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2016 | HCSG | HCSG
#Thank you, <UNK>.
Good morning, everyone.
It was during the fourth quarter of 2014 and first quarter of 2015 that we accelerated our expansion which does make the Q1-Q1 comparisons the most difficult of the year but we continued to grow the top line around the targeted range, with revenues for the quarter up over 8% to $385 million.
Housekeeping & Laundry grew at 5%.
Dining & Nutrition was up 14% for the quarter.
Earnings from operations increased 20% in Q1 to over $29 million.
Both revenues and earnings from ops were Company records.
Overall, the districts and regions have done a good job of opening the new business we added during the first quarter, not only in minimizing inefficiencies, but more importantly, developing strong working relationships with our new facility level customers.
As that new business matures, we would expect ongoing margin improvement as our focus shifts towards managing the departments and servicing the client base.
For the balance of 2016, we'll continue our selective expansion, controlling our growth rate to ensure that our managerial wherewithal, facility execution, and financial performance are in line with what we committed to our customers.
With that abbreviated overview, I will turn the call over to <UNK> for a more detailed discussion on the quarter.
Thanks <UNK>.
Good morning, everyone.
Net income for the quarter increased to $18.6 million, or $0.26 per share compared to $15.5 million and $0.22 per share in Q1 of 2015.
Both net income and earnings per share were Company records for the quarter.
Direct cost of services came in at 85.8%, so it continued to be under 86%.
Obviously, going forward, our goal continues to be to manage direct costs under 86%, moving our way on a consistent basis towards 85% direct costs of services.
SG&A was reported at 6.6% for the quarter, but after adjusting for $300,000 change in deferred comp investment accounts that are held for and by our management people, our actual SG&A was 6.7%.
We would expect our normalized SG&A to continue to be in that 7% range going forward with the ongoing opportunity to garner some modest efficiencies in SG&A.
Investment income for the quarter was reported at $200,000, but again, after adjusting for that $300,000 change in deferred comp, our actual investment income was about $0.5 million.
As we've previously discussed in last quarter's call, at the end of 2015 Congress did reauthorize and extend through 2019 the Worker Opportunity Tax Credit Program.
So our effective tax rate for the quarter was 37%.
And for the balance of 2016 we expect our effective tax rate to be in that 37% range, inclusive of that Worker Opportunity Tax Credit benefit.
We continue to manage the balance sheet conservatively and at the end of the quarter, had over $100 million of cash and marketable securities and a current ratio of 4 to 1.
The accounts receivable remain in good shape, below our targeted DSO of 60 days.
In conjunction with the release yesterday, the Board of Directors approved and increased the dividend to $0.1825 per share, split adjusted and payable on June 24.
The cash flow and the cash balances for the quarter more than support it with the dividend tax rate in place for the foreseeable future.
The cash dividend program continues to be the most tax-efficient way to get the value and free cash flow back to the shareholders.
This will be our 52nd consecutive cash dividend payment since the program was instituted in 2003 and it's now the 51st conservative quarter that we have increased the dividend payment over the previous quarter.
That's a 13-year period now that includes four three-for-two stock splits.
So with those opening remarks, we would now like to now open up the call for questions.
Good morning, <UNK>.
I think it will happen more evenly over the balance of the year.
<UNK>, as I opened up the call with ---+ we have always tried to be more selective in our expansion, making sure we have the management capacity to not only operate the facilities, but also to ensure client satisfaction.
Sometimes we don't spend enough time talking about how critical retention is to our top-line growth in the near term, but more importantly, to our growth that's going to happen three years down the line.
Our existing client base acts as our reference list.
More than 9 out of every 10 of our new opportunities come from an existing customer in some form or fashion.
So for the balance of the year, our focus will continue to be around focusing on the quality and the quantity of the management pipeline, which is a district by district, region by region exercise because more than anything else, the pace at which we're able to develop management talent, specifically at the MIT and department head level is the gating factor on how quickly we can grow.
Having said that, I would say as far as the bolus of new business that we have added during the first quarter, other than the Southwest divisions, which opened up about a third of the new facilities during Q1, the buildings were really pretty evenly distributed across both the divisions as well as the segments.
So we would expect more normal course of business-type growth for the balance of the year, especially in those areas less impacted by the expansion.
And that's what should put us in and around that double-digit top-line range for 2016, and moving ahead towards 2017 as well.
I mean, for us, <UNK>, it's treated as a traditional pass-through cost.
So from a contract administration perspective, the adjustments are pretty straightforward.
Really, the difference for us as it relates to the minimum wage specifically is more form over substance.
Rather than the local market forces driving the inflationary pressures and the administrator planning for or reacting to a tight or slack labor market in states like California and New York, the wage pass-throughs would be determined by government mandate.
But financially it's really a cost neutral proposition for us since the contract pass-throughs are margin preservation, not margin expansion tools.
And, look, this is a new ---+ this isn't a new dynamic for us either.
We have dealt with minimum wage increases for years as a Company.
As far as some of the anecdotal feedback we've heard from our client partners, it's more around the amount of the proposed increases, specifically in New York and California, rather than the mechanics behind it, where in the past, minimum wage hikes would typically have a ripple effect on the entire wage scale.
Under the current proposals, that ripple impact may not be economically feasible in many facilities, which, as a derivative impact, could affect their ability to attract and retain talented licensed staff.
It could promote greater wage parity, which could result in employee morale issues.
All of those are arguments and I believe they are valid arguments against minimum wage increases and typical arguments you expect to hear from the provider side.
But it remains kind of to be seen what will ultimately happen.
But that's some of the preliminary albeit anecdotal concerns we have heard from our clients.
As far as the overall health of the client base, we haven't seen anything on a macro level that would be cause for concern.
As you know, <UNK>, we have always managed the credit on a facility by facility, client by client basis rather than in the aggregate, knowing good operators, good managers are going to thrive in difficult reimbursement times and poor operators will struggle, even what may be perceived as a stable reimbursement environment.
But I would say today, we manage the credit as tightly as we have at any point in time in the Company's history.
We have actually left or reduced services in more facilities for credit-related reasons over the past five years than we have the first 35 years of the Company combined.
We won't leave the Company in a lurch.
But when necessary, we will give back the largest component of the contract, payroll and in dining, the food purchasing component, until they get back on their fiscal feet, in which case, we are more than happy to transition back to full-services.
But typically, once those types of discussions or negotiations commence, it's a pretty significant incentive to live ---+ for the client to live up to its payment terms or at least agree to a work-out that we're both amenable to, that allows us to stay full-service in the facilities.
And just to put even some financial context around the topic, if you look back historically, we have written off less than 0.05% of our receivables, in large part, because of our collection strategy and our general approach to the customer base, but also because the providers' good faith obligation to use the reimbursed funds for their stated purpose.
So we will continue to manage the credit on an individualized basis and that gives us the flexibility to custom craft our collection strategy, depending on the facts and circumstances on the ground.
But overall, nothing on a macro basis that would give us cause for concern, although we certainly do hear, again, more anecdotal client by client, group by group, some of the feedback around bundled payment, RAC audits and some of the other issues du jour that Medicare and the government is kind of pushing their way.
Thank you, <UNK>.
Good morning, <UNK>.
I mean, for us, <UNK>, G&A is certainly ---+ came in strongly this quarter, but for us, until we can consistently demonstrate that we can get that SG&A under 7%, I mean, 7% remains, I think for us, a realistic target.
Given the fact that we are committed as a Company to continue our investments in clinical support, in expanding appropriately our human resources function and continuing to develop a best-in-class legal department here at the corporate office.
So for all those reasons, I would expect SG&A to continue in and around that 7% range.
But certainly on a cost of services side of the ledger, we think there is opportunities and we have already seen the benefits of the captive vehicle and it's hard to say, as we sit here now, that it's sort of business as usual with the captive, having seen the benefits come through in the fourth quarter and now, just as expected here in the first quarter as well, to the tune of about a $1.5 million benefit in the cost of services line.
But more importantly, and the larger opportunity for us continues to be the underutilization of our middle management structure, specifically, in the dining segment.
As you recall, the district managers in our scheme of things should be overseeing 10 to 12 facilities, and in Dining, they are still really only averaging about nine facilities or so.
The regional manager should oversee four to six districts and in Dining, they are currently only overseeing about four districts per region right now.
So as we continue to selectively expand our client base in the Dining segment, those middle managers will become more fully utilized and then ultimately, that margin structure of Dining should mirror that of Housekeeping & Laundry.
So there still is, call it, 250 or so, basis point opportunity in that segment, which ultimately works us as a company from, where we are presently and historically down to an 85% cost-of-service company.
I would expect in the near term, certainly next quarter, we would expect in and around that $1.5 million, <UNK>.
Certainly, looking beyond that, there are opportunities for that number to increase, but for purposes of next quarter, I think it's a safe estimation that we would be in and around that same level.
It's really just, I guess, the one con of being an entity that's taxed, fully taxed at the both federal and state income tax rates is when you start to drive pre-tax income, your tax rate increases.
So it's really just that, both at the federal level and some of the states that we operate in, that we're being taxed at the higher end of the graduated scale, which pushes that tax rate closer to 37% rather than 36%.
Again, the WOTC is still a valuable program for us and in absolute dollars, that program will grow alongside the size of the Company, the size of our employee base.
But as pre-tax earnings grow as well, then our effective tax rate will rise, albeit modestly and incrementally, it will continue to rise.
But we would expect 37%, certainly, for the balance of 2016.
Thanks, <UNK>.
Good morning, <UNK>.
So we saw a little bit more than two-thirds of that recognized in first quarter, <UNK>.
And certainly, in the second quarter, we will see the full run rate of the new business adds.
No, <UNK>.
Certainly, we wish we could.
We have continued to look for innovative ways to do just that.
But for us, getting resumes has never been an issue and hiring folks into our management training program has never been the issue.
We have certainly always demonstrated the ability to get the appropriate number of candidates into that program.
But it's been getting them through that program that remains a challenge, given the fact that we are committed to really a hands-on apprenticeship-type training model, really, a 90-day training program.
The first 30 days of which is, you will be performing the blue-collar tasks that you will ultimately be managing.
We need to make sure that they are comfortable in a nursing home setting, which is certainly not for everyone.
Managing our caliber of employees, which are blue collar, certainly lower on the wage scale than they might be otherwise used to interacting with, and it's a difficult and demanding client base.
Not to mention, that our whole model is based on efficiency.
So we need them to be 100% certain that they know how long it takes to perform each and every one of those tasks.
So we have not had success, <UNK>, in recruiting mid-level managers from other service companies and trying to give them a crash course in our way of doing things and acclimating to our customer base.
So we're more convinced than ever that the training and development has to happen in the field at the facilities in that very hands-on fashion.
It's because of that, that we lose two out of three of those management candidates in the first two weeks of that training program.
So as much as we've tried alternatives, whether it's recruiting mid-level managers or accelerating the training program or even trying to conduct training in more of a classroom-type setting, none of those models have been successful to date.
Not to say that we don't continue to look for innovative ways to increase the success rate at which candidates make it through the training program, but nothing on the horizon that would enable us to do that.
And so having said that, we continue to remain committed to that promotion from within model that we've always adhered to.
So as <UNK> said, certainly the demand for the services is greater than what we are able to service, but we have to grow in a fashion that enables us to stick to the management development mandates, and more importantly, to <UNK>'s earlier point, keep that client base satisfied.
Keep the retention levels as high or higher than they ever have been historically because that is the base from which we continue to grow the business.
As far as the facility count, it's over 3,800 facilities in Housekeeping and over 1,000 in dining, <UNK>.
And then retention rates have historically been greater than 90%.
We've been trending closer to 95% than we have to 90% the past 90 days, although that's something we work, as <UNK> said, awfully hard at.
There are a lot of factors that go into play with managing that client retention.
And similar to how we've described other aspects of the business, until we demonstrate we can do it on a consistent basis, then we would be reluctant to say that's the new norm because much of our ---+ at least a significant portion of the retention and really, where we're most at risk is new client introductions or client transitions where new administrator comes into a facility, doesn't have the benefit of seeing the before and after of having worked with Healthcare Services Group.
He or she may have their own environmental services director or culinary director from their prior operation and they bring that candidate in.
We are better at reselling that individual today than we have been in the past, but that's still where we're most at risk.
Thanks <UNK>.
Morning, <UNK>.
It's really continuing to drive the underlying performance within the mix of claimants that we have from indemnity to medical only, which is really the crux of the programmatic enhancements that we have made.
All of the work we have done the past five years centered around reducing the scope and severity of a given claim.
So that's where the additional ---+ that's where the majority of the additional opportunity would come from.
Now, over the past five years, we have been successful in shifting that mix from what was, one-third, two-third ---+ one-third indemnity, two-third medical only to 15/85 ---+ 15% indemnity, 85% medical only.
The difference between the two types of claims on a fully-developed basis is $30,000-plus.
That's really where the opportunity longer-term would come from.
It's really a complete overhaul of our property and casualty programs that we began five years ago, the climax of which was dropping both the workers' comp and general liability programs into a captive insurance subsidiary.
But we introduced nurse case management, which was a proactive care-giving nurse to respond to the first ---+ be the first responder to a claimant rather than a claims adjuster sitting in a cubicle at a third party insurance office.
We introduced a third-party administrator in Gallagher Bassett and unbundled the programs.
Along with that, a national physicians panel, which proactively ---+ and again, proactively manages the claims and is the first responder in terms of doc visits and care-giving to a claimant.
So a series of adjustments over the years that, again, resulted in us being able to truly drive better claims experience.
I think DSO has been pretty stable the past few years in the 55 day range, which I think <UNK> mentioned during his opening remarks, below the target of 60 days.
Quarter-to-quarter fluctuations, <UNK>, upward or downward a couple days ---+ that's driven as much by timing of when we collect the payments at the end of any given month or quarter, how successful we are in getting paid the last day or the last week of the month rather than the first day or the first week of the following month.
There is nothing noteworthy in DSO.
We would call it out if there were.
So we would expect ---+ there is no reason for us to expect it wouldn't be in and around the range it's been at the past few years.
Thanks, <UNK>.
Yes.
There was that impact.
<UNK>.
As you know, we've talked about previously, when we are at our most inefficient is when we are starting a new relationship with a prospective client because of the fact that we do go in and rather than tear up the existing schedule that has been on the wall and put in our new systems with new staffing levels day one, we do allow those employees to work through that existing schedule while we simultaneously work with them to understand which employees want to work, who wants to buy into our model and make sure that we can really, most efficiently implement our systems into that new facility.
So given all that, really, we are absorbing the inefficiencies and inheriting the inefficiencies that, that new client had prior to our entry into the facility.
So it's typically, for us, a 30- to 60-day timeframe to be able to get in, do our due diligence and then really fully implement our systems to be at or better than how we have budgeted that facility to run.
So there was about a 20 to 30 basis point, I'd call it, impact on margins in the first quarter as a result of those new business adds.
As we sit here today, looking at those new facilities, there is nothing that suggests that they will not fall within kind of our historical 30- to 60-day timeframe as to us getting our systems implemented and getting the facilities on budget.
So there was an impact in Q1 to the tune of about 20 to 30 basis points, about $1 million of an impact, <UNK>, that as I mentioned, we would expect to be cleaned up within kind of the normal historical timeframe that we have targeted.
Thanks, <UNK>.
Before we wrap up, <UNK> was going to review our conference schedule over the next few months, so ---+.
Yes, just quickly, we will be at the UBS Global Healthcare Conference on the 24th of May.
That will be at the Grand Hyatt in New York.
We are going to present at the Jefferies 2016 Global Healthcare Conference; that's on the 7th of June, also at the Grand Hyatt in New York.
And then the Citi 2016 Small and Mid Cap Conference, which is the 9th of June and that will be at the Lotte New York Palace, in New York as well.
Hopefully, we will see some of you there.
Thanks.
Thank you, <UNK>.
Thank you, <UNK>, and I guess overall, the demand for our services continues to be greater than what we are capable of managing.
And with the regulatory and reimbursement uncertainty facing the healthcare provider community, that demand should only increase in the years ahead.
The pace at which we are able to development management talent continues to be both the rate limiting factor on our growth as well as our most significant organizational opportunity, which is why hands-on coaching and training, district by district, region by region, remains our highest priority in the year ahead.
We will look to keep our direct costs below 86% and work our way closer to 85% direct cost of services, with the primary drivers of that margin improvement being the Dining & Nutrition, districts and regions managing the right complement of facilities as well as our Property & Casualty and Employee Health & Welfare programs being managed out of the captive.
We expect our normalized SG&A to be about 7% going forward excluding any deferred comp impact but remain committed to ongoing investment in our clinical dietician, HR, and legal functions.
As we move through 2016 in what is our 40th year of business, we continue to operate in a recession-proof market niche.
The demographic trends have been and continue to be in our favor.
We're in an unprecedented cost-containment environment that's really increased the demand for outsourcing services of all kinds, including ours.
We have the most talented management team that we've had in the history of the organization and we have the financial wherewithal to grow the business as fast as our ability to manage it.
Ours is an execution business and our ability to execute is what will drive our success in the months and years ahead.
So on behalf of <UNK>, <UNK>, and all of us at Healthcare Services Group, we wanted to thank you for participating today, and have a great rest of the week, everyone.
| 2016_HCSG |
2016 | WDR | WDR
#Good morning.
With me today are <UNK> <UNK>, our Chief Marketing Officer; <UNK> <UNK>, our Chief Financial Officer; and <UNK> <UNK>, our VP of Investor Relations.
<UNK>, would you please read the forward-looking statements.
During this call, some of our comments and responses will include forward-looking statements.
While we believe these statements to be reasonable based on information that is currently available to us, actual results could materially differ from those expressed or implied, due to a number of factors, including but not limited to those we reference in our filings with the SEC.
We assume no duty to update any forward-looking statements.
Materials relevant to today's call, including a copy of today's press release, as well as supplemental schedules, have been posted on our website at Waddell.com, under our corporate tab.
Thank you, <UNK>, and good morning, everyone.
Thank you for joining us today, and welcome to our third-quarter earnings call.
Since this is my first time hosting this call as CEO, I would like to start by sharing some thoughts with you before we get into the recent results of the business.
The past couple of months have given me an opportunity to gain additional perspectives on our business.
It is clear that we have both tremendous resources and the potential to perform better than we have, but also face some near-term and intermediate challenges that require careful focus and attention.
We are facing a number of industry headwinds, including significant regulatory change, fee pressures, and lower demand for actively managed projects.
This is happening at a time when we are experiencing some near-term investment performance issues in several of our key products.
Fortunately, our biggest asset is an employee base that is tremendously talented, ready to think differently, and highly committed to our success.
As we work toward addressing the issues we face as an organization, I am confident that we are up to the challenge, and will rigorously evaluate our model, our process, our growth opportunities, and our alternatives.
Our balance sheet remains exceptionally strong, thereby affording us the time and financial flexibility to work through these headwinds.
First, and chief among our challenges is the impact of the new requirements and regulations facing our industry, stemming from the DoL's fiduciary rule.
While we continue to assess and prepare for its impact on our business, we are committed to meeting the regulator's requirements within the timeframe specified.
And although the eventual solution may involve modifications to parts of our business model, we are committed to delivering conformance to the rules in the best way possible, for all of our stakeholders.
This remains a top priority for our Company.
We understand that there may be questions around this topic.
We are entering the final stages of our evaluation process, and expect to reach some final decisions in the next couple of months, and look forward to sharing our strategy at the appropriate time.
We believe success under the new DoL construct will require a more institutionalized process for both investment management and the sales and marketing parts of our organization.
By institutionalized, I mean the ability to clearly articulate a product's investment philosophy and process, with all relevant data analytics related to portfolio construction, risk parameters, attribution analysis, sources of alpha generation, et cetera.
This will be required across our product line, and include everyone to varying degrees, from portfolio managers to client service personnel.
With respect to investment management, we continued to make progress in this regard by strengthening our risk management capabilities and resources, making the Director of Research a fully dedicated position, without portfolio management responsibilities, and increasingly moving toward a team managed approach across our product suite.
We all know that delivering strong and consistent investment performance is essential, and we are confident these changes will prove beneficial in meeting this objective.
As our industry evolves, it is also clear that the sales and marketing function must adapt to the new realities of more targeted points of sale, with higher levels of due diligence.
We understand that performance is essential for sales, but believe that it alone near defines the ability to generate sales or to sustain assets.
In today's increasingly competitive environment, where professional buyers are ever more demanding and sophisticated, we need to provide our sales force with the tools to adapt and excel.
In recognition of this, we are implementing some structural changes to that part of our organization, that <UNK> will explain in further detail.
We are also examining our product line to make sure it is responsive to ever-evolving investor preferences.
For the market, the past quarter was a solid performance period across most asset classes, and a generally better environment for the performance of active management.
And while one quarter does not make a trend, we are encouraged by this, as we benefited across a number of our portfolios.
2016 investment performance has gradually improved across the complex, as the year has progressed, but we understand that this is a process, and it will take some time to get back to our historical levels of success.
I will note, however, that the improved investment performance of active managers industry-wide did not translate into active management flows regaining traction versus passive.
Any progress here will likely take some time, and a more sustained period of outperformance for active managers.
This morning, we reported net income of $53.8 million, or $0.65 per diluted share, which on a GAAP basis rose 60% compared to the prior quarter.
It should be noted, however, that each quarter contained a number of items that distorted the underlying operating results.
Nonetheless, adjusting for these items, both net income and earnings per diluted share rose quarter over quarter.
Assets under management declined 2% during the quarter.
Redemptions declined to their lowest level since the second quarter of 2015, however, sales remained weak, and market appreciation in our portfolios could not entirely offset outflows.
While we see some initial signs of encouragement in our results, we are still in the early results of returning the Firm to his former footing.
I will now turn it over to <UNK>.
Thanks, <UNK> and good morning, everyone.
As <UNK> mentioned in his opening remarks, there were a few items in the quarter, although not material in the aggregate, that need explanation given their impacts to various line items on the income statement.
We included a table on page 8 of our press release to assist readers' understanding of the line item impacts.
These adjustments include a non-cash curtailment gain of $8.5 million, recorded as a reduction in both underwriting and distribution and compensation costs.
This gain resulted from an amendment made to our post-retirement medical plan.
Benefits under the plan will no longer be offered to employees who retire after December 31 of this year.
Current retirees will be grandfathered under the current plan.
In addition to the $8.5 million gain, this change will result in lower benefit expenses of approximately $1 million per year.
The quarter also included an impairment of an intangible asset of $5.7 million, resulting from a decline in assets under management related to a sub-advisory relationship.
This intangible has a remaining balance of $2.7 million.
Continuing efforts related to Project E contributed an additional $1.3 million in expenses during the quarter.
To date, we have spent approximately half of our $8 million budgeted for 2016.
Finally, as we digest the implications of the DoL rule on our business, we expect to incur increased expenses over the next several months for consulting, legal, and technology enhancements, in order to comply with the rule.
We expect implementation expenses to be at least $5 million over the next 12 to 18 months.
The current quarter included $700,000 in spend towards this effort.
As announced previously, the conversion of a load-waived A shares to I shares in our advisory accounts, beginning in the third quarter, resulted in a reduction to underwriting and distribution revenues and expenses, and shareholder service revenues.
The impact of this change were in line with our prior guidance.
During the third quarter, we extended an offer for a lump sum distribution to terminate invested participants in our Company-sponsored defined-benefit pension plan.
Reducing the number of participants in the plan will reduce future plan obligations and administrative costs, and reduce volatility.
The window for election closes next Monday, and distributions will occur by year-end.
As such, the fourth quarter will include a non-cash settlement charge between $15 million and $30 million, depending on the ultimate level of participation.
Our forecasting shows we remain ahead of schedule, as we work to reduce our run-rate expenses by $40 million.
Areas where we have seen favorable spending, following the reset of the cost structure have been in compensation, travel, and advertising.
We continue to look for efficiencies and opportunities to reduce costs, without inhibiting our ability to move the Company forward.
At its recent meeting, the Board of Directors decided to continue our current dividend payout rate.
Assuming a normal market environment and a modest deceleration of outflows, we are comfortable that we can support the current dividend and still maintain the flexibility to do buybacks to offset dilution from future equity grants.
It likely would not be our intention to support the dividend with our excess cash for an extended period of time, if our earnings power were to materially differ from our current expectations.
I will now turn it back to <UNK>.
Thanks, <UNK>.
Since I took the helm on August 1, our team has been diligently working on identifying strategic priorities, and looking at the range of alternatives to address each of our challenges.
We are united in our priorities to meet DoL compliance requirements, improve investment performance, reinvigorate sales, and continuously evaluate product opportunities to meet client needs.
We know we have a lot of work to do to return our firm to the growth path we enjoyed in years past.
Waddell has a long heritage of success, and a culture of winning.
We haven't forgotten that.
We are united and committed in our desire to make the changes to help reposition the firm for renewed growth and profitability.
With that, operator, we would like to open the call for questions.
Yes, Rob.
I did mention a $5 million incremental spend related to DoL.
That includes for consulting, legal, and then some of that IT implementation costs that will come along with that.
So that is our best estimate at this time.
We will incur some more in the fourth quarter, and then probably about half of the $5 million, I would expect, into the first and second quarters of next year.
This is <UNK>.
I will start, and maybe <UNK> might want to add a little bit.
I think what we are really trying to do here is structure the Firm for longer-term success, and establish the framework that basically positions us to be successful in the evolving industry landscape we see.
I talked about the institutionalization of the investment management process.
I think that is definitely happening.
This was underway prior to the DoL, but I think it's being exacerbated by the DoL and accelerated.
So increasingly, the points of sale are more limited, and the bar of due diligence is rising, as I said.
So I think it is a more technically-driven sale.
I think what the industry is the demanding is more team-based management, with well-defined risk parameters, clearly articulated philosophy and processes, and so we're making those changes.
We were partly there, I would say, within the investment division, prior to all of this, but we're driving that throughout, across the whole organization.
But it is not investment management alone.
There is also, I think, other aspects of this.
It involves the sales and marketing part of our organization, as well.
There is an evolution that is taking place in that aspect of our business.
And so I think the restructuring that <UNK> had described in detail was really to get try to the right people in the right place, get us positioned to be successful, so when performance turns, we have the right people in place to execute and finish the sales.
Client service demands a higher level of caretaking and communication and that thing.
So it is really a gradual but intentional restructuring of the firm, in terms of establishing the framework for success and building it for the long term future of how the organization, or the industry is evolving.
I don't know, if <UNK>, you want to add anything to that.
Yes, in terms of that cash balance question, the cash balance did go up during the quarter, and that was due to taking out some of the seed money, so it was just the shift between the investment balances and cash.
We would expect in the fourth quarter that might move ---+ some of that might move back to the investment side, as we see the next year's funds and a couple of other mandates on that side.
So up about probably $30 million will go the other way.
And in terms of the dividend, <UNK>, do you want to.
Yes.
This is <UNK>.
I would just say, really reiterate what <UNK> made in his opening comments.
I think the way we is looking at this is, we are fortunate we have extremely strong balance sheet.
We have the flexibility to pay the dividend for a period of time while we sort through some of these issues, and try to right the ship and face some of these headwinds we're facing.
Obviously over the long term, we have to generate the earnings power to pay the dividend on a sustainable basis, and that's the approach we are taking.
We've got some time here, we've got some financial flexibility, and that's how we're positioned.
But ultimately, our intent would be to pay this, but ultimately we have the earnings power to support the dividend in the long run, but we don't see it as a near-term threat.
This is <UNK>.
Again, I think longer term, there are a lot of moving parts to this, and considerations in terms of sales or products or other actions, market action.
I think our approach has been pretty clear.
We have the financial flexibility to sustain this dividend for a period of time, but obviously, our expectation is that we will need to have the earnings power as a Firm to support it over the long-term and that's how we're approaching it.
<UNK>, this is <UNK>.
I will take the first part of that.
I think the difference in the payout of what you're seeing in the retail broker/dealer, the affiliated, relates to the DAC write off.
If you remember in the second quarter, we took a DAC write off of about $6 million.
So the ongoing expense that would have amortized related to that write off is not in there.
So that's why the elevated expenses in the second quarter compared to the third quarter.
And then I will let <UNK> take your second question.
<UNK>, this is <UNK>.
I think it is our best guess at this time.
Again, it just includes what we have been through so far, and our expectations around what implementation might bring.
Now, as we talk about other items and how we deal with conflicts and other things, there will be ups and downs, you could say, in terms of revenues and expenses.
It will have to be evaluated as our plan comes together.
But at the present time, we know that it is going to take some resources to implement some of the changes that are coming, and those will include some IT-type items that will need to be put in place, that will take some contracting work to add to our resources here in the near term, to meet the deadline for the rule.
That is the one-time cost, the build out for the rule.
It does not include any ongoing costs at this time.
Yes, we could expect that there probably would be some ongoing costs of compliance and other things, as we work through our decisions, and how we plan to manage to this.
I would expect some, but at this time we cannot really put a number on it.
<UNK>, this is <UNK>.
I would just say that we have a pretty strong capital return program relative to our peers, I think.
That has historically been the case, and continues to be the case, when you combine the dividend and share repurchase.
We have substantially met our commitments for the year already on our share repurchase program.
I would say though that capital allocation is obviously something that we continue to review, and we are not ruling out additional share repurchases or more aggressive share repurchases.
We are trying to be thoughtful about this, but it is not off the table, it is something we are ongoing to review.
Just to reiterate, in total, the capital return program of the Company historically and continues to be very strong relative to our peers.
We use 5% to 6% market action.
Okay.
Well thank you, everybody, for joining us today.
We appreciate your engagement, and we look forward to catching up to you in a few months down the road.
Thank you very much.
| 2016_WDR |
2017 | ITW | ITW
#Thanks, <UNK>, and good morning, all
In the third quarter, the ITW team continued to execute at a very high level and as a result, delivered another quarter of strong financial results
Q3 earnings were $1.85 per share, which includes a $0.14 per share benefit from a favorable legal settlement that <UNK> will discuss shortly
Excluding the impact of this legal settlement, earnings per share increased 14% year-on-year, and operating margins increased 130 basis points to 24.4%, with Enterprise Initiatives contributing 110 basis points of improvement
In addition, we continue to make good headway on organic growth acceleration with continued progress on our organic growth initiatives across all seven of our segments
Year-to-date, our organic growth rate of 2.7% is more than double last year's rate despite the fact that two of our fastest-growing segments, Auto OEM and Food Equipment, are experiencing a little bit of market softness
Based on our solid Q3 results and a fairly stable near-term end market demand environment; we are increasing our full year EPS guidance as we now expect to grow full year earnings by 14% at the midpoint, and that's excluding the 17% per share full year benefit from the legal settlement
Overall, we continue to be very pleased with the progress we are making in leveraging ITW's differentiated business model and high-quality diversified business portfolio to deliver consistent top tier performance
We look forward to updating you on our strategy and long-term performance goals at our <UNK>ual Investor Day on December 1. With that, I'll turn the call over to <UNK>, who will provide you with more detail regarding our Q3 performance and 2017 forecast
Hey Andy
Well, I think overall, what I would say is we certainly are getting much better balanc across the portfolio
Keep in mind that there is – and this is just repeating something you already know, but there has been an intense focus on a lot of the restructuring initiatives going on inside the company related to our Enterprise Initiatives
85 divisions across the company all starting to make this pivot, all of them in various – in different stages in terms of making that turn
But I think the encouraging part in terms of what we see is that we're getting better balance across the portfolio
All seven of our businesses are improving in terms of their year-on-year organic growth rate
But it's not a matter of just simply flipping the switch
It is a matter of making a progress on the things that they're focused on internally and then making the shift in terms of the relative balance of effort, energy, attention and investment around growth initiatives
And those are all transitioning across again 85 different divisions across the company
So, I think as we look in terms of our progress to date, I think <UNK> talked about it, I think our – the fact that we've been able to get the organic growth rate up better than a full percentage point this year relative to last year with the two businesses that were generating the fastest organic growth for us being in ---+ experiencing some challenging near-term market conditions, I think, overall feels pretty good
And certainly, understanding what's going on inside these businesses and the kind of progress they're making in terms of this turn, I think we're set up well for another ---+ we'll talk about 2018 in December so we won't get ahead of ourselves, but we expect continued progress in 2018.
Yes, I feel confident that our ---+ we'll be able to make another step change improvement in overall organic growth rate in 2018 relative to 2017.
I think for Food Equipment, first, <UNK>, I would expect a growth rate in Q4 on a year-over-year basis that is similar to what we just had here in Q3, maybe a little bit better than Q3 based on current run rates
I think for the Automotive business, the organic growth rate in Q4, on a year-over-year basis based on current run rates should be slightly better than Q3 and also factoring in the forecast from IHS that I just went through
So, if you look at in Q4, North America is down less than it was in Q4 and the Detroit 3 are down less in Q4 than they were in Q3. So, both those businesses should be in line with Q3, maybe a little bit better on a year-over-year basis in Q4.
As the momentum is solid in the other five, that's what I would say heading into Q4.
And the European restructuring is a one-quarter event
Joe, we typically don't discuss the specifics of those projects
So, Joe, on 2018, I think we're going to have to wait until ---+ when we get together in New York in December
I think, we haven't rolled out the annual plan here yet, so I wouldn't be ---+ I really don't want to comment on 2018 yet at this point
I think what we did say on the call last time where the headwind was 50 basis points in Q2, that we expected it to get better from here on out
We just did 40 basis points in Q3. We expect it to be a little bit better than that here in Q4. And so, for the full year, it should be about 40 basis points of headwind
And I'll just ---+ to put it in context, I mean, we just took up our margin guidance for the full year
We expect to be at 24% operating margin, and that's after offsetting 40 basis points of price/cost headwind here in 2017. So, we ---+ fundamentally, nothing has changed in terms of how we look at the price/cost equation
Should get a little better in Q4 and then we'll give you an update in December when we get together in New York in terms of what it might look like for 2018.
A little better Auto
I think we’ve got to defer you to December, sorry
Our plans are still coming together
I would expect every one of our seven businesses to be better in 2018 than they were in 2017.
Organic and on margins, too
Now what exactly that looks like, we got to get through the annual plan process here and then we'll ---+ we can talk about it in December
Well, I'd make two comments
One is that ---+ one would be just to remind you that PMI was strong in 2014, 2015 and 2016 when overall organic rates in our industry were not particularly strong, so I'm not sure that, that's the best parameter necessarily
But I would say overall is we are all about what's within our control
So as <UNK> said, none of our forecast is ever related to anything other than current run rates and what we expect to do incremental beyond that
So, everything that we are committing to, everything that we are working on is all in the realm of the various areas within our control
So, pivot to organic growth is much more focused on, as we talked about, additional penetration opportunities with our biggest and best customers, a very healthy and productive new product pipeline and some combination thereof across all sets of our businesses
I think it'll ---+ it's hard to tell
It may be in line with what we're seeing this year, maybe a little bit lower than that
I'll just ---+ the PLS is a drag on organic growth rate but it is really a very positive thing for what we're trying to do from an 80/20 standpoint
It really sets up the portfolio for much stronger organic growth on a go-forward basis with best-in-class margins and returns
So, we haven't talked about it much this year
We – I mentioned it today because it was a little bit higher, it can be a little bit lumpy as we go through these projects across 85 divisions
And when we rolled it out, we were a little bit higher than the average for this year
But in 2018, we're probably going to enter into more of a maintenance mode
What that number looks like, I don't know right now but it's probably a little bit lower than what we have seen this year
Yeah, thanks
There's no impact from that
Hi, <UNK>
So, I'd say that the first point of your question was correct that you do see the impact of price/cost in gross margins
But you also see the impact of the strategic sourcing efforts in the gross margins
So really on the indirect side is not ---+ it's really primarily on the direct side
And the only point we're making, <UNK>, is if we take those ---+ if we were to report those Strategic Sourcing savings in the price/cost number as some of our peers are doing, not saying it’s good or bad, I'm just saying the way we report it looks a little bit different than some of our peers, the price/cost equation would be positive this year and it would have been positive in Q3.
Yeah, so <UNK>, let me just say first, we have more than 300 employees in Houston, 400 in Florida, 20 employees in Puerto Rico, and the most important thing as we talked about the impact of the storms is that they're all safe and we're only a small number of them are personally invited
And all of our facilities, the eight facilities in the region, we didn't have a lot of significant damage and we're back up – and they were back up and running pretty quickly
So, in terms of the results here in the near term, there were certainly some puts and takes by business, which is what you're getting at
We did see a little bit of an uptick on the welding side as well as the construction side
And that was offset actually by some Food Equipment orders that were not shipped into the region where the customer elected to defer for now
So overall, probably neutral for ITW here in terms of the third quarter
I think longer term this will probably be a net positive for some of our businesses, especially on the Construction side
But we've not put anything in the forecast at this point
It's in 2018 over 2017.
Good morning
So, if you look at, <UNK>, so there's a line in the income statement in the schedule on the back where we typically, on a quarterly basis, have $20 million of unallocated cost
That has flipped positive with the legal settlement
I would expect for next year that our corporate cost will be flat on a year-over-year basis
And so, as a result of that, you'll see – we will come back to that $20 million of unallocated cost in the income statement as we go through next year on a quarterly basis
So, don't expect any big changes from a corporate cost standpoint
It's really the majority of what we're showing there is oil and gas, so international was down
I think oil and gas international was down 11%, which is in line with the overall number for the international side
Yes
I think, Joe, if you remember last year, the Auto business in China was up 40% year-over-year, so that was – so this was a tough comp, and despite that, the business was up 10%, the Automotive business in China
When we look at China, it's – the strength is really broad-based
So, Test & Measurement, Food, Polymers & Fluids, Welding all positive, Specialty Products all positive here in the third quarter, up 13%
And on a year-to-date basis, the same is true and our businesses in China are up 15% on a year-to-date basis
Yeah, no, I think across the board really stable overall, like I said, China up 13%
Yeah, it's about two quarters until we've offset any ---+ the material cost side with price, about two quarters historically so
All right
| 2017_ITW |
2015 | CTL | CTL
#Thank you, Sayeed.
Good afternoon, everyone.
Welcome to our call today to discuss CenturyLink's first quarter 2015 results released earlier this afternoon.
The slide presentation we'll be reviewing during the prepared remarks portion of today's call is available in the Investor Relations section of our corporate website at IR.
CenturyLink.com.
At the conclusion of our prepared remarks today, we will open the call for question and answers.
On slide 2, you will find our Safe Harbor language.
We'll be making certain forward-looking statements today, particularly as they pertain to guidance for full year and second quarter 2015 and other outlooks in our business.
We ask that you review our disclosure found on this slide, as well as in our press release and in our SEC filings, which describe factors that could cause our actual results to differ materially from those projected by us in our forward-looking statements.
We ask that you also note that our earnings release issued earlier this afternoon and the slide presentation and remarks made during this call contain certain non-GAAP financial measures.
Reconciliation between the non-GAAP financial measures and the GAAP financial measures are available on our earnings release, and on our website at IR.
Now, if you turn to slide 3, your host for today's call is <UNK> <UNK>, Chief Executive Officer and President of CenturyLink.
Joining <UNK> will be <UNK> <UNK>, CenturyLink's Chief Financial Officer, and also available during the question-and-answer portion of today's call will be <UNK> <UNK>, CenturyLink's President of Global Markets.
Our call today will be available for telephone replay through May 13, 2015, and the webcast replay of our call will be available through May 27, 2015.
Anyone listening to a taped or webcast replay or reading a written transcript of this call should note that all information presented is current only as of May 5, 2015, and should be considered valid only as of this date, regardless of the day heard or viewed.
As you move to slide 4, I'll now turn the call over to <UNK> <UNK>.
<UNK>.
Thank you, <UNK>, and thank you for joining our call today as we discuss our first quarter 2015 results of operations.
We continue to make progress on a number of fronts during the first quarter, a few of which are our recent organizational realignment, the enhancement of broadband speeds across our network, and also we made progress on the integration of DataGardens and the Cognilytics acquisitions, further automation of our integrated network and hosting services, solutions as well.
