term stockholder value.
Throughout 2016, our focus was to invest in people, technology, and marketing programs to enable the future success of our strategy.
As a backdrop in 2016, R&D expenses totaled approximately $13.5 million, an increase of nearly one-third from prior-year levels, significantly expanding our research and development staff and spending.
Additional investments included adding the sales leadership, sales representatives, as well as clinical leadership in the form of a CMO and a CNO.
We've continued to increase the level of investment in our planning as reflected in our expense capital expenditure guidance ranges supporting our project catapult 2.0 plan.
For 2017, we anticipate that R&D could increase an excess of 50% from 2016 levels as we will add an additional 47 employees and 15 consultants.
Further in 2018, we will add an additional 16 employees and 6 more consultants.
We will also continue our investment in technology to support our operations and the development of our solutions.
We expect our total incremental cost of this added headcount investment to be approximate $7.9 million in 2017, split between operating expenses of $5.9 million and capital expenditures of $2 million.
These costs will continue to grow in 2018 reflecting the full year of expenses from the 2017 staff additions as well as the incremental costs for our 2018 hires and investments.
We also plan to continue our efforts in marketing and support to increase our efficiency effectiveness and sales opportunities.
Granted, these investments will add current year costs, lower our margins and take time to bear fruit in terms of incremental bookings, sales and revenue growth.
This is not a short-term plan and we do not undertake this commitment lightly.
However, we believe the market is there, and in time we will see significant benefits, opportunities, sales growth, and other business efficiencies as we enhance our platform and bring it fully to market.
We believe that this approach is the right use of our capital and creates sustainable and long-term value for our shareholders as opposed to the short-term financial engineering that we too often see in the marketplace.
However, we understand that a long-term approach is not to be confused with an infinitely patient one.
So we look forward to updating you on our progress along the way.
Now with respect to our capital allocation strategy, our overall goal has been to achieve sustainable business growth while maximizing long-term stockholder value through our multifaceted capital strategy, and is included dividends share repurchases, key strategic investments to improve our operating platform and infrastructure and drive long-term organic growth, and potential acquisitions that could provide additional revenue streams and are accretive to earnings.
We believe the potential in the critical communications market is large and that our best path at creating long-term stockholder value is to exceed in enhancing and accelerating our Care Connect platform.
As we have said before, we spent the last several years evaluating acquisition opportunities in the healthcare information technology space.
We have yet to find an attractive candidate who meets our criteria.
There's a lot of opportunities looking for a sale, most of them are characterized by small scale, negative cash flow, and high valuation expectations.
While some buyers may feel the need to pull the trigger at these levels, we believe that when transaction costs and integration risks are taken into consideration, these opportunities currently do not make sense for creating long-term stockholder value.
We have not closed our mind to acquisitions and will continue to evaluate opportunities, but for now we believe the best use of our capital and management is to invest more aggressively in our own product, research, and development resources in order to accelerate our progress toward creating an industry-leading unified critical communications platform and capability to capitalize on our current solutions portfolio.
In 2015, we returned $29 million to shareholders in the form of dividends and share repurchases.
In 2016, we committed to returning $21 million to shareholders and with the December announcement of our special dividend, we exceeded that commitment.
For 2017, we are committed to continue paying our $0.125 per share quarterly dividend while we aggressively increase our investments in our research and development in order to benefit the future and create long-term shareholder value.
We will continue to evaluate our capital allocation strategy on a quarterly basis and communicate our plans with you with respective to dividends, potential share repurchases, and other uses of capital each quarter when we report earnings.
Wrapping up, we remain committed to our core values of putting the customer first, providing solutions that matter, innovation, and accountability.
We believe our past results and future plans reflect those values and beliefs consistent with the delivery of long-term stockholder value.
At this point, I will ask the operator to open the call for your questions.
We ask you to limit your initial questions to one and a follow up and after that we will take additional questions as time allows.
Operator.
Okay.
Look, folks, thanks for joining us this morning.
We look forward to speaking with you again after we release our first quarter results in April, and everyone have a great day.
| 2017_SPOK |
2016 | RL | RL
#Okay, thank you, <UNK>.
So, when it comes to the product part of the Way Forward Plan it is all going to be about going back to the core of what made us iconic and the core of what drives the business and the core of what the consumer already loves.
So, the core for us is what we have been known for, which is classic iconic style.
And how you will see that refocus and evolving the core, the work that we are doing, how you will see that is that you will gradually see it in spring 2017.
And then gradually season by season you will see the core being focused on in terms of we will make sure that we have an updated classic iconic style that has an effortless twist that makes it current today.
So, it is about ---+ you will see that the core from everything from placement to presentation to marketing, it will cut through and it will be one message and it will be a core that is updated and relevant for today.
Thank you, <UNK>.
So, when it comes to trade-offs what has been very encouraging to see is that coming back to the work behind ---+ the drivers behind moving from 15 to 9 to start with and adding the eight-week test pipeline.
It comes very much back to the disciplined approach of working cross functionally from design idea all the way into the store and reading the sales and responding to that.
So, working with Halide and her team and putting sourcing at the table up front together with design and merchandising has led to that we have been able to move towards the nine-month lead time, have an eight-week speed, increase the quality at the same time as we see costs on comparable products go down.
So, Halide has ---+ like everyone else working on the Way Forward Plan, she has started ---+ she and her team have started focusing on the core.
And that is what will make the biggest difference from a consumer perspective and from a business perspective.
And very encouraging to see that we were able to cut the lead times, increase the quality, decrease the price at the same time ---+ decrease the cost price.
Yes, thank you, <UNK>.
So, the criteria with which we selected stores for closure was really twofold.
One was is the store strategic in strengthening the brand.
And then secondly, the overall level of profitability were the major drivers and the major criteria that we looked at.
Yes, we are looking at possibly closing more than 50 stores.
There were some stores that went through our initial evaluation using those criteria that we may have felt were strategic and that we could turn the productivity around in the stores.
And we are going back and just validating that and questioning that.
Next question, please.
Yes, so the first quarter was benefited from a few things that we consider to be kind of one time in nature.
So, one was the significant favorable sales mix shifts that we experienced from product, geography and a channel perspective.
We don't see that magnitude of favorability on the go forward.
With respect to the impact on inventory reserves, that is really commentary relative to the guidance that we gave.
That as we were working through and executing on our inventory initiatives, whether they are restructuring or other initiatives, what we found is that we did not have to record the level of inventory reserves that we had initially estimated when we gave our guidance.
So, it was just a function of refinement of our restructuring and inventory management activities that were going to be one time in nature relative to the visibility we had when we gave guidance, versus how we are seeing things play out as we look at the plans materializing relative to the forecast going forward.
Okay, and we will take one final question, please.
Yes, so e-commerce comps were down mid-single-digits.
We had better performance in Europe than we experienced in North America.
In North America our top-line revenue was impacted by two things primarily.
One, again, was the pricing harmonization that we talked about.
And then also cutting back on our promotions.
We cut back significantly on the length of the promotions, the number of promotions and the discount rate depth relative to how we've historically operated.
That is really what drove the North American performance.
And longer-term, in terms of the e-commerce role in the Way Forward is going to have a really important part.
We have mentioned a number of times before that we are going to follow the consumer where the consumer is going.
The consumer is clearly going to e-commerce and mobile first.
We are developing an e-commerce platform since a while back; we are on target to deliver that.
That is going to enable us to not only build a flagship online that is highly aspirational and stands for everything that is Ralph original edition about life in style and be very focused on the core product strategy, the icon strategy and it is going to be very shoppable at the same time.
So, when it comes to its role short-term here and now over the next six months, it is going to be a part of Jeff's strategy that he is developing for North America because that is multi-channel and e-commerce is going to play an important role.
Okay, that was the final question.
I look at <UNK> here and she smiles and nods.
So before we close I just want to say on behalf of Ralph, myself and the Board I would like to thank <UNK> for all his contributions to the Company over the last 12 years.
It is going to be your final quarterly call.
Thank you from all of us.
And to all of you, thanks for joining on the call today, look forward to speaking again next quarter.
| 2016_RL |
2016 | RRGB | RRGB
#I understand why you're approaching it that way, and certainly there is greater upside when you have guests on late, and it's hard for me to say what percentage, because it varies tremendously by location, time of year, et cetera.
We do know that we skew toward weekends, not surprisingly, families do come out on weekends, which is why as <UNK> mentioned, we've been investing against our service and our guest experience, particularly on weekends, to make sure it is great.
But I guess I would say, the bigger opportunity is for us to get, if I would call it our mojo back, and for guests to be able to trust us, particularly at lunch, to be able to get in and out in less than 45 minutes or even shorter, and that will take some time.
I don't see us doing any kind of public guarantee, but that is something that guests will come to know us for again as they come in to try the $6.99 new items and realize that they're able to enter, get fed, close out their check on Robin on the tabletop, and be back out the door in a very prompt period of time.
Hey, <UNK>, we don't really have any plans to re-franchise any Company restaurants.
Yes.
It was 3.8 times at the end of Q2, and our threshold is 4.75.
You know, it's so hard to say.
I'm not sure I'm going to have a lot to add to the other restaurant leaders that have commented on this and spoken to it on their calls.
It does seem to us that the consumer has gone home and has pulled the blanket over their heads.
You can blame stagnant incomes, you can blame when they've gotten increased big-ticket purchase debt, politics, whatever it is, but it's really clear that the economic recovery has been far from even across the population.
Particularly, the middle-income guest who has traditionally driven casual dining is disproportionately affected by that.
I would say that even the winners in this quarter, they've driven top-line more through pricing than traffic.
It's something that we've been trying to avoid so that we can stay a good value.
We're turning to a strong value news message we believe bring some of those guests back out.
That also said, there's a lot of activity going on and off premise, and we are not actively participating in that, and that's one of our opportunities for the future and one that we're getting after immediately.
Well, we're going to have multiple pilots going on.
I'd say it's way too early to discuss or comment on delivery.
As you all know there is a number of merging approaches to this.
We're looking at all options, we've got at least three cued up to pilot, from a delivery standpoint.
Beyond that, we're going to focus on getting our online ordering up, and we've taken the time to make sure our online ordering system is completely integrated with Red Robin Royalty.
Red Robin Royalty is, again, the little engine that could for our business.
And if a guest has earned a free burger, they don't want to hear that they can't redeem that online.
It's been important for us to work closely with our provider to get that done.
We will have a 32-store pilot up and running no later than November for our online ordering and carry-out.
And we're looking at a number of ways to make sure that the guest has the same great experience they have inside our restaurant when they carry out from us.
Yes, <UNK>, this is <UNK>.
Great question.
I'm sure you've heard it through others in the industry, but certainly a tight labor market, we have seen turnover tick up a little bit.
And we've talked about labor pressure of being 5%, some of that is due to overtime hours and staffing, so the short answer is yes.
The way that we are going at this, Chris, the national media, again, from what I've seen traditionally in politics, it's become a state-by-state battle.
So, we're actually staying out of local investments up until November, so the incremental investment you'll see will be post-election.
I don't want to disclose exactly which weeks or how many dollars, but I will tell you that it's been proven in test marketing earlier this year that this type of investment, be it in television and other vehicles, will make a difference in terms of bringing new guests in.
We're also continuing to invest incrementally in Hispanic marketing, which is beginning to make a difference, and we're supporting that with just having rolled out our full Spanish-language website.
It's a variety of tools, but again, we will avoid the election in terms of investment in local markets, because our high-penetration markets often overlap areas where the election will be heavily contested.
The good news is all of these burgers have been built with very excellent margins, I guess I would say, from that standpoint.
So, we are not discounting down other items to a $6.99 price point, we're offering menu items that we have created to be profitable at $6.99.
Just as we did when we dropped Tavern Double into the market four years ago, I think you'll continue to see that the guest takes the option of enjoying $6.99 and often adds some other things to it.
It also supports our beverage marketing and other efforts along that way, so we continue to feature beverages on our promo part as well.
It had a similar profile.
Anything you want to say, <UNK>, you want to go further.
No, no.
It did have a similar profile.
While we may see some decline in our PPA, we're expecting an offset in that will drive incremental traffic.
We're still in the process of planning 2017, we'll talk more about details on that when we talk to you in the next call, and of course the one going into next year.
Well, first, we are the burger authority.
Some of the third-party groups that we're aware of told us that the second-most searched item behind pizza is burgers.
We think we can stand apart there.
We also have done research with our guests to tell us that a carried-out Red Robin burger is like as much or even better than one that they may have chosen to come into the restaurant for, because they love the option of enjoying our burgers at home.
So, we're confident about our product quality.
And lots of opportunities there in terms of being the leader in burgers for carry-out, catering and delivery.
Yes.
Through delivery, we actually have a restaurant in the Bay Area that's doing $17,000 of pure history door dash, and we haven't done anything with them, and I can tell you, we've been tracking them and our guest is just as happy with that as they are through other things.
Again, guest expectations around something that's delivered to them are a little bit different than what they expect to get at the table in the restaurant, but there's no reason to believe that there's any detriment to the quality of our product.
Thank you.
Thank you, Lauren, and thank you all for joining us today.
I also want to thank the entire Red Robin team for your support and for continuing to work so hard to get our mojo back by meeting the needs of our guests, our team members and our shareholders.
Together, we are going to set a new course forward that is optimistic, objective and open.
I look forward to sharing more details about decisions and plans, which will drive 2017 on our next call.
Have a great day, everyone, and I suggest you go have a $6.99 Buzz Mac 'N' Cheese Tavern Double.
I can assure you, you will not go home hungry.
Thank you.
| 2016_RRGB |
2018 | TBI | TBI
#Good afternoon, everyone, and welcome to today's call.
I'm here with our Chief Executive Officer, Steve <UNK>; and our Chief Operating Officer, <UNK> <UNK>.
Before we begin, I want to remind everyone that today's call and slide presentation will contain several forward-looking statements, all of which are subject to risks and uncertainties, and we assume no obligation to update or revise any forward-looking statements.
These risks and uncertainties, some of which are described in today's press release and in our SEC filings, could cause actual results to differ materially from those in our forward-looking statements.
We use non-GAAP measures when presenting our financial results.
Included as adjustments to net income are the gain from the sale of PlaneTechs, amortization of intangible assets, cloud-based software implementation costs and adjustment of the effective income tax rate to the ongoing expected rate of 16%.
Adjustments to EBITDA include Work Opportunity Tax Credit processing fees and cloud-based software implementation costs.
Please refer to the non-GAAP reconciliations in today's earnings release and on our website at trueblue.com under the Investor Relations section.
Any comparisons made today are based on a comparison to the same period in the prior year, unless otherwise stated.
We made one change this quarter with respect to our segment disclosures.
We are now using the term segment profit in reference to the profitability of our segments, which aligns with the terminology we are now using within our internal management reporting.
Segment profit is comparable to segment adjusted EBITDA numbers reported in the past.
Finally, as we did last quarter, we will be providing a copy of our prepared remarks on our website at the conclusion of today's call.
And a full transcript and audio replay will also be available soon after the call.
I'll now turn the call over to Steve.
Thank you, <UNK>.
Good afternoon, everyone, and thank you for joining us today.
I'm pleased to report we made great progress across multiple fronts to improve our business this past quarter, which resulted in delivering higher levels of profitability across all reported measurements this quarter.
Net income per share grew 100% to $0.22 for Q1.
While revenue of $554 million was down 2% overall, organic growth in our PeopleScout business accelerated to 22% for the quarter.
PeopleReady had 5% declines related mainly to our solar industry clients, along with softness in certain U.S. regional areas.
And our PeopleManagement segment revenue performed as expected.
We continue to make progress in reducing our cost of services mainly associated with workers' compensation and recruiting expense, which has resulted in our ninth consecutive quarter of gross margin expansion and a 3% increase in gross profit for the quarter.
We believe these management practices position us for strong operating leverage in the future.
The pace of change in connecting people to work is rapidly evolving, particularly when it comes to talent acquisition and workforce management.
Widespread skill shortages, the need for just-in-time workforce adjustments and a tight labor market in which workers can choose from many offers are making it increasingly challenging to get the right worker in the right position at the right time.
Job candidates are also increasingly turning to technology to find the work they want when they want it.
We are leading the way in digitally transforming how people find work and how businesses find people.
JobStack is our digital platform in our PeopleReady business that matches workers with jobs and allows customers to initiate orders.
We're making nice progress with consistent improvement in utilization.
The recent launch of our proprietary talent acquisition technology, Affinix, in our PeopleScout business is receiving high levels of praise from customers and a great deal of interest from prospective customers.
We have the right strategy to meet the challenges in connecting people with work.
Our services are differentiated, and we are positioned for impressive long-term growth.
Today, we announced the divestiture of PlaneTechs, a provider of skilled mechanics and technicians, to the aviation sector.
PlaneTechs was part of our PeopleManagement segment with $40 million of annual revenue and 3% operating income margins.
Over our 10 years of ownership, we accomplished many things, and the asset provided good returns for our shareholders.
However, today, our focus remains on larger markets with higher growth and higher profit margin opportunities.
Now I'd like to turn the call over to <UNK>, who'll provide further discussion on our results and our growth strategies.
Thanks, Steve.
I'll start with PeopleReady, our largest segment, representing 60% of trailing 12 months total company revenue and 53% of combined segment profit.
PeopleReady's local relationships, national footprint of physical branch locations and growing use of technology are helping clients find contingent industrial labor quickly and efficiently.
PeopleReady posted a revenue decline of 5% in Q1, a deceleration from the comparable decline of 1% we saw in Q4 of 2017.
This deceleration was largely driven by 2 items that created 4 percentage points of headwind.
The first item relates to delays in solar-related construction projects in part due to the new tariffs on imported solar panels.
We're working to fill the gap with a focus on growing local accounts.
The second item is softer revenue trends in the Southeast associated with turnover of sales professionals.
In the back half of 2017, we had much higher than usual turnover on our sales team in the Southeast territory, particularly in our construction practice.
We've since filled the majority of those open positions, but there has been a drag on revenue growth as the new sales team is ramping up.
We're excited about the future for PeopleReady, given the fact that client adoption of JobStack is just starting to become a reality.
JobStack is a next-generation mobile app that algorithmically matches workers with jobs.
We successfully completed the rollout of the worker app in 2017, and we now have associate adoption rates of nearly 75%.
Our goal is to hit 70% adoption in 2018, so we've already met that goal.
As workers have adopted the app, we've also seen steady progress in the percentage of jobs being filled via the JobStack app.
Across our entire network, we're announcing digital fill rates of approximately 30%.
At this pace, we'll easily step over our 35% year-end goal ahead of schedule.
Client adoption is the next big goal, since real synergies can only be achieved once both the worker and the client sides of the digital exchange are up and running.
By the end of the first quarter, we had 4,300 unique clients on JobStack.
We're currently on track to meet our goal of 10,000 clients by the end of 2018.
While it's too soon to expect significant across-the-board lift from JobStack, we are encouraged by early results.
Our best-performing branches, which are posting digital fill rates in excess of 50%, had sequential growth between Q4 and Q1 that were approximately 3 percentage points better than their peer branches.
We hope to have more good news to report in the future as we see this segment leveraging our digital strategy for years to come.
Next, let's turn to PeopleManagement, which represents 32% of revenue and 18% of combined segment profit.
PeopleManagement provides on-site workforce solutions in the North American industrial staffing market.
Revenue for PeopleManagement declined by 4% in Q1.
PlaneTechs was part of this segment and since we sold this business 3 weeks before quarter end, the divested revenue created a 2% growth headwind.
Excluding PlaneTechs, PeopleManagement declined by 2%.
We are optimistic about the growth opportunity for this business.
We have a solid pipeline that reflects the attractive solutions we offer for on-premise staffing and see increasing opportunity in the labor-intensive world of e-commerce.
Our third business unit is PeopleScout, the global leader in filling permanent positions through our recruitment process outsourcing and managed service provider offerings.
PeopleScout represents only 8% of revenue but represents 29% of combined segment profit, given its attractive margin.
This business is performing very well, growing 22% and now has exhibited double-digit top line growth for 3 straight quarters.
We are increasingly optimistic about the future, given the recent deployment of Affinix.
Affinix is a next-generation talent acquisition technology that streamlines the recruiting process and creates a consumer-like experience for the candidate.
Clients are particularly excited about the enhanced candidate experience and world-class candidate attraction that Affinix delivers.
With that, I'll hand the call to <UNK> for a more in-depth review of our financial results.
Thank you, <UNK>.
Total revenue was $554 million, which is below our expectation of $557 million to $572 million.
The sale of PlaneTechs created $3 million of the revenue shortfall from the midpoint expectation with the rest coming from softer revenue trends at PeopleReady.
Net income per share was $0.22, which included a $1.4 million pretax gain from the sale of PlaneTechs or $0.03 of benefit.
Adjusted net income per share was $0.31 or $0.10 above the midpoint of our $0.18 to $0.24 expectation.
$0.07 of the adjusted net income outperformance primarily came from lower cost of services in our staffing and PeopleScout businesses with the remaining $0.03 from lower interest expense, higher investment returns and lower depreciation.
Compared to the first quarter of 2017, adjusted net income per share increased by 48% from $0.21 to $0.31.
Out of this $0.10 increase, roughly $0.04 was from a lower effective income tax rate; $0.03 from higher adjusted pretax income, primarily driven by higher gross profit; and $0.03 spread across lower depreciation, a lower share count and higher net interest income.
Gross margin of 25.8% was up 130 basis points, representing our ninth consecutive quarter of year-over-year gross margin expansion.
70 basis points of that improvement is from lower workers' compensation expense in our staffing business.
We have implemented a variety of claim management practices, and the cost of claims is coming in less than expected.
The remaining 60 basis points of improvement is from recruiting process efficiencies and the addition of new higher-margin business within PeopleScout.
SG&A expense was up $4 million with $2 million of the increase from the cloud-based software implementation costs discussed in my opening remarks, and the remainder from higher operating costs associated with the growth in the PeopleScout business.
Total adjusted EBITDA grew 9% to $19.4 million, and the margin expanded by 40 basis points to 3.5%.
Our effective income tax rate came in at 9%, benefiting from tax reform legislation and stronger performance on prior year Work Opportunity Tax Credits.
Turning to our segments.
PeopleReady revenue declined by 5%.
While revenue was down in the quarter, it's important to note that half of the branches had revenue growth during the quarter.
As <UNK> mentioned, the revenue deceleration is primarily isolated to challenges in the solar industry, which makes up about 2.5% of total company revenue, and soft trends in the Southeast.
Despite the revenue headwinds, effective management of workers' compensation expense and operating expense limited the drop in segment profit to 5% and kept segment profit margin even with Q1 last year.
PeopleManagement revenue declined by 4% overall, or a decline of 2% excluding the divested PlaneTechs business, right in line with our expectation.
Segment profit of 2% and related margin was up 20 basis points from cost management results in both cost of services and operating expense.
We like the look of our new client pipeline and the opportunity to improve revenue trends in the back half of the year.
PeopleScout revenue was up 22% from a combination of new logo wins and scope expansions.
Segment profit was up 37%, driven by revenue growth and a continued focus on recruiting process efficiency as well as the addition of higher margin business, all of which helped increase segment profit margin 250 basis points.
The strength of our balance sheet and liquidity continue to improve.
During the first quarter, cash flow from operations totaled $45 million and capital expenditures were $2 million, netting to free cash flow of $43 million.
We ended the quarter with total debt of $72 million and a debt-to-capital ratio of 11%, which was an improvement from 18% in Q4 2017.
On a trailing 12-month basis, our total debt to adjusted EBITDA multiple stands at 0.6.
We did not purchase any shares during Q1 due to the pending PlaneTechs divestiture, but expect to return to the market on an opportunistic basis now that the transaction is complete.
We have $93 million available under our share repurchase authorization.
I'd like to provide some additional detail on the PlaneTechs divestiture before I discuss our outlook.
The business was sold effective <UNK>h 12 for about $11 million, representing a multiple of 7.7x 2017 segment profit.
The divestiture will create a drag on revenue growth of about 2% over the next 4 quarters with a negligible impact on operating income due to the small revenue base and 3% segment profit margin.
Additional details on the transaction are contained in today's earnings release presentation.
Turning to our outlook for the second quarter of 2018, we expect a year-over-year revenue trend of minus 2% to minus 4%, or minus 2% to flat excluding the divested PlaneTechs business.
We expect net income per share of $0.32 to $0.38 or $0.47 to $0.53 on an adjusted basis, which assumes a share count of 40.7 million and an effective income tax rate of 16%.
Additional details on our outlook are contained in today's earnings release presentation.
We are focused on 3 simple principles to increase shareholder value.
Our primary focus is centered on increasing organic revenue to drive higher adjusted EBITDA margins.
While we were disappointed with the recent revenue results at PeopleReady, the challenges are being addressed while we continue to advance our digital strategy to further differentiate our services and capture market share.
Our PeopleManagement business is stable, is performing in line with expectation and has a promising revenue pipeline.
And our PeopleScout business is performing exceptionally well with double-digit growth, strong segment profit margin expansion and new technology that is garnering strong interest from prospective clients.
Our second area of focus is effectively managing our cost of services and operating expenses to further improve our ability to generate strong operating leverage over a larger organic revenue base.
The attention to this area has produced 9 consecutive quarters of gross margin expansion and kept operating expense in check.
Third is effective management of capital.
Total debt to trailing adjusted EBITDA is at a multiyear low, and we expect to continue returning excess capital back to shareholders through share repurchase.
These items, combined with a significantly lower effective income tax rate from tax reform, bode well for future earnings per share growth.
With that, we can now open the call for questions.
This is <UNK>.
Thanks for that question.
Nothing really new.
But we didn't do as good job as we could have in the Southeast of addressing the situation, where a handful of competitors were aggressively targeting some of our top sales producers in local markets.
We've since righted the ship.
We've filled the vast majority of those open positions.
But it's taken some time to refill the pipeline from the folks that we had lost.
So the situation, we had competitors that were aggressively targeting our top producers, particularly in the Southeast and particularly in the area of construction.
When we lost those folks, it set us back.
But as I said, we've since filled those positions, and we've got the right people in the right seats.
Well, it was about $6 million of revenue in the quarter.
Shortfall.
Jeff, this is <UNK>.
I'll give a little bit more color.
Just so you know, the Southeast region, that's one of 3 regions for PeopleReady.
That makes up roughly about 1/3 of the revenue.
The decline that we're talking about, if we want to just bridge it in points of impact on revenue.
We finished the fourth quarter on a comparable basis for PeopleReady at minus 1%.
As we talked about today, we finished at minus 5%.
That 4 points is equally split between the impact that we're talking about from solar and from the Southeast.
So in direct answer to your question, the Southeast cost us ---+ in comparison to what we were trending in the fourth quarter, that cost us about 2 points of consolidated revenue growth for the total company in Q1.
Yes, there were.
There was about 100 basis points of credit, so that was up a little bit from where it was in Q1 of last year but pretty comparable where we were with the fourth quarter.
We're really pleased with the progress that we're making on the workers' compensation side.
For those of you that have followed us for a while, we made a lot of progress in reducing that cost, primarily through safety programs and reducing the accident rate pretty significantly over the last decade.
That's still our #1 focus, but where we've gotten a lot of additional traction is in some claim management practices that we put in place over the last 3, 4 years, some as recently as a couple of years, that's bringing down the average cost of a claim in comparison with our ---+ what actuaries expected.
So it's both providing some benefit to reserves posted in prior years, but it's also making a difference in the current year run rate that we're posting for work comp as a percentage of revenue.
Well, it's something we always look at.
We haven't done a lot of divestitures.
We've been an acquirer, but we have our portfolio right in these 3 segments that we're operating in.
And the value proposition that they each bring to the market, from PeopleReady being short-term projects, to PeopleManagement managing a longer-term workforce for our clients and then obviously PeopleScout doing the full-time recruiting.
So things that fit into those 3 categories remain important to us.
And we are obviously trying to get the highest return we can for our shareholders.
So something that we would evaluate, but we're really looking to align around those 3 things.
Jeff, this is <UNK>.
Really the main thing there was the size of PlaneTechs, the size of the market which they operated in, and then to a certain degree, too, the margin that existed with that business.
So as we ---+ just taking a look at the overall portfolio Steve mentioned, we like what we have here.
But PlaneTechs only made up 2.5% of the revenue, but it consumed significantly more than that as far as additional resources from shared resources that support these businesses, management time, et cetera.
So this was really a move to concentrate on our larger market, higher-growth, higher-margin opportunities and that's the bottom line.
The impact from the gain on sale on adjusted EPS was 0, so that's excluded.
The impact of the gain on sale on GAAP earnings per share was $0.03.
So in our adjusted numbers, the spirit of those is to really exclude any items that aren't about fundamental year-over-year performance enhancement or decline.
And so that's been excluded from adjusted EPS.
Thanks, <UNK>.
This is <UNK>.
So we saw some delays and slowdowns related to solar.
Clients were retooling their financial models, looking to buy, in some cases, stockpiled materials that are already here to avoid tariffs.
We're likely to see some continued headwinds in Q2 related to solar, but clients are telling us that their needs for our services should be back closer to normal in the back half of 2018.
So clearly saw some effects in Q1, expecting to see some effects in Q2.
And then what clients are telling us is closer to normal back in Q3 and Q4.
Just to give you a sense of the type of positions we're filling, about 80% of the positions we fill are installers.
About another 10% are electrical positions, and about another 10% are operations.
So it's a lot of installation and project-based business.
Related to the Southeast, as I mentioned earlier, we think we've righted the ship there.
We've filled those positions with very talented sales professionals and sales managers.
And so we're expecting that in the back half of 2018, that we'll have seen the full impact of having those folks ramped up.
But it does take some time to get folks ramped up and get their pipeline going and build those relationships.
And so that clearly had a drag on Q1.
And as <UNK> mentioned in our outlook, we've sort of taken the run rate of the business into Q2, but I expect Q3 and Q4 we'll see those folks contributing in a big way.
Hey <UNK>, this is <UNK>.
Just a little bit more color on solar.
We ran about $12 million to $15 million a quarter last year with the exception of the fourth quarter.
That was a bigger quarter for us.
That was $25 million.
We were excited about the year ahead.
We were building some momentum in that, and then we saw a drop down this quarter from that $25 million.
So there's a little bit of headwind in here in Q2 in our guidance.
But really, for the most part, that headwind doesn't really hit that hard until the fourth quarter when we face that $25 million anniversary.
So we might have a little bit here in Q2, but it's more about a Q4 headwind where there will be the biggest piece of it.
<UNK>, a little more color on what <UNK> said about the Southeast also is, although we're disappointed and it's caused the overall PeopleReady numbers to be lower than expected, the nice part is, given it's regional, we have our hands around what those reasons are.
Versus a year ago when it was more related to branding changes and system changes, and it impacted a wider variety of regions and was more broad spread.
So the fact that we've got it narrowed down and it's really related to the competition now in the Southeast, not only they take some ---+ we lost some good salespeople.
There's a little bit of price war going on down there that we're not participating in.
And we could get our volumes up a bit if we were willing, but we just think it's short term in nature with the talent supply shortage down there.
That why this is happened is a little bit baffling to us, but at least we've got it regionalized, and we understand it.
Yes, it's very regional focused.
Well, I think that's right.
<UNK>'s given us some confidence here on this call here today, and I think it's spot on.
What can't be assured is the competitive front, and where they are in the pricing war that we're unwilling to participate in.
Yes, I don't think it can continue.
I think that we're fine there.
And we've got great clients, great team in play, adding these additional sales force in, we'll be fine.
It's just that we're not willing to play here early in the season at the level that some are.
Well, as I mentioned on the ---+ earlier on the call, when we look at the branches that have been heavy adopters of JobStack, <UNK>, we've seen about 3 points better revenue lift in Q1 than the branches that have not been as successful in terms of filling positions with JobStack.
So there's clearly some lift that's happening with JobStack, but it's still early days.
I don't think we should be attributing specific revenue lift at this point in Q2 to JobStack.
We've got some isolated incidents.
An example, we've had 192 companies that have given us skills that we believe they otherwise wouldn't have given us in Q1.
JobStack's been a good prompt for us and a good sales tool in expanding with our existing client base.
And as I said, we've seen some lift in those branches.
They're the heaviest adopters.
<UNK>, I don't know if you have anything to add to that, but I don't think we're ascribing specific lift in Q2 to JobStack at this point.
No, that's right.
As far as our guidance for Q2, we're just making an assumption here based off of our ---+ everything that we look at, from revenue trends, to supply of workers, where we're doing on bringing on new customer accounts and reactivating existing customers.
We're considering that, that trend is just going to play itself out as it would ramp up seasonally based on the trends that we've got.
So we don't have anything extra put into our Q2 guidance for more lift that would come incrementally from JobStack in that quarter based on improved metrics in the second quarter versus what we have in the first quarter.
Well, satisfaction is a qualitative term.
We've got about 1/5 of the branches that are over 50% of jobs being filled through JobStack.
So we're really pleased with that top 20%.
So we've got a lot of upside on JobStack.
We believe it's a game changer.
So I'd like to get those other branches, those other 80%, to north of 50% as well.
We put out some targets late last year that we could get to 35% by the end of the year.
I think we're going to step over that number.
We're already at 30% today.
So we're pushing as hard as we can, <UNK>, to get all of the branches to get north of 50%.
So it's just a matter of time before that happens.
Yes, we're really pleased with PeopleScout.
One of the things that's most exciting about PeopleScout, when you look at the wins that we had in Q4 and in Q1, a lot of them were first-time RPO buyers in the aviation sector, in the government sector, in the telecommunications sector.
And so these are multiyear, multimillion-dollar client engagements, first-time buyers.
So that's particularly exciting.
And the nice thing about RPO engagements is oftentimes clients don't outsource their entire recruitment function.
They outsource pieces of it.
And then as the RPO engagement proceeds and is successful, then you see more scope and more revenue and more partnership.
And so a lot of the clients that we signed in Q4 and Q1 were for pieces of their recruitment functions.
So there's a lot of upside, a lot of white space and running room on the deals that we signed that are new.
And so that was the biggest driver of our growth.
We also saw a number of scope expansions, particularly in hospitality.
We do a lot in the hotel space.
And so we saw some nice expansion in our hospitality clients in Q1.
And so the growth was across the board, by the way.
Asia Pacific was up double digits.
Our legacy PeopleScout business, sort of pre-Aon acquisition, was up double digits.
The Aon portion of PeopleScout that was acquired was up double digits.
And so it was an across-the-board increase in PeopleScout, and so we're bringing on higher-margin clients.
And it's creating some leverage, as you saw in our earnings with PeopleScout.
And I think that there's more upside to be had within our existing client base.
Yes.
<UNK>, yes, so we were down 2 points for the PeopleManagement group, excluding the PlaneTechs business, right in line with what we had expected.
We're expecting that to pick up a little bit as we move into Q2.
Our guidance is flat to plus 2%.
Most of that pickup that we're looking at we're actually thinking about that more in the Staff Management side of things.
And the pipeline at Staff Management is ---+ we got a nice pipeline building there.
The SIMOS business, we're really pleased with that acquisition.
What we're talking about here, for everyone listening, is our productivity-based solutions at SIMOS.
That business runs us about a 7% to 9% EBITDA margin, so it runs higher.
The blended average, both for PeopleManagement and for the company as a whole.
To give you some perspective on how big those 2 are, of the PeopleManagement business, from a revenue perspective, SIMOS makes up about 25% of the revenue there, a little bit more on the profit, almost half of the profit margin.
We think there's good growth potential for SIMOS right now.
It's just these are big customer engagements when we do the wins here.
So it's not like PeopleReady, a little bit here or there.
So nothing impending that's going to be hitting in Q2, but we're optimistic about the future for SIMOS.
Yes.
Just here for 30 seconds or so.
Okay.
That's fine.
We'll go ahead and close the call.
We were excited about the opportunities ahead here.
Thank you for joining us today.
The economic backdrop continues to be constructive.
We're working to capture the near-term market opportunities while staying focused on our strategies to drive long-term growth.
I'll remind you of the 4 strategies that we're working on.
First, invest in market-disruptive technology of JobStack for our PeopleReady business, which will strengthen our market leadership role as one of the largest U.S. staffing providers; two, deliver attractive on-premise and outsourced solutions for larger strategic clients in our PeopleManagement segment; three, invest in opportunities to grow our #1 global leadership position of PeopleScout.
These investments will continue to include technologies to improve the quality and the quantity of the candidates that we're able to deliver on a global scale with a high degree of efficiency on our part.
We will also continue to seek M&A opportunities to broaden our geographical footprint at PeopleScout.
And fourth, manage our capital efficiency.
We're operating with 3% less shares then we were a year ago, and we believe that continues to be an effective method to improve our returns for shareholders.
We appreciate you being on the call with us today and look forward to updating you as the quarter progresses.
Thank you.
| 2018_TBI |
2017 | CAT | CAT
#Well, good morning, and thanks, Jim
If you have the slide deck in front of you, I'd ask if you could please turn to page 4, slide 4, and we'll start with our first quarter results
2017 has started off very well and exceeded our expectations for the quarter
Sales and revenues increased about $400 million or about 4% on the first quarter of 2016 to $9.8 billion in the first quarter of this year
This is the first time in 10 quarters that sales and revenues were higher than the prior year, although sales are coming off a very low base
Resource Industries had the largest increase, followed by Energy & Transportation and Construction Industries
In the quarter we announced our decision to close the Gosselies, Belgium, and Aurora, Illinois, facilities
Total restructuring costs were $752 million in the quarter, $591 million more than the first quarter of 2016. As a result, profit per share was down $0.14 from $0.46 to $0.32 in the first quarter 2017. On a 4% increase in sales and revenues, profit per share excluding restructuring doubled from a year ago from $0.64 in the first quarter 2016 to $1.28 this quarter
The increase was driven by higher sales, favorable mix, improved price, and lower costs
As you know we've been working hard on lowering our cost structure, right-sizing our footprint, and allocating resources directly to the highest profit opportunities
All these actions were key in delivering a very strong quarter
Let's turn to slide 5, and we'll look at first quarter operating profit
First quarter operating profit was $417 million, as compared with $494 million in 2016. As I already mentioned, restructuring costs were up $591 million
Excluding restructuring costs, operating profit was up $514 million
Positive changes to operating profit came from several areas
The largest increase to profit was the result of higher sales volume and favorable mix
About half of the sales volume profit change came from a favorable mix of products sold in the quarter
And that favorable mix impact was about equally spread across all three of our primary segments
While the market remains very competitive from a pricing perspective, price realization was favorable $88 million, with more than all of the positive variance coming from Construction Industries, partially offset by negative price in Resource Industries
Variable manufacturing costs were favorable by $96 million, with about half of that positive variance coming from continued improvement in material cost
We continue to reap the benefits of collaboration efforts between our dedicated procurement team, suppliers, and engineers, but we do not expect material costs to be – but we do expect material costs to be under pressure as the year proceeds due to an expectation of higher commodity prices, especially steel, in the back half of the year
Lower period costs were better by $140 million
Lower period costs are a result of our restructuring and cost reduction initiatives that we have implemented over the last several years and delayed timing of R&D spend, partially offset by higher incentive compensation expense of about $100 million
We also had strong ME&T operating cash flow, which was $1.5 billion in the quarter compared to $200 million in the first quarter of 2016. And we ended the quarter with $9.5 billion in cash
Now let's look at each of the segments, starting on slide 6. Construction Industries' sales and revenues were up slightly to $4.1 billion
Positive price realization of $123 million drove more than all of the sales increase
While the construction industry market remains very competitive, especially in North America, favorable price realization was due to a particularly weak pricing environment in the first quarter of 2016 and previously announced price increases impacting the first quarter of 2017. However, the sales story is more than just price
Very strong demand in Asia-Pacific was largely offset by lower sales volume in North America
The strong demand in China resulted in a reduction in Asia-Pacific dealer inventory, as demand outpaced our sales to dealers
Strength in China has mainly been driven by a strong execution of public-private partnership projects, particularly related to infrastructure and strong housing investment
Credit growth has remained supportive and better than we previously expected
High replacement demand and a tight used machine inventory market have also helped
While March and April are traditionally the highest months for industry opportunity in China's peak selling season, if policy remains supportive we expect strong market conditions in China to continue at least through mid-year
North America dealer inventory increased, but by less than a year ago
And end user demand was lower
Both contributed to the sales decline in North America
However, order activity in North America has been very strong, which has contributed to the increase in the backlog
The Middle East and Brazil remain weak
Construction Industries' operating profit was favorable by about $200 million on about flat sales as a result of favorable price realization and lower cost
Construction Industries' multi-year focus on OPACC, as we call it, our operating profit after capital charge, delivered the strongest quarter for operating margin percent in a long time
And this on sales that are about 20% below the highs reached in the second quarter of 2011. If we move to slide 7, we'll look at Resource Industries
We are very happy to report that we have good news in our Resource Industries segment
Sales were $1.7 billion or up 15% versus 2016, and operating profit was $158 million
After four years of declining sales, the part fleet has come down and is now under 20%
Hours of utilization on trucks is up
And for the fourth quarter in a row, parts sales have increased to support rebuild and maintenance needs
Sales increases for aftermarket parts were broad based, and they were the primary driver of the change in sales
As you saw in the retail stats that were published yesterday, sales to users remain negative
However, after 16 quarters of underproducing retail demand, dealer inventory remained about flat in the quarter, with a positive change in inventory more than offsetting negative retail sales and driving Resource Industries OEM sales up
We are seeing sporadic order activity for mining equipment and expect to ship significantly more mining trucks than we did in 2016. Resource Industries delivered positive operating profit for the first time since the second quarter of 2015, which is the result of significant actions that have been taken to lower their breakeven point
The improvement in operating profit resulted from higher sales volume and lower costs, partially offset by higher incentive compensation expense
Let's move to slide 8 and look at E&T
Energy & Transportation sales were up slightly in the quarter, from $3.3 billion to $3.4 billion
Higher sales into oil and gas applications, primarily in North America, were partially offset by lower Power Gen sales into EAME
Sales into industrial and transportation applications were about flat
The number of oil and gas rigs in service continues to increase and has more than doubled the lows that were reached last May
This has resulted in an increase in aftermarket parts demand to support the overhaul and rebuild of well servicing fleets
We are also seeing a significant increase in demand for our large reciprocating engines used for midstream gas compression applications
Demand for drilling and production application remains very low
Operating profit for Energy & Transportation was up $142 million, from $410 million to $552 million
This was largely attributable to higher sales volume, a favorable impact from cost absorption, and improved material costs
Period costs were about flat as the favorable impact of restructuring and cost reduction actions was about offset by a higher short term incentive compensation expense
I want to add a quick comment on financial products
Operating profit was up $15 million
The portfolio remains healthy and past dues were 2.64% versus 2.78% in the first quarter of 2016. Write-offs were down and used equipment prices are starting to recover
Well, let's move to slide 9, and we'll look at our full-year outlook
We announced this morning that we are raising the outlook for full-year sales and revenues
In January we provided an outlook for sales and revenues of $36 billion to $39 billion
As a result of better-than-expected first quarter, strong order rates, and an increase in our backlog, we are providing new guidance for sales and revenues in a range of $38 billion to $41 billion with a midpoint of $39.5 billion, which is up $2 billion from our previous outlook
At the midpoint of the sales and revenue range we have changed the profit-per-share outlook to $2.10, reflecting our decision to close the Gosselies and Aurora facilities
And we have raised the profit-per-share, excluding restructuring costs, outlook to $3.75. We turn to the next
While there are positive signs across many of our end markets, and we have seen a significant increase in order activity and the backlog, we believe given the political uncertainty around the globe and the potential for volatility in commodity prices, that it is prudent at this point in the cycle and at this point in the year to consider both the positive and negative as we look at our end markets and what could impact sales as the year progresses
There are several positive sentiments
World business confidence is at a two-year high and world growth is accelerating
There are also positive indicators for North America construction demand
Many states have passed infrastructure bills
Pipeline projects that were previously stuck in permitting are now moving ahead and residential and nonresidential demand in certain parts of the U.S
remains robust
We believe business optimism, which may be contributing to elevated quoting and ordering activity in North America, is partially a reflection of the benefits of pro-business policy in regards to infrastructure and tax reform
However, we don't expect to see any meaningful impact from these changes until 2018. The backlog is up $2.7 billion on strong order activity in all segments
China construction equipment industry is robust with industry sales up sharply versus last year
Gas compression demand for reciprocating engines is very strong
And miners' balance sheets are improving, and they are expecting increases to CapEx
However, there are other risks to the outlook that we believe are prudent to take into account
Outside of Asia-Pacific, retail stats for construction industries remain negative
Demand for overhauls and rebuilds in mining and oil and gas could diminish as those units go back to work
Brazil remains weak
The Middle East continues to struggle as a result of lower oil prices
Competitively, the pricing environment remains very challenging
The potential for oversupply of oil could drive volatility in the price of that commodity
And geopolitical uncertainty across the globe is elevated
If we go to slide 11, we'll look at it quickly by segment
We now expect Construction Industries sales for the year to be about flat to up 5%, driven largely by demand in China
We have yet to see retail stats in the rest of the world turn positive
While order rates are encouraging, they will need to be sustained by continued strength and business confidence
For Resource Industries we now expect sales and revenues to be up 10% to 15% for the full year, driven by higher parts sales in the first half of the year to support rebuilds and maintenance work
And then transitioning in the second half to new equipment sales to support increased CapEx spending from the miners
We now expect Energy & Transportation sales revenues to be about flat for the year
Improvements in oil and gas to support overhauls in maintenance for well servicing fleets and higher demand for reciprocating engines used in gas compression applications are largely being offset by slight weakness across Power Gen, industrial and transportation
If we move to slide 12, we'll look at the outlook for profit
While there are several small puts and takes, the raise in the profit per share from $2.90 to $3.75, excluding restructuring, is primarily the result of an increase in sales volume of about $2 billion and a corresponding variable margin we would expect on higher sales, partially offset by an increase in short-term incentive compensation expense of about $200 million
The outlook reflects just slightly more than half of the year's sales and revenues in the first half, which would be similar to trends in recent years
We had a very strong quarter
And if you compare the first quarter to the average of the last three quarters, we expect some real headwinds, due to less favorable mix than we experienced in the first quarter, pressure on price and material costs, and the timing of period cost spend
That said, at a midpoint of $39.5 billion in sales and revenues, and a PPS excluding restructuring cost outlook of $3.75 for the full year, at this sales range we would expect – we expect to deliver an operating profit pull-through of just less than 50%, well ahead of our target range of 25% to 30%
So we'll wrap up on slide 13. First quarter was a great way to start the year, with higher sales and very strong operating performance across the board
We raised the outlook for sales and revenues to reflect a strong quarter and improved market conditions across many of our end markets
While uncertainty and the potential for volatility in commodity prices remain, we are ready to respond as demand increases
We remain very focused on cost management
And we are using our operating and execution models to be very deliberate about where to invest so that we deliver the highest shareholder value, investments that include lean, R&D, and digital
Before we turn it back to the operator for the Q&A portion, I believe Jim has a few additional comments
Good morning, <UNK>
Good morning, Steve
| 2017_CAT |
2016 | HPE | HPE
#Sure.
So listen, it is an uneven macroeconomic environment.
I think <UNK> said that at first.
And so different countries go up and down, different regions.
But overall, I think we feel very comfortable with our position in the traditional IT market, and then in our ability to provide solutions in a multi-cloud environment.
So I think demand can go up and down, but our objective is in whatever the market is doing, we want to make sure we at least hold or gain share.
And we did that in the last quarter.
And I do not think there's new to add as to why.
First of all, I think the R&D investments that we've made over the last 4 years are paying off.
So the development cycle in servers, storage, networking, those kinds of things, hyper-converged, these are long-term investments.
What you started three years ago actually comes to market now or even next year.
So that investment in R&D is paying off, and I will tell a dollar spent on internal R&D is the best dollar we spend at HP.
It is fantastic.
Second is, when you retool a sales force, that take some time, as well.
And I would say we are much farther along than we have been, and there is more work to do.
And then as I said, marketing, we have retooled our entire demand generation.
We've retooled ---+ and by the way, the launch of Hewlett Packard Enterprise gave us a chance to tell people the story of the enterprise side of this business.
Because prior to that, if you had asked man on the street, what is HP, they'd say a printing and PC company.
So I think that's actually been beneficial.
And then turnarounds takes 5 years.
(laughter) I said it when I started, and we're rounding the bend into the end of the fifth year.
And so it is gratifying that we saw as-reported growth for the first time in 5 years.
Thank you very much.
| 2016_HPE |
2016 | VSI | VSI
#Morning, <UNK>.
I don't think it going to be a meaningful addition that's going to offset.
I do think we are assuming on our private brand area overall that we have already amped up that team.
We have some plans to add some additional critical positions.
Some of this really is ---+ we've been able to grow our pipeline of new product development quite markedly on a year-to-date basis.
And really what we are focusing our time and effort on is the balance between internal resources and in some cases external resources to help us get the product development done so that then we can run those products through Nutri-Force and in some cases through some external, third party manufacturers.
We are very, very pleased by the ramp-up we're seeing on the new product development on that front.
But a lot of that really had been balancing out the resources that were down in Miami Lakes at the Nutri-Force facility with some of the resources that we actually had in product development up here in New Jersey.
And we think we are getting very close to getting the right mix
By today you mean in the third quarter, <UNK>.
It's a little hard to tell because really a lot of the promotional activity happens in bursts by key players.
It's hard to say whether it's really ramped down or ramped up.
I would say it's a mix.
I haven't seen quite as aggressive BOGO activity that we had seen in second quarter.
Obviously, in July there were some big online activity that we all know about.
But I would say in balance.
It's fair to moderate.
Let's put it that way.
Yes, it is difficult to get an exact number but, based on the different metrics, we believe that the benefit to comp was a little over 1.5%.
Let me correct the fact.
I didn't mean to imply that the redemptions all came at the end of the quarter.
I meant to imply that we were actually finding, given that we are now going to a quarterly redemption cycle, new ways of improving frequency in our stores.
We actually saw the bulk of the redemption happen in the month that the certificates were delivered, which is very much in line with what we've seen on our annual certificates historically.
So when we deliver these certificates to the market they are the equivalent cash in the hands of our customers.
And we see them often either jump online or come into stores in order to make sure they take advantage of redemption.
In terms of cadence of the overall comps for the quarter was variable.
It is hard to talk one way or another on it.
It bounced around a little bit in terms of how the quarter went.
Sure.
Hello, <UNK>.
I guess what I would start to say is, what we are forecasting for the balance of this year was in line with the way that we saw the business performing prior to the amp up in promotional activity that we did in second quarter.
So I think what we are doing is, we're looking at the underlying trend.
We're basically separating out what we felt was the incremental pop that we saw from the promotions that we did and we are assuming a return to that level.
In terms of competitive situation, I'm not sure I would characterize, <UNK>, the way you would characterize it.
I think we are seeing the overall market realizing that there had been a level of promotional activity that might have been excessive.
And I think everyone is currently looking at it, obviously everybody is going to fight for a share of the customer's wallet, and we don't expect that will necessarily decrease markedly.
But I think right now we hope that it will be a more normalized approach for us.
Certainly, we are going to be disciplined in the way that we are going about doing promotions and pricing ourselves.
Sure.
Actually we just got back from our annual product education conference and during that conference we bring together almost a thousand of our field teams, all of our store managers and up in the field as well as most of our major vendors come together.
So both Jason and I got a chance to meet with a lot of the senior vendors that were on the ground there.
I was actually really pleased, back to your point about exclusives, we are starting to negotiate some exclusive line extensions with key competitors.
I think when we look at the innovation that we see in front of us, we really want ---+ we have had the historical reputation and we want to continue to own the reputation of being the retailer of choice to really launch new innovation this category.
We think that's where specialty retailers particularly shine and we know our health enthusiasts really enjoy and do a great job of taking new innovation, getting it into the hands of customers, getting them excited and really converting.
So we are going to look for ways to be able to maximize that point of difference as we move forward and we are working closely with our vendor partners to make sure that we can get our fair share, if not better, our fair share of the pie of the new innovation as it comes forward.
<UNK>, first of all those categories have been an area over the last couple of years where there has been a bit more activity than in the straight-up whey protein area.
And so I think what we are seeing now is that there is a lot of both current incumbents that are recognizing that a way to diversify their overall line is to focus a little less on the straight up sports protein and start to think about the full system of pre and post.
It's a natural opportunity for the customers who, obviously many of them are on a regimen where they use protein, and then they are looking for things to help their workout on the pre- and post-basis.
We are also doing ---+ I would point particularly to our Betancourt business, which is one that we acquired when we acquired Nutri-Force.
That is a very strong player in that area but we are also, as we have gone through trade shows, we've seen in the last several months that there is a lot of activity in that particular area.
So we're very pleased by that and, as I mentioned, we're planning on putting a lot of focus on that in our stores as we move forward.
Yes, great question.
So first of all, I don't think we have seen emerge some type of breakthrough ingredient that hasn't been in the market before.
On the other hand, I will say that there is a lot of R&D work that is going on in general in the sports nutrition category.
And we are seeing more creative formulations, some new flavoring, some new overall systems are coming forward that are pretty exciting and we think will please the customer as they hit the market.
In terms of separating the wheat from the chaff if you will, around what was promotional versus what was innovation driven or tying back to our reinvention activities, we went into the quarter, and we will be going into every quarter, with very clear success metrics for our new initiatives.
And we track those, not just in an overall comp level, but we track them very specifically in terms of uptake in the database.
In some cases where it's appropriate, we're looking at incrementality in terms of first use versus repeat.
And what we are seeing is that we are ---+ I wouldn't necessarily say it's about attracting new customers but I feel very confident that several of our new initiatives are clearly doing a better job of winning share of wallet.
I want to remind us that the whole point of this reinvention was really a balancing act.
It wasn't just, let's try to bring in a whole bunch of new customers into the category.
Part of it was, how do we win more than our fair share for the current customers that shop at the Vitamin Shoppe.
And we think we are doing both.
<UNK>, I will comment on what is going on with the initiative and expand on my comment a little bit on what we are expecting out of it.
But I would start with the cadence on BOPIS was, we turned it on for the first time in February, we started with a limited number of SKUs that was available, and in order to make sure the customer experience was positive, make sure that our systems can handle it.
We then steadily ramped up the number of SKUs that were available so that it's now our complete set of retail SKUs that are available to buy on and pick up in store.
And that is across our entire fleet because, as you know, we are 100% Company-owned so we really don't care whatever store you go into.
We are perfectly happy if you go into any of our stores in order to get the benefit.
In terms of lift, I would say we have been happy and very surprised by the number of people who have taken advantage of the BOPIS capability.
I think largely our qualitative research would suggest that the reason for that is our customer, our target customer, is used to BOPIS in other retailers.
And in some ways we are a little late to the party in terms of BOPIS capabilities, but it is something unique in this particular category.
And I think for some of our products, whether it's a refrigerated product or whether it's a product where a customer wants to get quick pick up, the convenience of BOPIS and the chance to interact with our health enthusiast when they come into the store, is a pretty positive overall experience.
So for a customer it is a win-win as they go forward.
In terms of comp expectations, it's a little tough to judge.
I will offer to <UNK>.
I will give my thoughts and <UNK> might jump on them but we ---+ right now it is achieving our expectations.
We are in the process of teasing out exactly what it's contributing in terms of incremental comp lift.
Right now what we do know is, we know that the orders that are coming through BOPIS are bigger than the typical order that we get in the retail.
We also know that largely the people that are taking advantage of BOPIS are our current customer base.
It's not necessarily bringing in new customers.
It's a higher degree of convenience and really that is what it is designed to do.
We are testing some promotional approaches to BOPIS to see if there's ways for us to be able to further leverage it.
We think it's a opportunity for us.
It's another area or lever, if you will, around driving more omnichannel relationships with Vitamin Shoppe.
That kind of relationship, we know if we drive that, we ultimately will win in terms of the business build.
Anything you would add, <UNK>.
Yes, I'm good with everything you say.
And I would just say, in terms of the math, if you were to assume that all of BOPIS is incremental, that would suggest another less than 50 basis points of comp.
Probably close to that, but not quite 50 basis points.
But again, that is not all incremental.
We do not have a mobile app.
So BOPIS is available right now solely through our website.
We have talked about the fact that our intention is to move towards a mobile app later on this year or early 2017.
Yes.
We should be in that positive territory, as I said in our prepared remarks, we are expecting to spend approximately $10 million in reinvention costs and as we look at that, we believe that approximately $6 million of that is ongoing.
As we look at the cost savings that we've identified to date, it exceeds that.
So we believe that next year it will be a net contributor.
I think it's a combination.
Yes, we announced as part of our reinvention that we announced first quarter that we were going to be doing a more aggressive category management approach.
In some cases that is a SKU rationalization and in some cases that is taking our best brands and giving them a bigger presence within our stores.
We are also introducing, both digitally as well as in our stores, several new marketing capabilities.
And so really the discussion that we had with the market, with our vendors as recently as a couple weeks ago was, we want to be a retailer where they can invest more in.
And we think that we are giving them more opportunity to build their business with us.
It's great to have Jason on board because this has really been Jason's bread and butter career-wise, both at Dollar Tree as well as prior at Walmart.
And so Jason is going to be starting to take up the baton of really driving a lot of that initiative in the coming weeks and months.
Really, there is a lot of work that we are doing around store performance and some of that, quite frankly, is not just about cost reduction.
It includes taking a hard look at things like incentives, which we plan to modify as we continue to work through our reinvention initiatives.
It also does include looking at things like labor scheduling and the like, so there are some savings embedded within the stores and there's some savings as well as in incorporate.
<UNK>, let's just clarify, when we talked about that 50/50 split, you are talking about the incremental $10 million that we are talking on this call.
That's not the characteristic of the total $22.5 million cumulative.
But it is fair to say that, and not surprisingly frankly, as we have done work, particularly with AlixPartners, to take a look quantitatively at areas of efficiency, both at headquarters, but in particular in the store area.
We've been able to identify some ways that we can go about servicing our stores and setting our stores up to service our customers in a more efficient way without taking away from the critically important job that the health enthusiasts have of a building a relationship with our customers.
You are welcome.
We would expect ---+ we would continue to expect a benefit from loyalty.
Probably not to the same degree as in the second quarter but we had talked previously about that 1% lift.
I would expect that we would see at least that in the third and fourth quarter.
As we look at comps for Q3 versus Q4, I would expect that it's likely we would get a little bit more of a lift in Q4.
Especially, as we look at this on a two-year staff-basis, we're cycling a little bit easier comps in the fourth quarter.
So we are baking some of that into our forecast.
<UNK>, we also as we been having the conversation with our vendors, we have engaged them on improved promotional cadence for their business and I think we are counting on the fact that fourth quarter is going to be a strong quarter from that side as well with them.
Yes, sorry, go ahead.
Good question.
So we ---+ it's a quarterly approach so it's the first month of each quarter, so it's April, it's July, it will be in October.
And each ---+ and these certificates have a expiration that is a three-month expiration on them.
So they get used up in the quarter as well.
There's some bleed over but not very much.
So you will see three hits basically this year in the calendar year.
As <UNK> pointed out, it is still very, very strong.
We are not as aggressively promoting it in the third and fourth quarter as we did when we launched it in second quarter.
That was by design because basically the key to this is to get customers into the habit of shifting from an annual expectation to more of a quarterly expectation.
So the idea in second quarter was, get as many folks as possible to get a chance to enjoy a quarterly certificate so that then when we deliver in July as well as in October, we don't have to promote it as aggressively.
We continue to see strong redemptions on the certificates.
Yes.
So, yes, we do expect that the return will be higher.
As we look at the margins, we expect that it will be pretty neutral for the most part.
We did note that in the second quarter, some of the year-over-year decline did relate to loyalty.
And that was mainly because we aggressively promoted, and in some cases, we increased the value with some of our customers.
And as we evaluate each of these different initiatives, we are going to not repeat some of them.
So as we look at this over the long-term, it definitely has a return.
It had a return in the second quarter, just a little bit of a hit the margin.
But if I look at gross margin dollar benefit, in the second quarter it was definitely accretive.
Great question, <UNK>.
So Jason has only been on board three weeks but our goal when we were out recruiting for this position was to find somebody who had strong history of working for top retailers and, frankly, a strong background in transformational management of retail experience.
Jason brings with him, whether it was at Sam's, at Walmart or at Family Dollar or Dollar Tree, a track record of really delivering on the businesses he has had responsibility for.
He is going to have our merchandising business, our store operations business as well as our supply chain and IT all reporting up through him.
I think it's very early innings for Jason but in some ways it couldn't be a better time to bring somebody with his kind of background.
We'd mentioned the fact that we are in the midst of a very, very aggressive category management and vendor renegotiation.
I know that Jason has run that play book several times in his career and I think he's coming in feeling really good about the direction that we're going in that front.
He's already been out to several stores, put in several days' worth of time working the stores with the folks in the field.
Spent a week down at our product education conference with a thousand of our employees.
And I think he fits in great.
I didn't mention, but we did mention in the press release, Jason is a pharmacist by training, comes from a family of pharmacists.
This guy is a guy who really understands wellness and understand the wellness customer.
So for the direction also that we're going, both culturally as well as where we are going overall with our mission statement and the direction of the business, I think he is going to be a great leader for the business moving forward.
But, just to be very clear, what we were really looking for at the top of the house to work with me, with <UNK>, is somebody who brings a very strong operational background and a background delivering results.
And I think Jason is coming into the organization with that on his shoulders and he is planning on delivering in spades.
Yes, great.
We continue to do local market activation activities in second quarter.
We provided a new training manual to all of our stores.
We have also been doing local marketing through various different trade shows, sampling programs.
And being more aggressive with our sign up for our loyalty programs, which is a big area of focus for us is when we do local market activation, getting more people to join our loyalty program because we know that properly converts and then allows us to start to campaign those customers from a marketing standpoint moving forward.
What we've seen, and in fact anecdotally, last week when we were meeting together as a team this has been a really great shot in the arm for our health enthusiasts at a store level.
We are planning on continuing to drive local market activation, although what we are trying to do now is take our best practices from the first half of the year and make sure we really focus our dollars and our energy to doing those things that we know will best impacted business.
I expect this (technical difficulty) local market activation on an ongoing basis as a Company because we think that's really important to get our health enthusiasts out there in the market and we show well when we do this kind of work.
And we're getting a lot of (technical difficulty) other local market vendors, other companies that we can work with to successfully drive it.
So all good.
I just want to thank everyone again the joining us this morning and we will look forward to talking to you in the next quarter.
| 2016_VSI |
2016 | TRV | TRV
#Well, what we've talked about, <UNK>, is that the percentages probably won't be the same because our base is growing.
And as you probably recall, Quantum 2.0 rolled out over a couple of years and even including three more states this year, California, North Carolina, and Massachusetts.
So we think that the percentage will moderate, but we are not anticipating that the product would be less competitive.
We also are pleased to see and so are our agents that they are actually getting a disproportionate share of their new business from captives in the direct marketplace, which is something that we talked to them about.
So I would say the percentage we definitely don't think will stay the same but probably from account perspective, we expect it to continue to perform at similar levels.
Next question, please.
<UNK>, let me just make sure that I reset because what we talked about at AIFA was we had pilots underway with 10 agents in a couple of states and we took all of those suggestions.
Some few coverage, a lot of process changes, and some guidance on pricing, and all of that work is getting done now so we are anticipating later in the year, beginning of 2017, that would be broadly available.
So all the work being done but it's not yet broadly in the marketplace.
No, <UNK>.
What we did as part of this assessment was looked at whether our current infrastructure, our current claim handling, and our current product could support that.
We'll need to make a few tweaks to that but we are not building this super high end home capability.
This is really the [math affluent], and we think we have a really good match with our current capabilities in that marketplace.
Okay.
In terms of the P&L, it's in a couple of places because pension expense of course relates to headcount and headcount ends up in G&A as well as ULAE.
So it's in more than one spot.
But it equates to what's taking place in the pension area.
You may recall in the 10-K we provided a disclosure saying that we were adopting a new methodology for ---+ that went into the estimation of pension, and that dealt with using a yield curve approach rather than a spot rate for looking at the interest in service cost to coincide with how the PBO is being calculated.
And that did have a benefit and that will be a benefit that carries on into the future.
No.
The answer is no, it doesn't really.
There's obviously some claim expense that could be impacted but in that case, nothing unusual this past quarter.
And the only thing down the road I would say about G&A is if we have a very, very profitable year in home, that's where we would add contingent commission and so we'd be really happy if that line ---+ if that went up because it was a great year.
There's nothing about the current level of disruption that's causing us to look at that in the sense that we look at that all the time.
We are always looking for opportunities to expand our product set and to drive our competitive advantages and capabilities into new lines of business, new products.
We certainly don't wait for a moment in time to do that.
And this will be our last question, please.
Yes, <UNK>.
This is <UNK>.
I mean the 88% retention in middle market was very, very strong and clearly would be at the upper end.
We dissect where we are getting the retention.
We feel great that it's about 90 in our best business but it's ---+ our experience in the business would be that those are very tough levels to sustain.
So every single day in the marketplace with every transaction, that's what our underwriters are doing.
They are working with agents and brokers in the middle market and in the other business insurance stuff account by account, and they are trying to determine what's the appropriate thing to do for that account.
You can get caught up in the arithmetic of what you just said, and we do ourselves at times but it's not a straight line to say, well if you reduce retention 2 points and you raise prices X, that's not exactly how the marketplace dynamics work.
But we are always trying to look at the retention rate trade-off and looking at that in the context first and foremost of the return that we believe we are generating on that account or that book of business and is it appropriate and where do we want to go.
We are balancing it all the time.
I would take you back to the conversation about account by account execution.
The graph that <UNK> referenced in his opening comments.
Thank you.
This completes our call.
Thank you very much for joining us this morning, and as always, we're available at investor relations for any follow-up.
Thank you, and have a nice day.
| 2016_TRV |
2017 | EQT | EQT
#Good morning.
Those are pretty impossible questions to answer.
What I can tell you is when we are looking out 2018, we expect the average to be 8,000 feet or above.
We continue to increase that average length pretty significantly year over year.
It's hard to predict, with additional acquisitions, what the impacts will be because they're very dependent on where they are at.
Also dependent on other activity, leasing activity, where that is.
How contiguous those pieces are.
Very tough to answer that.
I will say, in theory, we think 15,000-foot laterals are optimum.
I don't expect that we will get there.
So, be clear on that.
But any additional length up to something close to that adds real value to our investment.
So, we are going to continue to do everything we can to get them as long as we can.
<UNK>, just one additional comment to that, I would say that we clearly will have a view, if we're doing an acquisition, that it is helping us with lateral lengths.
If it's not, it's not an acquisition we would likely do.
It's hard to quantify how much that would be, but we will clearly have a view that it's improving lateral lengths.
I think we run most of our economics at the local price.
If it doesn't make sense at that, we are not going to be investing.
I think we've laid out in our investor presentation what our market mix is.
So that should give you a pretty clear idea, and it's all pretty fungible because of the header system on the Equitrans header system.
All that is connected, so we can move gas to all those markets pretty easily.
The next big shift you will see beyond the recent OBC and REX capacity, the next big one will be when MVP becomes operational and we are sending a lot of gas to the southeast market.
I think when it's all said and done, that's probably not likely to be the case.
But we did have a large, very long lateral pad right at the end of 2016 that bumped those averages up.
Originally, that pad was probably going to be a 2017 pad.
But I think that's really an indication of the results we're seeing from the acquisitions.
And we're still getting our arms around some of the specifics of the more recent acquisitions and what they are going to add.
For now, we haven't really built that in.
So, I think some of that is just preliminary numbers.
Yes.
We will certainly be above eight in 2018.
I think I'm going to pass on that for now.
I think we want to gather a little bit more data before we start quoting our uplift estimates.
I will say from the results we're seeing, they seem pretty consistent with what our modeling suggested we would see.
We are optimistic that it's working.
We don't quite have enough data to want to commit to any numbers.
I would ask you to hold off until the next call where we would expect to be able to quote something that we can stand behind.
I think the nature of the construction process is the ---+ the critical path on the MVP project is around the compressor station construction, about a 14-month time frame to do that.
So, because of the nature of that, a one-month delay in getting approval is probably a one-month delay in turn-in-line.
The next item on the critical path is the actual construction of the line, which is dependent on our ability to be able to clear trees.
And there are limits around, because of the bat populations, when we are able to do that.
So, generally speaking, and there are lots of variables, so none of this is for certain.
Delaying the notice to proceed, at least on that part of it, because it's possible to get a partial notice to proceed on the compressor stations, but if the pipeline construction is delayed into February, it might get difficult to get the trees cleared in the tree-clearing window to hold to that end-of-2018 time frame.
So those are kind of some of the key dates we are focused on.
But that said, there are possible mitigants to that in terms of, again, partial notices to proceed or possibilities of being able to extend the tree-cutting window.
So, lots of variables, but those are some key dates we're shooting for.
So east versus west in West Virginia coincides pretty well with wet versus dry.
So it's about two-thirds on the wet, so that would be the western side, one-third on the eastern side.
I think probably on the next call we can provide some updated information on the results on the eastern side.
I think we have some recent wells over there that we are real happy with the results.
Our confidence is even higher, particularly this acquired acreage in Marion and Mon, that's right near by a pad we brought online last fall that's outperforming our expectations.
We will try to target for the next call or next press release to give you some more insight on that.
I would say we don't have particular focus areas.
We look at the opportunities that come up and see how well they fit.
Some of those on the eastern side in the dryer area fit very, very well, so we get a lot of the synergy value, which is what we're looking for.
But as always, they have to make sense.
We're not going to go buy acreage in areas where we're not confident we can earn good returns on our drilling investment.
Again, we've been pretty encouraged with the results we're seeing in those areas.
So, I think we feel really good about them.
They've been a particularly nice fit with our existing position.
We certainly think it could have an impact on that, and if it does, the impact is almost certainly to shorten those cycle times.
(Multiple speakers) we haven't done enough of the work yet to really built in any benefit in 2017.
Not to say we won't see any; we might.
But I would think we will have enough of the modeling done and tested it enough hopefully by 2018 to incorporate it into our planning.
You want to take that, <UNK>.
This is <UNK> <UNK>.
We're certainly in the process of working through the Equitrans Expansion Project, and we do have expansion capabilities that would line up with MVP expansion capabilities as well.
That was just the rights that we acquired.
It's not a comment on the prospectivity of any of that.
That's the Utica rights that came with that package.
Yes, that's correct.
<UNK>, I don't think the changes in NGL prices, so far, have been dramatic enough to have us rethink where we think we are going to be drilling.
And there's always a number of factors that go into how we develop our plan.
Certainly prices are a big factor, but available capacity, where the gathering systems are ---+ have capacity to get gas to market, where we have processing capacity.
And at least personally, I'm always reluctant to make short-term changes in our plans based on short-term changes in commodity prices, especially given the 9 to 12 month delay from when we change our plans to when we are getting the production online.
It just seems like every time we try and do that, we are never in sync with the market.
We're always chasing the market, and it's changed by the time we benefit from it.
The moves would have to be dramatic and we would have to have a view that they're going to be sustained before we would really rework a calendar year development plan.
I think for the areas that we're likely to test, we have plenty of takeaway for seven wells.
I think the take-away question really isn't going to factor into where we are drilling.
These tests are still mostly designed to understand a reservoir.
I think on the cost side, we are really happy with where we are at, but we want to understand what the production mechanisms are, what the recoveries are going to be, and what's the extent of the economic area of the Utica.
That's what's going to drive our location decisions in 2017.
Thanks, Brenda, and thank you all for participating.
| 2017_EQT |
2018 | UFS | UFS
#Absolutely, yes.
Very much so.
I mean, particularly, some of the Asians.
No question.
Absolutely.
So, as you know, we've done and continue to do the work with Jacobs.
So that's why we've gone slightly radio-silent at the minute, because that work is ongoing.
So what we have to be I think comfortable of is probably 3 key things ---+ well, 4 key things: one is can we be really cost-competitive, can we get our costs to a point where we're competitive in any sort of containerboard market.
So that's point the first.
Point the second, can we do that at a reasonable CapEx level without blowing our brains out on the kind of capital we want to spend.
Point the third is can we make a sensible market entry that is not too fraught with risk.
So we have an open mind on joint venturing.
We have an open mind on customer sign-up for our ---+ so all that is ---+ we're working on furiously.
I think the fourth thing is also, well, what do we do with the uncoated freesheet position we have.
Right now, volumes are fairly good, but we do have a tail, as our margins show, that we could probably do something more aggressive about.
So the implications of that [shut] to our uncoated freesheet market.
So those are the things I think that have to line up, <UNK>, for us to be comfortable that this is something we really ought to be doing.
Right.
So the answer to that is all of the above on the customer side.
And I think certainly over time, but it's a multiyear process.
We have, as you know, a number of mills that can be competitive in this environment, both from a wood supply ---+ obviously, wood basket is a key issue and conversion opportunity is a key issue.
So you put all that together, there is a runway.
I don't want to go through the detail, if you don't mind at this point, but there is a runway where we can be a multi-mill supplier of containerboard.
No question.
Say again.
People going.
.
Actually, no.
I mean, I think what we see is growth.
So we see people continuing to buy machinery to get that top line growth.
It's very different by individual product, <UNK>.
So for example, pull-ups, adult diapers is a booming business right now, the sort of the older-fashioned product that you have to sort of assemble for yourself to some extent, as the patient, that product in Europe is softening, but pull-ups are booming.
So I don't see what you suggest.
Obviously, there's been rationalization in terms of ownership of some of these assets, I mean Ontex and ourselves being the 2 obvious cases, but I haven't see people pulling out.
Right.
Obviously, I'm sort of backing in here to giving you guidance, Chip, if I'm not careful, and that's not my intent.
But, I mean, we're ---+ all I can tell you is what we're planning, and we're planning that, that maintenance is offset by that pricing.
That's a great question.
So it's always an option.
I mean, I think, again, to remind ourselves, if you look at fluff pulp, you have only 3 players globally who have more than 1 mill.
We're one of them; we know the other 2, obviously, at GP and I<UNK>
So if anyone has the optionality to open a third fluff mill that's globally competitive, we believe it's us.
And certainly, we have a wood basket that is competitive [so it is].
So that's always on our mind, Chip.
That's taking share from another private label producer, but if I'm being truthful, the retailer is putting out very ambitious plans to grow private label share dramatically within their own stores versus brand.
So I mean, I think what you're going to see and I think this actually vindicates our sort of partner-brand strategy that we have is they're really now going to run this category as a major brand within their store portfolio.
And it will be fascinating to see how that transpires, actually.
We've seen a little bit of it, yes, in the marketplace.
Some of the major brands have done that.
Some of the major brands on tissue have taken out some count.
I mean, it's all in the public domain; I'm not sort of telling tales out of school.
So ---+ and it's one way to maintain a price point and still maintain margin, and I think you're going to see a lot of that.
I think one thing to remember in the U.<UNK> sometimes is the way some of these pulp contracts operate.
Some of the major players have a pretty large lag, actually, between announced price and price increase, it's a matter of months.
And as that really starts to hit, I think you may well see more of that from some of the major brands.
In Personal Care.
In Personal Care.
It depends.
So where you're in a kind of national health system and you're bidding for regional business from various national health organizations, yes.
You have that opportunity to get the price as you make the next bid, and those bids sometime last 1 year, 2 years, 3 years.
So when the price is fixed, it's fixed but you have a bid opportunity.
Obviously, where we have our own brand, we have opportunities, but it probably takes a while to get the whole portfolio.
And I mean, as you can see in our margins, I'm being truthful, it takes a while to get that portfolio to move based on raw material increase.
And I think you're seeing that from everybody in the space who's reporting.
That's still the objective.
Yes.
Well, I mean the trouble is, in a way, we'll know when we know.
My view is if I look at the number of prices that Europeans have got in the last few months, I look at some of the Asian pricing, I think, <UNK>, they're going to stay in their domestic market if they can.
Will import ---+ is there a risk of imports in the second half of the year.
I don't think it's a biblical risk, but there's no doubt in some of these markets, it's a little bit ---+ it will be a little bit more attractive than it was, but I don't think we're going to see imports at anything like the level they used to be at.
And there are still some pretty steamy duties on some of this stuff, so ---+ and they're going to last a number of years.
I think it's about 4 25 to 4 50 is a reasonable number for quarterly sales on pulp, and if I look at that, rough numbers sort of 15 hardwood maybe.
I'm wrong.
4% hardwood, 58% softwood and 38% fluff, <UNK>.
I think you'd be a better judge of that than me.
The answer is, in my mind, no.
I still think there's an opportunity there.
I still think we can find our way into the market.
I feel vindicated that our asset base is good enough and strong enough to be very solid in terms of its cost position.
So we're still working hard to make our choices and get sufficient data to make a good choice.
I think the wildcard is pricing here.
So I wanted to make it own judgment, when I think of where pricing will be.
We're positive but I mean, quantifying right now is very difficult.
But there's no doubt we'll have the weather back.
There's a little bit of usage of outside of weather in the first quarter that is negative, that should get back to us, and we'll have, there's no doubt, the negative of the higher maintenance.
And the impact on volume, we will lose 42,000 tons of pulp production and 18,000 tons of paper production in the quarter, but we have a tough Q1 so, I mean, we believe the ball is rolling in the right direction, and the price is, as always, the toughest part, but, again, the signs are very positive.
Well, I think it's ---+ quite frankly, I can only talk about our own business but I look at sort of supply-demand, and I look at people right now looking hard to find pulp.
And we had our operational challenges in quarter 1, which I think probably caused part of the issue.
And actually realized prices are still well below the 9-year average, by sort of $25 million, $30 million ---+ $30 a grade.
So it's not as if there's some massive ramp up versus historical norms.
I mean, to my mind, this is ---+ we're still below the 9-year average on pricing.
We haven't really had peak pricing much within that 9-year period, maybe for a year.
So I see no particular reason why it shouldn't continue.
Your question on prebuying is always difficult to answer.
We had good volumes in Q1, so one can assume that there's a little bit of prebuying.
We sold from inventory, so can we repeat that performance in a high maintenance quarter.
Probably not.
So expecting a little bit lower volumes in Q2 is reasonable.
In terms of inventory, it's more ---+ I think the method is more that Q4 was a very high quarter for us in terms of pulp shipments.
We actually produced well and sold 50,000 tons out of inventory so that the 460-some-thousand tons we've shipped in Q4 is not something you should expect every quarter.
Our normal shipments should be more around ---+ if you look on an average, there will plus and minuses because of maintenance, but we should ship about 425,000 tons per quarter.
So Q4 was abnormally high.
| 2018_UFS |
2018 | KOPN | KOPN
#Welcome, everyone, and thank you for joining us this morning.
<UNK> will begin today's call with a discussion of our strategy, technology and market.
I will go through the first quarter of 2018 results at a high level, <UNK> will conclude our prepared remarks and then we'll be happy to take your questions.
I would like to remind everyone that during today's call, taking place on Tuesday, May 8, 2018, we will be making forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995.
These statements are based on the company's current expectations, projections, beliefs and estimates and are subject to a number of risks and uncertainties that could cause actual results to materially differ from [those] forward-looking statements.
Potential risks include, but are not limited to, demand for our products, operating results of our subsidiaries, market conditions and other factors discussed in our most recent annual report on Form 10-K and other documents filed with the Securities and Exchange Commission.
The company undertakes no obligation to update the forward-looking statements made during today's call.
And with that, I'll turn the call over to <UNK>.
Thank you for joining us this morning to discuss our first quarter results.
Strength in our military operations primarily drove performance in this quarter.
As we have talked about in the past, our displays and optics have been developed initially for military, meeting its demand for quality and reliability.
So the military has always been a key market for Kopin.
In Q1, we have the continued ramp of the F-35 fighter jet program, where Kopin is the sole supplier of displays for the pilot helmets.
In addition to our current purchase agreement, we have been notified that we will be receive ---+ we'll receive shortly follow-on orders through 2019.
After quarter-end, we received the initial production authorization for the FWS-I program consisting of 5,000 eyepieces to be delivered over the next year, with shipments beginning in this August.
The second part of program, the FWS-C, is also tracking on plan in the initial phase of development.
At the same time, we're moving through the early development process on the armored vehicle program we won the last quarter.
And we're pleased that the program was just expanded to include the development of additional eyepieces, scopes, increasing the potential total value of the program for Kopin from $40 million to $80 million.
Finally, our new Brillian LCD microdisplay product line, which was created specifically to meet the extremely high brightness requirements of the next-generation avionic AR applications, that they have been well received by our customers.
We expect follow-on orders as development continues on the new helmets using this new display.
We're also seeing good in ---+ uptake in the industrial enterprise AR business.
Many of our partners have indicated strong reception for their new industrial products.
In addition, we're excited to report a major design win with a global USA Tier 1 company for a new AR smartglass for enterprise applications.
Perhaps, it is appropriate for us to discuss briefly the current status of AR and VR headsets.
Without any doubt, the developments of our AR/VR headsets have been undergoing major adjustments, winners and losers.
So there should be no doubt that the transformation of our handheld smartphones to hands-free wearable will certainly happen.
There are major disruptive transformations, there will be many twists and turns along the way.
It always has been our belief, the adoption and transformation will start with the military.
Their move to enterprise industrial applications, where the benefits are clearly substantial.
In this respect, Kopin has been very successful as we are dominant providers of critical displays and other components to both military and enterprise markets.
The adoption of smartglasses consumer has also began.
We're excited about the reception of our SOLOS smartglasses, which start shipping tomorrow.
SOLOS has been called the world's lightest and most advanced AR smartglasses for sports and consumer fitness.
And it was designed using Kopin's unique insight into AR forms and functions.
We're targeting cyclists, triathlons and trainers with those smartglasses, which contain a heads-up see-through Pupil display optics module so athletes can see real-time updates, such as speed, power and pace and measure their progress.
This generation of SOLOS added new features, such as music, voice control, group chats and phone calls.
SOLOS includes our Whisper Voice Chip so that users can make phone calls or communicate with others in their group, benefiting from our unique noise-cancellation technology so loud noises do not ruin their audio experience.
We anticipate rolling our SOLOS through a number of distribution formats during 2018.
Last month, we announced US (sic) [USA] Cycling Association has teamed up with SOLOS to train for their 2020 Olympic games.
We have high expectations for SOLOS.
And this is the one AR glass available that satisfy main rules for developing AR glasses.
For VR, we had been working with the military for many years.
And for the past 12 months, we have been working on consumer products, including advanced VR glass headsets such as ELF, which utilize Kopin's Lightning, the world's largest 2k x 2k OLED displays.
We believe we have gained much insight and experience and plan to discuss these insights in my keynote address in the coming AWE conference in Santa Clara, California at the end of this month.
Well, let's discuss the status of OLED on silicon microdisplays.
It has been our conviction that successful transformation for smartphones to hands-free wearables headsets requires small, high-resolution, low-power consumption microdisplays.
For AR applications, we believe LCD microdisplays will be effective for these applications.
And both our military and enterprise customers certainly have adopted our LCD displays.
For VR applications, we believe only our silicon offer many performance advantages, including ---+ especially in speed and image quality.
With the focus on providing such OLED displays for the VR world, including developing towards leading 2k x 2k 1-inch display to establishing a supply chain through a joint venture with BOE, the world's leading smartphone display supplier.
We're delighted that the world's largest OLED silicon factory has broken ground in Kunming, China, and we expect it to be operational by the end of next year.
In summary, we continue to be excited about the opportunities for AR and VR.
As we discussed last quarter, we believe the continual ramp of our military displays, the growing adoption of AR system for industry and enterprise, and the demand for SOLOS, along with other new product offerings, will allow us to increase revenue in 2018 by 25% to 40%.
And there is no change in our expectation that revenue for 2018 will be between $35 million to $40 million.
In addition, we remain confident that the anticipated increased demand for our products and components should allow us to achieve breakeven profitability by year-end 2019.
As always, we're careful in utilizing our capital.
So over $60 million in cash now and no debt, we continue to move forward on our global vision for AR and VR.
Now I'll let Rich provide the details.
Thank you, <UNK>.
As you may have seen in our press release, Kopin has adopted ASC Topic 606 using the modified retrospective approach, meaning the standard was applied only to financial results of the first quarter of 2018, with a cumulative adjustment to retained earnings.
Under this transition method, we applied the standard only to contracts that were not complete the initial adoption date.
In the press release for comparative purposes, we also provided results that would have been under ASC 605.
All right, so turning to the results.
Beginning with the results for the first quarter of 2018, total revenues were $5.7 million compared with $4.4 million for the first quarter of 2017.
The increase in quarterly revenue year-over-year was primarily driven by military applications.
Cost of sales for the first quarter was 80.5% of product revenues compared with 79.3% for the first quarter of last year.
Gross margins decreased due to lower utilization in one of our facilities, which was partially offset by the increase in military revenues, which have higher gross margins as compared to our other products.
R&D expense in the first quarter of 2018 was $4.5 million compared with $4.3 million in the first quarter of 2017, essentially flat.
SG&A expenses were $6.9 million in the first quarter of 2018 compared with $5.6 million in the first quarter of 2017, reflecting incremental SG&A of $0.6 million from our acquisition of NVIS in the first quarter of 2017 and an increase in sales and marketing compensation expenses, partially offset by lower professional service fees.
The incremental SG&A for NVIS for the 3 months ended March 31, 2018, primarily relates to the amortization of intangibles resulting from the acquisition.
Other income expense was income of $5 million in the first quarter of 2018 as compared with an expense of approximately $400,000 in the fourth ---+ in the first quarter of 2017.
The first quarter of 2018 includes approximately $200,000 of foreign currency gains as compared with approximately $1.2 million of foreign currency losses in the first quarter of 2017.
The first quarter of 2018 includes $1 million gain from the receipt of insurance proceeds related to our fraud in our Korean subsidiary and a $3.6 million noncash gain from the exchange of certain intellectual property for an equity investment.
In the first quarter of 2008 (sic) [2018], we contributed certain patents valued at $3.6 million and $1 million in cash for a 12.5% equity investment in the joint venture located in China.
Turning to the bottom line.
Our net loss attributable to controlling interest for the quarter was approximately $4.8 million or $0.07 per share compared with a loss of $7.9 million or $0.12 per share in the first quarter of 2017.
Turning to our 2018 guidance.
We continue to expect 2018 revenues to be in the range of $35 million to $40 million.
We expect the revenue ramp to be second half-loaded, corresponding with the introduction of new products.
We believe operating expense will remain largely flat compared to 2017.
We concluded the quarter with approximately $61 million of cash and marketable securities and no long-term debt.
The amounts we just discussed are our current estimates and will be continuing to evaluate Topic 606 and the equity investment accounting.
So I would remind our listeners to review our Form 10-Q for the first quarter, March 31, 2018, when filed for all final amounts.
With that, operator, we'll take questions.
You're talking about the OLiGHTEK line, which is obviously in Kunming, China, the line is running, and I think it will start operational third quarter this year.
Jeff, I'm afraid I cannot comment on it.
It's suffice to say, it's a very large global company.
It would nice to be ---+ if we say Silicon Valley company, I think.
Yes.
That's a market we're talking about using display for 3D morphology.
The market is still growing very well.
I would say, they're growing about 30% a year.
We're now beginning to penetrate the Chinese market.
And if that happens, hopefully happen this coming quarter, you'll be very excited.
Sure.
So we obviously have facilities in Scotland, down in Reston, Virginia and here in Westborough, Massachusetts.
And so in a typical semiconductor model, we have a high fixed cost.
And so utilization in one of our plants was lower than we had anticipated.
So the fixed cost per unit was higher, which negatively impacted gross margins, but the other facilities did well.
So it's ---+ for the most part offset, we were off ---+ up 0.8% on the gross margin.
Yes.
Yes, we thought some orders were going to come through in the first quarter, that didn't materialize.
But the ---+ I understand are showing up in the second quarter so.
.
Yes, thank you, operator.
I would like to remind everybody that tomorrow morning, we have our annual meeting at 9:00.
That's our Annual Kopin Meeting.
Please, hopefully, you can attend the meeting.
With that, I' will see you guys next quarter.
Thank you.
Bye-bye.
| 2018_KOPN |
2016 | FTD | FTD
#Yes, Easter for us, <UNK>, is a reasonably small holiday.
So, order of magnitude, we're talking about maybe $10 million of revenue.
That's on a consolidated basis, by the way.
We did not buy shares in terms of our share repurchase program during the first quarter.
The Board authorized the program just at the beginning of March.
So, we do have a $60 million authorization in place as we look forward.
On the cash flow, the repurchases that you see there relate to restricted stocks vesting during the period.
And it's the taxes that are being withheld via shares.
It wasn't ---+ hi, <UNK>.
It wasn't necessarily a shift.
We ---+ as we looked at the holiday and we kind of do our postmortem on the holiday and what was ---+ what went right, what we could've done differently, we decided we'd already planned to do some ---+ bring back television advertising to ProFlowers and do some other things.
We just adjusted some things probably a little bit more for the Mother's Day period based upon learnings at Valentine's Day.
I think it's a combination.
I think it's how we market our ---+ because we have ---+ with our brands, the strength of our brands, I think it's important the commercials have an element of transaction in them, but they also have an element of brand.
And I think that's important as, obviously, had to make sure the ---+ that we continue to push our brands to drive direct-to-site traffic as well.
So, it's the combination.
No, we're definitely seeing new customers come in as a result of this, especially the fact that you can find our brands and flowers being offered on DaySpring as we speak.
Those are ---+ it's definitely new customers coming into the Company.
Yes, we think it's a sort of an isolated set of circumstances in the quarter.
That's not to say that it couldn't happen in the future, <UNK>.
But, if you look at our bad debt expense over the last several years, we've averaged kind of $1.5 million to $1.7 million on an annual basis of expense.
So, from time to time, we run into situations where we might incur something more.
And we just had those set of circumstances this particular quarter.
So, you're right.
We're not obviously prepared to give guidance for 2017 at this stage.
But, I would say, in broad terms, yes, we would expect a double-digit lift in 2017 associated with the Valentine's Day just in the day placement.
Yes, it's a good day.
So, yes.
Thank you.
Thank you, <UNK>.
So, <UNK>, actually, I don't want you to interpret that it's half, more or less than half.
I just think that the Tuesday date placement is going to give us a lift compared to the weekend placement for sure.
And candidly, at this point, we haven't assessed it fully because it's all going to depend on the kind of marketing programs we decide to run for that period and what they look like across the brand.
So, a lift seems certainly reasonable.
How much of a lift, I would tell you that, internally, until we do some more work, we're not going to really comment further than that.
Yes, so, great question.
The bad debt expense is part of the florist segment results.
And obviously, that's really why, when you look on a year-over-year basis, the florist segment operating income is lower year over year.
If you took that out, you wouldn't see that [change the sign], of course.
The insurance gain actually gets reported in corporate, not as part of the Provide segment because it's other income.
But, it certainly relates to the Provide segment.
It's just how we've reported and defined where other income gets reported in the financials.
Thanks, operator.
I'd like to thank you, all, for joining us this afternoon.
We truly appreciate your interest in FTD.
Remember Mother's Day.
| 2016_FTD |
2018 | SCHL | SCHL
#Thanks so much, Sabrina, and good afternoon, everyone, and thank you for accommodating the new time for our call this quarter.
Welcome to Scholastic's Third Quarter 2018 Earnings Call.
Joining me here today are Dick <UNK>, our Chairman, President and Chief Executive Officer; and Ken <UNK>, the company's Chief Financial Officer.
We have posted an investor presentation on our IR website at investor.
scholastic.com, which we encourage you to download if you have not already done so.
I'd like to point out that certain statements made today will be forward-looking.
These forward-looking statements by their nature are uncertain and may differ materially from actual results.
In addition, we will be discussing some non-GAAP financial measures as defined in Regulation G, and the reconciliations of those measures to the most directly comparable GAAP measures can be found in the company's earning release filed this afternoon on a Form 8-K, which has also been posted to our Investor Relations website.
We encourage you to review the disclaimers in our press release and investor presentation and to review the risk factors contained in our annual and quarterly reports filed with the SEC.
And now I'd like to turn the call over to Dick <UNK>.
Good afternoon, and thank you for participating on today's call from snowy New York.
The third quarter was very active at Scholastic.
We continued to grow key publishing franchises while investing in technology-driven improvements, real estate upgrades, new product introductions and the expansion of our education sales force.
Our operating results were firmly in line with our expectations with revenue up 3% from the prior year period and the operating loss from continuing operations showing a 4% improvement in what is traditionally a loss quarter for Scholastic.
We've always raised ---+ we've also raised our fiscal 2018 outlook for earnings per share to reflect the partial year impact of the recent passage of the Tax Cut Bill.
From a financial reporting perspective, we had 2 significant nonoperating noncash charges this quarter that affected EPS.
Ken will provide more details on these charges in a moment.
Excluding these and other onetime charges, our loss per share from continuing operations in the quarter improved by $0.06 or 17% versus the third quarter of last year.
We were also active in repurchasing our common stock with $27 million worth of shares acquired in our FY 2018 to date.
And as you saw in the release we issued earlier today, our board has increased our stock repurchase authorization by $50 million.
Looking forward, our core businesses are performing well and we see growing momentum in the Scholastic 2020 initiatives, which are designed to deliver margin expansion through technology-driven process improvements leading to increased productivity and more targeted, data-driven marketing.
Our tax rate will be lower as a result of tax reform.
The termination of our domestic pension plan will eliminate future funding requirements and we anticipate additional cash flow beginning in FY 2019 as the transformation of our headquarters building is nearing completion and we are currently working to rent our expanded retail space, which we will discuss a little bit later.
Children's Book Publishing and Distribution continued to show resilience with revenue for the quarter essentially flat compared to the year ago period when we had strong revenues from new Harry Potter titles, especially Harry Potter and the Cursed Child and the original <UNK>
K.
Rowling screenplay for the film Fantastic Beasts and Where to Find Them.
In trade, we continue to be the leader in core series such as Harry Potter, I Survived and the first 4 best-selling titles of Dav Pilkey's Dog Man following the earlier success of Pilkey's Captain Underpants.
We're enthusiastically awaiting the fifth book, Dog Man: Lord of the Fleas, which is scheduled for release in August 2018.
Building upon the important foundation of core trade series, upcoming new releases include new workbooks for both beginning and emerging readers in the Bob Books series, the sixth book in the best-selling Bad Guys series and Whatever After #11.
As we celebrate the 20th anniversary of Harry Potter, we look forward to the stage play of Harry Potter and the Cursed Child Parts 1 and 2, which opens on Broadway in April and will reignite interest in this title which was originally published in 2016 and is now available in paperback.
In July, we will reissue the original 7 Harry Potter books in paperback with brand-new covers designed and illustrated by the Caldecott Medal-winning Brian Selznick as well as publishing the official companion book for the exhibit, Harry Potter: A History of Magic, coming to the New York Historical Society in October.
And in November, we will publish the <UNK>
Rowling original screenplay for the movie Fantastic Beasts: The Crimes of Grindelwald, which was announced yesterday.
Education revenues were up 3% in the quarter, and our expansion program in new publishing and large sales force continued, designed to address a significant market opportunity as the interest in balanced literacy and more flexible customized instructional programs continues to grow in U.S. schools.
The core reading market in the U.S. is the largest revenue category in K-12 educational publishing with total market size reaching over $1 billion.
This summer, we will launch Scholastic Literacy, a complete balanced literacy program for grades Pre-K to 6 with print and digital components to support blended learning.
This new modular program will teach all the foundational skills students need for success in reading, including phonemic awareness, phonics, vocabulary, fluency and comprehension.
Integrated into Scholastic Literacy are new programs that will bolster its comprehensive impact as a core curriculum offering while providing students with engaging and measurable digital resources for independent reading.
These include: First, Scholastic EDGE, which we have mentioned on previous calls, has now launched.
This is a new in-classroom intervention-guided reading program that is an integral part of our core curriculum balanced literacy framework and provides additional support for striving readers.
Second, Literacy Pro is a digital reading motivation and assessment program which draws from a wide variety of print and digital titles to provide students with personalized recommendations, making it easier for them to find books they'll enjoy.
It also produces dashboards and reports that help teachers track their students' progress and use that information to enrich instruction.
W.
O.
R.
D.
or Words Opening Reading Doors is an engaging research-based vocabulary program for grades K to 5, which deepens comprehension by teaching the 2,500 word families that make up 90% of all text.
, students will master the most essential high-leveraged words necessary for reading success.
Revenue also benefited from favorable foreign exchange with the decline in the dollar.
During the quarter, we also opened our new shared services operation in Kuala Lumpur supporting our businesses in Asia as we begin to centralize the finance, procurement and support services in the region in an effort to improve efficiencies and reduce costs starting in fiscal 2019.
During this fiscal year, we have strengthened our management in Asia with significant new appointments in finance and marketing.
Education and trade and international remain major growth opportunities for the company, along with our established business of direct-to-consumer educational books.
Turning now to Scholastic 2020, our 3-year plan to substantially increase operating income and improve organizational effectiveness as we approach our 100th year in October 2020.
In our first 6 months of implementation, we have focused mainly on 4 areas of Scholastic's business: book fairs, education, operations and technology.
We have established financial objectives, performance indicators and dashboards that will lead to greater collaboration and better visibility.
Cross-company teams are developing priorities and testing new strategies.
In book fairs, for example, we're introducing this summer new CRM analytics which will provide updated, easy-access customer information to our 350 salespeople as well as new point-of-sale devices for real-time information on title sales, enabling faster restocking.
In education, we're providing richer and more timely pipeline information to the education sales force as well as upgrading our Teacher's Store online and establishing a master product tracking system for improved visibility to product scheduling and availability.
In operations, especially in our distribution businesses which are labor- and freight-intensive, we've improved manufacturing and procurement processes, rationalized paper and printing spend and reduced freight costs through the utilization of a new transportation management system.
This is the first step in the 3-year plan to improve service to our customers through better information, process, automation and more efficient business processes.
And we are aligning our strategic technology resources to better support our Scholastic 2020 initiatives in CRM, data engineering, analytics and digital services.
Finally, a brief update on our real estate project.
This month, the company entered into a definitive lease agreement with Sephora for a portion of the newly developed retail space at our headquarters building at 557 Broadway, which extends their current lease through 2033.
RKF, the country's leading independent real estate firm specializing in retail leasing, has been given an exclusive engagement to lease the remaining 42,500 square feet of multi-floor retail space at our headquarters building.
Since January, following improved results in holiday retailing, the interest in Scholastic's exceptional space in SoHo has picked up dramatically with major multiple retailers expressing strong interest in both the Broadway-facing and Mercer Street sides of the building.
With that, I'd like to pass the call to Ken <UNK>.
Thank you, Dick, and good afternoon.
On this call, I will refer to our adjusted results from continuing operations for the quarter, excluding onetime items unless otherwise indicated.
Revenues were $344.7 million versus $336.2 million in the third quarter last year.
Operating loss for the third quarter was $19 million, an improvement compared to an operating loss of $19.8 million in the third quarter of fiscal 2017.
Going through some housekeeping items first.
There were $4.7 million in onetime items included in the third quarter operating loss primarily related to our headquarters renovation versus $4.9 million in the third quarter of fiscal 2017 primarily related to severance associated with our cost reduction programs.
We also had 2 significant onetime items that were reported below the operating income line.
The first was a $39.6 million noncash pretax charge related to the termination of our domestic defined benefit retirement plan.
The second was an $8.3 million noncash charge related to the estimated remeasurement of our U.S. deferred tax assets following the passage of last December's tax reform legislation.
These charges were reflected in our GAAP earnings per share.
Turning to our segments.
Children's Book Publishing and Distribution segment revenues were $199.4 million versus $199 million last year.
We reported segment operating loss of $900,000 versus an operating profit of $6.3 million in the prior year period.
The decline reflects a favorable inventory adjustment we took in the third quarter of fiscal 2017, along with higher costs related to the rollout of a new point-of-sale system for book fairs as well as higher costs of product in trade.
Education segment revenue was $61.7 million compared to $60.1 million last year.
We reported segment operating loss of $200,000 compared to operating income of $3.5 million last year.
The decline in operating income is largely attributable to higher salaries and benefits related to the sales force expansion that Dick previously discussed.
International segment revenue was $83.6 million versus $77.1 million last year.
Segment operating income was $700,000 compared to an operating loss of $3.2 million last year.
The increase reflects higher sales across all major markets as well as the benefit of a weaker U.S. dollar.
Corporate overhead expenses were $18.6 million versus $26.4 million last year with savings realized across a number of overhead departments, especially in salary-related costs.
Net cash provided by operating activities was $36.5 million compared to $39.2 million last year.
And free cash flow, as defined by the company, was a net use of $9.6 million versus free cash flow of $16.6 million last year when the company realized an increase in customer remittances from significant sales of the Fantastic Beasts and Where to Find Them screenplay.
We distributed $5.2 million in dividends and repurchased $11.9 million of our common stock during the quarter.
Fiscal year-to-date, we have now reacquired $27.2 million in opportunistic open-market transactions, which reduced our outstanding authorization to $11.4 million.
However, as we announced earlier today, our board has authorized a $50 million increase in net authorization, bringing our new buyback program limit to $61.4 million.
Under this program, which will continue to be funded with available cash, the company may purchase shares from time to time as conditions allow.
At quarter end, our net cash position was approximately $355 million compared to $456 million a year ago.
The lower net cash balance is primarily due to higher levels of planned spending related to the company's capital program to upgrade its facilities and strategic technology platforms.
As you know, our full year outlook for fiscal 2018 calls for a net use of free cash of $10 million to $20 million, which includes a planned $90 million to $100 million in capital spending primarily related to the headquarters building and strategic technology upgrades.
Fiscal year-to-date, we have used $50.3 million for construction and $25.7 million for new strategic technologies.
We are maintaining our full year outlook for net use of free cash.
The level of cap spending could exceed our original outlook range purely as a function of timing.
We expect to return to free cash generation in the next fiscal year as cash usage will fall from peak levels as we complete our headquarters redesign.
Now turning to outlook.
We are reaffirming our fiscal 2018 outlook for revenue of $1.65 billion to $1.7 billion.
However, as Dick discussed, we are raising our outlook for earnings per diluted share from continuing operations by $0.15 to a new range of $1.35 to $1.45 to reflect the partial year impact of the 2017 U.S. tax reform legislation.
We expect to see a full year impact of the lower corporate tax rate in the next fiscal year.
Of course, we will provide more detail on next quarter's call when we review our fiscal 2019 outlook.
With that, I will hand the call back to <UNK> for the Q&A session.
Thank you very much, Ken.
Sabrina, we are now ready to open the lines for questions.
Thanks very much, <UNK>.
As you know, we've been in the reading business before.
We published a basal reader back in the 1990s.
We then introduced Literacy ---+ what was called Literacy Place.
We dropped out of that business, but we developed a lot of expertise in selling it, which we transferred over to our READ 180 business.
In the meantime, we also had a supplementary of the book ---+ paperback book base business, which ---+ in the institutional sales to schools, which was prospering but was sort of #2 to our tech business.
So we have a strong background for many, many years in the reading market in instructional materials.
We are ---+ as to address the question of how far along we are, we're introducing a core reading program called Scholastic Literacy in a few months.
That is ---+ we're introducing it in the summer; and for sale next year, which will compete in the core reading market, which, as I indicated, is an opportunity there.
The market size is over $1 billion.
Our current education revenues are about $320 million-ish, and we expect that business to grow by double digits significantly over the next 3 years as we get new revenues from the increased size of our sales force, return to our core competency of selling core instructional materials in reading and our fantastic position in the reading market.
Now just to amplify it, on one more point that you and I have talked about before in these calls.
The core reading market, which was formerly basal textbook driven and continues to be heavily basal textbooks is now moving much more to balanced literacy and combinations of paperback books.
And so those libraries and programs that we have are now being asked for by schools to become core reading materials.
So we've buttressed the skills part of these programs, so you now will be able to get all the essential skills that are needed to teach kids how to read in Pre-K to 6 through Scholastic Literacy.
We also have lots of supplementary material and libraries that complement the core Scholastic Literacy.
Probably too long an answer, <UNK>, but I hope that covers most of what you wanted to hear.
Yes.
Absolutely, yes.
We're seeing adoption states ---+ thanks for asking that because that's an important part of our strategy.
We're seeing adoption states ask for these kinds of programs.
Their restrictions are being loosened up considerably, they're taking many more flexible kinds of materials in these state adoptions and we have successfully competed in a few of them.
But we're expanding our strength in that area right now and we'll be in those adoptions over the next several years.
I think ---+ well, I think it's going to be '20.
We'll sign leases in fiscal '19, but these leases include free introductory lease abatements.
So the rent will ---+ even if we sign them and get people moved in, in '19 or early in '20, the revenues really won't begin to start until fiscal '20.
But they'll add significantly to our bottom line when they occur.
Thank you very much.
Thanks, everybody, for listening in.
We look forward to our July call with you when we report year-end and our guidance for 2019.
Many thanks.
| 2018_SCHL |
2015 | WMB | WMB
#Well 2017 that's when those MVCs ended naturally under the contracts, so there really isn't any change to that.
And the design of the drilling obligation was to ensure that the volumes as the 2017 period ended were at a relatively high level.
Really great trade on that.
We allowed them to combine those fields and allow them to put best economics to work on their capital.
But in exchange for that we both got a longer-term and better expectations for volumes and growth in the future.
Really while everyone was trying to find a winner and a loser on that, but I would just tell you from my vantage point and believe me we've studied it hard that really is a win-win.
And it only makes sense that there is, because when you are forcing people to make uneconomic capital decisions and you allow them to make better capital decisions you've improved a lot for both parties.
I would just say that we think those were the bulk of the opportunities, but we will continue to look for opportunities if there's growth opportunities.
Always happy to work with them.
Great relationship developed there and we are very thankful to have them as a customer.
We think they are a great operator and have been very fair to work with.
So we will continue to look for opportunities, but we don't have anything immediately to offer on that.
Sure.
Thanks for the question.
<UNK>, would you take that question, please.
Sure.
Good eye there <UNK>.
Those numbers did change a little bit quarter to quarter.
When we initially had that open season, we had requests for much more capacity than we could handle.
So we moved forward with two parties, and one of those parties has stepped out and decided that they are not going to pursue signing the agreements and making the commitment.
And so we reduced the size of the project.
That's the bad news.
The good news is one of the other players that wanted to get in, but couldn't, is now going to have an opportunity to come into the project.
So the project is going to be a bit smaller, but the returns actually go up on the project.
So we still think it's a very high quality project and one we are excited about pursuing.
And as you hinted at in your question that does leave us some additional capacity that we have to work with for new opportunities that we think are going to be out there.
Yes.
Sure.
I would just say the producers just continue to find ways to bring in additional production out there, as well, with developed very few rigs running, but continue to find ways to do that.
And, as well, are being very efficient with that.
We are seeing some things that are pretty interesting out there in terms of new development.
But, I think our hope for that right now in the current pricing environment is to keep driving our unit cost low and keep the volumes as flat as possible is our expectation.
The good news about the West relative to what we are seeing in the East is that there is plenty of takeaway capacity, plenty of infrastructure.
The gathering and processing costs are relatively low because it's older infrastructure that was built in a different pricing era.
And so, the variable cost or the cash cost to the producer to produce is relatively low.
So we really just haven't seen ---+ we've seen a very small, almost insignificant, amount of price-related shut-in, just like we would in any winter or shoulder month in the West.
But overall very low cost place for variable production and so we really don't expect a whole lot of change out there.
So lots of reserve.
Lots of known reserve and I think if we do see a price signal producers are ready to jump on it.
But we are not expecting anything dramatic out of that area.
And really proud of the team for working hard to keep our cash flows as steady as they have.
Considering how low the NGL markets have been.
Great question.
I would just say that we are really excited about that acreage dedication and think that once the infrastructure demand, or sorry the infrastructure constraints, are lifted out there and the firm obligations that various customers have out there, they will be working to take advantage of that firm capacity that they have.
And so feel pretty good about the prospects for that.
But I also would say that the way we are structured on that we are not obligated to go spend that money out in front of the production showing up.
And so we have ability to step into that so we are not going to be out spending capital in front of that drilling from a risk standpoint.
We do think that's very, very good acreage.
Some really impressive cost levels available to it and so we are really excited.
We have a very good vantage point of what people's production versus cost levels are and we're very excited about that acreage.
<UNK> you want to take that, please.
Sure glad to take it and thanks for the question.
First of all we are really pleased to be serving customers again back in Louisiana.
It just happened that as we brought Geismar back on, so did Evangeline come on and so the market was well served.
And I think looking back over our shoulder here in the last quarter the ethylene market was well served by production in that there were very few shutdowns or unexpected shutdowns.
And I think in at least one of the months I want to say it was July we saw industry high production.
So I think all of that led to perhaps a bit of oversupply or slightly long market in ethylene and the necessary price adjustments that occurred during the quarter.
I'll note though that over last weeks, two weeks notionally we recovered some of that price.
It's come back up probably on the order of about a nickel at this point.
And so just to take the conversation a little further forward to answer your question, finally, as we look forward and we look into we call it the second quarter of next year a couple of factors that will play positively is a very high turn around season.
And I think another factor that will play positively is relatively low inventories of ethylene by any public accounting, so certain that people are doing exchanges to fill their needs in next year.
But low inventories and high shutdown rates, planned shutdown rates certainly bode well for the supply demand balance, I think in our favor.
I hope that brings the necessary color and that's the way we see things playing out here over the next couple of quarters.
Thanks.