Turn with me to slide 5.
Overall, we generated solid results for the first quarter.
We continued to strengthen our ability to compete more effectively.
We\
Thank you, <UNK>.
I'll spend the next few minutes reviewing the financial highlights from the first quarter, and then conclude my remarks with an overview of the second quarter 2015 guidance we included in our earnings release issued this afternoon.
Beginning on slide 9, I will review some highlights from our first quarter results.
I will be reviewing the results, excluding special items as outlined in the earnings release and associated financial schedules.
Operating revenues were $4.45 billion on a consolidated basis, a 1.9% decline from first quarter 2014 operating revenues.
Core revenue which is defined as strategic revenue plus legacy revenue was $4.06 billion for the first quarter, a decrease of 1.3% from the year-ago period.
Strategic revenues great 2.2% year over year, and represent 52% of our total revenues compared to 50% a year ago.
Strength in strategic products such as high-speed internet, high bandwidth data, and Prism TV continue to drive this growth.
We added more than 35,000 high-speed internet customers and approximately 8,000 Prism TV customers during the quarter.
Additionally, we generated strong operating cash flow of approximately $1.74 billion for the first quarter, and achieved an operating cash flow margin of 39%.
As <UNK> mentioned, we exceeded our operating cash flow guidance as we had lower cash expenses than anticipated.
Expenses were below expectations due primarily to lower employee related costs, along with lower CPE cost related to our data integration revenues, and approximately $30 million of favorable one-time items during the quarter.
Free cash flow of $849 million for the quarter was very strong.
As a reminder, free cash flow is defined as operating cash flow less cash paid for taxes, interest, and capital expenditures, along with other income.
Our solid cash flows continue to provide us with the financial strength and flexibility to meet our business objectives and drive long-term shareholder value.
Adjusted diluted earnings for share for the first quarter was $0.67, coming in $0.06 above our guidance range.
As we've discussed on prior earnings calls, adjusted diluted EPS excludes special items and certain non-cash purchase accounting adjustments as outlined in our press release and associated supplemental financial schedules.
Additionally, under the $1 billion share repurchase program, we repurchased 4.5 million shares during the quarter for an investment of $170 million.
We expect to continue to be opportunistic in completing this program within the 24-month period outlined earlier.
Now turning to slide 10, first quarter 2015 operating revenues declined $87 million or 1.9% compared to first quarter 2014, as the growth in strategic revenues was more than offset by the decline in legacy revenues, due primarily to access line losses and lower data integration revenues.
The growth of our strategic revenues was primarily driven by strength, again, in high-speed internet, high bandwidth business data services, and Prism TV.
Although legacy revenues continue to decline, the decline in first quarter 2015 was 16% lower than the first quarter revenue declined a year ago.
Moving to slide 11, in our business segment, in the first quarter the business segment generated $2.7 billion in operating revenues, which decreased $78 million or 2.8% from the same period a year ago.
First quarter strategic revenues for the segment increase 0.8%, to $1.6 billion from first quarter 2014, driven primarily by strength in high bandwidth services such as MPLS, ethernet, and Wavelength, which was largely offset by the continued decline of low bandwidth data services and lower hosting revenues.
We continue to generate solid growth across the enterprise customer market and we see an opportunity for further investment in the small and medium sized business space to improve market share and drive further growth.
Our legacy revenues for the segment declined 5.4% from first quarter 2014, due to primarily declining access lines.
Total business segment expenses decreased slightly from the year-ago period, driven by lower CPE costs.
Our segment margin of 45% declined from 45.8% a year ago.
This decrease was primarily due to the continued decline in business segment, legacy, and low bandwidth data services revenue.
On slide 12, I'll provide a little more detail on revenue mix within the business segment.
Our high bandwidth data services revenue grew $70 million or 11% year-over-year, compared to first quarter 2014, driven by continued strength in sales to enterprise and governmental customers.
Low bandwidth data services including private line continued to decline in first quarter.
The year-over-year revenue decline of $88 million or 14% was primarily due to wholesale customers' network grooming efforts and migration to fiber based services that we've experienced over the past year.
We anticipate this level of year-over-year decline to improve over the coming quarters as we cycle through this period of higher disconnects and grooming.
Hosting revenues declined $10 million or 3% from the prior year, driven primarily by unfavorable foreign currency impact of $5 million and lower nonrecurring revenue compared to the year-ago period.
In the first quarter, data integration revenues decreased approximately $35 million, or 20%, compared to first quarter 2014, driven by lower CPE sales.
Now turning to slide 13, in our consumer segment, consumer generated $1.5 billion in operating revenues, an 0.8% decline from first quarter a year ago.
Strategic revenues in this segment grew 5.1% year over year to $738 million driven by growth in high-speed internet and Prism TV customers and select price adjustments.
Legacy revenues for the consumer segment declined 6% from first quarter 2014 as access line and long-distance revenue declines were partially offset by select price adjustments.
Operating expenses were flat compared to the same period a year ago, as lower employee-related costs offset the higher Prism TV cost.
Now turning to slide 14, for second quarter 2015, we expect operating revenues of $4.41 billion to $4.6 billion,( sic-see press release \u010f\u017c\u02dd$4.41 billion to $4.6 billion\u010f\u017c\u02dd) and core revenues of $4.02 billion to $4.07 billion, both of which are expected to be flat to slightly down from first quarter 2015.
Our operating cash flow is projected to be between $1.67 billion to $1.72 billion, a decrease compared to first quarter 2015, primarily due to higher employee-related expenses, the impact of the continued decline in higher margin legacy revenue, and the $30 million of favorable one-time expense items I mentioned earlier that occurred during the first quarter.
Adjusted diluted EPS is expected to range from $0.59 to $0.64 in second quarter 2015, compared to the $0.67 in first quarter of 2015.
Our full year guidance that we provided in February for full year 2015 remains unchanged.
That concludes our prepared remarks for the day, so at this time I'll ask the operator to provide instructions for the Q&A portion of the call.
Yes, so <UNK>, you're right.
There is somewhat of a hockey stick in the second half of the year, which was implied more or less in the first quarter guidance that we gave as well.
Really, there are three areas that we think that we'll see improvements on, starting somewhat in the second quarter, but then more so in the last half of the year.
One is, as <UNK> mentioned, we expect the reorganization that we did and the sales results from that reorganization to improve during the year, as we saw some improvement in the month of March over January and February.
We expect to see continued improvement there and that to be one of the items that hopefully will push our revenue in the second half of the year.
Secondly, I mentioned some price adjustments, so we'll have price adjustments that we put in that will basically help continue to improve revenue during the year.
Then also, we think the latter half of the year we will really get through most of the grooming that we're seeing from some of the other carriers in terms of wholesale, particularly on the private line side.
We're seeing fewer tower builds, which means that basically we're not seeing migration from the copper circuits to ethernet that we experienced last year too, so we expect to see a little bit of that.
In terms of 2016, we're hopeful that the momentum that we have from a sales standpoint going into 2016 will help us overcome, to the extent we don't have price adjustments in 2016 that equal 2015, which we don't know yet, we're not sure what sort of pricing adjustments we'll have next year.
To the extent we don't have those pricing adjustments equal to this year, we're hopeful that the sales momentum would continue to carry us through the tougher comps that we would have in the first part of this year related to the price adjustments that were made.
<UNK>, this is <UNK>.
I'll just make a couple comments.
Talking about 2016, we expect greater sales force efficiencies as we get through the next few months and really transformed our sales force, a little different to go-to-market strategy with solution selling that we're working toward with all of our IP products and cloud hosting, all the regular network products.
Also additional product rollout, as I mentioned we're expanding our GPON footprint during this year, so we'll have that really rolled out.
We're expanding our Prism to close to 500,000 additional households past this year, and then this cloud hosting product advancement we're working on we think are really significant.
It can drive a lot of potential sales growth there.
Then bringing in our big data, advanced analytics, the Cognilytics acquisition is driving a lot of activity for us, a lot of interest throughout the business community for those services, and along with IT services We're not just providing the cloud services.
We're providing conversions to the cloud and software support, application support, and just overall increased broadband speeds that we expect to roll out over the next 12 months.
Yes, <UNK>, first on the share buyback.
Basically through a couple of days ago, through the shares that we've settled as of really yesterday, we had repurchased about 11.6 million shares under the existing program, and spent about $439 million.
So there's $561 million remaining of the $1 billion program that we had.
We continue to expect to opportunistically buy shares back.
And would expect still to complete the program within the 24-month period from which we started it.
We started it in February or so ---+ May, actually, May of 2014.
By May of 2016, we would expect to complete that.
Beyond that, we haven't really talked with the Board about the next step from the standpoint of returning cash to shareholders.
Although as you point out, we will see a significant increase in cash taxes or expect to see a significant increase in cash taxes in 2016, which will use quite a bit of the free cash flow that we've had.
In terms of the CAF-II proposal, of course we just got that, I guess the FCC just released that a week or so ago, and started the 120-day clock running basically.
So we have until August 27 to make the FCC aware of which of the 37 states that we have the option of the right of first refusal in, to take up to $514 million of what was allocated to us.
We have started the process, now that we know the census blocks that are included.
We started the process of reviewing the capital expenditures that would be required to get the 10 down, 1 up service.
And I would imagine we'll take most of the time allotted to come to some conclusion as to how much of the CAF-II money that we want to accept.
It's really still too early to say, <UNK>.
Yes, <UNK>, we had a re-class from strategic services to legacy services in the first quarter that in the aggregate was about $10 million.
About half of it was related to strategics to, basically network services that Savvis had been providing.
We decided that as we merged the sales forces, we looked at it closer and decided that it really should be in legacy revenue.
Then the other was just some strategic revenue that we found that we really needed to re-class to legacy too, so that was about $10 million of it.
Then also, the [Sale-104] deferral revenue, I guess we didn't have as many one-time sales in the first quarter as we had in the first quarter a year ago.
That basically, the way we account for it, reduced the strategic revenue somewhat.
We would expect basically based on the sales effort that the business strategic revenues should hopefully trend better going forward.
Also as <UNK> mentioned, just the Prism build out that we have in process or the GPON roll-out, and the higher bandwidth services that we'll be providing to our high speed internet customers, both from the business and consumer side, all of that should help drive those strategic revenue lines over the course of the year.
Yes, so <UNK>, the foreign exchange was $5 million during the quarter negative, and that was mostly the British pound.
Then we had about $4 million of lower nonrecurring sales, and it was just an opportunity that we had in the first quarter of 2014 with a partner that we really didn't have again in the first quarter of 2015.
<UNK>, regarding the access line type acquisitions, as I said before, we are less interested in those today just because of the difficulty in having those revenue streams that would drive growth for us.
It is difficult, as you know.
We believe we've assembled a really strong group of assets that form a really good foundation from which we can drive attractive growth in the months ahead, years ahead.
That being said, we're always looking for opportunities to accelerate our growth and strengthen our position in the market.
We don't believe we have any gaping holes we need to fill in our product portfolio or in our key asset base.
But if opportunities arise in which we could enhance our cloud hosting offering, expand our fiber reach, our fiber access, or accelerate our growth profile, we would certainly consider those opportunities.
As you know, we've made some small acquisitions that have enhanced our hosting and cloud capabilities and IT service capabilities in recent months.
They're small, but all those fit very well strategically where we're headed.
But any opportunity we look at would only be evaluated under our very disciplined approach acquisition process.
This is <UNK> <UNK>.
In terms of Level 3, I would say we continue to do very well on our high bandwidth capability to our customers.
We have not seen a slip in our win rates, and continue to take share from many carriers.
We feel good about that.
On the second question, second question was around the hosting ---+ managed hosting.
I would say that the issue there is more in terms of our focus versus competition.
Clearly on the public cloud side, that continues to grow, AWS, Microsoft, but we're not a pure play.
We really are focused on that broad hybrid proposal.
What we see, and if you look at the kinds of wins that we're winning, from global to mid-sized, we've got a product portfolio with our network that provides a little latency, with our co-location.
And then with our dedicated and public clouds that allows really any sized customer to scale up or scale down.
We can handle the enterprise grade and security capability that's required.
When I look at our wins and when I look at our funnel, what's in our funnel, it's really encouraging in terms of the opportunity that we have in front of us.
Yes, Mike.
This is <UNK>.
We really haven't changed our view from before.
The spinoff just occurred a week or two ago.
Basically we continue to see a lot of opportunity to create value for shareholders by using the assets that we have today.
And would be concerned about those assets being in someone else's hands, another group of shareholders with different interests.
However, we'll continually evaluate the best ways to try to deliver long-term shareholder value.
As such, we'll monitor their performance, over the course of the next couple quarters or so.
We'll see how much value is created there, and then we'll weigh that against what we believe are potential downsides associated with using that structure.
Thank you, Sayeed.
In conclusion, overall we're pleased with our solid first quarter operating and financial results.
We are confident the reorganization and the investments we're making continue to position us to effectively compete in the marketplace and drive revenue growth from our strategic products and services in the months and years ahead.
Thank you all for joining our call today, and we look forward to speaking with you in the weeks ahead.
| 2015_CTL |
2016 | SONC | SONC
#Thank you.
Well, let's do that in reverse order, and when you made reference to dinner and evening being hit particularly hard.
What I had made reference to was post-April, excuse me, some shifting in promotional strategy and limited time offers that were focused on, in some cases specific dayparts and some not.
And so, I think what I had made reference to was the BOGO wings, the buy one, get one free after 5 PM Monday through Thursday, weekday BOGO wings.
And so, we're on something that drives traffic and check.
And so, now we've got to find the something, and how we're going to do that for other dayparts.
So as a matter of fact, the dinner and evening, in the more recent past have been our strongest, so just a slight reversal of what impression you got from my comment.
The progression then of same-store sales more recently, we did not comment on.
And I don't think we ever comment on things really by daypart, in terms of break-out in a quarter.
So no comment on the daypart break-out in the quarter.
And we've given you some general guidance as it relates to that first half of this year.
The specifics on this quarter, we'll divulge when we report our first fiscal quarter ended November.
Well, the answer I just gave you, I could repeat it, but there's no need to.
The other comment I made a moment ago was that, as we've refined the promotions, we've had more August, September into October, it gives us confidence that we can kind of find a way forward, even as this value demand stays with us, if that's where the consumer kind of maintains their perspective.
So from my view, there's ---+ and this does go back to the question a moment ago, what makes us more optimistic in the coming months, and more so in the latter half of the year ---+ but what makes us more optimistic, and it is how we're seeing some of things working that we're doing, and our need to kind of expand them into other dayparts, and see if the promotional activity can stick.
But we see our way through that today much better than we did five months ago so.
Go ahead.
< No, no, you go.
We do not sell them at a discount, number one.
Number two, we do require everyone acquiring stores to enter into an area development agreement for additional development of Sonic drive-ins in that marketplace.
So that is part and parcel of each transaction, and that's not been difficult as part of the deal.
The demand is there.
The interest in these stores, I'll guarantee you, the interest is there.
I mean, it's ---+ there are more franchisees with more interest in buying more stores, than there are stores we're selling.
So really, I think that context should be with respect to what we're seeing with industry trends, so no significant change with the industry trends as we look at them.
And again, as we provided context, I know you guys want us to pinpoint the exact same-store sales.
But we already provided the fact that, the first half of the fiscal year will be more challenging, based on what we're seeing with industry trends, and based on what we're comping over from a prior year perspective.
And then, in the second half of the fiscal year, seeing improvement.
So one of the aspects that impacts our royalty rate is not only our same-store sales, but obviously our unit growth numbers.
So if you look at our royalty rate for the fourth quarter, Joe, you'll see a slight increase, I want to say of about 6 or 7 basis points.
And that's really relating to the fact that we closed drive-ins probably at an [AUV] level of about $700,000 or $800,000, and we're opening up drive-ins at a higher ---+ that not only perform better, but are generally at a higher license term.
So that offsets the decline in same-store sales impact that you might see from an ascending royalty rate perspective.
Well, a couple of things.
I mean, there's always the potential for that.
And I think even with our operators, this kind of momentary pause in the business, is an opportunity for them to double it back from an investment and people standpoint, and ensure that they can take the average store, from a talent pool standpoint, and quantity of ---+ quantity and quality of staff, to help take the drive-in to another level.
All of our businesses have been transitioned over last several years within the Sonic system.
So there are those kind of demands, and meaning the challenges of growth.
However, when we looked at peer data, peer, peer data, this past summer, we saw shake sales down in almost all of our competitors.
So this was not a ---+ the second thing we saw, we saw select customers with feedback claiming, select customers claiming they're eating out less.
And my suspicion is, what may be happening, whether they're preparing food at home, I don't know ---+ they may be buying prepared food at grocery stores, and they're buying their ice cream there.
So you're right, it is an occasion.
It is an experience at Sonic.
So our late evening business was ---+ late evening business with our higher dollar items that you're less likely to find at a grocery store, we had continued movement of those items.
It was the shakes, where we had the softness.
And it was not just Sonic, by far.
We saw this with a whole slew of competitors.
Okay.
Thank you, Joe.
I think that was the last question.
We appreciate you all participating today.
<UNK> and Corey will be available, at the number given at the outset of the presentation, if you have questions.
We appreciate your interest in the brand.
We've got a lot of good stuff coming down the pike.
A lot of it's not this quarter sort of stuff, though we have some good news from that standpoint too, but more in long run, well into 2017, in the next several years, it should be a very exciting time for our brand.
And we look forward to sharing that with you along the way.
Take care.
Thank you.
| 2016_SONC |
2015 | AET | AET
#Thanks for the question, <UNK>.
I would say that we continue to look for opportunities to grow in the provider space around technology in better building out the Healthagen asset.
We just recently made an acquisition in the exchange space, bswift, last year, and so we continue to look for assets in the commercial space that will work for us.
As it relates to larger consolidation of M&A, we have a strong balance sheet and we are paying attention to what's going on in the marketplace and will react appropriately, or act appropriately, should the opportunity arise.
On the last two, on the public exchange, it is early, given the growth we had, the way we are accounting for the system, the issues we saw last year in accounting for the way we have to for public exchanges.
So, it's just really caution, particularly on that front, around what to expect for the rest of the year.
As it relates to Kentucky, obviously early, and still in midst of that conversation.
Cost trend, if there's one number that always has us keep one eye open at night and has the biggest impact on our ability to deliver, is cost trend.
We are down at the lower end of our guidance.
We've seen positive cost trend.
We also saw positive cost trend in the first quarter of last year and we don't see any reason to get out in front of a relatively cautious view on where trend heads.
What the rating agencies tend to be interested in is obviously the dividends that we get from non-regulated subsidiaries, which is typically where some of that service fee business is.
As you'd suspect, given the composition of our company, most of our dividends do come from regulated subsidiaries, but it's not insignificant, the amount that does come from the non-reg business.
It certainly is something that they look at and we think about, but it's really just part of a bigger strategy to grow the revenue profile of the company as opposed to a specific strategy just to grow the non-regulated fee-based business.
I'll remind you, for everybody, and also you, <UNK>, first, that we did not give up complete PBM relationship, from a pharmacy benefit standpoint, when we did our deal with CVS.
Our deal with CVS is very structured, where we continue to control formulary, we continue to control actions around case management and how we look at drugs and introducing drugs.
So our P&T committees are still very active and involved in how we manage drugs.
But in the end analysis, as we look at the pressure, it's all on the specialty side, and we are looking for ways to move the cost of these drugs away from the medical benefit into the pharmacy benefit, where we can both negotiate formulary and rebates, and we can also have coinsurance cost-sharing on the drugs, and we can tier the drugs based on their clinical efficacy.
So that's how we think about managing this going forward.
If there's one trend on the page that continues to move up, it is largely around the specialty drug area.
A transcript of the prepared portion of this call will be posted shortly on the Investor Information section of Aetna.com, where you can also find a copy of our updated guidance summary containing details of our guidance metrics, including those that were unchanged or not discussed on this call.
If you have any questions about matters discussed this morning, please feel free to call me or Joe Krocheski in the Investor Relations office.
Thank you for joining us this morning.
| 2015_AET |
2016 | BGS | BGS
#So just to make sure I understand your question, on a go forward basis on kind of our target.
Right.
I mean as we look at 2017, we are certainly looking at $100 million plus, but I want to couch that to say we really believe the sales volume on this business will start moving in a big way starting in 2017, maybe get a little bit of it in 2016, but really relaunching this brand in 2017.
And that sales volume is just going to incrementally add on top of that $100-plus million in a big way to the bottom line.
So, we are really excited about where this brand can be by the end of 2017, early 2018 and really what has moved the needle on this brand.
And this brand was a lot bigger three to five years ago than it is today.
We are getting a really good feeling.
It's not going to be easy, but we have an iconic brand and it's not just the brand.
This is an iconic figure that supports this brand that, in addition, we have got to have all the innovation and all that stuff, and all that stuff has to happen, too.
We just can't support the brand as is in a big way and move the needle.
But all that is happening, and this brand has some real upside as we get through 2017 and 2018, and that is going to be upside to the bottom line, too.
I think it's the competition.
I think Pirate's Booty is a sought after product, so even a lot of the competition that comes and goes and shows up, Pirate's Booty has its rightful place.
As we look at Pirate's Booty going forward as a branded retail Company, it is our third-largest brand behind Green Giant and Ortega.
It's a very important brand in our portfolio.
Originally, when we bought this business we thought we had potentially a lot bigger upside.
I don't want to say we can't get there by getting into other categories.
But we are not going after other categories in 2016.
We are going to concentrate harder on moving distribution.
We spent too much time the first two years of ownership really concentrating on a lot of new things and thinking about what category to try to move into.
We are going to sell what sells and really kind of fill out the distribution.
But with all of that, this is a brand that on a go forward basis for us, unless we get into another large category, is going to continue to grow for us, but that growth is going to be 2% to 5% unless we jump into a much larger category, another category, and launch this brand in a different way.
So, within our plans, we see this brand continuing to grow, fill out distribution, make sure it's everywhere it's supposed to be and support what it is, but not try to get too creative.
And that means certainly supporting additional products within the same category, what we are trying to sell today, whether it is flavor or something else, but not go after another another whole category like we went after Mac & Cheese or trying to get into cookies or something like that.
We don't separately disclose that because it rolls through a central organization here.
But, what Green Giant brought to the table was, we are looking at a business that is going to generate EBITDA percentage of about 18% for us.
17%, 18% a year is what Green Giant is going to generate, and we didn't see anything different.
This was a brand purchase that really comes with a plant in Mexico, making product specifically for Green Giant.
And because it is brand purchase, we are not getting other pieces of business.
We are not getting General Mills people, we are not getting General Mills facilities that we are closing down, etc.
So we buy this on kind of what we believe ---+ what we know our EBITDA can be operating this business.
There's not really synergies to come on this business.
It's not like we are getting rid of corporate offices and things like that, which is typical, which is pretty much almost everything we buy.
Anytime we buy a brand from a large food company, we are not really getting those kind of synergies.
We are just ---+ we are taking things on as is.
And effectively on Green Giant, we are actually ---+ which was all in our numbers that we put out to the Street, we are actually adding marketing.
We are doubling the marketing they were spending.
We are adding people to support that brand internally.
So it wasn't really a synergy play.
This was really bringing in a large iconic brand into our portfolio that we think we can do good things for many years to come with.
Okay, so we own it.
We didn't launch it.
It was poorly launched.
Packaging is not done well.
Product doesn't look right.
The packaging honestly looks too squatty.
Even though the ounces are there, there's just not enough ---+ the package just doesn't look right to the consumer.
So part of the relaunch of Green Giant is really fixing that and introducing a whole bunch of new innovation and really launch this right.
And it was just kind of thrown out there by the former owner.
So it's hanging in.
It's just not really doing anything.
It wasn't the right approach to launching the product.
As you look at base B&G, you pull Green Giant out, what investors hopefully understand about B&G is we're going to grow our business, our 40 plus brands, hopefully 1%, 2% a year, which kind of rolls to our bottom line, and plus there are some cost savings from distribution and other things, and hopefully those cost savings more than offset cost increases, and you get a little bit of incremental EBITDA pickup on that.
And then we are really rolling Green Giant in.
Now, Green Giant for the two months in sales in November and December, I think it was $106 million.
So it's a big time of the year that we actually bought Green Giant.
So Green Giant was a benefit, certainly a nice benefit to B&G in the fourth quarter.
But we are a manager of brands.
We think there's a lot of upside potential in Green Giant as we look at it, some real sales and EBITDA growth as we go forward.
But for the rest of our portfolio, it's going to be typically that 1%, 2% growth hopefully on the top line when you put the whole portfolio together, and then on the bottom line, hopefully you can do a little bit better than that just because you have shrunk some costs and you've done some things better than just purely as a percentage of net sales.
2% to 3% ---+ just to make sure, 2% to 3% of our total delivery (multiple speakers)
Of our cost of goods, yes, that we are working towards, yes.
But again, that offsets some other expenses, such as increase in medical and giving people raises in our plants and corp.
So it does ---+ it historically has more than offset and given us some ---+ gained us some efficiencies in total.
But it's not 2% to 3% dropping to the bottom line.
Well, to answer the delevering, as part of what we just recently did is really part of who we are.
What investors should always expect from B&G is we do accretive acquisitions.
We are buying brands that fit our portfolio.
We are buying them for multiples way below what we trade at.
We increased the dividend.
We share upwards of 60% of that free cash flow from the acquisition back in the form of dividends to shareholders, and that is just what we announced three nights ago, raised our dividend 20%.
And then consistent with past practice following acquisitions, we consider and we are looking depending on market conditions issuing common stock and using some of the proceeds to reduce leverage.
Because we are not going to reduce leverage because we give out, give or take, 60% of our free cash flow in a big way.
Even though we are a tremendous cash generator, we are sharing 60%-ish of that cash back in the form of dividends to shareholders.
So we have historically looked to the market to raise equity to kind of reduce leverage and reload the balance sheet to be able to do the next acquisition tomorrow.
So it's part of a Board conversation and part of where market conditions are, and we seem to have always picked the right spots before, and hopefully we will make the right decision again.
And that's what hopefully investors expect us to do.
So right now 58 million.
A little over 58 million, right.
Slightly above 58 million.
58 million, yes.
Well, we certainly have some upside from everything you just said there.
We are looking at this and putting something out to the Street consistent with how B&G has looked at its business over the years.
And certainly, you are absolutely right.
We are seeing commodity ---+ the only place we get hurt, and it's not going up, is nut costs really haven't come down from where it has ratcheted up through 2015.
But we don't see it actually going up on us in 2016, and maybe there's a little tiny relief on nut prices.
But across the board, most commodities are down.
We are really not commodity intensive in anything, so it's not a huge dollar amount.
But certainly it is a benefit to our P&L.
Get a huge benefit on purchasing maple syrup.
We give up a decent amount on our target Canadian business because the exchange rate affects it the other way on everything we do in Canada.
And with Green Giant, our Canadian business in Canadian dollar sales, about 135 million dollars now.
So, it's meaning ---+ so $0.01 on the exchange rate is more and more meaningful to us.
But you are absolutely right.
The net effect is we expect our costs to be down.
We are seeing that a lot of places.
We certainly see it in fuel surcharges and in our freight costs, and that certainly trickles down and helps our plants in energy and all of that, and some of that also helps us in packaging.
So, hopefully we can have a bigger and better year than what we are expecting as of today.
We are not increasing promotional spending at all, so on any of the businesses.
We don't see a need to do that.
Nobody else is doing that, and we don't see a need to do that.
We are not seeing (multiple speakers)
Well, base business is certainly not going down, and that plan and that guidance has base business going up a little over 2%.
And there is ---+ as you were saying, there's some upside from cost ---+ further cost reductions on that base business, and also those cost reductions certainly help Green Giant, too.
But certainly there's marketplace cost reductions that should help us as we go through the year.
Sure.
Well, certainly there's a lot of distribution to be gained.
So ---+ and there's two pieces of the distribution.
One is, in key customers, certain items have been lost over the years.
We need to get those back.
You don't easily get those back unless you're coming into that buyer with new innovation for distribution.
And really the goal is you are walking into that buyer and selling them some innovation and getting five new innovative SKUs in, and then saying to the buyer, you need these three bags of corn and peas that for some reason you don't have today in a certain size.
But you need the innovation to really try to get some of the basic core vegetables back in, not that they're out.
There are certain customers that lost distribution through the former seller, and there are certain customers that are ---+ large customers in the US that have not lost distribution, and Green Giant is actually performing very well.
So again, we have built into our model paying to get back into that distribution.
We may use some trade money to support that distribution early on as we are building a bigger spend plan for consumer marketing.
So 2016 is really fixing the foundation and fixing the core, and we are really looking to work very hard to get that done, and really kind of build the shelf back or build the freezer set back.
So that's really the bigger plan for 2016, in addition to getting everything ready and putting the major effort into really having an innovation pipeline and being able to be in the market with new items later this year in a big way, along with a real big marketing campaign that we are either going to launch in the fourth quarter or at the beginning of 2017.
We just got to figure ---+ and really, we want to launch that marketing campaign to support distribution gains in a big way and really just relaunch the brand in a big way and really push that.
So there's a lot of blocking and tackling in 2016 that we are really going through.
That was in our plan all along, and that is what we need to do.
But the real upside on Green Giant and the potential of Green Giant is some real big upside I truly believe on this brand as we head through 2017 and 2018 and then further out.
But certainly a real change in the dynamic of Green Giant as we really get into 2017.
I think the simple answer is it is a true model that we ---+ we went public in 2004 with a model to share our free cash flow with shareholders in the form of dividends.
That has been the B&G model, and shareholders who have been investors for a long time or been investors in the past understand it is a three-pronged model: that we are going to buy things accretively, truly not overpay for things and buy the kind of things we buy and manage well; give shareholders back cash in the form of dividends, because that is part of this model that has worked for shareholders and created a tremendous equity value and return for shareholders, and really being one of the top returning stocks absolutely in the food industry since 2004 by far; and then going back to the equity market.
And they know there is accretion to the shareholders on the acquisition, hopefully accretion on the dividend, maybe a slight dilution on the equity offering.
But it reloads the balance sheet and ready to do the next acquisition.
And shareholders who have supported that have made ---+ we have a tremendous support from our shareholders in that thought process.
It has made them a lot of money along the way, and it has worked for B&G.
It has just been the model we followed.
I am a true believer in that model and returning the cash to shareholders in the form of dividends and then effectively going to ask for some of it back at the appropriate time to reload the balance sheet to do the next acquisitions.
Well, it is a combination of all of those, and I don't want to disclose.
But we truly have kind of built an initial real pipeline.
And it's all of what you said, but it's entering into certain ---+ in addition to things like that, it's also entering in different ways to sell vegetables.
And whether it's a different kind of package format or potentially a different way to eat veg, and being very ---+ there is basic innovation, which is kind of what I call a little bit more of the noise innovation, which is just creating more flavors, whether it's robust, whether it's a Mexican-flavored corn or something like that.
That is relatively easy, and we have to do some of that, too, because we need our rightful share of that.
And then it becomes more what I would call more innovative innovation, which is something that is unique.
And it can be packaging and it can be product, and we are looking at both and we have some really good ideas on both.
Packaging is probably a little later.
Packaging is ---+ something that is new and very different and nobody else has is a little bit longer runway to get done than some of the other things.
But we've got some really good ideas on the other things, and we've been presenting some of those ideas already and some of the product already that we are going to be out in the market later this year with and showing to buyers as we speak and kind of just fine-tuning what we are looking to do.
Well, one thing is ---+ and maybe I am ---+ we are a little conservative on where the Canadian dollar is versus the US, but where it is today, that has hit our sales guidance in 2016 by almost $10 million.
And that's a real number.
Now if the Canadian dollar gets a little stronger over the course of the year, that $10 million shrinks.
It could go the other way, too, but I don't think it goes the other way in a much bigger way.
So that's part of it, and that's really the biggest piece of it.
Green Giant, as I said earlier, a little short of our expectations, not profit wise but sales wise at least initially as we fight our way through 2016.
But our base business, the rest of our base business, we feel really good at ---+ about.
Ortega had a very strong year, our Bear Creek and Cream of Wheat business is doing very well.
Mrs.
Dash is doing very well.
Pirate's Booty, we have a lot of good expectations on that.
So we are not seeing our overall base portfolio kind of having any real issues besides whatever we sell in Canada with the exchange rate at all.
Well, it's about ---+ our guidance out there we put out there is about a ---+ it's right around the $0.60 we're talking about.
So we are still very comfortable with that.
Certainly if we do an equity offering, that comes down.
So certainly, putting more shares out there will reduce that.
Okay.
Thank you, again, everyone, for joining our call today.
Again, I want to thank you for all your years of interest and support of B&G, and I truly look forward to a successful and exciting 2016 and some real success as we go forward in a big way and move Green Giant forward in 2017 and 2018.
Thank you very much.
| 2016_BGS |
2016 | BRS | BRS
#Thank you, <UNK>.
Good morning and welcome to our fiscal 2017 first-quarter earnings call.
My prepared remarks this morning will cover several key topics and issues related to Bristow.
Similar to the last number of calls, I will highlight the steps we are proactively taking to improve, but unlike the last quarterly update, I will not speak to each slide but instead more directly address key topics, including, one, safety; two, the market overview, especially given the H225 grounding; three, foreign exchange; four, a comment on our tax strategy; five, the financial outlook, especially for our very challenging fiscal year 2017 with respect to EBITDAR and EPS; and six, liquidity enhancements, including CapEx deferral and other positive cash flow impacts which impact FY2017, FY2018, and beyond.
Safety, I will begin with safety, our number one core value.
Bristow's FY2017 action plan, which is our strategy to survive this downturn, has three elements: first, safety improvement; second, aggressive cost reductions and revenue enhancements; and finally, prudent pursuit of opportunities, especially now, to improve liquidity.
The Company-wide focus on safety performance is the first part of that FY2017 action plan, and it's not just about safety compliance.
It's about that performance and it's yielding positive results.
As you can see on Slide 4, this quarter, our air accident rate was zero while our TRIR was an improved 0.29 with significant improvements in health, safety, and environmental performance in our global fixed wing and SAR operations compared to fiscal year 2016.
Much has already been spoken about concerning the tragic H225 accident in Norway and the resulting grounding of this important aircraft type.
On the safety front, I am proud of the collaborative efforts of my peers in conjunction with HeliOffshore to address industry issues following this grounding, especially the inauguration of a new HeliOffshore work stream that will work with OEMs and operators to improve industry system reliability and resiliency.
Market overview in Bristow performance ---+ for first quarter FY2017, we reported a GAAP net loss of $40.8 million and a diluted loss per share of $1.17 compared to a GAAP net loss of $3.3 million and a diluted loss per share of $0.27 for fiscal year 2016 first quarter.
For an adjusted result overview, we had a net loss of $12 million this quarter and an adjusted net loss per share of $0.34 for the first quarter FY2017 compared to adjusted net income of $19.8 million and adjusted net earnings per share of $0.56 for the first quarter of fiscal year 2016.
These results are most directly related to a 27% decrease in Bristow oil and gas operating revenue year-over-year, but were only down 1% sequentially from our fourth-quarter fiscal year 2016.
The decrease is due to continued lower global utilization of our services year-over-year and the ending of several contracts in our Americas region and LACE rate reductions, especially in our Asia-Pacific region.
We are beginning to see some stabilization of the oil and gas business in most markets except for Australia, which remains under pressure, particularly so because of the H225 grounding.
Sequentially, consolidated adjusted EBITDAR and EBITDAR margins were down but evidencing this relative stabilization, our Americas and Africa regions actually showed sequential improvement quarter-over-quarter.
Foreign exchange.
Let's talk about Brexit and the British pound per US dollar exchange rate impacts on Bristow.
First, Brexit is not expected to have any operational impacts on our North Sea business, whether it's our UK SAR contract or our UK oil and gas contracts.
Second, the depreciation of the British pound versus the US dollar in late June had limited impact on our first-quarter FY2017 operating and financial results as the change occurred late in the quarter.
However, there was a negative EBITDAR impact of $6.3 million due to balance sheet revaluations of British pound denominated balances.
Assuming the US dollar per British pound rate stays constant, we would not expect significant further impacts from the reevaluation of the balance sheet for the rest of our fiscal year 2017.
However, from a P&L translation perspective, if the US dollar per discount rate persists at the June 30 level for the remainder of fiscal year 2017, the translation of our British pound denominated operating results would decrease adjusted EBITDAR by approximately $15 million to $20 million for the remainder of fiscal year 2017, approximately half of which is from the UK SAR contract.
Remember our UK SAR contract revenue is in British pounds with the expenses predominantly in British pounds and euros and US dollars.
Finally, there has been market commentary concerning the exposure to the Nigerian naira versus the US dollar for Bristow.
Let me address that.
The devaluation of the Nigerian naira, which has been significant, has had minimal impact on our Q1 fiscal 2017 results as we are naturally hedged with the majority of our Nigerian revenue in US dollars.
So we are generally long US dollars and short naira in that business unit, and historically our naira revenues have been offset by our naira operating costs.
Tax.
There has also been some market commentary concerning our tax strategies.
Let me address this.
Bristow is a highly regulated company in over 10 separate national jurisdictions with both securities, air operating certificate and tax oversight, to name a few, and this is been the case for 50 years, over 50 years.
Our structure fully complies with the tax laws in all jurisdictions in which we operate.
Our long-standing tax and cash management strategy administers our tax rate and cash flow to maximize Bristow's operational efficiency and enterprise value for critical and life-saving services, as would be the goal for any international company.
H225 grounding.
I could use the rest of my prepared remarks here on this topic, but the team and me can address specific questions in Q&A.
Some important points to make though ---+ first, the accident remains under investigation with preliminary reports published but no root cause determined, and Bristow will not speculate concerning the accident's root causes.
The investigation is ongoing with no immediate timetable for an operational return to service from regulatory authorities.
Second, with one of the largest global fleets of relevant replacement aircraft for the H225 and, most importantly, crews to fly them and maintainers to fix them, Bristow is capitalizing on our unparalleled capabilities to service the critical needs for new and existing clients worldwide.
Third, while the North Sea oil and gas market remains challenging, we are seeing some increased activity on the contract side as summer maintenance activities rise compared to last year and our operational performance for existing and new customers has been outstanding and recognized.
We also have begun offering oil and gas to our services in the US Gulf of Mexico as well as putting aircraft in Nigeria to offer the service.
We view this as an integral part of our differentiated aviation services product offering in this downturn.
And although not easily seen due to Asia-Pacific and America's LACE rate decreases and the FX volatility I already spoke about, our European region is financially benefiting.
We recently signed a five-year renewal for five LACE and five ---+ in a five-year contract and a 1.5 LACE.
These contracts reflect higher historical or actually around the same historical European Caspian LACE rates.
Additionally, we were successful in winning some short-term contracts recently in Norway.
From a fixed wing perspective, the H225 grounding presented more fixed wing flying for Bristow.
For example, the S-92 gets paired with Eastern Embraers during this grounding to serve new and existing clients more effectively out of Scatsta and Sumburgh.
We also we recently added new routes for both Airnorth in Australia and Eastern in the United Kingdom.
Finally, let me be very straightforward.
Fiscal year 2017 will not be a good year for Bristow from an earnings and EBITDAR perspective and we will see a GAAP and adjusted net loss for earnings.
This first-quarter oil and gas results, specifically EBITDAR, are indicative of the next three quarters' expected performance with potential upside from already underway cost reduction initiatives offset by foreign-currency exchange rate depreciation.
Slide 9 shows other guidance metrics for UK SAR, for example, with adjustments in FY2017 for UK SAR due entirely to British pound weakness.
Despite rolloff of various aircraft from contracts in fiscal year 2017, especially in the Americas and Australia, we do not FY2018 upside for new ---+ we will see upsides from new contract wins in fiscal year 2018 and full UK SAR contributions which are expected to begin and have a positive EBITDAR operating cash flow and EPS impact in FY2018 and beyond.
Liquidity enhancement and CapEx deferral.