Forgot to mention on that.
We are always in the marketplace looking to secure the best value for our ethylene out there.
And we have been in conversations in I'll say past quarters, including this last quarter and we continue to have conversations with customers over whether or not they desire to enter into any contracts all including fee for service contracts.
And so we are trying to lock in some of the margins into the future.
Of course, in this dynamic price environment everyone sits across the table with rubber guns pointed at each other and we will see where those negotiations go over time.
We are always looking when it would appear to be favorable to us to lock up solid volumes and solid margins on Geismar 1.
Okay great.
Well thank you everybody for joining us this morning.
We really appreciate the interest and appreciate your respecting the scope of our discussion this morning as well, so thank you for that.
Also just want to say big thanks to the team here at Williams.
Great execution and just a lot of great focus on delivering the strategy that we have before us.
Appreciate all their attention to focus despite the many distractions we have had.
With that thanks again for joining us this morning and have a good day.
| 2015_WMB |
2015 | DO | DO
#Yes, sure.
This is <UNK> again.
So on the Quest we know we've got some work and that's a good example where even though we talked about reducing some of the space that the third-generation rigs occupy the Quest is one where quite frankly we intend to upgrade the helodeck for her to get her compliance with some of the recent regulations and then continue to market her and look at opportunities out there in that region.
The Apex is another rig where we continue to have activity in her pipeline.
We're not announcing anything new here today but that's another rig where we have I think some positive things happening in the background and when we have something more specific to talk about we will bring that to you.
Yes, this is <UNK>.
So in terms of the Valiant she's got a two well deal there with Premier.
We have a very good rapport with Premier as a customer.
Although we're not announcing something new here today we do think that good work I think ultimately leads to other good work.
And so we're pleased to work for Premier and I again think the Valiant has got a good future in what is a very tough market overall but even more so in the North Sea.
You asked I guess also about the Guardian.
She's with Shell through July of this year.
We don't have anything new to report here this morning.
But that's a rig that we think that we continue to put in front of customers for consideration.
So there are things in the pipeline that we're looking at but nothing that gets announced here today.
So <UNK> everything remains on the table today and from an entry point perspective this could include picking up distressed assets from the yards or a distressed asset without a contract.
There are assets available now but frankly the bid/ask spread is still too wide and we do have to consider the stacking cost in an oversupplied market especially as I've mentioned it does seem to be getting worse.
I also believe the current valuations of for example secured rig debt are still inflated and they do not reflect fair risk-adjusted discounts.
So we have not quite reached the sweet spot yet for entering a space where we're picking up assets on the cheap.
And that's for individual assets or even corporate acquisitions.
Despite the recent uptick in the oil price frankly if we are looking at a protracted downturn, the high near-term EPS of some of the let's say highly leveraged players will drop as lucrative contracts play out.
And those for example like us with healthy balance sheets and the correct leverage for this market will then participate likely in consolidation moving forward.
So frankly put, or frankly speaking, I don't think the time is right now.
And I think perhaps opportunity will present itself somewhat better further down the road.
But again let's not ---+ I don't want to overplay my hand here and suggest that in 12-months time we will be successful in completing acquisitions of assets or companies.
However, I do believe that now is not the time to enter the market specifically.
I think in the next 6 to 12 months that there will be better opportunity.
The priority will be on the floater side but if opportunity presents itself we'll take a look at it from a specific basis.
But we are really looking at the floating market.
We think the floater market will be better positioned in terms of a recovery than the jackup market moving forward.
Yes, <UNK>.
We had about $130 million of total CapEx, $60 million of maintenance, $70 million in the newbuild upgrade.
<UNK>, this is <UNK>.
That gap is something that we're clearly pretty well tuned into between two of our mainstay customers both of whom by the way also want us to fill that gap.
So that's something we've got a lot of attention put onto and we intend to address just as hard as we can.
So thank you for participating in the call today and we look forward to speaking with you again next quarter.
| 2015_DO |
2016 | HST | HST
#Yes.
Yes, I would say ---+ I think we were not necessarily expecting that July would be any stronger than what we had seen in Q2 but we do have very strong group bookings in August.
And we have strong group bookings in September.
I think as you were I think alluding to there a part of that is due to the fact that the Jewish holidays have shifted into October.
So we are not necessarily expecting acceleration in July but we do expect a strong August and September.
I don't know that we have necessarily identified a trend.
I mean the two trends that we have seen is that sometimes a market like Washington will end up with a little bit softer business in the fourth quarter because when you are having a nationwide election, most of the elected officials tend to be out of the city.
And since that they draw for business in Washington, we've sometimes seen some softening of business in DC related to that.
We have generally seen that the election week ends up being relatively slow on the group side because at least larger groups are reluctant to schedule an event that would overlap Election Day.
And so that is one of the reasons why we have indicated really for the last couple of quarters now we have highlighted the fact that we were not overly confident about the fourth quarter.
One reason is the holiday shift but the other was the fact that we felt that this Election Day would be one that groups would be reluctant to book in.
So I think what we are going to find when we get to the fourth quarter, not to get too far ahead of ourselves here, is that you are going to see some incredibly strong weeks because group is going to be very compacted into the sort of the open weeks of that quarter and then those weeks that are affected either by the election or by the holiday will probably be fairly weak.
Well, I don't know that that we ---+ we don't have a precise forecast right now.
But you've correctly identified exactly what we are trying to do.
We do have a very good meeting platform there.
We are trying to take full advantage of it to offset the loss of business that we might otherwise have gotten if the convention center had been ---+ not under construction and fully available.
I am not certain that I ---+ I think we are still going to end up finding that we have a weaker year in San Francisco and that group bookings are going to probably ---+ at the Marquis will probably be down for the full year.
I just think that we do enough business that is associated with the convention center that we have ---+ we do have a great meeting platform but I don't know that it is big enough to completely replace all of the citywide business.
The one thing I would say though is that while the convention business will be off in San Francisco, we do think we have a very attractive hotel or hotels that are in great locations in that market.
So we are going to have a ---+ it is going to be a struggle to overcome some of the weakness on the group side but we are in good locations from a transient perspective too.
<UNK>, you really picked the most two extreme markets; DC has a very, very strong group booking pace for next year but then as <UNK> just mentioned, San Francisco is fairly weak for next year.
Yes, we are seeing San Francisco as being ---+.
Or San Diego.
Or San Diego, rather, being quite strong the second half of the year and I think we believe that carries into next year too.
Yes, <UNK>, I mean San Diego should be one of our best markets in the second half of the year.
Yes, I think in general what we are ---+ the pattern that we have seen the last few years is that there is of course estimates from the experts in terms of what is going to happen with supply growth for the beginning of the year.
And then normally what seems to happen is by the time we get to this point in the year or a little bit later, we begin to realize that the supply growth that is actually going to materialize is slightly less just because projects have a tendency to be delayed.
And so this year I think we started off the year thinking that nationwide supply was probably going to be just under 2 and now it feels like it might be more in that 1.6, 1.7 range, which is not a huge difference.
But still on the margin, a little bit better.
So that is sort of 2016.
We are expecting that supply next year will increase somewhat.
I think we see that both across the industry and we also see that in the upper price points in the top 20 markets.
So again I would say we are probably expecting the industry supply to be a little bit over 2 and probably expect that the supply in the top 20 markets is a little bit higher than that.
I would also guess though that at some point we are going to see the same sort of lengthening of the delivery time for that supply which will hopefully maybe pull back down a little bit.
New York continues ---+ New York and Houston and Miami tend to be the markets that continue to see the strongest supply.
Seattle might be one more that falls into that category.
We are seeing while supply for New York will continue to be robust and a lot of it is under construction, my sense in looking at the data was we were seeing fewer projects that were projected to start in the next 12 months and fewer projects in planning.
So we are hoping that that may signal a return to some level of rationality around New York supply.
But we are not going to see the benefits of that in 2017.
I think it was right around that same level, maybe a percent or so higher.
Again as I have said in the past, this is a little bit of an imprecise science.
But I think in looking back at our comments for the prior quarter, we were probably ---+ we might have been just a hair higher in terms of Q1.
And some of that would be reflective of the fact that the relationship between the US dollar in some of those other currencies is you are starting to lap over when we had an impact last year.
Great, well thank you for joining us on the call today.
We appreciated the opportunity to review our second-quarter results and our outlook for the remainder of the year.
We look forward to providing a further update during our third-quarter call in November.
Have a great weekend.
And travel often for the remainder of the summer.
If you haven't looked at our website lately, it has got some great suggestions on places to stay.
Bye.
| 2016_HST |
2017 | INT | INT
#Thank you Scott.
Good evening everyone and welcome to the World Fuel Services fourth-quarter full year 2016 earnings conference call.
I'm <UNK> <UNK>, World Fuel's Assistant Treasurer, and I will be doing the introductions on this evening's call alongside our live slide presentation.
This call is also available via webcast.
To access this webcast or future webcasts, please visit our website at www.wfscorp.com and click on the webcast icon.
With us on the call today are <UNK> <UNK>, Chairman and Chief Executive Officer, and <UNK> <UNK>, Executive Vice President and Chief Financial Officer.
By now you should have all received a copy of our earnings release.
If not you can access the release on our website.
Before we get started I would like to review World Fuel's Safe Harbor statement.
Certain statements made today, including comments about World Fuel's expectations regarding future plans and performance are forward-looking statements that are subject to a range of uncertainties and risks that could cause World Fuel's actual results to materially differ from the forward-looking information.
A description of the factors that could cause results to materially differ from these projections can be found in World Fuel's most recent Form 10-K and other reports filed with the Securities and Exchange Commission.
World Fuel assumes no obligation to revise or publicly release the results of any revisions to these forward-looking statements in light of new information or future events.
This presentation also include certain non-GAAP financial measures as defined in Regulation G.
A reconciliation of these non-GAAP financial measures to their most direct global comparable GAAP financial measures is included in World Fuel's press release and can be found on its website.
We will begin with several minutes of prepared remarks, which will then be followed by a question-and-answer period.
At this time, I'd like to introduce our Chairman and Chief Executive Officer, <UNK> <UNK>.
Thank you <UNK>, and good evening everyone.
Needless to say, we're very disappointed with our overall fourth-quarter results.
Once again, our aviation segment delivered strong results, but our land segment fell way short of our expectations, driven by unseasonably warm weather patterns in the UK and generally poor market conditions in the US, aided and abetted by the colonial pipeline disruption.
While our volumes in market position grew significantly, these events negatively impacted our usual advantaged supply position.
Our Marine business also experienced further weakness driven by the continued malaise in the shipping and energy markets, and an unusually large write-off related to a well-publicized customer failure in Asia.
While we were certainly not satisfied with our weak finish to 2016, we remain highly optimistic about our prospects for 2017 and beyond.
Our aviation segment has remained resilient and we remain focused on organic business development throughout the course of 2016.
Our global aviation platform is a meaningful participant in every important dimension of commercial, business, general and military aviation fuel and related services.
Our team has performed well and continues to do so.
As we enter 2017, we are engaged in building out our physical logistics service offerings at more than 80 airports in Canada, Europe, Australia and New Zealand through the previously announced acquisition of fueling operations.
Our land segment is evolving from a primarily supply driven wholesale business to a national and international platform, aligned with a deeper emphasis on end-user demand to create more readable and predictable earnings.
PAPCO and APP form the East Coast and West Coast foundations of our C&I end-user business.
They have given us a loyal end-user client following and the C&I sales and supply platform to blend with our supply wholesale and retail businesses.
While you will see the impact of these standalone businesses today, we will start to see more robust commercial synergies in 2017 with the rest of our lands portfolio, including our Connect Energy Group platform and Multi Service.
Connect Energy Group, our newly branded global energy management platform, formed by combining five energy management companies, continues to deepen our C&I customer relationships through its natural gas power and sustainability advisory services.
We can now provide energy advisory services in 25 countries to an enormous cross-section of commercial and industrial companies, and drive synergies with our liquid products businesses in the US, UK and Brazil.
Our payments business Multi Service is getting a bit more momentum as they continue to focus on niche B2B payment solutions, primarily to the energy and logistics space, and streamlining complicated cross-border transactions in 25 countries, 10 currencies and nine languages.
They handle 19 million transactions annually, service 4,500 fleets with our over the road fuel fleet card and service another 200 global fleets with 700,000 trucks with parts procurement and associated payments.
Multi Service also provides commercial driver license protection for 15,000 truck drivers in the US and combined with AVCARD is the largest closed loop aviation fleet fuel card.
And finally, our legacy retail business remains an important element of our land business and continues to give us scale, competitive supply advantage, ratable demand and cash flow for further investments.
The Marine segment continues to experience overall weakness and an array of challenges throughout all sectors of the shipping industry.
Low fuel price is a relatively low price availability, over supply is shipping, weak economic activity led to another tumultuous year in 2016.
Given the current state of the industry, we believe the recovery will remain slow.
However we do believe we are positioned well to provide solutions to customers as fuel regulations evolve.
Furthermore, we are poised with global initiatives when the market recovers.
Our previously announced cost restructuring in Marine is now effectively complete and we believe our cost structure is now more in line with the realities of this business segment today.
While we have reduced costs in our Marine business, our overall cost structure remains higher than we would like it to be and we are therefore embarking on additional cost reduction initiatives across the business, which <UNK> will describe in greater detail shortly.
Considering our global initiatives across all our business segments, the incremental value driven by our latest acquisitions, organic growth and now additional cost saving initiatives, we believe we can deliver solid results in 2017.
We appreciate the continued support from our long-term shareholders, customers, suppliers and our talented and dedicated colleagues around the world.
We remain confident about our strategic market position and direction as a comprehensive energy management fulfillment and payments business.
And now, I'll turn the call over to <UNK> for a financial review of the results.
Thank you Mike and good evening everyone.
Consolidated revenue for the fourth quarter was $7.8 billion, up 16% compared to the fourth quarter of 2015.
The increase was due to higher oil prices as well as increased overall volume.
For the full year, consolidated revenue was $27 billion, down 11% compared to last year.
The decline in our annual revenue was due to the lower fuel prices we experienced, principally at the beginning of 2016, compared to the prior year.
The lower revenue was offset in part by increased total aggregate volumes.
Our aviation segment volume was 1.9 billion gallons in the fourth quarter, up 238 million gallons or 14% year-over-year.
For the full year, aviation segment volume was a record 7.1 billion gallons, up 785 million gallons or 12% year-over-year.
The aviation segment is now an annual volume run rate of nearly eight billion gallons, an increase of 300% from the lows of 2009.
Volume growth in the aviation segment has been almost entirely a result of organic business development, displaying the strength and resilience of our aviation business, as well as the global need for our growing line of products and value added service offerings.
Volume in our Marine segment for the fourth quarter was 7.6 million metric tons, down approximately 400,000 metric tons, or 5% year-over-year.
Brokered business activity for the quarter was approximately 11% of total Marine volume as compared to 12% in the fourth quarter of 2015.
For the full year, our Marine segment volume was 31.4 million metric tons, down 1.3 million metric tons or 4%, compared to 2015.
Throughout the year, the Marine segment continued to face the challenges of decreased demand and oversupplied market, low fuel prices and lack of any material price volatility, and at this time we do not see any meaningful market recovery in the near future.
Our land segment sold a record 1.5 billion gallons during the fourth quarter, up approximately 100 million gallons or 8% from the fourth quarter of 2015.
For the full year, land segment volume was a record 5.4 billion gallons, up nearly 435 million gallons or 9% year-over-year.
Lastly, total consolidated volume in the fourth quarter was 5.4 billion gallons, an increase of more than 240 million gallons or 5% year-over-year.
For the full year 2016, volume was 20.8 billion gallons, up nearly 900 million gallons or 4% compared to 2015.
As I continue with the remainder of the financial review, please note that the following figures exclude the impact of $17.9 million of pretax non-recurring expenses, or $12.2 million after-tax, which were recorded in the fourth quarter, as well as nonrecurring items in periods previously reported as highlighted in our earnings release.
This amount, the $17.9 million that is, is principally comprised of the write-off of balances owed to us by Dakota Plains Holdings Incorporated (technical difficulties) related to the sale of our crude oil joint venture interest to Dakota Plains in December of 2014 as a result of their bankruptcy filing in the fourth quarter.
Also acquisition related expenses, severance costs and a write off of a related small business in South Africa, which we shut down in the fourth quarter.
To assist all of you when reconciling operating income results published in our earnings release and 10-K, the breakdown of the $17.9 million is as follows.
$7.5 million impacts non-operating expenses, one-time items impacting the aviation and Marine segments was $3.9 million, and the amount impacting the land segment was $2.6 million.
The reconciliation of these amounts can be found on our website and on the last slide of the webcast presentation.
Consolidated gross profit for the fourth quarter was $225 million, a decrease of $5 million or 2% compared to the fourth quarter of 2015.
For the full year, consolidated gross profit was $902 million, that's an increase of $39 million or 5% compared to 2015.
Our aviation segment contributed $102 million of gross profit in the fourth quarter, an increase of $13 million or 15% compared to the fourth quarter of 2015.
For the quarter, although we witnessed the expected seasonal decline coming off of the strong third quarter, year-over-year the aviation segment benefited from an increase in government related and core resale activity when compared to the fourth quarter of 2015.
We expect aviation to deliver a similar result in the first quarter.
For the full year, gross profit in the aviation segment was $401 million, an increase of $37 million or 10% compared to 2015.
In terms of the ExxonMobil transaction, we have now closed on all airport locations with the exception of Australia and New Zealand and a few locations in Germany, which are expected to close within the next 60 to 90 days.
We expect this transaction to begin making profit contributions generally consistent with original projections, adjusted for foreign exchange impacts, beginning in the second quarter of this year.
The Marine segment generated gross profit of $35 million, down $11 million or 24% year-over-year.
For the full year, Marine segment gross profit was $151 million, down $39 million or 21% year-over-year.
The weak Marine industry, low fuel price environment, and lack of significant price volatility were the principal drivers of the quarterly and annual declines when compared to 2015.
Sequentially, Marine delivered a similar result at $37 million of gross profit, which we generated in the third quarter.
Quarter to date, in the first quarter of this year, volume and margin levels have improved, tracking closer to levels experienced in last year's third quarter.
Our ability to maintain our industry-leading market position will serve us well when some of the macro economic and price related headwinds ease.
Meanwhile, we are managing our operations to the realities of the current business environment as evidenced by our recently completed cost restructuring actions.
Our land segment delivered gross profit of $89 million in the fourth quarter, a decrease of $7 million or 8% year-over-year.
Sequentially land segment gross profit actually increased by $1 million.
The year-over-year gross profit decline is principally related to three factors.
First, we experienced one of the warmest fourth quarters on record in Europe, which negatively impacted our seasonally weather dependent UK land business when compared to the prior year.
Quarter to date, weather patterns have returned to seasonal norms, which should drive a better first-quarter result in Europe.
Second, our inventory related businesses in the US were significantly impacted by the prolonged disruption along the colonial pipeline, which resulted in oversupplied market in the Midwest as the colonial pipeline inventory was redirected to this market.
The Midwest market remains meaningfully oversupplied quarter to date, however we expect the situation to improve as the market begins to change over to summer gasoline.
Our overall inventory related results compare unfavorably to what was a strong quarter in the fourth quarter of 2015.
Lastly, this year's fourth quarter in land excludes gross profit related to the Pester retail business which we sold at the beginning of 2016.
Although our decision to sell these non-core assets negatively impacted gross profit when compared to last year's results, the net return on the core Pester investment remains well above average as we grow that business as an asset-light distributor.
These factors were principally offset by gross profit generated by PAPCO and APP, both acquired last July.
For the full year, our land segment generated gross profit of $351 million, an increase of $41 million or 13% year-over-year, principally benefiting from recent acquisitions.
Nonfuel related gross profit associated with our Multi Service business was $13.1 million in the fourth quarter, an increase of approximately 6% compared to the fourth quarter of last year.
For the full year, Multi Service gross profit exceeded $51 million, that's up 5% year-over-year.
As mentioned last quarter, several recent contract wins in Multi Service should contribute to solid growth in 2017 where we're still expecting gross profit to grow 20% year-over-year with even higher growth in operating income as we are beginning to better leverage the Multi Service platform.
Operating expenses in the fourth quarter, excluding our provision for bad debt and one-time expenses, were $181 million, that's up $25 million or 16% year-over-year, but an increase of only 4% sequentially.
The year-over-year increase in operating expenses was principally related to expenses of acquired businesses.
Total operating expenses, excluding bad debt expense and any one-time cost, should be in the range of $177 million to $181 million in the first quarter, that's flat to down slightly from the fourth quarter.
Our bad debt provision for the fourth quarter was $10 million.
During the fourth quarter we wrote off approximately $6 million of receivables related to the Hanjin bankruptcy filing associated with specific vessels against which enforcement of our maritime liens is unlikely to be successful due to impediments and obstacles resulting from the disorderly wind down of this business.
As of December 31 of 2016, we had outstanding receivables of approximately $7 million net of anticipated insurance recoveries.
We believe we will recover substantially all of the remaining Hanjin receivable.
We also recorded additional bad debt reserves and our land and aviation businesses related to a few smaller collection issues.
And our reserve for the fourth quarter was also impacted by the significant $300 million sequential increase in receivables driven by higher fuel prices during the fourth quarter.
Excluding one-time expenses, consolidated income from operations for the fourth quarter was $34 million, that's down $37 million year-over-year and for the full year, income from operations was $209 million, down $47 million year-over-year.
For the quarter, income from operations in our aviation segment was $41 million, that's an increase of $8 million compared to the fourth quarter of 2015.
For the full year, aviation segment income from operations was $169 million, an increase of $31 million or 22% year-over-year.
Marine segment income from operations for the fourth quarter was $7.3 million, excluding the $6 million Hanjin write off and the one-time items mentioned earlier.
For the full year Marine segment income from operations was $40.6 million, a decrease of over $32 million compared to last year's results.
In the land segment, fourth-quarter income from operations was $9.4 million, down $26.7 million compared to the strong fourth quarter of 2015, principally driven by the factors resulting in lower gross profit which I described earlier.
For the full year income from operations and land segment was $75 million, down $26 million compared to 2015.
Excluding the one-time charge related to the Dakota Plains bankruptcy, which I mentioned earlier, non-operating expenses, which principally comprised of interest expense for the fourth quarter, were $14 million, an increase of $7 million compared to the fourth quarter of 2015.
This is principally related to increased borrowings associated with our increased volume, combined with higher fuel prices, the funding of acquisitions and higher average interest rates compared to last year.
I would assume non-operating expenses to be approximately $12 million to $15 million for the first quarter of 2017.
When adjusting for one-time items, the Company's effective tax rate in the fourth quarter was 28.8%, compared to 21.5% in the fourth quarter of 2015.
Our tax rate inclusive of the one-time items was effectively zero, as you will see in the face of our P&L.
As the deductions related to the one-time items effectively equaled the tax liability related to the results of operations for the quarter.
For the full year our effective tax rate was only 13.6%, compared to 22% in 2015.
We estimate that our effective tax rate for the full year of 2017 should be between 15% and 18%.
Adjusted net income, which excludes the one-time expenses, was $14.3 million this quarter, down $36 million year-over-year.
For the full year adjusted net income was $147 million, down 19% year-over-year.
Non-GAAP net income, which also excludes intangible amortization and stock-based compensation in addition to one-time expenses, was $25.2 million in the fourth quarter a decrease of $35 million.
While adjusted net income was down nearly 20% for the full year, non-GAAP net income of $188.8 million was down only 11% compared to last year as intangible amortization increased by over $8 million in 2016 because of the PAPCO, APP and ExxonMobil acquisitions.
Adjusted diluted earnings per share was $0.21 in the fourth quarter, down from $0.73 last year and for the full year adjusted diluted earnings per share was $2.11, down 18% year-over-year.
Non-GAAP diluted earnings per share was $0.36 in the fourth quarter, down from $0.86 in the fourth quarter of 2015 and for the full year non-GAAP diluted earnings per share was $2.70, down only 10% year-over-year compared to the 18% decline in adjusted diluted earnings per share.
We continue to believe that non-GAAP diluted earnings per share is the most accurate measure of our core operating results.
Our accounts receivable balance was $2.3 billion at year-end, up $300 million sequentially and up $500 million compared to December of 2015, which related to the increase in average fuel prices and increased total volume driven in part by our recent acquisitions.
And net working capital was approximately $1 billion, which was up $200 million for the year.
We used $15 million of cash flow from operations in the fourth quarter, driven principally by increased working capital requirements resulting from a 10% sequential increase in fuel prices in the fourth quarter.
For the full year we still generated $205 million of positive operating cash flow, compared to $448 million in 2015.
We have now generated more than $1 billion in operating cash flow over the past four years.
We also repurchased $23 million of shares in the fourth quarter, taking our 2016 total shares repurchased to nearly 1 million shares as we continue to look to repurchase enough shares to offset the dilutive impact of employee stock rewards.
So while we are clearly disappointed with the way in which we ended 2016, we remain optimistic about 2017 and the years beyond.
We remain focused on driving organic growth and are still integrating three large acquisitions, which will contribute incremental profits in 2017 and beyond.
We also remain extremely focused on driving greater cost efficiencies in our business.
While the previously announced cost imitative principally related to the Marine segment is effectively complete, that's not enough.
We have already identified an additional $20 million of annualized cost savings opportunities with approximately $15 million expected to impact 2017 and we're actively looking to identify further efficiencies beyond this $20 million.
So considering all the moving parts, difficult marketing conditions in Marine and parts of the land business, some of which are continuing into the first quarter, the continuing integration of APP, PAPCO and the ExxonMobil deal, and now additional cost savings, while it is never been our practice to provide earnings per share guidance, we have decided to do so for 2017 to assist you with your financial models.
So as indicated in our earnings release, we are providing full year guidance of $2.55 to $2 90 of adjusted diluted earnings per share, which assumes expected contributions from our three recent acquisitions, continued contributions for our government related activities, traditional seasonal weather patterns and our ability to realize the cost savings which I described earlier.
In closing, we believe we have a great company with great people supporting us day in and day out with tremendous opportunities ahead of us.
Our entire team is aligned around the mission of delivering solid results in 2017 and beyond.
Mike and I would like to thank you for your continued support, and we would now like to turn the call over to Scott to begin the Q&A session.
Sure.
Thanks for the important question, <UNK>.
So I would say, obviously, we're doing this for the first time and being careful, we provided a pretty wide range.
As you've indicated, there are a lot of things that could happen over the course of the year that could impact EPS by $0.05, $0.10, $0.15 a share or more.
So we try to take all of those things into account.
We looked at our plans across our three businesses.
We made a lot of core assumptions, some relatively conservative and none overly aggressive and then we factored in the cost saving element as well.
We looked at Odyssey and the reality of that ExxonMobil transaction which we had hoped Odyssey in terms of what we expect that to produce in 2017.
As you can imagine, our currency rates have gone against us in a big way from the time that we announced that deal, but we made some conservative assumptions there.
Our borrowing costs are increasing because we have more debt and interest rates are higher so we factored that in, I would say, conservatively.
While our government business has remained remarkably resilient over the last few years when we told you guys a few years ago that it looked like it was about to go away, we made some conservative assumptions there as well, I would say, in terms of what that will contribute and those assumptions are below the contributions that, that business generated in 2016.
If I go across the three businesses, some of the core aspects that we factored into the guidance that we gave are worth repeating.
If I look at Marine, as I indicated on the call, we don't expect significant uptick in activity there.
We will get the benefit of the restructuring activities which are 95% complete at this point and we still expect some summer seasonality that we've been seeing there the last couple of years but we made little to no assumptions for much of any growth beyond that.
In Land, we've look at run rates and APP and PAPCO very carefully.
Obviously, the newest parts of our business and have made assumptions based upon where we believe those businesses are within a reasonable range.
We have assumed reasonable weather patterns in the UK so that would be one of the risks you would highlight, <UNK>, if it's 75 degrees for the rest of this quarter and next winter in the UK, that would certainly be a risk factor that would impact our results.
And we have also improved ---+ assumed improved market positions in the US vis-a-vis what happened to us in the fourth quarter where we were beginning to see that happen as we make it into the second half of this quarter but that could also change very quickly with unforeseen results.
In Aviation, again, I already talked about the ExxonMobil transaction, the government piece, and then we have assumed some relatively modest growth across the core business and then, of course, the cost savings the incremental cost savings which we have announced where we expect to generate $15 million worth of cost savings in 2017.
So we put all that together; we looked at the various risks that I highlighted and that led us to the range that we provided which were very comfortable with this point in time, again, with the exception of something unforeseen occurring over the course of the year.
So two additional solid questions coming from you, <UNK>, so thank you.
So first off, let me describe for all of you what the additional savings are and that will probably answer a great part of ---+ part two to your question, <UNK>.
There are three principal areas that add to the $15 million to $20 million that we announced in the earnings release and on the call.
One of them, as you can imagine, we have a lot of IT-related activity that goes on in this organization as it does in many organizations around the world which involves cost of third-party contractors; ultimately, depreciation from the capitalized portions of those projects.
We did a lot of heavy duty analysis and we had a bit too much of that type of activity going on so we're cutting back there a bit in the least; critical projects that should not have any meaningful impact on the results that we can drive with this Company over the next couple of years so that's a piece of the savings.
While we have already talked about Marine, we are looking at additional restructuring activities across the business beyond what we've done in Marine but we're certainly not looking to cut any muscle.
We're focusing on fat first so while we are very careful about what those actions may entail but we have certain areas of the business where we have the opportunity to do just that and we are embarking upon that over the next several weeks and couple months.
And then third, we have in direct procurement savings, which include costs associated with things like data subscription services, IT-related services, travel and various other products and service costs where we were spending a tremendous amount of money and didn't necessarily have our eye on the ball in terms of optimizing those particular costs.
And we found opportunities to reduce costs in many of those areas with a fairly new team that's sole purpose in life is to focus on improving our execution in the area of indirect procurement of where we spend hundreds of millions of dollars a year.
So I would say this is only the beginning.
I think there are opportunities to save more beyond this but this is what we have identified so far and what we are prepared to share and including the guidance range that we shared today.
Without any surprises, <UNK>, I would say that the latter, I would expect it, assuming that prices don't go through the roof, because if they do, just mechanically, we want to preserve in greater numbers based on higher receivable balance but barring that, that event we expect that the level of bad debt would be more in line with historical levels in 2017.
One of the things ---+ thanks for that, <UNK>.
One of the things, I believe I said in my prepared remarks was that what we are seeing so far in Q1 and I know we're only about five or six weeks in; the last five or six weeks was a lot more like Q3 than Q4.
Q4 was closer to breakeven principally because of Hanjin and obviously, with some one-time items in there.
If you exclude that, they were not that far off the $10 million number but we seem to be running more in line with $10 million plus outcome on a quarterly basis this year, benefiting, in part, from the restructuring and I also mentioned when we get into the summer, we have a few million dollars of traditional seasonal pick-up as well.
So I think we are more likely to see results, at least as solid as Q3 as compared to what we saw in Q4.
Well, another good question.
I think, of course, if the prices go up and the receivable balance goes up, the payables balance goes up as well but of course, our investment working capital would go up a bit but it's unlikely, barring again, a significant increase in price that, that would have a massive effect on our net debt position and if we saw that coming, there are things that we could do that we've done in the past when prices started skyrocketing to mitigate that risk.
So a little over 1 times net debt-to-EBITDA.
We're not at all uncomfortable with that.
We are not necessarily looking for that number to increase dramatically so we are very focused on our cash flow profile and this was the first quarter in over four years that we actually used any cash.
We weren't too happy about that, right.
We wanted to keep that streak going but we were just slightly in the negative, again, because of 100% because of price in the fourth quarter.
But going forward, if we could continue generating cash on a regular basis as we have in the past, we should be able to keep that number in check in that general neighborhood going forward.
That's certainly our intention.
<UNK>, I'm sorry we can't hear you, <UNK>.
Much better.
Thanks.
Do you want to take that, <UNK>.
Sure.
So we could quantify the impact, it's somewhere around $7 million to $8 million and it was a twofold impact.
The larger piece of the pie relates to the fact that as the Colonial had its issues, a glut of product was redirected to these Explorer pipeline, which basically served as the Midwest region where we have our greatest concentration of activity today in that part of our business.
So that created a significantly oversupplied market and drove margins down pretty significantly so that was probably 60%, 65% of the impact right there.
And then the East Coast, you have the inverse problem, along with Colonial where product was scarce, that's where PAPCO is, for example, one of our recent acquisitions.
Prices ran up, leaving us with some high-priced inventory and then once the pipeline sorted out all of its issues, you had a pretty sharp drop in price and we got impacted by that as well and that cost us a few million dollars.
So in total, it was a pretty significant driver of the year-over-year Delta from what we produced in the fourth quarter of 2015 versus what we produced in the fourth quarter of this year.
It's pretty sluggish.
I think everyone is watching OPEC trying to move the price up.
They've got a $2 trillion IPO that they would like to realize but the shale oil revolution, that's one of four major energy events in the last 100 years and OPEC just doesn't have what it used to.
I don't think that people are ---+ we just know this for a fact ; you can see it in the 10-K and 10-Qs.
Just not as much hedging activity as there used to be.
That was an area that, obviously, we'd create a lot of value add but no, it really has not picked up.
Okay.
Well, thanks for the support of all of our long-term shareholders and customers and suppliers.
As <UNK> said earlier, we've got a fantastic organization here.
We've got folks that really have a burning desire and always have had for a long period of time to succeed.
So we believe that we're on the right path and we feel good about what the future holds so we look forward to talking to you next quarter and thanks for all of your support.
| 2017_INT |
2017 | SYK | SYK
#My comments today will be focused on our second quarter financial results and the related performance drivers
The detailed financial data and results have been included in today' press release
Organic sales growth for the quarter was 6.7%
As a reminder, this quarter included one less selling day, which has the impact of reducing growth by roughly 1%
As previously stated, selling days generally do not have an impact on the performance of our capital businesses
Pricing in the quarter was unfavorable 1.5% from the prior year, while foreign currency had an unfavorable impact of 0.8% on sales
, we continue to see good momentum with organic sales growth of 7.2%
This strong growth was evident throughout several of our key divisions within our Orthopaedics, MedSurg and Neurotechnology segment
International organic sales growth of 5.5% was highlighted by solid performances in Europe and Australia
Our growth in emerging markets continues to recover, but also benefited from favorable year-over-year comparable
Both geographies were impacted by one less selling day
Our adjusted quarterly earnings per diluted share of $1.53 increased 10.1% from the prior year, reflecting strong sales growth, accretive acquisitions, operating expense control and the previously discussed benefit from the change in accounting guidance for tax benefits from certain stock compensation expenses now included in our tax provision
Our second-quarter EPS, as anticipated, was negatively impacted $0.04 by unfavorable foreign currency exchange rates
Now, I will provide some highlights around our segment performance
Orthopaedics delivered constant currency growth of 6.5% and organic growth of 6.2%, including organic growth of 8.4% in the U.S
performance was highlighted by growth in knees of 7% and trauma and extremities at 10%, reflecting strong demand for our 3D-printed products, our foot and ankle portfolio and our Triathlon knee
Orthopaedics international delivered organic growth of 1.8% and included steady performances across all developed markets
MedSurg continued to have strong results in the quarter with constant currency growth of 6.8% and organic gains of 6.7%, which included a 6.9% increase in the U.S
instruments had U.S
organic sales growth of 4.2%
During the quarter, instruments executed its sampling plan for its newly launched System 8 drill and began several customer trials
We expect System 8 shipments will gain momentum into the third and fourth quarters as we have now shifted to full commercial launch
Endoscopy had another strong quarter with U.S
organic sales of 15.2%
This reflects continued strong demand for our 1588 video platform, booms and lights and sports medicine products
Medical had U.S
organic growth of 2.3%
This growth primarily reflects the impact related to the timing of shipments of our core bed, stretcher and power cot products
As you are aware, our core medical business is all capital and can be impacted by the timing of customer orders and the related shipment
We continue to see strong order growth in the core medical business
Our Sage business momentum improved during the quarter, following the previously discussed product recall
We are actively regaining customers that had switched during the recall and we are seeing solid performances in the other key products in the Sage portfolio
Subsequent to quarter-end, Sage received an FDA warning letter, which relates to an inspection last September shortly after we closed on the acquisition
We have already taken many steps to address the items outlined in the warning letter and will continue to work with the FDA toward resolution
This year's (11:04) results were impacted by continued supplier issues took earlier in the quarter in a tough quarterly comparable
Internationally, MedSurg had organic sales growth of 6%, which reflects strong Canadian, Australian sales and an easing of the metrics comparables in China
Neurotechnology and Spine had constant currency and organic growth of 7.9%
We continue to see strong global demand for our Neurotech products, which is somewhat offset by softness in our Spine business
Neurotech business posted growth of 10.3% for the quarter, highlighted by continued strong demand for our hemorrhagic and ischemic stroke products, CMF products and our neuro-powered instruments
Spine business continued to see softness as it recovers from supply issues early in the year, partly offset by high demand for our 3D-printed titanium products
Internationally, Neurotechnology and Spine had organic growth of 13.1%
This performance was driven by continued strong demand for our Neurotech products in Europe and Asia
Now, I'll focus on operating highlights in the second quarter
Our adjusted gross margin of 66.3% was up 10 basis points from the prior-year quarter, reflecting a favorable mix, offset primarily by price and foreign exchange related to certain businesses
R&D spending was 6.4% of sales
Our adjusted SG&A was 35% of sales, which was up 10 basis points from the prior-year quarter
This reflects favorable leverage from business mix and continued focus on operating expense improvements through our cost transformation for growth program
This favorability was offset by planned investments in our selling organization, including samples and sales rep adds, our CTG program, including our ERP implementation, and continued investments in our Mako TKA platform
In total, adjusted operating expenses were 41.3% of sales, which was flat compared to prior-year quarter
In summary, our adjusted operating margin was 25% of sales and 20 basis points better than the prior-year quarter
Our operating margin reflects good leverage, offset by key investments related to drive future operational savings and product growth platforms
We continue to remain confident in our ability to deliver our full-year commitment of 30 basis point to 50 basis point improvement in our operating margin
Lastly, as it relates to our full-year operating margin improvement, NOVADAQ is anticipated to be approximately 20 basis point dilutive to our operating margin for 2017, which would partially offset the expected 30 basis points to 50 basis points of improvement
Now, I will provide some highlights on other income and expense
Other income/expense decreased from the prior-year quarter primarily due to increased interest income
Our second quarter adjusted effective tax rate of 16.3% reflects a larger-than-anticipated benefit related to the adoption of the changes in accounting for stock compensation expenses
In the second half of the year, our tax rate will benefit from certain other geographical and operational changes that, combined with the aforementioned change in accounting, will result in an anticipated effective tax rate ranging from 16% to 17%
Focusing on the balance sheet, we continue to maintain a strong position with $3.7 billion of cash and marketable securities; of which, approximately 89% was held outside the U.S
Total debt on the balance sheet at the end of the quarter was $7.4 billion
Turning to cash flow, our cash from operations was approximately $801 million
Also, we did not repurchase any shares during the quarter
And now, I will discuss our third quarter and full-year guidance
Based on our past performance on our outlook for the remainder for the year, we now anticipate annual organic sales growth to be in the range of 6.5% to 7% for 2017. As a reminder, the third quarter will have one less selling day as compared to 2016 and the fourth quarter will have the same number of selling days
The full year has one less selling day
If foreign currency exchange rates hold near current levels, we expect net sales in the third quarter and full year to be negatively impacted by approximately 0.5% and adjusted net earnings per diluted share to be negatively impacted by $0.02 in the third quarter and approximately $0.10 in the full year
For 2017, our adjusted net earnings per diluted share is now expected to be in the range of $6.45 to $6.55 per share, which excludes any anticipated dilution related to the planned acquisition of NOVADAQ technologies
Based on the third quarter-end close date for NOVADAQ, the dilution is estimated to be approximately $0.03 to $0.05 per share
For the third quarter, we anticipate that adjusted net earnings per diluted share will be in the range of $1.50 to $1.55, which includes the aforementioned investment, foreign currency impact and the impact of the accounting change for stock compensation
Our third quarter range does not assume any dilution related to NOVADAQ
However, if the deal closes earlier than September 30, there will be additional dilution during the quarter
And now, we'll open up the call for Q&A
Question-and-Answer Session
Yes
On the component of the raise, FX is moderating
So, it won't be as big as it was in the first half
I think in the first half, we probably had around $0.08 per share, if you look at what we had
I'm guessing that it will be about $0.05 or so in the back half
No, not $0.05, probably $0.02 in the back half
And then, in terms of the components of the tax, I think in addition to the stock comp, we also implemented some other changes geographically that will benefit us in the back half of the year and that's probably roughly a 0.5% point on our tax rate
And as we laid out with cost transformation, we did say 30 basis points to 50 basis points over the next few years
In the early years, it will be closer to 30 basis points
There are some elements like indirect procurement, shared services where we'll get savings earlier
The areas like the ERP systems and product life cycle management will drive much higher savings in the outer years, but it's a multi-year multi-facetted program
It's working so far and we're getting some early returns at least as it relates to indirect procurement
But the bigger prize will come with product lifecycle management and as you mentioned with ERP, which will begin sort of towards the end of 2018 and continue in the years after that
| 2017_SYK |
2016 | HFC | HFC
#<UNK>, we are kind of scrambling here on the natural gas sensitivity.
I don't have that at my fingertips.
Like 120,000 and then BTU a day, so about every dollar change, call it $25 million.
I guess, what we're trying ---+ the question is, what are you trying to compare to.
Previous ---+ quarter over quarter, <UNK>, I would say that nat-gas was pretty flat, maybe even up just slightly.
So the improvements you'd be seeing likely were going to be through improvements in our efforts to reduce operating costs.
And keep in mind, <UNK>, we do have some nat-gas hedges, so basically it's not a one-for-one basis when you're looking at the spot price on your screen with regards to our OpEx impact.
I think this quarter, the OpEx ---+ obviously there was a fair amount of our lower OpEx was from lower nat-gas.
The rest of it was really split between lower maintenance materials and just other types of projects where we really cut spend.
Bigger picture there, <UNK>: the best thing we can do to get our operating cost down, and we've been making progress here, is to get our reliability up.
That decreases our maintenance expense, obviously.
It gets our [full] barrel numbers lower, which is always a good thing.
And then, as we've laid out in our business improvement plan, we've identified $100 million of OpEx improvements and lately we've identified another $30 million of improvements in addition to that, primarily through better management of contractors and other headcount.
I think the way we think about it is that our CapEx is basically defending the fortress.
So it's our first priority.
We have to maintain our plants.
We have to invest in the compliance projects that are required to stay in business.
So a lot of that is not discretionary and things we have to do.
We can cut back on the margin on some of the opportunity capital and growth capital, but we tend to think that those are better returns to the shareholders than even getting the dividend.
Second is the dividend, but again that's like 1A and 1B between our CapEx and the dividend.
And as <UNK> mentioned earlier, our swing is really on returning cash to the shareholders through the repurchase option.
I think the biggest benefit of lower crude prices and less of an impact on our liquids volume yield.
So as you know, refiners don't produce 100% liquid volume yield.
It's somewhere in the 93% to 98%; maybe sometimes 100% depending on how much hydrogen you add to your products.
So when you take 5% times the crude price, that's really the impact of the liquid volume yield on your margins.
Typically, like you are saying, when the crude price is lower, other secondary product margins are better.
Having said that, we're still seeing weakness this year in asphalt and fuel oil, at least relative to prior quarters and prior years.
So we're not getting the bump there that you would normally see in those secondary product WTI cracks than we have in the past.
Well, there was just a couple things, <UNK>.
First, obviously the biggest was the impairment and goodwill ---+ which, goodwill, you don't get a tax benefit from.
It's not a rate driver.
So what you saw happen was, even though we announced a large loss, and you might've expected even tax rate to be lower, you don't get to count that goodwill portion.
That said, our first quarter tax estimate was expecting better earnings through the first half of the year, which then reversed.
So all of those sort of drilled us towards a lower number.
The only other thing I'd point out is that with HEP being a larger percent of our earnings and HEP being the tax advantage structure, you just saw that rate, as you pointed out, being below what you would have maybe expected ---+ something closer to 35%.
Definitely.
Our turnarounds were in the first and second quarter.
We are going to have a turnaround at the older Woods Cross FCC unit in the fourth quarter, but other than that, we're pretty much done for the year.
We think that the fall turnaround schedule in Mid-Con is going to be pretty heavy, as it typically is.
There's some turnarounds as well in the Rockies, in the third quarter, early fourth quarter.
But I don't think it's anything outside the normal preparation for winter type of turnarounds.
Jon, got anything on there.
This is <UNK> <UNK>, <UNK>.
RIN WTI ---+ I still think we're going to probably see the $2.00 mark for the balance of this year, somewhere in there.
If something happens internationally it could do something, but we don't see anything on the forecast that's going to substantially change that.
On the OpEx side, <UNK>, remember we had our FCC turnaround at Cheyenne in the quarter.
So that on a per barrel crude basis makes those costs look lower because we ran fewer barrels.
And then, even when we came out of turnaround, we had some gas oil inventory to run off.
So that led to lower crude rates even after the turnaround was completed, so again makes the per barrel numbers look higher than it ordinarily would.
But having said that, we have a lot of our opportunity that we have identified to improve our operating cost structure in the Company are in the Rockies, especially at Cheyenne.
We've got the contractor headcount we talked about earlier, and we benchmarked ourselves to peer group and we have opportunities across the board to improve at Cheyenne.
And <UNK>, by my math, just looking here ---+ I mean OpEx calculated from Q2 of 2015 and also Q1 of 2016 was pretty much closer to $60 million versus closer to $50 million for Q2.
So directionally, moving in the right direction we just need to add the barrels now.
So <UNK>, following up on the goodwill impairment as well as the PP&E write-down, you will likely remember ---+ I'm not sure we broke it out by plant ---+ but we had about $309 million worth of goodwill associated with the Cheyenne refinery as a result of the HollyFrontier merger in 2011.
We are required to actually test that for impairment every quarter.
We do a major review every July, and what we found in that review, as you do a discounted cash flow analysis, look at the forward outlook, the operating history, RINs prices, as an example another overhang.
We found that the Cheyenne refinery based on past results and future expectations certainly was impaired for goodwill.
There's been a second step that's required after you've done it to test on an undiscounted basis a look at your existing property, plant and equipment.
Again, looking at those discounted cash flows as we went forward, found that there was an additional $300 million or so write-downs that needed to occur on book value versus enterprise value.
Also taking into account our market capitalization.
So all of that resulted in what was a little more than $600 million of non-cash impairments to the Cheyenne refinery in the quarter.
<UNK>, one other thought on the OpEx question, tying in Woods Cross, that Rockies region number you are probably looking at ---+ we've been carrying the full load of the additional operators and other expenses for the Woods Cross expansion for the whole year, let alone the second quarter.
And again, with us basically studying that unit up in the last month, the second quarter, that's going to contribute to per barrel numbers looking high as well.
I think $7.00 would be a good walking around number.
And <UNK>, that's a combination again of getting the Woods Cross barrels on, because we've had the OpEx associated with that layering in over the past couple of years, and reducing OpEx in general at Cheyenne.
All our assets are core assets.
How's that for a standard reply.
It's a good refinery.
With the hydrogen plant that we've added there, we have the capability to run up to 80% heavy Canadian crude.
The Denver market's a good market.
We've invested in a heavy oil rack that allows us to sell more bottom of the barrel asphalt and gas oil type of products.
So we like the asset.
We just need to get the reliability up at that facility, work on our operating costs, as you've highlighted for us here, and I think it could be a major contributor to HollyFrontier ---+ and no question, the key driver for that facility, though, is the heavy crude.
We don't really mean to suggest that with the projects that we are doing.
Really, looking at projects that can increase our yield, and not necessarily preferentially gasoline versus diesel.
And that ---+ those are the projects, like the FCC modernizations, are basically upgrading coke and gas and LPGs into gasoline and diesel.
I don't think we're smart enough to pick the gasoline and the diesel spread, so we designed for flexibility.
I think in the short to intermediate term, with all the diesel capacity that's been added worldwide, it suggests gasoline is going to be better than diesel.
But again, like I said earlier, we've seen the gasoline to diesel spread flip about four times in the first six months of the year, and when it does we react accordingly by changing our cut lengths and things of that nature to make the right product at the right time.
Good morning, <UNK>.
I would say, historically, it's probably been more of a hardware issue, especially in our utilities area where we've had less than reliable steam and instrument error and systems of that nature.
I think a lot of that is behind us.
We may have some incremental improvements from here, but the vast majority of those utility-related issues are behind us.
I think going forward, more of our issues there are management- and culture-related, but we've just installed a new plant manager as well as a new operations manager earlier this year.
And we're just beginning to see the aircraft carrier turn at Cheyenne.
So we are pleasantly pleased at what the plant has been able to do since it has come out of its FCC turnaround.
The FCC project is performing as we expected, and we're excited by the blooms we're seeing on the roads at Cheyenne.
Both, <UNK>.
You have to ---+ one has to drive the other.
I mean, if you had specific reasons as to why it passed operations, we're going to be different that you can point to, that's one answer.
But the answer is, there is a combination of both that goes into that.
No.
It's not a matter of justification, <UNK>.
And it's not just crude throughput, as an example.
You also have Brent-TI that, as you look backwards 3 to 4 years, you saw something that probably averaged $6.00 or $7.00.
As you look forward, we use something in the $2.00 to $4.00 range.
And so that causes impairment because Brent-TI was a driver of profitability, historically.
<UNK>, I think the major reason for the write-down is just, frankly, the curing value on our books for Cheyenne has been too high ever since the merger.
We've been skirting on the question of whether we should take the write-down even through great margin periods like last year.
So I think we've just decided to bite the bullet and do this, and obviously the weaker margins this year were the catalyst for doing it.
No.
We have been very pleased by the market's ability to absorb the additional production out of Woods Cross.
Granted, it is the summertime, when [solid] demand is stronger than it is obviously in the winter.
Got strong cracks in prices in the Salt Lake and Idaho markets right now.
Up until recently, we've seen strong cracks in the Vegas market as well.
I think it's been in the last week or so that Vegas has gotten weak along with the West Coast.
But overall, we've been very pleased in our ability to place the product at nice margins for Woods Cross and for us.
We fully expect to place that product using the UNEV pipeline.
That was why that pipeline was built ---+ to be a relief valve, if you will, especially in the wintertime.
I think it's the difference between wholesale and retail, <UNK>.
I think much of our discussion today has been wholesale-related.
What we basically sell out of our refineries to asphalt customers.
We are seeing what you're talking about beneficially within our Holly Asphalt division, where we have great margins at [more than] retail level through Holly Asphalt.
But again we're talking ---+ most of our discussion today has been at the ---+ regarding the net-net of asphalt to the refinery producer.
Just remember, our retail business profitability does not layer into our refining results.
You can find the details in the reconciliation.
One last thing I'd offer, <UNK>, as to the write-down question that had an impact timing wise, was our market capitalization.
So down 50% or so from the end of last year, also plays into that equation, sort of when measuring your market valuation and book valuation.
Roughly half.
No.
I would say most of it is in the Magellan system, where we sell the majority of our products.
That's right.
It goes in unblended and then when it comes out at the rack level, that's where we blend.
That's getting a the very core of what the issue is regarding RINs, you know.
Obviously, refiners would love to blend as much of their product as possible.
But unfortunately, our customers are pretty smart guys, and when they see the opportunity to get into the blending business, or to grow their existing blending business, so that they can generate RINs and turn around and sell them back to us, that's getting at the core of this point of obligation we're talking about.
Again, that's the negotiation and friction between the refiner and his customer.
Thanks, everyone, for joining us this morning.
If you have any follow up questions, Craig and I will be available all day.
We look forward to speaking with you in November to share our third quarter results.
Thank you.
| 2016_HFC |
2015 | IVC | IVC
#Okay.
So in terms of turnover, the first step has been to do an assessment of the sales team.
It's been a great sales force in this marketplace with kind of a unique burden historically having the broadest product line in home medical equipment.
Many of our competitors have a sales force that just are expert in the one area where they participate in.
And our team is said to be experts in durable medical equipments, in respiratory care and complex rehab.
So it makes sense going forward and hopefully it sounds obvious that we've got to align people's talents with the market opportunity where they are situated and then globally, or at least in North America, look at how we're aligned in terms of people in a geography and opportunity.
So, [that is what is] going on or has been going on and the training continues to happen, as I mentioned earlier in the call, will continue ad nauseam that's akin to any profession where you have got the equivalent of continuing education credits that have to be part of someone's normal career curriculum.
In terms of turnover, it's a sales force, you have natural turnover.
There's been nothing extraordinary.
So, it's really about alignment and then like any good sales force, you've got a performance plan that everybody has got to meet.
So, I think that's normal.
And then, your second question was when will this matriculate to the P&L.
I think if you think of the biggest emphasis or shift being unequivocally complex, that's the part of our business that maybe has the longest quote to cash cycle time because remember for everybody's benefit, you typically get a quote for a complex wheelchair, then there is a period of time where our customers go to the reimbursement source to verify that the product will be reimbursed.
That might take 90 to 120 days and we have a little bit of time to manufacture and deliver the product.
And then you're into normal accounts receivable duration of a couple of months.
So, that whole cycle is relatively long and it'll take more or less that amount of time for the solid results to show up in our financial statements although I think on a smaller scale, we're having some early wins as a result of confirming this is the right step.
<UNK>, I'll try to give you some insight on that, but I'll preface it by saying, I'm going to focus on the euro is the most important currency, but they is a lot of currencies we manage over there and a lot of cross currencies.
So, there is some noise that we managed and it's important to manage.
But I'll give you the euro as an indicator.
If I go back to third quarter 2014, the euro averaged during that quarter, and again we have a lag period, so it's different than the calendar year, third quarter it was $1.35.
Fourth quarter was $1.27.
So you're right, it was starting to come down at fourth quarter.
First quarter was a $1.18, second quarter it was $1.09 and third quarter it's $1.11.
So we came back a little between second and third quarter 2015.
But we've still ---+ today I think it's trading $1.13.
So we still got a little pain clearly against fourth quarter last year and even against first quarter 2015 when it was $1.18.
But we're starting to chip away at that and obviously it's something that we try to manage well on the transaction front, but on the translation, I mean we're exposed.
Thank you and thanks everybody for your time and attention during today's call and support for Invacare.
<UNK>, <UNK>, and I are available for any follow-up questions.
Hope you have a good day.
Thank you.
| 2015_IVC |
2015 | HLIT | HLIT
#Well thanks, <UNK>.
And thank everyone for joining us today.
Turning now to our slide 3, today we reported our results for the first quarter of 2015, reflecting a combination of solid progress from our strategic product initiatives, a strong gross margin and year-over-year earnings growth, but also a challenging operating environment.
Revenue in the quarter was $104 million, down 4% sequentially, and near the mid-point of our guidance range, as our Cable Edge business achieved record revenue while Video revenue was soft impacted by both global currency headwinds, and a continued technology transition driven pause in major projects, particularly among our Pay-TV service provider customers.
Historically, the first quarter has been our seasonally slowest.
And this was again evident in the first quarter of 2015 with bookings of $97 million, down 20% from a fairly strong fourth quarter, which benefited from year-end spending.
The softer demand was seen both in international markets, a consequence of the strong dollar, and among service providers pausing before major video technology upgrades.
Gross margin in the quarter was 54%, approximately flat with the fourth quarter, reflecting both our product strategy and our strong competitive position.
Earnings were $0.05 a share, a penny below last quarter's results, but up sharply from the first quarter of last year revealing the leverage we're building into our business, and the underlying improving earnings power of the Company.
Well, with that overview, let's now turn to slide 4 where I'll provide more detail on our Video business result for the quarter.
You know, despite soft first quarter demand for our Video products, strategic progress in mid- to long-term market dynamics were actually encouraging.
So how do we reconcile a slow start to the year with our continued strategic conviction here around Video.
Well, even within EMEA and the APAC region (inaudible) currency headwinds depressed investment.
We increasingly saw customers, particularly Tier 1 service providers, pausing spending and looking forward to major operational transformations that will leverage video function virtualization and internet protocol technology for great flexibility and efficiency, while at the same time enabling 4K or Ultra HD formats in the new HEVC compression standard.
The imperative for this next generation of more flexible and efficient video infrastructure was also highlighted during the period by a string of new service announcements from some of the world's leading media companies and Pay-TV service providers, including CBS, HBO, the NFL, Dish, and Verizon.
These emerging business dynamics and the corresponding enabling technologies were front of mind for most of our customers.
And I can tell you that momentum toward network function virtualization for video processing in general, and around our VOS platform in particular, is accelerating.
[But we're still] early days.
During the quarter, we secured nearly two dozen customer wins on our new software platform, including with several Tier 1 service providers.
Compared with several of our high-profile trials and shoot-out successes, we're paving a well-lit path toward validating the viability of virtualized video infrastructure for both media companies and Pay-TV service providers.
Now, while still a relatively small number, bookings for our VOS related products and licenses grew by over two-x relative to the prior quarter, driven again by both customers adopting the platform for the first time, and also by early VOS customers adding new software licenses to expand network functionality and channel density.
We're also encouraged to see modest sequential growth of our global business with broadcast and media customers during the quarter as we're doing a better job leveraging our integrated video production through delivery solution sets, which extend from content capture to direct-to-consumer over-the-top streaming.
And finally here regarding the first quarter, we started to see the first real signs of life for Ultra HD channel deployments as we sold our, and the industry's, first full-frame live Ultra HD encoders to several Tier 1 service providers.
Now, while Ultra HD is coming slower than we had hoped, there is an unmistakable increase in technology evaluation and trial activity that bodes well for future investment.
And on that note, let's now turn to slide 5 where I'll provide an update on the key themes we see impacting our Video business for the balance of 2015, and our progress executing on the strategic milestones we've previously outlined.
As I mentioned just a moment ago, the adoption of network function virtualization to produce and deliver live TV over IP is indeed accelerating.
And our customers continue to turn their attention toward IT paradigms in general, and Harmonic's VOS platform in particular, to leverage our newest innovations in video quality, compression, and function integration.
And here, our wins over the past few quarters were advancing the industry's understanding of and confidence in this new virtualized software approach to video infrastructure.
And while many service providers are still getting educated and evaluating the technology, we see growing momentum toward virtualization throughout the balance of 2015.
[Analogously], as just discussed a moment ago, the first quarter also offered fresh evidence of a new era of linear over-the-top services provided by both broadcast and media companies, and traditional Pay-TV service providers.
Associated with these new services, the clear trend toward higher resolutions displays in smartphones, TVs, and tablets highlights the increasing importance of picture quality and compression technology.
Our technology leadership and customer relationships spanning broadcast media and MVPDs strongly position us to capitalize on the industry's investment in these evolving over-the-top distribution models.
Now, while many elements of the 4K and Ultra HD ecosystem are indeed starting to come together, the industry's transition remains in the very early stages.
Nevertheless, this maturation process is now clearly underway.
Test channels are being launched, and trial activity is gaining momentum.
In large part, for Harmonic's products and for our our industry leadership of the Ultra HD forum.
Outstanding work is really being done here.
At the recent NAB Show, our innovation in this area was further emphasized in partnership with SES, Sinclair, and Sony to deliver live, linear, full-frame, Ultra HD over-the-top streams directly to internet connected smart TVs inside the Las Vegas Convention Center, bypassing the need for set top boxes.
Really innovative stuff that is garnering considerable industry attention.
So that's that.
Despite these encouraging market dynamics, as we consider the balance of 2015, we're also acutely aware of both the continuing potential for impact on our business caused by customer M&A activity, and the very real macroeconomic and geopolitical turbulence we've experienced in combination with the global strengthening of the dollar.
So considering all of that as background on the market dynamics we see, let's now pivot to our Video business progress milestones.
With respect to our VOS platform, we're making significant progress shortening the sales cycle, adding new customers to the platform at an accelerating rate, and making solid progress licensing new sales of additive functionality and software to customers already on the platform.
And in turn exploiting our unique horizontal technology portfolio to transform customers' operations and expand our share of the market.
Turning to 4K and Ultra HD, despite the modest near-term revenue opportunities for live Ultra HD service, we're winning new business across all of our end customer verticals.
As I mentioned previously, we're actively shipping our live full-frame Ultra HD encoders for test channels, and anticipate this trend to gain further momentum in the coming months.
And finally here, we remain focused and actively engaged with customers eager to deploy our Polaris solutions for scalable media orchestration to further leverage the power of our innovative Channel Port technology.
And here we recently announced a key early win with the PBS stations of Louisiana, and anticipate several other deals to follow.
All right, so let's now turn to slide 6 and talk about our Cable Edge business.
Our Cable Edge business achieved record revenue and bookings as well as strong gross margins in the quarter, further demonstrating our progress toward creating a transformative new growth engine as we continue to penetrate the emerging centralized and distributed CCAP markets.
Turning first to our approach to the centralized CCAP space, deployments of our NSP Pro platform continue to reflect exceptionally strong customer reception for video-on-demand, cloud DVR, and modular CMTS applications.
Revenue for this platform now accounts for over half of our Cable Edge business for the first time this quarter, highlighting our success in downstream CCAP as we continue to expand network footprint with existing customers, while also adding new international customers during the quarter.
Turning to distributed CCAP, customer interest in this fiber deep architecture continued to grow during the quarter, evidenced by an expanding pipeline of distributed CCAP opportunities and bolstered by positive customer feedback on our new NSG Exo two-way CMDS product.
We received encouraging early orders during the quarter, and are actively involved in several trials in the US, Europe and Asia.
The expanding opportunity for this technology was on display at NAB through the collaborative deployment I spoke about just a moment ago with SES and Sony to enable an IP-based, full-frame Ultra HD end-to-end delivery system, which utilized the unique capabilities of our NSG Exo as a CMTS for DOCSIS transmission of the Ultra HD content directly over IP to smart TVs.
And importantly, through this expanding body of distributed CCAP field deployments, we as a Company are gaining valuable two-way DOCSIS field experience that will serve us well as we further advance our CCAP agenda.
And so with that look back on the first quarter, now let's turn to slide 7 for an update on our outlook for the Cable Edge business for the balance for 2015.
Following this record quarter, we anticipate the same market dynamics to drive sustainable demand and growth opportunity.
Specifically, cable operators continue to unleash more powerful and user-friendly content navigation guides accelerating the consumption of video-on-demand and cloud DVR service, and by extension, demand for video edge QAM.
Additionally, with IP-based over-the-top streaming services on the rise, and with an increasing amount of this content rendered in 4K, bit rates and stream quality are increasing, driving growing demand for modular CMTS downstream ports.
More broadly, the intensifying level of competition among service providers to deliver multi-gigabit data rate increasingly cause cable operators to look ahead to plans for the deployment of next generation CCAP-enabled products designed to support DOCSIS 3.1 technology from the ground up.
Our third key market dynamic is the continued bifurcation of the CCAP opportunity with growing momentum for distributed CCAP-based solutions.
Now, this is particularly the case in areas where cable operators are extending fiber access networks to coax-wired multi-dwelling buildings and small businesses in a support of denser wifi architectures where our new NSG Exo CNTS is especially well suited.
And finally, as already noted regarding the Video side of the house, our customers consolidation and planning activities are ongoing, presenting some investment timing uncertainty.
We were impacted by some of this activity in Europe during the first quarter, manifest as a project delay.
And so we remain cautious in the near-term of the potential for further delays.
And so let's now pivot to the milestones by which we're measuring our Cable Edge strategic progress in 2015.
We continue to expand the NSG Pro platform footprint in the quarter, both domestically and internationally.
Now, this is a crucial component of our longer term success in CCAP as it broadens the opportunity for future downstream software license sales, while also cementing a foundation from which to insert our DOCSIS 3.1 two-way technology.
Additionally, we successfully expanded our customer base on the NSG Exo during the quarter while gaining valuable two-way DOCSIS CMTS deployment experience.
And finally, of significant importance to our overall CCAP initiative and progress, we're making really good progress, really meaningful progress in our centralized DOCSIS 3.1 development program.
And we remain on schedule to enter customer labs with two-way 3.1 solutions based on our NSG Pro platform later this year.
Here again, we'll continue to keep you apprised of our product development and customer valuation progress.
Okay, let's now turn to our slide 8 where I want to step back and speak to the big picture.
Our market is clearly in transition.
But we are out in front, transitioning Harmonic to thrive in the new environment.
As I mentioned previously, there's no doubt in my mind or in our customer's mind that Harmonic is uniquely positioned strategically.
We stand tall in the marketplace with commanding share leads in nearly every market segment we focus on.
Following several years of investment and close collaboration with both our media and service provider customers, we're very well positioned to capitalize on key industry trends around virtualization, the migration to IP-based video, 4K or Ultra HD, over-the-top, and CCAP.
And we are truly differentiated in the market with unparalleled innovation, service, a compelling total cost of ownership proposition, and a strong global brand and reputation.
And the road signs to solid earnings growth this year remain compelling.
Margins are expanding, operating expenses are carefully controlled, our share count has been significantly reduced, and we continue to be laser-focused on delivering earnings growth and expanding enterprise value.
And on this point, I'd like to highlight another key element of our value creation agenda.
As many of you are aware, we've continuously evolved and strengthened our Board of Directors as we've evolved the Company.
Sue Swenson and Mitzi Reaugh joined us only two years ago.
And I'm pleased to say last month, Nikos Theodosopoulos joined Harmonic's Board.
Nikos brings a deep understanding of the media and telecommunications space, virtualized network infrastructures, and emerging cloud-based architectures, along with a strong financial background and a clear focus on shareholder value.
I've been fortunate to enjoy a long-standing relationship with Nikos while he was at UBS. And I'm very pleased to have him join us.
On behalf of the other members of the Harmonic Board of Directors, we welcome Nikos and look forward to his contributions.
And so with that, <UNK>, let me turn the call over to you to talk more about the results and our financial outlook.
Thank you, <UNK>.
Let's move to slide 9.
Our net revenue for the first quarter was $104 million, near the mid-point of our guidance range, and down approximately 4% from both $107.9 million in the fourth quarter of 2014, and $108 million in the year-ago period.
Our Cable Edge segment was up $13.8 million sequentially, led by improved demand for NSG Pro platform.
This was offset by a decrease in our Video segment of $17.7 million.
As <UNK> mentioned, the decline in our Video segment is principally related to a global investment pause in our service provider vertical pending the adoption of next-generation technologies and architectures as well as the continuation of soft demand trends within EMEA and APAC regions which were further compounded by the strengthening dollar during the quarter.
Our bookings for the first quarter were $97.3 million, down 20% sequentially, and 23% from the first quarter of 2014.
On a year-over-year basis, the investment pause we discussed in our Video segment as well as the strengthening dollar played a significant role in the decline.
Additionally, Q1 2014 had $10 million of multi-year service contracts included in those bookings.
These declines were partially offset by record bookings in our Cable Edge segment.
Anticipating your questions, I'll take a moment here to address the impact of the strengthened dollar on our revenue.
As we have historically stated, while approximately half of our revenue comes from outside of the United States, ultimately 90% of our revenue is invoiced in US dollars.
So while we don't see a big translation impact on our financial statement, we still have a very real impact on our business.
The global strength of the dollar has significantly impacted the purchasing power of our channel partners and end customers.
In fact, approximately 23% of our 2013 bookings were sold to regions where currency has devalued a blended 17% to the US dollar.
This impact has caused not only the need to discount more heavily to some of these regions, but has delayed the investment by these customers of needed infrastructure.
Given the average of another 7% decline early in Q1, we felt this impact again during the quarter.
Our book-to-bill ratio was 0.9.
Deferred and backlog was $122.2 million at the end of the first quarter, down 5% sequentially and 3% year-over-year.
This decrease is due to generally lower bookings in the quarter, offset by a build in backlog and deferred for orders of our new VOS platform, which will be recognized in the coming quarters.
Separately, deferred revenue on its own grew $9.5 million sequentially.
This was primarily attributed to an additional month of SLA billing in the quarter, given our April 3rd quarter-end date.
Gross margin was 53.9% in the quarter, above the high end of our guidance range, an increase of 60 basis points from the first quarter of last year, and approximately flat with the fourth quarter.
The year-over-year improvement principally reflects the improvement of our NSG Pro margin now that we're running at full production levels.
Non-GAAP operating expenses in the first quarter were $49.9 million, down from the prior quarter's $51.6 million.
And down from $54.1 million in the year-ago period.
As you know, over the trailing four quarters, we have reduced our operating expenses by just over $13 million.
This reduction reflects the alignment of our R&D investment as our new technology platforms have come to market.
It also aligns our SG&A spending with the run rate of our business.
Our headcount was 1,008, down 2% from the fourth quarter, and 3% from a year ago.
Now, let's move to slide 10 and take a deeper look into the revenue and operating margins of our Video segment.
We had a challenging first quarter in Video with revenue down approximately 20% sequentially.
This decline spanned all geographic regions and was impacted by the continued global strengthening of the dollar, and by our service provider customers as they more broadly planned for the adoption of next-generation video technologies and architectures.
The good news is we're starting to see the transition begin.
Orders from customers adopting our VOS-related products went from one in the third quarter of last year, to more than a handful in the fourth quarter, to nearly two dozen in the first quarter of this year.
As we have historically seen with new product introductions, we are starting to see a greater percentage of these earlier deals result in projects causing growth at our deferred revenue balance.
Given the accelerated adoption of our next-generation technologies and architectures, and the pipeline of opportunities we anticipate to close in the coming quarters, we expect a build of backlog and deferred revenue for these related products and services with a revenue recognition more heavily weighted through the second half of this year.
I'll discuss this more in a moment.
Lower revenue in the quarter drove our operating margin in the Video segment down 10 points below the fourth quarter's result to nearly break-even level.
Now, moving to slide 11, let's take a look into the revenue and operating trends of our Cable Edge segment.
Despite customer consolidation activity having a real, but modest impact on our revenue in the quarter, we had an exceptionally strong quarter in the Cable Edge segment, establishing a new high-water mark in the business as our CCAP-enabled products gained increasingly strong global momentum with cable customers.
Record revenue of $34.7 million, up 66% sequentially, while most pronounced in North America, was also stronger in the APAC region.
Taking a step back and looking at our progress on the edge more broadly from a year-over-year perspective, we're demonstrating solid double-digit growth rates in each of our geographies.
Led largely by our advancement in CCAP, product revenue in the Americas were up 26%, EMEA was up 69%.
And building on the momentum through the back half of last year, the APAC region advanced 49%.
As <UNK> mentioned, we're also just now starting to establish good momentum with the NSG Exo, which we introduced a quarter ago to address the distributed CCAP architecture.
The operating margin of 17.8% in our Cable Edge segment reflects the leverage characteristics we've built into the business, and the benefit of delivering more of our value in software this quarter.
Moving now to slide 12, let's take a deeper look into the revenue trends in the first quarter.
From a geographic perspective, revenue from the Americas was down 1% versus the fourth quarter.
The strongly improved Cable Edge revenue led principally by our service provider customers in North America, was offset by a decline in video revenue.
While the decline in Video spanned all geographies, it was most evident in the North America service provider vertical.
Although EMEA remained challenging with revenue down 7% sequentially, we were encouraged by a strong rebound from our broadcast and media customers in the region, and a modest sequential improvement in the Russia, Africa, and Middle East regions on a combined basis.
Nevertheless, we remain cautious of the strengthened dollar and geopolitical climates of these regions.
The APAC region declined 8% as softer demand in video processing from service providers customers offset strengthening demand for our Cable Edge products.
Broadcast and media revenue was up 3% sequentially, led by a modest increase in our production and playout products, and a more significant rebound from customers in the EMEA region.
This was offset by the softer North America demand in the quarter.
You may recall we exhibited strong momentum with several of the world's leading media companies in North America through the back half of last year.
And as <UNK> mentioned just a moment ago, we remained well positioned to resume this momentum going forward.
Finally, notwithstanding the record revenue performance of our Cable Edge segment, service provider revenue declined 7% from our significantly improved fourth-quarter results broadly reflecting the global investment pause in video.
We remained strongly engaged with both new and existing Pay-TV customers.
And as I just pointed out, we're starting to see the acceleration in bookings for our new strategic products in the video space.
Comcast was our only greater than 10% customer in the quarter, accounting for approximately 20% of revenue in Q1.
Now, moving to slide 13, we continue to drive a healthy balance sheet.
We ended the quarter with a cash balance of $101.9 million, down $3 million from the prior quarter, reflecting approximately $2 million of cash from operations, and just over $5 million used to repurchase shares.
Looking more closely at cash from operations, we placed a deposit of $14.2 million with a contract manufacturer in the quarter.
I'd also like to note, we impaired our $2.5 million investment in VJU during the quarter.
Our receivable balance was $75.9 million.
And our DSOs were 67 days, up slightly from last quarter's 63 days largely as a result of the extra month of SLA invoicing that occurred this quarter.
Inventory was $31.5 million, down slightly from the prior period.
Inventory turns were 6.1 times, matching our fourth quarter results.
Significantly, we returned over $236 million to our shareholders in the form of share repurchases since the second quarter of 2012 at an average price of $6.23 leaving our shares outstanding at the end of the fourth quarter at 88.8 million shares, a 32% reduction over the same timeframe.
Now, let's turn to our outlook on slide 14.
We believe similar trends impacting revenue in the first quarter will likely continue into the second quarter.
While we anticipate a sequential rebound in our Video business, demand in several geographies remains sluggish due to choppy macroeconomic conditions and the global strength of the dollar.
In addition, while customers are more broadly adopting next-generation video processing networks, we anticipate further projects which will have deferred revenue components.
And so we do not expect revenue recognition of these projects until we enter the back half of this year.
Lastly, we continue to face some uncertainty due to customer M&A activities.
We therefor expect our revenue to be in the range of $97 million to $107 million.
Non-GAAP gross margin in the second quarter is expected to be in the range of 52% to 53% due to a slightly lower expected mix of software sales in our Cable Edge segment somewhat offset by a modest rebound in our Video revenue.
For the second quarter of this year, we have targeted our non-GAAP operating expenses to be within a range of $49.5 million to $50.5 million.
We anticipate our non-GAAP tax rate for the second quarter to be 21%, subject to our domestic versus international splits.
Looking beyond the second quarter, we would like to provide you with an update on how to think about our business through the second half of this year.
We continue to be mindful of the fragile macroeconomic conditions in several pockets of EMEA and APAC regions, and the global strength of the US dollar.
In addition, as I've already highlighted, we anticipate our broadcast media and service provider customers will continue to accelerate the deployment of our new strategic product initiatives in video.
But some of these activities will remain on our balance sheet in the form of backlog or deferred revenue for several months.
As a result, we anticipate a steeper second-half ramp as revenue becomes more fully recognized in the third and fourth quarters.
With this caveat in mind, we continue to expect modest single-digit revenue growth for 2015.
From a gross margin perspective, the NSG Pro margin has improved since we began shipping the product late in the fourth quarter of 2013.
Given a full year at our target gross margin, and as we deliver more of our value in software while making continuous improvements to our supply chain and manufacturing processes, we anticipate further gross margin expansion to 53% or better for the full year of 2015.
With respect to operating expenses, we believe we have balanced the needs of our business with market opportunity.
And that we will continue to benefit from the R&D efficiencies we've built into our model via our transition to a more software-centric product portfolio.
As a result, we anticipate a $10 million to $15 million reduction for the full year of 2015 when compared to operating expenses in 2014.
We base this outlook on modest single-digit revenue growth.
Finally, we anticipate our non-GAAP tax rate for the full year to be 21%, once again subject to our domestic versus international split.
We believe this framework will provide meaningful year-over-year earnings growth through 2015 and beyond.
With that, I'll turn the call back over to <UNK> for his closing comments.
Okay, thanks, <UNK>.
Let me simply summarize by saying the market is in transition.
And we're transitioning Harmonic to thrive in the new environment.
As the video marketplace begins to embrace virtualization, we're winning new VOS customers, and strengthening our position in existing accounts.
As the marketplace begins to embrace Ultra HD and HEVC compression, we're winning high-profile Ultra HD and HEVC shoot-outs, and seeing trial activity gaining momentum.
As the cable industry gears up for a move to IP-delivered video enabled by centralized and distributed CCAP, our new platforms and entry into the space are progressing well.
Nevertheless, we're operating within choppy market conditions with currency headwinds overseas, customer consolidation dynamics, and adoption speed of new technologies creating uncertainty around near-term investment.
And as <UNK> just explained, consequently our second-quarter outlook.
All that being said, we're pleased with the year-over-year earnings growth delivered in the first quarter.
And we remain cautiously optimistic that adoption of our new products will continue to accelerate, and at the back half of this year will drive both top and bottom line growth.
And so with that, let me say thank you for your continued interest and support.
And let's open the call for your questions.
Yes, it is at this point.
We had a slow start.
But we're encouraged by the dynamics, as I explained.
We've seen it before with product transitions where there's a real pause before the uptick.
As <UNK> walked through, we've seen a material increase in the early sales of our VOS platform.
And we're looking for a further acceleration in the second quarter and onward.
Yes, it's definitely video procession.
And I would say that's somewhat corresponding to the fact that it was particularly video service providers ---+ traditional Pay-TV groups.
Some of our large Pay-TV customers are also some of the most aggressive and forward-looking about moving to virtualization.
They're also among the most aggressive looking to move to Ultra HD.
And so therefor, they're the ones who are most ---+ really planning actively their next moves, holding back on immediate investment to really roll out something new and special.
Put differently, there's a stronger correlation between our production and playout products and our broadcast and media customer group.
And as <UNK> just highlighted, we actually saw sequential growth with our broadcast and media customers.
And that reflects pretty strong and consistent demand trends around our production and playout products.
Yes.
It was a record quarter for us from a Cable Edge perspective.
Our new Cable Edge product, the downstream CCAP product, or edge QAM, is packaged in a platform, the NSG Pro platform, which is designed to accommodate both one-way downstream services as well as two-way services.
We were still working on introducing our two-way 3.1 capable technology.
There's certainly other players out there on the market.
We think we're going to be a strong competitor with this two-way product.
And the fact that we're establishing such a strong deploy base of the Pro platform, both domestically and internationally, across many different MSOs, gives us amplified reason to be encouraged about our ability to be competitive.
Thank you.
We just came back from one of the largest digital video related trade shows of the year, NAB in Las Vegas, which is attended by tens of thousands from all over the world.
And if I wanted to pick one data point, that's perhaps the best opportunity for cross-section of discussions across geographies as well as different verticals.
And we come away quite encouraged.
You know, it was just a year ago that we introduced at that show the notion of pushing video infrastructure to virtualization.
And frankly, there was some skepticism and some question.
It's markedly different a year later.
The discussions at this year's shows were very much about real deployments.
And [I think] what we've seen over the last year, and not that it's gone, but it's been a period of a lot of our customers sitting back and taking stock.
Saying, gee, where's all this going.
And not unlike the way you or I might pause if we were to think about buying a new television.
We might wait a minute and kind of make sure that the new Ultra HD model was ready.
Or whether it's (inaudible).
We've seen a similar pause around the next generation of video technology.
People get it that the next generation has the potential to be completely virtualized on very efficient and flexible blade servers.
They get it that it should support not only traditional services and resolutions, but also Ultra HD.
They get it that it should support flexible over-the-top platforms.
And that's led to a lot of conversations and frankly, customers kicking the tires.
And so we've been in a lot of labs.
We've had a lot of early sales to a number of, I would call them blue chip customers.
And all of that has gone quite well.
And so we see material evidence of strengthening, of momentum coming out of the first quarter, momentum that we have quarter-to-date on the second quarter, all of which informs our view of a real rebound in the bookings for the quarter.
And as <UNK> said, that rebound in bookings spilling over into revenue in the back half of the year.
If I might add, <UNK>, for NAB I think last year was about the notion of UHD.
This was more about the maturing solutions in UHD.
So we had the UHD workflow from our UHD playout capability through branding and graphics and coding and over-the-top for UHD.
And that attracted a lot of interest of the Pay-TV operators.
And then secondly, the SES demo which you mentioned, we showed the complete flow from, as they say, glass to glass, camera to television, all IP as if it was a live sports broadcast.
So we had the camera plugged into an outside broadcast truck with our UHD oncoder.
And that was going ultimately over two satellite links to get back to the hall with a live demo of that on the TV receiving it as IP, and showing that in full Ultra HD.
So it was a real solution.
And service provider, Pay-TV operator companies were very interested in that.
Absolutely.
No, I'd say it's both.
I think the build of additional bookings will have a bigger impact.
Well, first I think it's important to remember that customer M&A for us is certainly more broader than the Comcast, Time Warner deal.
Of course, we're keenly interested in DIRECTV, AT&T, and overseas Vodafone and LGI are key relationships.
In Latin America Televisa and America Movil have all been inquisitive companies where we've see combinations going.
And in general all of those have been a positive from our perspective.
As mentioned in the prepared remarks, in one of those cases in Europe actually we did see a delay of an expected project.
And so we're, I think, perhaps have a heightened realization that project timing or delays is certainly possible through these discussions and through these processes.
And so we're mindful of that as we go into the second quarter in the back half of this year.
But I wouldn't overstate our ---+ the potential impact beyond that.
Okay.
Well, thank you very much.
At least [caused] by simply highlighting the fact that we are executing well on our strategic agenda.
Our Cable Edge business is really thriving.
And our Video markets are showing clear evidence of a rebound.
We're intensely focused on driving both revenue and earnings growth this year.
And we believe the opportunity remains compelling.
And I can tell you we're leading this organization with a well-defined road map and a clear resolve to drive both top and bottom line growth.
With that, we look forward to updating you again on our progress over the course of the quarter and on next quarter's call.
Thank you again, everyone, for joining us today.
| 2015_HLIT |
2017 | KND | KND
#Yes.
Thank you, <UNK>.
We'll share, look, we are very pleased with that announcement.
I think it's a really important strategic moment for our Company and I will reflect investors back.
When we made the announcement to exit the Skilled Nursing Facility in total, a lot of investors and even some analysts on the sell side have been quick to ask and to write.
Well, does that mean your integrated care Continue to Care strategy is not what you think it is anymore.
And what we said was no, not at all.
We just have never had the appropriate and necessary amount of skilled nursing coverage in the 20 or 25 largest MSAs that we wanted to provide skilled nursing center care in our Continue to Care markets and we were faced with a clear assessment of do we double-down on the nursing center business or do we exit entirely and focus on partnerships.
And our partnership with the Genesis is just that.
We think they are one of the finest operators of Skilled Nursing Facility business in the country.
They're going to be very helpful to us with this clinical collaboration in many markets we serve.
As I mentioned in my prepared remarks, we have lots of RehabCare customers who we think we will bring into the network and there's lots of other good regional and national providers that we are in active discussions with, as well.
We have said for a long time that we believe we can run these integrated care Continue to Care markets without actually having to own the nursing center operations and assets and this clinical collaboration with Genesis is really that first example.
Remember, Genesis also no longer has any home health or hospice business and we hope that we can become a preferred provider for them there.
And we think that, as sides continue to be drawn and people keep looking for more collaborative opportunities, that this is going to be an industry-leading measurement towards how we collaborate with each other, so we are very pleased with that.
Look, I think that most of the controllable labor issues in cost side that we had was in the Kindred at Home division and not all of it was controllable.
I mean, there is clearly some wage pressure happening in the home health space.
But I think a large portion of it was ---+ I would put the quarter, if you think about the pressures on a year-over-year basis, I would argue probably somewhere in the $7 million to $10 million range of labor pressures related to productivity that I expect that we will make progress on moving forward in Q1 and beyond.
Maybe not as much in Q1, but certainly in Q2 and beyond as the system issues clear themselves out and we get back to, and the pay practice issues that we've been dealing with, and we get back to a more normalized run rate.
So, I think you can use that number as a fairly good starting point in the Kindred at Home business, so that you can see their ability as they continue to maintain their top line, they are going to get back to a robust bottom-line growth rate as they get some of those labor issues under control.
I think, <UNK>, on the hospital side, it's a little bit more tricky.
I mean, I think that those longer-term nursing center shortage issues are going to sustain themselves for a period of time.
And so on that front, we are really working hard on that business to continue to really try and be as efficient as we can with our above-the-building resources that we have.
And Pete Kalmey, who runs that business, and his team are doing a terrific job trying to take other costs out.
Because I think, as I've said, I think, quite frankly, we will continue to see those labor pressures in that business probably for the next couple of quarters.
Does that help.
I think primarily it's the LTAC issue, <UNK>.
I mean, you really, in Q4 of 2017, as I said in my earlier comments, I think to a question <UNK> asked, you really have your first quarter where you're going to have a market basket increase for the first time in a long time, and where you're going to have a normalized comp on a year-over-year basis.
And with all the work, <UNK>, that we're doing around finding replacement patients, post-intensive care patients in our LTAC business, with what we think we have already accomplished in Q4, as you get back into that seasonably stronger Q4 with a good apples-to-apples comp, with a market basket and with hopefully your home health business now on track in terms of its own labor rates with the IRF business continuing to grow at the pace that it's growing at, I think you can add it all up.
It just lines itself up that you're going to see pretty good momentum in Q4 of this year.
Well, there is the potential for impact in Q4 of 2018.
We have ---+ I'm not going to get into the specifics, <UNK>, about, because we're not going to guide that specifically.
I will tell you, we have included some effect on the second phase of criteria in Q4 of 2018 and so there is some degradation in that business in Q4 of 2018 if that's what you're asking about.
But, as I said, look, we're pretty hopeful that as we move through the next seven quarters, that we get to a point in Q4 of 2018 where we can make a real rational decision on whether or not it makes sense to keep taking those site-neutral patients.
So my answer is there is some diminishment of expectations in Q4 there next year, but we think it's coming off a much smaller base.
Instead of coming off an 11% site-neutral base, it's probably going to come off of a 3% or 4% or 5% site-neutral base.
So, the drop-off is much, much less and that's how we build that into the guidance.
Okay.
Well, we appreciate all of the activity and interest in the Company.
We know it's been a busy quarter and a busy year.
But thank you, everyone, for your interest and we'll look forward to talking to you next quarter.
Thank you all.
| 2017_KND |
2016 | LPNT | LPNT
#On the first one, I think that's fair with the exception of certain of those expenses ran into the month of July.
So we do have a full recovery of it in the fourth quarter and a large piece of it in the third quarter.
And on the $10 million, there are still some residual locum tenens costs that continue to flow through.
Those costs associated with the disruption that flow through, that more fully recover as we get into the fourth quarter.
So we've accounted for those in our updated guidance number, but the lion's share of the disruption associated with what actually occurred in leadership changes and the rest of it was done at the end of the second quarter and will be essentially out of the market as we move forward.
A.
J.
, this is <UNK>.
So this is a hospital that we have partnered with several years ago, so it's outside of the last couple of years, I think was referenced in your question.
So we have owned and operated this hospital for a number of years, and I'm really proud of the work that's happened there and the improvement in the operating performance of that hospital through the integration process.
So this is a hospital that we were able to bring into the organization and see margins improve very consistently with how <UNK> and <UNK> layout the margin progression into the mid-double digits.
And so, we run a very good track.
And as we ---+ operating performance is one thing, but as we continue to implement and set higher expectations from a quality standpoint and implement our quality agenda, it created just an unsettling feeling among certain members of the medical community.
So, really two things happened, and they started happening in the first quarter, but it was largely masked because of just the seasonal volume fluctuations that we see in the first quarter.
But this really started to show up in the first quarter.
But we made a decision, as <UNK> laid out, to part ways with the physician leader, and we knew that had short-term implications.
We knew it was going to have one-time significant operating cost, and we understood those implications to better position the hospital into the future.
And that service line today is covered by an expensive locums physician as we search for a replacement.
Well, that uncertainty created an unsettled feeling among other members of the medical staff and other specialties.
And whether ---+ behavioral health is one, urology, GI.
As some physicians left, either completely left the market or relatively new physicians over the last few years that didn't see the compelling long-term vision that needed to be created, they left.
That caused some minor, but some volume disruptions, but mostly backfilling with expensive costs.
So we are in the process of bringing permanent physicians back in.
That created employee turnover as well.
So all those one-time costs that <UNK> laid out were there.
Were there lessons learned.
I think there are some lessons learned just around how we communicate, transparency, and bringing the medical community along through this journey in our quality program.
So we made some changes to our management team as well as a result of it.
I'm really excited about the individual that we have joining us.
He is one of our high-performing CEOs from within the organization.
We have worked with him closely over the last several years and he is getting ready to hit the ground up there, and I know he will bring the energy and the vision to the market that they need.
It's a great market.
Volumes have been (multiple speakers).
Well, A.
J.
, we are absolutely confident in the strategies that we have in place to drive growth and achieve value for our stockholders.
We are uniquely positioned to be able to drive quality improvement in hospitals and to drive growth for our shareholders.
Now, all that said, we always consider it our obligation to look at everything and to achieve a return for our stockholders on their investment.
So, as we look at that, we, I assure you, consider everything.
But this is a company that is performing well across the vast majority of its hospitals, of our hospitals, and it's masked this quarter by the single hospital, really, that we have described.
And I think <UNK> did a very good job of describing our approach to that.
So, we have confidence that these issues are behind us.
We've described the issues.
We've explained their impact and our solution.
And I will tell you, going back to your question a moment ago to <UNK>, lessons learned, here is a lesson I learned.
At a base level, it's about leadership.
It's about leadership in this hospital.
And we made a strategic decision to make the changes that we've made, and that's been done.
And I have every confidence in the fellow that we have asked to come to this hospital.
I am absolutely certain he is going to energize this hospital.
And he is going to build stronger relationships with doctors and enhance patient care and drive stronger financial results for our stockholders, and that this hospital will be back on track by the end of the year.
It's not one group.
We employ a large group of physicians up there, so some of these were in our employee medical group.
They were more specialty related in different specialties, so it wasn't a large group that left.
That's why we were able to quickly recover some of the volumes and just replace those doctors with some ---+ with locums to come into cover while we search for a more permanent replacement.
Yes, some of it is our choice.
It has been in the works for the first half of 2016.
As I said, it really manifested itself as we moved into the second quarter.
It has nothing to do, as <UNK> pointed out, with the cardiology issue.
It has everything to do with expectations that we have through our quality program around collaboration, behaviors, relationships, etc.
So it was a decision that we made that in the best interest of that service line throughout the community, that change was going to be necessary to advance the quality agenda, improve care in the community, and the cohesiveness of the medical staff.
And so, <UNK>'s choice of words there, collaboration and relationships, are really important.
That means also communication and transparency.
With the medical staff, with the employees in the hospital, with the community itself, in order to build those relationships, in order to allow this hospital to become, again, everything that it can be.
And that is why I said it boils down to leadership and setting the tone there.
And I have every confidence that that has been addressed and it will ---+ this will be old news before too long.
Without a doubt, that's still the trajectory.
As we look at the quarter and break it down into its components ---+ and we've had this headwind associated with meaningful use, which is 50 basis points.
We came into the year knowing that our acquisitions would be dilutive to margin; it's 160 basis points.
The core same-store, as I mentioned in the notes, was soft about 10 basis points.
And then we've got the 60 basis point issue on same-store that's associated with this one market.
So as we have evaluated, as we've communicated for the back half, we think all of our theses and assumptions are still intact.
As you probably culled out from my prepared remarks, the balance of our acquisitions are tracking very well and perfectly in accordance with what our expectations are.
So as we look ahead toward the integration of the transactions, as we look ahead to the margin expansion there, our expectation is that, consistent with our path acquisitions, we will meet our targets.
As <UNK> mentioned, this one disrupted market is an acquisition from several years ago, so it's not a part of the integration piece.
It's a part of trying to work through collaboration and relationship issues that have an expensive impact on the medical staff.
I think I used the word cautious when I talked about the back half and being flat.
As we look at what drove the adjusted admissions here in the first half, deliveries down 130 basis points; we did not see that one coming.
It's hard to predict.
We had better visibility on it coming in the first quarter, with deliveries also being down.
But as it relates to 2016, just something that there is nothing systemic.
There's nothing that's happening inside of the markets that would cause it.
Just something that is difficult to get our arms around.
When we look at this behavioral health piece and 80 basis points of the decline being in the admissions on behavioral health, that has become a difficult physician specialty for us to recruit to.
Where we have seen the disruption, we have commitments and we have physicians that are scheduled to start.
So as we look at the back half, we believe that we will be well-positioned to start seeing those volume disruptions subside and be able to predict a little bit better what we see in that service line.
But what we are seeing in our peers, what we are hearing in the market, and what we are challenged with on the recruiting side has caused us to be a bit cautious, particularly in that service line, around the impacts.
And then as we look at all the other factors in our markets being up 0.9%, that was not that far off of our expectation.
So I do think it's a cautious assumption in the back half, especially if we see a more normal flu season as compared to what we saw in 2015 for the comparison.
Keep in mind that we saw very little volume impact, so the coverage that we have across the service lines, while it did impact volumes a little bit, wasn't a big job for the entire organization.
So I would say less than 10 that we are talking about, spread out through multiple specialties that we have covered as we search for permanent replacements.
Of that amount that we talked about, half of it at least is just one-time in nature, and the other half will be with us as we go through Q3 and Q4, so that begins to minimize the number even more.
So clearly some of that has a revenue and an earnings impact from their volume, but some of it is the ongoing elevated cost as we fill those spots.
Well, one of the things that we have the opportunity to do, oftentimes as we move into a new market, is to conduct a deep, strategic plan of that hospital and to determine what opportunities exist.
And oftentimes, you're right: there are opportunities to make investments on the outpatient side of the business.
We are seeing that across our portfolio of hospitals, the legacy hospitals.
So, many times that has been an area that may have been where the resources haven't been there in order to allow those hospitals to take advantage of the opportunities.
We do see that routinely.
As you look at the portfolio of our business, in the second quarter, about 63% of our revenue was outpatient revenue.
So we are doing the lion's share of our work in the outpatient environment.
Now, from an asset base perspective, that doesn't mean we are duplicating infrastructure.
So we are performing the same outpatient procedures leveraging the infrastructure that we use for surgeries that are done for an inpatient admission.
So it just means that we may be doing an outpatient diagnostic procedure or an outpatient surgical encounter, etc.
Or even the emergency department, which is an outpatient experience where people go home as supposed to being admitted into one of our facilities.
But as <UNK> said, in these acquisitions that we are making, a lot of the service line opportunity is in these outpatient services, it's in growing the services that can be provided on an outpatient basis and keeping more patients close to home.
<UNK>, as you look at the first half, our adjusted admission volumes were down 0.9%.
So, moving from 0.9% to flat in the back half is essentially a thesis around how do deliveries look, how does ---+ how do things look as it relates to the psychiatric business and the things around behavioral health.
And so it should give you a little bit of the sense for our view on being able to replace the psychiatrist in one of our markets where we had the greatest degree of disruption.
So, pretty high visibility on that side of things.
And then we've also got things that are starting to move into our core business on the acquisition front that we believe will be solid contributors as more of this becomes part of same-store, and as more of this becomes ---+ is has time to show traction in terms of what's happening on the volume side.
So I do think that flat is cautious relative to the investments we have made, the success we have seen in physician recruiting so far this year, and the ability to backfill on some of these disruptions that we had not anticipated.
Well, if we assume that through the back half of the year here we are going to be operating the same hospitals, and so we think about margins sequentially, the disruption that we saw in this one market in and of itself will provide margin expansion as we get into the back half.
The movement in some of the costs that we incurred in the new store side is going to affect our consolidated margin as we look back through the back half, but not the same-store margin.
And then as I referenced the refresh on a lot of the pharma, the ortho, and the device costs, those dollars are going to translate to sequential improvements in our same-store margin across our whole book of business.
So if you look at the midpoint of the guidance from a margin perspective, sequentially, we are expecting to perform well as we get into the back half.
Yes, they have left the market.
That is very important for everybody to understand, that this is the only hospital in the primary service area, and for a long reach path the primary service area.
So they have left the market.
They will not create competitive threat.
That's why we haven't felt that much of a volume decline as a result of these departures, and what gives us a lot of confidence in our ability, even though it may be a little expensive in the short-term, to backfill those services.
It differs by specialty.
Some we have already filled and some in some very difficult recruits, like behavioral that <UNK> was talking about, may take more time, just given the supply/demand imbalance that we all know is out there.
So it could range from already done to into the first part of next year.
But by and large, the costs are winding down as we get through the end of 2016.
<UNK>, things like severance costs, though, are one and done.
<UNK>, this is <UNK>.
Things actually did improve as we looked through the three months into the month of June.
So I think that's a good indication.
It's one that we've looked closely at as we've evaluated what the back half of the year looks like.
As we look at the rest of the business, we've continued to remain disciplined around our hospital support center costs.
We've continued to remain disciplined around all of our operating, salary, wage and benefit costs.
When we look, as <UNK> said earlier, the vast majority of our hospitals are performing and outperforming on the expectation side; all very good indicators that have made us very disappointed that we had to deal with this one situation that really came up from an overall perspective, somewhat unanticipated.
The acquisitions are on track.
And when I think about the same-store business outside of the one market that we have spent time here talking about, the distribution of performance is very consistent, as we've seen in prior years, and in line with our expectations through the first half of the year.
Which gives us confidence as we move into the second half.
And let me throw out something that has been on my mind as we've discussed behavioral health a couple of times here today.
One of the things that we are looking at as well across many of our markets is the ability to utilize telemedicine in a differentiated way that will give us a chance.
And behavioral health issues are one of the places where we have seen a really positive impact that can be had.
So, while psychiatry remains a difficult recruit, as we have seen in a couple of markets and particularly this quarter, this is an area where technology may be able to help us in the future and I think allow patients to stay closer to home for care, and to do it in a cost-effective manner.
That's a very fair conclusion, and you will see that reflected as we look at the 10-Q, where the commercial next did improve on both the same-hospital and a consolidated basis.
And we saw the Medicaid percentage come down.
So, very much reflective of both the behavioral and the delivery side of our business in the period.
Actually, I don't think the election is having any impact on the considerations of Boards of Directors, Boards of Trustees across the country that are considering their options and considering partnering with LifePoint.
The thing that has impacted those considerations consistently has been the regulatory environment that is faced by community-based hospitals that are trying to get it right on their own.
So, the issues that we all face are really multiplied when you think about trying to do it on your own in a small community.
So we are having very meaningful and very good conversations in hospitals around the country, hospitals like Good Shepherd that we discussed this morning.
They're representative of the type and size of acquisitions that we have done recently, and ones that we expect to do in the future.
Great.
Thank you very much, and thanks to all of you for joining us for this call today.
As we wrap up, I want to reiterate that we are focused on delivering long-term shareholder value.
We are confident that we will continue to do this by remaining disciplined to our strategic priorities, which are delivering high-quality care and service to patients, growing both organically and through acquisitions, operating efficiently, and developing high-performing talent.
Our disciplined attention to these priorities has led us to success and will lead us to continued success in the future.
Thanks again to all of you for participating in our call and thank you for your interest in LifePoint Health.
| 2016_LPNT |
2018 | RS | RS
#My question was on the operating expense.
I think we noticed the fourth quarter expenses were up quarter-on-quarter when you had seasonally weaker volumes.
I would assume some of that is bonus accruals because you guys had a great year.
But can you talk about the baseline operating expense environment, excluding what the comp may have ---+ comp component may have been, just because we're noticing that freight, other costs of doing business are higher.
And then we're also trying to get a good run rate in terms of what we should be using for the first quarter.
Phil, so on the SG&A expenses, fourth quarter is usually not as predictable as the other quarters of the year just because year-end true ups and things.
But overall, because we do have in the fourth quarter holiday pay during that quarter.
So even though we're not shipping as much, we're still paying our employees for the holidays.
So that always effects the fourth quarter a bit.
Other than that, certainly, yes, some of the freight costs are up, but ---+ and that hits our SG&A expense line, but we also pass ---+ that's part of what we charge our customers for, that's one of the services we provide, is delivering our product to them.
And the majority of our delivery is done on our own trucks.
So it's with our drivers that are our employees.
So I think we're not seeing the squeeze that you hear from some other companies in our industry who are outsourcing it more to third parties.
But certainly, fuel and some of those items are up.
But again, in our model, we try to pass that through to our customers.
So it hits the SG&A line, it could be a little higher, but the revenue line should also be a bit higher to cover that.
Run rate going forward, if you look at like Q1, Q2 of last year, those are probably better normal type of SG&A run rates.
We do ---+ we did again in 2018 as we have done consistently is provide wage increases to our employees.
So you should expect our Q1 '18, or quarterly run rate in '18 to be a bit higher than in '17, just because of the inflationary factors related to wage increases, healthcare increases, et cetera.
Okay.
That's helpful.
And I noticed in your, I think your nonferrous script, Bill, you had talked about some of the business that you're setting up outside the U.S., I think in Korea and maybe China.
And I know semiconductor spending, I think, we've talked in the past, can be extremely volatile.
It can be very strong at the good times and very weak at the bad times.
So I'm just trying to balance out the timing of the investment that you all are making.
And then what gives you confidence that you're making it at the right time given where the cycle is.
Yes, Phil, you're right.
It does tend to be somewhat volatile, but the outlook is really positive.
We saw last year on the semiconductor side, it was extremely strong and that looks like it's going to carry through this year.
The investments that we're making in Korea and China and some here in the U.S. are focused on the semiconductor market.
And then the other investment, the new facility is All Metal Services in India, which is aerospace focused.
And the outlook is very positive for all of that, which is one reason we're very comfortable making those investments.
And in South Korea, Phil, we've been in that market, I think, about 15 years.
So we're not a new player.
We're not just jumping in because of the current outlook.
We've been there in steel, we know that market pretty well.
And we've been in China for a while now as well.
So we do feel comfortable making those further investments in those operations.
Basically, in South Korea, we've been there, as you pointed out, about 15 years, but we're basically doubling the size of our production capacity there, right, okay.
So it's a good investment, but it's paying dividends as we speak.
And I think, we're putting the money in at the exact right time.
Are these for new customers or existing customers.
I'm just trying to gauge the pole.
Both, both.
For some major customers that are expanding their operations and there's some new business in that also.
But the vast majority is on existing customers expanding their production.
And this is for industrial aluminum plate for the most part.
Is that what we're talking about here.
Some of that investment is the electro polish tubing that goes into the vacuum chamber industry.
So it's not all plate driven.
And the major investments that we're talking about in Korea and China are more tubing oriented than plate.
And that's stainless steel.
Yes.
Yes.
We will.
But the main question is, how much can we get capture like immediately upon announcement.
As you know, the vast majority of our business, in particular, on carbon steel products, okay, spot business.
So very little contractual business on that.
So we literally take the position that when the announcement is made, as Jim just mentioned, $50 a ton on carbon steel plate was ---+ we learned about yesterday.
That $50 a ton will be on our price books effective this morning.
We'll get that with ---+ our work average order size is a little over $1,600 per order.
So obviously we're doing business with a tremendous amount of job shots, smaller companies placing smaller orders.
And those companies, okay, whether you're charging them $1,600 for an order or $1,650 or $1,700 it's not that big of a deal.
So we can get a lot of those price increases at time of announcement.
The more sophisticated companies, the large ag producers and what not, they recognize the fact that we've got 3 months on our floor inventory position.
And it's not likely that they're going to pay at the time of announcement, but we'll get it, okay.
It's just a matter of do you get it today or do you get it in 60 days from now.
But at the end of the day, we get it.
And that's where, <UNK>, you mentioned potentially trailing the indexes.
And one of the things you have to think about is our product mix, and factor that in when you think about whatever indexes you're looking at and to what <UNK> was talking about, some of the mill increases that are effective in Q1, we already got in Q4 of '17.
So depending on how you're comping us against the indexes out there, you've got to take that into consideration also.
Let me tell you what I know about the 232 cases.
I don't know anything about the gotdang 232.
I'm so confused by the son of a gun.
It was supposed to go into effect in June, didn't go end of June.
It was supposed to go effect in August, it was supposed to go into effect in ---+ who the hell knows, okay.
All I know is that Jim says we don't run our company based on hope.
We run it based on what we know.
And all we know is that imports are lower.
We think they're going to be ---+ they're going to continue to go down somewhat, not probably at the percentage that they went down in, basically, the fourth quarter of the year, okay.
But we think there's room for imports to continue to decline.
We're hopeful that there's more price increases because we like prices higher than lower.
But at the same time, we are ---+ we hope that the mills use some discipline so the spreads don't become so great that imports come in more.
But if you want to get a really good answer to your 232, you better call the White House.
You're barking up the wrong tree here.
And <UNK>, just one thing to add, regardless of what they're calling it, there's countries who are cheating.
I mean, there's laws on the books, and they're flat-out cheating and dumping product into The United States.
That's a fact whether we decide to enforce the laws that're already on the book or add new laws that they're cheating and dumping product into the country.
I think I just had a follow-up question on the LIFO, <UNK>, in terms of what your assumptions are behind that.
Are you assuming that your pricing guidance levels for Q1 basically hold through the course of the year.
Yes, so, we do have to make an estimate for the full year.
So the $80 million expense is based on our current estimate with our outlook.
So we do think that current pricing will hold and that there is room for further upside.
Certainly, we've been in this business a long term.
Prices go up and they go down.
But our $80 million, we think does leave a little room for some fluctuation throughout the year.
But overall, we expect our prices at the end of the year to be higher than they were at the beginning of the year.
And we kind of compare ---+ the $80 million estimate is ---+ of expense is a little more than our actual 2017 expense of $73.3 million.
So you can kind of use that as a guide of what pricing did in '17 to be what our expectations are for '18.
And sorry, Phil, and also remember though, our inventory cost on hand at December 31, '17, which is our starting point, because the time lag doesn't ---+ did not reflect all the price increase announcements.
So some of the price increase LIFO effect we'll get in '18 is based on Q4 '17 price increases as well.
On behalf of our team here at Reliance, I'd like to thank all of you for participating in today's call.
I'd also like to extend my gratitude to all our employees, customers, suppliers and stockholders for their continued support and commitment to Reliance.
We look forward to a successful year ahead and have a great day.
Thank you.
| 2018_RS |
2015 | IART | IART
#Sure, thanks <UNK>.
Your math is right, it's how we're thinking about it as well.
As I mentioned, 4% to 6% organic growth for Q3, something a little bit south of that in Q4, so agree with your math.
We had mentioned earlier in the year that we expected to have a more linear year in 2015 versus 2014.
And so we're starting to see that in the second half of the year.
I would remind you that the second half versus the first half we're seeing some nice growth from a half-to-half perspective.
But if remember last year in the fourth quarter, we had a record quarter.
We had our largest quarter ever, had a number of tenders internationally that pushed out from the second and third quarter into the fourth quarter.
Had some new product launches that drove a lot of the revenue growth.
So coming off a tough comparable quarter in Q4 2014 to 2015 is what's driving that, but again I would remind you that for the full year, we are raising our organic growth rate to 6% which is right in line with the midpoint of our long-term target.
So we feel really good about it.
It's just better linearity in 2015 versus 2014.
I think <UNK>, when we take a look on the outlook, it really comes down to the investments that we've made within channel, and it comes with the new products that are coming out.
I look at it and say ---+ our shoulder continued to accelerate, our skin portfolio beginning to accelerate.
The synergies that we believe we're going to see and selling opportunities between TEI and the Integra portfolio.
Just like we saw with DuraSeal and DuraGen.
A lot of the DuraGen growth is driven by having a good discussion with the DuraSeal user that may not be using DuraGen, and that's created some interesting growth.
Our confidence that we can continue to grow in that range I believe is quite high associated with the things we have been doing, increased channel focus and new products.
And I would just comment ---+ go ahead <UNK>.
Q4 was an abnormality and if you remember back we had our Q3 ---+ last year our Q3 was down, it was a little bit lighter than we had expected, there were some big tenders.
And it really did all push within again, as <UNK> said, beyond since I've been here the highest number that we've ever had within a given quarter.
So I view this as a good thing.
I view that our predictability and ability to achieve our second half, we've got good line of sight to that to what we need to do.
But again, that's a different point in our longer-term outlook to say can we grow 5% to 7%, which I feel quite strongly about based on our pipeline and our channel work that we've implemented.
I gave some highlights to it, <UNK>, but we didn't give specifics.
We announced that we've been accepted into a well-known wound journal and that hopefully here in the next few months, we will be able to give some more specifics, some of the nuances of how that plays out.
We will give obviously details of the journal and the month of publication.
And then we're hoping that we can also then give some more information of when there might actually be broader public presentation related to the data as well.
But we feel we are on track to what we communicated for.
At this point in time, my estimations are like a late Q3 window similar to what we said in the past.
Thanks.
If you were to say international as a whole is where your buildout, we're probably about halfway there.
So there's still a lot of territory to reach and to move towards.
But the areas that we have focused on such as China, some of our work that we've put into Japan.
And I would also say in Western Europe, again not traditionally viewed as a growth market but based on our share position and particular product lines, we've got lots of area to grow.
So the past few years in China is probably a very good example of where we actually changed our whole distribution structure from one common distributor to actually having a distribution partner who helps manage our logistics, to separate selling distributor entities that are flattened out, to our own commercial office and registration capabilities in China.
And then new products that have been registered that are coming out, and the result is we're starting to see some very good higher double-digit returns out of those markets.
At the same time, just to give a different view, say in Western Europe with the acquisition of MicroFrance, it gave us enough of a platform where we've never had direct precision tools and instruments capabilities to now go direct in certain markets.
And we're starting to see some of the benefits of that and the ability not only to sell the products that we acquired, but bring our legacy products into that portfolio that were never distributed there.