We continue to demonstrate success in our discussions with OEMs as, after June 30, we reached an understanding with them to defer approximately $95 million of oil and gas aircraft capital expenditures out of fiscal year 2017 and 2018.
This represents a decrease in our fiscal year 2017 and fiscal year 2018 committed aircraft CapEx spend of nearly 40%.
Our liquidity as of August 3, 2016 was $292 million with cash flow from operations now turning positive and over $11 million in proceeds from aircraft sales as well as future financings to be sufficient to satisfy our capital commitments, including our oil and gas aircraft purchase commitments and the remaining capital expenditures in conjunction with the UK SAR contract.
On a pro forma basis, as of today, our remaining aircraft CapEx for FY2017 adjusted for this oil and gas deferral I just mentioned as well as the payment we just made in July is only $25 million.
Please refer to the chart on Slide 8 for further details.
We also improved liquidity in other ways.
As I just said, we sold aircraft, but we also received a $28 million cash tax refund.
As I said, we did pay progress payments in July for four UK SAR or Leonardo 189s.
This payment represents virtually all of the UK SAR related CapEx for fiscal year 2017.
And with the FIPS certification of our Leonardo 189s, those become very financial, especially in the lease market, if we decide to go that route.
Covenant relief continues to provide us with ample financial flexibility, as shown on Slide 39.
With multiple financing options being evaluated, including the sale leaseback market anchored by our mostly unsecured UK SAR assets and a global owned fleet with $2 billion estimated value, all this continues to be available.
Our SAR assets in particular, whether UK SAR or oil and gas SAR, both aircraft and infrastructure, remain attractive potential sources of liquidity with the market very open to Bristow.
So, in conclusion, fiscal year 2017 will not be a good year for Bristow from an earnings and EBITDAR perspective as the P&L impact of the reduced utilization seen in the first quarter combined with the British pound depreciation will be realized in the future periods, future quarters of this year, especially if the US dollar British pound rate remains at current levels or depreciates further.
We have an FY2017 action plan, which is Bristow's strategy in this downturn to survive as the global sector leader with three elements.
One, improve safety performance, not just safety compliance.
Two, aggressively right size our cost structure to continue to serve clients globally while also capturing revenue with our global presence.
And three, prudently pursue opportunities, especially liquidity enhancements.
The priorities of this strategy are to focus on re-enforcing Target Zero safety, improve the liquidity position of Bristow, continue to reduce direct and G&A costs to achieve or improve the oil and gas rotary business and, finally, preserve Bristow's global capability for long-term diversification and growth.
Look.
FY2017 will be a difficult year from an earnings perspective as the FY2017 results are expected to be indicative, as I spoke about.
But I can tell you right now that Bristow does indeed have the proven tools to survive this downturn as the global sector leader, and we demonstrated this during the quarter with our global team members' response to the H225 grounding, the partnership shown by our OEMs and CapEx deferral, and our leadership's continued ability to right size the cost structure, reduce cash burn while still pursuing and capturing revenue in this market.
With that, we can begin Q&A.
I'm going to let <UNK> answer some of that, but let me begin by saying we are seeing especially stabilization in our markets.
Asia-Pacific, we've lost some short-term contracts mostly due to utilization.
But for the most part, we are flying for maintenance for our operating and production parts of our clients' value chain.
We are continuing to do that.
There are certain markets where we have flown and continue to fly for exploration, but it's been reduced.
And that's why you see the reduction in Americas which for us has still been very exploration oriented, or more exploration oriented, and Asia-Pacific too, which in Australia has a tendency to be more exploration with natural gas.
So we are still flying more especially this quarter for production.
Exploration you saw in those markets drop off.
I think the thing that you're seeing Greg and you are seeing it from reports by other peers, whether it be boats or aircraft, is that we are kind of bumping ground now at the bottom.
The calendar year ---+ we are a fiscal year but if we start after February with the significant reduction in oil prices, which is really what our clients use to forecast and put in their CapEx plans and OpEx plans for the rest of this year, that just ---+ now we are seeing the impact of that fully in our fourth quarter and first quarter.
Now we are kind of bumping around, kind of sawtoothing down at the bottom is the way I would describe it.
One thing with us is we have given our clients pretty good help when it comes to our escalation costs and also discounting.
And what ended up happening is then you've seen over the last let's say three or four quarters them then reduce activity levels.
So that's what's happened.
And now we are starting to adjust our cost structure to be able to get some of that back slowly.
But unlike boats and maybe other companies, we have a very high operating leverage to this market.
It helped us in the upturn but it's hurting us now in the downturn.
But I think you are seeing the industry start to adjust a lot of that cost structure although it's not easy to get some of it, especially labor costs, and so you sort of see that starting to see stabilization.
It's not to say ---+ and again, I don't want to remain too positive ---+ it's not to say all this is going to happen FY2017, but that's what you're seeing in the marketplace, if it helps you.
It's still mostly production.
We've seen drop-off in exploration, but I think it's bumping around the bottom.
And now for us it's about capturing revenue back, given our global presence, and doing that mostly with ---+ because we have aircrews and aircraft available, especially replacing the 225, and that we are working to satisfy existing clients who are being asked by new clients to help do some work with them, especially in the last three or four months.
<UNK>, any other commentary on that.
Sure, Greg, good morning.
This is <UNK> <UNK>.
How are you.
Good.
Just to add a bit of color to what <UNK> mentioned and really around your question on the drivers of the increases, I'll take two of our regions.
First is the North Sea.
Given the summer maintenance activities, we have seen increased flight hours in the North Sea, so with existing customers seeing upside on the flight hours.
In addition, we've also seen a good pickup of new clients in the region, and so it's coming from a combination of flight hours from existing clients as well as picking up new contracts.
The other region you saw an uptick on is Africa, and the same there.
We had a bit of a downturn in the first couple of months of the year based on the incidences there, but since then, the flight hours have picked up but we've also picked up additional contracts.
There's been a lot of competitive issues happening in the region and we have been fortunate enough to be there to pick up those incremental client contracts.
So again in Africa both from flight hours as well as from new contracts.
Does that help, Greg.
One thing, Greg, I need to mention is that some of these contracts that we picked up in the last let's say six to nine months and really helps us in FY2018, so I want to b I got a little tongue-tied there in my prepared remarks, but I want to be clear.
FY2018 upside is from new contract wins recently, and also we will get the full effect of our FY2017 action plan cost reductions whereas some of those from last year we are getting this year, but we're really more in that area of time been able to right size over the last let's say six months and we'll get the full impact of that in FY2018.
Greg, it's negative to Bristow.
We are talking about work, but we still have costs associated with the 225.
We are still spending ---+ we still have ---+ correct me if I'm wrong ---+ we have nine on lease, so we are paying those lease rates.
We have reduced the cost of the 225s by putting them into storage and we quickly also reset some of our costs in labor and other places, but it's not a positive for us.
And obviously, we'll be working with our partners to be able to reduce those costs or get back those costs over time depending on what happens here, but I don't want you to think that it's been a net positive.
And I think I mentioned it in my prepared remarks, especially in Australia where it's been difficult for us to overcome some of that and we are taking costs that's we are still trying to recover.
So I don't want you to get an impression that ---+ the grounding that happened three years ago with the H225 was a much tighter market and although and the nature of that was different, we were able to more rapidly serve our client base there, and I think here it's not as quick.
I just don't want you to think that it's all positive.
I don't want to get into ---+ it has some commercial sensitivities associated with it.
But just one of the things I do want to comment on the overall market is that this is still an oversupplied market.
I mean it is more in balance with the 225s grounded.
There's approximately 200 of them that fly for oil and gas.
We've been able to be blessed with crews, excellent crews, and maintainers and the aircrafts themselves to be able to supply.
But there's still a workout of that replacement supply to tap in.
There is still excess supply even with that.
So it's going to take through the rest of the year.
I don't want to get too specific about that, but I think we have one of the largest replacement fleets with both S-92s, 189s and other aircraft.
And really for me, the thing that I think is outstanding is we've been able to satisfy our clients, our clients, especially in SAR where there are a number of H225 SAR aircraft that have been now grounded, being able to do that life-saving, critical service is important.
I'm going to basically answer broadly and then <UNK> can answer more specifically.
But I would say that it's tighter but I wouldn't call it tight because I remember when the market five, six years ago, that was a tight market, right.
When the S-92 was used to replace the 225s when they were grounded before, that was a very tight market.
I would not call this market that tight.
I would just say it's tightening and again, that's what we're seeing globally.
I think other peers might have different views.
Hopefully that benefits everybody.
I would prefer to have that view, to be honest, but just we are not seeing it, so I don't want you to get that impression.
And then as far as does it allow us to do S-92 sales better.
Yet to be determined.
I'll turn it over to <UNK>.
It definitely helps on the financing of these S-92s, I think.
If we were to do more sale-leasebacks or other types of financing that were secured, a lot of that $2 billion of capacity for us is S-92s and other types of aircraft.
<UNK>.
That's right, <UNK>.
So there are about 290 S-92s just in the civilian market.
Of those, about 218 are in the oil and gas market.
So prior to the 225 grounding, there were a number that were in essence on the ground not being utilized.
And so what this has done, and I think <UNK>'s comment is correct, it's the event really had the effect of absorbing some of that excess capacity of S-92s in the market.
We were in a position where we were long S-92s and so, as we saw decreased activity for example in Gulf of Mexico, we had S-92s in that region that we were able to mobilize and move to other regions like ECR.
And so we have seen a I'd say shrinking of the overcapacity, but like <UNK> said, I wouldn't say it's tightened to the point it's too extremely tight.
I would say it has tightened on a relative basis.
I'm going to let <UNK> primarily answer, but the best thing I would say is we don't really comment on what we're trying to do specifically.
We would just say we're evaluating options.
I think the important piece is those options are very available to us, both from what we see in the marketplace, from the type of assets we have, especially non-oil and gas assets.
But I would also say I think there's been some commentary that the oil and gas sale-leaseback market, the secured market, is not available and it is available.
I wouldn't say it's the same as it was, again, three, five years ago, but it's still available.
So <UNK>.
Good morning, Will.
So I would broadly just describe it not so much as whether it's sale-leaseback or exactly how we'll utilize the inherent value in either the oil and gas assets or the UK SAR assets.
I would just more broadly refer to it as a like an equipment financing or equipment-based financing, i.
e.
that there is value in the assets, underlying assets.
And again, we've got ---+ <UNK> alluded to it, but we've got $2 billion of effectively unencumbered assets, both PP&E and aircraft.
So, again, it's really our goal here as we kind of worked through our action plan, i.
you are now just seeing the CapEx deferral and as we move along, the plan here is to really leverage the inherent value in those assets.
But you are on the right track.
UK SAR assets basically zero correlation to oil and gas business.
So lessors and lenders look at that and appreciate the difference between the two.
To answer your last question, we've seen no change in interest from potential financiers around the UK SAR assets given Brexit.
Just something ---+ to answer a question, which I think the market has had some commentary about ---+ what we're trying to do is not lever up this company to survive.
What we're trying to do is push out maturities and create a profile for us similar to what our CapEx deferral did.
And that's a simple as that.
If we can grab some cheaper liquidity by doing that, that's okay too, but that's kind of what we're trying to do here.
We've always been a company that has espoused lower leasing, prudent balance sheet management.
And don't get me wrong.
I'm not happy with where the leverage is right now, but <UNK> and myself and a number of the executives, we've been through these cycles before and know what you need to do as far as keeping your secured capacity available to be able to survive as the global sector leader, and that's really what we're trying to do.
Okay, Dan.
Again, first of all, I appreciate it.
Usually you are joined with a few other peers who want us to give guidance.
There is a reason why we did not give guidance for the full Company consolidated EBITDAR.
It's because it's still a very volatile marketplace.
As I said, there's been stabilization, but I don't want anybody leaving this call thinking that we're positive about FY2017.
We've got a lot of issues concerning the pound that still are not sorted out.
There's still utilization that has declined in certain markets even though we've seen a little bit of an uptick in others.
So I am not going to actually satisfy your question, Dan.
Just know I think we've been pretty explicit that what we are trying to do is keep to kind of this first-quarter run rate, that the Brexit impact on the pound will be offset by cost-cutting as we see it today.
But most importantly, most importantly, outside of FY2017, we have enhanced our liquidity.
We'll continue to enhance our liquidity.
We have the tools to do it to continue to survive as the global sector leader.
So that to me is ---+ it's two stories that we're trying to tell here, but I don't want anybody to leave this call with the first story being so positive for FY2017.
I think we'll improve in FY2018 because we have some self-help that we can do with new contracts and reductions in CapEx.
But anyway ---+
Yes, I think that we are ---+ I'll let <UNK> talk about Asia-Pac, but I would say that's the market that we see the most weakness.
And we're still in discussions concerning improving the costs, frankly getting some revenue back from those costs with the contracts.
We are still in the midst of pretty sensitive discussions to be able to do that.
And all those discussions have been done in true partnership, whether it be with our clients or OEMs.
And so to answer that specifically would be difficult other than to tell you that we have an intent and we are seeing some success in the second quarter.
But, <UNK>, anything else.
No, I think you covered it.
Okay.
<UNK>, I'll let <UNK> answer that question.
Good morning, <UNK>.
The answer is, no, there's not.
Basically <UNK> alluded to it.
We've guided $15 million to $20 million from FX from Brexit and about $10 million of that is what he was alluding to earlier into UK SAR.
So we are still in that mid---+- we've always guided to that mid-40% EBITDAR margin.
And so whether it moved by 100 bps or so in there, that was ---+ it was more just kind of the math rather than anything.
So nothing going on there from an operating performance.
That's certainly the intent and even ---+ so let me just step back.
You've raised the whole covenant issue and clearly our max is 4.25%.
We finished up the quarter at 2.79%, so we've got a lot of room there, a lot of EBITDAR room.
Around the FX, to be specific around your question, it's more related to the balance sheet impact, but we've quantified on the call today we think the view of the impact from Brexit.
I'm going to let <UNK> answer that.
So, I don't think we are giving specific guidance around the numbers, but I can tell you we are aggressively going after our cost structure, particularly in regions where we need to right size it to meet the current environment from a revenue perspective.
And so we are doing things like eliminating layers of managements.
We are right-sizing our operations from a piloting and crewing standpoint.
And by the way, we are also growing significantly deep into both our corporate costs as well as our business unit G&A.
So this is really a broad-based and aggressive look at our cost structure to make sure we are aligned with the market realities today.
No remarks, ma'am.
I think we are ready to get going for the rest of FY2017.
Thank you very much for your support of Bristow and be safe.
| 2016_BRS |
2017 | KOPN | KOPN
#Thank you, operator.
Welcome, everyone, and thank you for joining us this morning.
<UNK> will begin today's call with a discussion of our strategy, technology and markets.
I will go through the 2017 fiscal third quarter 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, November 7, 2017, 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 differ materially 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.
We continued making the record progress in the third quarter in many fronts.
First, let's talk about Lightning OLED microdisplays.
As we've stressed in the past, our goal is to be the world's leading OLED microdisplays provider.
Our revolutionary 2k x 2k Lightning OLED displays and our reference headset design, codeveloped with Goertek, has continued to make a strong impact on the industry.
The small size, high-resolution, low-power and high-field factor makes it perfect for the future generations of VR headsets.
We already received development orders for several Tier 1 global partners.
In parallel to our current aggressive push to further enhance our Lightning OLED performance, we ---+ our foundry partner has made rapid progress in getting our OLED microdisplays ready for New OLED production equipment is to be delivered to our partner later this month, as scheduled.
And we plan to start volume production of OLED displays in the first quarter of 2018.
This display will be incorporating an exciting consumer asset, which will be introduced by our partner at CES.
In addition, working with our joint venture partners BOE and OliGHTEK, we now expect to break ground shortly on the world's largest OLED on silicon factory, played ---+ to be built in Kunming, China.
The interest in AR and VR continue to grow around the globe.
And we firmly believe the OLED microdisplays are uniquely suited for this market.
We're seeing a strong interest in our microdisplays from key members ---+ key players in the consumer, enterprise and military markets.
So the volume of OLED displays will be available from this new fac should be truly a game-changing event for the industry.
While we push forward on our OLED microdisplays strategy, we have taken another jump in our leadership of our LCD market with the current introduction of a Brillian LCD microdisplay product line.
This new generation of LCD incorporates advanced designs and processing techniques to dramatically increase performance over current LCDs in brightness, switching speed, uniformity and contrast.
We have already received great feedbacks from our military customers.
The Brillian offered brightness level only possible with our LCDs, which are critical for many AR applications, especially for military and enterprise.
We believe, Brillian will help further the development of AR market.
Our third quarter results were driven by military business with revenues more than doubling from a year ago.
To be clear, our military business really is 1/7 of our wearable business.
We have been providing critical components for military assets.
We'll continue to ship displays for the F-35 pilot AR helmets and our VR optical systems for simulation and training headsets are entering into active production and revenue generation phase in this quarter.
And we'll look for the momentum to accelerate in Q4.
We are also pleased that in this quarter, we have won a major new military production program, which represent tens of millions of dollars in revenue for company in the coming decade.
We'll provide additional details in this program when we're able to do so.
Our extensive experience in military wearable headsets help us to overcome many of the common issues that slowed the expansion of AR/VR markets, such as the weight and look and ease of use of the headsets.
We've seen our insight and knowledge reflected in the significant increase in end-users applications as well as rapid development of new types of headsets.
We have spent many new exciting enterprise and consumer assets to be announced and show at CES in January 2018.
In fact, we plan to host a special reception at CES, highlighting the newest AR/VR headset platforms for consumer and enterprise applications.
Many of these new innovative headsets will be a (inaudible) in our reception.
Since it's founded, Kopin has provided partners and customers with enabling components.
Our unique position has allowed ---+ has also allowed us to come to become a strong leader in wearable computing.
While we've continued to actively support our customers, as we've developed new and innovative products, we have also taken steps to help to accelerate wearable market options and to show the industry what's possible when combining Kopin's technology with our industry's insight.
Our first success here was with Solos, our branded headset for health and fitness.
As a reminder, we shipped hundreds of units earlier this year under our kick-start program.
It was well received, and we have been benefited from the extensive feedback on these early adopters.
We've made many enhancements and our Solos product is in the final preparation with our manufacturing partner, Goertek.
We expect to launch it at CES in January, and begin shipping in the first quarter of 2018.
The Solos will showcase much of our Kopin's most exciting new technology, including Whisper audio technology and our Pupil optics, along many other new features.
Finally, we have made good progress with our Whisper technology.
Whisper is very useful for headsets.
And many of the new headsets we're showing at CES will feature Whisper inside.
The Whisper technology has now been successfully extended to include mid-field and far-field applications, which expands the potential business uses.
Improving the voice interface is critical for wearables.
The Whisper's ability to make voice more reliable and useful present numerous opportunities.
In summary, we expect a strong fourth quarter for our military business.
We support our 70% revenue growth in the second half.
The new innovative enterprise and consumer headsets are coming out soon.
The wait is about over, and we are facing the calm before the big wave.
We have close to $80 million in cash and no debt.
Our product plans are well in place.
We are ready.
Thank you.
Thank you, <UNK>.
Total revenues for the third quarter of 2017, were $6.1 million compared with $5.8 million for the third quarter of 2016.
The increase in Q3 revenue year-over-year was primarily driven by an increase in sales of our virtual reality systems for military training, which was partially offset by a decline in sales of our products for industrial applications.
The sales of our industrial applications declined in Q3 2016, because it was the first ---+ because 2016 was the first quarter we shipped products to many new customers.
For instance, display modules used in the thermal fighter pilot's mask.
So there was some change going.
In addition, we used to sell display products to NVIS, the company we acquired in 2017.
These sales are now eliminated in consolidation.
Cost of goods sold for the third quarter was 74% of product revenues compared with 83% for the third quarter of last year.
R&D expenses in the third quarter of 2017 were $5.3 million compared with $4.1 million in the third quarter of 2016.
SG&A expenses were $5.3 million in the third quarter of 2017, compared with $4 million in the third quarter of 2016.
The increase in third quarter of 2017 as compared to the same quarter in 2016, was primarily due to an increase of approximately ---+ a stock compensation expense and additional expense of approximately $500,000 from the NVIS acquisition.
The incremental SG&A from the NVIS acquisition for the 3 months ended September 30, 2017, primarily relates to the amortization of intangibles resulting from the acquisition.
Other income and expense was income of approximately $306,000 for the third quarter of 2017, compared with the expense of approximately $1.2 million for the third quarter of 2016.
Third quarter of 2017 included approximately $80,000 of interest and other income and $224,000 of gain on foreign currency.
Third quarter of 2016 includes approximately $150,000 of interest and other income, loss on embezzlement of approximately $200,000 and approximately $1.1 million of foreign currency losses.
Turning to our bottom line.
Our net loss attributable to controlling interest for the quarter was approximately $8.2 million or $0.11 per share compared with a net loss of $8.1 million or $0.13 per share in the third quarter of 2016.
Third quarter amounts for depreciation and stock compensation expense are attached to a table in the Q3 press release.
Turning to the fourth quarter.
As stated in our second quarter conference call, expectations for revenues for the second half will increase in the range of 70% over the first half.
You will note that inventory increased $2.6 million over the prior year ---+ excuse me, year-end.
This inventory is a support of Q4 anticipated shipment.
We believe, operating expenses will remain largely flat in 2016.
We conclude the quarter with approximately $77 million of cash from marketable securities.
We have no long-term debt, and we continue to maintain a very strong cash from marketable securities position in order to execute our strategy.
As always, we'd suggest you review our final Form 10-Q for possible updates.
And now operator, we will take questions.
No.
It's not.
It's entirely a different program.
But it's still involved with displays.
Yes.
It is ---+ one of them is our Solos product, yes.
That's pretty much on track.
It's fairly solid year-over-year.
As I mentioned in my prepared remarks, our overall industrial sales are down, because FDD has sold NVIS.
And those sales are now eliminating in consolidation.
So we're actually not going to see the benefit of those until Q4.
Yes.
I think we need to stay tuned.
China is actually moving towards 3D now.
Well, I think the invisible optics is the dream that we have maybe even 5, 6 years ago.
Ultimately, it is clear that the display and optics will be embedded into an eyeglass frame.
It may take some time, maybe 3 or 5 years for now to be really practical.
Meanwhile, I think Solos represent really a near-term revival approach.
I'm glad that we've got a patent because we're the earliest guys advocating it.
And we have the original patent now.
Yes I'm impressed that you study all our patents.
Maybe we should announce more of them.
We're getting a lot new patents, which are very fundamental, but, as you know, we are never ever happy with describing our patents.
Maybe we should start having a new approach to talk about patents, yes.
Yes to both comments.
We will be showing this at CES next week.
In addition to that, we are talking to potential customers.
I think that, first of all, the technology itself has distinct advantage.
In addition to that, sometimes using our technology allow them to use their processes more efficiently.
So there are 2 ways, one is the better technology anyway and maybe, just some ease of system applications.
Okay.
Thank you very much for joining us this morning.
And I hope to see you all at this coming CES.
It will be an exciting CES.
Thank you.
| 2017_KOPN |
2016 | ISCA | ISCA
#Good morning, everyone, and I want to thank you for joining us today on our fourth-quarter call.
First of all, 2015 was an exceptional year for ISC, with our financial results exceeding expectations in growth in all areas of our core business.
In the second year of the new Chase format, the 2015 season continues to provide thrilling competition, culminating at the Homestead-Miami Speedway in front of a sold-out crowd.
We bid an emotional farewell to Jeff Gordon in his final season and cheered Kyle Busch to Victory Lane for his first NASCAR Sprint Cup championship.
2016 will mark a significant milestone for ISC and the Daytona International Speedway with the opening of DAYTONA Rising.
After 31 months of construction, the new facility will be fully operational beginning with this weekend's event, elevating the experience for all guests with improved amenities throughout the stadium.
Our fan response has been overwhelmingly positive.
We have nearly sold out of all the grandstand seats for the Daytona 500 and we've seen unprecedented participation in corporate sales and partner activation.
We expect to see continued growth in 2016 from attendance-related and corporate revenues as a result of our capacity management and guest experience initiatives.
Our non-motorsports activities will complement growth from our core business, including recently announced music festivals at Daytona and Talladega as well as continued growth from our investment in the Hollywood Casino at Kansas Speedway.
Finally, we continue to progress with ONE DAYTONA, our mixed-use real estate development across from the Daytona International Speedway.
The conceptual design of the project has been refined to include three components: retail dining and entertainment, hotels, and residential.
We are going to target the spring of 2016 for commencement for our vertical construction.
We expect our investment in Phase I of the project to meet or exceed our cost of capital.
So with that, I will now turn the call over to <UNK> <UNK> and he's going to tell you little bit more about our 2016 outlook.
Thanks.
Thanks, <UNK>, and good morning, everyone.
As <UNK> mentioned, quarterly results again exceeded our expectations for 2015 and we have great momentum heading into 2016.
2015 marked the second year of the new Chase format, which proved to be just as thrilling as the first, emphasizing the importance of winning races, from Joey Logano's sweep of the contender round, to Jeff Gordon's win at Martinsville that put him in contention for the championship, and culminating with Kyle Busch overcoming adversity early in the 2015 season to stand in Victory Lane at Homestead-Miami Speedway and secure his first NASCAR Sprint Cup championship.
During the quarter, we hosted eight Sprint Cup weekends, which included the return of the Bojangles' Southern 500 at Darlington to its traditional Labor Day date from the second quarter in recent years.
The event took spectators and the industry stakeholders back to its roots in a 1970s throwback themed event that featured retro paint schemes and uniforms across the track.
The success of the event was recognized throughout the industry and received the esteemed Myers Brothers award in Las Vegas.
We continue to see positive results in our core business, with increased attendance and admissions at every event where weather was not factor.
After adjusting for Darlington, which moved into the fourth quarter in 2015 from the second quarter in 2014, admissions increased 1.3% versus comparable events in the fourth quarter of 2014.
For the year, total admissions increased approximately 1.5% versus 2014, excluding the Coke Zero 400 at Daytona, which due to construction was limited to approximately 50,000 grandstand seats.
Average ticket price of grandstands for Sprint Cup events for the quarter was approximately $80.36 compared to $78.17 in 2014, an increase of approximately 2.8%.
For the year, average ticket price of grandstand seats for Sprint Cup events was $86.10 compared to $85.82 in 2014, an increase of just less than 1%.
For the year, we had sold out our reserve grandstand seats at four events: Auto Club Speedway, Homestead-Miami, Phoenix, and Watkins Glen.
Additionally, grandstand utilization in 2015 was approximately 89% compared to 87% in 2014.
We believe these increases are sustainable and a result of our capacity management and variable pricing initiatives.
Revenue from corporate partnerships was a bright spot for the quarter as well for full year, exceeding expectations and prior-year results.
Contributing significantly to this increase was the resurgence from MRN Advertising following the restructure of our agency agreement in 2014.
Also contributing to the increase was approximately $2.1 million of sponsor revenue, net of operating expenses, associated with DAYTONA Rising that was recognized in 2015.
This was also the first year of the industry's new 10-year broadcast agreements with Fox and NBC.
Regarding TV ratings, as I pointed out on previous calls, the year-over-year comparisons were complicated in 2015 due to changes in broadcaster lineup and network-versus-cable distribution week to week, and further challenged by impacts of inclement weather in the current and prior years.
During 2015, Sprint Cup averaged 5.1 million viewers per event.
Viewership on Fox increased 9% year over year.
On Fox Sports 1, five of the top 15 most viewed telecasts in 20 network history were 2015 Sprint Cup series events.
Sprint Cup races on NBC reached a total audience of 31 million people, up 42% versus comparable races in 2014.
On NBC Sports Network, five of the top 10 most watched telecasts in the network's history are 2015 NASCAR Sprint Cup races.
Finally, the Sprint Cup championship race from Homestead was the most-watched NASCAR season finale in a decade.
The Hollywood Casino at Kansas Speedway, our joint venture partnership with Penn Gaming, was a significant contributor towards the success of 2015.
Equity earnings for the year increased over 57% to $14.1 million, and cash contributions for the year totaled $32.1 million compared to $22 million in 2014.
Approximately $4.5 million of the increase is nonrecurring as a result of transitioning from quarterly to monthly distributions in 2015, the balance resulting from improved operating results.
For 2016, we expect cash distributions from the casino to be approximately $27 million to $28 million.
2016 is shaping up to be another great year.
I'm pleased to announce that after 31 months of construction, DAYTONA Rising has been completed on time and on budget, a significant accomplishment for a project of this size.
We recently received the CO and certificate of substantial completion.
The final seat was installed by our Chairman, Jim <UNK>, rendering the new stadium ready for full operation at this weekend's Rolex 24.
The project will contribute $20 million in revenue and $15 million in EBITDA towards ISC's growth.
The majority of this growth will come from corporate partnerships, including our four founding partners: Toyota, Chevrolet, Florida Hospital, and Sunoco, with these partnerships extending over 10 years.
Advanced ticket sales for Speedweeks are trending up, with expectations for a sellout of the Daytona 500.
Heading into the second quarter and the West Coast swing, advanced ticket sales for early Q2 events at Phoenix and California are trending up approximately 2%.
From a partnership perspective, for fiscal 2016, we have agreements in place for approximately 75% of our gross marketing partnership revenue target, which is projected to increase 11% from 2015.
We currently only have one Sprint Cup entitlement for 2016, which is in our fourth quarter.
Last year at this time, we had 74% of our gross marketing partnership revenue targets sold and one open Sprint Cup entitlement.
In 2016, we will look for additional growth from our non-motorsports events.
Last year, we announced music festivals at Daytona and Talladega.
Through a partnership with AEG Live, we will host the Country 500 at Daytona on May 27 through May 29, and Dega Jam at Talladega on July 1 through July 3.
These events will feature top talent, including Jason Aldean, Luke Bryan, Blake Shelton, and Toby Keith, among many other premier artists over the three-day event.
We have seen great success with music festivals at our other venues, including Faster Horses at Michigan, promoted by Live Nation.
Our facilities are well suited to host these events, with the expansive camping areas and programs that feature multiple performers on a number of stages across the property.
While we don't act as the promoter of these events, we will earn revenues and profits from providing concessions and other services to the event promoter and guests.
As <UNK> mentioned, we have completed the conceptual design for Phase I of ONE DAYTONA to include retail, dining, and entertainment, with previously announced anchor tenants Bass Pro and Cobb Theaters.
We estimate the total costs for developing Phase I to be approximately $120 million to $150 million.
Sources of funds will include in addition to borrowings on our credit facility public incentives and land to be contributed to the project.
Complementing the RD&E will be hotel and residential development.
We have executed agreements with Shaner Hotels and Prime Hospitality to construct both a Marriott Autograph Collection Hotel and a limited service hotel.
Additionally, Prime Group has been selected for a 300-unit rental apartment community.
As part of these agreements, our contribution of equity will be limited to our land and we will share in the profits of the joint ventures.
Vertical construction is expected to commence in the spring of 2016.
We expect our investment in Phase I of ONE DAYTONA to meet or exceed our cost of capital.
Any future phases will be subject to prudent business considerations.
We're excited about the growth opportunities for ISC in 2016 and the future.
We look forward to seeing you at Daytona for Speedweeks.
And now I will turn to call over to <UNK> to give you the financial review and guidance for 2016.
<UNK>.
Thanks, <UNK>, and good morning, everyone.
We are extremely pleased with our fourth-quarter and fiscal 2015 results, exceeding our earnings guidance for revenue and non-GAAP operating margin and EPS, driven by growth in the core business, non-motorsports-related events, and our joint venture in the Hollywood Casino at Kansas Speedway.
Items impacting year-over-year fourth-quarter comparability include: the Sprint Cup event held at Darlington Raceway in the fourth quarter 2015 was held in the second quarter 2014; certain costs associated with the 2016 opening of DAYTONA Rising, which are not capitalized, including marketing and consulting, accelerated depreciation, demolition and relocation of assets, partially offset by capitalized interest; income for a settlement of legal judgment related to certain ancillary operations in the fourth quarter 2014 with no comparable amount in 2015; the consolidation of Motorsports Authentics, including asset impairment in the fourth quarter of 2014 with no comparable transaction in 2015; certain elements of DAYTONA Rising project placed in service during 2015, which increased depreciation; a settlement of interest income related to a long-term receivable in the fourth quarter of 2014 with no comparable amount in 2015; and the Company and industry strategic change in the business model for merchandising officially licensed apparel and souvenirs.
All of these are outlined in the earnings news release and are included in the GAAP to non-GAAP reconciliation where appropriate.
Concerning merchandise operations, as we discussed on previous calls, beginning in 2015, NASCAR and NASCAR Team Properties entered a 10-year agreement with Fanatics to operate NASCAR's entire at-track merchandise business.
In addition, Fanatics also contracted with ISC for 10-year exclusive retail merchandise rights at our track for our track trademarks and certain other intellectual property at all ISC tracks.
Consequently, ISC's wholly owned subsidiaries, Americrown and MA, no longer provide at-track merchandise to fans at motorsports events and therefore no longer earn and recognize the related revenue or incur the related expenses.
Instead, we receive a percentage of sales from Fanatics recorded as part of food, beverage, and merchandise revenue.
For the fourth quarter of fiscal 2016, ISC recognized approximately $1.9 million in commissions related to merchandise sales.
This compares to the fourth quarter of fiscal 2014, where we recognized revenue and expense related to merchandise operations of approximately $11.6 million and $10 million, respectively.
For the full year of fiscal 2015, ISC recognized revenue and expense related to merchandise operations of approximately $16.5 million and $12.3 million, respectively, including $5.1 million of commissions related to merchandise sales predominantly from Fanatics and approximately $10.4 million and $12.3 million in revenue and expense, respectively, related to nonrecurring merchandise sales and cost to transition the business.
This compares to fiscal 2014, where we recognized merchandise revenue and expense of approximately $44.1 million and $35.5 million, respectively.
Looking to the income statement, admissions revenue for the fourth quarter was $42.3 million, an increase of approximately $4.6 million compared to the same period in 2014.
The increase is primarily related to the date change for the Darlington NASCAR weekend as well as increased admissions for Sprint Cup Chase events held during the quarter, slightly offset by lower admissions at Richmond, which was impacted by rain.
The increase in motorsports-related revenues to $162.7 million was primarily due to the Darlington date change and increased TV broadcast rights.
Also contributing to the increase were corporate sales, primarily MRN advertising.
ISC's domestic television broadcast and ancillary revenues were $115.8 million for the quarter and $314.5 million for the year.
The decrease in food, beverage, and merchandise revenue to $10.5 million is primarily a result of the previously discussed change in merchandise operations, partially offset by the Darlington date change and to a lesser extent an increase in concessions and catering at Sprint Cup events during the quarter.
NASCAR event management fees increased to $63.8 million.
The increase is due to the Darlington date change, variable costs driven by higher television broadcast rights fees for the NASCAR Sprint cup, XFINITY, and Camping World Truck Series events, and to a lesser extent increases in non-TV NASCAR event management fees.
Motorsports-related expense increased to $39 million.
The increase is primarily related to the Darlington date change and to a lesser extent personnel-related expenses and incremental costs for certain events, largely driven by inclement weather.
Food, beverage, and merchandise expense decreased to $7.8 million, primarily a result of the previously discussed change in merchandise operations, partially offset by the Darlington date change.
General and administrative expense increased to $30.6 million.
The increase is primarily due to certain personnel-related expenses, including merit pay increases and healthcare and to a lesser extent maintenance and utility costs at certain properties.
Depreciation and amortization expense decreased to $21.7 million for the quarter, largely due to higher accelerated depreciation in 2014 associated with the removal of assets for DAYTONA Rising.
Excluding this charge, depreciation increased approximately $2 million compared to the fourth quarter of fiscal 2014, primarily related to new DAYTONA Rising assets placed in service during 2015.
Specific to DAYTONA Rising, accounting conventions during the construction period and also when DAYTONA comes online impact financial reporting.
For DAYTONA Rising, we recognize accelerated depreciation, certain removal costs, and losses on retirements of assets totaling approximately $45.4 million since inception of the project.
In addition, we have significant capitalized interest through the project, which I will discuss shortly.
Losses on asset retirements increased to $4.4 million, primarily due to the removal of certain assets not fully depreciated in connection with DAYTONA Rising.
Interest income decreased approximately $1.9 million to $72,000, largely due to a non-routine settlement of interest related to a long-term receivable in the fourth quarter of fiscal 2014.
Excluding this income, interest for the period was comparable to the same period of the prior year.
Interest expense increased to $2.8 million due to lower capitalized interest on DAYTONA Rising.
Equity and net income from equity investments of approximately $2.8 million represents our 50% interest in the Hollywood Casino at Kansas Speedway.
For the full-year fiscal 2015, equity and net income was $14.1 million compared to $8.9 million in fiscal 2014.
During fiscal 2015, cash distributions from the casino to ISC totaled $32.1 million compared to $22 million in fiscal 2014.
Approximately $4.5 million of the increase was related to a change from quarterly to monthly distributions.
We received a $600,000 distribution in December 2015.
Net income for the three months ended November 30, 2015, was $32.3 million or $0.69 per diluted share on approximately 46.6 million shares outstanding.
However, when you exclude certain costs incurred in accelerated depreciation in connection with the DAYTONA Rising project, capitalized interest related to DAYTONA Rising, and a de minimus net gain on a sale of asset, we posted earnings of $0.74 per diluted share for the 2015 fiscal fourth quarter compared to non-GAAP net income for the 2014 fourth quarter of $0.56 per diluted share.
As for the balance sheet and future liquidity, at November 30, our combined cash and cash equivalents totaled $160.5 million and shareholders' equity was $1.4 billion.
Our deferred income was approximately $38.2 million, with the increase compared to the previous year primarily related to advanced ticket sales and partnership billings associated with 2016 events at Daytona.
At the end of the quarter, total debt was approximately $268.4 million, which includes approximately $165 million in senior notes, $54.6 million in TIF bonds associated with Kansas Speedway, and $48.7 million for our term loan on our headquarters office building.
Despite not incurring additional long-term debt to fund DAYTONA Rising, accounting rules require that we capitalize a portion of the interest on our outstanding debt during the construction period.
Through November 30, 2015, we recorded approximately $14 million of capitalized interest associated with DAYTONA Rising since inception.
With regards to capital allocations, we have established a long-term plan to ensure the Company generates sufficient cash flow from operations and available borrowings to fund our working capital needs, capital expenditures at existing facilities, and return of capital through payments of an annual cash dividend and repurchase of our shares under our stock purchase plan.
In addition to the sources of working capital and available borrowings, our ability to execute our capital allocation plans are supported by the federal tax legislation passed in December 2015 that provides for an extension of the seven-year depreciation for tax purposes on certain assets placed in service during fiscal 2015 through 2016 and bonus depreciation on capital expenditures in service 2015 through 2019.
While the tax legislation does not impact our overall tax liability, it does impact the timing of annual payment of cash taxes.
Cash taxes for federal and state in fiscal 2014 and 2015 were approximately $51.3 million and $45 million, respectively.
As a result of this legislation, which was passed subsequent to our fiscal 2015 year end but retroactive for all assets placed in service during 2015, we currently estimate a net tax cash refund for fiscal 2016 between approximately $10 million to $15 million, primarily attributable to depreciation for assets placed in service related to DAYTONA Rising.
We currently expect cash tax payments for fiscal 2017 between approximately $55 million to $60 million.
Also on the horizon is the final payment on our Staten Island note of approximately $66.4 million plus interest due early in Q2.
As it relates to capital expenditures, for fiscal year 2015, we spent approximately $155 million on capital expenditures for projects at our existing facilities, which include spending for the DAYTONA Rising project.
We continue to manage capital expenditures to the $600 million five-year capital plan discussed on previous calls, covering the period 2013 through 2017.
The five-year plan encompasses CapEx for all of our 13 facilities, including DAYTONA Rising.
The total cost of construction for DAYTONA Rising, excluding capitalized interest and internal labor, will be approximately $400 million.
Since inception, we've spent approximately $332.8 million.