So I think some good progress there.
I would say in Latin America, we are just starting to get some broader traction, taking a look at how we maximize our distributor base, how we bring more products into the portfolio.
We actually have some new registrations that are beginning to hit and new things coming out.
And I think Dan and the team have done a nice job of focusing.
We really focused on key neuro surgical products such as CUSA and our DuraGen, DuraSeal portfolio.
And we haven't necessarily had the largest focus on our regenerative skin portfolio over the years.
Some of that's related to challenges with registration, but we've made some good progress there.
We put some direct capabilities in certain markets and also expanded our distributor capabilities there.
So those are the items that we put in place, and it's been a little bit lumpy over the last few years.
I we suspect that will still have a little bit of that on a go forward basis, but the trend's definitely upward and a positive direction.
Yes, so it's actually ---+ we are roughly about where we need to be from feet on the street now having regions of the United States.
It's a US-focused venture, so regions of the US with experienced IDN and GPO sales executives that know how to call on the executive suite, know how to negotiate and bring together a broader deal for the Company, we have the team in place now.
Last year, we had a partial team, so we have a VA DOD leader and we have leaders now that interact with all the major GPOs and our major IDNs around the country.
We have had some pretty nice wins.
It's resulted first into some different better ways to think about our GPO relationships, but I would say we're now starting to see some bigger integrated delivery network offerings.
And hopefully here over the second half we will be able to talk about some of the progress and potential successes that we've got coming there.
But we see this as a really important ongoing capability for us in a world where there's a lot of companies that are gaining scale.
Our ability to have scale and be quite relative in the businesses we play in such as skin and wound and specialty surgical and extremities, and then where a customer might want to look at a bundled offering or may want to take a look at a broader contract for a 10, 15 hospital system, we will have as good capabilities as any of the larger companies, and that's one of the goals that we laid out for ourselves.
Thank you all for attending the call and your questions today.
I would also like to take a couple of minutes to reiterate a couple points from the call.
First, with the first half of 2015 behind us, we've completed both the successful spinoff of the Spine business and the acquisition of TEI, and we are ahead of our original financial targets and on track to our key priorities.
Secondly, on a continuing operations basis that is excluding Spine, our organic growth rate has been at or above our long-term targets for three quarters now and is on track for 6% in 2015.
We expect our increase in investments in the second half of 2015 in areas such as DFU and our R&D pipeline which we believe will drive topline growth, help us achieve scale and also set us up for success in 2016.
And lastly, we're reiterating our full-year 2015 financial expectations on our base business, and have provided updated financial guidance on a continuing operations basis for 2015.
If you look, the Company is at a really important inflection point in our strategy, and we're very pleased with our progress.
Thanks again for listening, and we look forward to speaking with all of you in the near future.
Thank you, good day.
| 2015_IART |
2015 | APOG | APOG
#Yes, we're feeling good about that.
I'm confident of our revenue growth that we stated for the fourth quarter.
And more importantly is the margins.
The margins in backlog are healthy.
Obviously, while our revenue might've been a disappointment to some of you, we have pretty much been trying to signal that the delay issue would impact our third quarter as well; the headwinds from the foreign operations.
You know, Brazil is not going to get better anytime soon, but it's a small piece of business for us.
We continue to stay in the black.
Canada, there's significant signs of a return to a more healthy climate.
They had GDP growth in the calendar third quarter.
So I'm feeling a little better about Canada now than I did.
We made some changes in our operations and saw significant improvement in our abilities up in Canada.
So all in all, very confident on next year's projections.
Yes, no problem, Sam.
Listen, I've been very consistent in saying when we would grow ---+ if you grow 20%, the 30% to 40% conversion on incrementals is more challenging, because you have a lot of headwinds with regards to productivity, new hires.
And we were struggling with those kind of conversions.
When you're growing at closer to 10%, 5% to 10%, we should expect 35% ---+ you know, 25% to 35% conversion, depending on the mix of which businesses are driving the growth.
You know, next year ---+ we haven't completed our AOP process business by business.
That happens for us in January, and I'll review it with my Board in February at the end of our fiscal year.
You know, I'm confident we'll be back to the ---+ you know, somewhere between 20% and 35% conversion, depending on the mix.
That's a pretty wide range.
But as we start growing double digits again, it won't be 80% to 100% conversion.
We still believe we'll continue to grow our bottom line.
You heard my comment ---+ you probably picked up on the comment ---+ we're holding our revenue forecast and earnings forecasts for F18.
You probably caught I said 12% at least.
We haven't locked on our new 2018 forecast yet, so we'll have more clarity on that in a couple of quarters when we talk with you guys.
But we are feeling pretty bullish about that now.
Thanks, Sam.
<UNK> will talk about the returns.
We are going to invest over $50 million.
That project has begun for automation and capability.
We have ---+ some of the new architectural designs called for glass sizes we were not capable of.
If we weren't able to change the stack, we would lose an opportunity.
That is no longer the case.
When you look at the schedule, how the timing works from bidding to actual deliveries, in effect ---+ effective immediately, we are now able to start selling the oversized glass capability for delivery in about 15 months.
And we are very, very pleased to have made that investment.
It's substantial, but it includes significant capability and, as importantly, a lot of automation and productivity in our factory.
As far as return, I'll let <UNK> answer it.
Yes, we generally use a 15% ROIC hurdle for large investments.
And for those of you who have been to our factory know that to really take advantage of some of the Lean initiatives in the architectural glass business, we've got some just shop forward layout issues based on the configuration of the buildings.
So as <UNK> mentioned, it will be ---+ a little over $50 million, and it will actually occur over three fiscal years in terms of the timing of that.
Because we need just some building to be able to introduce some of the automation as well as the new capabilities.
Yes, <UNK>, first off, $378 million ---+ it's almost $70 million more.
Our classification was that $378 million is for F17 and beyond.
The bulk of it or the majority of it is in F17.
A year ago, when we would've been talking about F16 and beyond, that number was closer to $300 million, again, with most of it being in the next fiscal year.
That is an incredibly strong indicator.
We have ---+ most of our businesses are short lead times, so our largest business in Apogee is our glass business.
We have eight-week lead times, six- to eight-week lead times depending on the month.
So typically what in ---+ are by far our largest business, when an order enters the backlog, it's revenued out within eight weeks.
So typically that business has a very small backlog considering the size of the business.
Our largest contributor to backlog is our services sector segment, and our installation.
And that's, I think, over 60% of our backlog.
That business ---+ we've been very public that our goal was not to try to grow that faster than the market or even as fast as a market.
We wanted to focus on results and operating margins.
And as you can see, we were up over 500 basis points this quarter.
We had no project surprises.
We're being very particular about what projects we bid.
Our win ratios are higher because we are focused more on the projects we feel we'll be successful in.
That business will not grow substantially higher; it's about 80% of the capacity we'd like that business in.
So short of an acquisition, we don't see that business growing dramatically.
Maybe mid-single digits.
And we're more interested in the quality of projects and the margins in that business.
The backlog this quarter coming in ---+ you know, it might possibly grow as well.
We have an opportunity ---+ again, we have a lot of big projects that come and go in the backlog, so it's impossible to predict.
<UNK> likes to say every quarter we don't need sequential backlog increase to make our numbers.
More than likely, we'll see some growth in backlog.
But we are ---+ our largest contributor to backlog is getting to the point of the business we want it at.
And if we look at our activity, the forecasted projects we are working on, we are very confident with that, quote, $378 million and beyond, and combined with our forecast of our short lead time businesses that our revenue forecast for next year is solid.
<UNK>, I'll just make a couple of comments.
First of all, as <UNK> indicated, the current backlog level ---+ frankly, our view is that level, plus or minus a little bit, really supports our kind of two-year outlook for growth.
I do want to remind everybody that the way we capture backlog for all of our businesses other than architectural glass, we receive a contract or purchase order for the full project value.
The way the architectural glass industry evolved in that, as <UNK> said, our biggest business, we receive commitments for a project.
And that project gets down into construction phases representing that short lead time that <UNK> referenced.
So in our backlog itself, we only have a portion of the project that's been committed to us in architectural glass.
But we have really good visibility beyond what's in our backlog.
Yes, this is <UNK>.
I mean, as we look at ---+ so first of all, there are different businesses in Canada.
You know, this is ---+ Q4 is just a seasonal slow time period.
But I think we've seen stabilization from a volume standpoint there.
So we're getting close to kind of anniversarying the exchange rate impact.
So you'll probably see a little negative impact, headwinds and Q4.
And then similarly, as we go to the Brazil business, volumes are not quite stabilized yet.
We are still working through backlog that we had and kind of the exchange rate issue.
As we look into next year, our current expectations would be kind of relatively flat in the Brazil market before any exchange rate adjustment, and maybe some slight declines, but that's small business.
And then in Canada, our expectations are that we start to see the benefits of what ---+ you know, we have seen some growth in GDP up in Canada, and the outlooks are for some economic improvement.
So, again, we're just now working on our plans for next year.
But at this point, we would expect to see, on constant currency basis, some growth in that business.
Yes, <UNK>, for the first time in probably a year, I'm beginning to have the beginning of some confidence in our opportunities in Canada.
There are ways for us to take advantage of the $0.73 exchange rate with the Canadian/US dollar in the marketplace, so we're going to try to do that.
But operationally we've made a lot of improvements in the last six months.
So starting to feel better about that.
And as <UNK> said, you know, Brazil ---+ let people struggle to make money in Brazil.
We didn't.
It was a high moneymaking operation for us when I first showed up here, and our US business was struggling.
The tables have turned a little bit.
We all know what's going on with the situation of the scandal in Brazil.
We are anticipating two more years of trouble down there in the economy.
But for us to keep that business in the black is actually a pretty impressive accomplishment.
It's very small, so doesn't have a big impact on us.
The economy will return; they will continue to build buildings down there; and we'll be ready when it does turn around.
Oh no, we were not surprised.
12% is conservative for that business.
<UNK>, 12% is our goal for overall Apogee.
And I think we've been clear that architectural services is always going to be our lower-margin business, with a goal of getting to 10%, which then obviously requires our other businesses to exceed 12%.
Well, as <UNK> said, our largest business doesn't ---+ I'll give you an example.
As <UNK> mentioned, if we win a $15 million award in our services business, $15 million goes into backlog on one day, and it might take a year to revenue.
So over the course of a year, it has an average backlog impact of $7.5 million over that time period.
Same thing for our large window business.
But when you look at the glass business, our largest business, if they have a $4 million win, unfortunately, we don't put $4 million into backlog, because we don't have a legally binding purchase order for that yet.
We'll get a PO for the first four floors in the building for $300,000.
And that will go into backlog and come out within eight weeks.
And we might get 5 to 10 purchase orders for that particular project.
So even though the backlog impact of Viracon is low, we have great visibility for what the total award is worth.
It's just the way it's done.
So I like to mention, we have for levels of visibility to our future work.
One that we highlight and discuss publicly ---+ the one non-GAAP metric we use ---+ is booked backlog, the $545 million.
We also have awards that are in hand, yet we do not have a signed contract; so that's called contracts in review.
They virtually all enter backlog within the next 90 to 120 days.
There are a lot of negotiations on our contracts in our long lead times services business.
You've heard me say repeatedly: we never would sign the first version of a contract that comes across our desk.
It typically calls for us to be responsible for anything that goes wrong in the world, including weather.
It takes a lot of work to get the contracts the way we want them.
That's the contracts in backlog.
We have a third level of visibility.
It's projects we've been awarded ---+ whether it's verbally, or we're working with one GC, and if the general contractor wins the award, that's our business.
So we know a contract is coming.
We put it into the win column, and it probably will materialize the backlog in the next 6 to 12 months.
And then the fourth level of visibility is the least concrete, but by far the largest: it's work we are bidding on.
And when we bid work, we know what our probability of success is.
Of course, we bid work where we are the long shot, and we score that in the low probability; but we also bid a lot of work where we know we're the likely winner if the project goes forward.
By far that is largest category, so we try to weight that.
And when we combine those four levels of visibility, we have a fairly accurate position of what are revenue potential will be in the next 12 to 24 months.
You bet, <UNK>.
Yes, <UNK> will do that here.
We obviously will do that in the Q.
But <UNK>, to have the numbers in front of you.
Yes, excuse me.
For our segment backlog for the quarter, our architectural services segment, I'll just kind of round off the numbers ---+ and this is [four intercompany eliminations].
It would be about almost $360 million.
So that represents roughly 60% of our total backlog consistently.
Our architectural glass business is about $85 million.
Architectural framing systems about $112 million.
And then our large-scale optical business, a little less than $3 million.
And then we have about $15 million of elims against that.
Well, the increase in the backlog this quarter of over $30 million was entirely new work.
You know, I suppose if we had revenued $20 million more in revenue this ---+ you know, if we had been able to revenue $20 million more, obviously our backlog would have been down, and it would be a different story.
So I'm sure that would've made all the difference in the world.
But it is what it is.
We had in that range of $275 million to $280 million of new orders in the quarter.
So it continues to be a strong order activity.
Well, I think you're talking about competitors from international sources.
There aren't a lot of people in the US that can do with our Viracon glass business can do, which is coat and fabricate.
Most of our competitors in the US are regional fabricators who buy precoated glass.
Slightly different business model.
So for premium high-end Class A commercial buildings, our business is really the cream of the crop.
We do have international competitors.
Clearly, on the Eastern coast, European competitors that are similar to our Viracon business have tailwinds because of the strength of the US dollar, you know, the comparative weakness of their own.
They've got a European cost base; selling in the US dollar, it gives them an effective price increase without having had to raise their prices.
So we've been pretty good at maintaining our share.
We're doing a really nice job of competing in spaces we've not tried to compete in before.
There's not been a noticeable change in market share, but clearly we've got ---+ the current exchange rate ---+ the power of the US dollar has clearly opened the door for international competitors to try to move in.
We're building our plans and strategies around not expecting any improvement in the US dollar.
There are other ways that we can continue to get our fair share of business out there.
And our Viracon glass business really has focused on the really one-third of the non-resi building market that is high-end, where we've had a very strong market share position.
There's another two-thirds of the market out there where things we've done, like our new coater that went into place in August of 2014 ---+ some of the investments <UNK> and I referenced early in this call ---+ that allow us to be a better competitor in the entire non-resi sector and not just a slice.
So we are confident where we are.
Thanks, <UNK>.
Yes.
Either you or someone asked about that, and I didn't answer, so I appreciate your bringing it back up.
As far as glass pricing ---+ <UNK> will comment on aluminum ---+ but as far as glass pricing, all of our projects are forward purchase.
So if the raw material on glass increases, which it has in the last couple of years; it was pretty steady for 10 years ---+ the float guys took out capacity in the recession, I think about 25% of the capacity of float was removed from industry.
As that price started to go up, we just reflect that in our quotes and our bidding activity.
So there's really no exposure on glass pricing.
So we have no issue there.
We're certainly enjoying versus a little over a year ago, where we had headwinds on aluminum costs.
And I'd mentioned in our segments, we are ---+ our industry is very, very slow to pass on aluminum cost increases to the marketplace.
It's equally slow in passing on the aluminum favorability in the form of pricing.
And that's where we stand today.
So we're certainly enjoying an improvement in our margins from aluminum, but frankly it's one aspect.
It's not the dominant reason for our profitability improvement in our framing systems businesses.
It's been primarily productivity in our factories.
The aluminum cost had been a contributor, though, but we continue to hold our pricing in that segment.
As it relates to aluminum material costs, <UNK>, we are ---+ probably about 50% of our aluminum-related purchases we have a forward buy on those.
And the other are spot buy.
But we are anticipating maintaining relatively low aluminum costs over the next year, but we are also looking at some additional hedge opportunities.
Thank you, Sam.
Lauren, are there any more questions.
Yes, you know, it's probably roughly only about $0.01.
Because the level of the business is ---+ as <UNK> said, we're happy to kind of be staying in the black in those businesses, but it's pretty modest.
And it started to get pretty modest a year ago.
Yes, <UNK>, I don't want to telegraph my strategies to my competitors.
I just ---+.
I want to be careful there.
But I would just tell you, there's lemonade in that lemon.
You know, it was mentioned, I think ---+ I don't know if it was Sam, or <UNK>, or <UNK>, but somebody asked about the impact of the international people coming here.
Well, guess what.
I have an international operation that's getting at the same exchange advantage, if we want to use that to compete.
And we will take advantage of that if it's possible.
You bet.
<UNK> can give you any specifics, but let me open just simply by saying our capacity utilization dropped in the quarter, but the primary reason was the start up of our new anodizing line.
We don't ---+ you know, within the framing systems segment, one of our business is our finishing operation that does anodization and painting of the aluminum systems that go on buildings.
And it's a great business that's been growing, especially the anodizing side.
We added about 60% capacity to that business with this major project we announced a year ago.
The project went online in this quarter, and we are already running 24/7 on that line.
And then our glass business, our St.
George factory, is up and running.
And frankly, we are at full capacity there as well.
Our glass business is really humming right now.
So our capacity utilization dropped, but it was mainly because of the capacity we brought online in the last year in St.
George, Utah, in glass and in our Wausau Linetec business.
I think maybe the key point, <UNK>, we feel ---+ we continue to feel that we are largely capacitized to be able to get to our fiscal 2018 revenue numbers, other than we're making investments in capabilities and productivity.
And then there is kind of nominal investments for capacity.
Thank you, <UNK>.
All right, Lauren, thank you very much.
And everybody, I appreciate your dialing into our call today.
Hopefully, we provided more clarity to our strong results.
We have ---+ obviously we'll be talking to many of our analysts over the next couple of days and weeks.
And <UNK> and I will be on our usual roadshows throughout the quarter and look forward to seeing you on the Street.
And clearly look forward to talking to you in about 90 days, as we wrap up another phenomenal year.
I'd like to remind you: we set some pretty significant goals three years ago of getting to $1 billion and 10% operating margin, and a lot of people didn't believe us.
And we are virtually knocking on that door, and we'll literally be there at the end of this fiscal year.
I hope you feel we've earned the credibility when we say $1.3 billion and at least 12% operating margin in fiscal 2018, which is only ---+ we'll be there in literally two fiscal years.
So look forward to continuing to do what we said we'll do.
And we'll talk to you all soon.
Thank you.
| 2015_APOG |
2015 | LZB | LZB
#Thank you.
| 2015_LZB |
2015 | UAL | UAL
#We take delivery of the first planes at the end of 2016.
With respect to the 74s there are a couple in our fleet that we will take out, but we'll make a decision about whether the 777 or for that matter the A350S replace the 74s a little bit later.
We are going to hit a period at the late sort of 2019 time period where a lot of those 74s that we have in our fleet come due for a more expensive maintenance visit and that might be a good opportunity to sit them down at that point in time.
There might be a couple that come out in the earlier years, yes.
This is <UNK>.
On the slots in Newark we are in discussions with the, they have trust authorities that relate to that.
They have the opportunity to review that and we're in discussions with them but we are highly confident we will consummate that transaction.
There are two things I would point out there, <UNK>.
One is profit sharing and because of our higher pretax margin in the second quarter we trigger a higher profit sharing ratio and so that is probably higher than what you may have modeled.
The other thing we continue to see pressure both with respect to pensions as well as medical and dental.
We saw a lot of pressure last year and we are seeing a lot of cost increase in those areas this year as well.
There's a lot of reasons that go into that, and certainly the tenure of your workforce is one of them.
If we were to look at our contributions to date without making adjustments for any actuarial assumptions or anything like that which need to be done, we are actually at about $1 billion of an unfunded liability.
Now that is obviously subject to change when we measure that at year end, but it puts us in a very good position over the next several years as we think about that like any debt obligation.
We've said before we want to get to a point where if we were to get in an interest rate environment where rates are higher than they are today we can get close to fully funded and we are effectively in that position right now.
You're welcome.
Let me first take the return on invested capital piece.
As you can appreciate we have bunchable assets and it is pretty difficult to take a 777 that may fly domestically and also fly internationally and allocate that capital base between the two.
So we don't look at return on an invested capital on an International versus domestic basis.
If you were to look at just no path, the numerator certainly we have seen a better balance today than what we've seen historically where a lot of the profitability from airlines at least from the airlines that I have been associated with came from the International portion.
The domestic enviroment is a very good one right now and happens to be a very profitable one as well.
I would say <UNK>, we're probably a little bit more than halfway through it if you include all the various initiatives we've outlined.
Certainly we have had a little quicker pace with respect to our cost achievement, but we recognize that we still have a lot of work to do here and we're pleased with the progress.
A lot is made of core earnings improvement versus last year, and it is certainly very difficult to strip out oil without acknowledging there is some effect on revenue as well.
So we tend to focus on the things that we can measure.
The fact that we've improved productivity for eight quarters.
The fact that we've canceled 24,000 fewer flights for the first part of this year.
That we have one of the highest completion factors of the major carriers coming out of Newark.
The fact that our cost performance continues to improve quarter after quarter.
And all those are good indications of the progress that we were making.
And we feel like we have a good plan that we're executing on and we will continue to demonstrate that performance.
I would describe it less as a cost tailwind and more of a cash flow tailwind.
So year-to-date we've funded $800 million.
Going forward, this would probably be a rounding error in your model.
You could see us fund somewhere between $50 million to $150 million a year.
But there's not a need to have a big catch-up contribution like what we have this year.
Again, everything else being equal, given what we know today.
I would say one of our main focuses that we've had for a number of years right now is to preserve fleet flexibility to be able to respond to any type of economic environment.
And if you look at the composition of our fleet today of roughly 700, 710 mainline planes, 22% of that fleet is free and clear of debt unencumbered.
We could sit down in any type of economic environment and we want to continue to preserve that going forward.
In fact, as you see us finance less of new aircraft and in some cases buy aircraft entirely for cash, that preserves that flexibility, because what we don't want is to be in an environment where we want to adjust capacity but we're still have to cover the cash cost of those planes.
We have in our cost guidance this year, we've provided for 2015, there is an assumption about getting agreements with the last two remaining groups out of the 30 collectively bargain agreements completed, and I think importantly for us, but that goes both ways.
So there's also a cost benefit to the company of getting those collective bargaining agreements, but more importantly, we want to get everybody under a joint contract and moving forward.
There's a big sort of cultural morale piece to that as well that we're very focused on.
So hopefully, we'll complete those agreements in the near future.
We've said consistently that we need to run this business where we can keep our unit cost growth at something less than inflation, and that includes all of the cost inputs including labor.
We certainly want to pay our employees competitive wages that are market-based and that goes into that assumption, but to the extent that we've got inflation pressure in certain areas, like that perhaps, we're going to offset it in other ways by becoming more efficient and more productive.
This is <UNK>, <UNK>.
The one thing I would add to what <UNK> said is, as you know, China is not open skies.
But there will come a day when China is open skies and when that day comes, we would be keenly interested in exploring a joint venture similar to the type of joint venture that we enjoy with ANA today across the Pacific and that we enjoy with Lufthansa and other of our partners, Air Canada and others, across the Atlantic.
First of all, I disagree with the way you characterize that slightly because to say that - to just look at the impact of fuel and not understand that fuel also impacts the revenue environment I think only looks at one side of the equation there.
A lot of the headwinds that <UNK> talked about earlier are certainly very related to fuel.
Even if we take the foreign exchange headwind that we've seen, that's due to a stronger dollar.
A stronger dollar has in part influenced the price of fuel.
So we're seeing a lot of pressure year over year.
As we move long term though and we look at an environment that potentially could have lower fuel inputs than what we've seen, we're going to update United Airlines.
We're going to focus on what we can control and that's balancing the right amount of capacity for the demand in our markets.
Sure, <UNK>rey.
This is <UNK>.
I'm glad we enjoy the same first name.
First of all we had an item that was disruptive that lasted about two hours that was a network connectivity issue.
We recognize the inconvenience to our customers and the inconvenience to our employees.
Our employees responded very well.
Our IT people responded very well, got the system back up.
In fact a lot of the tools that <UNK> talked about that we've invested in also the many of which are technology tools, decision-making tools actually permitted us to have a really good operations start-up the next day despite that disruption.
I will tell you that the technology is our single largest area of non-aircraft CapEx.
A lot of that goes to the operation itself, providing better tools and better decision-making tools as well.
We're investing in hardware.
We're investing in software.
We're investing in the people and the processes to recover from irregular operations, because those are always going to occur because of weather or, for example, some kind of a maintenance issue with an airplane.
We're focused very heavily on investing in the reliability of our systems and I can assure our customers that that investment will continue and that we're very focused on not only improving the stability, but actually offering additional technology to our customers to permit them to have better information, better choices better control of their travel, and for our employees that will permit them to do their jobs better.
For example we're issuing 2,200 iPhone 6 Pluses to our flight attendants and over time as we add to those iPhones, our flight attendants will have vastly better information than they've had before and better interaction with their customers and can be better opportunity to serve our customers.
So we're keenly focused.
No one likes to have a technology outage.
It can happen at any company.
It happened to happen to us on a day that, of course, there was a lot of media excitement around the New York Stock Exchange.
But I can tell you we are keenly focused on improving our technology, improving the stability of our technology, and more importantly, as you obviously have to have stability.
Stability, to me, is like safety in an airline.
You have to have this job, one, but improving the quality of our technology for our customers and the quality of our technology for our employees.
And both those things are really important.
And we are keenly focused on it, and we are spending a significant amount of both time and money and bandwidth to get that accomplished.
Well, no.
Not necessarily.
We know areas, for example, where we can beef up systems or beef up backups.
And so we know where to look.
We also obviously do invest in significant amount, a significant amount of time and attention to the network itself and all the connectivity of the network, and of course, as all companies do today.
We have very sophisticated investments in cyber security as well.
So I think we know exactly where we're going and what we need to invest in.
You bet.
Okay.
With that, we're out of time.
So we'll conclude.
Thanks to all of you on the call for joining us today.
Please call media relations if you have any further questions.
We look forward to talking to you next quarter.
Goodbye.
| 2015_UAL |
2018 | AVA | AVA
#Well, good morning, and thank you, <UNK>.
Our performance during 2017 was strong.
Our earnings benefited from lower resource costs, which improved our earnings by approximately $0.12 per diluted share from our original estimates.
The lower resource costs were primarily from higher to normal hydroelectric generation and lower natural gas prices.
2017 was a great hydro year, as annual precipitation in Spokane was our second highest ever recorded.
Also, our precipitation around the Clark Fork area had annual amounts that were well over 100% of historical average.
Along with great Hydro, natural gas prices declined about 30% from our expectations during 2017.
We also had customer growth and lower-than-expected operating expenses during 2017, which improved earnings by about $0.10 per diluted share from our original estimates.
Our operating expenses were lower than anticipated during 2017 due to lower pension and medical expenses.
We also saw lower labor costs in 2017, because more of our workforce was utilized for capital projects versus operating expense.
And lastly, we had lower-than-expected depreciation expense and net financing expenses, primarily due to the timing of capital projects.
These increases in earnings were fully offset by the impact of federal income tax law changes and costs associated with the proposed acquisition by Hydro One.
In December, the new federal tax laws were enacted.
As a result, we recorded a $442 million liability that will be returned to customers through the rate-making process.
We expect that customers could see a benefit going forward of approximately $50 million to $60 million annually.
The impact to 2017 from the tax law change resulted in a reduction to earnings of approximately $0.16 per diluted share.
And while the tax income law change will be beneficial to customers, we anticipate an annual reduction to net earnings going forward of approximately $0.05 to $0.06 per diluted share.
Moving to Alaska operations.
I'm pleased with AEL&P's performance during 2017, as our earnings were at the top end of our expectations.
This was due to colder weather, customer growth and management of their operating costs.
With regards to the Hydro One transaction, I'm excited about the progress being made on this transaction.
We continue to work through the approval processes, and thus far, we've received approval from our shareholders and from FERC.
We're still awaiting approval from our state commissions and various other regulatory agencies.
Recently, the Oregon Commission staff and other interested parties issued their initial recommendations to deny the proposed acquisition as originally filed.
However, they did provide guidance on how the acquisition can move forward successfully, and they won't make a final decision until receiving and reviewing additional testimony from both us and Hydro One.
This transaction remains a top priority for the company, and we believe we will be able to work with the commissions, their staff and other parties to try and receive the required approvals.
We continue to anticipate the transaction closing during the second half of 2018.
During 2017, we had acquisition costs associated with this transaction, which reduced earnings by about $0.19 per diluted share.
In other regulatory matters, recently, new rates from our general rate case filings went into effect on October 1 and November 1 for Oregon, November 15 for Alaska and January 1 for Idaho.
We're still working through the rate case process in Washington and expect resolution by the end of April.
So at this time, I'm going to turn it over to <UNK>.
Thanks, <UNK>.
Good morning, everyone, and like <UNK> said, we had a great year in 2017.
You know who's not having a great year.
The Black Hawks.
I always have to my comment about them and they stink this year.
Sorry about that, Black Hawks.
<UNK> already covered our earnings and other operating results in his remarks, I'm going to really focus on capital expenditures, liquidity and our guidance.
We continue to be committed to investing the necessary capital in our utility infrastructure, and we expect Avista Utilities' capital expenditures to be about $405 million in 2018 and AEL&P is to be about $7 million in 2018.
As of December 31, we have $261 million of available liquidity under our committed line of credit.
And to fund our capital expenditures in 2017, we issued 1.3 million shares of common stock for net proceeds of about $56 million, and we have 1.1 million shares remaining to be issued under our sales agency agreements.
In 2017, in December, we also issued and sold $90 million of first mortgage bonds due in 2047, and we received income tax refunds of approximately $42 million.
For 2018, we expect to issue approximately $375 million of long-term debt and up to $85 million in equity in order to refinance maturing long-term debt, fund our planned capital expenditures and fund the impacts of the federal income tax law changes and maintain an appropriate capital structure.
The $85 million of equity may come through either the sales agency agreement or an equity contribution from Hydro One upon completion of our transaction or a combination of both of those sources.
For 2018 and beyond, due to the federal income tax law changes, we expect our operating cash flows to be negatively impacted, primarily due to the laws of bonus depreciation and the timing of the return of excess deferred taxes to customers.
As a result, we may need to raise additional capital.
With respect to 2018 earnings guidance, we expect a decision in our Washington general rate cases by the end of April 2018, and we would expect to provide our 2018 earnings guidance after that in our first quarter 2018 earnings report.
I'll now turn the call back over to <UNK>.
Sure, Chris.
There's a number of things that go into that, but the $85 million, we believe, includes impacts with respect to the rating agencies.
For '18, it's the additional capital maybe in future years.
Bonus depreciation was '18 and '19, was the impact, so we expect that, that could impact what we would need in 2019.
And the other thing around the rating agencies we did ---+ we were 1 of 25 utilities that were included in an outlook change from stable to negative for us.
And a lot of that is going to depend on ---+ as we work through tax reform and the impacts of that, also, the regulatory treatment we get with respect to that.
So assuming if we got a fair order with the treatment out of our commissions for how we handle the impacts of tax reform, we believe it shouldn't have a significant impact on our ratings.
So the staff in Oregon went through and they wrote a significant ---+ they had ---+ it was approximately 800 pages of their views, and they took exception to a number of views and would like clarification from both us and Hydro One.
And in the end though, they did say that if they get additional information and clarification, they believe and we believe working with the Hydro One that we will be able to satisfy the concerns to be able to get this transaction approved.
But they did ---+ they did in their initial view, deny it.
They're looking for strengthening on the ring-fencing type impacts as well as the net ---+ making sure there's a demonstratable net benefit to Oregon customers.
And we believe that we will be able to work with the parties and come up with reasonable solutions to that.
Our responses for what, Chris.
Well, we'll work through.
We have a workshop next week that we will sit down with the Oregon staff, and we will talk through the issues.
And then, we'll continue to follow the schedule that they have that's out there.
Yes.
This is <UNK>.
And as <UNK> mentioned, we had a great year last year, we'd love to repeat that obviously, when it comes to Hydro.
As we sit today, we're actually looking pretty good on the 2 rivers that ---+ where we have our projects.
The Northwest River Forecast Center shows the April through September water supply for the Clark Fork drainage at 137% of normal.
And this is as of yesterday.
And for the Spokane River, it's at 117% of normal.
So we're getting off of a pretty good start, but I have to put my normal disclaimer in there that it is still early and a lot of it depends on weather this spring on how quickly that water melts up there and runs off through our system.
We'd prefer a nice a gradual slow warming so that we can extend that runoff into the summer months.
That's ideal.
But if we get a really warm spring, then that can change and we lose hydro generation in that scenario, because we spill a lot.
But as of today, we look really good.
| 2018_AVA |
2015 | UFPI | UFPI
#Thank you, <UNK>.
Good morning, ladies and gentlemen.
Thank you very much for joining us this morning.
It is truly a privilege for me to represent the great people of UFP on this call, especially when they deliver phenomenal results like these.
We are thrilled with the record-breaking performance and have our sights on even loftier goals.
Our quick review of our key focus areas is as follows.
Sales ---+ third-quarter sales were $773.2 million, which was a 6.9% increase over 2014.
Year to date, sales are up $195.8 million over 2014.
By market for quarter three, sales growth was retail up 9.2%, construction up 0.7% and industrial up 10.9%.
Overall unit sales were up almost 12%, while the overall lumber market declined 18% year over year for the quarter and prices for Southern yellow pine decreased 22.4% year over year for the quarter.
We don't think this downward trend in prices will continue much lower.
And, in fact, some production has been taken off the market recently in order to balance supply with demand.
As for profit, our third-quarter net earnings increased 32.8% over 2014 to $25.6 million.
EBITDA for the first nine months of 2015 is $137 million compared to $108 million last year.
And overall, our EBITDA margins for the latest 12 months were 5.8% versus 5.2% for the same period a year ago.
Now, we did receive some margin percentage lift as a result of the lower lumber market and good purchasing decisions.
Our inventories have come down nicely and are now at $288 million.
As a percent of current month sales, it is 122.6% versus 122% in 2014.
And we do expect it to be more in line with sales for the balance of 2015 except for position buys and special items.
Our accounts receivable currently stands at 91.9% current, and our write-off percentage for the quarter is less than 1/10 of 1% of sales.
We're very pleased with our performance thus far with receivables.
Now I would like to briefly review some of our strategic priorities for the balance of 2015 and beyond.
Our new product sales initiative continues to meet our expectations.
Year-to-date new product sales through September are $181.2 million, and we are on track to hit our goal of $190 million in new product sales this year.
We are also well-positioned to hit our target of $250 million annually by the end of 2017.
We're very excited about the introduction of our Deckorators Vault non-wood composite decking at the recent DeckExpo show.
It was very well received and has far superior features and benefits to the competition.
And we are also seeing some traction with our [Bellmat Hill] outdoor entertainment products online.
Sales are modest thus far but growing nicely.
In personnel, another one of our focus areas, we continue to expand our training and recruiting efforts to supplement our growth.
In addition to our normal hiring of sales and management trainees, we have added additional design and engineering professionals to help us pursue more solution-driven business in our growth market.
Capital deployments is always a concern.
And as we evaluate opportunities for utilizing capital, we continue to focus on growth, improving efficiencies and providing a good return our shareholders.
We have been diligently pursuing acquisition opportunities throughout our target markets.
And as we have discussed many times, valuations remain a challenge, making it difficult to earn a fair return on the expected investment necessary to acquire the target.
Though in select markets where we cannot agree on valuations with potential targets, we will be increasing our capital investment to grow organically.
Our returns to shareholders are achieved through our cash dividend and our modest share repurchase programs.
And as you know, our stock buybacks are designed to repurchase shares commensurate with new issuances under our stock-based compensation programs.
In transportation, again, this is a constant area of focus.
We continue to make improvements.
We are looking to add to our logistics teams to position us for better performance in 2016 as well.
Overall as a Company, we remain excited about our prospects going forward, and I have great confidence and faith in our team.
We continually seek out new avenues for growth which complement and enhance our existing businesses, and we also seek out new and talented and motivated employees who will continue to drive the growth and improve performance.
Now I would like to turn it over to <UNK> <UNK>, our Chief Financial Officer, to review in more detail our financial performance and conditions.
<UNK>.
Thanks, <UNK>.
I will start with highlights from the income statement.
Our overall sales for the quarter increased 7% due to a 12% increase in unit sales, offset by a 5% decrease in selling prices due to the lumber market.
Our unit sales were up due to a combination of acquisition and organic growth.
Businesses we acquired since Q3 of last year contributed 3% to our overall unit growth, while our organic growth is up 9%.
By market, sales to the retail market increased 9% due to a 13% increase in unit sales.
Unit sales increased due to a combination of market share gains, improved consumer demand and our new product sales initiative.
It's worth noting that our sales to big-box customers grew by 17% this quarter and our new product sales grew by over 19%.
Our sales to the industrial market increased to 11%, driven by a 17% increase in unit sales.
Recently completed business acquisitions contributed 11% to our growth in unit sales.
The remaining 6% organic growth resulted from share gains with the existing customers as well as adding many new customers.
Our overall sales to the construction market increased 1% due to a 6% increase in units offset by a 5% decrease in selling prices.
Our greatest unit sales growth continues to be with customers that buy our concrete forms as we continue to gain share.
In addition, our unit sales to manufactured housing fell by 2% while our unit sales to residential construction customers increased by 10%.
Moving down the income statement, we're very pleased to report our third-quarter gross profit increased by 24% and almost 190 basis points as a percentage of sales.
The increase in our profitability in margins this quarter was driven by a handful of factors including favorable improvements in our sales mix to higher-margin products, strong organic unit sales growth and leveraging fixed costs, and effective buying in lower lumber costs on products we sell with fixed selling prices.
SG&A expenses increased year over year for the quarter by $8 million or 13%.
By expense category, our overall increase in SG&A included a $3 million increase in wages and benefits related primarily to greater headcount and another $3.3 million increase in incentive compensation tied to profitability.
I was pleased to see that our core SG&A expenses without our bonus incentives remains flat sequentially at about $58 million comparing Q3, Q1 and Q2.
Overall, we are very pleased to report that our growth in gross margin improvements drove a 32% increase in our operating profits and 33% increase in earnings this quarter.
Moving on to our cash flow statement, our cash flow used in up ---+ provided by operating activities improved by $51 million so far this year and was comprised of net earnings of almost $65 million along with $32 million of non-cash expenses as well as a $25 million decrease in working capital due to lower lumber prices and as a result of bringing inventories in line with expectations.
Investing activities included capital expenditures of almost $37 million including expansionary and efficiency CapEx of over $14 million.
We currently plan to spend approximately $50 million on CapEx for the year.
With respect to the balance sheet, at the end of September we had no outstanding balance on our revolving credit facility.
And our total debt net of available cash dropped to $23 million compared to $59 million a year ago.
This leaves us with plenty of capital to fund future growth, dividends and share buybacks ---+ buyback plans.
Finally, we are very pleased to report that our trailing 12-months return on invested capital has increased to over 10% for the first time since the recession, which is the goal we've been striving hard to achieve.
That's all I have in the financials, <UNK>.
Thank you very much, <UNK>.
Now I would like to open it up for any questions you may have.
That's a good question, <UNK>.
I think if ---+ Texas in particular has recovered nicely from the rain.
I think the labor issue is probably the bottleneck there.
So if there's enough labor to perform the extra work, then it will get done, but I think that's really what we are seeing is the bottleneck.
Yes, it certainly could.
I think Texas is still recovering from the rains they had.
It may persist longer, you just don't know.
That's a great question.
And I think as we looked at it, obviously there's some benefits in terms of margin percentage.
Kind of depends on what the lumber market does as well as all the other product mixes.
Probably an equally important factor for us.
I think we dive into the third quarter itself and looking at how the lower lumber market helped us on fixed-price products we have, I think that's probably about 100 basis points out of about 190 that we improved for the quarter.
So that portion can be tougher to duplicate.
Yes, it's certainly a goal, <UNK>.
I probably couldn't commit to you that everything ---+ in a flat market that everything stays the same.
And product mix is probably a bigger driver for us.
Yes, I think for us, <UNK>, you have to look at the markets that we serve.
We are in what we want to be: long-term stable markets.
And if you evaluate the markets where we are with our site-built activities, which is what you are referring to, I think that's how you would analyze and look at how our growth will happen.
We're not necessarily looking to get into the big markets.
We are comfortable in the markets that we serve today, and we will grow within those areas.
Correct, yes.
We kind of anticipate that that will be the case going forward given financial constraints on buyers.
And we think there will be more renters than maybe there has been historically.
Very well-positioned for that business.
Overall, it was a 5% decline in selling prices because of lower lumber prices.
Yes, the increases.
The increases were $3 million of the increase in SG&A was wages and benefits and headcount related.
And $3.3 million an increase was incentive comp.
That's exactly right.
<UNK>, I will let <UNK> dig into the details.
I will try to give you my macro picture of you here.
You have to look at the timing, very herbal price products versus fixed price products.
And, again, that's why keep going back to the product mix.
A lot of variable-price products are sold during second and third quarter, probably the heaviest concentration.
So, again, I think we had a good mix, and that's the mix that we're trying to shoot for as we go forward as well.
But <UNK>, I don't know if you can add any more color.
Unless the fixed-price product comes on residential construction, commercial, and industrial side, the retail business, like <UNK> said, especially in Q2 and Q3 is a little more weighted towards (inaudible) the variable price.
It certainly does have the value-added products we sell into retail at fixed prices, but it's a little more weighted towards variable.
So the benefit that I talked about on the lower lumber prices really occurred more at the industrial and residential construction areas.
We really don't have any visibility into that, <UNK>.
Anecdotally, you can kind of look around and see that in some markets ---+ and we mentioned Texas already ---+ that it was a little bit softer in Q2 and a little bit better in Q3.
But those are really more anecdotal.
We don't have a real way of saying how much it was deferred and how much is natural for that time period.
Well, thank you once again for your interest and investment in our Company.
And I know we in the state of Michigan are gearing up for the big game on Saturday.
But unfortunately, the Flying Dutchmen are not televised, so I will simply say go blue and go white for fans of the other game on Saturday.
Have a great day.
| 2015_UFPI |
2015 | FIS | FIS
#Well, it's still too early to say what that's going to mean for us.
We were glad to see the announcement, and we think it bring some traction to MCX.
As you said, they've appeared to make good progress through the pilot.
As we mentioned earlier, we are in our minimums period now.
That started in October.
And so at this point, we're going to continue to monitor MCX and see what happens.
But we do think the announcement ---+ we were glad to see that MCX is back in the news.
And hopefully, it drives some significant transaction growth over the years.
Thank you.
Yes.
At this point, we don't know exactly how it's all going to work, but yes, we are assuming that's true.
To be specific, <UNK>, we don't anticipate Chase pay, right now based on preliminary information to be a significant tailwind for revenue.
Correct.
I will try to add some color.
We spent a little bit of time with that, at the announcement day deck, and I think there are some slides that might be helpful.
SunGard is about 36% of their revenue is outside the US.
For us, for FIS it's about 22% combined, based on the scale of the two models.
It'll be about 25% outside the US.
In terms of where it is, they have a more significant presence in Europe, which is complementary to where we are from a size perspective.
They have a small Latin America presence, where we have a pretty large Latin America presence.
And to be clear, that's probably one of the most significant macro-economic headwinds that we've got, where currency for Brazil was down 17% since July, since we announced previously.
So we've got pretty good exposure there, from terms of revenue growth.
They do have a significant presence in Asia-Pacific, but it's blended across a number of different countries.
So hopefully that will add ---+ give you some color as to where it's at.
Net-net, it should increase our international exposure around 4% to 5%.
Well, we are excited about the clearinghouse relationship, as we are with any sale.
I think it's early to talk about the tailwind that it might provide on our revenue stream.
But certainly, we are going to be working very closely with them, to move real-time payments into their environment, and we'll bring more to bear on that as the project moves along.
All right.
Thank you.
<UNK>, your second question came through very garbled on the second half of the question.
I think your first part of the question was, services related to macro-economic trends or more around regulatory influence, I think was the first part of your question.
But your (multiple speakers).
Yes, so let me address the first.
I think obviously, we continue to see increased regulatory demand across the globe.
And that's not only in large financial institutions, that's even in community and regional institutions.
So certainly regulatory is a top-of-the -mind conversation in any engagement we have today, and we're obviously seeing that influence demand across the board.
Do I think regulatory is specifically related to some of the professional service slowness that we're seeing.
I don't, at this point in time.
I think it's much more just a macro-economic an issue.
And I think some of our larger institutions, you see them announcing all the time, big cost-cutting initiatives et cetera.
And I think they are looking for ways to do that.
When you look at SunGard, I don't think it changes the way we think about our go-to-market.
SunGard is much more IP-centric, very much like traditionally FIS.
But they don't have as large of a PS business as what we're seeing in the global.
So it's going to be complementary, so it might dilute some of our professional services percentages in the aggregate.
But we're going to be very focused on bringing world-class wholesale products to market.
And so, combining that with our go-to-market sales force, we think the combination will be very beneficial.
No.
I don't think that's the case.
I think the typical trends that we've seen in terms of fourth-quarter will continue, however, the softness in the PS will mute that down.
That coupled with currency, are going to keep us at that sort of flat level.
We will be below what we anticipated in terms of constant currency.
But again, I think that's primarily PS related, and not associated with capital budget spending, or ultimately flush in capital budgets.
So the product business, the underlying business, as you kind have heard most of us, still continues to be relatively robust, or operating effectively, just seeing some softness in the professional services side.
Thank you for your questions today, and for your continued interest in FIS.
I would like summarize by saying that we believe in our business strategy.
It's a long-term strategy that has consistently driven year-over-year performance results over the last several years.
Our deep focus in investment and financial services is allowing us to lead change in the industry.
We offer the solutions and services that are making our clients businesses run efficiently, while at the same time providing them the opportunity to grow and differentiate themselves in an ever more competitive and strenuous regulatory environment.
I would like to thank our clients for their loyalty, and the more than 42,000 employees around the world who are committed to serving and empowering those clients each and every day.
And I look forward to welcoming the employees of SunGard to our combined company in a few weeks.
| 2015_FIS |
2017 | FCPT | FCPT
#<UNK>
J.
Yes.
Yes, perfect.
Loud and clear.
Yes.
We see very ---+ so with the caveat that as long as the property is well located at the front of the mall, not at the back of the mall on a ring road, of which we have virtually nil.
An exception to that would be the Bahama Breeze on ---+ in the back of Sawgrass, but that's one of the best malls in the world.
With the caveats that the property is on the front of the mall, near a major ingress/egress point and has ample parking, okay, which is the vast preponderance of our properties, we see a surprisingly low correlation to the ---+ of the performance of the restaurants to the performance of the mall.
And so we do not think that when you just look at the store performance and you look at the traffic in-store, it's not something we're seeing a big correlation.
We've done ---+ no, no.
That's not true.
We've done the work to screen the properties and look at each individual property.
And occasionally, when we contemplate a sale, someone's interested in a property, of course, our preference is to look at properties next to weaker malls, especially when we're talking about cap rates in the low 5s.
But we have not seen the correlation presumed in your question, that properties next to beaker malls are performing poorly.
We're just not seeing it.
And I would also say that the vast preponderance of the stuff we buy has longer lease term.
And it's not clear to us that the malls are driving traffic to the restaurants.
And so as those malls get repurchased ---+ and I'm certainly sanguine about the positions of lower-quality malls in this country.
As those malls get repurchased, we actually think that in some cases, there might be upside.
No.
I think ---+ it's very similar from the get-go.
It's just a question of cost of capital, having the people to ---+ we've refined, I think, our process.
I think we certainly have a more sophisticated view on restaurants than we did on November 10, 2015.
But I think we had access to deal flow from the beginning.
I guess the one place I would say is just that we are working on a number of things that are repeat business with folks that we closed deals with last year, beginning of this year.
So maybe in that respect, but it was kind of good from the start, to be honest.
And I say when you're at a franchisee conference now for the second time, there's people you're meeting a second time.
And maybe it'll be more business.
But I agree with you, Bill, that in general, the pipeline and the sourcing looks very similar to what it did a year ago.
Let me add one comment to that, which is we closed some deals at the very end of last year and the very beginning of this year, that in one case, it was a deal had priced in June of '15, okay.
And so the interest rate environment was different.
And we could've repriced those deals, we could have walked from those deals, and we didn't.
The dollar amounts were small, so it made it a little easier.
But I think that, that helps.
I think the brokers and franchisees would give us a good recommendation internally.
So building that credibility does help.
And sometimes, that means making sure you're a consistent participant in the market.
Only that it did seem like, as we talked about on the last call, some folks were focused on this Obamacare tax and there was a presumption that, that would go away day 1.
And now we don't hear people talking about that anymore.
They know is uncertain and might take months, years to resolve, if ever.
Understanding there's a vote later today on Obamacare, so ---+ but I think people viewed that it might take time.
And so it really just seemed to be less of a focus.
So that's all we're seeing.
It's more there was this ---+ as Nick Pell at Gramercy said on this call, a bit of a election hangover.
And we seem to be on the other side of that today.
I don't feel ---+ no, I don't think so.
So if there's any more questions, we're getting up to our 20-minute average call time.
So any more questions, we'd love to hear it.
We'll take any more, but we'd love to wrap it up.
I know everyone's really busy.
Okay, terrific.
Thank you, everybody.
And just to repeat, I'm going to be in Chicago, Milwaukee, Minneapolis, Cincinnati, Salt Lake and Vegas over the next couple of weeks.
If there are shareholders that would love to get together, we certainly be more than happy to make time to meet with them.
So thank you, everyone, for being on the call.
Cheers.
| 2017_FCPT |
2016 | FLIR | FLIR
#Right now we're still bullish on the second half, <UNK>, so we think it's generally in that range.
As you know, some of this can skew a bit by shipment and product mix in a specific quarter.
But right now, we're still consistent with where we expected it to be.
With ---+ as you may recall we had guided to a softer first quarter.
Some of that is going to continue in the second quarter, but the second half we believe would be stronger.
So overall for the full year we are still in line with where we thought we would be.
This is <UNK>.
A couple of things on that.
The first, at the top level of the pricing level, there really haven't been pricing effects here, so what you're seeing here is not an effect of aggressive discounting to get sales to happen.
There are some price effects in the Security segment where we're facing stronger competition there, but it's a small piece of the puzzle.
To your point about what's happening with new products, as we introduce new products, those products fully support the long-term objective gross margin objectives of the Company.
And I don't have a concern around that.
The area where we see margin challenges is, are primarily in the surveillance segment where we have some larger programs that were booked some time ago that are nearing their conclusion.
And these are programs like the MSC program for the US border patrol, and the PB-EOS program for the Coast Guard.
And these are programs that were bid pretty aggressively early in the product development cycle and as a result have lower than corporate average margins, and they pull down the overall margins, particularly of that segment.
The good news about that strategy, though, is it establishes credibility for those products and allows us to sell those products much more effectively in international markets having the backing of major US users behind them.
And in those specific situations where we're selling them internationally, they fully support the corporate overall gross margin objectives.
<UNK>, this is <UNK> again.
A couple of things on that.
The first issue is that midrange of our product value ladder, those are actually some of the oldest products that we have in our product value ladder.
So from a product development standpoint, we've been very focused on the low end.
We've had tremendous success there.
The C2 has been this hugely successful product for us following on the heels of our EX product range and also the IGM test and measurement products that we have introduced.
And those are the traditional test and measurement products that have Lepton injected into them, have been doing extremely well in the market.
So we've got a very solid lower end as part of our control the corner strategy.
Up on the other end of the spectrum, and again to our control the corner strategy, we have launched our T1K product.
That's a product that's just getting traction now.
When you have a premium product like that, that is typically a product that's involved in a replacement cycle of capital equipment, the adoption rate of products like that tends to take longer than one would expect because it is capital allocation type of budgeting process that's required to purchase that product given its price point.
But we're seeing that start to get traction.
The midrange of the segment, which is our Exx-series and our Txxx-series, those are products that are the oldest of the product portfolio.
They're due for a refresh at this point.
They're still quite competitive in the market, but I think ---+ you look at the feature set that are coming in advanced new products like the C2 and then the T1K at the other end of the spectrum, and it's quite attractive to customers, and we'll blend those feature sets and capabilities into that midrange product.
Those products are under development now and are expected to be out within the next six to 12 months, and they will re-bolster that midsection.
We also expect that to go somewhat hand-in-hand with the large number of systems and users that we brought into the fold at those lower end products are likely to be candidates for people who are going to want to upgrade to higher performance units after they've been using a product like the C2 or an IGM product for a year or so.
We've had a very good track record of moving people up the value ladder after they see the value proposition that comes from thermal imaging.
Well, we've had a lot of experience with it.
I think it's a little bit difficult to predict from a timing perspective, but I would say from an efficacy perspective, we have had a very strong track record of moving existing customers into new product platforms.
Through a combination of marketing and communication, and of course offering a better value proposition in the subsequent product to make their jobs easier, the data more easy to interpret, imaging performance better, and so forth.
That is a level of detail we don't get into specifically.
What we talked about was primarily around just the inclusion of those expenses that were not in the comparable quarter last year.
There are integration expenses, but the big piece of this was just the inclusion of the absolutes that were not in the comparison quarter last year.
No.
There are some costs, but they are not significant.
<UNK>, this is <UNK> again.
The more important thing to think about in the integration effort on DVTEL is ---+ and I've seen this happen with a lot of companies that we've acquired.
When you acquire a business like that you bring in different sales leadership, there tends to be a big focus on what am I doing, what are my job descriptions and so forth, people getting aligned on their functions and territorial assignments.
And then we also spend a fair amount of time in training, cross training between the two sales teams so that they can get out there and sell that full product suite of products.
And obviously that takes time and it's a distraction from day-to-day business.
So we saw a little bit of effect, a headwind effect associated with that.
That said, that effort is going well.
The products from a brand standpoint have been well integrated at this point, and are represented on the website as such.
And from a technical standpoint the compatibility links that were necessary between the FLIR professional and thermal visible products and the DVTEL video management system have all been put in place and tested at this point.
So we're ready to hit the street running at this point with an integrated solution, which is part of the vision of the integration of that business.
Morning.
Well, I think it's a function of the mix of the Business, <UNK>.
We see the gross margins manifest themselves lower when we have a segment like Surveillance, which is normally pulling the overall margins up, have margins that are below our target average.
And again that happens when we have strong deliveries into a program, typically a US program, a record-type program where we have lower than normal gross margins.
So that something that we're watching very closely, but we continue to have the ability to bring in new business, the book and bill business.
The international business that we bring into Surveillance has margins that are well above the average margin for the quarter so that these things offset each other.
You're correct that when we integrate businesses like Security or Raymarine that have inherently lower gross margins, and those businesses represent the larger percentage of the total for FLIR, that it can pull down the overall gross and operating margins for the Business.
And I think that that's something, though, that we can see coming from a fair way off.
In each of those businesses we continue to make sure that we have products within those businesses, the thermal content products within those businesses, that generate higher gross margins that help to bring up the overall gross margins of that business and offset the lower margins associated with the consumer and retail aspects of those businesses.
I would say a prime example is, is in the Security space where we acquired DVTEL, we've integrated our 360 Surveillance business.
Those are two software-oriented businesses that can support much higher gross margins that will help to bring up the overall gross margin levels for the Security business.
No, we've actually done an analysis of the margin and backlog in Surveillance and it looks solid.
It's in line with our expectation.
I think probably more with the wild card is in Surveillance is, what does the book and bill margin look like.
And typically the book and bill margin looks good.
And again, we've said Q2 Surveillance margins will be down again as a result of us wrapping up a couple of programs that we've got in there.
There's still three programs that are ongoing that have lower than average gross margins that then these are programs that have been around for quite some time that are just in the high cadence delivery phase right now.
We've got to run those through the system and they're going to pull overall gross margins down.
I do want to underscore, though, the strong benefit that comes from programs like that because of the credibility that comes from being on these rather significant US platforms.
It really drives a very strong credibility for those same products and international markets.
So, yes, <UNK>.
We saw strong bookings in Q1 in both Surveillance business and in the Detection business, and it's possible that there may be some pull forward from Q2 in those bookings that we have.
The business is still a bit challenging to forecast in that space.
We've now seen a couple of back to back very strong quarters in terms of overall bookings growth.
I think Q4 was up 26% in Surveillance, and Q1 was up 50% in bookings, and we're very pleased to see that.
But the visibility is still a bit challenging on that front.
The overall feel from the market is good.
It seems like more frequently than not we've got new requirements that are coming in that weren't identified clearly in our forecast.
And I've been in that space before in my career, and it's a good indication that the demand is increasing.
Of course it's very much in line with how we operate as a Company.
Our CDMQ model affords us the ability to be very responsive in a short period of time to urgent needs, and we're seeing more of that urgent need requirement.
So, as a result of that, I think we're being conservative in terms of how we're looking at what the bookings look like for Q2 for Surveillance, if there was a significant pull forward from Q2 into Q1, but I would also say that there's potentially upside in that regard.
Sure.
Starting with a firefighting space, this is an area where I mentioned in the prepared comments that we feel that we're doing quite well from a gross ---+ from a market share gain standpoint.
And we're building on that success through the launch of five new products that were launched at FDIC: two new handheld products, one new dedicated product that mounts at the top of a ladder truck ladder for aerial surveillance, and then two DJI drone-based products for drone-based aerial surveillance for firefighters, which is becoming an increasingly popular tool to have at a fire scene.
I think this is part of our strategy.
It's one of our key six strategic pillars to identify and attack new, viable markets.
And firefighting is one that the market has been around for a while.
The value proposition of thermal is incredibly strong there.
We have a strong capability to create products and to innovate new products.
And what we're doing here is not only building the value ladder of handheld products to have not only the most attractive opening price point all the way through the upper corner to a very attractive and well priced NFPA system with our K65, but also to inject a couple of easy to use products in that, and expand the overall product category by solving other problems that we're learning from firefighters which really come around.
We need to get an aerial view of what is going on at a fire scene, and that can be done both from a ladder and from a UAV.
We feel that we should see that fire segment's growth bolstered by the expansion of new applications within that segment, and that's been a key strategy for us as we work to offset some of the softness that we're seeing in the midrange of the product line in Instruments.
Yes we can.
Go ahead.
Sure, <UNK>.
I'll talk about three things there.
First, we talked about in the prepared comments the two new OEMs that we've established with Lepton, one being the Cat phone and the second being the Scott site.
Both of those are completely new applications.
I don't see those as being cannibalizing.
They offer completely new capabilities to those two OEMs.
And I think that they will generate significant interest with other players in that market.
So clearly the launch of the Cat S60 phone has gotten a number of other smart phone manufacturers looking at that.
And when that product gets launch and starts getting traction later this summer, we think that there will be other parties that are going to be serious about looking at that capability for inclusion into their devices, as well.
And similarly, when you look at firefighting, and SCBA is one of the most common pieces of the turnout gear, and integrating a thermal imager directly into an SCBA offers a hands-free capability that a lot of firefighters have been looking for.
We think that that product concept is going to do well.
Two other areas that I will mention, one is the introduction of Boson.
We got a completely new core here, a core that has a very powerful system on chip vector processor embedded in it that can host a number of different image improvement algorithms, automatic detection, artificial intelligence algorithms, and it's a system on chip that also supports all the typical peripherals that you have in a handheld system: display, battery control, USB, memory, those user interface, those kinds of things.
So that will make it easier for people to create products around that core and I think should drive future business for the OEM group.
Also the fact that that core is available with 15 different fields of views and two different resolutions gives a lot of flexibility to system developers.
And then the last thing that I'll mention is we continue to get traction in the OEM space with automotive.
We've got ---+ Cadillac has just begun shipping units with CT6.
It seems like it's getting a good response and we continue to have other auto manufacturers in the hopper there.
So it's been a slow go getting traction with night vision, but it's one that is gaining steam in terms of its adoption rates.
This is still with Autoliv, so it's the same partner.
That's absolutely correct, <UNK>, and it's really a big part of the strategy within the Company, is to leverage developments across the segments.
And frankly, things like the Security segment with its cloud services that are being developed, with the video analytics capability, with the mapping capability that's coming out of 360 Surveillance, those capabilities are applicable into other businesses, into Maritime, into Instruments, into Surveillance, and we're actively doing that.
Also, the development of the Boson core with its embedded vector processor vision processor that is inside that unit, we can develop algorithms for that for video analytics and artificial intelligence that can be applied across multiple segments within FLIR.
That is something that we've got a team that is solely focused on that.
It's been a long-term vision here at FLIR.
It was part of the reason that we bought traffic on.
We also got additional video analytics capability with the acquisition of DVTEL, with the former IOI image assets there.
And it's still early days in terms of what we will be showing from a video analytics standpoint.
But we believe that the broad spectrum of products being offered in Surveillance, Instruments, Maritime, Security and even Detection can benefit from those enhanced capabilities that will run on board this low-power core.
Exactly.
In fact, part of the integration efforts that are going on with DVTEL are integrating the video analytics teams between those two groups.
Pleasure.
It was entirely organic.
Yes.
Yes, just a moment, <UNK>.
We looked at ---+ the SKU was much stronger toward US DoD.
If you look at the revenue for the quarter there was a much stronger skew towards DoD versus Federal and State law enforcement.
So, from a revenue standpoint during the quarter, the DoD total was up a little over 50%.
And this is ---+ I'm talking about total.
If I look just within Surveillance, the DoD business grew faster than the other business in the quarter.
We find that there is some shift typically back and forth between DoD customers and typical three-letter agency customers.
And we had a particularly strong quarter for total DoD business from a revenue perspective during Q1, and that can move around a little bit.
I think what you're talking about there is the difference between total US, the total US government bookings year-over-year.
Is that what you are referring to, the 20% ---+
The government products revenue plus 20%, I think, is US.
<UNK>, I want to go back to that.
The government products revenue increase of 20% is the total government product.
It's not US only.
Those first two bullet points on slide number 3, we have shown historical growth rate averages of our commercial versus government businesses.
That 20% growth that you see shown in the government business is largely driven by DRSKO.
I thought you were talking about the US content.
Hang on just a moment, take a look at that.
(multiple speakers) The Middle East, primarily when you're talking about government for the most part, that would be in our Surveillance business.
And that business had relatively small growth, but fairly strong business.
So, although the growth wasn't large, it was still a healthy quarter.
Even if you deal with it overall we had about 4% Middle East growth.
So <UNK>, as you know, we continue to look at M&A opportunities and there's several in the pipeline.
We are not at a point where we are ready to announce anything at this point.
The other piece, as you probably are aware, we have debt that is coming due this summer.
So in terms of the balance sheet we will be looking to refinance our notes that are coming due.
And when we do that we would be looking at overall our complete debt profile including the credit lines and the revolver that we have.
Just given the overall conditions in the market and being opportunistic in terms of what's available out there with relatively low interest rates.
But again, we're not ready to announce specifically what we're going to do, but that's something that's going to come in the second quarter.
And <UNK>, this is <UNK>.
Just one more follow up to the cash build up.
The other thing, as we pointed out, we did not do any share buybacks in the quarter.
Again, because we look at all our investments to make sure that they are the right business decision, and just given the share pricing where we were at, it was just not the right time to buy.
So that was the other reason why that use of cash was not there in the quarter.
Thank you all for joining us on the call today.
Before we close I would like to note that Dave Muessle will be retiring from his role as Corporate Controller and Chief Accounting Officer early next month.
I'd like to thank Dave for his more than 16 years of outstanding support and dedicated service to the Company.
Dave will be replaced by Brian Harding, who is currently our Vice President of Corporate Finance and Accounting.
Brian will formally start in his new role on May 6.
Dave, we wish you all the best as you transition into retirement.
And Brian, we welcome you to your new role.
I would also like to thank the more than 3000 FLIR employees around the world for their continued dedication and innovative spirit as we pursue our goal of becoming the world's sixth sense.
Thank you all, and we look forward to talking to you next quarter.
| 2016_FLIR |
2016 | CUBI | CUBI
#Thanks, <UNK>.
No, they are not at all linked.
Not at all.
Yes.
This is ---+ yes, the tech issue is a potential dispute with a technology partner, as I said.
And that regulatory reserve was set up by us in the early part of 2016, I think in the first quarter or second quarter.
And we're the ones who identified the problem at Higher One.
We're the ones who solved it.
And that's why we wanted to make sure that it is still resolved because it's a pending risk issue, and we are hopeful that this quarter we will try to put that behind us.
Not at all.
No, in fact, whatsoever, of any of the regulatory issues ---+ none.
In fact, you can see ---+ <UNK> reported to you, we are building the business, we are growing the business.
And we are very confident that it's going to create significant shareholder value for Customers Bancorp.
I think ---+ all I can say is that we'll look at every single strategic option.
We are in a very strong position.
We can do it organically.
We can acquire someone.
We can merge with someone.
We'll look at every single option because we know it's going to cost us a few million bucks to cross $10 billion.
And we don't want our shareholders to have to pay for that.
So we will look at every single way, which is the best way for us to cross that $10-billion mark.
And you are right, organically we could do it, too.
I think in terms of deposit balances ---+ this is a cyclical business.
And no question about it ---+ like <UNK> said, if you get 100,000 more checking accounts, (inaudible) 250 ---+ you can always do your math [what will it do].
The interesting, most important thing, is our strategy for retaining the customers.
And in retaining the customers, we believe that we will see about 500,000 students graduate by this time next year.
We have very aggressive plans that ---+ what that will do is end up having a pretty significant increase in deposits, as well as pretty significant increase in noninterest income revenue.
There is no question about it.
I'm not at liberty to talk about future goals, but I think <UNK> <UNK> on June 17th shared with you a three-year, down-the-road plan.
All we can say to you is, we are more confident today about achieving the 2019-type numbers that <UNK> put up over there than what we were on June 17th ---+ we are more confident today [that that will happen].
Sure.
I think, <UNK> ---+ like I just stated earlier, it's ---+ the customer-acquisition strategy is to get the students.
Customer-retention strategy is to give them awesome experience in services, and that's what <UNK> talked about before, so that they retain with you, and they stay with you, and at the same time enter into partnerships with ---+ using this model with other types of businesses.
Please look at our investor deck.
We've updated the investor deck on the BankMobile side of it, based upon that strategy of potentially ---+ if you can do this with 800 campuses around the United States, you can do it with lots of other business partners.
And that is where the customer-acquisition strategy, other than students, will come in.
The problem in the banking industry today is that you're only opening up about 1 net new checking account per week per branch.
That's in the entire United States.
There are 94,000 branches.
So all we are doing is opening up all over the US 94,000 checking accounts per week, period.
Our goal, as we see it in the next three years, is to be opening up a million checking accounts a year.
BankMobile is going to position itself to open a million net new checking accounts per year, and retaining them.
We are always trying to get the best quality loans and manage our risk, as <UNK> also indicated to you.
And sure, if we can get high credit quality and high rates simultaneously ---+ we don't find that too often.
And so I don't think you should expect us to get into any new lines of businesses chasing yields.
We are not going to do that.
We will stick to our knitting.
We know ---+ we will stay with what we know well, and we are a business bank, and that's why we will continue doing what we've done and what you've seen from us.
And [sure,] with short-term rates going up, we believe that once next-year's rates ---+ if the Fed continues with its strategy and ---+ taking [a pausing] on the [growth's] point of view in the second half of 2016, like we had indicated to you in the beginning of the year.
Don't expect a lot of growth from us in the second half of 2016.
That is exactly what's going on.
But when you see that happening, our earnings will continue to do well because we are not going to have the provision expense and other things coming through, and other issues impacting it.
So that's exactly what you're seeing.
So once the rates go up, we are going to be in a position to just continue growing in our low-risk business.
And that's what we intend to do.
I think on an average, I think we've indicated to you that you should expect this business getting closer to break-even, if not breaking even, by the end of the year.
We think (inaudible) still be there.
We are obviously spending money on technology and development.
So our objective is not to make this marginally profitable in the short run but to have a strategy that this becomes a very meaningful company with a very meaningful valuation.
That is our priority, and to continue to build upon the management talent and the team that has ---+ and give them an opportunity to grow this business.
So if ---+ in the worst-case scenario, I think you're going to see on an annual basis the kind of loss that we saw in the third quarter because we decided to spend some money.
In the best-case scenario, you'll see a small profit coming from this in the next two or three quarters.
But (inaudible) the plan that we shared on the investor day, that is still a focus for BankMobile management.
No, it's kind of the other way around.
The fourth quarter is not going to be as great as the first quarter will be.
And the third quarter was ---+ only one month was good, but July and August were not (inaudible) best months are September and October.
And then December is slow, and then January, February, March are going to be good.
That's why the first quarter is the best quarter.
And just to add, Bill, the second quarter is the one that's most challenging.
Well, as <UNK> shared, I think it's a focus on adding the schools with quality of students coming from there.
And Andrew Crawford who runs that business for us and his team have done a very good job.
And when Higher One was in all sorts of [state] wondering what is the strategy, there wasn't that clarity of the Department of Education rules, and there wasn't a bank behind it.
So when you have a bank behind it and you have clarity of the rules and the you have a dynamite management team, then you have very good product offerings.
That's why we are getting it, and in fact, we hope to continue with that growth.
And our goal is that within the next 12 months, or so, that hopefully we can add colleges with another 500,000 students coming into us.
I think on the Durbin Amendment, you are correct, that that is [closing] ---+ the Durbin Amendment impacts interchange income on debit cards.
So that will kick in the year that we cross $10 billion.
It'll be after December 31 that the interchange income gets impacted, which means BankMobile will get impacted if they are still on our balance sheet.
But the DFAST requirements with the stress testing and whatnot is all based upon the full quarter average.
And then you have approximately another 12 to 18 months, depending upon where it is, before the stress testing and the other requirements of $10 billion or greater institutions kick in.
So we are a couple of years, two or three years ---+ that's why I said even if it crossed the $10-billion mark sometime next year, the DFAST rules and other requirements will not kick in for us, other than the Durbin Amendment, till sometime in 2018 or even beyond 2018.
Frank, I'll leave it up to you to determine who the potential buyer is.
We're not going to talk about that.
That is correct.
Frank, there's some balance-sheet numbers that were included in the presentation on June 17.
So that will give you some insights in terms of what we were thinking.
But it's hard to put ourselves in the shoes of who the potential acquirer might be and what their strategies might be.
They were mostly from the Higher One distribution channel.
I think I gave you the target for tier-one capital, and we don't have a specific target for the TCE right now, but you can always figure out that this quarter alone, by managing our growth, we added about 50 basis points, 40 basis points or something like that, to our TCE.
And if our earnings are going to be in the $18-million to $20-million range even in the next two or three quarters alone on an average, you're talking about a pretty significant increase in our TCE ratio by managing our growth.
Frank, in the last two years, we've given guidance.
And every single quarter, we have beaten the street estimates consistently.
And so we've decided on a policy not to give guidance, just to focus on performance.
So we are not going to give guidance beyond 2016, that you already have.
We are confirming our guidance that we've given to you for 2016 because ---+ you know, so we will do that.
But we think it's prudent to just focus on the performance of the Company, and the shareholders will get rewarded based upon the performance and not have folks all over the place based upon the guidance, trying to justify why the stock price is where it is.
Okay.
Well, thank you very much, everybody.
And if you have any questions, please give us a call.
And we look forward to a good fourth quarter also.
Thank you.
Have a good evening.
| 2016_CUBI |
2015 | ROP | ROP
#Thanks.
Good morning, <UNK>.
No, I don't think so.
I mean, all our businesses ---+ when you look at our energy businesses or the industrial businesses, they have over 50% gross margin.
So the economics of those businesses similar to most of the technology companies you'd see that are not pure software.
Our software businesses outperform software companies.
Our industrial businesses outperform industrial companies.
So as long as we get outperformance out of these things, we think the market's incredibly smart and it has a pretty good idea about what things are worth.
And while we're always undervalued, we think that very hard to ever get rid of anything we have here.
It would have to be a compelling reason and those certainly could exist in the future.
They really could.
But today, we think we're perfectly positioned and I think this quarter sort of demonstrates that.
I'll take the second question first.
If you look at the detrimental leverage, so revenue down 10%, operating profit down 18%, you do the math on that, it's about a 43% leverage.
So you pull the one-time expenses associated with restructuring out of that and you get down into the mid-30% range for the detrimental leverage.
That's not at all different than what we would expect.
We actually think that's very impressive performance out of those businesses, given that they start with 55% gross margin.
So there's real cost actions, real belt tightening that has to happen and that will happen and it has and will continue to happen in order to be able to hold that detrimental leverage in the mid-30% to 40% range.
Now, as far as going forward when you think about sequential improvement, little bit throughout the year, like I said it's really driven by the non oil and gas portion.
So our things that are selling into, whether it be plastics or polymers or nondestructive testing, other markets that are not oil and gas related, which is about 40% of the segment.
That was down modestly in the first quarter.
We expect that to be up modestly as we go forward throughout the year.
And then the other piece is the timing associated with some of the project deliveries at CCC, which most of those are for downstream and midstream applications, more downstream, frankly.
And those are things that we expect to come to fruition later in the year.
So those are the drivers for why we expect the minus 5% organic in the first quarter to be closer to flat throughout the rest of the year.
The specific areas that we play in, that is the expectation.
And I wouldn't separate it out as pricing versus cost.
I would separate it out as gross margin.
So gross margin was actually flat in the quarter versus last year for energy at 55.4%, and we expect to be able to hold our gross margin very similar to what we had last year in this segment, which on a full year basis was right at 58%.
And we see no reason that, that won't be the case this year as well with the actions that have already been taken.
Well, I think the 130% is what we said as the trailing 12 months actual, with $851 million of free cash flow.
Our CapEx isn't going to be moving up.
It's going to be 1% to 1.5% of revenue.
Our operating cash flow is going to continue to escalate a little bit.
It's already best-in-class.
The conversion rate, we always talk about it being expected to be above 120% over time.
So actually, at 130% it's kind of crept up above that.
Things that we have, it will continue to improve a little bit.
Our legacy business actually has been improving.
They frankly tripled their cash return on investment in the last decade, which nobody recognizes, and the acquisitions help.
But I don't think our conversion ratios are likely to change dramatically.
They're enormous and I just wish we'd get more people to talk about our real cash earnings instead of talking about the DEPS number, not commenting enough about the non-cash intangible amortization stuff.
It's a good and complicated question in that the ---+ it's absolutely true that there's going to be more interaction between some of these niche businesses that are acquired that are smaller with the two big footprint businesses, MHA and Sunquest, than we would have had in the past.
If you think about Neptune, we never added anything to it except they wanted to have this rugged mobile DAP business that we rolled over on and it never really went anywhere.
In TransCore's case, we have made acquisitions that have been very strategic.
Several years ago we acquired this company called United Toll.
United Toll has become the entire technology leadership position around the world in toll and traffic with this Infinity Lane Systems.
Very critical acquisition we made and it's kind of fully integrated and gets sold as a bundle.
When you think about MHA, I don't think many things necessarily would be sold as a bundle.
SoftWriters, they continue to be sold and MHA's product branding would continue to be sold, but they're going to work in an integrated way with one another and in many cases some of these niche acquisitions will report to the MHA or Sunquest platform business.
So that's why we suggested that they were transformational in the way that Neptune and TransCore were transformational in 2003 and 2004.
I think we are a little surprised.
If somebody would have asked us your next $900 million of deployment would be in one business or six, we would have thought it would be one.
But they're so great and so good that we're happy to do those and I think there will be more smaller acquisitions that are closely correlated.
That said, they're still All going to be individual niche businesses.
We're not going to be the Fuller Brush man to hospital administrators with a lot of different stuff that you pull out of the bag.
We think those are going to be up to maybe $100 million of revenue, with about 40% EBITDA over the next 12 months.
Also we had huge tax benefits in these deals that ---+
That are really significant.
That is absolutely correct.
So it's a little ---+ it's north of $100 million of gross tax benefits that we will recognize over the next 12 to 15 years.
So it is a reduction in our cash taxes over that time frame.
Not enough.
But it's certainly helpful.
We wouldn't have gotten from 14%-plus to 5% without having several businesses that have negative working capital.
And most of the acquisitions that we're making now are going to come in with negative working capital.
We're going to get paid in advance for the work that they do.
Not always, but sometimes they get paid a month in advance, sometimes they get paid three months in advance, sometimes they get paid a year in advance on a subscription.
It's interesting.
So in terms of the negative working capital, so more of the things that we have acquired and are looking at are more on the subscription software, so they're SaaS businesses, which generally don't run with quite as much negative working capital as the licensed software does.
Because you have the maintenance that is almost always billed a full year in advance, whereas subscription software is going to be billed either monthly or quarterly.
So it's not as much around trying to become even more negative, as it is continuing to grow those areas that have the high subscription revenue and the wonderful balance sheet that comes along with that.
Thanks, Laurie.
And thanks everyone for joining us with our first quarterly call as Roper Technologies.
We look forward to talking to you with our second quarterly call as Roper Technologies as we finish up the second quarter.
Thanks.
| 2015_ROP |
2017 | DNKN | DNKN
#I think what I will say is, one of the reasons we've gone down that way is we see not only an opportunity but we see performance.
I would say, not necessarily scientific analysis, in the newer markets, we seem to be getting a higher beverage mix far throughout the day than we did previously.
But that's probably due to the fact that we've learned a lot.
If I go back and take market [for Phoenix], which, when I came to the business, it was really struggling with fairly low beverage mix, which is the (inaudible) of the total beverage dollars that we look at.
That's far astronomically, but we've learned many lessons from those early days.
We are applying them to the new market.
I think two things that we used to talk about at the IPO, but they are really important still, is the fact that national media that covers all these markets.
If you're in a brand-new market, with one or two stores, you have national media like everyone else.
And secondly, one of the benefits of our CPG strategy is that we are developing the face profile for Dunkin' products (inaudible).
Let me just clarify, development goals of 2016 or 2017.
Those opened in 2016 and they are in our numbers in 2016 that we reported of a little bit over 200 for Q4.
We will have a few more openings of BJ's in 2017 and again, it's in that approximately 385 number.
Thanks, <UNK>.
I know we are at the top of the hour.
There's two more people in the queue, so let's take these last two questions and then we will wrap up.
So let me start at the end there.
So will the traffic correct itself.
We have a six-point plan and these guys are working on it.
Everything, ---+ and then making operations less complex, making it a better place to work, so, yes, I think all of that will address the traffic issues.
Now to restart it, yes, traffic overall comp performance, right, has been softer then we and our franchisees would expect.
That has certainly dampened enthusiasm to open up restaurants.
Now, within that, we're going to open up [great and] 4% restaurants next year, so I don't want to overindex ---+ we're not opening up any restaurants.
Again, we're going to open up approximately 385 net restaurants next year.
There are a lot of franchisees building a lot of restaurants.
But that being said, we get transactions positive and our long term, as we look at our long-term comp goals in the 2% to 4% range, when you get to a 3.5% comp, it's a different story than a 1.6% comp, right.
So yes, I think it's all those things, it's no one thing but comps get better, the restaurant operations get simplified.
Guest experience gets better.
We focus on beverage-led On-the-Go; I think all these things are going to come together to really drive development.
We've been down this road before.
So let me just give some facts.
Until the last couple years, we grew traffic every year through (inaudible).
Can we get back to posted traffic.
Yes.
Do we have the plan to get back to posted traffic.
Absolutely.
I'm probably more optimistic than I was at the start of the year, because Dave's really driving it.
He's really focused on the national values that some of you will probably point out and they are right (inaudible).
It will take a little bit of time, but I'm more optimistic than I was last year.
And I want to point out something that Dave said: if you look at just about everyone else in our industry, there is negative traffic, and that includes in the coffee and bakery segment.
I think if you look at our traffic, we outperform many of those other companies.
Thank you, everyone, for coming to listen to us today, if you're surrounded by snow, like we are.
I want to say I think we had an excellent year.
I want to pick up on what Scott said.
We have all this technology installed in a franchise system.
We are excited about that, as Scott was just describing.
Other companies sometimes do it in their Company stores but they don't do it in their franchise stores.
We've done it right across our store base.
I think we had an excellent year in 2016.
I think we have a wonderful plan that's been validated by consumer insight.
I want to comment, I spent most of the middle of last summer recruiting [and moving] for Dunkin' US and it took a lot of time and it's been worthwhile.
Dave has added new energy that is compelling to our business.
We are in great shape as we go into 2017, and we look forward to talking to you again soon.
Thanks.
| 2017_DNKN |
2016 | LMNX | LMNX
#Thank you, Matt.
Good afternoon and welcome to our first-quarter 2016 earnings call.
I am pleased with our ability to execute on our financial goals from revenue all the way to earnings.
We generated first-quarter revenue of $63 million, up 9% from a year ago.
This was another record for Luminex and exceeded the high end of our quarterly guidance range.
Luminex achieved record quarterly assay and royalty revenues.
I'm especially pleased to see that the current acceleration in revenue growth, 9%, represents a level which we have not seen since 2014 and is approaching our longer term double-digit target.
First-quarter gross margin remained very healthy at 71%.
Operating profit is approaching 20% of our total revenue, and we generated strong net income of $8.8 million, 18% growth over last year.
While <UNK> will discuss our financial results in more detail, our strong overall performance reflects Luminex business model or what we call the full three levels of growth.
We believe this business model sets Luminex apart and provides a dynamic platform to drive long-term growth and shareholder value.
When comparing the first-quarter performance to our 2016 goals, I would point out the following.
For the first pillar of growth, our partners business demonstrated another quarter of outstanding growth.
Partners revenue grew 18% year-over-year, far ahead of our annual growth target range of 6% to 9%.
We attribute this quarter's momentum to healthy demand in life science markets.
For the second pillar of growth, the molecular diagnostic business, which submitted for emergency use authorization for our molecular tests for the Zika virus last week.
When EUA is received, we anticipate this will be the first commercial available multi-target molecular tests for Zika.
I look forward to being able to provide our customers with this important test at this crucial time.
For the first quarter, our molecular diagnostic business generated approximately $28 million in revenue driven by 20% growth in our infectious disease test portfolio.
The healthy growth was partially offset by softness in our genetic test portfolio.
As for our third pillar of growth, ARIES, we enjoyed a successful market introduction and are aggressively targeting evaluation in commercial sites.
In April, I attended ECCMID in Amsterdam and came away very impressed with the high level of interest in the ARIES system in our SYNCT software package for which we recently received FDA clearance.
As an update to our ARIES FDA submission, on flu A/B RSV, we have submitted to the FDA last week which clearance expected before the 2016/2017 flu season.
On GBS, we have started a new clinical drug and anticipate submission to the FDA later in the year.
We also continue to make progress on the higher multiplex ARIES chemistry and remain on track with clinical drugs for the first assay commencing in the second half of 2017.
We are very excited about this opportunity, as we believe it is a significant step forward.
And onto the fourth pillar of growth, our strong financial position.
We have $154 million in cash, no debt and a business model that generates significant cash flow.
This enables us the ability to take advantage of strategic M&A opportunities that may become available.
Now <UNK> will review the financial data and afterwards I will return with some closing comments.
Thanks, <UNK>.
Let's begin the financial review with a look at revenue.
Total revenue for the first quarter was $63 million, an increase from the prior-year period by 9% driven by strong double-digit growth in system and consumable revenue.
Assay revenue grew 6% year-over-year to $27 million as strength in infectious disease assay revenue, which grew at more than 20%, was offset by moderate headwinds in genetic assay revenue with PGx facing difficult comparisons to the prior-year period and order timing in the remainder of our genetic portfolio.
For the quarter, infectious disease assay sales comprised 72%, with total assay sales with genetic testing sales comprising 28%.
Royalty revenues were up 7% to $11.5 million quarter-over-quarter and then grew 21% sequentially.
Consumable revenues were up 20% for the quarter to $11.8 million, primarily attributable to strong demand across our partner base, which included healthy bead volume orders from our largest partner.
With that said, we continue to expect 2016 consumable revenue to face headwinds from this same partner with current-year aggregate consumable purchases expected to be down from 2015 levels by up to $5 million.
This is consistent with comp material on our fourth-quarter call but for modeling purposes, we recommend spreading the decline over the remaining quarters of the year.
In the aggregate, our higher-margin items, consumables, royalties and assays, comprised 80% of total revenue in the quarter and have played a significant role in helping us maintain our gross margins in the low 70% range.
System revenues were up 39% for the quarter as we shipped 255 multiplexing analyzers, above our 200 to 250 historic quarterly range, due to a combination of new demand and the underlying replacement cycle.
As previously stated, we no longer plan to provide a breakout of the multiplexing analyzers.
We continue to place ARIES evaluation systems in the field and, as <UNK> mentioned, the early introduction is proceeding as expected.
Now let's turn to the income statement.
Gross margin for the quarter was 71%, primarily due to continued concentration of our higher-margin items, consumables, royalties and assays.
We remain confident in our abilities to sustain gross margins in our strategic range of high 60% to low 70%.
Operating expenses increased 8% for the quarter and reflects the results of our continuing focus on efficiency while growing the business.
R&D expenses for the quarter were up 9% over the prior year and represented 17% of revenue.
As a reminder, we bolstered our assay development groups in the middle of 2015.
SG&A costs were up 5% for the quarter from the first quarter of 2015 and represented 32% of total revenue.
Of the components of SG&A, sales and marketing costs increased 17% as a result of incremental resource investment associated with our direct sales activities.
However, G&A costs declined 6%, primarily from lower litigation and settlement expenses.
For the first quarter, operating margin was 19% driven by the increase in revenue and operating leverage realized through efficient management of our expenses.
Our consolidated effective tax rate was 26%, in line with our longer-term expectations.
For the first quarter, we achieved net income of $8.8 million, or $0.21 per diluted share, compared with income of $7.5 million, or $0.18 per diluted share, in the prior-year period.
On a non-GAAP basis, we generated net income of $12.2 million, or $0.29 per diluted share, for the first quarter.
Now, turning to the balance sheet, we ended the first quarter with $154 million in cash and investments, generating approximately $6 million in net cash and investments during the quarter.
At March 31, DSO on accounts receivable was a respectable 42 days.
With solid performance in the first quarter, we are raising the lower end of our 2016 revenue guidance range by $2 million, resulting in a revised range of between $247 million and $255 million.
We expect consumables overall to be up in the mid-single digits for 2016.
We expect royalties to grow in the low single digits and roughly mirror the aggregate growth rate of the markets in which our partners currently sell our products.
We expect assay revenue to grow in the mid-single digits range in 2016.
This includes our current expectation that LabCorp CF will be with us for the entirety of 2016 but down from prior-year levels as they prepare for their ultimate switch to NGS near the end of the year.
This continues to be an active situation and we commit to keeping you fully informed.
Our third pillar of growth is our new ARIES product offering, and we continue to expect a couple million dollar contribution from ARIES in 2016.
And our final pillar of growth is our financial strength and current focus on identifying opportunities in the marketplace.
We have assumed no contribution from acquisition related activity in our current guidance range.
As we've done previously, we also want to provide revenue guidance for the second quarter of 2016 of between $60 million and $62 million.
I'll now turn the call back over to <UNK> for some final comments.
Thanks, <UNK>.
In summary, 2016 has started off strongly and we are all positioned to take advantage of growth opportunities ahead.
Moving forward, we are focused on executing our four pillars of growth strategy, which should return us to double-digit revenue growth over the next few years.
Finally, and before we open the line for Q&A, I would like to briefly address two events within our organizational structure and the related refinement of our management team focused on dollar four pillars of growth strategy.
First, we continue to evaluate candidates for our open SVP of R&D position, And we have both outstanding internal candidates and impressive interest from external candidates.
We hope to have an announcement regarding a new SVP of R&D in the near future.
Second, I would like to take this opportunity to thank Russell Bradley, our Senior Vice President of Corporate Development and Chief Marketing Officer, for his more than 10 years of service to Luminex.
While he will be departing for personal reasons at the end of June, he will be available to us in a consultancy role until September.
We wish Russ the best in his future endeavors and I sincerely thank him for his contribution to the Company.
Additionally, we look forward to seeing you at the Berenberg Diagnostic Day in London May 10, the Bank of America Merrill Lynch Healthcare Conference in Vegas May 11 and 12, and the UBS Global Health Conference in New York May 23 to 25.
This ends our formal comments.
Operator, please open the line for questions.
Thanks, <UNK>.
We are in current discussions with the FDA.
In the next week, probably we'll get some more stable where we are going with them and how long it will take them to approve.
But I must say they are doing their best to move quickly.
From a revenue point of view, I don't ---+ I mean it's very hard to know what is going to happen mainly because of, you know, if it's going to be an epidemic or not.
Brazil Olympics can help but it's not significant revenue.
As a matter of fact, we might even domain there or try to help them, which we have done already a month or two ago.
But really seen as we get FDA clearance, we will talk about that.
Obviously, our big customers are asking us about it.
They're showing a lot of interest.
But we all know it's an epidemic.
And when it fits, then we'd be able to provide a little bit more color on that.
I would say it's most likely ---+ you may not recall, I believe we may have mentioned it in passing last time through a raise in our expectations on system placements, multiplexing system placements to be between 225 and 275.
And so we fell right in the middle of that range.
So we've had a modest lift in our overall system placement expectations.
And so, we certainly would expect to be within that range for the rest of the year, all the quarters in the rest of the year.
Yes, I mean we feel really good about the commercialization of ARIES.
ARIES isn't the whole company obviously.
And even at $2 million to $3 million, you're talking about 1% or less of total revenue.
So from a contribution standpoint, ARIES is not going to be significant this year, materially significant, obviously, but the rest of the business is really growing well.
The partnership business is doing well.
The assay business is doing well.
Financially, we are profitable.
We are generating a lot of cash.
So I know that there's a lot of focus on the ARIES, but Luminex is a lot more than just ARIES today.
Yes, I mean it's done great.
As I said in the call, we just submitted flu A/B.
We still ---+ I don't know if we should be happy or not, but none of the system in the field have been returned.
We placed more systems in the field.
So it's progressing very well.
But obviously, in order to really ramp up the revenue, we need eventually to have more assay in the field, and they will generate what we need.
But so far, things are going very well.
Well, primarily you saw how we performed in the first quarter with pretty good growth over the prior year.
Obviously, we're not going to grow at that rate for the rest of the year.
Order timing, that bulk purchase phenomenon where partners buy in large quantities one quarter and then maybe fall off for a quarter or two afterwards continues.
It's just as a relatively ---+ it doesn't create as large a variance in consumables.
So we are comfortable with a modest amount of consumable growth in the current year.
The headwinds still exist with our largest consumable purchaser but we are confident in that number.
It's just really ---+ it's more the health of the partner business that I think manifested itself in our results is quarter.
Yes.
I don't think there is any incremental OpEx to what we've been running so far, and that's going as we planned.
So obviously we took to some of the assumption during this year, earlier this year, that this year, we will run at least four to five clinical trials and the same times for the risk and that's in our numbers.
Expectations are still ---+ and we said before that we'd be just under 20% of total revenue in R&D.
Those expectations continue.
So the first quarter was a little light relative to that number.
And so certainly, you would expect R&D expenses over the rest of the year to pick up a little bit.
Some of that will be clinical trial expenses and continued assay development, and the rest of the area is portfolio.
<UNK>, it's the same thing what we keep saying, the same kind of type of customer, large hospital, midsize hospital.
The number is growing.
Initially, we had 30 systems by the end of the year.
This number continues to grow.
And for competitive reason, at this stage, I'm not going to throw any more numbers.
We have a goal to have close to 100 systems by the end of the year, and we are tracking into that.
We are doing other things.
We are putting a lot of effort behind the developing on what we call the low single PLEX assay, the three or four.
We are working also developing what we call a more complicated assay that can run up to 12 or 15 PLEX, which we are hoping to launch ---+ or not launch, to take to the FDA in the middle of next year.
And we think it's going to be fairly fundamental to us.
On top of that, we are going to ---+ we are working on the ASR.
Those came ---+ we have I think as of now more than 10 ASRs in the field and we are working on another 10 to be available to our customers.
And obviously, we might take the Zika and put it also on the raise and offer it to our customers.
Because they were asking ---+ either it will be a EUA or ASR.
We have not concluded that.
But there is a lot of activity behind that.
I've been visiting customers.
I'm getting really good feedback about ARIES.
You have seen our press release about the SYNCT.
That's also becoming instrumental to stimulated growth in the markets.
So everything is going the right way.
So I'm very happy about that.
Let me just say, you know, I'm talking about the (inaudible) typing in the companies, so I would not go previously.
But our idea here is the same system.
No change for the cassette, no change to the configuration of the system.
It's really a more complicated chemistry running on the same instrument.
And that's a beauty.
We don't need to go and replace the box at the customer, et cetera.
It will be going on our MAGPIX system.
It will be going either to some of the major labs, hospitals or some of the different customers, or the Department of Defense that we have as customers.
So, <UNK>, the LDTs are effectively a key that can get you into the door in a laboratory that wants to use your platform but maybe your cleared menu is not broad enough yet.
As you know, laboratories, the majority of their menu is of the laboratory developed test variety, not of the volume but of the menu.
And as a result, any opportunity you can give a lab to automate the performance of the harder to perform assays is certainly a plus for the ARIES system that really today only we can do.
You then couple that with a menu that is slowly expanding and then by the end of next year, we talked about 10 plus FDA cleared applications on the system by the end of 2017.
Then you have a pretty compelling offering.
If all we had were one FDA cleared application today, right, HSV 1&2, that's a lot more difficult sale.
So the unique features that the ARIES system offers a laboratory as they wait for additional FDA clearances provides pretty significant grease, if you will, to get yourself into the laboratory early.
So, what we know is that it's happening from a discussion with our partners.
Unfortunately, a lot of our partners take delivery of their systems and they turn around and ship them to their end-users.
There are others that we ship systems directly to the end users.
And for those, we have better visibility as to whether or not they have an instrument or not.
So it's more of a qualitative ---+ I don't want to call it a judgment,---+ qualitative criteria that we are aware of that our partners are telling us that there are systems being replaced.
Now, it's not the lion's share of the placements.
There are several 5, 10 a quarter maybe.
But nonetheless, it is providing some lift in the overall system placement statistics, which is why we talked about, previously about raising that ---+ those placement expectations a little bit.
What you can see also <UNK> is the timing of (technical difficulty).
Although we are not making it anymore, we are selling more and more FM into the field, which the customer needed it, it's a more productive unit.
So, for example, one of our customers who is into organ transfer is seeing more and more, even a customer in the life science school start ordering those units.
So it's really ---+ it's not only a unit that we see start replacing our traditional LX 100 to 200 to the MAGPIX.
It also eventually will create I'd say more bids and royalty in the future.
So, as you can imagine, <UNK>, there's a lot of bankers out there that throw a lot of deals at us every day.
So, the majority of those we have to unfortunately pass on.
But there are a number of exciting opportunities that are available to us and we continue to evaluate those on a regular basis, some right in our wheelhouse in the markets in which we play, others that are on the periphery but would certainly make sense in expanding our footprint overall in the life science marketplace.
<UNK> mentioned previously on our call, our end of the year call, that if we don't find something within about a year, we're going to have to start giving some back.
Whether it's in a buyback, whether it's a dividend, whatever, we're going to have to find a way to start sharing some of the cash that we are generating with our shareholders if we can't find an opportunity.
So I hope that answers your question.
Well, the life science industry, as you know, is very broad.
So, it includes both research, diagnostics, everything in which our partners play.
Molecular diagnostics is included in that life sciences industry but because we play there ourselves, it's not really applicable.
So what we're talking about is the research protein market primarily, HLA and immuno diagnostics in which several of our partners have assays developed there.
And what we're seeing is that they are, with the kits that they've developed, are having incremental success in placing these boxes with their customers as they develop additional menus.
Because recall that all the beads that we sell can be used both for commercial production, for a kit that they sell to an end user, but those exact same beads can also be used for the development of additional assays.
And our partners, partners like Bio-Rad, Millipore and others, continue to expand their menu, their bead-based multiplexing menu.
And as a result, the product becomes more and more compelling with each passing day.
The utility of Luminex system increases.
And that's really what's driving the success in the partner business.
But recognize that that can be modestly volatile as you go quarter to quarter, so you have to look at it on a longer-term basis on a more ---+ really on an annual basis.
The majority of our partners in development are smaller than the partners that we have in our commercial ---+ our 50 or so commercial partners.
So they are certainly incremental opportunity but they are not, today, material incremental opportunity.
Collectively they are but individually they are not.
We are trying to get more and more supplement to our partners in some of the areas that the presence of our what's called USA partner on also strong.
Particularly that's a small part of the business.
I mean, overall, our traditional partner or our big partner are doing very well and that's helped us to continue to drive the business.
But you have here and there a few of some of the deals that we are doing in those international territory.
It gives us a here a few ---+ another pennies to the overall, but it's really been helpful to us.
And by the way, concern (technical difficulty) partner and again I wanted to repeat something <UNK> said earlier.
We have not had any abnormality in this quarter of one partner giving us a large order in equipment or in systems or in beads.
It's just straightforward business.
You bet.
Thank you, Sabrina, and thank you, everyone, for your attendance on our earnings call today.
We look forward to seeing you in person in the very near future.
| 2016_LMNX |
2015 | CNC | CNC
#Sure.
I think for the first quarter our G&A rate was 8.5% and our guidance for the whole year is 8% to 8.4%.
So I think typically what happens in the first quarter, we're making our normal estimates for the whole year, i.
e.
, one-fourth of the estimates for a lot items.
In the fourth quarter, those are trued up to actual when you get to the end of the year.
So I think we're probably a little more conservative in the first quarter on the G&A that we might ---+ which will play out during the course of the year.
And I think that we've also additional revenues coming on during the course of the year having the membership, for example, in Louisiana was only there for two months in the first quarter as opposed to the whole quarter, and so that will have an impact, slight impact to the rest of the year also.
There's a lot of different things that go into that in terms of additions in other types of business that we have.
So that the mix can be an important element of that.
But generally, when we peel back some of the nonrecurring items, let's say, we are seeing a definite improvement in our G&A ratio and a reduction as we've gained leverage with the additional revenue growth.
I think we expect minimum MLRs.
Our Washington office is actively engaged on those regulations and working through it, and we're comfortable that the regulations that will come out as best we can estimate it to this point in time will be consistent with our expectations and guidance.
I guess what I'll just ---+ the RFP will continue to respond to it, and have really confidence on that ---+ are confident on that, I shouldn't equivocate on that.
We are very confident on it.
As far as the additional products that have been none included in the RFP at this point in time, and until they do we presume they are not.
Anything to add, <UNK>.
No, no I think that's ---+ we've certainly been preparing for reprocurement in Georgia for a long time.
We're strong believers in our performance, and we're doing everything we can to retain that contract and put ourselves in a position that if the programs do expand, we'll be able to participate in them.
I would say that mix comes into play in the growth that we have in some of those areas, like we added in Louisiana several hundred thousand members and so we're relatively conservative in the initial estimates for a new block of business, and so that continues.
Nothing I would say of any great consequence.
There's true-ups in the fourth quarter sometimes, but the MMA business in Florida still running a little higher than what the original actuarial targeted rate would be that the state set that causes some increase.
There is no underlying major increase in trend.
We added 200,000 in Louisiana and that ---+ we always book, as you know, new membership at a higher MLR for the first few quarters.
I would say the answer is yes, that's part of our job.
Our job obviously is to create some of these opportunities that we have visibility before we can communicate those things more broadly, both for you and for our competitors and others.
So I think I would say we continue to be very active on that front and optimistic that we'll maintain momentum to create opportunities in new markets and additional opportunities in our existing markets.
Thank you.
I think that the reason that it's up in the first quarter is we had I think about $188 million of capital contributions into our subs in the first quarter, so that's a higher proportion in the first quarter than the whole ---+ I think the whole year is around $550 million, so we put more than the proportion, one-fourth of it in the first quarter for a number of reasons, and so as a result it's a little higher now.
We would expect it to trend downward for the rest of the calendar year.
And I think as we say, we have been doing some of the acquisitions we've been doing, we include equity as a meaningful part of the consideration, one way or the other, and I think we have still as a practice that we want to continue to follow.
So, I think we are comfortable with where we are in the debt-to-cap ratio, in the mid-30s.
We expect to continue to be there given the interest rates that make sense to be there, and so that's our plan.
I think what we've said we're looking to be in the 2% to 3%, a little above 3% over time from operations.
And that additional upside beyond that will be a function of interest income.
We may get some from it while we're moving through the operations side improving operations margins, but that 2% to 3% should be from operations.
None of that's baked into 2015.
We're not ---+ we're considering flat rates for the year in our guidance calculations.
A lot of it's going to be a size of the particular deal that we do.
And so, it's going to ---+ there's many factors as we get larger.
Obviously, we expect more than can be absorbed, but we are also looking at other capabilities and other deals that may be larger at some point in time.
I think we've seen the market expand over the last several years as indicated by our revenue growth so we're a key participant in that, and so I would not expect our business expansion costs to go down.
I would expect they would continue to go up, and that's what drives such a large revenue increase so I would say more of the same.
I think the plans in Texas are to pay that in the second quarter, and so everything is on target for that, I believe.
MMA is in both because we had some ---+ we already had existing business, Medicaid TANF business in Florida market before they expanded the whole state.
I think our increase year over year in our HBR is really driven, we said earlier, by the mix.
We continue to have higher acuity membership which drives that.
And then when you're comparing first quarter this year to first quarter last year, last year was a relatively mild flu season.
This year we said was a more normal average or slightly above average season, but it was within our expectations and guidance forecast.
So nothing unusual in that regard and typical first quarter has the higher ---+ seasonally is the highest HBR quarter for us.
We thank you for joining us.
We look forward to seeing you June 12 in New York for our investor day, and take care.
| 2015_CNC |
2016 | AKRX | AKRX
#<UNK>, this is <UNK>.
I think I'll ---+ I guess I'll let <UNK> talk to the acquisition opportunities, but from a stock repurchase perspective, not really a change in focus.
Simply the acquisition opportunities are certainly lumpy.
And so we'll look at them all the time, but those things that we'll transact really can't be predicted.
In the meantime, there's no ---+ as cash balances grow, we need an avenue in place to return that cash to shareholders.
Our leverage ratios are low, so don't feel the need to pay down any debt, certainly.
And so the authorization is simply put in place so that in those times where we find ourselves with more cash than we need, that we can use that as a vehicle.
<UNK>, this is <UNK>.
And you know, just to echo what <UNK> said, having the share buyback plan in place ---+ it's another arrow in our quiver.
It's a good corporate governance to have it and then use it when we really need to use it.
And, you know, we strongly believe in the fundamentals of the business and the long-term prospects of Akorn.
To your second question on sort of the multiples and pricing: I think they have slowly ---+ are coming down, in terms of private entities that are looking to sell.
So I think we should be able to take advantage, because we aren't seeing a lot of competition for products.
And again, we have to really find a good asset.
So even if it's worth a little bit more and provides us with longer-term growth prospect, you know, it's ---+ it would be prudent to even pay a slightly higher premium.
So let me answer the first question, and I think <UNK> will answer the second part of your question.
So Akorn India ---+ you know, we acquired that asset back in 2012.
So it's been about four years that we acquired the asset.
And as you may recall, the business that we acquired was not only the physical infrastructure, but it came with a large contract manufacturing business for domestic consumption in India, which was sort of the largest portion of the business.
And they had some international filings and business that they were doing.
So I think the big issue that we had over there for us to succeed in our primary objective of ---+ in terms of turning that platform into an FDA-approved facility was to get out of the local domestic contract business, which took a little bit longer than we expected.
And as we did that, we found there were certain things are needed to be remediated.
And so that brings us to where we are today.
And we have now the right investment, the right process, and the right strategy in place to get through that hurdle in terms of achieving the FDA approval.
So I would say we are about two years behind than what we had originally thought.
<UNK>, on the cash flow question, I would say ---+ I mean, so, if you recall, in 2015 we generated $297 million of operating cash flow.
In my remarks I said we are looking probably at $175 million to $200 million this year.
So I guess from just a general direction perspective, our cash flow generation in 2015 was quite healthy, probably a little bit more healthy than normal.
Some of that unwound in 2016.
So I think this year is a little bit less than normal ---+ much of which has to do with the way cash tax payments are working out.
So on a going basis, I would expect us to be in the $200 million to $250 million range, given our current size.
You did.
You heard right.
So from a margin perspective, you're right on.
Obviously ephedrine is a positive there.
The products like fluticasone, progesterone that contributed in the second quarter offset that a bit.
It's good top-line growth, but those are clearly lower margin products for us.
As it relates to the kind of the remainder of 2016, <UNK> alluded to the fact that that we believe margins will be pretty stable Companywide.
So right now, the pricing on ephedrine we expect to hold for the near term.
Obviously, that may change going forward.
But for the balance of the year, that's how we are comfortable with our margin range.
And then we also have, again, initiatives around lowering our cost of goods, which will continue throughout the year.
So that would offset some of the gains that we see from lower margin products, such as fluticasone, as well as launches of new products, like Myorisan and a few others.
So I think it will be a good balance at the end of the day.
And so I think we are comfortable with the outlook in terms of margins.
That also speaks about our balanced portfolio ---+ that we have some resilience, given that we are focused on alternate dosing forms.
As far as the R&D is concerned, yes, we should start to see the ramp-up.
I mean, we're a little bit behind at getting our people hired.
And we had to make a decision that we open up a new facility in sort of the pharma corridor, so we can attract talent.
So there is some catch-up to do.
We had factored into our guidance for the first half ---+ there was some product milestone payments that were to be paid that did not happen.
And we expect them to pick up sometime in the second half of this year.
So I think we will start to see the increase in the R&D spend ramping up in ---+ by the fourth quarter of this year.
I think the first ---+ well, obviously, the product is ---+ well, I should not say that I'm not concerned.
I mean, we should always be concerned.
In fact, the best solution is not to get any 483s.
I mean, we strive for that.
But ephedrine is one that is sort of the imminent product approval that we are expecting.
And so closing out those 483s are very important for us to get through with the approval for ephedrine.
As far as the other products are concerned, they are probably (inaudible).
At the moment they are not tied up with the responses that are under review.
No, there's not been any ---+ I mean, we always go through ---+ you know, we have an annual or a biannual FDA inspection that when we are especially in the mode of filing new products, you expect to get prior approval, preapproval inspections.
And as we've gone through that, and ---+ nothing is really pending right now.
So there are pending five product launches.
And we are going to prioritize those products, depending on, near-term, any other products that we manage to get approval.
So we're going to sort of reprioritize the landscape of the launches in the future.
And so some we have already planned to launch out of those five.
But again, if we do get a product that is of high priority, that would take precedence over the few products that we have grouped launch for the remainder of the year.
So we are evaluating certain opportunities, and we are also ---+ we're going to look at partnership opportunities that may be available, because that's not really the Company's focus at the moment.
But that's something that we will look at going forward, either through internal development or partnerships.
So, you know, <UNK>, we don't really give guidance or any color around a product in terms of their EBIT contribution.
So that's not really something that we have done or we will do.
Yes, it's a decent product.
I mean, if you recall, going back in time, we had a product called Nembutal, which we are still selling.
That was a significant contributor.
And then we sort of graduated from that one product to many other products.
So I think what will happen with ephedrine is ---+ you know, it will be one of our decent-sized products in the future, but we will have a few other products that will be of the same nature.
So given the kind of business that we are in, things can move and change around pretty rapidly.
And we have some new high-value products that we are looking to get an approval and launch.
And so I think overall, it will be a significant product, but we will have other opportunities to offset it if there is ---+ once a generic competitor comes into the space.
Thank you again, everyone, for joining our call, and we look forward in speaking with you soon.
Thank you once again.
| 2016_AKRX |
2017 | KFY | KFY
#Okay, thank you, everybody.
But first, I just want to say thank you to our colleagues at Korn Ferry, and I'll tell you why.
Because this quarter was the best top line results in the company's history.
To say that I'm proud is an absolutely ---+ that's just an understatement.
The firm is on a roll.
We generated $443 million in fee revenue in the quarter, which is up about 10%.
Profits were solid, adjusted EPS was $0.67, adjusted EBITDA was about $70 million.
Asia knocked the cover off the ball, Asia was up 17%, Europe was up 10% and North America was up about 6%.
And from an industry perspective, financial services was absolutely spectacular.
That business grew about 36% or so in the quarter.
It's been 2 years to the day, almost ---+ actually, it's 2 years and 3 days since we completed the acquisition of Hay Group and I ---+ although we've still got a lot of work to do, there's no doubt about it, I will tell you that this has been a game changer.
Korn Ferry has evolved into an organizational consulting firm.
So what does that mean.
Well, most clients can develop a sound strategy, but they often struggle to make it stick.
And that's where Korn Ferry comes in, combining a client strategy with their talent to drive superior performance.
And a strategy without talent is helpless and talent without strategy is hopeless.
And that's what we did.
We combined these essential elements for our clients' success, and that's what makes our firm unique.
And so there are really 2 aspects to our business.
First, we help companies design their organization, the structure, roles, responsibilities, as well as how they compensate, develop and motivate their people.
And secondly, we help organizations select and hire the talent that they need to execute the strategy.
The acquisitions that we've made over the years, the talent that we're developing internally and bringing on-board, as well as our real relentless focus on solutions align toward our clients' business outcomes, it's making, I think, a notable impact.
The investments we've made, I think, have not only enhanced our performance, but they've strategically repositioned the company forever, providing a platform to both shape and accelerate our growth in the years ahead.
So I'll leave my comments right there.
I'd only say, as we enter this calendar 2018, we're going to continue our strategic commitment to building the preeminent organizational consultancy, a firm that changes people's lives and that enables organizations and people to exceed their potential.