Remaining capital expenditures under the $600 million capital expenditure plan will total approximately $170 million for fiscal 2016 through 2017, of which approximately $67 million is related to the timing of the remaining construction payments associated with the completion of DAYTONA Rising.
This capital expenditure plan will be evaluated during 2016 and refined to include years subsequent to 2017 based on evolving business requirements.
Concerning ONE DAYTONA, as <UNK> mentioned, Phase I of the project should proceed with cost approximately $120 million to $150 million in fiscal 2016 through 2017 and will be in addition to the previously discussed $600 million capital expenditure plan.
Sources of funds will include in addition to borrowings on our credit facility public incentives from the city of Daytona Beach and Volusia County and land to be contributed to the project.
Additional guidance will be provided as the project moves toward groundbreaking.
Return of capital to shareholders is an important component of our overall capital allocation strategy.
At this time, we are targeting a total payout of approximately $50 million in fiscal 2016 through a combination of dividends and share repurchases.
This compares to approximately $12.1 million in 2015.
To facilitate our 2016 plan, during the upcoming open trading window, we will request a special committee of our Board of Directors to revise parameters under our Rule 10b-5 open market share repurchase program.
The objective of the revised parameters is to buy back shares on an opportunistic but consistent basis in 2016.
The open market program currently has $61.7 million remaining under the total $330 million authorization.
We will review our return of capital programs and make adjustments if necessary on a quarterly basis.
In terms of 2016 outlook, our guidance considers the following business changes: completion and grand opening of the DAYTONA Rising project; the strategic change in the business model for merchandising officially licensed apparel and souvenirs launched in 2015; and that the NASCAR XFINITY Series event at Chicagoland held in the third quarter of 2015 will not return in 2016.
After considering these business changes, for fiscal 2016, we anticipate total revenues to range between $660 million and $670 million.
We expect revenue related to admissions, food, beverage, and merchandise to increase approximately 3% to 4%, and corporate sales to increase approximately 15% to 16%.
Contributing significantly to these increases are the contribution from DAYTONA Rising.
With regards to expenses, we expect an approximate 3.5% increase in NASCAR's event management fees resulting from an approximate 3.1% increase in broadcast revenue and an approximate 4% increase in non-TV event management fees included in recently contracted five-year sanctioned agreements, partially offset by the previously discussed discontinued XFINITY event at Chicagoland.
Also contributing to the increase in operating expenses is an approximately 2.3% net increase in motorsports and general and administrative expenses, primarily personnel-related costs, strategic expense supporting consumer marketing initiatives, and the incremental ongoing operating expenses associated with opening DAYTONA Rising.
We continue to invest in strategies that target the younger demographics and social media as well as improving the guest experience at live events, including enhanced data connectivity and multimedia content distribution on mobile devices and high-definition video screens.
As a result, we currently expect our fiscal 2016 non-GAAP EBITDA to be between $215 million and $225 million and EBITDA margin to range between 32.5% and 33.5% of total revenues.
This compares to fiscal 2015 EBITDA and margin of approximately $197.8 million and 30.6%, respectively.
Depreciation and amortization expense is expected to be approximately $100 million to $105 million on a non-GAAP basis, which includes an incremental approximately $15 million to $16 million related to assets placed in service for DAYTONA Rising.
We currently expect our 2016 operating margin to range between 16.5% and 18% of total revenues on a non-GAAP basis.
Our non-GAAP effective tax rate in 2015 will be approximately 38.5% to 39%.
We expect our fiscal 2016 cash distributions from the casino venture will be approximately $27 million to $28 million.
Equity income from the casino is expected to be approximately $14.5 million to $15.5 million.
Based on all of the above assumptions, we expect fiscal 2016 non-GAAP earnings to be between $1.45 and $1.60 per diluted share.
From an earnings perspective, the fourth quarter will be our most significant, followed by the first, second, and third quarters, respectively.
DAYTONA Rising will have a significant impact on the first quarter and to a lesser extent the third-quarter revenues and EBITDA.
We believe the Chase format will continue to produce growth in the fourth quarter, with results more flat year over year for Q2.
Our fiscal 2016 non-GAAP earnings per share guidance excludes certain remaining income statement impacts attributable to the DAYTONA Rising project, including preopening marketing and consulting, non-capitalized costs associated with accelerated depreciation or removal of assets not fully depreciated, and capitalized interest.
Also excluded for non-GAAP earnings are any costs related to legal settlements; potential non-capitalized costs or charges that could be recognized related to the ONE DAYTONA development; start-up and/or financing costs should our Hollywood Casino at Kansas Speedway joint venture pursue hotel construction; gain or loss on the sales of fixed assets; accelerated depreciation; and loss on asset retirements or relocations that could be recorded as part of capital improvements other than DAYTONA Rising.
Before signing off, we contacted most of you regarding our upcoming investor day on February 17, which is the Wednesday before the Daytona 500.
The event will take place here at the International Motorsport Center across from DAYTONA Rising and will feature management's discussion on multiple topics, including the project, ONE DAYTONA, media rights metrics, and our overall capital allocation and 2016 outlook.
The day will be capped off with the DAYTONA Rising open house attended by, in addition to our group, many corporate partners and industry participants.
There's still time to make your reservations by contacting our investor relations.
I hope to see you in sunny Daytona Beach in February.
In closing, ISC maintains a solid financial position developed over many years that affords us the ability to follow our disciplined capital allocation strategy and maintain our leadership position in the motorsports industry.
We have delivered DAYTONA Rising on time, on budget, and on track to meet incremental revenue and EBITDA commitments.
For the future, we are well positioned to balance the strategic capital needs of our business with returning capital to our shareholders.
We look forward to speaking with you on our next earnings conference call in April.
With that, I'll turn it back over to the operator, who will lead us through the Q&A portion of the call.
It's really, <UNK>, what we're looking at is a long-term sustainable return of capital program.
So it's not so much based upon what cash is available just in 2016, but what is available and sustainable over the long term.
So we're looking at obviously at open market share repurchase, but we also are examining this year different dividend strategies.
And we're very focused on something that's sustainable over the long term.
I would say ---+ it's hard to say in a market ---+ the way the market has been going.
But I would say that ---+ I would kind of think more over a six-month period, maybe.
First half.
I think it's up a little bit.
Our equity income there grew dramatically this year.
And we're growing there based on not so much that market growing, but on being able to capture additional market share.
So there comes a point where you start to ---+ that curve is going to start to slow down on you because it isn't an overall broad market increase.
It's you are capturing more from other facilities there.
But I think we continue to see good healthy growth there.
But I think we're pretty comfortable with what the guidance we gave there and that's why.
It's primarily capturing additional market share from other facilities.
Yes, they definitely should.
I think that the line up should be pretty consistent week to week as far as what is on the cable channels versus the networks.
If we get into the year and we see anything changing, we will give you guys the heads up.
But it should be a little bit easier to make sense out of this coming year.
Yes.
I mean, again, that's my guess based upon some modeling I've done over where share price has been and kind of where I'm targeting my 10b-5 grid.
That's why I think we will be through it in six months.
You know, if the market goes down, it may be quicker.
If the market goes up, it may take a little longer.
And <UNK>, if I heard your question correctly regarding advanced sales, we're currently trending up about 2% for the ---+ as I said, we expect the Daytona 500 to sell out.
And as we look into Q2 and heading to the West Coast swing, we are trending up about 2% on advanced sales.
That's units.
But I have to emphasize that we deploy across all of our events variable pricing, where we will not only take stair step increases through the sales process as we get closer to the events, but also we will monitor certain grandstands where demands are higher than other parts of the facility and take pricing as we see those demands increase.
And many of our venues, we are still somewhat reliant on weather forecasts and many of our events actually take week-of or day-of increased pricing.
So we expect the trends to increase on the average ticket price, but again, weather is the factor that can influence that.
A good percentage of it continues to be mix.
I think that ---+ I would say that overall when we look at the year, we have some momentum from DAYTONA Rising.
But DAYTONA Rising is largely coming from the corporate dollars in the early years.
So the increase that we're seeing in admissions I think is pretty broad over the business in the low-single-digits range.
And like I said, I think a lot of that will have it driven in by the DAYTONA Rising piece.
As <UNK> said, things are looking pretty good where we have visibility into Phoenix and Auto Club coming up in Q2.
We continue to think that the Chase is going to keep driving stronger results there.
It may be less when you are looking at some of the later Q2 events and over the ---+ we've got some challenged ---+ we have our challenges in Michigan and also in Richmond.
Those are probably going to be the laggers as far as the overall portfolio.
Well, I think, <UNK>, that depends upon the opportunity.
Because I think from our viewpoint, if we have the opportunity for an acquisition that builds shareholder value, that meets the return metrics, then we wouldn't hesitate to go forward.
But I don't see us levering for deals that really don't make financial sense.
So again, I think that we're looking out a very long term over ---+ and particularly, like I said, as we begin to think about a dividend strategy, you want something that you know you can continue to meet that commitment year after year.
So we're doing a very judicious process here.
One of the other things is we talked about this ---+ the timing of the cash from these taxes.
But the other side of it is ultimately, you got to pay your tax liability.
It's always great to have the cash early in the cycle, but you know what's going to happen is later on, particularly if there's tax reform, we've got the potential to have some years of cash tax payments.
So we got to be prudent on those points as well.
<UNK>ing of payments on DAYTONA Rising.
Yes.
That's what it is.
So we've got ---+ under the plan ---+ there's $170 million left ---+ almost $70 million of it is DAYTONA Rising.
So you know that's going to go ---+ that's going to be 2016 money.
And then again, so now you are left with $100 million kind of between 2016 and 2017.
Again, that's going to depend on the timing of outflows and some of that ---+ things like that really don't get decided until we get to our April Board meeting.
That's when we go and we are kind of mapping out what the timing is, where those would specifically fall.
But you can figure for sure $70 million of it.
You've probably got $100 million to $120 million this year and then $50 million, $60 million next year would be a relatively good estimate at this point until we give more clarity.
No, we don't there.
We still have some thresholds that we seek to meet to say we're going forward.
I think it's a good probability that the project is going to be moving forward.
We'll probably have a little bit more to talk about that when we get to the ---+ when we do the investor meeting down here in February.
The thing about DAYTONA Rising ---+ I mean, ONE DAYTONA is we always envision that being a project that supported itself with its own financing.
So the original plan was we had a joint venture partner; we go out and get third-party financing that was just on the project itself.
We've since taken that in-house, but I think we still think a long-term plan for that would be use the revolver like a construction loan and then when the project is up and running, put some permanent financing on it.
So like we said, as things take more shape, we will be giving more information on it.
Every indication we have is that it is not going to be a problem.
The buyers have performed on all interest payments and on all non-financial requirements under the note.
They've put a tremendous amount of equity into the project, so they have a lot sunk into this.
So they are not going to let this project get away from them.
But again, my conservative nature is always that I'll count that money when I get it in hand.
Well, what I'd say, <UNK>, is that even with ---+ if you stripped out DAYTONA Rising, we still see growth in all areas of the business next year.
The positive thing for us now is a few years ago, we were in that high degree of churn in our corporate deals and we are back more in that kind of three-, five-year sweet spot and most all the deals have some accelerators in them.
So you get some natural growth right there.
That's feeling good and our teams are in a good position to keep mining for 2016.
We only have one Cup entitlement and that's in the fourth quarter left to sell.
So that makes it a lot easier to be working all angles and all opportunities out there.
So we feel pretty good and pretty bullish on corporate sales outside of DAYTONA Rising.
What I would say in addition to that, <UNK>, is that they exceeded their targets for 2016.
And for 2015, in a year when they were selling all of this stuff for DAYTONA Rising as well.
So I'm looking for these guys to come out with guns blazing in 2016.
This is <UNK>, <UNK>.
Certainly the macro environment, particularly lower gas prices, is a plus.
We've seen when they were high at facilities like Talladega, where it really had an impact.
And with unemployment down, our demographic is back to work.
But we've also been very focused on elevating the live guest experience.
Really looking at unique experiences on property well beyond what we traditionally had done prior to the downturn, where we can really focus in on maximizing the yield, if you will, per attendee by adding more experiences.
And as I think <UNK> touched on in his comments: connectivity, apps, mobile websites, in venue high definition video experiences.
So it's a combination of the macro; it's a combination of some targeted consumer strategies that we have kept focused on in terms of execution.
And the racing has been getting better.
<UNK> touched on the Chase earlier last week.
Just last week, NASCAR announced that the Chase format is now expanding to the XFINITY Series and the Truck Series.
And we've seen the Chase format really create some excitement in our biggest quarter, for the fourth quarter.
And now with these championship formats culminating down at Homestead-Miami Speedway, along with the Cup format, we have expectations that things are going to get even more exciting for the live experience.
Yes, first of all, the good news is that Sprint continues to perform.
And as you know, they exit at the end of 2016.
We get regular updates from NASCAR ---+ they are high-level updates.
They are in discussions with multiple opportunities.
They've talked about global brands and what they refer to as challenger brands, people who are perhaps second in market share and want to try to use the platform to grow to number one.
But we don't have any specific detail as to who they are talking to or any timing on announcements, but we are confident that there will be a replacement to Sprint.
This is <UNK>.
I just want to thank everybody for joining us on our fourth-quarter and 2016 guidance call.
Hope you can make it to the investor relations function here in Daytona coming up shortly.
If not, we look forward to talking to you on our first-quarter 2016 call.
So again, thank you for joining us today.
| 2016_ISCA |
2015 | WD | WD
#I honestly ---+ from my perspective, <UNK>, and I sit on loan committee but I only see a small percentage of the loans that we actually do, I would say no to that question.
If we got our Chief Credit Officer, Richard Warner, on the phone ---+ and we're obviously happy to do that if you want to have a follow up call.
I think he probably would echo what I am saying but he also sees a whole lot more than I do.
But as I said previously that the real issue right now is not whether the loans we're doing are great loans to be doing for 2015.
It is trying to project out and see where rates will be.
And then only other thing that I would say as any kind of concern in what we're seeing is there has been a tremendous amount of IO put on deals.
IO is ---+ typically you'd get two or three years of IO and then IO moved out to five years, and over the last year across all capital sources there has been a lot of IO out there.
And so everyone feels really good and this makes perfect sense, right.
Everyone feels really good about the cash flow of the actual asset performing today on an IO basis.
The question is you got an IO loan, you got no amortization in it, what's going to happen seven or 10 years from now when that loan turns.
But I'd reiterate we feel very, very good about our risk portfolio.
And as you know in many instances we are also originating loans where we are not taking risk and we feel pretty good about all that too.
So we have a ---+ we would like to be in three big cities beyond their existing footprint by the end of the year.
We will see if we can get there.
But we would like to be in three MSA, new MSAs for that platform by the end of the year.
I think as it relates to hiring of talent, given our platform ---+ and this is multifamily focused right now, right.
So given our brand in the multifamily space and our just the amount of financing we do in the multi space, we feel that there is a great opportunity for investment sales professionals who are on platforms that do not have anything close to <UNK> & Dunlop's client relationships or brand recognition in the multifamily space to jump from those platforms to our platform.
The second thing is that because we now have a platform to build off of with our brand and offices across the country, we don't necessarily need to go after the star brokers.
There is a great opportunity for sort of the second or third tier people and teams of investment sales professionals to be able to come to W&D and leverage off of our access to deal flow, client relationships, financing platform and I believe really take their career to a whole different level.
So the strategy here is not go out and throw huge signing bonuses out at the star brokers at some of our big competitors and try and bringing those people across.
Given the breadth of our platform we think we can grow this in a very cost effective manner with some really fantastic talent that may not be the headliners at other shops.
It is really good question and an impossible one to answer (multiple speakers)
If you look ---+ I mean the last kind of three quarters we've had roughly the same amount of prepayment fee income.
Does that make a trend for the rest of the year.
I don't know.
Like I said it's really hard to predict.
Thank you.
So it builds, John, over the three years.
So if you look at the refinancing volumes 2015 is a huge step up from 2014, 2016 is bigger than 2015 and 2017 is bigger than 2016.
So ---+ and those are annual volumes so we haven't broken it down on a quarter-by-quarter basis.
So the thought of things being pulled forward, you are not at a rate right now that would tell you the tons is being pulled forward.
To the contrary, it is sort of hit and it is being redone.
I think the amount of investment sales activity was probably the delta in Q1.
So, should you have deterioration in investment sales activity, you'd get back to a little bit sort of sitting right on top of the refinancing wave.
And then I would also say that as it relates to rates, back to <UNK> <UNK>'s question at the very, very beginning, if everyone was freaked out about rates going up, we wouldn't have had as much variable rate financing in the first quarter.
And so I think a lot of people are out there thinking that rates might move at some point.
But on the long bond, the other piece to all that is with the huge amount of foreign capital pouring into 10-year and seven-year US treasuries, even if Yellen and the Fed raise short-term interest rate, I think most people believe that the 10-yeas is going to stay begrudgingly low for quite some time because of the amount of foreign capital chasing any kind of return of sovereign debt.
And so as a result of that people don't feel quite now pressured to run and grab a loan that's going to price off of 2.10%, 10-year treasury.
That may change and as rates start to move towards the end of the year and the 10-year may or may not move, you might see that.
But right now what we are seeing from our borrowers is no great rush, it is just that they want to buy assets and refinance where assets as they come up fully financing.
So, first of all, the definition of affordable is one that has been discussed at length with FHFA.
And when and if they come out with modifications and we said previously we believe that they will, but when and if they come out with modifications to 2015 scorecard, from our understanding of the dialogue that has gone on, it is our thinking that they may make adjustments to what the definition of affordable is so that some of the projects that you just cited that may not have qualified under the affordable definition would then qualify under the affordable definition, given what is truly affordable housing, workforce housing and the FHFA's desire to have Fannie and Freddie really focus on both the affordable product and workforce housing and not necessarily the higher end type product.
And so I think when we see some adjustments to the scorecard that there will be something there where there is reclassification of what qualifies as affordable.
Yes.
Yes, <UNK>, it's <UNK>, I think for the kind of 2015, you know, I wouldn't expect a lot from it on the combination of, one, we acquired a pipeline and so part of the revenue from that pipeline will likely be offset by some amortization of pipeline intangible.
And secondly as we've discussed, we are going to be making some investments in that business.
So we think at the margin it is going to be accretive, slightly accretive for this year.
But I wouldn't expect a lot from a financial perspective in 2015.
We will cross that bridge when we get to it.
We have plans for the rest of the year and we will see how that goes.
It is ongoing.
As you point out, Greg has run very successful business.
And we are excited to have him on the team.
You bet.
I'd just thank everybody for joining us this morning.
Thank the W&D team for a fantastic quarter once again.
And I hope all of you have a great day.
Thank you.
| 2015_WD |
2015 | FTNT | FTNT
#Again, <UNK>, fair question.
Clearly, the best investment has been in growth.
And we will continue to take that approach, that tends to be our strategy.
As far as ---+ I think the organic side of it looks very positive, as we have talked about.
And then inorganically, we are obviously continuing to look at a variety of things, but we did the Meru deal in the last quarter, but I don't foresee anything imminent.
But we continue to be ---+ to look opportunistically for any ways that makes sense for us to continue our growth.
Well, thank you very much.
We appreciate everybody's support and attention.
And look forward to talking to all of you soon.
I would say, the other thing to remind you is, for those who didn't have enough, we had a lot of questions in this call.
But we do have another call at 3:30 PM, so in 30 minutes or so, feel free to dial back in if you have follow-up questions.
Thank you.
| 2015_FTNT |
2017 | CECO | CECO
#Thanks, Phil.
Good afternoon, everyone, and thank you for joining us.
With me on the call today is <UNK> <UNK>, President and Chief Executive Officer; <UNK> <UNK>, Vice President and Interim Chief Financial Officer.
This conference call is being webcast live within the Investor Relations section at careered.com.
A webcast replay will also be available on our site, and you can always contact the Alpha IR Group for investor relations support.
Let me remind you that this afternoon's earnings release and remarks made today include forward-looking statements as defined in Section 21E of the Securities Exchange Act.
These statements are based on assumptions made by and information currently available to Career Education and involve risks and uncertainties that could cause actual future results, performance and business prospects and opportunities to differ materially from those expressed in or implied by these statements.
These risks and uncertainties include, but are not limited to, those factors identified in Career Education's annual report on Form 10-K for the year ended December 31, 2016, and other filings with the Securities and Exchange Commission.
Except as expressly required by the securities laws, the company undertakes no obligation to update those factors are any forward-looking statements to reflect future events, developments or changed circumstances or for any other reason.
In addition, today's remarks refer to non-GAAP financial measures, which are intended to supplement but not substitute for the most directly comparable GAAP measures.
The earnings release and slide presentation, which accompany today's call and which contain financial and other quantitative information to be discussed today as well as the reconciliation of the GAAP to non-GAAP measures, are available within the Investors Relations section at careered.com.
So with that, I'd like to turn the call over to <UNK> <UNK>.
<UNK>.
Thank you, <UNK>.
Good afternoon, everyone, and thank you for joining us.
I'll begin today's call by reviewing the third quarter results that came in ahead of our expectations as well as the operating progress we have made at our universities.
Then <UNK> will review the financial results and outlook in more detail before I provide some final closing remarks.
During the third quarter, we continued to experience better-than-expected enrollment trends and operating performance within our ongoing operations, and are on track to close 2017 ahead of our initial expectations.
For the remainder of today's discussion, ongoing operations will represent University Group and Corporate.
As evidenced by our third quarter results, the underlying theme of sustainable and responsible growth is gaining momentum.
This is primarily driven by the technology initiatives and student support investments we've committed to and executed upon throughout the year.
Moreover, the responsible completion of our teach-out campuses will further free up incremental resources for the future to progressively ramp up our investments in technology and student initiatives that are showing positive impacts on student retention, outcomes and experiences.
For the quarter, total enrollments within University Group increased 2.5% as compared to the prior year.
And new student enrollments were up 5.8% for the quarter as compared to the prior year quarter, which represents the highest increase in the past 10 quarters.
At CTU, total enrollment increased by 0.9%, but new enrollment growth of 10.9% represented the highest increase in 11 quarters.
CTU experienced double-digit new enrollment growth, primarily driven by our focus on and investments in student support operations.
We believe this growth at CTU is a testament to the positive impacts of the improvements and investments we have made in student support operations, both before and after they become enrolled in one of our programs.
Execution within our admissions operations, enhanced training and coaching as well as increased tenure of our admissions personnel has driven higher efficiency within our enrollment onboarding processes.
Technology, too, has been an important enabler that is helping drive better student engagement early in the decision process.
Lastly, our Phoenix admissions and advising center was fully operational in the third quarter and contributed to the year-over-year improvement in new enrollments.
Previously, we have highlighted the initiatives and investments that have positively impacted retention to date, which has more than offset declines in new enrollment.
Student retention continues to trend at the improved levels we experienced last year.
Most recently, we established adviser accountability for students based on their degree and program of study, and promoted increased interaction and dialogue between advisers and faculty.
Initiatives like these have supported stronger retention and student engagement trends.
And that's a result of consistently strong retention and engagement is to see more students graduate, which is a positive sign that we're meeting our objectives of improving student outcomes.
However, this dynamic mix is critical for us to focus on addressing and serving the demand from our prospective students.
The Phoenix Center is one such example of an investment that will help serve prospective demand.
At AIU, total enrollments increased 5.7% for the third quarter as compared to the prior year, with the increase primarily driven by our student support initiatives throughout the year.
Revenue for the quarter was up 3.3% versus the prior year quarter.
Our AIU admissions and advising center at Phoenix became fully operational at the end of the third quarter.
We expect to see positive impacts in future quarters from this investment, as increased resources to serve prospective students should support our objective of sustainable and responsible growth.
We are also proud to announce a new specialization in AIU's Bachelor of Business Administration degree program during the third quarter.
Developed by AIU and Le Cordon Bleu North America, the new Le Cordon Bleu Hospitality Management Specialization is a business degree that is designed to provide an education in core business foundations and the development of competencies applicable in a hospitality management setting.
We also just recently introduced a new faculty mobile app at both of our universities.
This new app provides informative dashboards, ability to complete tasks on the go and enhance outreach and communication capabilities that we believe will make student interactions easier and more effective.
Overall, we are pleased with the academic and operating progress at our universities and are now expecting new and total student enrollment growth at both universities in the fourth quarter 2017.
This expectation is primarily driven by our ongoing initiatives and investments in student support operations, including our Phoenix Centers as well as the academic calendar redesign at AIU.
Building upon the success of our initiatives and investments, we will continue to innovate, invest in new technology and appropriately staff student support operations that we believe will further enhance sustainable and responsible growth at our universities.
Finally, turning to our teach-out campuses.
Teach-out results continue to track better than expectations due to stronger-than-expected retention as well as ongoing optimization of our lease-related costs.
The Culinary Arts campuses completed their teach-out in September, providing approximately 8,500 students who enrolled as of January 2015, with an opportunity to complete their programs of study.
As a result of the completion of the majority of the teach-outs, we have significantly lowered the remaining number of students involved in the teach-out strategy.
For context, we will have only approximately 80 students remaining to be taught out at the end of 2017.
We're firmly committed to continue providing each of these students with an opportunity to complete their program of study.
Lastly, our teams are also continuing to work diligently to further optimize real estate obligations associated with these teach-out campuses.
Now I'll hand the call over to <UNK> for a more detailed review around our results, balance sheet and outlook.
<UNK>.
Thank you, <UNK>.
Today, I will start with a review of our results from ongoing operations, and then briefly discuss the teach-outs which are now substantially complete.
Finally, I will review our balance sheet and the outlook for the year before handing the call back to <UNK> for his closing comments.
In the third quarter, total enrollments within the University Group grew by 2.5%, supported by new enrollment growth of 5.8% during the quarter as compared to the prior year quarter.
This trend represents the highest new enrollment increase in the past 10 quarters and was primarily driven by our Phoenix admissions and advising center for CTU.
Third quarter University Group revenue of $141.5 million was an increase of 1.4% year-over-year, primarily driven by the growth in total enrollments as well as the number of [learning] days in the quarter at AIU.
Operating income from ongoing operations was $23.6 million as compared to $16.2 million in the prior year quarter, an increase of 45.9%, while operating margins increased to 16.7% as compared to 11.6% in the prior year quarter.
This performance was primarily driven by continued efficiency in our marketing costs, timing of various operating expenses as well as improving enrollment trends.
Adjusted operating income for ongoing operations was $26.2 million, which was better than the high end of our outlook range of $22 million to $24 million, primarily driven by better-than-expected retention and new enrollment trends that positively impacted revenue.
Moving to our teach-out campuses.
During the quarter, we completed the teach-out of our Culinary Arts campuses, providing approximately 8,500 students with an opportunity to complete their programs of study.
As expected, operating losses increased to $19.1 million in the third quarter of 2017 as compared to $16.9 million in the prior year quarter, while the adjusted operating losses increased to $10.8 million for the quarter from $9.3 million in the third quarter of 2016.
As <UNK> mentioned, by the end of the year, we will have approximately 80 students remaining within our teach-out campuses.
Now I will spend a few minutes reviewing our balance sheet.
We ended the quarter with $175.9 million of cash, cash equivalents, restricted cash and available-for-sale short-term investments, which will be referred to as cash balances for the remainder of today's discussion.
This represents an increase of $3.9 million over the second quarter of 2017, with the increase primarily driven by improved operating performance within ongoing operations.
Net cash provided by operations was $5.1 million during the quarter as compared to cash provided of $9.7 million during the prior year quarter.
The decrease in cash provided by operations versus the prior year was primarily driven by increased operating losses at our teach-out campuses and payments related to their contractual lease obligations.
As previously mentioned, we have been focused on optimizing our lease obligations associated with these campuses.
These obligations have been a large component of our cost structure and cash usage.
We have reduced these obligations for our teach-out campuses by securing sublease arrangements as well as entering into early termination or lease buyout arrangements, which, in some cases, require an initial cash outlay.
We will continue to be opportunistic in this area with the ultimate goal of further reducing our obligations and the corresponding cash burn.
Capital expenditures for the quarter were $1.3 million consistent with the same period last year.
Now to the outlook.
Slides 3 to 5 of the attached presentation will provide some details around our outlook for the year as well as our expected cash balances at the end of the year.
Beginning on Slide 3.
We are anticipating a range of $100 million to $105 million in adjusted operating income from ongoing operations for the full year 2017.
Our traditional back-to-school season has begun, and we are off to a good start with new enrollment growth expected at both universities for the fourth quarter.
As discussed, the Culinary Arts and Transitional Group continue to track ahead of our expectations.
And as a result, we have reduced the anticipated losses for the teach-outs to a range of $40 million to $45 million from our previous range of $45 million to $55 million.
Accordingly, we have also increased our expectations for 2017 year-end cash balances, and we now expect those balances to be in a range of $160 million to $165 million, up from our previous range of $155 million to $160 million.
On Slide 4, we have provided additional information regarding our expectations for second half of the year for ongoing operations.
We expect adjusted operating income to range between $48 million to $53 million in the second half of 2017, which is an increase of approximately 40% as compared to 2016 performance.
This also implies that we are expecting our fourth quarter adjusted operating income for ongoing operations to be in the range of $22 million to $27 million as compared to $16.9 million in the fourth quarter of last year.
On Slide 5, we have provided an updated summary of the key assumptions contained within our outlook.
I would also like to remind everyone that there may be some variability in our quarterly results driven by the timing of our operating expenses and the varying impacts for initiatives, including the ongoing impacts of the calendar redesign at AIU.
But overall, we are confident in the long-term prospects of our 2 universities.
Finally, as we have done in the past, the last few slides in our presentation provide reconciliations of GAAP to non-GAAP items.
With that, I will turn the call back over to <UNK> for his closing comments.
<UNK>.
Thank you, <UNK>.
In summary, we are nearing the end of a successful 2017 during which the University Group performance consistently tracked ahead of our expectations and our teach-out strategy is nearly complete.
Operational improvements made within student support operations, redesign of our course structure and content, investments in technology and new admissions and advising centers in Phoenix are all contributing to better student engagement, and we feel confident in the long-term academic potential and value proposition of both universities.
In 2018, many of our priorities remain the same as we continue to position the business for sustainable and responsible growth, driven by our focus on enhancing student retention outcomes and experiences.
We'll continue to enhance and grow our student support operations, and remain focused on improving our overall education quality and execution across the student life cycle.
We plan to further invest in our faculty and technology, such as intellipath and mobile applications, that will help us deliver content in the most efficient and effective manner possible.
And as we grow our cash position, we'll continue making responsible growth investments in our universities that should ultimately benefit our students.
Thank you, again, for joining us today.
And we'll now open the call for any analyst questions.
Well, again, thank you for joining us for this quarter.
We appreciate your support, and we do look forward to talking with you again next quarter.
Thank you.
| 2017_CECO |
2017 | CIEN | CIEN
#<UNK>, I didn't get your full question but I think it was around gross margin where we are.
Here's what I'd say about our gross margin.
We've made a lot of progress, as we've said, over the last few years.
We've gone from the low 40%s to mid-40%s.
We believe that's where we are today.
Now, there's a lot of things that go into our gross margin.
We have new deals that are going to be lower than corporate average in the early stages where we're putting out Photonics and Commons and that's a thing.
We have ---+ as we move through time, and these deals become more mature in their rollouts and we're adding capacity, that tends to improve our margins.
If we're attacking particularly internationally where we have to take incumbency from someone, that's going to cost us something.
So there's a lot of things that impact our margin.
I'm very pleased that if you go back over the past six years, we have grown.
We have increased our market share and we have improved our gross margin.
I think that's a heck of a performance and as we move forward in time, there are going to be fluctuations in our gross margin.
I don't think we can get, in the near-term, above that mid-40%s range.
But hopefully, as we move through time, as software becomes more important, as Packet becomes more important, then I think we will be able to get above that mid-40%s.
In fact, when we said we're going to get to 15% operating margin, as we've said, we have to improve from the mid-40%s by a little bit in order to get to that 15%, we believe.
Yes, <UNK>.
That's right.
That's a good interpretation; in India, we've been direct.
Pretty much, we've got some local partners there.
But basically, we are direct in India.
And the vast, vast majority of the business that we see there is us engaging directly with carriers and other customers, their government, particularly as well.
In our Telstra engagement is with exclusively with Ericsson and we partnered over the last couple of years into the Telstra network and that is purely with Ericsson.
I mean you've seen that in a number of submarine engagements, <UNK>, where we're actually deploying Blue Planet to manage both our equipment and other folks.
<UNK>, do you want to ---+
I would say, overall, I think we're in a reasonable place from a supply-chain point of view around components that ---+ we're pretty vertically integrated so a note of caution.
We're not maybe the best barometer overall of this but I would say that we're not, apart from one or two exceptions, which normal sort of ebbs and flows of things, we're in pretty good shape for going in through Q2 and into Q3.
There are so many things that affect the component vendors, it's hard ---+ I would say that it's ---+ I'd caution you about trying to read through on us their results.
China is a big deal for those guys and the ebbs and flows in China are going to impact their results and not have any impact on us because currently, we don't sell in China.
No.
I think Verizon is going pretty much as per plan.
We're executing well on it.
I think, generally, I would say the financial community have a view of it being bigger earlier than we have.
And I think that's sort of ---+ that's playing out.
Listen, it's a very big deal across multiple years.
And we're just beginning that ramp.
It's a nice piece of business for us over many, many years.
Thank you.
We appreciate everybody's attention today.
We look forward to catching up with everyone over the next days and weeks.
Thanks, everyone.
| 2017_CIEN |
2016 | TEL | TEL
#I'm going to let <UNK> handle that one.
He was just with that group.
Hey, <UNK>.
Good morning.
A couple of insights.
I think when you look at it, one of the things that was weaker, we actually saw the inventory come down as expected with our partners, but sell-through was a little weaker than we expected, which is why we see supply chain correction happening, impacting our channel partners.
So, the inventory bring-down in the first quarter on what they had was there but the sell-through was weaker.
What we look at is also the direct order patterns that we see.
And what we see with direct order patterns that have turned, that <UNK> talked about, as well as what we're seeing elsewhere, it does look like it's going to be another quarter or so where we're going to have our partners and expect that sell-through to improve.
When you look at this quarter, we still expect it to be a weak sell-through quarter.
I think when you take our segments like industrial, I think what we talked about this quarter we'll expect the same sort of next quarter from the channel element of it.
They're still being worked through and sell-through was a little bit worse than we thought.
No, <UNK>, you stated it well.
It's much more around product line exits now.
We feel the portfolio's really strong with the 90% sensors and connectors, 80% harsh.
And even within the data and devices piece that I alluded to on the prior question, the products that are in there are very good products, solidly profitable.
Circuit protection was more of a standalone business, which was primarily in the consumer space.
I'd never say never because the world's always changing but I'd say the heavy lifting is behind us.
A couple of things.
What our customers are telling us certainly we've seen via their orders with that increase.
As <UNK> highlighted, both in transportation and industrial we saw sequential order increases and that was driven by direct activity.
When it comes into the actual destocking amount, we did think that was around $20 million in the quarter of actual inventory but the sell-through was a little bit worse than we expected, which is why we think it's going to work through in this quarter as we try to look at our channel partners do have to get back to OEM demand.
They have to come back into parity at some point.
What I would add to that, <UNK>, is our actual orders from the channel partners were flat this quarter and they had been declining for three quarters.
It's one data point.
And as <UNK> said earlier, we've got to see the sell-through pick up.
But we feel like, when you look at the direct business, still growing, albeit low growth, that over time the channel will converge with that.
We're projecting it will converge into low growth with that based on the trends we're seeing.
In distribution it's pretty broad based.
So, the trends that we've actually seen have been broad based and that's why you see both the impact in the industrial segment and the communications segment.
When you look at the direct business, it varies by end market dynamics.
So, certainly things like commercial air are very strong, oil and gas weak.
But on the channel side it's pretty broad-based.
I'd say, <UNK>, a couple different ways to think about it.
And you really got to do it almost by region because Europe has still not got quite back to pre financial crisis demand levels.
The US, while calendar 2015 was a record level, is still slightly ---+ the average age of a vehicle is slightly higher than normal.
If that would change dramatically might get worried.
And, of course, China is naturally slowing down but still going to be a pretty nice growth business, 5% or 6% long term.
And if you just look at the emerging markets and how many people are coming into the middle class, the trends show get a nicer place to live and buy a car.
So, we think those trends are pretty good.
Auto production last year slowed a little bit from the prior year.
This year it's in the 2% range.
It feels very hot when you're in the US but globally it's still a little bit below ---+ the FY16 production rate is a little bit below its historical growth rate.
And then on top of that, to your other point, the content growth is just consistent in every part of the vehicle.
And we don't see that slowing.
And then on top of that, the point I made in the comments about this integration, it doesn't happen overnight but it's real.
We are being pulled into dozens of opportunities to do this and this broad product range of ours enables that.
There's multiple drivers.
And then, of course, if the push stays on green, which I think it will, even though oil prices are very low right now, the content in a hybrid vehicle or electric vehicle is a multiple of an internal combustion engine.
I think the positive drivers far outweigh the negative drivers.
There will be cycles but it's not like we've been in a boom cycle.
It's been, over the last five years, a little bit higher than normal coming off the prior five years being lower than normal.
A couple of things, <UNK>.
I do think you're a little bit high on an organic basis when you take currency out, when you do look at it.
We also were impacted in our fourth quarter on the channel effect, as well, so there is a little bit of a favorable compare.
But we do expect the overall direct business to be about plus 3%.
We'll get some of the anniversary effects.
We do assume that our channel business will get back to parity where it ran last year in the latter half.
So, there is a little bit of a restock that happens in quarter 4 due to quarter 4 being very weak that we talked about last fourth quarter.
So there is a little bit of that effect that helps you get closer to flat.
We do have comm-air programs that are launching, which is an uptick, as well as some things in medical that are launches due to the medical side and the program wins there.
So, there are some things that are a little bit uppers in medical and comm-air that help make it a little bit rich, as well as the distribution channel getting back to a more normalized level, more like it was in the middle of last year than where it was in the quarter 4 time, quarter 1 time, certainly the quarter 2 time that we're in right now.
It's a combination, Will.
Where we're seeing the most opportunity now is in the powertrain as customers evolve their powertrain, and the ability to integrate in a subsystem ---+ sensors, connectors, [rounding,] sealing, et cetera.
That's where a couple of our more exciting opportunities have been.
But where you have larger, more complex content, that's where the biggest opportunities are.
It moves slowly, Will.
No, it's not in our sales yet.
We're selling.
We're selling at a high single-digit growth rate the products we have in sensors, so that is playing out very nicely according to plan.
I would say the design rate in some of the applications that we're penetrating is playing out ahead of plan, some of the more rich applications in the auto space.
But it will take some time.
But you're right, significant connector share.
But, by the way, we feel the opportunity to continue gaining, as we've been, with the new applications we're bringing, and very small sensor share because we didn't really have much of a sensor platform.
But now with the acquisition we have pressure, position, humidity, et cetera, things we didn't have much of before.
And we're getting design-ins across all of those in the auto space and the industrial transportation space.
We expect that transaction to complete in the latter part of Q2.
So, in part of Q2.
It is out for the second half of the year, essentially the drive of the reduced guidance on a full-year basis.
Let me take the industrial question on oil and gas and <UNK> will take the share repo question.
On oil and gas, one of the things that we have seen, certainly the program element of the oil and gas market we've seen in our stepdown of revenue.
So, like I said, last year early in the year, as well as the year before, we would run about [$60 million] a quarter.
Our business as it's come down and oil has been impacted, we're seeing a lot of large projects obviously not happening, and there's not being a lot of large projects being bid.
The $30 million per quarter level that we have right now is a maintenance type revenue level for us.
It's not big projects.
Whether it's $25 million, $35 million, $40 million, I do actually think that's a floor that we're going to be pretty close to plus or minus a little bit.
I do think that element that we have in our forecast reflects current oil prices.
<UNK>, on the share repurchase, our intention remains we expect to be completed with the return of the proceeds from the BNS transaction in third quarter.
As you know, we looked at a variety of different mechanisms to return that cash as we transitioned between announcement and actual closure, and came to the conclusion that the best answer was an open market transaction.
There's a lot of reasons why an accelerated share buyback doesn't work for us.
The easiest one to understand is we're a Swiss company and rules are different for Swiss companies, even though we're registered on the New York Stock Exchange, and that's make an accelerated very difficult to do.
<UNK>, hi, it's <UNK>.
Clearly size of engine does impact it and it's just not that meaningful.
I think when you take the penetration that we've done in China, both with the local OEMs and the multinational OEMs, the mix effect isn't what it used to be.
And it is reflected in our guidance, certainly.
It's focused at 1.6-liter engines and below the stimulus.
What's good is we cover every OEM there.
We have content on it.
It is in our guidance but it's pretty minor.
As you might guess, <UNK>, that gets really convoluted really quick.
I think the most straightforward answer to give you is the settlement is not yet final.
It's proposed.
The two sides are largely agreed.
We're working through a lot of nuances within the IRS to get that finalized and at this point anything I'd give you would be speculation and hypothesis.
We are very comfortable and, as was stated in the 8-K, we are very comfortable that we are adequately reserved and so there won't be an additional charge.
And then going forward, once the settlement is actually finalized, we'll give some detailed guidance on the implication of other income and the go forward effective tax rate.
Thank you, <UNK>.
It looks like we have no further questions so we thank you for joining us today.
If you do have further questions please contact Investor Relations at TE.
We hope you all have a great day.
| 2016_TEL |
2016 | MYL | MYL
#Thank you.
Good afternoon, everyone.
Welcome to Mylan 's conference call discussing our second-quarter 2016 earnings and our acquisition of Meda AB, which I will refer to as the Meda transaction.
Joining me for today's call are Mylan's Chief Executive Officer, <UNK> <UNK>; President, <UNK> <UNK>; Chief Financial Officer, <UNK> <UNK>; and Chief Commercial Officer, <UNK> <UNK>.
During today's call we will be making forward-looking statements regarding our financial outlook and 2016 guidance, the Meda transaction, the acquisition of Renaissance's non-sterile, topicals-focused specialty and generics business, and other matters related to Company and its business, including product regulatory matters, product development, and acquisitions.
These forward-looking statements are subject to risks and uncertainties that could cause future results or events to differ materially from today's projections.
Please refer to the earnings release we filed with the SEC on Form 8-K earlier this afternoon for a fuller explanation of those risks and uncertainties, as well as the limits applicable to these forward-looking statements.
In addition, we will be referring to certain actual and projected financial metrics of Mylan on an adjusted basis, which are non-GAAP financial measures.
These non-GAAP financial measures include adjusted net earnings, adjusted diluted earnings per share, constant currency, total revenue adjusted gross margin, adjusted cash provided by operating activities, net debt to adjusted EBITDA leverage ratio, adjusted R&D expense, and adjusted SG&A expense, and are presented in order to supplement your understanding and assessment of our financial performance.
Non-GAAP measures should not be considered a substitute for or superior to financial measures calculated in accordance with GAAP.
The most directly comparable GAAP measures, as well as reconciliations of the non-GAAP measures to those GAAP measures are available in either our first- or second-quarter earnings releases, which are posted on our website at newsroom.
Mylan.com.
Let me also remind you that the information discussed on the call, with the exception of the participant questions, is the property of Mylan and cannot be recorded or rebroadcast without Mylan's express written permission.
An archived copy of today's call will be available on our website and will remain available for a limited time.
With that, I'll turn the call over to <UNK>.
Thanks, <UNK>, and welcome, everyone, and thank you for taking the time to join us today.
I'd also like to take a moment to welcome <UNK> <UNK>, who joined Mylan as CFO on June 6th and is here today for his first earnings call with us.
In addition, I'd like to welcome to the call all of our employees around the world, including the most recent additions to our family, the great team we acquired on June 15th from Renaissance, and on Friday, the terrific team at Meda.
We're excited about both of these transactions, with the Renaissance business bringing us a complementary portfolio of about 25 branded and generic topical products, which combined with Meda's offerings, positions us to be a leader in dermatology.
The Meda transaction will allow us to build even greater scale across our operations and expand the breadth and diversity of our product portfolio, geographies, and sales channels around the world.
Meda also positions us to be a leader in the global respiratory and allergy market.
In addition, these transactions further strengthen our already very strong cash flows.
As with any transaction, we believe people are the most important asset, and we're delighted with how engaged the teams of both organizations are, as we now focus on fully integrating these organizations so that we can increasingly go to market as one Mylan and maximize the potential of our expanded global platform.
With that, I'd like to elaborate a bit on the commentary I provided during our call in May.
Namely, that we believe that the rebasing of our sector has been a healthy exercise for the industry.
It has helped investors draw more meaningful distinctions among the different types of business models in our sector.
Because as we have mentioned many times in the past, it simply makes no sense to paint the industry with a broad, one-size-fits-all brush, particularly when it comes to generics and specialty, which vary widely in terms of product and geography mix.
In Mylan's case, we have spent the last decade differentiating, diversifying, and derisking by expanding through organic growth and strategic acquisitions.
As a result, we now have extensive manufacturing operations whose technologies range from API to oral solids, to injectables, transdermals, and respiratory expertise.
We have a portfolio that now stands at more than 2,700 separate products, including generics, branded generics, brands and over-the-counter medicine.
We have also positioned ourselves such that we have no significant concentrations in any single product, channel, or business segment.
Moreover, we have continued to grow scale throughout North America, Europe, and rest of world.
All of this has enhanced our financial strength and flexibility, positioning us to continue investing and growing for many years to come.
It's for these reasons we're so proud of our performance during second quarter.
On the top line, we generated total revenues of more than $2.5 billion year over year, an increase of 8% on a constant currency basis, that was fueled by solid growth in our North America and Europe generics regions, and strong double-digit growth in our specialty business.
On the bottom line, we delivered adjusted net earnings of $592 million, or $1.16 per adjusted diluted share, a year-over-year increase of 28%.
I'd also like to underscore that on a sequential basis, our revenues rose by 17%, adjusted EPS increased by 52%, and cash flows increased 240% on the strength across all geographies, all of our business units, including new launches, demonstrating the power of us truly maximizing all of our assets.
Consistent with our historic track record of delivering stronger growth in the second half and on the strength of new product launches, EpiPen seasonality, and our recently completed acquisitions, we are committed to our 2016 EPS guidance range of $4.85 to $5.15.
As I've indicated, we could not be more excited about Mylan's longer-term prospects and look forward to discussing our bright future at our Investor Day event, which we will host in conjunction with third-quarter earnings.
On behalf of Mylan's Board and our entire leadership team, I'd like to thank our employees for their outstanding team work and execution during the quarter and for their continued commitment to our cause.
With that, I'll turn the call over to <UNK>.
Thank you, <UNK>, and good afternoon, everyone.
We continue to see solid performance across our businesses during the second quarter, once again demonstrating that the scale and diversity we have created provides us with strength, consistency, and resilience to ever-evolving market conditions, further differentiating us from our competitors.
We launched more than 100 new products across our global platforms, and with Meda, we now sell approximately 2,700 products around the world.
Overall, our generics business delivered third-party net sales of approximately $2.1 billion for the quarter, an increase of 4% compared to prior-year quarter.
In North America, our generics business grew approximately 6% to just over $1 billion.
Growth came primarily from a significant number of new product introductions, leveraging our strong global platform.
We launched 18 new products during this quarter.
The generic pricing environment was again consistent with our expectations and guidance to you.
<UNK> will elaborate on this topic shortly.
In Europe, sales totaled $604 million, an increase of approximately 6% over the prior-year period.
This result was mainly due to sales of new products and higher volumes on existing products, as we've continued to benefit from integrated approach of selling our established product assets under one Mylan.
Pricing was essentially flat in the second quarter because of our diversified product portfolio.
In rest of the world, sales totaled $523 million, a year-over-year decrease of approximately 2%.
Our operations in India improved throughout the quarter, as we saw HIV tender volumes returned towards our expected levels, resulting in growth of more than 30% on a sequential basis compared to Q1.
Additionally Japan, Australia, and the rest of the emerging markets showed favorable sales on existing products.
With that said, we continue to remain confident in the strength of these businesses.
Our specialty (inaudible) delivered revenue of $403 million in the quarter, a year-over-year increase of 33%, as a result of higher sales of EpiPen, Perforomist, and ULTIVA.
<UNK> will provide more details on this.
Our global platform has been further strengthened and diversified by the growth of our global established brand and branded generics business, as these key brands continue to perform at or about expectations.
This established brands and branded business will be even further enhanced by the addition of the Meda brands.
Meda's attractive portfolio is just one of the reasons why I share <UNK>'s excitement about the recent completion of the transaction.
The addition of Meda strengthens our position in several [therapeutic] franchises, significantly expands our over-the-counter business, and accelerates our expansion in several attractive emerging markets, which will help us further maximize our efficient, high quality operating platform and the broad product portfolio.
During this quarter, we also completed our acquisition of Renaissance topicals business.
By bringing together the Renaissance business with Mylan's and Meda's strong dermatology portfolio, we are confident that we will be able to drive significant growth from this franchise, especially by taking the combined portfolio and pipeline into the new markets outside of North America.
We are looking forward to now moving from pre-integration planning to truly integrating these businesses into Mylan's family.
We are very excited, as we will be moving into integration space, along with the key leaders obtained from Meda and Renaissance leadership.
While we remain focused on business continuity, we also are very excited and upbeat to realize the potential [end] value of bringing together the best of these organizations and our combined efforts.
We also continued to execute on our strategic growth drivers, and let me highlight a few of the developments during the quarter.
Turning first to our biosimilars portfolio, we are pleased to report that we remain on track to file trastuzumab, pegfilgrastim, and glargine to USFDA and European Medical Agency in 2016.
Our 24-weeks [data] from our HERiTAge study for our biosimilar map confirmed the efficacy, safety, and immunogenicity of our product being developed in partnership with Biocon.
This study was presented at the ASCO meeting in June, and we are now expecting to present our results for the 48-week extension of the HERiTAge studies at the important European Society of Medical Oncology Congress in October.
Recently, European Medical Agency has also accepted for review Mylan's marketing authorization application for our proposed biosimilar pegfilgrastim, also being developed [with] Biocon.
In addition to analytical, functional, and preclinical data, the application also includes clinical data from pivotal PK/PD and confirmatory efficacy, safety, and immunogenicity studies completed earlier this year.
The results from the studies are also expected to be presented at ESMO in October.
In addition to this, we continue to make progress on our other programs and will continue to provide further updates as our filings are accepted.
As a reminder, with our Biocon partnership and Momenta collaboration, we have access to a combined portfolio of 15 biosimilars and an insulin analog genetic product in development.
The is one of the industry's [most robust] and diverse portfolios.
As we continue to invest in this important global area, we are continuing to differentiate the structure of our partnerships, for instance, with Momenta, we have a great deal of product-by-product optionality.
On the respiratory front, our partner, Theravance Biopharma, announced that enrollment of more than 2,300 patients has been completed in the three ongoing clinical trials, comprising the Company's Phase 3 program for revefenacin, an investigational LAMA in development for the treatment of COPD.
The replicate efficacy studies are expected to be [let out] in early fourth quarter of this year to be followed by a 12-month, long-term safety study and plan for an NDA filing in 2017.
Regarding generic Advair, we remain confident in our application as we continue to be actively engaged with FDA towards the execution of this very important NDA.
Finally, I also would like to thank our committed and talented global workforce for their significant contributions to our business and mission during this quarter.
With that, I'll turn the call over to <UNK> for some additional perspective on the commercial landscape.
Thanks, <UNK>, and good afternoon, everyone.
I'll start out by saying that I'm extremely pleased to be a part of this call and a part of the Mylan team.
I'll now turn to our financial results.
Second-quarter revenues, grew to $2.6 billion, and that's an increase of 8% over the second quarter last year.
As <UNK> already noted, our generics segments grew 4% and our speciality segment grew 33%.
The generics pricing environment was consistent with our expectations and declined at a mid-single-digit rate overall in the quarter.
While foreign currency movements were volatile following the outcome of the Brexit vote in late June, the year over year impact of currency translation on our second-quarter result revenues was insignificant due to the diversity of our portfolio of businesses across all geographies.
As <UNK> noted, second-quarter revenues increased 17% sequentially, with growth in both of our segments and all three geographies.
Adjusted gross margins for the second quarter were 56%.
That's up approximately 200 basis points from the prior year and the prior quarter, as a result of the new product introductions and favorable specialty sales.
Moving on to operating expenses, on an adjusted basis, R&D expense increased slightly over the prior year, as we continue to invest in our respiratory, insulin, and biologics programs.
As a percentage of revenue, second-quarter R&D declined by approximately 50 basis points from the prior year to 6.6% of total revenues.
SG&A expense, also on an adjusted basis, remained essentially unchanged at approximately 21% of total revenues in the second quarter.
As a result of our strong operating performance, adjusted net earnings increased by $118 million from the prior-year quarter to reach $592 million, and adjusted diluted EPS increased 28% to $1.16 compared to $0.91 in the prior year.
I will also point out that adjusted diluted EPS grew 52% sequentially from the first quarter of this year.
For the six months ended June 30th, total revenues grew to $4.8 billion; that's a year-over-year increase of 13% on constant-currency basis and includes an additional two months of sales from our established products business.
Adjusted gross margins for the six months ended June 30th were 55%, or up approximately 100 basis points from the prior-year period.
Adjusted R&D and adjusted SG&A expense were approximately 7.5% and 22% of total revenues respectively for the year-to-date period.
As a result, adjusted earnings for the six months ended June 30th increased by $195 million, to reach $979 million and adjusted diluted EPS, therefore, increased 19% to $1.92.
Turning to our cash flow and liquidity metrics, adjusted cash provided by operating activities was strong, at $485 million for the quarter, which drove the first-half adjusted operating cash flow to reach $687 million.
The strong performance in the quarter reflects improvements in our operating results combined with our continued focus on effectively managing working capital.
During the second quarter of 2016, we issued $6.5 billion of senior notes in anticipation of the completion of the Meda offer and repaid $500 million of senior notes which became due in June 2016.
We have no amounts outstanding on our accounts receivable securitization or our revolving credit facilities.
At the end of Q2 our net debt-to-adjusted-EBITDA leverage ratio was 2.2 times.
We remain fully committed to maintaining our investment-grade rating and reducing our leverage subsequent to the closing of the Meda transaction.
Looking ahead, we feel confident with our ability to continue to leverage our outstanding global operating platform, which now includes the recent acquisitions of both Renaissance and Meda, and we're committed to our 2016 outlook of adjusted diluted EPS in the range of $4.85 to $5.15.
In terms of phasing of our earnings for the remainder of 2016, Q3 will again be our strongest quarter and slightly higher than Q4.
With that, we'll open the call up to your questions.
Hi, <UNK>, thanks.
So I'll start on the US generics, and then if <UNK> or <UNK> want to add anything.
From my perspective, as we've continued the dialogue around the diversifying and the differentiation and product mix, and the breadth of portfolio, certainly, as you look at some of the smaller players, I think weaknesses from the niche product, as well as, perhaps, how they were playing their business and positioning it.
And I think that the other thing you have to take into consideration is balancing that, to your point about does it drive more irrationality, is our customers that are continuing to get more global, and their demands and needs are getting far greater.
And I know <UNK> touched on this in his remarks, but I really think that shouldn't be underestimated.
The need for a reliable supply is continuing to, I think, again, be a differentiator for Mylan and our ability to meet these global needs in a very reliable ---+ as we've touted before, through sheer hard work that has been put together this last decade is a supply chain that we believe is second to none.
And, I think you see some value, continued value, being placed on that by our customers.
So I can't speak ---+ as we've always said, our business is going to be competitive.
It always has been, it always will be.
But I don't sense, I would say, that hyper competitiveness that we've seen, say, five years ago when our customers were much more willing to change just based on price, and not necessarily be focussed on if that company could actually supply their needs.
So I think, it continues to shift towards being a not only a differentiator for us, but a real value driver and growth driver for us, which is why we have the confidence around the stability in the market.
As far as EpiPen goes, <UNK>, here is what I'd say.
You've heard me say this a thousand times: all good things don't happen at once; all bad things don't happen at once.
When you're looking at the complexity of our Company, globally, across geographies,, across channels, across products, we believe that when we came out with our guidance this year, we anticipated, obviously, the Meda transaction.
We anticipated a lot of probability waiting on launches, and so forth.
And with all of that being said, I think when you look at our guidance range of being within 3% each way of the midpoint, that we believe that's a very tight range and we believe it's taken a lot in consideration.
And we've always said when we feel that that ---+ we should update or move that guidance, we're the first to come and do that to the market.
But we believe right now that it is absolutely taking a lot into consideration given all of the moving pieces across our platform.
Thanks, <UNK>.
I will start on EpiPen and then hand it over to <UNK>.
<UNK>, I love the opportunity to clarify this point around insurance and the changing dynamic and the payer landscape.
It really is not ---+ the point is not being made from our earnings perspective or what we see with EpiPen.
I will continue to say that we couldn't be more proud of our investment top expand and increase access and continue to see EpiPen as an important product to the community.
And as, again, <UNK> mentioned, our opportunity to even enhance that throughout Europe now with the Meda transaction.
But this point, I think there has been a lot of discussion and some headlines around patients going from paying a co-pay to now paying the entire cost of a product.
And where EpiPen falls, because if you look on an annual basis, as a life-saving drug, to have a [whack] price that, just under $600, I think that you can see it falls as not an expensive product.
And so when employers through high deductible plans that were incentivized to increase high deductible plans through Obamacare, as people ---+ as employers shift more cost to employees and make that everything has got to come out of pocket before you hit your deductible, is where you're seeing a lot of noise around EpiPen.
And so from our perspective, we're continuing to try to do our part on educating on that supply chain and we all know it's complex and our healthcare and insurance is complicated.
But we are just continuing to try to do our part, messaging and continuing to do everything we can to ensure patients have access to our product.
And so that really is the point on the insurance, not at all from what we're projecting from a business perspective around EpiPen.
And regarding Advair, generic Advair, Ronnie, our [confidence] comes from two data points.
One, we have been seeing the generic Advair has been unique in a way, just given the FDA's engagement not just after the filing but before filing, the number of interactions, agreement on protocols, agreement on what their expectations are.
All of this has been built in, in the [science], number one.
Number two, you will see that over the last five months we have seen a huge movement of both the execution of this [product] ---+ just to let you get an appreciation about various PAIs, pre-approval inspections, which is around device or a [direct substance] or as a [direct product] is all behind us.
And our confidence, again, comes back from how we see the filing being executed as until date.
So we are, I think, very confident about that maybe we'll be able to improve the FDA's [partial] date of first round of approvals.
Well thank you, <UNK>.
As far as the buyback goes, I ---+ first, let me start with this.
As you know, we are constantly looking at our capital allocation, and the absolutely the share buyback is an option of how we ---+ of being part of the mix.
So we absolutely ---+ it's back on the table as an option that we have.
Just as we're looking at many other ways.
I can tell you, though, our priority is really to delever.
It is about really making sure we're balancing all of that, but it absolutely is back on the table as an option.
As far as the $6, I just want to ---+ because sometimes you guys throw these little flippers in there.
What we've committed to is $6.00 in '18.
What we've said since announcing the Meda transaction is we have the opportunity to hit that earlier.
But what we are absolutely committed to is the $6.00 in '18.
And as far as IPR, I'll speak to the confidence, and then <UNK>, anything you want to add ---+ or <UNK>, on the market opportunity.
We couldn't be more confident in the IPR, the process, and where we stand in that and are anxiously awaiting the results of that next week.
And I would just remind on our confidence to get the product approved, look, the reality is that the transformation that FDA has gone through and is going through over these last couple of years with GDUFA, there have been casualties to that and there's been casualties in the backlog and how they're being able to handle them as they move towards GDUFA goal dates.
And obviously, Copaxone fell prior to getting a GDUFA goal date like our generic Advair.
All I can say is speaking on the science and speaking to our application on both the 20 and 40, that we absolutely have all of the confidence in the world of getting it.
But, as you know, I've said I'll love the fact when we're not talking about when we're going to get Copaxone approval.
I will just add that we appreciate it's been a painstakingly long process with FDA, but we just have a very minor clarification from FDA we received recently, we just responded to.
And there's nothing else scientifically pending at all, and we are waiting to hear from FDA about the next step.
So that's where ---+ we are pretty confident about bringing this product in the market as soon as possible and hopefully in 2016.
And we think the opportunity is still significant.
It's a big product and we still believe that it's going to be ---+ it will be a good product for us.
So let me start, <UNK>, and then again, I'll let others chime in.
As far as the mix goes, and I think what we tried to articulate especially on the specialty side, is that it is a combination of certainly ---+ we've seen nice growth in volume.
Yes, part of that has been through the pricing dynamic, but more ---+ I think more of note is this idea of the net price.
And what <UNK> spoke about is that our realizing these renegotiated contracts, which we've now said starting at the end of last year, that those wouldn't happen overnight.
But as we've continued to renegotiate, and as we said, it's not just about one product; it's a whole portfolio of products, we've been able to continue to see that increase.
And so, again, I think as far as us realizing those margins are sustainable as we work ourselves through these contracts.
And if the dynamic around EpiPen market would ever change, those would change as well.
But I think what we're continuing to benefit now is the realization of those.
And I think as far as generic.
I would say, <UNK>, you can add, that we are holding pretty well the volumes.
We see the volumes pretty flat, and we have guided you to mid-single-digit [erosion] over the year.
And we are seeing nothing else than [the middle] single digits and that is what we are forecasting for the rest of the year.
Yes, so, I would say, first, marginally a little earlier.
We had said Q3.
But I think importantly, <UNK>, to your point, I, look, could not be obviously, more confident in hitting the $6.
I think that we look forward to the opportunity to bring that up.
I think ---+ I can't wait to get to Investor Day that we've now announced to be part of Q3.
Because I think our opportunity to really showcase these assets that we've pulled together from Abbott to Famy Care to Renaissance to Meda, is really going to showcase this platform and our ability to really maximize these assets.
So I don't want anything to take that away, and I can tell you we are very, very focussed on the opportunity and how we pull that forward.
So there is ---+ like I said, I hope you can hear the inflection in my voice that there is nothing that we're more focussed on.
And yes, I think we're still on track.
There is nothing that has changed that would change the accretion number that we talked about.
Again, I think in the Q3, once we have a couple months under our belt and we're able to come forward with a long-term ---+ our long-term vision and road map and ability to execute against that, as hopefully our track record speaks for itself.
Again, we're going to be able to show you how we're able to do more with these assets coming together than they were doing on an individual basis.
Let me respond to the rest of the world business.
If you recall in the first quarter, we have seen [lead patch] for HIV tenders because the global (inaudible) and [K-monix], which is a new agency managing the tenders has not [located].
And it took them time for that machine to warm up and we started influx ---+ seeing influx of tenders towards the middle of May.
So we have seen a sequential growth of 30% on this business; everything is now back on the expected levels, which we were expecting.
So nothing is inherently weak with that business.
In fact, we are very excited by the volumes being packed.
That is what has (inaudible) to the 2% year-over-year decline of this overall business.
And as far as EpiPen goes, Doug, no concerns at all.
We see inventory absolutely in the normal range.
Well, <UNK>, as always, you do not disappoint about getting a lot in to your questions.
So let me start with the rebasing, because I do feel passionately about this as being in this industry for as long as I've been.
Look, I am hopeful that the rebasing continues, but this is not memory loss in about a month and hot air starts building back up again.
Because I think that what we found ourselves in the generic speciality sector is unsustainable business practice.
And I think that it just ---+ it's just that simple.
And I think individual companies are now having to ---+ however much affected they may have been by an unsustainable business practice, they're having to regroup, reorganize, rebase themselves.
My hope is that, as I mentioned, that that has driven, I think, forcing a much more thoughtful look at businesses and understanding the mix because all companies aren't created equally.
And, like I said, I'm hopeful that Wall Street doesn't have short-term memory loss and goes back to trying to paint all with one or trying to support what I don't believe is sustainable long term.
So we believe there has been a lot of short-term focus.
We have said you can't build a great company quarter by quarter; it's over the longer term.
The last decade we have continued to hopefully show that that pays off in both the near, mid, and long term.
And we look forward to coming back out to you guys on Investor Day and showing you how, one, that the ability for us now to take this significant financial flexibility we have and continue to build and complement this platform we've put in place, which will, to your point, continue to consolidate, I think those assets the companies need to let go of, products, and small nice tuck-ins like we just did with Renaissance.
And as far as OTC, I'll have to ask you to wait for Q3, because I think we really want to come out in a holistic way, talk about our geographies, these channels, and how truly we believe approaching these markets with a one Mylan approach, we're going to be able to do more.
So, anyway, look forward to that.
Okay.
Thank you, <UNK>.
So I'll start with integration.
Look, I hopefully, by now, the fact of our business continuity and our track record would let you realize the fact that we are not only very focused on integration but have a very disciplined approach.
That it's not just about bringing the company into the fold; it is truly about integrating businesses, people, best practices.
And so, as we are now doing that for over these acquisitions, most recently Meda, we absolutely, I can assure you, have multiple work streams.
As we had reported last quarter actually, our pre-planning phase of that allows us to hit that ground running once we hit day one.
And I can tell you I'm confident that when we do lay out those plans and those opportunities, they're very robust.
They cut across all geographies.
So we're not prioritizing one over the other.
The benefit of having great people and bringing their management team into the fold of our management team, we're able to really divide and conquer across the globe, across channels, and across these great brands and especially, this new channel of OTC.
o we couldn't look more forward to coming and highlighting that, and I don't feel I can give much more of a teaser than that for Investor Day.
As far as guidance is concerned, look, we've got ---+ when you look at the complexity of not only our business in general and the generics business, both here in the US but around the globe, that's why, as we've continued to grow specialty, grow brand generics, grow our brands, grow OTC, it is just for that reason of complexity and volatility that we've said the diversification and differentiation lets us absorb that now, our scale.
Our sheer size and scale is able to absorb that volatility and manage this business.
And hopefully, when I look ---+ and that's why I said I couldn't be more proud of Q2, that we were able to be right on top of revenue, beat our ---+ the EPS consensus, and all sequentially, because I know many of you that I had discussions with after last quarter, everybody felt that we were taking such a big leap from Q1 to Q2 that if we could show that this business could perform of what we said it was going to do, that certainly would pave the way for the growth and, hopefully, market multiple that should respond to that accordingly.
So, that's why I highlighted the sequential growth of not only top line 17%, bottom line 52%, and the strength of our cash flows.
So, like I said, I think that hopefully, you're realizing our guidance takes a lot into consideration and our ability to manage to that, and perform and deliver.
Again, I think this quarter is just underscores this management team's ability to do that.
Sure, <UNK>.
So, look, <UNK>, as far as painting a picture, we will paint a very detailed picture.
We obviously have owned them now for all of a week.
To my point earlier, our planning around just that, the geographies, the products.
Unfortunately, we could get work streams and people aligned, but as you know, the Swedish takeover rules did hinder as far as some of the detail ---+ of getting into the details.
So I can assure you that over these next couple of months, we will be putting the machine that we've put in place, from an integration office perspective.
And I can assure you, like I said, we've retained the management teams, and it is really about us integrating, as I said, best practices.
This isn't just come in and do it the way Mylan's done it.
We're getting new businesses, new business channels, new products, new brands, that it is about learning from each other, and really that's been our success in the past.
I look at the Abbott/EPD business, we brought that business in.
It was different products than we've been in before, some different channel.
And really bringing that management team and that business in fold, we've been able to show we could do more together than they were doing on an individual basis.
I can assure you I have all the confidence in the world that Meda will be that same story, and we look forward to coming with that very pretty picture around Q3.
<UNK>, on your question around the acquisition-related costs, I'll answer the question.
I'll also point out that we filed our 10-Q concurrently with this call and we have those details in there.
But primarily the biggest chunk of that $174 million of cost is really due to the financing-related acquisition costs around Meda.
And we've broken out in there that we did some purchase of Swedish krona ahead of time.
We had an unrealized loss on that due to the movement over the time period.
And also the fees related to the financing and the existing bridge loan facility that we took into place.
All of that is broken out in the footnote there, but that is substantially all of the costs.
On the IFRS accounting side, as you know, we also prepare Mylan's books and records on both US GAAP and IFRS basis.
We started that process last year.
We will continue to basically just roll the Meda process into that.
So we've already done it through ---+ with the Mylan accounts, and we'll do it the same way with the Meda accounts.
No, I'll reiterate that there is nothing out of the norm when we look at our EpiPen business right now.
And, again, as we stated, we're going to have to continue to evolve until we get one year under our belt from the Auvi-Q recall, because obviously, how that plays out, especially in Q4, that will continue to evolve.
As far as just the overall strength of EpiPen, I think as we've talked before, the brand equity of EpiPen, the life-saving nature of this important medicine, our continuing to educate and invest in the access to this product, I believe that EpiPen will be a very, very important product for a very long time.
With that being said, I think as I said earlier in my remarks, we don't have significant concentration from any one product or business segment at Mylan today.
And as we continue to grow, just as now we're bringing Meda into the fold, EpiPen, from a true dollar contribution, will just continue to shrink.
So, again, there is no over-reliance on EpiPen as a brand, but I can tell you that there is every bit of focus on the role EpiPen plays in the lives and saving lives and then getting to as many patients as we possibly can.
So that's what I would say about our EpiPen franchise.
So <UNK>, we have said ---+ think I've been pretty consistent on this for years as we bring in acquisitions, I think that as we did with Abbott for that first year, we broke out, so you could continue to see the growth from Mylan and the growth from EPD.
But honestly, because of our robust integration processes and bringing these companies together, it's now Mylan legacy.
So for me to sit here and try ---+ that is what we're ---+ our business is.
And like I said, Q3 we'll look forward to being able to now highlight Mylan in this platform and now bringing Meda into the mix.
But it would be ---+ it's just not even possible for us to break it apart that way anymore, because we truly are going to market as one Mylan, and we have got strong products, strong brands, that's complementing the retail segment, the physician channel, and now the OTC channel.
So all I can say is that we continue to see robustness around these products that we've brought in and we've continued to grow them.
And as far as Advair, I can't ---+ I will just say that obviously when you have an $8 billion, $9 billion brand product, we couldn't be more excited to bring the generic to an affordable alternative to market.
And again, think there will be significant barriers to entry just given the complex dynamics.
And so I can't ---+ I think it will be an incredible important product that we'll be able to bring to patients.
So as far as Renaissance goes, no, we're not ---+ we don't break out product-level contribution.
As I said, we acquire 25 brand and generics and brought them in the fold June 15th And, as I said, when you look at that combined with now the Meda assets in derm that we're bringing on board is really going to allow us to be a leader in that space.
We think the derm space is a nice niche space.
It's one that we didn't have critical mass around before.
And again, just like all of our other product lines, bringing that kind of critical mass and combined with the critical mass we have around all of these other therapeutic franchises, we're again just able to leverage them and maximize them from our global customers to meaning the most to our patients.
As far as biosimilars, I would challenge that no one has doubled down in this field any more than we have.
We have now access to up to 15 products on a global ---+ optimizing our global commercial platform.
So, we will continue, obviously, to invest very heavily.
But I will suggest that we have more investment in biosimilars today, and certainly as we look over the horizon from an R&D perspective.
Okay.
Well, thank you, thank you, guys.
We appreciate all of your questions and look forward to seeing you soon.
| 2016_MYL |
2016 | CME | CME
#This is <UNK>.
I will answer and then I will ask <UNK> to add if she has anything to add.
I think the FSB like all the other regulators are concerned about CCP residency just as Chairman Massad of the CFTC is.
I think the authority such as the CFTC are familiar with CCPs, familiar with the risks that CCPs bring, and they're comfortable I think with the framework that they have been overseeing for decades.
I think the FSB, which includes some of the central banks of the world that don't necessarily ---+ have not necessarily overseen CCPs are coming to grips to what those mean and they are looking at various and sundry scenarios.
And this is all part and parcel of the knock-on effects of the ---+ that the crisis of 2008.
On our part, we are working very hard to educate to the extent that we can and also contribute to the debate to the extent that we are allowed to.
I would just add a couple of things.
<UNK> mentioned the kind of varying perspectives of different regulators and one of the things ---+ part of our advocacy is to help educate regulators that are newer to the regulation of clearinghouses or CCPs because although the G20 and the regulation has pushed products into clearing mechanisms because clearing mechanisms worked in the crisis, the interesting thing is that now they are thinking about slightly changing the way clearing mechanisms need to work, so we want to make sure that clearing mechanisms maintain their effectiveness and our advocacy is in that regard with respect to flexibility and crisis management and the ability to have strong risk management program.
Sure.
This is <UNK>.
I will take it and I will ask <UNK> to comment specifically on the energy side.
So within equities we had a higher proportion of member trading and in energy we had two factors, one is we had a larger proportion of member trading than last quarter with member volumes up 19% and non members up 15%.
We also saw a large increase in the use of our electronic natural gas options which are lower price than ClearPort.
<UNK>, do you want to comment on what you're seeing in terms of options trading that would be great.
But before we do that, I will just mention in terms of the advertising campaign, yes, it's geared towards more retail and non members.
With that, I'll hand it over to <UNK> on the options.
Just one more point on that.
When I look at the fourth quarter, I think market data will be in the neighborhood of $100 million.
Sure.
I wouldn't say it wasn't as high as we expected.
I think we are right now at about a $3 million run rate per year in terms of the amount that we had anticipated ---+ that we gave out in terms of take-up.
So although it's only $170,000 for the quarter, we're at a $3 million run rate, so it does take time for firms to make these decisions.
As you indicated, they're weighing the annual variable dividend they get in the fourth quarter by ---+ into the first quarter for holding our shares so they take a look at that.
Also, we think it is beneficial for new members coming in, especially those from overseas, that were holding CME stock and having that amount of capital is prohibitive.
So that takes time to work through the system.
In terms of the overall opportunity being about $40 million, we are at roughly 10% of that and it's only been out just for a couple of months.
So for us it's ---+ this is really nothing but upside for us.
I agree with that.
I think that when you look at our revenue coming out of our traditional retail the way we measured it basically next to nothing, and then putting in roughly a couple hundred million dollars I think last year alone coming from the retail side of the business, the upside is just extraordinary.
We have I think somewhere in the neighborhood of 4% of the retail trade globally and if we can just double that, you can imagine what the revenue could do for this company.
So we are taking a strong look at that.
I think what's important here is we are not targeting the mom-and-pops on the street when we call retail.
We are talking about participants in the market today trading anywhere from 10 to 20 contracts a day already, and we are trying to harness that into the business.
What I think is also fastening is when you look at some of these discount retail equity brokers traditionally, they are starting to merge together the ones that offer futures.
So that only bodes well for us to concentrate this more among people that are already offering these products.
| 2016_CME |
2016 | UFS | UFS
#I think it really depends.
If you take the personal care business, you would say $30 million to $40 million is if you're growing at market, it's relatively steady.
You haven't got much product innovation, and steady state.
Now if we felt there was some other opportunities, either in geography or in product, or there was a large win or a large launch, you might see a little bit higher than that.
But that's the steady state number for the business.
That help.
To give you an idea of how it would work, a machine with everything that goes around it might be $25 million to $30 million, depending on whether it's baby or whether it's adult incontinence and depending on the geography actually that it's placed in.
So if you think about that and you have to order a machine or two a year, you're a little bit over that steady state number.
But the asset base we will have by the end of 2017 gives us runway to $200 million.
So if we start to buy more, our expectation will be that it will get us past $200 million in EBITDA.
Well we're a little bit pulp constrained because we're obviously still supporting two paper machines.
So essentially, while we're running those two paper machines and that pulp line, that's what the pulp line would be producing.
Well I can only talk about us really.
I think you know us well enough that we're always looking for that opportunity.
If we think the dynamic is shifting a little bit towards the seller, we'll look for a price increase.
And I mean that's certainly what we felt in North America and why we announced what we announced.
Good morning, <UNK>.
Well, I think it's really a discussion around the pulp and paper business more than it's a discussion around the personal care business.
So we think there's a few issues potentially around wood.
It's a very localized business; local dynamics make a big difference.
If you think about what we're doing in Ashdown, so really we've been buying a lot of hardwood and very little softwood.
Now we have to go out and find all that softwood.
So if you think about that impact in our raw materials, that makes an impact.
It doesn't necessarily mean we're buying more expensively, but we're buying a more expensive wood, if you take my point.
So we buy roughly $1 billion of wood every year, so we think there's a little bit of inflation in there.
I think that's the major item.
No, not really.
Not at this point in time.
You would imagine ---+ you look at oil as a feedstock and you say to yourself but of course it's really about mostly the converting ability around some of the chemicals we buy.
So we're not looking for anything dramatic there.
We got some major benefit about a year ago when we actually really rejigged our specialty chemicals supply within our pulp and paper business.
That's going to run through, but there will probably be a little bit of inflation in that.
But still off a lower base than we've had historically.
It was mostly volume.
I'm not trying to avoid the question.
It's just it really depends on where we're selling the product.
So there's been some price pressure in the long term care, acute care area.
It's actually been very solid in the retail area, and we've had price pressure in some of our Nordic businesses, but we've been very strong actually in southern Europe.
So it's a bit of a ---+ mishmash is the wrong word, but it varies.
In addition, currency throws it all around, because we've also got the kroner to the pound and the kroner to the euro.
But overall, little bit of price pressure in what I would call the healthcare sector, but not so much in the retail sector.
Thank you.
<UNK>, hi.
No.
That's a great question.
So undoubtedly a little bit of noise about are the Europeans going to appear.
Nothing substantial, as you say, and numbers don't show it at this point.
If you think about the Europeans, they've had ---+ that market has actually got much better this year.
I think they've had three price increases, so probably economics say they are happier in their home market than exporting because by the time they've paid the freight and they've stored, et cetera it might not be wildly attractive.
But I'm sure they will knock on a door for some of the bid business, I would imagine, <UNK>.
So far nothing wildly dramatic.
Good question.
So I think the way you have to look at this is you have to look at the end use market.
So obviously this is a product in baby diapers, it's a product in adult diapers, it's a product in feminine care.
You look at the growth on all those areas, they are pretty dramatic.
We think fluff pulp is a 3% a year growth market.
So assume it's around a 6 million-ton market a year, that gives you some sense of what that might be.
We've got I think a very strong sales plan in place.
It does help us to be forward integrated, actually, with our own personal care business.
And of course we have that opportunity to be careful as we move into that market in terms of baling southern softwood.
So I think with all that in place, we will have roughly one million tons to sell into that market, maybe a little bit less maybe, 850,000.
My view is we're in a strong place from a cost standpoint and we're in a very good place I think in terms of the quality of the product we manufacture.
So overall, I think we've got a good market position which I think over time will prove its worth.
Thank you so much.
Have you got the sun capacity in there.
Okay, so we all know that's very early days.
So I'm not sure ---+ I'm not wishing to argue with your calculation, I'm not sure I'd include that at this point.
But I think if you look at where we are, again only to repeat myself, I think we've got a great product.
Is it going to get a little bit difficult maybe for awhile, who knows.
But my view is if I look at our product mix, probably 2016 we're really going to focus on getting ourselves qualified in our own personal care business with our Ashdown volume and also in a few key accounts, all of whom know our agenda that we want to be with them and are prepared to help us qualify.
And then I think the product mix shifts probably by ---+ in 2017, full 2018 we're probably at full volume on fluff pulp.
But I think there's a pretty steady ramp up as we balance between bales and fluff.
Obviously, I'd be happy to.
It depends on the customer, it depends how they buy, depends on their technical resources.
But it can take you three to nine months to qualify with a major account in fluff pulp.
And why.
Because of course this is a key ingredient of a consumer product and they're highly sensitive to how their consumer, where that be the baby, whether that be the elderly person, whether that be the woman in fem-hy, responds to these products in the final product.