So with that, I'm joined here with Bob <UNK> and <UNK> <UNK>.
So I'll turn it over to you, Bob.
Great.
Thanks, <UNK>, and good afternoon, everyone.
As usual, I'm going to start with a few key highlights.
First, as <UNK> mentioned, fee revenue in the second quarter reached an all-time high, with all 3 lines of our major business segments achieving strong year-over-year growth.
Globally, the fee revenue in the second quarter was approximately $443 million.
It's a growth of over 10% year-over-year at actual foreign currency rates and nearly 9% at constant currency.
Growth was strongest in the talent acquisition businesses, Executive Search and Futurestep, which grew year-over-year by approximately 13% and 17%, respectively.
For Executive Search, fee revenue growth in the second quarter was broad-based, with growth in North America, Europe and Asia PAC regions of 9%, 19% and 33%, respectively.
We're also pleased with the 6% year-over-year growth that we saw in the Hay Group, which reflects not only the addition of new talent, but our focus on larger solutions and our go-to-market activities as well.
Second, in the quarter, we continued to invest for growth.
On a quarter sequential basis, we hired an additional 17 net new fee earners, 6 of those in Executive Search and another 11 at the Hay Group.
Many of the new consultants we have on-boarded over the last several quarters are currently making a real positive impact.
We had a record quarter of new business in all 3 lines of business, which not only contributed to our record overall revenue in the quarter but positions us very well for the second half of fiscal '18.
We expect these new hires to further contribute to growth over the next few quarters as the productivity ramps.
Third, our adjusted EBITDA, as <UNK> mentioned, in the second quarter reached $69.6 million, an improvement of almost 10% compared to last year's second quarter.
And then, finally, we continue to return capital to shareholders with the payment of our quarterly dividend and the repurchase of our stock.
Over the last 5 quarters, we have now repurchased approximately 2 million shares, that's about 3.5% of our outstanding fully diluted share base and we've used about $58 million of our $150 million authorization.
Now turning to new business trends.
First, for Executive Search segment.
Globally, new business wins in the second quarter continued to improve and reached a record high.
In the second quarter, consolidated Executive Search new business was approximately $180 million and that was up about 15% year-over-year, again driven by strength in North America, Europe and Asia.
Similarly, new business growth in the second quarter for Hay Group was strong, coming in at a record $216 million, and that's up double digits measured year-over-year.
And finally, in the second quarter, Futurestep achieved an all-time high in new business, with total awards of approximately $149 million.
This includes $28 million in single search, and then on the RPO side, it was about $121 million, $5.5 million of that is an extension of an existing client relationship, about $52.5 million is an expansion of an existing client relationship and then about $63 million relates to new customer wins.
And the majority of that RPO revenue will be realized over 4 to 5 years.
At the end of the second quarter, total cash in marketable securities were $414 million, that's up about $24 million compared to the second quarter of fiscal '17.
And then when you exclude amounts reserved for deferred comp arrangements and accrued bonuses, our investable cash balance was about $185 million, and that's up about $30 million year-over-year.
As of the end of the second quarter, we had about $246 million of debt outstanding.
And then, finally, our adjusted diluted earnings per share were $0.67 in the quarter, it's up about 13.5% year-over-year, and on a GAAP basis, fully diluted earnings per share were $0.64.
With that, I'm going to turn it over to <UNK>, who will review the operating segments in a bit more detail.
Great.
Thanks, <UNK>.
As previously discussed, monthly new business activity in the second quarter ramped for all of our operating segments, just ahead of our seasonally slower third quarter.
Globally, for Executive Search, new business awards in the months of September and October were up year-over-year by 13% and 22%, respectively, and we saw strength in the month of November, which was also up year-over-year.
If monthly new business patterns remain consistent with prior years, we expect Executive Search new business awards to trough sequentially to a seasonal low in December, then rebound to a quarter peak in January.
For the Hay Group, the third quarter is also typically a seasonally weaker quarter for both new business and revenue, as time off during the year-end holidays results in less time with clients to execute backlog as well as win new assignments.
However, we do expect the Hay Group to benefit in the third quarter from both the surge in new business awards secured in the second quarter as well as the continued ramp-up in productivity of many of our recent consultant hires.
Also as previously mentioned, Hay Group new business awards improved each month during the second quarter and the month of November was strong, up over 14% year-over-year.
With regards to Futurestep, both business under contract and the pipeline of potential new business opportunities remained strong and should drive continued growth in the third quarter.
As we previously mentioned, in the second quarter we continue to hire fee earners and select support staff in all of our operating segments.
At the end of the second quarter, our net consultant counts are up 21 in Executive Search and 37 at the Hay Group on a year-to-date basis.
As is usually the case, in the short term, many of these new hired consultants will not immediately bill at full capacity and, therefore, will create near-term downward pressure and earnings and margins, especially in our seasonally slower third quarter.
Now considering these factors, assuming worldwide economic conditions, financial markets and foreign exchange rates remain steady, and under the existing U.<UNK> tax law, we expect our consolidated fee revenue in the third quarter to range from $406 million to $426 million, with growth in all of our lines of business and we expect our consolidated adjusted diluted earnings per share to range from $0.54 to $0.62.
And then, finally, consistent with prior quarters, our financial results in the third quarter include the amortization of integration and acquisition costs of approximately $2.3 million for retention bonuses related to the Hay Group acquisition.
When you include these costs, we estimate that the fiscal '18 third quarter fully diluted earnings per share, as measured by U.<UNK> GAAP, will likely be in the range of $0.51 to $0.59.
And with that, we'll conclude our prepared remarks, and we'd be glad to answer any questions that you have.
Well, we do have goals for ROIC.
And we would clearly expect to be at least 11%, 14%, maybe 15%.
I mean, that obviously depends on where you are in the cycle, but that's kind of the gating that we'd put around it.
It didn't grow at all.
And I think that the reality is, as we've really started to look at the opportunity there, there's been a couple of things that have really struck us.
Number one, the opportunity to create a platform that companies could use to hire people, to assess people, to develop people and pay people is absolutely there.
And we have the [IP] to be able to deliver on that promise.
That's number one.
But the second is, quite frankly, we've got some work to do, in terms of making that dream a reality.
I still believe very, very strongly that the business has the opportunity to double or triple, actually, over time, and it is certainly a very scalable business.
But we're going in and really taking a hard look at the customer interface, how they experience it, and we're making some pretty substantial changes to what that offering will really be.
We're looking at the pricing of the business.
Some of that pricing, you're locked in for more than a year.
But the opportunity is absolutely there.
But we've still got some work to do and we also have to continue to develop talent in that business, as well as augment talent from the outside.
Well, we've ---+ certainly, we have been very aggressive and it's not ---+ it's been very, very broad-based.
We've brought in people that have professional account management experience.
We've brought in people that are, what we would call, solution architects.
So it has been aggressive.
I would not anticipate that same level of aggressiveness for the next 1 to 2 quarters.
I think the reality is that our expense base has grown substantially.
I believe we still have capacity, a lot of capacity.
And quite frankly, we've got to kind of recalibrate this products business.
We've got work to do there.
So I think that for those reasons, it's not going to be as aggressive at it was, say, going back 9 months.
No, it's impossible to ---+ without a lift in the products business, no.
It's almost impossible because of the substantial reduction in billable hours and time.
I don't know what you'll lose in this quarter if it's 7, 8, 9 days.
I mean, it's a pretty big number.
So there's just no way to really make up for that sequentially.
Yes, and I would say ---+ Tobey, this is Bob, even when all of our folks are fully ramped up, you're still going to see a sequential drop Q2 to Q3, for the reason <UNK> just articulated as well, the fact that Q2 is a seasonally high quarter for products revenue because there's a lot of renewal activity that happens during that quarter.
Yes.
I think, Tobey, we've done some internal analysis, but I would prefer to wait until we see where everything settles down, and at that point we'll come out with a more formalized point of view.
I don't ---+ look, I don't ---+ we have a ---+ look, we have a new leader in the business.
That has had an impact for sure, no doubt about it.
But the team that we have is really, really good.
And so we have tried to push, over the last several quarters, to orient ourselves towards more impactful, larger assignments.
Secondly, we've try to push the organization towards a solutions mentality.
And so I would, actually ---+ I would attribute it to those things, obviously to the extent that you can develop talent from within or augment from the outside, that's a big plus.
But I don't think there's been enough time to really put points on the board.
And so I would attribute to those other 3 things than kind of this new talent per se.
Yes, so the ---+ I would say, if you go back and you look at historical patterns in Futurestep, the third quarter is generally flat or even down a little from second quarter, again, because of the year-end holidays and we would expect that same pattern to exist this year.
If you go in and look at the business, the business is roughly 45% single search, 55% RPO.
Well, I think, look, if things play out the way they ---+ it appears right now, you're at a point where wages will be rising.
Wages rising is a good thing for everybody.
But I would say that ---+ I would hope that we could look at that at more like $1.4 million, maybe $1.5 million, I mean, why not.
So, yes, I would tend to ---+ and I think this quarter we were like $1.3 million, something like that, yes, $1.3 million.
So I would ---+ I think you could [see yourself] to, for sure, like $1.4 million.
And possibly, I think that ---+ to the more that we integrate ourselves as one rather than being 3 or 6 or 9, I think if we integrate ourselves as one firm, those are not just possibilities, it becomes a reality.
Yes, I think the pipeline remains pretty strong.
I would say, and we've seen this in the past when Byrne has a new business ---+ Futurestep has a new business that it wins, the maturity or the sort of advanced stage of the pipeline changes a little bit.
So the dollar value remains at a high level, but the maturity or the stage of completion of the proposals is probably a little bit earlier.
We have.
In terms of the new business, we've certainly seen ---+ we've got some nice wins, high 6-figure, 7-figure wins, particularly around M&A and talent development.
So that's ---+ I think that overall, as we continue to move the portfolio hopefully towards bigger assignments, that obviously changes the ---+ it changes everything, the value proposition, it changes the economics as well.
It did.
The U.K. is the flagship of the company.
We've got 750 people there, the business is outstanding.
That business performed, again, incredibly well in the quarter.
It was.
Europe was clearly part of it, not only the U.K. I would say that we have seen, probably as you would expect, I mean, good activity in commercial banking, consumer banking, wealth management, insurance, those have all been good, as well as private equity.
So when you look at the sectors within financial services, you're going to see pretty strong across the sectors.
And from a geographic perspective, you're also going to find it relatively balanced in terms of growth.
It really hasn't changed since the last call, but it certainly has changed over several quarters, no doubt about that.
And so we are an organizational consulting firm and as we go to continue to integrate ourselves around one firm, we have seen people from strategy backgrounds, the big 4, some of the branded HR providers, we've certainly seen an uptick in activity from those sources.
It's ---+ today it's about 20% of the firm, 20% of the portfolio.
When you look at world-class professional services companies you'd find, it would be anywhere from 20% to 30%.
So we certainly ---+ we would not see it at 30%.
But we would see it in the low 20s in terms of percent of the overall portfolio.
I think we made really good progress in the quarter.
I'm not satisfied, but I'll just ---+ one of the contributors to that large Futurestep new business orders in the quarter was from a marquee account.
And it's just amazing to ---+ for me to kind of contemplate how much impact we can have with some of these clients versus, say, a decade ago.
Okay.
Again, I want to say thank you to our colleagues.
Obviously, thank you to our shareholders as well and to our board.
Special time of the year, and so I'd pass on seasons greetings to everybody, and we look forward to speaking to you in the new calendar year.
Thanks, everybody.
| 2017_KFY |
2016 | WAGE | WAGE
#That's just the base.
Assumes no additional growth.
<UNK>, I wouldn't say it went quicker than we thought.
It went as we expected in the beginning of ---+ when we provided guidance on Q1, we said we examined somewhere between $1 million and $2 million from the Ceridian business in Q1 and that's what we saw.
Yeah, I would say some of that in the first quarter was driven by obviously the ---+ the increase in the cap, which helps our basic program revenue, where we're paid on a percentage of the face value of the order.
I think that will continue for the rest of the year with the limits being up.
On the new sales, new sales were strong, December to January, January to February.
They continue to be pretty strong.
But that would be more of a gradual rollout through the year.
So, you know, so it would be reflective of kind of both of those in the first quarter.
But there should be some more new sales opportunities that didn't have a full first quarter impact and some that will start in the second quarter that should give us a bit of a lift there.
But, remember, my caution there is, this is great stuff, but we're talking about small employers.
Okay.
Sure.
Well, I think we elaborated, <UNK>, a little bit on that in the first quarter as we kind of go through our open enrollment period.
You know, HSA growth for us, in the last quarter we talked about it being about 45% year-over-year.
In situations on FSAs, I break those kind of into two categories, you know, where we see employers taking advantage of the carryover provision, those employers usually see kind of a low double ---+ 10% to 15% increase in enrollments, and we've seen that to be pretty consistent over the last couple of years.
Those employers who have yet to take advantage of the carryover who are becoming smaller and smaller as a percentage of the base, those employers, are probably in the low single-digit growth rates.
And then, so that ---+ that's really as far as we break down, you know, the growth in healthcare.
HRAs, you know, still growing pretty nicely, you know, that percentage is really driven a lot by a lot of adoption that we see from employers from the standpoint of wellness initiatives and things like that.
And the other thing to consider as far as timing, especially on the HSA side, you know, FSA accounts usually start January 1 and go through the year.
HSA accounts, there you have employees who will enroll in an HSA account, once selecting the high deductible health plan, and we see that happening obviously quite a bit of it during the first part of the year, but that can go through the first quarter as employees enroll in new HSA accounts.
I think that's going quite well.
We've got a great partner we're working with.
We're in the process of rolling that out.
As I mentioned in my remarks, rolling that out throughout this year.
We don't expect it, as I said, to have a real meaningful impact in 2016, but we should be ready to go with the vast majority of our HSA business starting on 1/1/17, so I would expect 2017 and then obviously, the years going forward, where this will be a more meaningful, if not material opportunity for us.
And that's really kind of as we sit today.
If there are increases in the interest rate, then I think that becomes more of a benefit to us going forward.
Sure.
Thank you.
Sure, <UNK>.
No, I wouldn't call that any pressure.
I'd say, you know, overall, you know, just like it's been really in the nine years that I've been here, pricing has remained relatively flat.
You know, when you're working on large enterprise-related clients, do you get more aggressive on price, sure, but, we also ---+ that's offset a lot by, you know, a lot of the broker business that we get on the smaller employers which tends to be at a bit higher rate.
So overall, and this would be kind of across our products, I would say that we haven't seen any ---+ any shift that would cause any concern or make us feel like there's pressure associated with it.
No, that's the big ---+ that's the big driver of that this quarter.
Oh, sure.
Thanks, <UNK>.
Thank you, operator.
Again, I'd like to thank you all for joining us today.
I'd like to thank all of my colleagues throughout the company for really contributing to put our company in the position it is today.
As I said, kind of in the conclusion, I really believe that our industry and WageWorks in particular as a leader in the industry, we're really at a point where we're starting to see adoption of these programs becoming greater, and I think that will continue going forward.
The one given is, out-of-pocket healthcare expenses are continuing to go up, and as I mentioned earlier, from working families throughout the country, one of their own defense mechanisms against that is to take advantage of one of these healthcare accounts.
So from that perspective, we see our business continuing to grow.
I've talked about the benefits that we've seen on the commuter side, our COBRA business is growing quite well.
We have acquisition and channel partnership opportunities we're pursuing.
And package that all around the best team in the industry, who I'd like to thank for all that they do every day, I think we feel pretty good about where we're at and look forward to talking to you next quarter.
Thank you.
| 2016_WAGE |
2018 | TMST | TMST
#Great.
Thank you.
Good morning, everyone, and thank you for joining us.
I am here today with Tim <UNK>, Chairman, CEO and President; as well as Chris <UNK>, Executive Vice President and Chief Financial Officer to discuss our first quarter 2018 financial results.
During today's conference call, we may make forward-looking statements as defined by the SEC.
These statements relate to our expectations regarding future financial results, plans and business operations among other matters.
Our actual results may differ materially from those projected or implied due to a variety of factors, which we describe in greater detail in today's press release, supporting information provided in connection with today's call, and in our reports filed with the SEC, all of which are available on the www.timkensteel.com website.
Where non-GAAP financial information is referenced, we have included reconciliations between such non-GAAP financial information and its GAAP equivalent in the press release and/or supporting information as appropriate.
Today's call is copyrighted by <UNK>Steel Corporation, and we prohibit any use, recording or transmission of any portion of the call without our expressed advanced written consent.
With that, now I would like to turn the call over to Tim.
Well, good morning, and thank you for joining us.
We're off to a strong start this year.
Our employees went to extraordinary efforts in the first quarter and marked a turning point both in commercial and production operations.
We remain focused on a few key priorities to have an even stronger second quarter.
First, let's talk operations.
Our safety performance continued at top quartile levels on a record pace for preventing OSHA recordables.
Our employees continue to keep safety as our highest priority working to identify and eliminate risks.
We not only operated safely in the quarter, but also showed improving productivity.
Working throughout the quarter, we put behind us some of the inefficiencies that came from the steep ramp in which hundreds of new people joined the company and even more transferred to new positions within the plant.
By the end of the quarter, we achieved record bar shipments and we began the second quarter of 2018 with past due orders down 20% from the beginning of the year.
You may also have read in our annual report about the progress we've made in our environmental performance over the last year.
We reduced both our carbon footprint and waste to landfill by 8% and reduced electricity consumption in steelmaking by 10% per kilowatt hour per ship ton.
Just as we think innovatively about product development, we also bring that mindset to our steelmaking processes.
We've continuously improved efficiency and sustainability as we make some of the cleanest steel in the world.
<UNK>Steel is an environmental leader in the U.S. and the U.S. industry leads the world.
On the commercial side of things, we've seen a lot of movement in our markets in the last quarter.
One significant action was the implementation of tariffs on steel coming into the U.S. I want to thank the administration for keeping its promise to address the flood of imports, because those imports have impaired domestic producers from selling at a fair price.
The announced tariffs will begin to level the playing field in the interest of fair trade and preservation of our national security.
We trust the administration will maintain the integrity of the original steel tariff announcement as it considers requests for exemptions from the ruling.
Overall, our markets continue to strengthen, and so do prices.
We're seeing a lot of positive signs.
Mining is strong and growing, oil and gas continues to grow.
Drilled, but uncompleted wells are at an all-time high, and we expect completion activity to remain strong throughout 2018.
Industrial demand remains stable, and industrial distribution inventories are balanced.
The automotive markets remain strong, and after production cuts in the fourth quarter, inventories now seem to have come in line with current demand.
Rail also continues to recover, and even agriculture, which is had multiple years of poor performance is forecasting a recovery.
Our job is to take advantage of these market conditions to actually outpace the recovery itself.
Here are a few examples of the commercial actions that we're taking to drive that effort.
First, improving our mix is a priority.
We're working across the company to fill and deliver on our most profitable product lines.
In fact, we made sales of those products a metric in our variable pay plans to further align our employee compensation with shareholder interests and drive profitability.
The ramping of our new advanced quench-and-temper facility will also help improve mix.
We expect this facility will be near full capacity by the end of the year.
Second, we're optimizing the use of our steelmaking assets.
One measure of that is how much steel we process through the jumbo bloom vertical caster versus our bottom pour operations at our Faircrest Steel Plant.
The cast to bottom pour ratio grew to 58% in the first quarter and we expect it to reach 70% by the end of the year.
Ultimately, our goal remains to reach a ratio of 85% to realize the full benefit of the production efficiencies the caster delivers.
Both factors driving business towards profitable process paths and optimizing how we make our steel are competitive advantages and will help improve the performance of the company.
The third area of commercial activity has been around strengthening our market position.
Rebounding markets are helping to restore prices and we've announced 4 price increases actions that are impacting 2018.
We are approaching 2014 pricing levels, which is helping to stabilize the domestic steel industry.
Fourth, we're getting even better at scaling our innovation beyond individual customers to more broadly-serve demanding markets that demand critical performance.
An example is automotive transmissions.
We work with customers that are pioneering the advancement of progressively more sophisticated transmissions.
We've proven across the industry that our components enhance the performance of these advanced and highly efficient systems.
Just this quarter, we entered trials on gear blanks for some of the most high-speed transmissions made by a customer with particularly high performance requirements.
A visit by the customer to our St.
Clair facility gave them a first-hand view of what we can do for them, and it opened new opportunities to work together.
All of this activity is part of a more aggressive portfolio management that is focused on the products, processes and applications, where we deliver the most value in the market.
It's a continuing effort that will have both short-term and long-term benefits.
As we look ahead to the rest of 2018 and keep an eye on 2019, we expect to deliver greater value to our shareholders.
Our team is innovating in creative ways and executing with greater discipline than ever.
I'm looking forward to a great year.
Chris is going to give you a little bit more details on the numbers, and then we'll be back to take your questions.
Chris.
Thank you, Tim.
Good morning.
The first quarter results were in line with our guidance, excluding certain nonrecurring expenses.
EBITDA for the quarter was at the midpoint of our guidance range when adjusted for these expenses.
More importantly, the operational improvements made within the quarter have set us up for a significant increase in shipments and profits in the second quarter.
Total shipments of 300,000 tons in the quarter were 7% higher than last year and 5% higher than the fourth quarter of 2017.
The year-over-year improvement was driven by a broad-based strengthening end market demand.
Mobile shipments were 6% higher than the fourth quarter of 2017, mostly from a seasonal increase in the North American light vehicle production build rate.
The 2018 projected SAAR of 17.3 million units is a slight increase over 2017.
For the second quarter of 2018, we expect mobile shipments to be about 5% higher than the first quarter due to a shift in market demand towards light truck vehicle applications, particularly, from new domestic OEMs.
Industrial shipments were 8% higher than the fourth quarter 2017, and 14% higher than in the first quarter of last year.
Industrial shipments were helped by the strength in demand from mining, bearing and power transmission applications.
In the second quarter, we expect a sequential increase in industrial shipments of about 58% as the general economic sentiment remains positive in most of the industrial market sectors and inventory levels remain balanced.
Shipments to the energy end market increased about 4% sequentially and 71% compared to the same quarter a year ago, albeit off a low base.
The U.S. rig count has stabilized at around 1,000 active rigs and we remain encouraged by more balanced customer inventory positions.
We expect second quarter energy shipments to be about 40% higher than the first quarter.
Net sales for the quarter were $381 million, with base sales of $290 million and surcharges of $91 million.
Base sales were $45 a ton, or 5% higher than the fourth quarter 2017 due to improved pricing and mix.
Looking to the second quarter, we expect to see a price mix improvement from the continuing shift to higher alloy content in products.
As a result, we anticipate an increase in our base sales per ton of about 5% in the second quarter.
Gross profit for the first quarter was $21 million or 5.5% of net sales, which includes about $4 million of nonrecurring costs primarily related to legal expenses and employee benefit claim.
Melt utilization was 77% or 9 percentage points higher than the fourth quarter 2017 rate.
The benefit from higher melt utilization was offset by production inefficiencies and inflationary impacts.
We believe that most of the inefficiencies are behind us and anticipate improved operating performance in the second quarter.
SG&A for the quarter was about $25 million or 6.5% of sales, which was an improvement over the same quarter last year and sequentially from the fourth quarter.
We continue to manage cost to gain further leverage for the remainder of the year.
EBITDA for the first quarter was about $21 million, a 22% increase from the same period a year ago, and a $13 million improvement from the fourth quarter adjusted EBITD<UNK>
Improvement in earnings was primarily due to volumes improved price mix and favorable timing impacts related to raw material spread from a rise in the #1 Busheling Index.
In the first quarter, we reported net loss of $2 million.
Income taxes in the quarter were about $100,000 related to foreign sourced income.
For the remainder of 2018, our tax expense will be primarily from taxes paid outside of the U.S. Operating cash flow for the quarter was a use of about $20 million as we build around $40 million of working capital to support our growing sales.
Free cash flow for the quarter was a $22 million use of funds, including capital expenditures of $2 million.
We maintained our full year capital spending guidance at $40 million.
At quarter end, our liquidity remained in good shape at $203 million, which was about a $15 million increase from year-end, and our net debt-to-capital ratio continues to be low at 21.7%.
Turning to the outlook for the second quarter.
Shipments are expected to be between 5% and 10% higher than the first quarter.
Additionally, we expect the EBITDA range to be between $30 million and $40 million, driven primarily by improved operational and commercial performance.
As Tim mentioned, 2018 is shaping up to be a good year and we are well-positioned to create more value.
This ends our prepared statements, and we will now take your questions.
Yes.
Let me comment first and I'll ask Chris to add any color to it.
As of right now, the 4 price increases that we put in place that are effective this year have all stuck.
The industry, in general, has followed, and our total exposure on the spot market is about roughly 30%.
I mean, just in general, I mean, scrap markets have been pretty frothy here of late.
And the thought is we're going to see that come off a bit.
Our sense is there is not a significant correction out there.
But it's going to just kind of putter around a little bit.
No big swings either way.
Yes, that's how the math works is, you estimate the full year and divide by 4.
So we would expect about $5 million for the year.
Just to touch on the pricing one more time.
So what percentage of the increases were reflected in Q1.
And are there ---+ any that are will be flowing through and realized in 2Q.
I understand that all of them have stuck, but I'm just wondering how they're going to flow through to P&L.
Yes, <UNK>, I'll take a shot at that.
Obviously, in the first quarter, most of the contract pricing came through.
We'll have a little bit more in the second quarter.
And then until further notice, we'll see more impact in Q2.
So yes, if you ---+ in the script we talk about another increase of, call it, 5% in terms of price mix in the second quarter, so that should help you understand how the pricing flows through.
Got it.
And then, on the $6 million raw material headwind, can you just give us more insight of the driver of that $6 million headwind.
Yes, it's really the slope of what we buy in terms of various scrap and the spread between that and the Busheling Index from where we surcharge.
So it's basically the fact that shredded has gone up dramatically more than Busheling in the past couple of months or so.
Yes, that's exactly right.
The obsolete grades have accelerated versus the Busheling slope.
Okay.
And there's no other ---+ there's nothing other than scrap in that number.
Just a little bit of alloy in that number, but it's primarily over time driven by scrap.
Got it.
And then just one last one.
The billet shipments are running a bit higher than kind of our expectations.
Can you just talk about the progression of billet shipments for the year.
And should we expect those to fall as you kind of get other business.
Or should we expect those to be pretty steady from the current run rate.
The number you saw in the first quarter is us catching up on the past due that we carried into the year.
That will ---+ those will come off starting in the second quarter.
Yes, I think from a cost structure perspective, I think, it's pretty indicative.
Obviously, we had some inefficiencies in the first quarter that we look to have corrected for the second quarter.
So that will improve us on the cost side a little bit.
No, we are not caught up yet.
So we clearly have some product that's in backlog, and we're going to try to get caught up here in the second quarter.
We'll see if we're there by the third quarter or not.
I don't think our structural cost structure in Q3 should be much different than Q2.
Yes, I think the amount of the maintenance will be pretty similar, and we believe, at this point, will all take place in the third quarter outage.
Yes.
Clearly, most of the working capital build is in the first quarter seasonally and this year is no different, it's very similar to last year, if you look at the total working capital.
We'll see a little bit of working capital build in the second quarter, but considerably less than the first quarter.
And then second half of the year, that will reverse out and it ought to be on the other side and have some working capital decrements.
First question, just I hopped on a little bit late, so I hope, I know this is redundant.
But in terms of the base pricing per ton, could you maybe take us through sort of the first quarter sequential increase versus the fourth quarter by end-market, and give us a view as to how much of that was sort of mix and how much of it was real base pricing.
And then just sort of reiterate how that first quarter delta is going to translate into further second quarter increases.
Yes, sure <UNK>, I'll take a shot and Tim can provide some color, if appropriate.
The change sequentially was really pretty more broad-based.
If you look at the base sales per ton improvement in our market sectors, 5% in industrial, 2% in mobile, 6% in energy.
That's pretty broad-based and very much within our expectations, and most of this, I would call price sequentially.
And in my script, <UNK>, I'd mentioned that we anticipate between price and mix in the second quarter another 5% increase.
Okay.
That's helpful.
I guess, secondly, given that just volume price and sort of mix seem to come in line with what you expected in the first quarter.
What sort of held EBITDA back from being at the high-end of the range.
Yes.
Well, we had a couple of things.
One, we had some one-off expenses of about $4 million that are nonrecurring.
Then we had some costs to catch-up on backlog and really some manufacturing inefficiencies, I'll call it, kind of generally.
Okay.
And then in terms of that 5% base price increase for the second quarter, if I apply that to 300,000 tons, I'm getting something on the order of $15 million-or-so, or maybe not quite that much, but something close to $15 million.
What prevents you from sort of seeing the full benefit of that $15 million price increase in terms of your sequential EBITDA bridge looking at the second quarter prospectively.
Yes, there's a little bit of mix and little bit of cost is really what makes up the difference relative to the bridge you created.
Well, thank you for your questions today.
If you have any remaining questions, be sure to contact <UNK> after the meeting.
As we look ahead for the rest of 2018 and keep an eye on 2019, we expect to deliver greater value to our shareholders.
I thank you for your interest in the company.
Have a great day.
| 2018_TMST |
2018 | ENSG | ENSG
#Thank you, Norma.
Welcome, everyone, and thank you for joining us today.
We filed our earnings press release yesterday, and this announcement is available on the Investor Relations section of our website at www.ensigngroup.net. A replay of this call will also be available on our website until 5:00 p.m. Pacific, on Friday, May 25, 2018. We want to remind any listeners that may be listening to a replay of this call that all statements are made as of today, May 3, 2018, and these statements have not been, nor will be updated subsequent to today's call. Also, any forward-looking statements made today are based on management's current expectations, assumptions and beliefs about our business and the environment in which we operate. These statements are subject to risks and uncertainties that could cause our actual results to materially differ from those expressed or implied on today's call. Listeners should not place undue reliance on forward-looking statements and are encouraged to review our SEC filings for a more complete discussion of factors that could impact our results. Except as required by federal securities laws, Ensign and its affiliates do not undertake to publicly update or revise any forward-looking statements where changes arise as a result of new information, future events, changing circumstances or for any other reason. In addition, The Ensign Group is a holding company with no direct operating assets, employees or revenues. Certain of our wholly-owned independent subsidiaries, collectively referred to as the Service Center, provide accounting, payroll, human resources, information technology, legal, risk management and other services to the other operating subsidiaries through contractual relationships with such subsidiaries. In addition, our wholly-owned captive insurance subsidiary, which we refer to as captive, provides certain claims made coverage to our operating subsidiaries for general and professional liability as well as workers' compensation insurance liabilities. The words Ensign, company, we, our and us refer to The Ensign Group and its consolidated subsidiaries. All of our operating subsidiaries, the Service Center and our wholly-owned captive insurance subsidiary, are operated by separate, wholly-owned, independent companies that have their own management, employees and assets. References herein to the consolidated company and its assets and activities as well as the terms we, us, our and similar terms used today are not meant to imply nor should it be construed as meaning that The Ensign Group has direct operating assets, employees or revenue or that any of the subsidiaries are operated by The Ensign Group. Also, we supplement our GAAP reporting with non-GAAP metrics. When viewed together with our GAAP results, we believe that these measures can provide a more complete understanding of our business, but they should not be relied upon to the exclusion of GAAP reports. A GAAP to non-GAAP reconciliation is available in yesterday's press release and is available on our Form 10-Q. And with that, I'll turn the call over to <UNK> <UNK>, our President and CEO.
Thanks, <UNK>.
Good morning, everyone.
We're pleased to report that we achieved a record quarter as the improvements we experienced in the fourth quarter continued into the first quarter.
We're excited about the progress we've made as the ramp in many of our transitioning operations is now materializing, including significant growth in occupancy in Utah and Texas.
We've experienced positive momentum in skilled revenue, driven by strong growth in managed care revenues in both same-store and transitioning facilities as these operations continue to gain the trust of the healthcare communities they serve.
These results are only possible because of outstanding local leaders that work tirelessly to tailor their care and services to the needs of the unique healthcare markets they serve.
We also are encouraged by the progress we're making in our more mature operations and we're especially excited about the enormous potential we have in our newer operations, most of which haven't begun to contribute what we expect they will in the future.
During the quarter, we experienced a dramatic improvement in our transitional and skilled services segment income of 45% over the prior year quarter and 16% over the fourth quarter of 2017.
We also experienced positive trends in occupancy, with an increase of 415 basis points in our transitioning operations and 82 basis points in our same-store operations, both over the prior year quarter.
We're excited to announce that our GAAP earnings per share for the quarter was $0.43 per diluted share, and adjusted earnings per share was up 32% over the prior year quarter to a record $0.45 per diluted share.
In addition, our consolidated GAAP net income for the quarter was $23.1 million, and consolidated adjusted net income was $24.1 million, an increase of 35% over the prior year quarter.
Since January of 2015, our talented local leaders have been tirelessly integrating 100 skilled nursing in assisted living operations into the organization.
Some of these transitions made positive contributions to our results right out of the gate, while others have taken much longer.
In fact, it's not unusual for an operation to take several years to truly become healthy, clinically and financially.
With that said, over the period of 18 years and 234 acquisitions, we've proven this pathway to progress over and over again.
We're very encouraged to see this multiyear process in nearly all of these transitioning operations beginning to bear fruit.
With the focus on strengthening outcomes, lowering readmission rates and extending our capabilities to care for more complex patients across the post-acute continuum, we continue to invest in the best leaders and clinical programs in post-acute care.
As a result, we're seeing significant improvements in outcomes and patient satisfaction, both of which will continue to drive occupancy and skilled mix.
As some of you may know, CMS implemented a new methodology in the star ratings.
As we expected, this led to a temporary reduction in some of our 4- and 5-star ratings, but we expect this drop to be temporary and we're continuing to adjust to those new standards and expect to return to our previous upward trends.
But rest assured that the quality of care we deliver is the reason we are seeing improvements in occupancy and skilled mix and the improving financial performance.
As <UNK> will discuss in a minute, we continue to methodically add value to our real estate portfolio by improving the operating results in our owned operations and by acquiring additional real estate assets.
As a reminder, since we announced the spinoff of all but one of our real estate assets to CareTrust REIT in 2014, we've added 154 operations, which included 66 real estate assets.
We believe that our shareholders have received little to no credit in the past for the incredible amounts of underlying value in our real estate and that its value is again being overlooked.
We'll always be an operationally driven organization first, but we also believe it's important to recognize the growing underlying value in our own real estate and the flexibility that ownership gives us in the future.
We're also pleased to report that we continue to build significant value in our other lines of business, including home health and hospice, assisted living, nonemergency medical transportation and other post-acute care services.
Under the direction of key leaders and their dedicated Service Center resources, these operations have achieved consistent clinical and financial results while simultaneously bolstering our core skilled nursing operations.
During the quarter, Cornerstone Healthcare, our home health and hospice portfolio subsidiary, grew its segment revenue and income by 24% and 41%, respectively, over the prior year quarter.
Also during the quarter, Bridgestone Living LLC, our assisted living and independent living portfolio company, which consists of 51 stand-alone operations and 22 campuses in 12 states, grew its segment revenue and income by 12% and 5%, respectively, over the prior year quarter.
While these 2 business segments and our skilled nursing operations both benefit from certain synergies that come from their affiliation with Ensign, each of these independent leadership teams drive their respective operations with little to no dependence on Ensign.
We expect to see each of these segments grow by acquiring underperforming operations and driving organic growth.
As they do so, we continue to evaluate ways in which our shareholders will receive credit for the value that these new businesses have created, all with minimal disruption to their momentum.
Collectively, these 2 business segments, along with our other new healthcare ventures within the portfolio, are quickly approaching the size of Ensign when it completed its initial public offering in 2007.
I also wanted to say a few words about the recent announcement made by CMS.
We're very pleased with the proposed net market basket increase of 2.4%, starting in October of 2018.
We're also encouraged by CMS' newest payment reform proposal called Patient Driven Payment Model, or PDPM.
While there's much to learn about this new proposed payment system, we're very pleased that CMS is working so closely with operators across the country to develop a predictable and sustainable reimbursement system.
But regardless of how the changes ultimately play out, we're confident that our relentless focus on quality and efficient outcomes will serve us well in any number of new reimbursement systems, including this latest iteration.
We're reaffirming our 2018 annual earnings per share guidance to between $1.80 and $1.87 per diluted share.
Overall, this guidance represents a 31.1% increase from the midpoint over our annual earnings for 2017.
Even with the recent tax reform and related expenses, that reduced the company ---+ that reduced the company's effective income tax rate from 35.5% to an estimated 25% for 2018.
The midpoint of our guidance represents a 15.7% increase over 2017 results.
We're excited about the coming year and look forward to continuing to drive quality health care outcomes in corresponding financial results.
And with that, I'll ask <UNK> to give us an update on our recent investment and growth activities.
<UNK>.
Thank you, <UNK>.
During the quarter, we paid a quarterly cash dividend of $0.045 per share.
This is the 16th consecutive year we have increased our dividend, which we hope shows our continued confidence in our operating model and our ability to return long-term value to shareholders.
We have been a dividend-paying company since 2002, and have increased that dividend every year since.
During the quarter, Bridgestone Living, our assisted living portfolio subsidiary, acquired the real estate and operations of Cedar Hills Senior Living, a 37-unit assisted living facility in Cedar Hill, Texas; and Deer Creek Senior Living, a 37-unit assisted living facility in DeSoto, Texas.
With these acquisitions, Bridgestone now operates 51 stand-alone assisted living and independent living operations, and portions of 22 healthcare campuses that include both assisted and independent living units.
Bandera Healthcare, Inc.
, our Arizona-based portfolio company, acquired the real estate and operations of Peoria Post Acute and Rehabilitation, a 128-bed skilled nursing facility located in Peoria, Arizona.
The acquisition was effective on April 1, 2018 and included an adjacent 50-bed long-term acute care hospital that is currently operated by a third-party under a lease arrangement.
This new operation is in good hands as the team in Peoria joins one of the strongest concentrations of our outstanding local leaders that are truly the post-acute operators of choice in Arizona.
Yesterday, we announced that Keystone Care, LLC, our Texas-based portfolio subsidiary, acquired the real estate and operations of Grace Presbyterian Village, a 26-acre post-acute care and retirement campus located in Dallas, Texas.
Grace Presbyterian Village, which will be known as The Villages of Dallas, is a full-service senior care campus with 125 skilled nursing beds, 81 independent living units, 36 assisted living units and 26 memory care units.
This acquisition adds to our expanding footprint in the Dallas area and adds to our ability to accelerate the quality of care we can provide to our patients and their loved ones.
We're being very selective with each potential acquisition opportunity and we have carefully chosen each of these operations because of the potential we see to enhance the clinical and financial outcomes.
These additions bring Ensign's growing portfolio to 183 skilled nursing operations, 22 of which include assisted living operations, 51 assisted living and independent living operations, 22 hospice agencies, 20 home health agencies and 4 home care businesses across 15 states.
And as <UNK> mentioned, we now own the real estate at 67 of our 234 healthcare facilities.
We continue to see a steady flow of acquisition opportunities across all our business segments.
These potential transactions come from a variety of sources and different types of sellers, ranging in size from small operators and nonprofits that are exiting the business, to large regional operators that are selling noncore or turnaround assets.
We continue to attract and consummate transactions with nonprofits and believe that our values-based approach to post-acute care will make us an attractive solution for nonprofits and faith-based sellers in the future.
Almost all of the transactions we completed in 2017 and the first part of 2018 fit one of these 2 categories and were completed 1, 2, and 3 at a time.
We also continue to see opportunities involving several larger, well-known portfolios of skilled nursing assets and we expect to participate in the marketing process with some of these larger sellers.
With that said, our primary constraint to growth is the availability of locally driven clinical and operational leaders.
In preparation for future growth, we continue to recruit and train outstanding leaders.
As long-term investors, we take our commitment to each health care community and the team of caregivers very personally and we'll only do a deal if we can see a pathway to continued and sustained health over the long run.
One of the keys to our success has been, with very few exceptions, to ensure that the prices we pay and the lease rates we negotiate will ensure the long-term health of the operation.
We continue to remind each other to remain disciplined and true to our operations-driven strategy, even if it means we have to pass on the majority of the transactions that we see, or only participate in portions of these larger portfolios.
The pipeline for our typical turnaround opportunities remains strong and we remain confident that there will ---+ there are and will be many opportunities to be had at the right prices.
And we are currently working on a handful of transactions that we expect to close throughout the year.
And with that, I'll turn the call back over to <UNK>.
Thanks, <UNK>.
Before I turn the call over to <UNK>, I want to provide more information on the quarter results.
And I want to give you an update on our often discussed Legend acquisition, which consisted of 21 operations in Texas.
As most of you will remember, at the time of the Legend acquisition, we explained that the historical performance of the operations, the geographic locations and the relative newness of the facilities, combined with our perceived cultural similarities, made Legend the perfect portfolio for a strategic transition of that size.
As has been discussed almost ad nauseam, the declining trend in performance that began before we took over, and the cultural differences as well as the combination of other factors, led to a much slower transition than we anticipated.
However, our local teams in Texas never lost faith in our proven locally driven cluster model.
Over time, as we've replaced almost all the leadership in these operations with a combination of experienced Ensign leaders and new, highly talented operators, the Legend portfolio is now performing like we expected they would.
We still have small pockets of weakness in some of these operations but we have made great progress in the vast majority of them.
We're happy to report that the Legend portfolio saw an increase in its total revenue by $3.7 million or 11%, and its EBIT by $2.3 million or 222%, both over prior year quarter.
We're very confident that the Legend buildings will be solid contributors for many years to come.
Throughout this process, as well as in some other larger deals we've done in California, specifically the 9-building Shea portfolio; and in Arizona, the 10-building Life Care transaction, we've learned many lessons.
One of those lessons is that larger acquisitions will take longer to turn.
But in each of the Legend, Shea and Life Care transitions, we've proven that the same principles that have led to our successes in smaller transactions apply in larger ones.
As frequent acquirers, we always take a long-term view.
In the future, should another opportunity arise that is larger in scope, we'll apply the lessons we learned in each of these transactions to make solid, long-term decisions about what acquisitions to pursue and how to best transition them.
Let me just share a couple of examples of individual operations who've begun to see the effect of our efforts this quarter.
Shea Post Acute, a 120-bed transitioning operation located in Scottsdale, led by CEO, Clayton Wagner, and COO, [Barb Duncan], has overcome a low star rating, low census and troubled reputation to become a 4-star operation.
At the time of acquisition, this operation was in the midst of a multiyear decline and was experiencing devastating operating losses.
When Clayton and [Barb] assumed control, they quickly partnered with hospitals and physician groups to determine what was missing in the community and how they would be able to fill those needs with specialized services.
They also embraced an untapped niche in North Scottsdale by opening their doors to both Medicare Advantage plans and Managed Medicaid.
As they've steadily become the facility of choice, their occupancy has grown from 50% at the time of acquisition to over 92%.
Just as impressively, they've improved their skilled mix Medicare days by 52% and skilled mix managed care days by 93% compared to the same quarter in 2017.
Not surprisingly, EBIT has grown over by 5x in the first quarter of 2018 compared to the same quarter last year.
Riverview Village Senior Living and assisted living campus located in Menomonee Falls, Wisconsin, has undergone some tremendous operational transformation.
Led by Executive Director [Michael Stern] and Wellness Director [Vicki Hornhost], the Riverview team has worked diligently to offer the highest quality care with superior customer service, improved service offerings and amenities and have integrated into their community as a valued partner.
In 2017, they achieved an impressive perfect survey from their state health department for the first time.
They've transformed the operation from an obscure and largely unknown assisted living facility to the premier senior living option in that marketplace, which has translated to an impressive 16% improvement in overall occupancy and 35% growth in revenues compared to the same quarter in 2017.
Emblem Hospice Tucson in Tucson, Arizona was a standout performer for our home health and hospice segment, led by Executive Director [Michael Johnson] and Director Clinical Services, [Cindy Eustace].
Emblem has grown almost entirely organically to become the hospice provider of choice in the competitive Tucson market.
In the first quarter, Emblem increased revenue by 32% and hospice days by 28% over the prior year quarter.
This growth has been driven by deepening key referral relationships and developing new relationships with physicians, hospitals and post-acute providers.
Emblem has grown its reputation for clinical excellence and has continuously received high marks for patient satisfaction.
As a result of the agency's clinical success and responsible cost management, Emblem increased its first quarter 2018 EBIT by 75% over the prior year quarter.
We appreciate you allowing us to share these important examples today.
Our hope is that this will give you some insight into the quality of the extraordinary leaders that are found in every corner of the organization and why we are so optimistic about our near and long-term organic growth potential.
With that, I'll turn the time over to <UNK> to provide more detail on the company's financial performance and our updated guidance and then we'll open it up for questions.
<UNK>.
Thank you, <UNK>, and good morning, everyone.
Detailed financials for the quarter are contained in our 10-Q and press release filed yesterday.
Highlights for the quarter included: GAAP earnings was $0.43 per diluted share and adjusted earnings per share was up 32.4% to a record $0.45; consolidated GAAP net income was $23.1 million and adjusted net income was $24.1 million, an increase of 34.7%.
; total transitional and skilled segment income was $46.2 million, an increase of 45.3% over the prior year quarter and an increase of 15.7% sequentially.
Same-store occupancy was 79.2%, an increase of 82 basis points.
Transitioning skilled occupancy was 76%, an increase of 415 basis points.
Transitioning skilled managed care revenue was up 16% and same-store skilled managed care revenue was up 5.9%.
Total home health and hospice segment and revenue was up 23.7% and ---+ to $39.8 million, and segment income was up 41.1% to $6.1 million.
Other key metrics for the quarter included cash and cash equivalents of $35.1 million at March 31, and cash generated from operations was $40.4 million.
We also had approximately $195 million of availability in our revolving line of credit.
We expect our lease adjusted net debt-to-EBITDA ratio to ---+ we suggest that net debt-to-EBITDA ratio, which was 4.1x at quarter end, to decrease in 2018, as the EBITDAR from transitioning and newly acquired operations continues to grow.
But as a reminder, this number could be impacted by the pace and magnitude of future acquisitions.
We also wanted to note that many of our items that are impacting our GAAP results in 2017, including the impact of the natural disasters and the adoption of the tax law, did not impact us this quarter.
Accordingly, we anticipate that there will be fewer non-GAAP adjustments in 2018 as compared to 2017.
As <UNK> mentioned, we are reaffirming our guidance in 2018.
We are projecting revenues of $2 billion to $2.06 billion, and adjusted earnings of $1.80 to $1.87 per diluted share.
The 2018 guidance is based on: Diluted weighted average common shares outstanding of $54.3 million; exclusion of transaction related costs and amortization associated with patient-based intangibles; the exclusion of losses associated with startup operations, which are not yet stabilized; the inclusion of anticipated Medicare and Medicaid reimbursement rate increases, net of provider tax; a tax rate of 25%; the exclusion of stock-based compensation; and the inclusion of acquisitions closed and anticipated to be closed in the first half of 2018.
Additionally, other factors contributing to our asymmetrical quarters include: variation in reimbursement systems; delays and changes in state budgets; seasonality in occupancy and skilled mix; the influence of the general economy and our census and staffing; the short-term impact of our acquisition activities; variation in insurance accruals and other factors.
And with that, I'll turn the call back over to <UNK>.
<UNK>.
Thanks, <UNK>.
We want to again thank you for joining us today and express our appreciation to our shareholders for their confidence and support.
We also appreciate our colleagues in the field and the Service Center for making us better every day.
I guess, we'll turn the call over to Norma if you wouldn't mind taking over for the Q&<UNK>
Yes.
I wish we had more detail on it.
But what we can ---+ from what we can see, it looks like it's something that is more sustainable because it is something that is based on ---+ diagnosis codes is based on the actual condition of the patient and not based on how much work you provide or how much therapy you give or how much ---+ so it's something that is, here's the patient, here's the condition of the patient and here's what we're going to reimburse you for that patient.
And I guess, one of the reasons we think it will be more sustainable is because it's, again, you ---+ here's the person, you've got to get them back to where they need to be, and whatever it cost you to get them back to that is up to you.
And they'll be ---+ one of the nice things is, they'll be less ---+ should be less expense on tracking all of this stuff because it's more about taking care of the patient, taking care of the resident and not making sure that you documented how many minutes you gave or documented that you ---+ through the minimum data set or through other things.
And so, obviously, there'll be adjustments from year-to-year, but I have to reiterate, we don't know what's going to come out.
This is the first pass, and there generally are 2, 3, 4, 5 passes before the final pass occurs.
But we're just hopeful because of the way they're going through the process.
And the fact that they're consulting with ACA and other parts of the industry and operators and trying to come up with something that is good, I guess, for taxpayers and also good for the patient and something that the good operators will be able to continue to be self-sustaining on.
Yes.
I mean, star ratings are more impactful when it comes to managed care at this stage.
But remember, this is a ---+ some of the new things that were introduced required timely submission of certain information that is a little different than it's been in the past.
I don't want to get into too much detail.
It also included a few other points that changed some of the star ratings for some of our facilities.
And we think that as we get better at communicating that documentation, that we'll get back on the track that we've been at for ever and ever and ever, which is increasing the number 4 and 5-star operations we see.
But to answer your first question, the star ratings are not used currently by Medicare to determine your reimbursement, but we know that they will be or should be in the future.
And that's why it's important that we all prepare for that.
But that's why you didn't see ---+ when you say there wasn't a financial impact, there was a financial impact, it's just through the managed care sector that is not as visible to you.
Well, candidly, it's probably because we've had some weakness due to some self-induced things and we were able to fix some of those things.
And so as we fix those things, obviously, occupancy is going to increase.
On the overall occupancy, or the transitioning, which saw the biggest improvement, a lot of that had to do with what we talked about, which is fixing some of the things relative to the Legend transaction, fixing some of the things in Utah, some of the narrowing of networks and the improved managed care relationships that we've had.
I know we've talked about this a lot, but it really does have a bigger impact than I think people realize.
Just embracing the whole managed care direction of the industry and partnering with them in a way that allows us to help the patient, first and foremost, but to help each other in the management of the patient and making sure we do it in a cost-effective way together instead of trying to steer people away from managed care, I think that, that's helped us too.
I think that we ---+ I can't speak to everybody, but I feel like we started to do that earlier than others did.
And I think that, that benefited us a lot.
Well, I'll let <UNK> clean up whatever I say.
This is <UNK> again.
But I think you know the answer to the second part of that.
I mean, our hope is that the prices are going to drop amongst the facilities that aren't doing very well.
We think that they should.
We don't think there are as many buyers out there as there have been in the past.
So I think that, that will be ---+ that will result in some, I guess, more solid deals than we've seen even in the past.
And then I think in terms of what's contributed to the ---+ I mean, we've kind of talked about this, <UNK>, but ---+ I mean, one of the things is there has been a lot of money chasing these beds, and there've been prices that have been paid on these deals that I don't think were sustainable.
When you pay a rate per bed that results in a rent or mortgage payment, and then, often, escalators tack on top of those, at some point, the operator can't run fast enough to run away from those real estate related cost.
And I think that has a lot to do with what you're seeing and what you will see in the next year or 2.
I think it'll be both.
It'll be both.
Yes, I mean, with healthy relationships, they do and they have.
They recognize that there's been a little bit of an adjustment in how this is reflected.
And as long as the key pieces that they're looking at look good, they absolutely will cut us some slack.
I want to correct something that I said.
While the star ratings don't impact us directly, obviously, quality does.
And we are impacted in a lot of our states in terms of reimbursement and other things.
And where there is similarity between what the states consider and the star ratings, it can impact our Medicaid rates as well and some of the rewards or penalties that we receive throughout the year.
But we do expect, we do feel like we're on the same track that we've been on and there were some things that we didn't do that we should have done relative to timely submission of documentation that was already there that impacted our star ratings.
And as we correct those things that are ---+ these are new to us and we haven't been accustomed to submitting them as quickly.
We think that our star ratings will continue to increase and improve.
And they're very important to us, not just for reimbursement reasons, but because they often are a reflection of the reputation that we enjoy over a long period of time.
I think they were both significant contributors, they weren't the only contributors, but they probably represented a meaningful portion of that improvement.
You know that we've been talking about that, <UNK>, for I don't know how many quarters, and finally, things are starting to come to fruition.
But we ---+ there are other things too, though.
I mean, there were improvements in other transitioning facilities in Arizona and in Idaho and in Colorado.
And so I don't dare guess a percentage, but both of those things, the narrowing networks in Utah and the Legend improvement, made up a significant portion of our climb in the transitioning bucket.
Yes.
I think you're probably right.
I think the labor market has ---+ what you're implying is right.
I think the labor market has probably tightened that margin a little bit.
But I still think, when you look at all of our ---+ from our same-store, our transitioning bucket and our new acquisition bucket, we still have significant improvement to be made in each of those areas.
And as we make them, we still feel like the margins can be better than they've ever been.
Remember, <UNK>, that we still have the largest representation we've ever had in the transitioning and new acquisition arena in terms of our overall portfolio.
And at some point, that will be diluted.
And as that is diluted, you will see those margins increase.
And I realize that the same store does get broken out and you can see that.
But again, as I expressed probably ---+ as we expressed a year ago, as more and more of these work into the same-store arena, the strain on the rest of the organization is lessened and lessened, and you'll see better performance in our same-store.
And that has played out and you'll see it continue to play out.
Doesn't mean we'll stop making acquisitions, but we probably won't have the same ---+ we won't have 40% of our overall portfolio in the transitioning and new acquisition buckets.
Sorry, I'm stumbling over my words.
Thank you.
So 3 questions.
The first one, no, <UNK>, we don't see anything incredibly positive or incredibly negative in our Medicaid rates on the ---+ in the future.
So we're happy with that.
And yes, that's all I'll say about that.
I guess, on the second question, cash flow, it was a strong cash flow quarter.
We expect that to be a sign for the future, although the first quarter was strong, so you may see a little bit of a step backward in the second and third quarter.
But we do expect that to improve dramatically over 2017.
And in terms of CapEx, I think our budget is $60 million for the year.
And I think we were about right on track.
We actually were under in the first quarter.
So you'll see a little bit more spend throughout the year than you did in the first quarter.
But again, I want to reiterate, as the new builds get better and better, and as we hopefully don't have the same kind of natural disasters we had last year, this year, that cash flow is going to get better and better, which will also reduce our debt load as well and our ratio.
That certainly is not our plan.
We don't expect to do a deal the way that we did it with Legend.
That's not ---+ we're not trying to create the impression ---+ I mean, I can say with confidence right now, we have no big deal in the works right now.
But we do see a lot of opportunities out there, <UNK>, and we do think that some of them might make sense, and we think that we've learned some good lessons.
We did really well with 2 of the 3 large transactions that we did.
And frankly, 2 years later, we feel like we've done really well with the third one too.