So it's actually a technical sell and an R&D base sell to these major accounts.
So it's not I have fluff pulp beat a path to my door, it's actually a pretty technical qualification.
And in terms of how your grade interacts with their machines, the kind of yield they are going to get, does it actually depulp effectively and quickly, is it soft, is it harsh, all those issues really count to that customer base.
Thank you very much.
| 2016_UFS |
2016 | OFC | OFC
#It's too general a question to answer, <UNK>.
But in most cases, if there is an early term, we try to tie it to a specific contract.
And to the extent, <UNK>, there is an early term, there is most likely a penalty on the tenant side to reimburse us on amortized tenant allowance and leasing commissions to give them the right to terminate.
If you include the preferred as debt.
Is that what you're asking.
Yes.
It probably takes it up to 6.6, 6.7.
But that should be about the size.
If you include the preferred as debt, <UNK>.
Thank you, <UNK>.
Sure.
Well, we're fully leased at 250 West Pratt.
We have one very small parcel that we have a tenant we're negotiating with and the rental rate on that proposal or negotiation is a couple bucks ahead of where we had pro forma of the building, so we're pleased with that opportunity.
We had one chunk of space to lease at 100 Light.
We leased it at about 9% over our pro forma on a rental-rate basis; that tenant will take occupancy in October.
Our parking results are very positive at 100 Light.
We're beating our own plan by about 28% year to date.
Everything's going very well with regard to Canton Crossing, we did get our plan approved by the city of Baltimore.
And we continue to work towards the mixed-use development that we have toured you through recently.
All right, <UNK>.
Thank you.
Thank you all for joining us today.
If your question did not get answered, we are in the office and available to speak with you.
We look forward to the next call.
Thank you.
| 2016_OFC |
2016 | PSA | PSA
#<UNK>, I don't have the occupancies or any of that stuff on the acquisitions here with me.
They are generally somewhere between 70% and 85% occupied.
In terms of price per foot, the stuff required were about $110, $120 a foot.
It varies by market.
Lower.
You're welcome.
Well, London and Paris ---+ you know, first of all, those are big markets.
I assume you're talking about the major Metro centers, London, Paris, Berlin.
Yes, they are just like Los Angeles or San Francisco or Manhattan.
I mean, you've got core, core markets, the inner ring in Paris, downtown near Buckingham palace, the central part of London.
First of all, you can't get zoning.
Second of all, if you ---+ if a piece of land is for sale, it's incredibly expensive, probably doesn't make sense.
So it's equally as tough.
And the sites we've done in London are ---+ they have not been easy in terms of getting the zoning.
Same challenges that you face here, where the markets where you really, really want to be in and there's no competition, it's really hard or there's no zoning.
Well, you got to keep in mind in all of <UNK>tern Europe and, again, this is best guess statistics, somewhere between [1500] and 1800 facilities in all of <UNK>tern Europe, including Great Britain, over half of which are in Great Britain.
So the product that's available across the continent is pretty thin.
There's not a lot of ---+ I think in Berlin, there's 10, 12 facilities in all of Berlin.
So there's not a lot to buy and the product is on average, I would say, much lower quality than the US because a lot of it was not purpose-built.
A lot of it was converted office, converted garages, converted industrial buildings.
And it takes a variety of shapes and sizes.
So not a lot of purpose-built product in Europe.
Not a lot of product to even buy.
And most the product there is over in Great Britain and a lot of it's outside London.
Thank you for participating on our call and we look forward to speaking to you next quarter.
Have a good afternoon.
| 2016_PSA |
2015 | AVA | AVA
#Well, thank you <UNK> and good morning everyone.
I'd like to start by welcoming our new Vice President and Controller, Ryan Krasselt.
He's been with the company in various leadership roles for about 14 years, most recently as the Director of Risk Management and Assistant Treasurer.
He is a great addition to a leadership team and we are very excited to have him in this new role.
Turning to financial results, we had a solid third quarter with earnings that were slightly above our expectations.
During the quarter, we experienced higher electric loads as a result of warmer than normal weather.
However, the revenue from higher loads was mostly offset by electric decoupling in Washington and a provision for earnings sharing in Washington and Idaho.
Alaska Electric Light and Power Company had a nice third quarter with results that met our expectations.
We're pleased with how they are performing thus far.
With respect to regulatory matters in October, we reached a settlement agreement with all parties in our Idaho electric and natural gas general rate cases that, if approved, will result in new rates beginning January 1, 2016.
The Idaho agreement includes electric and natural gas decoupling mechanisms, which are similar to the mechanisms in Washington.
I'm pleased with the settlement package in Idaho, which gives us the opportunity to continue to provide the safe, reliable energy our customers expect, while earning a fair return for our shareholders.
We are continuing to work through the general rate case processes in Washington and Oregon.
Turning to strategic developments, I would like to provide you with an update on the LDC opportunity in Juneau.
We've made considerable progress and we're very excited about the possibility of bringing natural gas to Juneau and helping our customers lower their heating bills.
We estimate that the total investment in this project would be about $130 million over 10 years with about half being invested during the first five years.
We expect this project to be slightly dilutive to earnings during the first two years of a construction phase and slightly accretive during the first year of operations.
We expect about $0.05 of earnings per share by the third year of our operations and going from there as we add customers.
We believe that in order for the project to be economical for us and our customers we'll need a combination of low cost debt financing and potential state and local funds to support customer conversion costs.
We expect to seek that debt financing through mechanisms provided by the Alaska Industrial Development and Export Authority or AIDEA, a public corporation of the State of Alaska.
We will also need to file and obtain from the regulatory commission from Alaska, a non-conditional certificate of public convenience and necessity.
If we receive support for these items, we expect to be able to move forward with the project in the first half in 2016.
We should have more details after the first half of the year.
We're also excited about an opportunity for Salix.
In August Salix was notified by the Alaska Industrial Development and Export Authority that it's proposal to build an LNG liquefaction plant to serve the interior energy project, specifically to serve the Fairbanks, Alaska area was selected as one of five finalists.
In a decision by the Alaska Industrial Development Export Authority Board is expected by the end of the year.
I believe we're well-positioned to continue our long-term earnings growth at 4% to 5% with continued rate base growth in addition to these other opportunities that we are pursuing.
Based on the results from the first three quarters and our expectations for the fourth quarter, we are confirming our 2015 earnings guidance with the consolidated range of $1.86 and $2.06 per diluted share.
In March we'll talk more about that in just a few minutes So at this time I'd like to turn it over to <UNK>.
Thank you, <UNK>.
Good morning everyone.
For the third quarter of 2015, Avista Utilities contributed earnings of $0.20 per diluted share, which is an increase of $0.04 over the prior year.
Quarterly earnings increased primarily due to an increase in gross margins as <UNK> mentioned from favourable weather that was partially offset by expected increases in our operating costs, depreciation and amortization and taxes.
On a year-to-date basis, Avista Utilities contributed $1.30 per diluted share, which is a decrease from $1.38 last year.
The year-to-date earnings decreased primarily due to significantly warmer weather in the first quarter of last year, which reduced our heating loads of this year.
The decrease in heating loads was partially offset by the decoupling mechanism in Washington and favourable weather in the second and third quarters.
We also had expected increases in our operating expenses, depreciation and amortization in taxes.
We continue to be committed to updating and maintaining our utility systems.
We respect Avista Utilities' capital expenditures to be about $375 million in 2015 and 2016 and about $400 million in 2017.
This represents a slight increase for 2016 and 2017.
AEL&P we expect capital expenditures approximately $14 million in 2015, $17 million in 2016 and $13 million in 2017, a significant portion of these expenditures represent the construction of an additional backup generation plant, which we expect to go into service at the end of 2016.
At this point, I'll move on to liquidity and financing plans.
As of September 30th there were $130 million of cash borrowings and $44 million of letters to credit outstanding, leaving about $226 million in available liquidity.
There were no borrowings or letters of credit outstanding at AEL&P at the end of September.
In December, we are going to issue $100 million of 30-year Avista Corp.
first mortgage bonds.
For 2016, we expect to issue approximately $155 million of long-term debt, which includes refinancing of a $90 million piece of long-term debt that matures in the third quarter and $55 million of common stock in order to fund our capital expenditures and maintain an appropriate capital structure.
With respect to 2016 earnings guidance, we are completing the process of our Washington general rate cases and expect that to be done by January of 2016.
And we will provide our 2016 earnings guidance in our February 2016 earnings report.
As <UNK> mentioned, we are confirming our 2015 guidance for consolidated earnings to be in a range of $1.86 to $2.06 per diluted share.
And then due to significantly warmer than normal weather and reducing the loads in the first quarter, again, we continue to expect a reduction of our earnings of approximately $0.08 that's been consistent.
And that includes the impact of decoupling in Washington.
We expect this to be partially offset by the benefit under the ERM of about $0.06 per diluted share, which we've had continuing throughout this year.
We expect 2006 Avista Utilities to contribute $1.81 to $1.95 per diluted share in 2015.
And again due to the warmer than normal first quarter, we have $0.08 per diluted share including decoupling that impacts that in negative.
Our range for Avista Utilities encompasses the expected variability in power supply costs and the application of the ERM to that power supply cost.
The midpoint of our guidance for Avista Utilities doesn't include any benefit of ERM.
And as I mentioned we expect to be in the 90/10 company sharing band, which is expected at about $0.06 per diluted share to Avista Utilities earnings.
This is primarily due to lower natural gas prices for power generation fuel, partially offset by lower hydroelectric generation.
Our outlook for Avista Utilities assumes among other variables normal precipitation in temperatures for the remainder of the year and we expect Hydro generation to be about 93% of normal for the full year, which is a slight decline from our last report.
We estimate that our 2015 Avista Utilities guidance encompasses that range, encompasses a return on equity of approximately 8.4% and 9% from the bottom end to the top end.
For 2015, we expect AEL&P to contribute in the range of $0.08 to $0.12 per diluted share and our outlook for AEL&P assumes among other variables normal precipitation and hydroelectric generation for the remainder of the year.
We expect our other businesses to be at a loss of $0.03 to a loss of $0.01 per diluted share, which includes the costs associated with exploring the strategic opportunities that <UNK> mentioned.
Our guidance generally includes only normal operating conditions and does not include any unusual items as settlement transactions impairments or acquisitions or dispositions until such things are known in certain.
I'll now turn the call back over <UNK>.
Hi, <UNK>.
Yes, Michael, this is <UNK>.
The brief in that case are due today actually, so those will be filed.
So in terms of the opportunity for settlement we're really beyond that and as you've followed our company in the past, when there is an opportunity for us to settle, we always work toward that, if we can get an outcome that works for us.
In this particular case, we weren't able to get to an outcome that we were satisfied with through settlement discussions.
And if in the last several years, the Washington commission has deviated from their use of a traditional historical test period with limited pro forma adjustments.
They've taken a different approach to ratemaking, which has worked pretty well for us through using an attrition approach, which better reflects future investment, future costs and rates.
And in this case, we have filed that approach, commission staff has supported that approach, but yet the parties have opposed that.
So that's part of why we didn't reach a settlement in this agreement or settlement in this case.
And that's why we think through litigation, we think there is a reasonable opportunity for an outcome that really works for us.
So we chosen to litigate this case.
It can.
So we've asked the commission to continue to follow the approach that they've supported in the last two or three cases.
And actually one in which in (inaudible) last case they took a different approach and used some escalators which better reflected future costs and rates.
So we're cautiously optimistic that they'll continue to use that in this case.
We continue to use the historical test period that they tend to reflect more future adjustments and so it works pretty well in Idaho.
In Oregon they actually use a future test period, so there's three different methods that are being used in each state.
We would.
Yes.
Yes, we talked about Juneau and feeling pretty optimistic about where we sit.
We still have some work to do, but our hope is is that with some continued hard work that we can maybe start the project by first half of 2016.
$130 million over a 10 year period.
Again, we continue, as <UNK> said, we continue to work through those processes.
We've made good progress in the past to shrink that lag.
We still have some costs that are not allowed by the commission's just either due to law or practice and that again represents about 70 to 90 basis points.
That will continue, those costs continue and a lot of those are as in the past marketing certain Board of Directors costs, certain incentives for officers that just aren't allowed historical and lobbying costs, are not allowed, so that's very consistent.
But the other, the timing lag of the cost and the capital deployed is really where we believe we're making good progress, working with our commissions and their staffs to explain what we're doing and with the attrition in other methods.
We believe that we're really limiting that.
Thanks <UNK>.
Hi, <UNK>.
Well, so the weather benefit, I mean, we had a negative, for the year we've had a negative $0.08 and that's ---+
Most of the third quarter was really offset by two things, was the decoupling, but then also the provision for earnings sharing that we provided in most states.
And when we earned greater than our allowed return we share that 50-50 with our customers.
And so we had booked a provision for both Idaho and Washington for that.
So that really offset the weather benefit of the third quarter and we also had a slight positive from Texas.
So we are incrementally better than we thought in the third quarter, but not by a significant amount.
We did not.
And part of it was, if I want to explain, we had the $0.03 of dilution which we've talked about.
But right now we're better, we've had better second and third quarter, so we removed that.
I could have said, we have $0.03 of dilution and we offset that with a list of other things and we just chose to eliminate it.
So it's still there, the share account is still there, but we've just had better performance in the second and third quarter incrementally to remove that.
So we are slightly better than we have been.
Sure.
I'll start, but I'd like <UNK> <UNK> to add comment because <UNK> has really led the charge for us in Alaska and has done some tremendous work, both just visionary strategic work as well as relationships.
But overall we've had a great plan and we've been looking at it from an engineering perspective and really feel solid and confident that we have worked through.
I would call the technical details of how we're going to operate the system, how we would build it out.
And now we're really at a point where we want to make sure we got it, financially, where we'd like to see it.
So from a low-cost financing perspective as well as help with customer conversions, those are really the two key areas and that's what <UNK> has been working on.
So I'm going to let <UNK> kind of go from there.
Well, thanks, <UNK>.
And we have made a lot of progress.
Our outreach in the community have been strong.
We have a lot of support from local business leaders and state officials, but <UNK> is right.
That's kind of what we're looking at now is how do we get the price to the burner tip as low as we possibly can.
And when we talk about the financing mechanisms through data that is one mechanism or one way to do that on the debt financing component of that trying to lower that, so that's in progress.
We have a team that we're working with state officials to see what might be possible there.
And then with the conversions, how do we make it as easy as possible for customers to convert.
And that's really the goal there, what kind of mechanisms what kind of options or ideas might we be able to bring to the table to make it as easy as possible.
We're working with local officials to flesh that out and the state as well.
So too big, two moving parts, but both we're really excited about the prospects of building out the LDC and Juneau, we're excited about it.
We've made good progress and we're going to continue to work towards being able to start this early next year as <UNK> mentioned.
Well, we try to give you some sense for that, <UNK>, again we expect to spend $130 million over 10 years.
Half of that in the first five years, but with the two-year construction period and then we've said by the third year of operations we're expected to add $0.05 a share and then it would grow from there as we continue to add customers.
As <UNK> said, this is a customer conversion type of model where you have to get the continued customers to switch.
And so we try to bracket that by the third year of operation or fifth year of the project we expected to be $0.05 a share and then growing from there with customer conversions and additional capital.
We look at it as a regulated model.
We still have to work with the commission in Alaska to do that in all parties, but that's how we're looking at, so a regulated capital structure, a regulated type return with customer conversions.
Well, that's, so how we finance that, that's the total dollars we expect to spend over the 10 years and then we expect to finance it with equity as Avista Equity at a utility like capital structure and then debt.
And some of that data we expect to be or we are working towards the low-cost financing that the state, the state agencies provide.
We still have to work with those agencies to do that, to get that.
But we as <UNK> mentioned, he's doing a great job of working with all the people to say, this is a project we want to do and we believe the customers want to have it.
The gas would be sourced in Vancouver VLNG and then would be arched up from Seattle to Juneau, where we would construct receiving facility from storage and regas facilities and gas in the system in Juneau.
Yes.
It is.
Thanks, <UNK>.
No questions, Cynthia.
| 2015_AVA |
2017 | KR | KR
#Thanks, <UNK>, and good morning, everyone
Like <UNK> said, we were glad to see the better results compared to the fourth quarter for identical food store sales and for the second quarter-to-date, our ID sales are positive
Tonnage continued to be positive during the first quarter
We continue to focus on the areas of highest growth like natural and organic products as well as areas where we are saving customers’ time, such as ready-to-eat and ready-to-heat meal solutions
Visits per household were flat in the first quarter
Basket size and price per unit were down, but those were offset by household growth
Loyal households grew 3.2% compared to last years first quarter and our loyal households had positive ID sales growth in the first quarter
In the first quarter, our gross margin was down, operating costs were up, and FIFO operating profit was down
While this is not representative of our typical expectations, it is important to keep in mind that we are making very deliberate and targeted investments in line with our Customer 1st Strategy
<UNK>s <UNK> outlined earlier we’ve made conscious decisions to increase starting wages in certain markets to improve associate engagement and retention that will create a better experience for our customers
We continued to invest and grow our digital business
Our digital revenue more than doubled in the first quarter compared to last year
This includes revenue from ClickList, Harris Teeter’s ExpressLane and Vitacost
com
<UNK>s we continued to invest in price, we also remind you, Kroger’s investment in price can be seen very clearly if you look at our gross margins in the early 2000s compare to today
Kroger has invested more than $3.8 billion to lower prices for our customers over that time period
We have no intention of giving up the momentum we’ve gained on low prices
These investments enable us to connect with our customers in a deeper way and increase our market share over time
We are pleased that Kroger’s market share, as traditionally calculated, was up in the first quarter
That said, we recognize there is no perfect metric for capturing market share
We are doing a lot of work to better define or perhaps redefine the market as share of stomach rather than share among traditional grocery stores
We see food as a massive, $1.5 trillion market, and we have a substantial growth opportunity in that market
I also want to stress that we are committed to lowering costs as a rate of sales
Many of the things we are doing to pull costs out of the business today set us up for savings in the future
We will only further intensify our process improvement efforts
Now for an update on retail fuel
In the first quarter, our cents per gallon fuel margin was approximately $0.171 compared to $0.143 in the same quarter last year
The average retail price of fuel was $2.28 versus $1.92 in the same quarter last year
Our net total debt to adjusted EBITD<UNK> ratio increased to 2.33 times compare to 2.12 during the same period last year
This result is due to the merger with ModernHE<UNK>LTH and the repurchase of shares
Over the last four quarters, Kroger has used free cash flow to repurchase $1.5 billion in common shares, pay $438 million in dividends, invest $3.4 billion in capital, and merge with ModernHE<UNK>LTH for approximately $390 million
The flexibility to return value to shareholders is a core strength of our financial strategy
We are committed to balancing the use of cash to maintain our current investment grade rating
Return on invested capital for the first quarter, on a rolling four quarter basis, was 12.75%
On the labor relations front, we are currently negotiating agreements with UFCW for store associates in <UNK>tlanta, Dallas and our Food 4 Less Warehouse Stores in Southern California
Our objective in every negotiation is to find a fair and reasonable balance between competitive costs and compensation packages that provide solid wages, good quality, affordable health care, and retirement benefits for our associates
Kroger’s financial results continue to be pressured by rising health care and pension costs, which some of our competitors do not face
Kroger continues to communicate with our local unions, which represent many of our associates, the importance of growing Kroger’s business and profitability, which will help us create more jobs and career opportunities, and enhance job security, for our associates
Turning now to our guidance for fiscal 2017. We had previously indicated that the environment during the first half of this year would be similar to the back half of 2016, and that is what we’re seeing
<UNK>s <UNK> said, there is a lot of change in the retail food industry
That, coupled with the transition from deflation to inflation creates a challenging operating environment
The deflationary environment was less severe in the first quarter compared to the fourth quarter, coming in at 20 basis points deflationary without fuel
Grocery was essentially flat during the quarter but had fluctuations up and down during it
Meat continued its deflationary trends
<UNK>nd produce, while deflationary for the quarter, showed inflation in the last four weeks of the first quarter and pharmacy was inflationary
<UNK>s a result we increased our expectations for LIFO to $80 million; a $55 million increase over our initial expectations
We have also made some incremental investments in price in certain markets that had very hot features on milk and eggs
While this affects gross margin in the short-term, it is less expensive than regaining a customer’s loyalty
These two, plus the incremental investments in hours and wages, are the primary factors causing us to lower our guidance for the year
Our G<UNK><UNK>P net earnings per diluted share guidance for 53 weeks is now $1.74 to $1.79. Our adjusted net earnings guidance range is $2 to $2.05. The previous adjusted net earnings guidance range was $2.21 to $2.25. See Form 8-K we filed this morning for additional information on guidance
Because this is an unusual year, we are going to provide a quarterly cadence relative to last year rather than compared to our long-term guidance rate, as we’ve done in the past
For net earnings per diluted share, we expect the second quarter to be down compared to last year, the third quarter to be up slightly compared to last year, and the fourth quarter to be flat, excluding the 53rd week
We continue to expect identical supermarket sales, excluding fuel, of flat to 1% growth for 2017. <UNK>nd we continue to expect capital investments excluding mergers, acquisitions and purchases of leased facilities, to be in the $3.2 billion to $3.5 billion range for 2017. Over the long term, we remain committed to achieving net earnings per diluted share growth rate of 8% to 11%, plus a growing dividend
Now, I’ll turn it back to <UNK>
No, I absolutely agree
<UNK>nd the whole trick here, <UNK>, is how quickly the lines cross on our price investments create more gross profit margin dollars
<UNK>nd as we said in the prepared remarks, there's really two things relative to the labor, one is adding some hours to certain service departments as well as increase in starting wages, which we believe over time will reduce our turnover, which has a great payback when we can have a higher retention of our associates who then are more productive and give a better shopping experience
So that one has a little bit longer runway relative to when we see the benefits of those investments
Yes, <UNK>, $0.035, $0.04 in that range
<UNK>, it's not necessarily that it’s dramatically different today than we’re expecting, but when we look forward based on the movements we’re seeing in the lot of the underlying commodities
We do think there could be a little more inflation by the end of the year than we originally thought, but the accounting convention is whatever your year-end estimate is, you expense that ratably throughout the year
So it's really more reflective of where we think the end of the year is going to be not necessarily what happened in the first quarter, but we’re required to ratably expense that over the year
We talked about all of those and deciding exactly where to set the guidance range
We spend a lot of time taking where we are today, looking at the forecast for the rest of the year, trying to understand the gives and takes and settled on the $2 to $2.05. <UNK> wider range, perhaps we could have done that
The only answer I had to that is we decided that we feel good about the range we put out there
We do feel good about the traction we are getting in ID sales that we think will help us support that ID guidance range
Relative to the operating cost reductions, I think – I don't have any concern that we aren’t going to continue to get the operating cost reductions we're getting
We have made an independent decision to add some service hours to some departments as well as in some markets increase starting wages to try to reduce the turnover we have, which hurts the customer experience as well as creates its own cost in friction when you are constantly hiring training people
We didn’t do that across the country
It's in select markets, but it's not an inexpensive proposition
So we try to factor all of those in
In fact, what we call enabler savings are actually pretty close to tracking to exactly what we expected in total to save on our cost savings initiatives for the year
Thanks <UNK>
It’s a great question Zach and it's – one of those it's always hard to answer, because you don't know what a customer would have done
The best we can tell, if you would give a range of between 40% to 60%, you’re probably within that range, but it is a hard, hard number to guesstimate, because you really don't know for sure – incremental or that you would have guided anyway either way
<UNK>gain in response to <UNK>’s question, you never know when somebody in select markets is going to run some hot feature, and you have to make independent decisions as those features hit the street
Is it somebody just run an ad for a couple of weeks trying to get some business in the store or they going to do something longer term
<UNK>nd when those kinds of ad stay there for a little bit longer, particularly when it's two important commodities like milk and eggs, ultimately we're going to react and not allow our customers to think they have to go somewhere else to get the best value for those kinds of products
Just so happens those two commodities are big commodities and its expensive when hot features hit versus some other commodities and to say we do or don’t have something exactly built into our business plan
So that's difficult to say, but we did make the decision to react to those prices and to keep the customers inside of our stores
I think we all believe that the industry is going to continue to get more competitive because every year, it does get more competitive
I think the price investments that we've made so far from our original pricing plan are taking good hold and good effect and we always still dollars in and to try to allow us to react to competitive pressures
So I think the guidance where we've lowered it to certainly have some [indiscernible], everything that may happen
<UNK>s <UNK> said, it’s our best guess at this point in time
[Indiscernible]
Yes, well our brand has been incredibly important to Kroger since the founding of the Company
<UNK>nd the research that we did last year, we want to make sure that we weren't just biased because we're so close to it and we did the research with our customers and our customers gave us glowing feedback on how strong our brands were, how great the products were in a blind panel
So they didn’t know it was us
If you look at our Private Selection and Simple Truth and Simple Truth Organic, we just crushed the competitors in that space
So for us, our brands has always been massively important and we will have a world-class our brand approach and it's important for our customers, it's important in terms of being able to make money as well
So we don't look at it in terms of trying to do something versus a CPG, we really look at it is our brand and building our brands and doing the things that customer wants
Yes, I would say that when we look at gross margins overall, there's a variety of factors that wind up going into that
I think you'll continue to see us over time, reduced gross margins
If you think about my prepared comments over the last 12 years or 14 years, we've invested $3.8 billion in price by the drop we've made in gross margin
<UNK>nd I think over time, you'll continue to see it go down, it’s typically what happens in that any segment of retailing to get laser focused on one particular year or one particular quarter
I probably wouldn't get that specific, but certainly when you look at it over time
We built our business model, assuming that gross margins will go down
We need stronger IDs and we've had the last few quarters and we need to get back of the productivity loop of allowing our operating costs to come down as a rate of sales to grow that operating profit margin
Obviously as I said in my prepared remarks, these are representative of the results we expect to deliver over time
But every once in a while you run through cycles, where you have to step back and adjust many of the metrics inside the company and we feel that we've done a good job of react and I'll sensibly and proactively to the environment around us, both from a labor standpoint, from a price investment standpoint and what makes sense to grow the business for the long-term
Well, as <UNK> said in response to an earlier question, we typically don't lead our market down on price, accepting categories where it's one of our strategic investments we're making
You typically won't see us anymore maybe in the 1990s we did this
But you won't see the kind of reaction where we have very, very hot features that in the end don’t drive any kind of loyalty in your store and just tries to drive foot traffic and get them to buy other things
Will we react to those types of things and make investments, so that they don’t attracting of our customer stores, absolutely we will
But I think if you look over time, we’ll continue to be proactive on how we make the investments
Yes, a great question that I won't get into all the specifics because obviously competitors would appreciate that knowledge as well
What we're finding is the quality of that meal is the same as going to a restaurant and getting the meal, but people like to prepare something at home and they find it easy and they love the variety that we offer
So lot of the price comparisons is what the prices versus going to a restaurant, but being able to do it at home and when it takes to 20 minutes, it's just as fast as Kroger’s that is going to a restaurant and going through all that household when you're at a restaurant, and we're getting great feedback
We’ll continue to roll it out based on the ability for the facilities to handle the volume, and so far it's been very good and we appreciate and looking forward to work out
When you look at how people are going to promote and what will be features are going to be, I wouldn't have enough time to step back and think about how our merchants develop their marketing plan, they’re well out, the multiple weeks out
We certainly make assumptions about how customers or how other competitors reacting around holidays, how they may react in weeks, during the summer when there's a lot of vacations going on and maybe fewer people at home shopping and what kind of promotions they may do
But to be able to sit here and say, this is exactly what we're expecting from a promotional standpoint will be very difficult to say I have X, Y or Z built into the plan
Other than we know there is always going to be markets and there always are markets where there are a lot of hot features going on
There's other markets that are kind of in the middle, there is high low kind of activity kind of normal traditional grocery store pricing
<UNK>nd then there is other markets that are relatively benign where you go back to daily that fortunately for us, we have the number of markets we're in the breath of those markets that not every market is high for competitive at the same time in some of the ones that aren't quite as competitive help offset that
So to sit here and try to project what the competitive environment are more specifically, the promotional environment maybe would probably not be any significantly prudent
I'm not sure exactly where to start on all those questions
<UNK>t the end of the day, we always assume this industry is going to get more competitive quarter in, quarter out, year in, year out and unfortunately I guess we're really disappointed with the result of our expectation and that's that – it's always been a competitive market
It's always been a competitive industry
In our view, it's going to continue to be competitive
There are bursts of time where things heat up and then burst of times where cool down and we know over time that if somebody runs a high feature over the course of the weekend that's one thing
If somebody appears to be try and to put a stake in the ground on big volume important commodities to drive volume into their stores, the best thing we can do to counteract that is as <UNK> say, not lose on price of that commodity, because that takes the advantage away from them and it doesn't get any of our loyal customers or any of our customers, any reason to go anywhere else to shop
<UNK>nd you have to make judgments throughout the course of a year and a quarter of – is this a short-term thing somebody is doing that you can not necessarily this way, but by and large ignore or is this something you need to react to? How do you balance that with planned price promotions you have? Nobody on the call can see the advantage we create with our loyal household with the My Magazine, <UNK> talked about or there were 6 million individualized offers in the first quarter alone, but offered those households a different price and everybody sees on their shelf edge
We do that without creating any kind of price impression amongst our competitors because they don't know we're doing it
But that's the way to be able to reward and give a better price to our most loyal customers without putting it on the front page of an ad and perhaps us causing something like that to happen
So we're constantly using those kind of advantages we have primarily through 84.51° to figure out how to reward our most loyal customers the best
I wouldn't say we're thinking about M&<UNK> any differently at all
I do agree with <UNK>’s assessment of consolidation
I think you'll continue to see us have the opportunity to increase our footprint in markets we're already in by the consolidation of competitors we're going by the wayside, you saw the news reports from earlier in the week in Indiana
<UNK>nd I think there will be a further opportunities like that going throughout the course of the next few years
It's one of the reasons why <UNK>’s comment on reducing our capital expenditure on increasing our footprint
It doesn't worry me too much over the next few years, because I think I can lower my CapEx invested in things are going to drive sales and reduce operating costs and increase my footprint and prices below what it would cost me to build from the ground up
<UNK>nd when they get into those kinds of situations, it sites you really want the fit rate rather than buying an entire chain and trying to do something with that
So I feel really good about that part of what's going on around this
I wouldn't get through specific
One of the bigger areas that just always particularly of late, we have a lot of projects going on in/and around shrink, some tests going on and a handful of markets trying to reduce the trends on shrink
It's early on in those handfuls of markets, but early signs are the customers doing seems to be encouraging and hopefully as we get to the end of the year and it starts to be – end of the year and then the next year something that becomes a little bit of a tailwind instead of the headwind
Or just shrink not being exactly where we wanted in these projects being able to turn the trend on shrink
| 2017_KR |
2016 | AMPH | AMPH
#Thank you, Operator.
Good afternoon and welcome to Amphastar Pharmaceuticals' first quarter earnings call.
My name is <UNK> <UNK>, President of Amphastar.
I'm joined today with my colleague, <UNK> <UNK>, CFO of Amphastar.
We appreciate you joining us on the call today and look forward to speaking with you and answering any questions you may have.
I will now turn the call over to our CFO, <UNK> <UNK>, to discuss the first quarter financials.
Thank you, <UNK>.
Sales for the first quarter increased 4% to $59.4 million from $56.9 million in the previous years' period.
Sales of Enoxaparin declined to $18.4 million from $23.8 million due to lower average selling prices.
Unit sales of Enoxaparin continue to hold up as we continue to maintain our market share.
Other finished pharmaceutical product sales increased 49% to $40.2 million.
This increase was primarily due to increased sales of Lidocaine, Naloxone and Phytonadione.
Pricing of Naloxone was down in the first quarter of 2016, compared to the fourth quarter of 2015, as the Company increased discounting and rebates.
Our Insulin API business generated sales of $800,000; a significant decrease from the $6 million in the first quarter of 2015, because we did not ship any product [made in China].
Cost of revenues decline in dollar terms to $34.5 million; more importantly, we saw a gross margin improvement to 42% of revenues from 23% of revenues in the previous years' period.
Improved pricing was the main driver for this increase in gross margin, so we have also lowered our cost of goods on Enoxaparin, which partially offset the pricing declines there.
Also influencing the margin trend was an increase in the unit volume of both marketed and research and development projects manufactured at our Emphastar facility, which increased our overhead absorption.
Selling, distribution and marketing expenses decreased slightly to $1.4 million from $1.5 million in the previous years' period.
General and administrative spending decreased to $10.9 million from $12.5 million, primarily because there was a $3.3 million accrual for a legal settlement in the first quarter of 2015.
Research and development expenditures increased to $8.4 million from $6.6 million, primarily due to expenses related to our Tromethamine and intranasal Naloxone product candidates, as well as our portfolio of generic product candidates.
The Company reported another profitable quarter with net income of $2.5 million, or $0.05 per share compared with last year's first quarter net loss of $700,000, or $0.01 per share.
The Company reported an adjusted net income of $5.5 million or $0.12 per share compared to an adjusted net loss of approximately $400,000 or $0.01 per share in the first quarter of last year.
Adjusted earnings exclude amortization, non-cash equity compensation, and impairments.
On March 31, 2016, the Company had approximately $64.6 million in cash, cash equivalents and restricted cash.
In the first quarter, cash flow from operations was approximately $13.9 million and was positive for the eight quarter in a row.
Remember that in the quarter, we used $4 million in cash to purchase 14 ANDAs for Hikma and $800,000 to purchase Letop, which is now subsidiary of Amphastar Nanjing Pharmaceuticals.
We reviewed our financial assumptions for the year on the last call and they have not changed.
We mentioned that we have several projects, which will increase capital spending, and we received a lot of questions on this spending.
To give some more clarity on that, we are now disclosing that the largest project is that our Amphastar France Pharmaceutical facility, where we are beginning to transfer the process of manufacturing inclusion bodies, which are the starting material for our recombinant human insulin API from Merck to AFP.
We expect to spend $20 million over the next two years on this project.
I would also like to focus on the R&D spend, because we expect an increase in the spending rate from the first quarter.
One reason is FDA filing fees.
For example, we paid a $2.4 million filing fee for intranasal Naloxone filing in April of 2016.
We also expect an increase in the clinical trial expense over the remainder of the year.
I will now turn the call back over to <UNK>.
Thanks, <UNK>.
We've made a lot of progress since our last earnings in March and are happy to report another profitable quarter.
In addition, cash flow from operations was positive, which now marks eight quarters in a row.
In April, we filed our NDA intranasal Naloxone, which continues to have a fast track designation with the FDA.
With respect to Primatene, we have completed what we believe to be our final human factor study.
Based on our preliminary analysis, we believe that the data addresses the concerns raised in the FDA's complete response letter and we continue to target responding to the CRL this quarter.
Finally, we continue to await approval of our semi-purified heparin out of ANP, our China facility.
I'm happy report that the FDA conducted a general GMP inspection at the facility during the week of April 21, which resulted in 0483.
This marks the second FDA inspection of the facility and demonstrates that our vertical integration strategy is making good progress.
With that update, I will now turn the call over to the operator to begin Q&A.
Yes, and one of the reasons why I specifically call it out is, first of all, we did have the filings in April which is in our second quarter for the intranasal Naloxone.
So that's a big chunk of money right there for us.
But also when I take a look at the average of the consensus analyst spending in the R&D, I get to a number that's below where I think we're going to be for the year.
So it's probably the only area where, I think, maybe our message on the increased spending isn't getting across.
So right now, we'll say that almost everybody is below where is we think we're going to be by the end of the year and our spending should increase sequentially in every quarter.
So the second quarter should be above the first, third should be above the second, and fourth should be above the third.
And so just to give you an idea of the spending; in the second we'll also include a $2.4 million filing fee - that's a good place to start from the first quarter.
Sure; there's a couple of things that are going really cause some variability there, and a few other things that are going to just have some impacts but not as large.
First on the smaller side, we do see the price of Enoxaparin coming down.
We've seen the product price of Naloxone coming down on average due to discount and rebating.
So those are two small trends.
What could happen as far as gross margin goes is that we had very little sales of our recombinant human insulin API this quarter and that's a very low margin business.
If you remember last year, it was a negative margin business until we sold a lot of product in the fourth quarter and we had a significant uptick in the manufacturing of that product in the second half of the year.
So we're in the process now ramping back down some of the production there, due to our partners desire to get the product from Mannkind.
So when we do have insulin sales, which should be greater in the rest of the years than they, were this quarter on average; those could be and probably will be at a negative gross margin.
We could add $5 million on sales some quarter at a negative gross margin which will greatly impact the average gross margin for the Company for that quarter.
From where we were a year ago we're still down.
I will say a year ago the price was coming down pretty quickly whereas right now it's fairly flat, and we're talking a very small decline, with a contract here, contract there, with everything else being flat.
Majority of contracts in any quarter are flat right now over the past nine months.
Yes.
We are still on target for this quarter.
Correct.
So we comfortable, so just like I said last quarter, we do maintain that belief that the final study after going through the data, we've reviewed it and we believe it addresses all of the concerns and we'll be filing that this quarter.
That remains our goal and we believe that it's very doable.
It will be the four ANDAs.
So we now have filed our intranasal Naloxone as an NDA.
So when we talk about the four, of course, we've got Primatene, we've got Naloxone.
But four generic products are with the FDA.
Well I'd say six with Primatene.
We resubmitted.
We sort of consider or responded to because, again, the CRL had a very specific questions around the comprehension.
So we sort of - I believe the technical term is we will be resubmitting.
That's correct.
We haven't gotten into details of those three products, but you can ascertain that these do relate to insulin and their various forms of insulin.
In the last 10-Q we did finally publicly disclose that we are working on insulin finished product.
So we consider that a biosimilar.
That's what most of it is, but we also did add a product to the generic ANDA list as well, which had some meaningful sales.
So we have added to the pipeline since the last conference call.
We do, and we're very aggressive internally.
For purposes of this call, we definitely intend it to be greater than the number in 2016.
So at this point, I would say four to five to be conservative.
So, we have seen recently with GDUFA more responsiveness from the FDA.
One of the four ANDAs that we reference in our filings have been with the FDA for quite some time.
We did receive some comments and we're in the process of responding to those.
So we're hopeful that in 2017, we could see that ANDA approved.
And when we talk about four ANDAs on file with sales of over $500 million, that one ANDA that I'm referring to is significant.
So it makes up a significant portion of that $500 million.
So we are expecting approval on that one ANDA next year.
So I would like to add to that; what we've been hearing from the FDA is that they will put a greater focus on generic applications where there is no generic on the market.
So this is such a case where there actually are no generics of this product that are commercial.
So actually all four that are on file are injectables.
Sure.
Excluding the Mannkind sales, annualized last 18 months of sales we've had at that business annualizes to between $6 million and $8 million a year in sales, and so we had less than $1 million in the first quarter.
We are in talks with Mannkind; we continue to discuss this with them and there is a chance that we will ship them some product this year.
But I won't say that that's certain at this point yet.
So there is some possibility that we will, but we have not yet to-date.
As far as the facility goes, as we've been discussing recently, the main reason we bought that isn't to get in to the API business, but to get in to the insulin finished product business.
And in keeping with that, we have begun the process of the construction to modify the facility and bring in equipment so that we can manufacture the inclusion bodies which is the starting material for the RHI API that's made there.
And this is about $20 million spend on the CapEx line there that we're undertaking over the next two years.
A very small portion of that $20 million was spent in March of this year.
So that will grow pretty significantly over the next couple of quarters.
Sure.
Right now we still would like to purchase things that makes sense for the Company and that are easily integrated in to the Company without a lot of effort.
The Hikma acquisition of 14 ANDAs is an example.
We are looking at other projects that are similar to that, that we could spend more money on, but we're really not looking at game changing acquisitions at this time, nothing that would surprise people if we did it.
I would say: oh, why'd they do that.
So things that makes sense for the Company.
As far as pricing goes, we haven't really seen enough deals to make a comment on whether the prices of the things that we're looking at have really come down or not.