But no, it's not ---+ we would let you know if that was a plan at some point, but there's no plan to do any dilutive transaction at this stage.
The second point is a good point.
It's not becoming more difficult as we became larger, but certainly, there is not the frantic search for new jobs or new careers in today's labor markets.
So we do find that we have to work a little bit harder to get folks in the pipeline.
But once they're in the pipeline, it's fairly easy for us to ---+ I guess, what I'm saying is, we have to do a little bit more recruiting on the front end than we used to have to do.
But there's no shortage of extraordinary leaders that want to join us.
So I mean, I think, on first glance, like it's only been out there for a couple of days, as you know.
But on first glance, kind of looking through some of the stuff that's been published by CMS, I think, overall, it's actually more positive.
And I think, on a couple of different fronts, the number of codes that you have to go through to actually code a resident is significantly less, so it helps on the labor side, obviously.
There are some of the changes that they recognized and feedback that they've heard from the industry with regard to the types of ---+ different types of patients and types of classifications of patients where they've listened.
So we feel it's definitely better.
And they actually did incorporate some of the feedback that was submitted during the open period.
Obviously, there's some additional things that ---+ and feedback that people are working on.
And we're excited that they're partnering with us at this point.
So we think it could even get better than it is today.
I'm going to start and then <UNK> can clean up after me again.
So some of those are just buildings that we barely opened.
And we've been adding them into the GAAP earnings over time and they'll continue to get ---+ almost all of them will be added by the end of this year.
There might be 1 or 2 that we just barely opened that are not at full capacity.
There's a facility or 2 that we had to empty out and renovate for structural issues, engineering issues.
And that's what's included in that.
We're not including facilities that have low occupancy in that.
These are completely empty buildings that we're having to totally shore up so that they're safe for the residents.
And once we reopen them and have a few months under our belt, we'll include those again.
There's actually ---+ there's one of those now.
Yes.
And this quarter, like if you look, if it's helpful, look at the ---+ on the press release table, the reconciliation of GAAP to non-GAAP, it gives you a breakout of those 2 different classifications, ones there ---+ or the ones that <UNK> just talked about, net of facilities that are currently being constructed.
And then, in the current quarter, we had no adjustments on the results from closed operations.
So it's just a prior quarter disclosure, but if you look at that detailed press release table, that could help you out.
Thank you, Norma, for your help.
And thanks, everyone, for joining us and giving us your time today.
We appreciate it.
| 2018_ENSG |
2015 | ANDE | ANDE
#Thank you, Katina.
Good morning, everyone, and thank you for joining us for The <UNK>s 2015 first-quarter conference call.
For the purposes of today's discussion we have provided a slide presentation that will enhance our talking points.
If you are listening and watching this presentation via our website, the slides and audio will be in sync.
This webcast and supporting slides are being recorded and will be made available on the Investor Relations section of our website at www.<UNK>sinc.com.
Certain information discussed today constitutes forward-looking statements and actual results could differ materially from those presented in the forward-looking statements as a result of many factors, including general economic conditions, weather, competitive conditions, conditions in the Company's industries both in the United States and internationally, and additional factors that are described in the Company's publicly filed documents, including is 34 Ag filings and the prospectuses prepared in conjunction with the Company's offerings.
Today's call includes financial information for which the Company's independent auditors have not completed their review.
Although the Company believes that the assumptions upon which the financial information and its forward-looking statements are based are reasonable, it can give no assurance that the assumptions will prove to be true.
On the call with me today are <UNK> <UNK>, Chairman and Chief Executive Officer; <UNK> <UNK>, Chief Operating Officer; and <UNK> <UNK>, Chief Financial Officer.
<UNK>, <UNK>, <UNK> and I will answer questions at the end of the prepared remarks.
Now I will turn the call over to <UNK> for opening comments.
<UNK>.
Thank you, <UNK>.
Good morning, everyone.
The year started off much as we had expected with a soft cash basis environment, relatively light movement of grain from the farm and low oil prices, which provide challenges for many of our businesses.
Despite these factors we delivered a profitable quarter in Ethanol, saw improvements in both the Grain Group and rail leasing.
Our Ethanol Group was subject to the same factors experienced across the ethanol industry.
Margins were driven lower due to seasonably low demand and high inventories as well as ongoing low fuel prices.
Still we were able to generate $5.3 million in pretax income due in large part to our strong operational performance and the hedge positions that were in place as we entered the quarter.
Our Grain Group improved from a weak fourth-quarter performance posting a $6.5 million improvement year over year in pretax income when adjusted for last year's $17.1 million pretax gain from the partial sale of our stake in Lansing Trade Group.
Our Rail Group delivered strong results with an 18% increase in lease income versus the prior year driven by higher lease and utilization rates.
The Group's overall results were lower year over year due entirely to gains on rail car sales being down $6.3 million this quarter versus the same quarter last year.
As previously announced, starting with the first quarter, we are reporting our former Turf & Specialty Group and Plant Nutrient Group results together.
Recasted financial data and other metrics for this new group are provided in this presentation and in the soon to be filed Form 10-Q.
The Plant Nutrient Group produced a slight improvement in pretax income.
Typically the winter months are seasonably slow and volumes for this year's planting season got off to a slow start due to unfavorable weather conditions in many of the regions where we operate.
However, we expect the majority of this volume to be regained in the second quarter.
I will now turn this over to <UNK> who will provide more details of the total Company results.
Good morning, everyone.
Thanks, <UNK>.
In the first quarter of 2015 the Company generated net income attributable to The <UNK>s, Inc.
of $4.1 million or $0.14 per diluted share on revenues of $950 million.
This compares to the first quarter of 2014 when adjusted net income of $12.1 million was reported or $0.42 per diluted share.
Revenues were down this year within our agricultural businesses due to lower commodity prices and in our Rail Group due to fewer railcar sales.
First-quarter earnings before interest, taxes, depreciation and amortization, EBITDA, totaled $28.8 million compared to an adjusted EBITDA of $45.9 million for the same period in 2014.
The Company's first-quarter 2015 effective tax rate was 21.7% compared to 34.8% in the first quarter of 2014.
This rate reduction is primarily driven by a $600,000 nonrecurring tax benefit attributable to the accounting for an investment in a foreign affiliate.
The 2015 effective tax rate is projected to be about 35%.
The Company continued to repurchase shares in the first quarter, buying back a total of 631,000 shares for $27.8 million.
As of quarter end we had fully repurchased the shares issued last year as part of the acquisition of Auburn Bean and Grain and have $21.3 million remaining under the existing share repurchase authorization.
For those viewing the slide presentation, this slide demonstrates how GAAP earnings per share reconcile to the adjusted earnings per share when the partial redemption of Lansing Trade Group is considered.
This bridge graph shows the increase or decrease in each group's pretax income for the first quarter in comparison to the adjusted pretax income in the first quarter of the prior year.
The specifics behind these differences will be detailed by <UNK> as he walks through the results of each of our business groups.
<UNK>.
Thanks, <UNK>.
The Company's net working capital as of March 31, was $233 million, a small decrease versus both December 31 and the prior first-quarter results.
Inventories increased $18.4 million at the end of the first quarter versus last year primarily due to higher plant nutrient inventories and the inclusion of Auburn Bean and Grain's inventories, which was partially offset by decreases in grain and ethanol inventories, both primarily due to lower commodity prices.
Borrowings under our short-term credit line as of March 31 were $312 million compared to $226 million at the same time last year, up seasonally from year end.
Long-term debt totaled $323 million at the end of the first quarter, an increase of $17 million from the prior years.
In the quarter we paid off $60 million of long-term debt and partially replaced it with $30 million of private placements with maturities of 15 and 25 years.
As our short-term borrowings are very seasonal we believe that long-term debt to capital is the appropriate measure of leverage within our balance sheet.
Our long-term debt to capital ratio was 0.3 to 1 at the end of this quarter versus 0.35 to 1 a year ago.
The average long-term interest rate for the first quarter was 4.67%, which increased from last year's rate of 4.63%.
The Company continues to maintain ample access to liquidity with total committed lines of credit under the syndicated facility of $850 million.
<UNK> will now cover a few more points before we take questions.
<UNK>.
As we look toward the remaining eight months of the year we feel a good bit of optimism.
The recent progress in planting has been heartening to see and supports a good performance from our plant nutrient business in the second quarter and our Grain Group later in the year at harvest time.
We also feel better seeing improvements coming from challenged locations in the West.
Ethanol remained profitable in a challenging first quarter and provides future upside as margins continue to rise.
I am proud of the lease income that our Rail Group delivered in the first quarter on higher lease and utilization rates and believe the Group will provide strong earnings this year.
Overall, we are optimistic about the balance of the year.
Recently the range of full-year earnings per share estimates by our analysts varied widely with a span of more than $1.00 from $2.25 a share to $3.40 a share.
We believe that a level closer to the center point of these estimates is a good place to start.
We will now hand it back to you, Katina, our operator, so that we can begin taking your questions.
<UNK>, this is <UNK> and I want to just piggyback on <UNK>'s last comment.
We have seen this happen over the last ---+ I mean I got involved in the 1970s ---+ several cycles where the space built, farm economics are good, grain elevator economics are good for carrying grain and that creates a surge to build capacity which lasts a long time.
And all of a sudden you have capacity that grows faster than the growth of the crop.
What has happened in the prior year cycles and I think will happen this time is farm income drops a little, the income is not as good in the traditional grain elevator storage space.
You don't ---+ the building slows down but yields continue to improve.
So the crop size ends up pushing back and then getting back into what I will call maybe a more surplus situation.
So it takes a few years but that is a structural thing that has helped push us to the low end of the range we are at.
Exactly.
Yes, that's exactly how we see it.
<UNK>, this is <UNK>, I mean as we have talked in the past, across our four core segments we are always looking for opportunities where we can invest and exceed our cost of capital for that particular business.
So I think the answer is, yes, but I don't think it is anything different than we have done and spoken about over the last several years.
I would add as you look at the last two years comparables, we had reasonably similar margin environment to a year ago ---+ in the ballpark, and I can't remember exactly two years ago on the volume side last year was delayed first quarter.
First quarter was low last year and it pushed in the second quarter.
The year before was a little more normal in that regard.
I think you can look at those to get some guidance, <UNK>.
Yes, <UNK>, this is <UNK>, hi.
Yes, it is the depreciation associated with the actual deployment of the ERP system.
I would like to reiterate though there are other items that go through there, so some of that is timing.
And at yearend we did say that we thought the full year other group for this year would be very similar to what we had last year, which was about $34.5 million.
Yes, hey.
Yes, a portion of that was ERP, there is really three big pieces there.
There is labor and benefits somewhat offset by lower stock comp and performance comp.
There is the ERP piece as well as a maintenance and depreciation piece.
And related somewhat to our Auburn acquisition.
I think for now that is probably a good estimate of where we are going to be, <UNK>.
I think we said 45%, let me make sure what I told you.
Yes.
<UNK>, this is <UNK>.
A good portion of the movement is related to the ERP system and the deployment of that.
Some of it is related to stock comp and other forms of compensation as we have expanded our business.
And the last answer is at least for 2015 we've said we are going to be comparable to 2014 in that particular area and we'll comment on 2016 later in the year.
I want to add, and <UNK> or <UNK> feel free to supplement, two points.
The grain side of the ERP has been more challenging and expensive than we had initially planned, that is a true statement.
And it is going to be expensive into the future.
But the main point I wanted to make is we are a growing Company and we needed a foundation and a platform to build our growth on.
So ---+ and this stuff sometimes doesn't come in smooth increments and you get these step functions.
But we are putting something in that is a foundation for future growth.
I mean I think as <UNK> said, <UNK>, this is really an investment for the future and we will get a return on this as we continue to grow and it allows us the ability to leverage our existing platforms as we add to them, as we add new products, new regions, new businesses potentially.
So it is a regeneration of the old systems which give us a lot of room to grow going forward.
I want to thank you all for joining us this morning.
I also want to mentioned for those that are interested, there are appendix slides to this presentation available on the <UNK>sinc.com at the Investor's tab under the first quarter earnings call replay.
Our next conference call is scheduled for Thursday, August 6 at 11 AM Eastern Time to review our second-quarter 2015 results.
I hope you are able to join us again at that time.
Until then, have a great day.
| 2015_ANDE |
2015 | LYV | LYV
#I'm still digesting your $20 billion valuation metric.
Best question of the day.
(laughter)
We certainly believe we have a very valuable asset that has lots of expansion ahead of it.
<UNK> will dig in on the second part.
| 2015_LYV |
2017 | AVY | AVY
#Thanks, <UNK>
I'll provide additional color on the quarter and year, and then I'll walk you through our outlook for 2017. In Q4, adjusted earnings per share increased by 17% compared to the prior year above our expectation due to higher than expected organic sales growth of approximately 5%
Acquisitions lifted sales by 2.7% while currency represented a headwind of approximately 1%
Adjusted operating margin in the fourth quarter improved 70 basis points to 9.4%, driven by the impact of higher volume and productivity initiatives
Restructuring savings net of transition expenses were approximately $14 million in the quarter and $82 million for the year in line with our expectations
Our adjusted tax rate for the fourth quarter was 32% and approximately 33% for the full year in line with both our expectations and the prior year
Free cash flow was $139 million in the quarter
For the full year, free cash flow was $387 million driven by higher income and working capital productivity
As expected, we increased our combined spending on fixed and IT capital projects, and restructuring this year, as we continue to invest for profitable growth particularly in our high-value categories and in emerging markets
Our balance sheet remains strong and we had ample capacity to continue funding acquisitions as well as returning cash to shareholders
As <UNK> stated, we are committed to the disciplined return of cash to shareholders
We've repurchased 3.8 million shares in 2016 at a cost net of proceeds from stock options of $191 million and paid $143 million in dividends
Before I provide commentary on segment performance, I want to point out that we have provided a bridge for a previous segment to the new segment, for both the fourth quarter and full-year in Slide 7 and in Appendix A in our supplemental materials
Our Label and Graphic Materials segment is essentially what we previously referred to as PSM, less our performance tapes business, which is now included in Industrial and Healthcare Materials
As you can see, the growth in margin profile of this segment is relatively unchanged
We have moved our high-margin Fastener Solutions business from RBIS to IHM, reducing the margin base-line in RBIS by approximately 80 basis points
The adjusted operating margin improvement of 230 basis points since 2013 is unchanged for the segment
The Industrial and Healthcare Materials segment includes performance tapers Fastener Solutions and Vancive Medical Technologies which was previously a standalone segment
Today, the margins in these segments are similar to LGM, and once we move pass the headwind in the first half of the year, we would expect the sales growth to be similar as well
Now, turning to segment performance for the quarter, in Label and Graphic Materials sales increased approximately 7% on organic basis impart due to improved volumes and matured markets which increased mid-single digits in the quarter
We saw continued solid demand in Western Europe while volume in North America improved from the relatively soft conditions in Q3. We believe that we have recovered some of the market share we ceded in North America earlier this year
Broad-based strength in emerging markets continued with organic sales growth of low double-digits in the quarter
China grew mid-single digits, sustaining the improvements we saw in Q3, while growth in India moderated to a high-single digit growth rate due impart to the government demonetization campaign
From a product line perspective, sales in Label in Packaging Materials increased mid-single digits and the combined Graphics and the Reflective businesses increased low-double digits organically
LGM's adjusted operating margin increased by 70 basis points to 11.5% due to the impact of higher volume
As expected, margins were negatively impacted by nearly 50 basis points due to the Mactac integration
We expect this acquisition to contribute approximately $0.10 to 2017 ETF when we move pass the integration phase and margins come in line with the segment average
Turning to Retail Branding and Information Solutions, sales grew 5% on an organic basis driven mostly by growth of RFID which exceeded expectation increasing 20% for the quarter
We continue to expect this business to grow at a 20% plus rate going forward, and we’ll continue to invest in this important growth catalyst
Despite a challenging retail apparel environment, volume growth improved in the base business, and we continue to see signs that our efforts to transform the business model are gaining traction
From a regional perspective, we continue to see strong unit volume growth among European retailers and brand owners, partly driven by continued progress in expanding our share among fast fashion retailers
Unit volumes for core products were essentially flat in the U.S
consistent with what we saw last quarter, and this market remains challenged as demonstrated by macro indicators
Adjusted operating margins in this segment improved by 220 basis points to 10% as the net savings from the business model transformation and the benefit of higher volume were partly offset by higher employee related cost
This brought the full year margin expansion to a 110 basis points as we progress towards achieving our 2018 profitability target
The margin improvements objectives remain the same for this business and despite moving the high-margin Fastener Solutions business to IHM, we are confident in our ability to achieve a 10% operating margin in 2018. Industrial and Healthcare Materials sales declined by 8%, as growth in Industrial Materials were more than offset by the decline in the broader healthcare category, reflecting the program loss in personal care and the decline in Vancive we’ve discussed previously
Industrial categories were up high-single digits on an organic basis
Adjusted operating margin declined by 310 basis points to 9.7%, as the lower volume with only partly offset by productivity initiatives
As I previously mentioned, we expect this business to return to growth in the second half of 2017, and have an organic growth and margins similar to LGM
We look forward to share a more detail on our strategies and long-term goals for each of the segment during our Analyst Meeting next month
Now, turning back to the total company; our results in 2016 represent another year of progressions towards our long-term target
We are on track to deliver on our 2018 goal and have achieved a 17% return on total capital
Our net-debt-to-EBITDA ratio remains below our targeted range
Our balance sheet is healthy and we have ample capacity for investments
Turning now to our outlook for 2017, we anticipate adjusted earnings per share to be in the range of $4.30 to $4.50. We have outlined some of the key contributing factors to this guidance on Slide 12 of our supplemental presentation material
We estimate between 3% and 4.5% organic sales growth in line with the range we've experienced over the last few years
The impact of acquisition on sales is approximately 1.5% from close deals and approximately 2% including the impact of the announced Hanita deal
At recent exchange rates, currency translation represents a pretax earnings impact of approximately $22 million or roughly $0.17 per share
We estimate that incremental pretax savings from restructuring actions will contribute between $40 million and $50 million in 2017. About 40% of which represents the carryover benefit from actions taken in 2016. At the low end of our EPS guidance range, we would expect modest improvement in consolidated margins
At the high-end, we would expect approximately 50 basis points in our margin expansion
We expect the tax rate in a low 30s due to stronger income growth in lower tax jurisdictions
We estimate average shares outstanding assuming dilution of 88 million to 89 million shares, reflecting our continued return of tax to shareholders
We anticipate spending approximately $215 million on fixed capital and IT projects and approximately $22 million in cash restructuring, which combined is roughly flat to 2016 and consistent with our long-term capital allocation plans
We continue to expect free cash flow conversion of approximately 100% of net income
So, in summary, we are pleased with the strategic and financial progress we made against our 2018 goals this year
Our solid and consistent free cash flow and healthy balance sheet give us plenty of room to invest in the business and return cash to shareholders
And our profitable growth strategies combined with the high degree with capital efficiency reflect our commitments to deliver exceptional value over the long run
Now, we'll open up the call for your questions
Question-and-Answer Session
So, well, we had a really solid quarter with 5% organic growth which really exceeded our expectations, and we saw this both in the LGM and the RBIS particularly RFID that was strong in both divisions
So, from a margins perspective, we saw this coming in slightly better due to higher volumes and then the impact of our transformation efforts in RBIS
As we talked about the guidance for 2017, and while we assume was on the top line is, if you look at our sales growth over the last couple of years, we've delivered anywhere from the 3% to 4.5% organic growth
I mean, it really depends on what you see both from a retail apparel market as well as the broader economic market, and so that's why we gave the range of the 3 to 4.5. As far as on the margin side, what we believe on the margin for the guidance is that, we'll see productivity improvement in RBIS and it really depends on the degree as well as the volume flow through pickup
So, on the high end, we would expect to see more coming from top line growth from RBIS
Certainly on the high end of our guidance from a LGM perspective, we would expect to see a modest improvement in margins particularly coming up from really strong 2016.
Yes, as we mentioned, we have some carryover savings coming into '17, which we really that piece to be more frontloaded
For additional new actions that we're taking, we really see those being more back loaded about I would say roughly 75% of the savings will be flowing through SG&A, and the bulk of the vast majority of those are going to be related to RBIS
So, I think Q4 was really a good representation that when you get growth in this business, it flows through, it's a very high variable margin business
As we continue to accelerate our strategy, our business transformation, we would expect to see the contribution margin continue to hold up in this business despite a microenvironment with the retail piece to it
So, it's really about volume in this
When we look through this and look at our general rule of thumb, you do need a couple of points to have it start flowing through a top line growth
But in general really trying ---+ we're positioning this business to be able to achieve the profitability goals even in the low growth environment
So, on the pension expense side, we do see it going up about a $0.06 EPS impact in 2017 primarily due to foreign pension discount rates declining, which increases the pension expense
So that is a headwind for us in 2017. As far as the cash contributions, we did make the required '17 payment
We didn’t make that at the end of the 2016. It was offset by some favorability and cash taxes
So, from a free cash flow perspective that kind of washed out, but for '17, we would expect to make about a $50 million payment, normal payment that we would see for some of the foreign cash taxes foreign pensions
So, the Paxar piece to it, the amortization is roughly $8 million this year and about $7 million in '18. You would get over the next two years of at a point of favorability in RBIS from that amortization
Correct, yes
But I just want to emphasize that as you know this is still very early stages with not a lot of concrete, we're seeing very close to this obviously
But anything we did, be interchanged or reduced our tax liability we would change our guidance accordingly
Sure
So for the euro, we’re assuming around 1.045ish and the RMB was another piece to our currency basket is 0.1437.
| 2017_AVY |
2015 | PNC | PNC
#Yes, that is a fair question.
You know, internally we probably think about it just in terms of the way we organize ourselves from call it $30 million to $50 million up to $500 million, practically it is $50 million to $1 billion ---+.
In terms of annual revenues (multiple speakers).
Yes, sorry, annual revenues.
So our sweet spot that kind of fits our product set and that we target is $50 million to $1 billion in revenues.
Having said that we have a number of clients given our treasury management capability and some of the specialty products we have in [TM] that are obviously much, much larger than that.
We have actually grown it faster by every measure into our newer markets.
It is just as competitive.
But I think having an alternative offering in some of those markets, bringing the other products that we can to bear, particularly in the treasury management side, makes a difference.
So having great teams of people that are a combination of terrific people we hired during the downturn and legacy PNC employees that we moved down there.
So, no, in the end we're actually outpacing our more mature markets in the newer markets.
And some of that just is reflective of a smaller base (inaudible).
Well, I think you have to be careful to not just focus on loans.
So one of the things we look at internally a lot is our loan growth versus our total revenue growth inside in the CNIB space.
You can't have a sustainable environment where you are growing loans at 10% and your revenue at 1%, which if you dig through some income statements you will see a lot of people doing that.
So we focus a lot on making sure that we are growing total revenue at a pace that is commensurate with the capital we are deploying, which I think ultimately allows us to provide a good return to our shareholders.
I think people who are chasing loan growth and the thing that ultimately changes is they realize that is not sustainable in terms of providing a return on equity to shareholders.
I don't know that people have figured that out yet.
But lending only relationships in the middle market space, if that is your business plan, without a product set to support it I don't think is sustainable.
He is so happy that you asked that question.
Yes, I am glad you asked that question, <UNK>, because the $54 million really reflects the total first half 2015 activity.
It is a lumpy business, so virtually all of our ---+ so our tax credit business in the first half of the year we did in the second quarter.
The best number that I can give you for the full-year number is $80 million, which is our budgeted number that we budgeted at the beginning of the year.
Again, it is a lumpy business, so we could do a little bit more than that, we could do a little bit less than that.
But that is not a number that you would annualize.
For some context, total tax credits in 2014 were $75 million, so that fits in with that $80 million.
And also, <UNK>, just on that, that is ---+ the $80 million is what we use for the math to give you the guidance on the effective tax rate of 26%.
So that is why you will see (multiple speakers).
So probably your next question (multiple speakers).
That is right, that is right.
Yes, we are ---+ in terms of securities on and securities off, they are getting very close.
So that in the end we will start to lose that bleed as long as the long end stays about where it is.
Part of what you are seeing though of course is just the build in cash.
So the drop in NIM simply is a function of the build in cash, which is sitting earning 25 basis points at the Fed.
Well, on the money market side it shows up in the retail segment, they are all LCR friendly.
All good there.
All good.
And we have been pleasantly surprised and tracking aggressively obviously the retention of new money, new clients.
Interestingly the balances for new households are higher given our product offerings than they have been in our history, partly changing our checking account mix.
As it relates to operating deposits for corporates, they are less valuable to us from an LCR standpoint.
They are still valuable and we still obviously have room on our leverage ratio and the ability to hold those.
So inside of our corporate space it wouldn't surprise me at all that we are getting some growth in corporate balances that is coming as a function of some of the others that are constrained pushing those away.
In its simplest form we are simply suggesting we are going to continue to do what we have done for the last ---+
Maintain the trajectory.
---+ yes, couple of years.
And each one of those line items kind of drills down to a specific business plan that doesn't assume heroic assumptions to be able to accomplish it.
On the corporate side the growth you are seeing, and we have talked about, is coming on the back of cross-selling all the new clients that we onboarded during the crisis.
We had 10% compounded primary client growth in CNIB for two or three years running during the crisis that were largely lending only relationships.
We now have the ability to monetize that through cross-sell.
In the retail side it is on the back of the continuum change of what we did with product offerings, the elimination of free checking, the continued growth in merchant, in debit, in credit card where we're underpenetrated.
In wealth it's (technical difficulty) repeat what we have now done for five years and using the rest of the organization to refer business in cross sell.
So we are ---+ there is nothing heroic in there, we are just hitting on all lines of business against this general notion that we put forth as a Company that we want to be less dependent long-term on net interest income to drive this Company and be able to get back to a more historical balance that we used to run at in terms of fees and net interest income.
So we just prioritized it and people get it is important.
We like the 10-year a lot better at 240 than we did at 179 or wherever it hit towards the end of the first quarter.
I think ---+ and I listened to the conversation you are talking about.
Look, I think at the end of the day the long end is going to have a slow grind higher.
We have deployed, as you saw this quarter, a little more cash into the securities book.
We are never going to make a single big bet, it is not who we are.
We are going to increment our way in as rates change here.
And we have a large opportunity to do that relative to the way we are invested today.
One of the things that I should have mentioned when we talked about loan growth is our residential mortgage holdings on the whole loan side, which are obviously also a form of fixed-rate duration.
While we keep kind of jumbos in some of the production from our mortgage company it is a lot smaller percentage, and an opportunity for us, but it is a lot smaller percentage today than many of our peers.
So we have a lot of ways to play here.
I think by and large nobody is expecting a massive selloff in the long end, there is more value here today than there was a quarter ago.
And even on the mortgage side some of the adds we did were actually in mortgage backed securities.
The OAS spreads on mortgage backs are much, much wider than they were three months ago, so there's an opportunity there.
<UNK> wants to jump in here a little bit too.
<UNK>, you and I have spoken about this a little bit.
First and foremost, nobody knows so we will see.
What we've spent a lot of time on is just being and planning for all sorts of outcomes, recognizing that it has been a long time since we have had an interest rate increase.
And that consumer behavior could be substantially different here 11 years later, particularly around the LCR, the attractiveness of deposits on LCR over and above the margin.
And then of course the increased technology which allows consumers to move deposits from bank to bank a lot more easily than they could have 11 years ago.
So I don't have an answer for you, but I do know that we plan around it obsessively.
That is a priority of <UNK>s and we just have to be ready to go with however the scenario plays out.
I think missing from some of that analysis is ---+ go out and look today at where teaser rates are on new deposit money markets.
They are well over ---+ there is offers out there for a percent ---+.
Or higher.
Yes, so they are well over where rates are today meaning that the beta is 3x already.
The question is as rates rise are those teasers going to go straight up on top of that out of the gate, probably not.
The other thing that will lag is interest-bearing business accounts and so forth will probably lag somewhat.
But I think the core consumer interest bearing accounts given the demand for LCR friendly deposits, they are going to move pretty fast.
And we have got to be ready for that.
No, we are going to ---+ look, we and the rest of the market are going to feel our way around to figure out what is going to move balances or not for the first movement.
So it is not as if we instantaneously change all of our prices, if that is what your question is.
I just think we have proven ourselves because we have had leading offers in the market to grow deposits to complete our LCR process that money moves with slightly higher offers.
And not everybody in the market is LCR compliant.
If in fact deposits shrink in the system because QE goes away and/or loans grow, then (technical difficulty).
---+ technology issue.
So we will answer <UNK>'s question and then ---+.
This is <UNK> and I think I was the one who was talking about that.
I actually don't know the percentages down there, but they have got to be higher.
Yes.
I think they're materially higher.
A little bit high.
It depends on what period you are looking.
From the start materially higher ---+ still higher but not by as much as we mature.
That is a good question.
The change that we made was a reaction in April when we pushed back those rates.
If rates don't rise in 2015 in that September hike, that is really not necessarily expense related.
We bracketed that around in terms of NII, it is not a huge number.
The bigger issue, as <UNK> pointed out, relative to 2016 and beyond in terms of the gradual rate rise, that is a much, much bigger impact to our revenue.
Thank you.
| 2015_PNC |
2015 | VECO | VECO
#Thanks, <UNK>.
Sure.
I think we've seen utilization rates overall tick up in almost all regions over the last quarter.
I think we're at 90% or so in <UNK>a, kind of close to that in Taiwan, probably up 3 to 5 percentage points in each of those countries.
Korea's come up by a similar amount, probably 85% US and Europe, probably close to 90%.
So, they are high and they have been moving up.
It's hard for us.
We're pretty comfortable to say that Q2 orders are going to be up significantly from Q1.
We do see some significant orders in the second half of the year but it's hard to quantify it in total.
Certainly could happen that they could be larger.
Well, we've seen a lot of activity in TSV demos and evaluations and interest.
And customers looking at a web process versus a dry process in that.
And at least one major customer has told us that they both work well, and we think our process has a significant cost advantage.
So we've got some advanced packaging orders this year already.
We're expecting some more.
I think 2016 will be bigger than 2015 because it still is a little early in the adoption.
And then beyond the advanced packaging we expected to continue to maintain strength in RF devices, MEMS, and those areas which we traditionally had strength in.
Well, as <UNK> said, the orders have been pretty well distributed across the regions.
Clearly, if you look at our business, we've had a very strong business in <UNK>a for a long time and we expect that to continue to be a major area of strength with multiple customers in <UNK>a, and it's really driven by lighting and mid-power LEDs that are the largest portion of the lighting market.
So, clearly that will be the largest region, but we see activity in Taiwan, Japan, Korea, Europe are all opportunities and we expect some reasonable geographic distribution.
I think there's good potential for growth in 2016.
It's too early for us to call that or give you guidance, but we do have customers talking to us now about substantial orders in the second half that would flow into 2016, and so I think we're going to have a healthy industry in 2016.
Let me take the first one.
On the average sign-off period, it's usually three to six months for most of our products, not just EPIK, and it may take a little longer for a new product, but that's pretty typical.
The things that can impact that are, is the customer's fab ready and do they have everything prepared.
We've had some cases where that's taken a little longer than expected.
But three to six months is typical and I'll let <UNK> answer the second half.
Thanks, Srini.
On the second question, there would be very little revenue in 2015 from product that was shipped in 2014.
It would be more than zero but it would be very, very minimal, maybe $10 million, $15 million at the most.
I just don't remember that number, but that is not at all a driver for 2015 performance.
Well, I will try to answer the second question first.
In terms of our cash balance, we definitely have a very good cash position, about $220 million of that cash is kept in foreign locations.
But that said, if you look at our performance we have been cash flow positive for many quarters here, and so I would agree that we do have some excess cash and we continuously evaluate our alternatives for deploying this cash, and as it comes down to practical matters for us, there really are two choices.
One is to return the cash back to shareholders through a buyback program, or deploy the cash for additional M&A.
As such, as of now we do not have any buyback program approved by our Board, otherwise you might have already heard about it.
And to give you some idea on the M&A side, we do have an active M&A program, and in our M&A funnel there are a portion of these that look good.
So both those choices are very valid choices, and we discuss with our Board both, and as and when any decision is made, you would know about it.
And then remind me what was your first question, Srini.
Sure.
The way we done our math on the high end, obviously gross margin would be higher, and then at the same time, you take our range on OpEx and use the tax rate between 18% to 20%, you use the tax rate on the lower side, you would get to the EPS which is the high end of the Q2 EPS that we are guiding.
So, based on that we did our math and you can get there on the high end of EPS.
Thank you, Srini.
Thanks, <UNK>.
<UNK> here.
We typically do not disclose our shipment numbers but I will nonetheless try to answer your question.
If you look at other revenue range for Q2, we are providing ---+ indeed we are providing a wider range, $100 million to $150 million.
But at the same time we are providing a deferred revenue range of $65 million to $25 million, so $65 million is product that is shipped in Q2 but could not be recognized for revenue.
So if you add the two up, you are looking at $165 million in shipment on the low end, and if you take $150 million in revenue and add $25 million of deferred revenue, you're looking at $175 million in shipment.
So, a crude math without disclosing the real exact shipment numbers here, what you can see that we're talking about $165 million to $175 million of shipment in Q2, and this is quite an elevated shipment level for us.
I do not quite remember an exact math for my Q1 numbers but based on what we disclosed previously for Q1, you could do the math and see where the shipment numbers are.
Does that help you, <UNK>.
Sure.
Great question, <UNK>.
There are a number of things that are going through our P&L right now.
First of all, we are shipping EPIK at quite a high level and we are ramping the product up, whereas on the revenue side all that shipment is not being recognized.
So, right now we're seeing a little bit of a drag in Q2 and Q3 because of product ramp-up.
But all this is supposed to work its way through by the time we are in Q4.
The second reason is we took a large volume order from one customer two quarters ago, on which the discount was slightly higher and that business is going to flow through the P&L during Q2 and Q3 timeframe.
The margins on that business, that order, is a little bit lower than corporate average and so it keeps our gross margin range-bound.
The third situation here is that we are making very good improvement.
I'm very pleased with the progress we are making on our cost reduction efforts on the material side.
Now as you know, we've already obtained lower cost on the material but it takes some time to flow through the P&L, so by the time Q3 ends, the cost reductions will also start to show up on the P&L and that gives us the confidence that Q4 we would see a significant pickup in gross margin.
Okay.
Well, we had said in the last quarter that we expected to grow over 30%; we've increased that to over 35%.
I think there are a couple of drivers behind that.
Obviously the addition of PSP adds some significant growth to the year, but aside from that, the MOCVD business is doing very well and we have a very strong backlog, we're expecting strong additional orders, and so that business is delivering some exceptional growth and then the third factor is in the mobile applications.
We've seen good growth in that segment related to RF and MEMS and advanced packaging.
So I think those factors in both order trends, product success, are what are enabling us to push up our overall number for the year.
<UNK>, I'll take that question even though you're asking <UNK>.
We guided PSP business to be $65 million for 2015 and we are seeing good order activity there and we expect it to be ahead of that plan.
But not much more in the sense our reason to increase our growth for 2015 is largely driven from the MOCVD strength.
Yes, the PSP business is doing better than $65 million, but it is not crossing $70 million.
Thank you, <UNK>.
They are predominantly adding to the customer fleets and bringing on additional capacity.
I think on the other hand, we do see customers starting to think more about replacing older units, and we do think that over the next year or so that replacement activity will pick up due to the benefits of the new products and that will help to give us a little bit extra growth.
But right now they're adding capacity.
Well, I think if you look at the PSP acquisition, it's a good example of what we've been trying to do.
In that case, that business was a healthy business with good financial metrics all around, really, gross margin, profit, and those things.
It had a good overlap with our existing customer base, and we could bring value to it.
So in the case of PSP, we're able to take those products into some customers where they probably would not have connected with.
So it's a business that added revenue and profit, we could positively impact it and we had a good bit of confidence that we could be successful because we knew the customers in many cases already.
Does give us more products to sell to the customer base, but I wouldn't go star so far as complete solution.
I think that's ---+ most of our customers want to buy best-of-breed products and that's our focus.
So, maybe another element of it, at least in the sectors it serves, we tend to be the number one or number two in each of our markets and we're looking for companies that really have compelling technology leadership and are going to be the leader in a defined niche.
So not quite complete solution but partially there.
Okay, thanks, <UNK>.
All right.
With that, operator, we'll wrap up for today.
Thank you all for joining us and we'll look forward to seeing you in the coming weeks.
| 2015_VECO |
2015 | ANDV | ANDV
#I think the first and foremost is make sure that the overall deal economics create a lot of value for LP unit holders and the GP unit holder.
And so it comes down to the quality of the assets and the sustainability of the earnings that are in there and the required capital to maintain them.
So I think that drives 85% of it is good quality assets being dropped down.
But we do look at, because of the way the GP and LP structures work, to make sure that both LP and GP unit holders both value greatly from these transactions.
So we will look at all mechanisms to do that.
That's correct.
Thanks, <UNK>.
I was going to say something about red lines, but I better not.
Right now, <UNK>, we're absolutely committed to Vancouver Energy.
And we're very confident that the FSEC process looks at the actual permitting process in that the overall impact of what this does to the community, to the state, to the supply of this type of crude oil to the West Coast, to the improvements in lowering carbon intensity of crude oil that's produced in the United States made into products and sold on the West Coast are all positive.
We believe that when all of that is taken into consideration that there will be support, there will be very strong support for the project.
So we don't see anything at this stage that would ever tell us not to keep pursuing the project.
Unless we learn something down the road that we don't know today, there is nothing that tell us we won't continue to pursue this.
We talked about during the discussion earlier that our marketing growth year-on-year was up around 3% during Q2 versus last year.
And we said that it's continuing at that pace so far, whatever we are, five weeks into the third quarter, we are experiencing that same pace of growth.
Thanks, <UNK>.
Thank you, everyone.
The agreement between Tesoro and Tesoro Logistics to take the commodity exposure off of the NGLs is done in our refining segment.
And as we've said, it's immaterial to the Company.
Thanks, <UNK>.
Thank you, everyone.
Appreciate it.
| 2015_ANDV |
2015 | UFI | UFI
#Yes.
We just announced last month that we need to start installing some additional capacity.
We are about 50% of the way through that as we speak, and we should be completed by June ---+ in a couple of months.
So that is just incremental capacity, as we mentioned, adding capacity for the growth in CAFTA and also that lighter denier mix that we mentioned.
Yes.
I mean, with the growth that we referenced, those machines are running.
Typically, you see our third and fourth quarters being a little more strong from a volume standpoint.
So we are certainly in the season now where those machines, as they come online, they are running.
Yes.
I think, as <UNK> referenced, and certainly we have talked a lot about our ---+ one of our core goals is to continue to produce mix enrichment strategies and products.
And, as <UNK> mentioned, we are on the higher end of our growth for PVA product.
And so this is both taking commodity products and moving those into a richer mix product, but also working with new programs that were not introduced as virgin in the beginning, but as those new programs come online, they come online with the REPREVE or a PVA product in the beginning.
You are correct.
Parkdale is ---+ America is in the middle of an internal expansion down in Rabun Gap, Georgia, as we have talked about in the past.
And it is included within our financials and their 10-K-A.
There is acquisition and capital spending for an entity in Mexico.
There has also been the conversation about Parkdale America replicating what was done with Hanesbrands years ago, now being done with Fruit of the Loom.
So those are the three largest projects for Parkdale America.
The first is certainly nearing its completion.
The second is probably about half way through this acquisition.
This happened during the calendar month of March.
So I think as we begin to get into speaking from a calendar year perspective, calendar year 2016, Parkdale America will begin to see the benefits of that capital spending and those projects.
And those are three examples of their current capital spending that we are very excited about that will begin to increase our share of their pretax income, we believe, above the current run rate beginning in calendar year 2016 and beyond.
And, <UNK>, as far as making any projections to what the results may be, I think that is kind of difficult right now because the cotton spinning business in this country is kind of in flux.
I think the Parkdale management are really, really good at what they do.
These projects certainly are going to be beneficial, I think.
On the other side, you have got Gildan backward integrating into cotton spinning.
You have got other cotton spinners announcing capacity coming into the region.
So I think it is difficult to project how much benefit we're going to see from these projects.
But I think it is safe to say Parkdale is making the right moves, at least in our opinion.
The $28 million project will ---+ it will generate $75 million pounds of clear polyester bottle flake.
When we talk about our capacity in the recycling center, we are talking about our current capacity is 70 million, growing to 100 million with this next expansion that we talked about earlier.
So this is really feeding our operation.
So when you look at the growth of REPREVE, when we were in our very earlier stages, we were a merchant buyer of a lot of this material.
We did not have the scale to really backward integrate at that time.
So we were paying market prices.
And within those market prices, there is margins that other suppliers were making from us.
We can't really get the quality and some of the efficiencies on a continuous basis that we need to operate effectively and cost-effectively.
And so, as we have grown REPREVE, certainly at some point, it was going to make sense for us to seriously consider backward integration.
I think now that we have got the scale of REPREVE, the time is right for us to take that backward integration.
The technology that has been developed around recycling has really progressed over the last two to three years.
So, as we are investing today, we're going to be investing in the latest technology that we think will create a step change in the world of recycling that will offer some advantages to us now versus the supply chain that we are currently buying from.
I would look at it in terms of the volume requirements that we have today.
We will become more self-sufficient as we backward in.
Well, I think we are comfortable at the 75 million because we have talked about other PVA programs where we recycle other forms of waste, being textile waste, yarn waste.
We have talked about takeback programs where we bring back in fabrics and other scraps.
So if you look at the 100 million of capacity, a large percentage of that is bottles, but the other percentage of that is waste fabric.
So when you add those two components together, you can see that we can feed 100 million pounds with the bottle processing facility and the other forms of waste that wepurchase.
Thanks, operator.
This is <UNK> and appreciate everybody's interest in the Company.
We are very optimistic about the future going forward and look forward to our next call.
Thank you.
| 2015_UFI |
2018 | IIIN | IIIN
#Good morning.
Thank you for your interest in Insteel, and welcome to our second quarter 2018 earnings call, which will be conducted by Mike <UNK>, our Vice President, CFO and Treasurer; and me.
Before we begin, let me remind you that some of the comments made on today's call are considered to be forward-looking statements, which are subject to various risks and uncertainties that could cause actual results to differ materially from those projected.
These risk factors are described in our periodic filings with the SE<UNK>
All forward-looking statements are based on our current expectations and information that is currently available.
We do not assume any obligation to update these statements in the future to reflect the occurrence of anticipated or unanticipated events or new information.
I'll now turn the call over to Mike to review our second quarter financial results and outlook for our construction markets, then follow up to comment more on business conditions.
Thank you, H.
And good morning to everyone joining us on the call.
As we reported earlier today, Insteel's results for the second quarter of fiscal 2018 marked the second consecutive quarter of favorable shipment trends following the disappointing volumes we experienced during the second half of last year.
We believe the recent strengthening in demand will continue during our third quarter, which is typically one of the busiest periods of the year based on the usual seasonal pickup in construction activity.
Spreads between selling prices and raw material costs widened sequentially from the lows of Q1 through the price increases that were implemented, and we expect further improvement during our third quarter.
Insteel's earnings for the second quarter came in at $0.31 a share, which was up $0.08 sequentially from the first quarter, excluding the nonrecurring gain on deferred tax liabilities, but down $0.08 from a year ago.
The sequential improvement was driven by the higher spreads in shipments while the year-over-year decrease was due to lower spreads relative to last year.
The second quarter got off to a choppy start due to the intermittent stretches of cold and wet weather across our markets with shipments trending below prior-year levels through the first 2 months of the period before rebounding strongly in March, rising over 18% from a year ago.
For the quarter as a whole, shipments were up 6.8% sequentially from Q1 exceeding last year's 5.6% increase and 2.4% year-over-year.
From a geographic standpoint, the volume growth was primarily driven by higher shipments into Florida and most of the mid-Atlantic states, which offset some softening in Texas, our largest market, that was likely compounded by the inclement weather.
Average selling prices were up 2.9% sequentially from the first quarter and 3.7% year-over-year, reflecting a portion of the price increases that we implemented during the quarter which should have a more pronounced impact in Q3.
Gross profit for the quarter was up $3.8 million sequentially from the first quarter, and gross margin increased 250 basis points due to the widening in spreads driven by the price increases and higher shipments.
Gross margin improved each month within the quarter, consistent with the favorable shipment trends, rising to over 17% in March.
On a year-over-year basis, gross profit was down $2.9 million, and gross margin narrowed 370 basis points.
Due to the lower spread the escalation in our raw material costs exceeded the increase in ASPs.
In view of the ongoing raw material cost pressures, together with the strengthening demand environment and availability concerns stemming from the Section 232 tariffs, we recently announced 2 additional price increases: one that went into effect last week and the other, effective May 8, which should further benefit our third quarter results.
At this time, we believe the pricing adjustments we've made will be sufficient to offset the higher raw material costs we will be incurring and restore spreads to more attractive levels following the compression that we experienced over the past year.
SG&A expense for the quarter was up $0.4 million from a year ago due to higher employee health insurance costs and a smaller increase in the cash surrender value of life insurance policies partially offset by lower incentive compensation expense.
As reflected in our historical results, our SG&A costs tend to spike higher in the second and fourth fiscal quarters based on the timing of semiannual grants under an equity incentive plan which are typically made in February and August.
Our effective income tax rate for the quarter and first half of the year dropped to 24.7%, excluding the $3.7 million remeasurement gain on deferred tax liabilities recorded in Q1, from about 34% in both periods last year due to the reduction in the corporate tax rate under the new tax law.
As we discussed in our last call, based on our September fiscal year-end date, our effective rate for fiscal 2018 reflects a blended rate based upon the average of the previous 35% rate that applied to our first quarter and the lower 21% rate that applies to the remaining 3 quarters of the year.
Going forward, our effective rate will continue to be subject to change based upon the level of future earnings, changes in permanent tax differences and adjustments to the other assumptions and estimates entering into our tax provision calculation.
Moving to our balance sheet and cash flow statement.
Cash flow from operations for the quarter was down $4 million largely due to the $10.7 million increase in accounts receivable resulting from the acceleration in sales during the latter part of the quarter partially offset by a reduction in days sales outstanding.
Based on our sales forecasts for Q3, our quarter-end inventories represented around 2.5 months of shipments compared to a little over 3 months at the end of the first quarter due to the strengthening in shipments.
And was valued at an average unit cost that was above second quarter cost of sales but below current replacement costs.
In January, we returned another $20.2 million of capital to our shareholders through the payment of a $1 a share special cash dividend in addition to 2 regular quarterly dividends, marking the third straight year we've paid a special dividend of at least $1 a share.
We ended the quarter with $23.5 million of cash on hand or about $1.25 a share.
We're debt-free with no borrowings outstanding on our $100 million credit facility.
Looking ahead to the remainder of the year, we expect continued improvement in our construction end markets, which should spur stronger demand for our products and widening spreads together with higher operating levels and lower costs at our facilities.
The latest Architecture Billings and Dodge Momentum Index reports continue to signal favorable growth trends for nonresidential building construction in the coming year.
On an overall basis, the ABI score for March remained positive for the sixth consecutive month.
Architectural firm billings have now risen in 11 of the previous 12 months, with most of the regional and sector averages reflecting expansionary conditions.
In its monthly report, the AIA indicated that project backlogs at architectural firms were in excess of 6 months, at their highest levels since the recession.
The Dodge Momentum Index, another leading indicator for nonresidential building construction, also reached a new post-recession high in March and was up 16.1% from the prior-year level.
Dodge speculated that the 5.1% growth rate posted in the latest quarter may be an indication project planners were already reacting positively to the new tax law that was signed in December.
We believe the infrastructure-related portion of our business will be favorably impacted by the fiscal 2018 Omnibus Spending Bill that was passed last month, which provides for over a $21 billion increase in infrastructure investment, including an 8% increase in highway funding.
The bill also provides for nearly $90 billion of disaster relief funding that could potentially be used for projects requiring the use of our concrete reinforcing products.
We also expect to benefit from higher spending at the state and local level as recent funding initiatives begin to have a greater impact in the coming months.
I'll now turn the call back over to H.
Thank you, Mike.
As we reported on our last call, our Q1 shipment volumes gained momentum over the course of the quarter following the unusual weakness that we experienced during the second half of fiscal 2017.
As we moved into the second quarter, our view of the underlying demand trends was obscured somewhat by the impact of severe weather on the operations of 7 of our plants as well as shipments from all of our plants, particularly during January and February.
Beginning in March, however, incoming orders and shipments accelerated dramatically, driven by the usual seasonal pickup in demand together with concerns regarding the Trump administration's initiation of a Section 232 tariff regime on imported steel products, including our primary raw material, hot-rolled steel wire rod.
These favorable demand trends have continued thus far in April as we move into what is typically our busiest season of the year.
Following the completion of the DOC's Section 232 investigation that was initiated last spring and the delivery of its recommendations to the President, on March 9, the administration announced that it would impose an across-the-board 25% tariff on steel imports effective March 23.
Subsequent to the announcement, temporary exemptions were provided to several countries deemed to be strategic allies.
The exemptions could become permanent depending on the outcome of negotiations currently underway to resolve administration trade concerns.
Any such permanent exemption would likely require reductions in steel export volumes to the U.S, as was agreed with South Korea, and would represent favorable outcome for Insteel by expanding our sourcing options as compared to the across-the-board tariff approach that was initially announced.
We should also benefit from the anticipated June restart of a previously idle wire rod mill in Georgetown, South Carolina, which is strategically located to several of our plants and will add needed capacity to the marketplace.
The prospect of import tariffs on imported wire rod and escalating prices for steel scrap, together with expectations that pending trade cases initiated by domestic wire rod producers will result in the imposition of significant duties have provided the impetus for a series of price increase announcements by our suppliers in excess of 30% on a cumulative basis.
In view of these continued cost pressures and the recent strengthening in demand, we have announced 4 price increases for our reinforcing products since January.
We believe these adjustments will enable us to begin recovering the spread and margin compression we've experienced over the past year.
Competitive pricing pressure seemed to have diminished to some extent, with customer concerns now primarily focused on ensuring adequate supply in view of the rebound in demand, tightening in availability and political uncertainty relating to the administration's trade policy.
As you may recall, last November, we required ---+ we acquired certain assets of Ortiz Engineered Products in connection with our ongoing efforts to further penetrate the rebar market through the substitution of engineered structural mesh for cast-in-place applications.
Project inquiries and shipments for OEP in its primary geographic markets have exceeded our expectations thus far during what is typically the slower season of the year.
Following the transaction, we have deployed additional engineering and sales resources to our cast-in-place effort and intensified our focus on expanding into additional markets where we can offer a compelling value proposition relative to rebar.
We believe these efforts will begin to produce results later in 2018 and build momentum as we move into 2019.
Turning to CapEx.
As reflected in our release, capital outlays totaled $9.3 million through the first half of the year driven by the exercise of the purchase option on our previously leased Houston facility and additional investments in our ESM manufacturing capabilities.
We continue to expect fiscal 2018 CapEx to approximate $21 million, which includes the addition of an ESM production line and ancillary equipment; the purchase of the Houston facility; and further upgrades to our PC strand manufacturing technology; and in addition, investments in our information systems upgrades and other routine maintenance.
We're optimistic that construction markets will strengthen in 2018 driven by growth in both private non-res and infrastructure spending and the stimulative impact of the new tax law.
We'll continue to be vigilant in pursuing attractive growth opportunities, both organic and through additional acquisitions, and we remain focused on improving our operational effectiveness and realizing the anticipated benefits from the substantial investments we've made to lower manufacturing costs, reduce lead times and improve quality.
This concludes our prepared remarks, and we'll now take your questions.
Christie, would you please explain the procedure for asking questions.
It should be right around 24.7% for the year.
It should be relatively close quarter-to-quarter.
Yes.
There has been a recent pickup in public spending activity over the past few months.
And as we commented, just with the recent passage of the Omnibus Spending Bill, that frees up the increase that was previously approved under the FAST Act and also provides another $2.5 billion of highway funding, which should have a favorable impact.
And it also eliminates the uncertainty that existed through the previous continuing resolutions that were in effect.
So we're expecting some improvement at the federal level; and at the state and local level, as we've discussed on previous calls, just with the various funding initiatives that have been enacted or pursued over the past few years.
We should see a more significant impact from those in the coming months as well.
Yes.
I think, <UNK>, we'd like to leave it that at this point, they're sufficient to cover our increasing costs and begin to help resolve the margin compression issue that we ran into in 2017.
I think it's really hard to project at this time.
There are so many moving pieces on ---+ in the marketplace on both our market side and our supply side that if it's typically difficult for us to see what's going to happen, it is exceedingly difficult now.
And just to clarify on your question.
The 17% margin from March ---+ in excess of 17%, that was actual, it wasn't pro forma.
So we were just pointing out that within the quarter, there was significant improvement both in terms of margins and volumes.
Right.
As a starting point.
Yes.
I think the weather, clearly, had had an impact.
It's really difficult to segregate that or quantify it precisely.
But <UNK>, we did lose time ---+ manufacturing time in Texas due to ice, which is ---+ it's not unheard of but nor is it expected.
And I don't think there's been a change in Texas market conditions that would be concerning.
I think it's more a function of wet and cold weather.
Yes.
I think ---+ so far, I think we're on track to do that.
I don't know that we'd want to drill down to that level of detail on ---+ for the quarter.
It's a serious concern.
The availability and the cost, it just continues to be a tremendous challenge for our people across-the-board at all our locations.
And I don't know that we see any respite coming in that condition.
It's going to be difficult.
It's a good question.
And I don't know that we necessarily have a good answer.
But I could tell you that even before the March 9 announcement of the 232 program, we had seen an acceleration in shipments.
And of course, the 232 issue has been hanging over the industry since April of 2017.
So were people reacting to it prior to the March 9 announcement.
I assume it's possible that's the case, but they didn't react to it in February and they didn't react to it in January.
So it's just really hard to tell.
Following the announcement, I would say that concern has ramped up so that, certainly, the 232 program has had an impact on buying behaviors since that time.
And I think that's continuing.
But it's difficult for us to peel it away from the underlying level of demand for the products, which is pretty solid and certainly improved from last year.
So I wish we could parse it for you, but that's about all we know.
Yes.
We had ---+ I think I mentioned at the end of the quarter, we had right around 2.5 months of inventory.
So under FIFO then that would get us through most of the third quarter.
Now just if you go back through the most recent scrap and wire rod increases that ---+ our inventory is valued at higher than the amounts going through Q2 cost of sales but still well under replacement costs.
I mean, it's just going to be a matter of how that inventory carrying value compares against the ---+ these additional price increases that we're implementing.
But I think we're well positioned for the third quarter just from a spread and margin standpoint.
Okay.
Thank you.
We appreciate your interest in the company.
And please don't hesitate to contact us if you have follow-up questions.
| 2018_IIIN |
Subsets and Splits