And we've actually seen maybe a pullback of things that are on the market; maybe that represents people not wanting to sell things at the current pricing levels.
I know at this time last year we were looking at a handful or more of different opportunities that we were considering bidding on or actually bidding on, and at this point the number of things that we're looking at is much smaller.
Thank you, Operator.
This concludes our call for today.
I want to thank, again, everybody for participating, and I wish everybody a great rest of the day.
| 2016_AMPH |
2017 | WBA | WBA
#Thank you, <UNK>
Overall, we are pleased with our progress this quarter with results in line with our expectations
As in the last quarter, we were particularly pleased with growth in U.S
pharmacy volume and market share
During the quarter, we also completed the $1 billion share buyback program which we discussed on our last earnings call
I'm also pleased that today, we have raised the lower end of our adjusted earnings per share guidance for fiscal year 2017 by $0.08. So now let's look at the financial highlights for the quarter
As we expected currency again had a negative impact, the U.S dollar being 12.5% stronger versus Sterling than in the comparable quarter last year
Sales for the quarter were $30.1 billion, up 2.1% versus the comparable quarter
On a constant currency basis, sales were up 5%
GAAP operating income was $1.5 billion, a decrease of 1%
GAAP net earnings attributable to Walgreens Boots Alliance were $1.2 billion, up 5.3% and diluted EPS was $1.07, up 5.9%
Adjusted operating income was $1.9 billion, up 5.5% and in constant currency was up 7.5%
Adjusted net earnings attributable to Walgreens Boots Alliance were $1.4 billion, up 11.9% and in constant currency up 13.6%
These percentage increases were higher than for adjusted operating income
This was due to a lower tax rate, partially offset by losses on certain legacy investments which adversely impacted both earnings from other equity method investments and other income
Since the quarter-end, we have disposed of the legacy investment, the gain on which will largely offset these losses
The adjusted effective tax rate, which we calculate, excluding the adjusted equity income from AmerisourceBergen, was 19.1%
This was lower than in the comparable quarter last year primarily due to relatively high incremental discrete net tax benefits and a lower estimated core annual tax rate of 25.3%
All of this resulted in adjusted diluted net earnings per share of $1.33, up 12.7% and in constant currency up 14.4%
For completeness, here are the numbers for the first nine months of fiscal 2017. I will not go through those in great detail, but you will note that GAAP diluted net earnings per share was $3.02, up 4.9% versus the same period a year-ago
Adjusted diluted net earnings per share was $3.79, up 7.7% and up 9.9% on a constant currency basis
So let me now turn to the performance of our divisions in the quarter beginning with Retail Pharmacy USA
Retail Pharmacy USA sales were $22.5 billion, up 6.3% over the year-ago quarter
This included two months of results from AllianceRx Walgreens Prime, a recently formed central specialty and mail services business
<UNK>omparable store sales for the division increased by 3.7%, adjusted gross profit was $5.7 billion, down 0.5% reflecting a decrease in pharmacy, partially offset by an increase in retail
We'll look at this in more detail in a moment
Adjusted SG&A for the division was 18.7% of sales, an improvement of 1.7 percentage points
This improvement was primarily due to sales mix and higher sales as well as an amendment to certain employee postretirement benefits and our cost transformation program
Adjusted operating margin was 6.5% in line with the comparable quarter last year, resulting in adjusted operating income of $1.5 billion, up 5.9%
So next, let's look in more detail at Pharmacy
Pharmacy total sales were up 10.3% versus the year-ago quarter, mainly due to higher prescription volumes, including mail and central specialty
During the quarter, we filled 255.2 million prescriptions on a 30-day adjusted basis, including immunizations, an increase of 8.5%
On a comparable basis for stores, which exclude central specialty and mail, pharmacy sales increased by 5.8% with scripts filled up 8.3%
In the second quarter, we reported our highest quarterly growth rate in over seven years
This quarter was even better
Growth was primarily due to strong volume growth from Medicare Part D and the positive impact of our strategic pharmacy partnerships
Within sales, volume growth and brand inflation were partially offset by reimbursement pressure and the impact of generics
This pressure contributed to lower pharmacy gross profit and gross margin
A higher proportion of specialty adversely impacted pharmacy gross margin by around 100 basis points
However, the higher specialty sales had a positive impact on gross profit
Our reported retail prescriptions market share on the usual 30-day adjusted basis was 20.5%, up by approximately 110 basis points over the year-ago quarter
This was the highest market share that we have ever reported
Total retail sales were down 1.8% on the same quarter last year
This included the impact of the previously announced closure of certain e-commerce operations
<UNK>omparable retail sales were down 0.4% with declines in the consumables and general merchandise category and in the personal care category, partially offset by solid growth in the health and wellness, and beauty categories
Adjusted gross profit was higher, primarily due to mix and underlying margin improvement
Beauty category performance and beauty differentiation stores continues to be markedly better than in other stores, supported by strong sales growth of No7 and Soap & Glory
We have also continued to introduce new brands into our existing beauty differentiation locations, including Botanics, which I mentioned last quarter
We remain on track to introduce our enhanced beauty offering to over 1,000 additional stores by the end of the calendar year
This quarter as part of our strategy and ongoing cost transformation, we have also begun to implement a program in certain stores to simplify our offering and improve our retail operational performance
This is designed to deliver a better experience for our customers, provide ongoing efficiencies, and reduce working capital
In the coming months, we expect this program to reach approximately 1,500 stores
So now let's look at the results for the Retail Pharmacy International division
Sales for the division were $2.8 billion, down 0.2% in constant currency versus the year-ago quarter
<UNK>omparable store sales increased 0.2% in constant currency
<UNK>omparable pharmacy sales were down 0.1% on a constant currency basis, mainly due to a decline in the UK
In Boots UK, comparable pharmacy sales were down 0.4%, mainly due to the reduction in government pharmacy funding
<UNK>omparable retail sales for the division increased 0.4%, Boots UK’s comparable retail sales increasing 0.1%
Within this, beauty was Boots UK’s strongest category, assisted by the launch of No7 Restore & Renew Face & Neck Multi-Action Serum
Adjusted gross profit for the division at $1.1 billion was down 1.2% in constant currency versus the year-ago quarter, mainly due to lower pharmacy gross margin
Adjusted SG&A as a percentage of sales on a constant currency basis was 0.7 percentage points higher at 34%, mainly due to inflationary pressures and higher variable payroll costs
Adjusted operating margin was 6.9%, down 1.1 percentage points in constant currency
This resulted in adjusted operating income of $193 million, a decrease of 14% again in constant currency
I am delighted to report that in April, the first Boots franchise store opened in South Korea
This is in line with our strategy of expanding Boots retail presence in Asia
South Korea is a highly sophisticated beauty market particularly for cosmetics, and it’s strategically important for sourcing innovative products
So now let's look at our Pharmaceutical Wholesale division
Sales for the division were $5.3 billion, up 2.7% versus the same quarter last year on a constant currency basis
<UNK>omparable sales on a constant currency basis were up 3.7%
This was ahead of the <UNK>ompany's estimated market growth weighted on the basis of country wholesale sales, with growth in emerging markets and the UK partially offset by challenging market conditions in <UNK>ontinental Europe
Adjusted operating margin, which excludes AB<UNK>, was 2.9% down 0.1 percentage points on a constant currency basis, but in line with the second quarter
Adjusted operating income was $253 million, up 53.1% in constant currency
Excluding adjusted equity earnings from AB<UNK>, adjusted operating income was up 0.6% in constant currency
So turning next to capital allocation
Operating cash flow in the quarter was $1.9 billion
During the quarter, our working capital inflow was $502 million
This primarily reflected improvements in inventories both in the quarter and year-on-year
<UNK>ash capital expenditure in the quarter was $273 million
We continue to invest in our core customer proposition including our stores and U.S
beauty program as well as the upgrades to our IT systems, which we have previously talked about
Overall, this resulted in free cash flow in the quarter of $1.6 billion with a total of $4.3 billion in the year to date
Turning next to our guidance for fiscal 2017. We have raised the lower end of our guidance and now anticipate adjusted diluted net earnings per share to be in the range of $4.98 to $5.08. Remember this guidance assumes current exchange rates remaining constant for the rest of the fiscal year
I will now hand over to <UNK> for his concluding comments
Okay, I’ll try and take some of those in the right order
If I start, perhaps, with just the tax, as I said in the prepared comments, the core tax rate was 25.3% and then this quarter if you look back historically, we had a relatively high number of discrete positives clearly very significantly quarter-by-quarter as you can see going back historically
And as I say you can see this was a relatively high number, but I think in terms of the core tax rate and helping you with the model, the 25.3% that you see it today is clearly under U.S
GAAP or the rate that we would anticipate at this point for the core tax element for the full-year
Just in terms of buyback program, clearly, we've announced the program just today
And I think – and just in thinking about modeling, clearly, we’re pretty well the end of June now, so we’ve really only got a couple of months to go to the year-end
So there's not really long for any impact where we to choose to commence that program, any impact will be relatively modest
Obviously, our guidance as ever is all in, but again as I said in the prepared comments it is of course assuming currency exchange rates for the balance of the fiscal year
I think in terms of the accretion, what we said is modest accretion in the first full-year and I think that's important to take away and we’re very clear on the synergies that we can deliver the $400 million over three to four years
We've got a very clear path to delivering it
And I think one of our approaches to acquisition integration is one where we have very detailed plans
We take it in a very structured way, so that we do things smoothly
We are going to be obviously – actually acquiring those stores over a period of time as we've explained in the announcement and then we will be rebranding those over time to Walgreens, bringing in the Walgreens offer
And that is not something that we would ever dream of actually big banging
We need to do it properly so that we have the customer proposition is delivered in a consistent way as we do the rebranding
So we're very confident about the returns, but what's important is to go in a straight line and do in a way where we keep the focus on the customer as we integrate the business on the service that we provide our patients rather than sometimes which you see, dare I say, I see in other businesses do, where they rush things and they don't execute properly
And I think you’ll have seen that consistently as with the merger of Walgreens and Alliance Boots, I think you'll see we've got a very clear track record of doing that over time
We've not published our long-term leverage target
We've chosen as you know <UNK> to talk about our commitment to solid investment grade and that’s very much what our policy as we've obviously because of the time is taken since the original announcement of the original Rite Aid transaction we've obviously been building up a lot of cash, which is not something that we like doing we're very committed to having an efficient balance sheet
We have to do and that’s why today when we've announced the new transaction, we've been probably announced the $5 billion share buyback program
So we're very committed to being financially disciplined to when we're looking at M&A we’re always very focused on the numbers
If the numbers don't add up, don't give meet our investment hurdles then we're very disciplined, we don't do transactions and so we're very happy to grow organically and invest with to do M&A when we get the right returns, but equally a very clear policy of returning any surplus funds to shareholders within those parameters that I've explained, having an efficient balance sheet very important to us
Yes, I think as I have said, go back to the point that is very promotional far too promotional
We don't think is good for us
It’s not good for customers, I mean don't think is actually good for suppliers either
So we believe much more net consumption driven model and that's where we’re heading to
Also as customers change more and more new future will use personalization and digital marketing and more than the secular to understand what Walgreens can do for them
And we've got a mature digital organization for retail that as you know and we're making moves no to really shift to spend over time in marketing and towards digital and personalization
So all these things are true <UNK> and is an evolution of the model and we're really accelerating it based on fact, based on data and we are really making strong moves in the next 18 months as <UNK> said to do that
And then we have the systems coming in and Phase III to really sustain not move and accelerate to further
So we've been running for two or three years we're very confident that we know the approach have to do
I’m going to taking the steps to get on with it
| 2017_WBA |
2016 | MSI | MSI
#So <UNK>, let's take Q1 first.
I think the way you think of the ingredients is, it's consistent with what we signaled last earnings call.
So in terms of the headwinds, Latin America will be down about $40 million.
That's inclusive of iDEN for Q1.
Europe we expect to be down approximately $40 million, primarily driven by Norway as the largest contract we've ever had transitions off of the systems integration phase.
And the third one as we've articulated, is FX of about $20 million, based on the spot rates today.
So think of about $100 million of headwind.
The tailwind is $55 million of Airwave, which represents the stub period of closing last Friday on February 19.
So that's how I would think about it.
The $450 million of Airwave on an annual basis also represents a partial year.
We haven't guided yet obviously and won't signal yet on the full-year FY07 for top line.
Hi, <UNK>.
Well first of all, I'll take the second one first.
We're thrilled with the acquisition of Airwave, both strategically and financially.
As we talked about, it's about $450 million of revenue this year.
I think probably the most important element is that as part of the negotiation, we've resolved all disputes and all contracts have been extended through the end of 2019.
So when we now think about the predictability and financial visibility and commensurate earnings in cash as it relates to that acquisition, it's substantial and represents just under $2 billion in backlog through the extension of those contracts through the end of 2019.
We've worked very closely with the UK home office.
They've been great in this engagement in working with us to successfully close the Airwave TETRA network, where all contracts are extended through 2019.
And also, we are, to your point, the beneficiaries of the ESN award of $430 million, which we view also we're well-positioned to pursue.
So we will work very closely with the home office customer as we transition and I think for a long time, have complimentary networks co-exist.
So we will drive the value creation through Airwave and also work closely with the customer on the rollout of ESN at some point in the future.
On the EBITDA for 2016.
EBITDA contribution of Airwave and I think <UNK>, you ---+ the question was specific to EPS contribution of Airwave in 2016.
It's approximately $0.50.
No that is not inclusive of the $430 million for LTE.
The $195 million, $1.95 million, is Airwave only.
I think we'll work with the customer in the appropriate transition and it's too early to make that call.
But from an acquisition standpoint, we feel very good about our risk adjusted return of capital as it relates to the acquisition of Airwave.
Thank you, <UNK>.
No.
I think from a financial planning standpoint, probably yes, I would push it out past 2017.
But again, we're going to work very diligently with the home office on the right optimization and mix.
But from a planning standpoint, that's probably a prudent thing to do.
Well, I'd let <UNK> add something but I would simply say that I think it's representative.
Those reductions are pretty consistent with the reductions we've made to date historically in terms of composition and mix.
But as importantly, <UNK>, the majority of the actions required to get to these cost targets for 2016 have already been taken.
That's important to know.
Thanks, <UNK>.
Well, I think if we go around the globe, North America, which again is two-thirds of our business, had a very strong 2015.
And as they built backlog, we expect that growth to continue into 2016, at low single-digits.
So we're very pleased with North America.
Latin America is distressed.
Its been consistently distressed from last year.
I think it will probably decline at rates comparable to last year.
I think it's worth noting that the majority of the decline in Latin America, which we expect to be down, will likely most likely occur in the first half of this year.
And then we would normalize through the balance of the year.
We expect EMEA to be up with Airwave.
Without Airwave, it would be down, primarily driven by the roll off of Norway.
And Asia-Pac, roughly we expect to be about flat.
Will grow in certain areas.
We would expect given the nature of some of the macroeconomic items in China as well as some of the dynamics of the Chinese marketplace, we would expect to be down in China.
So all-in, North America up low single digits.
Latin America down pretty markedly at levels in 2016 comparable to 2015.
EMEA up with Airwave, but down without Airwave, primarily driven by Norway.
And Asia-Pac, about flat with China declining.
Yes, your first question was depreciation.
Is that what it was, depreciation.
Depreciation associated with Airwave.
So the depreciation associated with the Airwave deployment is approximately $80 million a year.
And I'm sorry, what was the second part of the question.
Tax rate.
Yes, we'll follow-up, <UNK>, with tax rate.
So if we could follow-up, we'll get you that information on the specific tax rate.
<UNK>, we exceeded the number for 2015.
It was about $130 million in 2015, a little higher than we had projected, which we were pleased about.
In terms of 2016, and we look at the unevenness and rollout of the four contracts we're implementing, LA-RICS, two in the Middle East, and ESN is the fourth award.
But again, as we talked about earlier, won't have 2016 activity.
We're thinking of the 2016 PS LTE revenue contribution to be comparable to 2015, given that we were pleasantly surprised with the overperformance in 2015.
Well look, the idea of FirstNet around inner operable data in Public Safety we feel pretty good about.
The responses to the RFP are due back May 13.
We've had interest from a few different partners.
We do plan on participating, as you probably would expect in that response.
We view LTE and Public Safety LTE in regards to FirstNet, as we've said a number of times before, to be additive to our LMR business and we continue to grow in North America.
We continue to add multi-year service contracts in North America.
We continue to build backlog in North America with LMR.
So I think given our incumbency and our Public Safety expertise and our ability, I think an ideal position to provide interoperability between LMR and over time, Public Safety LTE in North America.
I think we're very well-positioned.
We don't think of any revenue contribution in 2016 or 2017.
And as FirstNet has talked about, they are targeting an award by the end of the year, may slip into early 2017.
But that's kind of the composite attributes of the way we're thinking about FirstNet.
Well, I think from a gross margin standpoint as we incorporate Airwave, everything blended together, we think of the gross margin in the high 40% for 2016.
That incorporates the shift to services a bit, incorporates obviously, the margin profile of Airwave.
But having said that, we expect to, as we talked about, grow EBITDA and grow EBITDA margins and grow operating cash and free cash flow, as well, in 2016.
Thanks.
Thanks.
So we look forward to speaking with all of you soon.
| 2016_MSI |
2016 | VRSK | VRSK
#There was a little perturbation there in the first quarter.
I think you're going to find that settles out as we go forward.
Yes.
That's a really good question, and that's one that we think about quite a bit actually.
You should think of us as a portfolio.
So the logical place for us to drill down would generally be established economies that tend not to be overly concentrated in terms of market shares of leading players.
For example, on balance ---+ and also, you have to concede that language issues are here little bit also.
UK is a little bit better for us than, say, Germany.
We can pick our spots that way.
Japan is a highly developed economy that also doesn't have an overly concentrated insurance market, so that would be another.
That's your first sort, but the other part of it is, we are interested in emerging situations, as well.
And two I would call out there, you have to consider China still to be an emerging situation, so that's one that we look at.
But it's also interesting that when you look at the sum of Southeast Asia, it turns that Singapore is becoming something of a hub.
And so we're going to have both flavors inside of our portfolio.
More of the energy will go into established economies, but we're going to feature both kinds in what we do.
These are small adjustments in our view, I would say, and it's really just a product of the environment and the rate at which it does or doesn't change.
Conversations with customers are overall very encouraging.
I had the chance, I don't know, month, month and half ago to sit with the Deputy CEO of one of the world's largest energy companies.
And the stories they tell about how they make use of Wood Mack content and their focus upon Wood Mack as a partner, these are very encouraging kinds of stories.
And then we just look into the data in terms of, for example, the number of users of our portal offering and the rate at which they are making use of our content, all of which are going up pretty strongly.
But it's also the case that even now, well into the nosedive in the pricing of the commodity, there are still reactions in terms of our customers trying to get their own cost structures right.
And in the same way that there was a little bit of a lagging effect in terms of the commodity price coming down and then the reaction of the energy companies.
You have to expect that there will be some of that also on the way back up.
There will be some timing effects inside of ---+ I would not expect instantaneous reaction of our customers to what the price of the commodity is doing, because the price of the commodity has to work its way into not only their forward plans, but also the way that they are actually spending their own CapEx dollars, and there just will be time dependencies inside of that.
So just first a comment.
Cat bonds are an interesting category, and it's one that we participate in, and it definitely is there in the mix of risk transfer mechanisms that out there in the world.
But I would encourage all to not overstate the amount of risk that gets managed through that mechanism.
It's interesting to look at it because you can carve it out and identify it.
You are right, it was a good moment for cat bonds, and our AIR business did very well.
The share of the identified cat bonds our Team analyzed was very high.
And as I think everybody knows, we almost always have the vast majority of that market anyway.
So yes, it was helpful.
But there's movement also in the cat bond world.
Don't miss that.
There's the move towards the so-called mini cat bonds, and there are different ways that you can actually analyze cat bonds.
It's a dynamic environment; I will put it that way.
But yes, we feel good about how we did with the most recent issuances.
They are pretty modest in the scheme here.
I don't think we've provided that detail in the past.
They're not substantial.
They are more tuck-in in nature.
The answer is, as reported, it probably could get a little bit better.
It really is, again, to the consulting side of things, it's a bit of a swing factor in this, so we continue to try to remain conservative, although performing well and the underlying usage is up and strong.
The contributions to Argus' growth are very broadly based across not only the traditional consortium model analytic view, but also the specific analytic products that are being provided to customers, to the white labeling of our analytic environment, to the opening up of new markets like media effectiveness, to the opening up of new markets geographically.
All of those cylinders are hitting.
No.
One of the reasons why Argus is such a wonderful business and has such a bright future is that it has many different ways to grow.
This is <UNK>.
I think your observations are correct.
Let me just remind you of two facts.
First of all, Wood Mack has very good margins; however, they have a tough comp in the rest of Verisk, so you are seeing that come into the quarter that does work against us in Decision Analytics.
The other thing you need to look at is, in the first quarter of 2015, we keep talking about that project revenue from Argus, and we also highlighted back a year ago, there were extremely high margins on that project revenue.
And as a result, that creates an artificially high margin in 2015 in that first quarter.
So those are the two things that I think if you normalized out, you would see probably a pretty good story inside of organic DA margins.
I'll highlight the things I made before.
We do have all of our salary increases that take effect in April, and we also give out our equity awards April 1 as well, and those will replace equity awards from four years ago.
So those are some additional cost that are layered into the underlying structure from second quarter on.
But all else being equal, I agree with you.
I think what we tried to describe is that we remain very optimistic on the business, but we do believe that there are probably some market economics that are just difficult for our customers and us right now.
So in both cases, we think that's going to be down slightly.
But still has the opportunity to grow on a reported basis; so I'm trying to give at least get a little bit more color to everyone.
I would describe the environment as relatively unchanged relative to last year, and actually over many years.
One of the hallmarks of the insurance industry is its stability.
The regulatory environment has not really changed that much.
Industry structure has not really changed all that much.
There have been a couple of larger mergers, but industry concentration still remains pretty much the same.
The way that we price our products has not changed.
Probably, our pricing actually gets even a little bit tighter as we continue to grow the subscription-based part of the mix.
So there's really not a lot of change, really, in terms of what the environment yields.
You're welcome.
Yes.
So you've actually got a couple of questions there.
The current status is, we are actually in the rollout phase with our first OEM, who we announced some time ago.
We'll be providing product to the insurance industry right around the crossover from third quarter to fourth quarter.
That will be the first fruits commercially of what we've been doing.
We're very pleased with the discussions we're having with the insurers in terms of their interest in the data and the analytics.
And we are actively cultivating other OEMs, and I think we feel very good about the prospect of this really being the industry standard.
But every OEM is going to think about it in their own light and draw their own conclusions, but we are actively calling on all the name brand OEMs in the United States.
So yes, we feel very good about it.
And the technical work has proceeded very nicely, and we are just all primed.
We're ready to go.
Okay.
Well, thanks everybody for joining us.
We're happy to talk about a quarter that we feel very good about and look forward to being with you again roughly 90 days from now.
And we'll be seeing some of you between now and then who are coming to visit us here in the office.
We look forward to having you.
Thanks very much for your time today.
| 2016_VRSK |
2016 | WTFC | WTFC
#<UNK>, this is <UNK>.
If you look at our overall loan portfolio, we've got about roughly 29% of our loans are tied to 1-month LIBOR.
Another roughly 15% to 16% are tied to 12-month LIBOR and that's primarily our life insurance premium finance portfolio.
They reprice once a year, based upon the 12-month LIBOR predominantly.
Then we've also got about 16%, 17% of our loans that are tied to the prime rate, and about a third of the portfolio is fixed.
And then the rest ---+ a few percent is tied to 3-month LIBOR and that's about it.
So if you boil that down, about 29% is 1-month LIBOR and 15%, 16% is 12-month and 16%-ish is prime.
So those are ---+
Yes.
We ended June, really with cash and Fed funds about $700 million.
In September, we were probably about $820 million or so.
So we had a little bit more cash on the books.
Our securities portfolio stayed roughly the same, but there's a fair amount of prepayments on the agency securities, and some of those were at premium.
So you're seeing a little bit of headwinds on premium amortization on government agency securities that we hold in the book, and rates have been down, so the reinvestment of those hasn't been real full.
Just some headwinds on that portfolio.
But we are slightly more liquid, as Ed mentioned earlier, than we were last quarter.
We don't get real excited about 1.5% mortgage-backed securities.
Brad, I don't have it handy with me right here.
I don't want to misspeak.
But I tell you what, we'll make sure we mention it in the Q.
No, not really.
We saw some pick-up in our loan yields this quarter.
I think where you saw the pressure over the last year was we still had stuff going out the back door, so to speak, with older deals that were higher priced that matured or got refinanced.
So that was a fair amount of our pressure on the margin, over the last year.
But we're seeing the rates go up.
We are seeing rates go up.
Remember too, we're bleeding off accretion, Brad.
I think ---+ we will have to go through that, but we ---+ spreads are relatively the same, what they've been.
They're a little bit better.
I think a lot of it might be accretion.
We'll have to look at that, and again, we'll get back to you on that.
Well, you got to look at, see what happens, goes down with mortgages too and where that goes.
Our pipeline is as strong as it's ever been.
Notwithstanding niche pipelines, which are all very strong, our commercial real estate pipeline is about $1.5 billion on a weighted basis, a little over $900 million for the next 90 days.
That's consistent with back to the second ---+ the pipeline goes down in the third quarter basically, as guys play golf and use the good weather, and the fourth quarter it basically usually pops up, it's one of our busier quarters.
I would expect us to have reasonable loan growth the fourth quarter.
Our loan to deposit ratio could pick up, with mortgages held or sale and covered is right around 89.8%, and it's an area we're comfortable with.
So having it grow proportionately now, with deposits and loans, would be fine.
I think it's a reasonable expectation.
Just a tiny bit of capacity with the acquisition that should close.
Oh, yes.
I mean, the other ones, there's no cross sale.
There's really no ability to do anything.
There's commission-based businesses.
The premium enhanced P&C business is commission based, but you really ---+ that would show up pretty quick if anything was going on there.
You've got to book the loans and we do due diligence on those.
That would be hard.
On the mortgage side, same thing, with all the work you do now on mortgages, it's hard to get anything to fall through those cracks.
Yes, this is the nature of those businesses and how they work.
We don't have any other cross-sales or any special bonus initiatives for bringing business on the books.
It's all commission-based, and after-the-fact commission based, with clawbacks for deals that close too fast, or they reprice too fast, or whatever.
So we are very comfortable with the rest of that.
We just don't have a lot of it.
It's not our culture.
Well, that commercial and industrial line item has got the franchise loans purchase in it.
So that $555 million of loans we bought from GE would be included in that line.
If you back that out, the rest of it looks like relatively normal growth.
It's been going on for 10 years.
We do have a number of ---+ in our not for profit area, we do see there's some pain ---+ there's a lot of pain there, actually.
A number of our clients who are not for profit charities, who have had to cut back or just stop in terms of their activities, and what they're doing, because the State isn't paying them.
So we've seen the effects for sure.
We've managed through those effects, as has the management of those entities.
But other than that, it's a mess.
But essentially they have to do something to get through it.
In terms of our C&I business, we don't, by design, do much business with governments, other than buying maybe some of their securities, because I just don't trust them.
I don't trust the Federal Government.
I don't trust the State government.
We don't do a heck of a lot of business with them.
For the most part it has just affected charities, and they've been able to navigate through them.
It probably will continue to grow.
We have the capabilities now.
We built up enough bulk in our mortgage servicing area.
One of the unanticipated benefits of the Dodd-Frank movement was to centralize mortgage servicing in one place, which gave us ---+ and took it out of the 15 banks and put it in one place where we could have that specific required expertise, which then gave us the capacity to start servicing more.
I never like taking mortgage loans made in our footprint by Wintrust Mortgage, and selling those to somebody else to service them.
Didn't make a lot of sense to me.
So now we can keep them in-house, service them ourselves.
So I would expect that it would continue to grow over time, because we like our customers to stay with us and not give them to other people.
Thanks, everybody for dialing in.
Thanks for your support of Wintrust, and we look forward to talking to you at the end of what hopefully will be a record year.
Thank you.
| 2016_WTFC |
2017 | SNPS | SNPS
#Hi, <UNK>.
You're referring to 606, the new revenue recognition rules.
We have been working on this for a number of years and working closely with our auditors as well as the regulators.
First of all, let me remind you that this won't take effect for us until FY19, so there's a lot of time for us to implement it.
Right now, based on the work that we've done, we feel very confident that most of our ratable models should stay in place.
At a macro level, if you look at all of these products taken together, they're fundamentally anchored at least to a large portion, not entirely, in the semiconductor industry.
Per an earlier question, notwithstanding the year-to-year differences, the semiconductor industry has had a fairly steady growth rate and with steady R&D expenditures, and therefore fairly steady EDA growth all in all.
Within individual product groups, and especially when you connect them together in coherent platforms, there are actually very big changes in products in a matter of two to three years as it moves to the next generation.
These changes invariably are around finding a way to dramatically improve one of three characters.
Either characteristics of the quality of results, meaning the power of the chips or the performance of the chips, or the time to results, meaning make the product run much faster, or the cost of results which is reduce the area of chips.
These evolutions are not linear because often you work for two or three years on a set of profound algorithms and then suddenly it makes a difference.
If you look at a little bit higher level, and this is where it intersects with the strategy for our Company, the big inflection points from my perspective have been the addition of the IP business to EDA.
And this, of course, now already quite a number of years ago but now it is a significant portion of our business.
I've alluded the last couple of years to the inflection that is coming with the addition of the software side of hardware-software.
It's not a surprise that so many of the verification expenditures are increasingly focusing on that.
And then we have predicted that the software side itself would go through this by virtue of the complexity growth.
And so that is how we are looking at our opportunity space.
And to the earlier question of how does our financial profile evolve, be it in growth and profitability, while we're managing Synopsys as a portfolio of a number of specialty areas that are very related but somewhat independent in their growth spurts.
And in large arrangements with customers, the allocation of the individual revenue streams can be somewhat fuzzy just by virtue of accommodating how the customer wants to look at it.
I'm not sure I completely answered your question sharply, but I did give, what are the big things that actually bode well for us for a number of years to come.
Listening to my predictions through your mouth, I almost feel clairvoyant because indeed the deals did get larger.
And that's not surprising because this is the same history as EDA many years ago in many other fields where automation and verification gradually takes hold.
And yes, it takes hold faster with people that look forward and so on.
But really it happens very often when people have a catastrophe or an issue to deal with.
On the services side, you're right, we mentioned that then.
And to be honest, I don't recall if we were completely engaged with Cigital at that point in time already.
But we have felt for a while that the issues around security are so large that when you get the opportunity to talk to, let's say, the CIO or CSO or CTO of a large company, and they tell about all the security issues, the next answer is, well, we have this one product, why don't you just buy some, feels pretty shallow.
In that context, the Cigital acquisition was great because these are people that are accustomed and knowledgeable about reflecting the broader picture than advocating what is a good approach for the company to deal with it, while not necessarily pushing for individual products but, of course, now highlighting what we have.
So in that sense, I think that we will first learn how to run that business well.
And assuming that goes well, my guess is that this will broaden more and more on a world-wide basis.
If you don't mind, we don't want to talk about individual legal situations, so let me more generalize.
From time to time we obviously see glaring cases of misuse of software.
We try to respond forcefully but gracefully to it.
It is always better if we can guide a customer towards a healthy long-term solution, if I can call it that.
[Everysoft] is more difficult and maybe legal situation is resulting from that.
We've had a few of those in the past, they have been resolved, professionally and positively.
Let's hope this yields the same.
If you looked at our distribution of revenue over many, many years, you would see that Asia-Pac for decades has been growing substantially faster than other parts of the world.
Asia-Pacific itself has multiple components and Taiwan and Korea have been big parts of that for many years.
In the last number of years China has grown immensely, and of course has the potential to continue to do so.
Simultaneously, we know by virtue of having been in China since really the early 1990s, how the competence of the engineering teams and the companies that have grown and some have merged and have grown again, have progressed quite superbly.
And so in that sense, a number of companies that do state-of-the-art design in China just like anywhere else in the world.
We have been very fortunate to be, I believe, the largest contributor to that from an EDA-space point of view.
IC Compiler II has seen, actually, an enormously rapid adoption rate which continues.
And which is solidified more and more by the fact that we are also getting increasingly excellent results, especially when used in conjunction with some of our other tools.
So from that perspective, while I certainly don't want to be negative on any other competitive products, we have a high degree of confidence in this product line and we expect it to continue to grow.
Your second question was on Custom Compiler.
There too, this is a smaller product, less visibility and typically a slower adoption rate by virtue of the longer history that people have in the custom space.
And our focus has been primarily in the more advanced node, the FinFET technology.
And we are seeing some very good adoption, especially in the last few quarters.
We will continue to watch this space.
No, Jason.
The maintenance and service line should reflect the strength in IP.
In this quarter when we completed the Cigital acquisition, that business should flow through that line as well.
As I said, we will look at what's necessary to bring the share count down to the guidance range.
And we continue to evaluate whether or not it's expense to do an ASR or an open market.
That remains to be determined.
For starters we certainly don't underestimate what the change can do for Mentor.
I certainly can not say that we've seen an increase in competitiveness.
But let's see what the future brings.
It's a very capable Company with very capable products.
Maybe if I can toot our own horn, I think that we are ---+ we have very capable products too, and increasingly a lot of our top customers reflect on the strength of our platforms.
That will certainly be a continued angle for competitiveness in this regard.
Hey, <UNK>, this is <UNK>.
It will vary quarter to quarter.
We typically don't see it necessarily increasing through the year.
And it will vary depending on the profile of revenues and that could flow depending on hardware or IP services.
Then throughout the year, what we'll see is the change in variable comp as it ramps up or particularly on the commission side as it ramps up depending on shipments.
So I would not interpret that as something ---+ a longer term trend.
I'm not sure if we understood the question.
You are saying that we will see the software business and the IP continue to grow well.
And what was the question attached to that.
If you're referring to the profitability part, obviously these businesses as we grow them, we also have in place a discipline to make them gradually more profitable.
The question is always when you have something that grows very fast, is it better from a competitive position, growing the value of the Company over time, to push on growth or on profitability.
That decision gets made on a continual basis.
But fundamentally we will be following a belief system that says once a business starts to grow, it also has to increase it's profitability.
And while the high-growth businesses are less profitable than the lower growth businesses, in aggregate I think we're ushering in a very good balanced portfolio situation.
<UNK>, let me add to <UNK>'s comments.
I would not take the second half of the year and annualize it in any way or extrapolate off of that.
We are very comfortable with the overall business and the growth rates that we've identified from core EDA, IP and software integrity.
Those trends, remain intact.
The shift from the back half to the first half of the year is really the timing of the hardware and IP.
But overall, I think when you look at the business over a multi-year trend, those growth rates that we previously communicated for each of the segments remain intact.
Does that help.
I guess we have reached the end of the hour.
Again, thank you very much for attending the earnings call.
We had a very strong quarter and we look forward to Q2 with a fairly high degree of confidence and a strong year as well.
As usual, we will be available for the after-call phone calls.
Thank you very much.
| 2017_SNPS |
2016 | WING | WING
#Yeah.
And a good question.
The investments we made I think first and foremost, to answer your initial question, it did have a delever impact, but most notably this is not specific to any sort of wage issue or inflation issue, but most notably around a roster expansion that we've consciously made in our company stores to prepare them for the growth.
If you recall, our company-owned stores, same-store sales grew by 6.8% in the quarter.
That's on top of very, very strong growth over the years, and so we felt it necessary as we continue to take care of our guests to expand the roster.
And so as ---+ in doing so, that creates opportunities to train our people, but those training costs come with hours invested in the P&L.
We don't think ---+ we only see this really as a near term investment.
We don't see this as a long-term issue.
So we expect to see labor moderate in the back half of the year for the company store footprint.
Yeah, <UNK>.
Yeah.
So the pre opening expense impacted the margins by about 70 basis points.
Company store margin.
Sure.
And your question certainly calls attention to the fact that we're being very diligent and careful about our pace of international expansion for a lot of reasons.
That is one of the big ones.
As you may know, certainly supply chain is a big piece to the puzzle of establishing a long-term successful international strategy.
And Larry and his team have been working very hard with a number of global suppliers that are built and prepared to help us expand our business overseas and they're addressing very important issues for us that we need to be prepared for, for instance, GMO-free products, as well as halal certified products in certain markets around the world as we expand.
And then, separately, ensuring that we had a sustainable and growing supply chain for chicken to get into the markets that we expand into.
And then notably the ability to produce a lot of these products overseas, closer to the markets in which we operate to reduce just costs overall.
So he and his team have been working with a few, as I mentioned, key suppliers of these products and services across the world.
And before too long, we'll have established what I believe will be a very appropriately sized and robust supply chain for us to continue to grow with.
But one thing I will certainly commit to is that we will not grow too fast in advance of making sure that we've got the infrastructure in place to do so properly.
Nothing specific, no.
I think certainly the Olympics could be helpful to us but we are not anticipating it to be significant in any way.
They do---+ this year, if you look at past years the Olympics have been in various time zones around the world and this year they are in our general US time zone, so that may create some opportunity but we don't expect it to be meaningful.
Can you clarify that, what you mean by next steps beyond that.
Do you mean beyond that timeframe or---+
No, those items, notably the national ad fund are going to be key enablers to our continued progress towards our US development target of 2500 restaurants overall, that can only help us along the way by exposing the brand in markets where people may not know us as well.
Separate and apart from that I think our strategy for the long term is very clear yet very simple.
Its continuing to leverage the great unit economic model that we have in place delivering 10% plus unit growth along with low single digit sales growth that delivers great returns for our shareholders, ultimately.
So, we are very proud of the fact that we have a very simple model and I think the growth to 1,000 restaurants only creates leverage opportunities and scale opportunities for us in the future.
Thank you all for your time today.
We certainly appreciate your continued interest in Wingstop and look forward to speaking with you in the future.
| 2016_WING |
2017 | DGX | DGX
#Thanks, <UNK>, and thanks, everyone, for joining us today
This morning I'll provide you with highlights of the quarter and review progress on our strategy and then <UNK> will provide more detail on the results and take you through updates on our 2017 guidance
We began 2017 with a strong first quarter across the board drawing revenues, EPS, operating income, margins and operating cash flow
Here are some of the key highlights ---+ revenues were up approximately 2% on a reported basis and 3% on an equivalent basis
Reported EPS of $1.16 increased 63% in 2016. Adjusted EPS grew approximately 18% to $1.33 which includes $0.11 of excess tax benefit associated with the employee stock-based compensation; more on this later from <UNK>
Cash from operations increased 28% to $196 million
Now before I describe the progress we've made to accelerate growth and drive operational excellence, I would like to briefly discuss PAMA
CMS postponed the deadline for labs to report private commercial payer pricing data under PAMA for 60 days until May 30. We fully support the decision
However, we continue to have some concerns about the current definition of applicable laboratory, which are those laboratories per quarter to report private commercial payer data
According to the office of Inspector General's analysis, the current definition of applicable laboratory would cover only 5% of laboratories, representing only 69% of Medicare payments for lab test in 2015. While we support reform of Medicare payment system, we believe any modification should be market-based and appropriately include all applicable independent and hospital outreach laboratories
Now let's review progress we've made
As we detailed at our Investor Day at November, our two-point strategy is to accelerate growth and drive operational excellence
We grew revenue in the quarter empowered by continuing to expand relationships with hospital health systems
Our existing professional lab services relationships including RWJ Barnabas in New Jersey, HCA in Denver and most recently, Montefiore in New York City are performing better than expected and our pipeline for new relationships remains strong
So in the first quarter we announced the acquisition of an outreach operation of PeaceHealth Laboratories and expect to close in the second quarter
In addition after the close, we will execute a professional laboratory services agreement to manage 11 PeaceHealth Laboratories serving medical centers in three states in the Pacific Northwest
We are hardening with health plans to improve the patient experience by improving price transparency which will also reduce bad debt
Our real-time payment determination which we begin piloting in early 2016 enables us to get patients an accurate picture of their financial responsibility or lab testing while those patients to pay at the point-of-care
We are currently live with Aetna, Highmark, UPMC, Florida Blue, and we expect to have more payers in place by the end of the year
The service benefits Quest and the entire healthcare systems; patients, providers and payers
Avis [ph] Diagnostics which generally includes our genetic and molecular based test grew in the quarter along with non-routine testing
Major drivers included neo-natal genetic carrier screening, prescription drug monitoring, hepatitis C and QuantiFERON TB testing
In the quarter we also announced the launch of the new test service that helps physicians evaluate the patient's response to the drug therapy used to treat infection with hepatitis B virus, HBV; this is the first test of its kind available in the United States
Physicians can use it to tailor more effective treatments for up to 2.2 million individuals infected with HBV
We're also making progress executing our strategy through provider-of-choice for consumers
In late January, we began providing genotyping for ancestor DNA, a service that today identifies and quantifies individual's ethnic origin based on results of DNA testing
We are pleased with the initial execution of this program and look forward to building on a relationship with ancestors
We continue to expand our relationship with SafeLink that are now operating at 65 stores
Consumer and employee satisfaction remain high and we are on-track to open a total of 200-patient service centers and Safeway stores by the end of 2017. We continue to drive operational excellence and remain on-track to deliver $1.3 billion of run rate savings as we exit 2017. Our revenue services partnership with Optum is on-track in helping us to drive down bad debt and denials
As we have often said, quality and efficiency go hand-in-hand
We continue at near Six Sigma levels of many areas and in the quarter of mid year-over-year gains and many quality measures including reduced patient service center wait times and approved test turnaround times
We expect our commitments to enable our processes will deliver results
We expect to cut paper acquisitions by 50% by the end of 2017. It will enable patients to check-in electronically at roughly half of our patient service centers by the end of the year
Additionally, we expect our lab systems to be 85% standardized by the end of the year
We received some meaningful recognition in the quarter, once again being named one of the World's Most Admired Companies by Fortune magazine
Quest was one of only six companies in healthcare, pharmacy and other services industry and the only diagnostic information services company to attain most admired status
Looking forward to the remainder of 2017, we are well-positioned to continue to accelerate growth and drive operational excellence
We have the right strategy and the right team to execute and create value for our shareholders
Now, let me turn it over to <UNK> who will take us through our financial performance in detail
<UNK>?
Well, to summarize, we delivered strong growth across the board in the first quarter with gains and revenues margins, operating income, EPS and operating cash flow
Our agreement with PeaceHealth will further booster our growth later in the year and we are laser-focused on our two-point strategy to accelerate growth and to drive operational excellence
I'd like to now open up for any questions you might have
Operator, please? Question-and-Answer Session
You know, so thanks, <UNK>, certain I'll start and <UNK> will add to that
Sure, first of all we're off to a good start, we're pleased with our first quarter performance here
Yes, there's up a number of elements that contributed to the growth in the first quarter, we highlighted some of those in our script
First of all we do believe that will continue to get growth from our professional lab services work that we're doing
We saw some growth from that
Second is we continue to get nice growth from our advanced diagnostics portfolio and some of the more advance, what is typically referred to as esoteric testing that we do would call about some of those, and we've mentioned in the past the prescription drug monitoring and the work we're doing with the TV coiffure opportunities drive serious growth for us
We also got some nice growth through some other areas of the business, like our Wellness business, some or other ---+ some of our other services business
Across the board good balance growth consistent with our strategy that we had to focus at hospitals
That focus on our clinical franchises and bring new products to the marketplace to commercialize those better than we have in the past
And finally just good execution across the board
So let me turn over to <UNK>, to give some color round this and throughout the rest of the year
First of all it is going well, we announce it in the fourth quarter of last year
And a big component of it is what we're going round revenue cycle management and our billing operations and as a I said in our opening remarks it's going very well, we're pleased with that
Like you said this is a relationship so there is multiple areas beyond what we're doing around billing, we continue to build on that relationship and it's ---+ it's going well as well
We have a good relationship around our wellness business, we are their partner for wellness along with other ---+ other partners that we sell-through
Second is we continue to work with them on what we do with clients around data and population health and if you think about what we're doing with our professional laboratory services business, we're calling on the same people that are trying to become more efficient and better in delivering integrated delivery system and so that areas is promising as well; so often good start, doing what we said what we would do and the relationship will only get stronger overtime
Thank you
First of all the pipeline as we said is the support of our long-term goal of 1% to 2% of growth through acquisitions; we're hopeful about that going forward
As far as competition ---+ I would say the competition is stable versus what we've seen in the past
And finally is in regards to the PAMA, I think PAMA in general is changed that some would argue ---+ could look more catalyst in hospital outreached business as considered their strategy going forward
So when we engage with hospital systems run their lab strategy, many CEOs that are engaged with do understand that both the commercial rates as well as the clinical lab fees schedule rates will be under pressure
And this is one of the considerations that they think about as far as potentially selling their business or partnering with us in their business going forward
So if in fact there is some price pressure related to the refresh of the clinical fee reschedule that could be a further catalyst to accelerate some of this going forward but as you know, PAMA ---+ the data submission has been postponed by 60 days, we're still believing based on what they've told us so far that they are committed to trying to refresh the clinical lab fee scheduled by the beginning of '18 but we'll see on that
But there is another fact that we think is helping us with our discussions with hospital systems around their lab strategy
It's not that directly linked
I think it's a fact out there that CMS is looking at refreshing ---+ we couldn't let fee schedule as we often talked and so we get all the data, we don't know what's going to happen with that, but it's just a fact out there that is going to be pressure on rates
And therefore hospital CEOs are thinking about their options for outreach
Yes, so thanks Ricky
Let me give you some color around PAMA, now first of all the data put in all the data has been pushed out for 60 days and yet, CMS still is holding to the goal of refreshing the clinical lab fee schedule by the beginning of 2018. Now with all that said, we just took two months of really tight schedule and the way this will work is they'll get all the data by the end of May - let's call it June
They have to work through that for four months in of which in those four months, two of those months are in the summer months and then publish their rates that they will look to comment on in the September timeframe
And then they'll publish upon the rates in the fourth quarter for that beginning of January 2018. So as you think through this, the two-month delay in data reporting clearly is putting pressure on the schedule and that's why people are saying, 'Okay even that they still have the goal, it's impossible that they can get there
' I'll share with you exactly what we're hearing, but there is more pressure on them to put that altogether
Now with all that said, as trade association, we continue to be actively engaged with CMS
When we're down there for our annual meeting of UCLA several weeks ago, we've met with CMS
This is many members of our industry
They're very, very responsive to us, they listen to our concerns about data
Part of the response to see would postpone of the data collection is because we are engaged with them and we're also having discussions with them and members of congress about the definition of applicable laboratory
In the way CMS is implementing the approach right now is excluding a fair percentage of outreach which is a large portion of this market
So there will be another meeting next week with CMS and this is at the highest level CMS with [indiscernible] to talk about two issues; one is the timeframe and second is applicable laboratory
And we hope to engage as we've done so far as a trade association of being constructive and helpful to get the market-based approach right, which is the intent of the congress with this bill
We continue to work it with them
You also need to understand that this also has the backdrop of them having a lot on their table in the number of positions across the board in HHS and CMS not being filled
We also know that they've got to work through a lot
I'm giving you some of the color, but we're actively working this trade association and we believe that by doing so, it's going to serve this industry well
And just to round this off, we also said in our Investor Day in the fall that if in fact it is implemented in 2018, given the size of this business for us, the effect it could have based upon some of the estimates that we're going to be able to absorb that, given the opportunities we have around operators [ph] going forward in normal course of running our business
That's our position
We believe it's already implied in our outlook that there could potentially be some reduction here, but we don't know for certain until we get all the data collected
But we're managing this proactively going forward and we'll see what happens
And <UNK>, just to remind everyone, it's this the march we're on with growth
Back when we started with our strategy at 2012, we simply just restore growth and business that was shrinking organically
We have reduced that decline, we stabilized the business, we started to get some organic growth in '16 and our two strategy focus right now is number one, to accelerate growth
So what you see in Q1 is the continuation of that march of improvement and we believe a lot of the investments and capabilities and focus that we've put over the last several years is due to yield the results we expected
We're pleased with Q1. As I mentioned in my earlier comments, the results are a number of areas that led to the growth that you saw in Q1, but we believe we're off to a good start for the year
Something notable, <UNK>?
Good morning, <UNK>
That's correct
Just to make sure it's clear, PLS, it is a business
We're managing a portfolio of professional laboratory services accounts and like for any business, these accounts are different stages of the revolution
In that business, we have a number of accounts that have been with us for some time and like with any business, you're managing those accounts to make sure you have a referable account going forward
That's in our base as well
Second is we're growing new accounts, they're turning on
There might be some more opportunities to expand it into other hospitals so we've got growth within the install base as well with some growing accounts and then we're bringing on board some new accounts
So the highlights we've talked about at those new accounts, you put those three together and that has a business in its aggregate growing, but don't forget, we still have this install base of existing business that we could hear ourselves as well
We need to think about it as an existing business with managing accounts, growing accounts and then executing brand new accounts
But with all those three components, this is a growing business for us, it's a good business for us and it positions us nicely with integrated delivery systems
Let me start
First of all, the relationship with Optum for revenue cycle management has three components
First of all, we believe by working together with them, we can continue to become better and more efficient in our building operations and the efficiency associated with that, A
is part of our $1.3 billion bigger rate savings and efficiency goal that we have
So this is parts of many programs we have to drive efficiency
So a portion of our results and a portion of our achievement against that goal will include what we're doing here
Second is we believe by getting smarter with them around the interaction between class and patients and payers, we can go a better job of bad debt and denials and specifically, they will help us with what we talk about as far as real-time adjudication with patients that we've mentioned, four [ph] payers that are initially working with us on that, but we expect with Optum's help, we could get some more
And then finally, it's just completing the data set and their relationship with payers in general we think will be helpful of getting paid both from a standard perspective of bad debt, but also with the denials associated with more advanced diagnostics
<UNK>, anything you like to add to that?
Thanks, A
Safeway relationship, we believe is the beginning of our consumer initiative working with retailers in a bigger way and part of this is around providing better access
We believe we have unparalleled access in the market, we're 2,200 patient service centers, we have 2,800 phlebotomist and physicians' offices, about 6,000 access points, but we believe some of these retailers we could be working with and safely as one had better locations and there is anywhere from 15% to 20% of laboratory requisition orders that go unfulfilled
So we're helpful by having better access
We're going to get more fulfilled requisitions and that's going to help our growth and also help some share if we have better access
We hope when a patient has a choice and who ask the question, 'who do you like to go to?' for their laboratory testing, that the patient will remember a better experience in a more convenient location for that experience and they'll choose Quest based upon our movement here
That's both growth, but also as you would expect as we start to come on board with some of these centers, we rationalize our presence in a zip code and we might shut down some of our smaller patient service centers and saves us some money as well
It's both growth and efficiency
And we do continue to have relationships and we do continue to have pilots with some of the other players in this retail space
We continue to have UBS [ph] as the client and we're optimistic about other retailers as they continue to evolve their health strategy
They see it as a nice expansion from what they do today around pharmacy and also it helps these retailers for getting traffic into their stores as well
It's a multi-faceted program for us that directionally, we're very, very optimistic about and I think we're off to a great start
Yes
All that you mentioned are strategically in-lined with our direction
So we have for the last several years cleaned up our portfolio, we're entirely focused on diagnostic information services
Our first filter for any deal is does it fit into our scope of our strategy and from what you just mentioned all do
Second is we do believe that there's our growth strategies and we've outlined in the fall five areas that we're focused on for accelerating growth
One is related to partnering with hospital systems and so, the hospital average deal fits in that strategy as well
Second is to continue to invest in advance diagnostics and bringing new capabilities to the marketplace
So some of the potential acquisitions we could do there would fit there as well
As part of these priorities, what we have shared in the past is we continue to be very, very rigorous in making sure that if their strategically in-lined, that we have the thresholds we expect to make for our shareholders with any acquisition
I would say that's generally more of the cut we have is we're the strategic in-line where they fall out in terms of use of our cash and are they getting acceptable returns of invested capital, providing us with the growth we expect and at the same time, become accreted to earnings in a reasonable period of time
That's generally how we rack and stack acquisitions and it served us well so far
That fits into the strategy that we had or 1% to 2% growth of acquisitions
As you can see from our prior acquisitions over the past four or five years, do you see all those categories and it's more of a matter of when that come in and when we can execute it and less to deal with the sorting of what we'd like more of a priority than others
But we haven't had the problem having not enough cash to execute things
We think we should do strategically and also that we think has a good return for our shareholders
So <UNK>, anything you like to add to that?
Let me just underscore what <UNK> just said and remind you what we shared with you in the fall because it's important in our strategy in what we're doing every day
When we're talking about hospitals, it's about 60% of our market if we look at it and we have laid that out in three ways - one is what we could do to help them with their inpatient laboratory cost
These are cross centers that we could save the money
Number two, what <UNK> just went through as far as the reference testing, the advanced diagnostics to sell the hospital that they can't do themselves, they rely on laboratories like ourselves and then finally is outside of the hospital and some have outreach businesses, but they also are buying physicians and they're looking at serving geographic area and providing the laboratory services with those physicians that they now own or affiliate with
So when we have a discussion, it just was last week with a very large integrated delivery system, their lab strategy includes all three
We talk about our relationship with hospitals, yes it's the inpatient laboratory but it's a holistic view of how we approach the marketplace in a much more progressive holistic view as they build integrated delivery system
S it's all three components when we approach the systems and it's serving us well as you see in our good start of the year
We continue with all our partnerships, so this is the beginning
There's other things we could do with IBM
I'm not prepared to talk about that, but we believe all our partnerships start with something and they go from there
First of all, the refresh of the clinical lab fee schedule from PAMA ---+ I would just argue is a reality that's creating some catalyst on hospital systems; I must say all laboratories to consider their options going forward
And I would argue that as independent of whether any refresh takes place in 2018, 2019 or even 2020, it's just sitting there; that how they get paid for Medicare is being revisited and even though you've said that, its cuts is unclear on what the outcome will be until we gather all the data and we've talked about this before
Until we gather all the data, we don't have the visibility about the data, it's uncertain of what effect it would be
But we review that in general this review and the pressure that's on payment in general and we believe it's on the Medicare side with PAMA, but also on the commercial side is a good catalyst for us having these conversations with integrated delivery systems without the laboratories on the strategy going forward
So that's the first point I'd like to make
The second is the goal is still 2018; obviously if that's postponed or delayed, and if in fact you had a negative consequence associated with how we get paid, it would be helpful in 2018. But right now we're assuming that what they tell us is what they're going to do and therefore 2018 is what we're assuming and we'll see if that does happen
Okay, we appreciate all the questions
Thanks again for joining the call
As you heard, we had a strong quarter and we're off to a solid start in 2017. We're looking forward to meeting your commitments by our two-point strategy which is to accelerate growth and to continue to drive operational excellence
We appreciate your support and you have a great day
| 2017_DGX |
2015 | ESL | ESL
#Yes, that exactly.
Thank you Rob, that's correct.
That's a baseline target, yes.
That's absolutely correct.
I mean, if you recall the question that <UNK> asked was are we using adjusted earnings or GAAP when we did our comparison.
And I was thinking about the 159% that we talked about, and I said we used our GAAP.
Okay.
We talk about internally as <UNK> referenced in his remarks and our benchmark is that over the long term, we anticipate being consistently able to generate more than 100% free cash flow above our net earnings.
That's our baseline target.
And you are absolutely correct, Rob.
The GAAP this year ---+ no, wrong choice of words there.
The spread this year between GAAP and our adjusted earnings is abnormally large this year for all the reasons we talked about.
We anticipate returning back to a more normalized level.
However, next year as we've identified, we still have some items that we will be adjusting for.
So we would expect ---+ we would expect that our free cash flow again next year would be substantially higher than 100% of GAAP earnings.
And I think that's what your point is.
Right here in front of me, I do not have the exact number.
Right.
Right, I agree.
We could provide that.
No problem.
By segment.
Yes.
I just want to make sure that we are clear.
We are getting an additional nice bump from having the full year of DAT in the numbers next year.
It's a little more than that.
It's going to be in the $60 million to $80 million range as we flow it out.
Because remember, as we've talked throughout the year, DAT does have a seasonality component.
And last year when we acquired the business we missed some of their higher, their higher revenue generating months.
So will be $60 million to $80 million.
On a peer basis.
It will show on an al-out basis.
It will show the highest growth rate, but the organic has a little pressure.
No, I didn't mention it specifically.
But our expectations next year for corporate expense are somewhere in the $60 million to $65 million range.
Yes.
Well again, just a lot of moving parts still.
So I will just throw that out as a general.
As I take down through these ---+ we did stress the system on a lot of different things.
A lot of different challenges there with compliance.
We could spend ---+ we spent more than we thought on compliance.
That can hurt us a little bit although we adjust out part of that.
Miss on the low end, we would probably have to have the top of our end markets have a dramatic change I would think.
We're not banking on any really big wins, but there is a portion of incremental stretch like every year.
And I think we've done a very appropriate job of looking at those and putting in a makeable number.
But there's puts and takes there.
So it would probably be more on the top market side.
If we saw further deterioration or some of the short-term, short cycle stuff that we were less successful on.
Likewise on the upside, I think if we can continue to execute on budget and on track with the cost of some of our projects and start to drive some of the bottom line conversion on those projects, that can to help us.
And also some swings on some of the retrofit programs that we are always out chasing.
Those can have ---+ we probably got three or four of them that we're chasing right now if we were more successful on those or if they came earlier in the year, and I've done ---+ and I'm not even going to talk about them anymore because I'm terrible on the timing of those.
We have a pretty nice ---+ we've had some nice wins in the UK nuclear market.
We've got some incremental sales in 2016, we are planning on some pretty good size bookings this year.
But they won't happen until 2017 and beyond.
We could get a little bit of incremental there.
And if oil rebounded, obviously oil, we got hurt in 2015 specifically and a little bit of 2014 because of oil prices.
If that was to go up and help with oil exploration if we saw helicopter rebound a little bit, that could help.
We don't talk a lot about gaming.
Our gaming guys ---+ the Gamesman acquisition we did just knocked it out of the park.
To repeat there is a very tall order.
But with all of the consolidation that we've had, we were pretty nervous about being on the wrong desk, but they went out and got it done.
So we could have ---+ we are planning on coming back down a little bit just because of the wins that they had.
They could have another knock it out of the park year.
You bet.
<UNK>, this is <UNK>.
We see in 2017 we're getting back to GAAP to GAAP.
Based on our timing, we will still have the residual amounts of our compliance consent agreement going on in there.
But our accelerated integration initiatives will be completed.
And much of the heavy lifting for DAT that we are anticipating will be completed.
So we're looking at 2017 being about as close to a clean year as we've seen in a long time.
Thank you.
Yes Frank.
I mean <UNK>.
We moved a very small business from continuing ops to discontinued ops in the fourth quarter.
It was a business that we had moved some of our aerospace components into the Everett facility.
And we are selling the industrial components part of that business, and we moved it into discontinued operations in the fourth quarter.
That's the delta that you're seeing.
I think that it was probably close to breakeven.
Hi there.
Hello <UNK>.
Two things.
You are correct.
I would say that there's maybe three different things that we've had going.
Three big buckets that we've had going on.
Compliance is one that is ---+ we adjust out the things that we know for absolute certainty will go way.
So they are outside legal for investigations.
It's the cost that we are paying for the outside services that we are using there.
But there is also ---+ there has been a significant increase in our businesses and at corporate to go do and review all of the drawings.
To go redesign some things.
As we're moving things from one site to another, extra cost there.
And we are not adjusting that out.
So my anticipation is that has increased more than I thought it would.
It has chewed up some of our savings, but we are going ---+ we have a target as we embed these processes in our business ---+ there is some nonrecurring activities in the business that does go away.
Once we classify all the drawings and get the policies and practices set up.
We did tons of training this year that again is not broken out separately, that gets charged in the business and it pulls people off of working on product and designing new products or doing R&D.
So that is in the singles, but numbers of millions of dollars of disruption that is in our business that I think over time goes away.
There is what I will call the accelerated integration projects.
We picked a list of those and said here's some high-profile and we will adjust those out.
The one that <UNK> just mentioned actually is an example.
There is probably four other moves that we've done that we've not adjusted out that cost us money to go do that and time and effort.
So there's been some expense there.
Again, most of those are behind us, but we're going to have some ongoing run rate there.
But we're trying to get more of those done sooner rather than later.
There is some ongoing CI impact that we haven't broken out separately.
And again, a big push to get everybody trained.
This event that we just did up in Everett is a good example of that.
All of that hits the bottom line and we shut down the factory for a week and a half.
All of that is hitting expense right now.
And again, until we start self funding that by getting enough critical mass that's operating under the system, it's not really even breaking evening.
It's a drag on the system.
And that I think this year starts to turn the other way.
<UNK>, you have any other.
No.
If you are looking for a specific number there, it doesn't exist.
<UNK> did a very good job of describing the items that are hitting the P&L there.
And the way he described it with using the term self funding is how we describe it internally.
A number of these programs are absolutely going to have positive returns, but we weren't just going to have an extensive and even longer list than we already did.
It has manifested itself in our sales level.
I think we have leveled out.
It is still happening, but again, there is an increasing fleet out there.
We think it has bottomed out or it's leveling out or being offset again by an increased number of units out there.
No.
I think we chased our tail on that for a couple of quarters starting back in 2013 and 2014.
It had leveled out, and now actually we've seen a little bit of growth either by added ---+ probably at a higher liability, not as many removals, not as extensive an overhaul.
But that has leveled out now, and we're seeing some continued growth.
Believe me, we keep our eye on it though.
Okay.
Thanks.
| 2015_ESL |
2016 | ISRG | ISRG
#We're not at the stage where we've introduced the product and we're manufacturing them in bulk.
But I think it's fair to say that SP's margins will be lower than our existing product portfolio, and we will work on it and over time to try to reduce those costs.
But in terms of magnitude, <UNK>, you look at the Xi, that was our next generation multi-port system and it quickly took off to a very high proportion of the sales.
What we're talking about with SP is a more controlled type of launch lower overall quantity.
So just based on magnitude, it's probably not going to have as big an impact on the overall margin.
There was a footnote in our data tables that we referenced in the beginning.
During the third quarter, we actually implemented a new system and some processes for tracking our da Vinci systems out in the field.
As part of the transition process, we performed a verification audit of our installed base records which identified 43 system, mostly older standard and S models which had been retired.
So we went and removed those retired systems from our installed base during the quarter.
So I think the trade-out number was 33 and then most of the rest here was just this adjustment we made to the base.
So the trade-ins were pretty in line with previous periods.
Yes, sure.
I think we think about capital deployment consistent with how we've talked about it before.
We're in a period where there is now ---+ we're facing future competition, and we want to have the ability to expand and to deal with the competition.
We're also going to see additional opportunities as companies get into this game for acquisition of technologies that may expand our marketplace and enhance our products.
And those technologies, it's nice to do tuck-ins and small licensing arrangements that we've done in the past and we'll try to do those.
But it may the that we have to pay a greater dollar to get some of that technology in the future, so we want to have money for those things.
Beyond that, to the extent that we have the right opportunity to buy back stock and return money to shareholders, we will take that opportunity.
But we will do that opportunistically as we have in the past.
On the first question, I think in the long term I think it deepens our relationships with customers and regulators in China.
I don't ---+ I wouldn't assume that it's a magic switch in the near term.
With regard to regulatory approvals for various products in China, typically in our past, it has been a little bit longer process than it has in the US.
What that looks like going forward, in particular for the new products we're talking about, I can't speak to at this time.
We just don't have enough information on it.
Hey, <UNK>, this is <UNK>.
In certain international markets, we're pretty deeply penetrated in urology.
And where you've seen those penetration rates increase over time the rate of growth has decelerated, and emerging procedures things like colorectal and gynecologic oncology are still fairly small.
So countries like the Nordic countries, places like the UK where we're pretty deep you see those growth rates slow.
Hernia continues to be encouraging.
The rates of both procedure adoption, surgeon retention and utilization within the existing surgeon population as they continue to do more procedures has been a strong point in the way in which the technology has been adopted.
Hernia repair is not one thing, so there's a variety of patient subsets within, a variety of different physician perspectives around the value that our technology can bring in the procedure.
And so it's probably not quite like DVP in terms of the way you would think of it as being adopted, maybe a little more like benign hysterectomy given the alternative therapies and the heterogeneous landscape out there in terms of how they address these patients.
Just giving a little historical perspective, if you look at prior to Q2 of 2016, our INA revenue per procedure has been running within a really tight narrow range $1,830 to $1,840 per procedure.
You probably recall last quarter it actually dropped down to $1,810, and we talked about timing of orders being the main factor here.
So as expected here in Q3, we saw an orders rebound to offset Q2.
And if you take the average of Q2 and Q3, you're right back at the $1,840.
It's in line with those trends over the past couple of years.
As we said though, we continue to see increasing utilization of the advanced instruments, including the stapler and vessel sealer.
And moving forward as we anticipate continued growth in the procedure volumes in colorectal and thoracic surgery, areas where these products are more widely used, we would anticipate a slightly higher contribution to revenue per procedure on an organic consumption model, if you will.
But it is important to remember that a variety of factors impact revenue per procedure, including the type of procedure performed, the efficiency of use and optimization, use of advanced instruments, stocking orders, timing and distributors.
There's a lot of factors here.
So as a result, INA it can be lumpy and future trends can be difficult to forecast in the end.
Hey, <UNK>.
As you know, predicting how the patient treatment trends across prostate cancer in a mature procedure like DVP is difficult.
And we have highlighted for a period of time the rates of growths that we've seen were not rates of growth that we thought were consistent with the rate of diagnoses.
It's hard to say in the quarter or the rate at which we've seen growth change over the course of this year.
The specifics behind it, that data typically comes to us years down the road.
But we feel about that what we saw in the quarter was probably more consistent with the rate of diagnoses than perhaps what we've seen over the past and four quarters.
I think you are connecting two things I'm not quite sure I'd connect.
So the relative health of the gynecology business seems to me to be driven by a few factors, among them concentration of patients into higher volume surgeons and higher volume centers.
Separately there is a trend toward more outpatient work.
We do see utilization of our systems in outpatient environments that tends to be more in existing integrated delivery networks, hospital loaned outpatient departments as part of our integrated plan.
It's not something I would call out as a major trend at this point.
I'm not sure that I would quite link it to gyn.
It's possible but I think there are a lot of factors there that sorting them it's not possible yet.
But if you look at gyn overall and you look at the history of benign hysterectomy adoption, the entrance of da Vinci surgery into benign hysterectomy, has enabled the majority of patients to now be treated on an outpatient basis.
So when minimally invasive surgery is adopted with a technology, it will enable hospitals to manage these patients in a more outpatient-oriented way.
The way I think about it kind of puts and takes.
So the major factor is anticipated procedure growth by the customer.
Customers are making capital placements based on what they think will happen in future procedure trends.
So that is the biggest driver, and where they see growth I think that they move forward.
The places where that can be a little bit different or disconnected is in a very early market where you are just getting started.
So a new reimbursement clearance or a new quota or a new procedure clearance doesn't follow the more mature trend.
So those are the two things that are rolling around.
I think the biggest one for us is customer belief and utilization for future procedures is the best predictor of capital.
I think the idea that if there are technologies or other assets that we can bring that we think will increase the value of a robotic surgery program or a minimally invasive surgery program based on the computation to one of our customers.
Is that an opportunity for us, yes.
They tend to develop in time.
The underlying catheter-based technologies that we are talking about now, as you know having followed us for some time, were really first acquired by us years ago.
So the answer to that is yes.
We are out looking, Fosun has been a good partner.
They have both a relationship with us through Chindex, but they also understand the healthcare space extremely well in multiple dimensions.
And so short answer to that is we have been doing it, and expect to continue to do it.
As we've said in the past, adoption is really a per procedure and per procedure is really segmented.
So for example, colorectal is probably really four or five underlying procedures that are a little bit different.
And adoption goes quickly when there is a large value, a distinct value for the procedure relative to alternatives, and when the procedure is pretty well-concentrated in the hands of well-trained surgeons.
So take colorectal and separate it a little bit.
In the case of rectal cancer, that is a complex set of procedures.
Oncologic, of course in nature, has been growing steadily.
Not a super rapid rise relative to some prior adoptions, but a steady adoption for us.
And data collection has been occurring, data publication has been occurring, and we are doing okay there.
I think in other parts of colon, sometimes it is for benign, sometimes it is oncology, those are typically done by different surgeons and so they adopt at a little bit different rates.
And you look at hernia, again, it's sub segmented.
Ventral hernia versus inguinal and sub segments within inguinal.
So we look at it, ventral hernia and inguinal hernia as we define the available markets for procedures for which we bring value have adopting pretty nicely relative to past trends.
Rectal has been on a slower adoption, but a steady one, and colon is in the middle.
Yes.
We're not ready to give our 2017 forecast yet, and we'll see how we close here in the fourth quarter and roll up our estimates and answer that very question in our next call in January.
There's going to be variability quarter to quarter, lumpiness if you will, between SG&A and R&D.
We've talked a lot about our R&D investments, <UNK> went through them on the SG&A side.
I think we are investigating a little heavier disproportionally for international to support the earlier phase growth there.
So you look at it overall, we are within our guidance range.
We refined our full-year guidance to that 13% to 14%.
So again, there will be some quarter variability.
But I think we are tracking to the overall plan.
<UNK>, given the lumpiness in some of our capital revenue from period to period, we typically talk about operating expenses in terms of growth rates, which [Pat] will walk you through.
We've been launching a number of instruments and accessories, various things in various markets.
We tend to tell you when they come out.
We have not tagged a launch date either for SP or other major systems at this time.
It's a good question.
I think the dynamics are little bit different in both in terms of procedure complexity and a little bit of practice patterns, so they don't track exactly the same.
Having said that, I don't think there's anything about adoption that I'd call out strongly at this time.
I think both of them are moving through that first set of adopters, generating additional data.
We're seeing more data now, generally supportive, it looks pretty good.
I think that technique refinement and data generation is, it's what the next round of surgeons rely upon to evaluate and so we're seeing that transition right now really in both those hernia [deleans].
We will just take one more question for one more caller, please.
That was to questions already, and I gave you one.
I think I will choose one.
No, we'll go fast.
On the first one in terms of cost reductions, it's a careful and long list of activities that goes on.
So you shouldn't so much think of it as one thing as it is a routine discipline of scanning through both operating processes and manufacturing processes and parts costs, and working them down as they come.
You do get the greatest help on those things in the first few years of a platform release, and then after that it starts getting increasingly hard.
It not to say that isn't possible to do it.
On terms of headcount growth, it's a mixture of commercial growth, a little bit more weighted outside the US then the US.
Some manufacturing growth to cover volumes of things like instruments and accessories and other things that have been increasing, as well as some design help.
The headcount growth as it relates to Fosun, we are not really ready to break out at this time.
We have certainly made headcount investments over the last few years into the technologies that have underpinned that relationship.
But I wouldn't call it out as Fosun just yet.
With that, I will go ahead and close the call and then we'll catch your next question on the next conference call.
That was the last question.
As we have said previously while we focus on financial metrics such as revenues, profits and cash flow during these conference calls, our organizational focus remains on increasing value by enabling surgeons to improve surgical outcomes and reduce surgical trauma.
We've built our Company to take surgery beyond the limits of the human hand, and I assure you that we remain committed to driving the vital few things that truly make a difference.
This concludes today's call.
We thank you for your participation and support on this extraordinary journey to improve surgery, and we look forward to talking with you again in three months.
| 2016_ISRG |
2016 | ATGE | ATGE
#Ross University School of Veterinary Medicine is an excellent institution.
It does have the risk of falling into the zone or longer-term failing to comply with the so-called Gainful Employment Regulation.
Yes, we have fantastic student outcomes and in fact, student loan default rate is close to zero.
Actually, in some years, it's literally zero, no defaults.
And so when you step back, it's an example when a regulation really doesn't fit and could have unintended consequences on a high-quality program like that.
When you take a ratio, everything from an Associate or a certificate to a Bachelor's, to a Master's, to a Doctoral professional level program, you can see how it doesn't make any sense.
And just given that fundamental value, we do think there are solutions.
For example, we could work with private lenders.
We also think when you have got that strong of a case, perhaps thee might be opportunities to work with regulators, work with legislators.
So the first set of measures are not scheduled to be published until January 17, and then program eligibility for loans would not be affected until January 2018.
So there is some time, there's some options.
We're in the process of analyzing all of those, and we will keep you posted.
Sure.
There's both.
The functional folks, internal audit; we have an external firm that does internal audit; we have an external audit that checks the internal audit, so there are layers upon layers of checking and controls.
A process that has been overseen for years by our Board Audit Committee.
This was stood up during the time of former Comptroller General of the United States chairing our Audit Committee.
So I think there are many reasons for us to say that we've got evidence that we had a good procedure and we reinforced those procedures.
We'll have to look that up and be in touch.
Okay.
Do we have any other questions.
| 2016_ATGE |
2016 | MANT | MANT
#Yes, this is <UNK>.
You are correct that there is a lot of interest in IT enterprise work, particularly in what we would call IT consolidation.
Many agencies consider that to be a major source of cost savings over the next few years for themselves and for their agencies.
So we have done some strategic hiring over the last couple of years to make sure we are ready for IT modernization and indeed we are.
We are bidding jobs ---+ I don't want to say all the time but frequently ---+ that call for IT modernization, IT consolidation, and we think we're in a great position to be able to help the government with those upcoming activities.
It's <UNK>.
Generally, the contract mix is remaining stable.
If we start expanding in some customer sets that have higher proportion of fixed price or T&M, then that will increase, and that's why I think you've seen some increase over time on the federal civilian side.
That said, there are more because of our focus on positions around solutions, there's potential for more fixed price type bids that we would go after, and if we're successful, which would be new to us, the net portion as we grow our top line may increase.
[37.7].
I don't think it will be as low as the first-quarter 2015, but compared to the fourth-quarter 2015, it will be slightly down because of fewer mandates that are available in the first quarter and the impact of the snow.
No.
There are some contracts that the win rate on the DOD side we may not be successful at winning.
There are some that make up small business.
We have one contract that we know when it comes up re-compete, it's not large, but it will go to small business.
And there are also some procurement efforts in the C4ISR area that when they come out, they have reduced requirements.
So we're trying to build those in on the lower end just reflect those factors as potential to get to that range.
I'm not used to answering any questions.
So I had ---+ we had, I guess a year ago, statistical information.
I can't remember what firm it was ---+ it could've been TSD or someone like that ---+ about the win rates.
And the win rates I think in that report were somewhere in the 65% to 70%, and I would certainly say that we are trending above that.
And the focus on the investments that we've made over the last two years in BD has certainly helped us with win rates in both new and re-compete work.
So I don't know how we compare to our peers on that, but I do think that we are focused on it in a way that we are getting comfortable that we are in a good position to compete.
No, no.
I would rather do that in the top-line growth, and you can ---+
No, not that I know of.
We are expecting 1.7 to 2 times.
If you look at the D&A that's built into our ---+ the midpoint of our 2016 guidance, the $31 million plus the FAS ---+ the stock-option in stock expense, about 1.7 to 2 times.
We are expecting DSOs to stay in that upper 60s to lower mid-70s range ---+
The other thing, they are taking a very conservative look at that.
Please remember the cash we have in the bank today is only $30 million to $40 million cash in the bank, but more importantly, we have a $500 million line of credit with Bank of America.
We have the ability to grow and do whatever we have to do.
No, I think as usual, members of our senior team will be available for follow-up questions.
Thank you all for your participation in today's call and your interest in ManTech.
| 2016_MANT |
2015 | TRIP | TRIP
#Sure.
I'll take the first one.
On the economics of the Priceline deal, I ---+ it was certainly a long time coming.
We believe it's a really good deal for Priceline.
Is a really good deal for TripAdvisor.
The economics are such that I am telling everyone we're going full force, rolling this thing out.
We don't disclose the specifics, but you can judge by my actions of accelerating our rollout that is something I think is going to work for the Company economically.
And, hey, Priceline's a really big company.
They are not a short-term vision company either, so they are doing something ---+ well, you should ask them, but I would believe they're doing something that is in their best long-term interests as well.
I'll take the 2016.
As this time of year, we are always in the process of putting together our plans, evaluating, messaging and expectation setting for the following year.
We ---+ Ernst will be here next week, and I will dive right into that exercise.
And I'm sure we'll enlighten you on a February call.
We have given a couple of nuggets on 2016.
One, that we're pulling down ---+ we're pausing TV, but we do expect to invest that into other channels.
Q4, we're also seeing the full year of Instant Booking headwinds.
Which, as the team is working actively to optimize and make that accretive, with every expectation that that would continue into 2016.
And in addition to the monetization headwinds, there is a slight shift in the way revenue is recognized.
So, with the majority of our click-based revenue today, we recognize revenue on click immediately.
As Instant Book becomes a more meaningful amount of revenue, we'll be experiencing a shift because with Instant Book, the majority of our large partners, including The Priceline Group, we will be recognizing revenue on stay.
So there's ---+ there'll be some seasonality and a shift in revenue as that becomes a more meaningful number.
So that's something else to take into consideration in evaluating 2016.
We're the process of doing that ourselves, looking at booking windows and consumer behavior.
And will make an estimate into our 2015 plan.
I ---+ sure.
Thanks for the question.
I will know whether there are any changes in the display or the participation in meta by Priceline Group once they actually ---+ once everything's actually rolled out.
I am not under any impression that it being in Instant Book would change anyone's participation in meta, let alone Priceline Group.
They've always expressed to us, as every client has, that they'd like as many transactions through our platform as possible.
I certainly would encourage you to ask The Priceline Group themselves, but my interpretation would be they are eager for all the traffic that they can get in meta, just like they have been all the years past.
They've been a phenomenal partner for us over many, many years, and they're excited about the new transactions we will be delivering to the Instant Book tab.
It's additive, and I think that's how the discussions have always been based, that it's additive to their thinking of how to maximize their participation in the TripAdvisor channel.
To the second part of the question, which marketing channels are most efficient.
We tend to look for as many marketing channels as we can find that deliver quality traffic and, for the most part, we operate them on a breakeven basis.
We view it as acquiring trial.
What I'm talking about, ROI generating online channels, be it search or retargeting or CPM or any of the other methods of acquiring traffic.
Other marketing channels that we'll be working on offline, so many of them it's nearly impossible to measure.
We do have quite a bit amount of PR.
We do a fair amount of content licensing.
We do a fair amount of other ---+ of engaging in various markets in ---+ by leveraging our B2B or B2C community.
None of those have a direct ROI, but we spend serious dollars in them, and I think that's one of the reasons why, if you are ever traveling, you're likely to see something branded TripAdvisor along the way and the TripAdvisor rating.
And we love all that.
We don't even try to measure the marketing efficiency of those campaigns.
Certainly.
Certainly.
As part of the sign-up process for an independent hotel on the website, there's two commission rates, a 12% and 15%.
And we offer the hotel a guaranteed share of either 25% or 50% share of their, what we call eligible impressions.
So, of the folks visiting their page, basically.
It's part of our sales pitch that, if you sign up, this is what we promise you.
It can ---+ will be a lot more than that, depending on a lot of different factors.
And so going forward, that independent who has signed up, even at a 15% commission, TripAdvisor has ---+ once the booking.com deal is live, as of ---+ even today, with our current OTA partners, we make a choice at runtime that says beyond the share guarantee, do I wish to show ---+ get a room as an OTA for that hotel, or the hotel itself, or Tingo as an OTA for the hotel.
For any particular property, I might already have three or more auction ---+ three or more participants in Instant Book.
We make the decision based on who to show, once the share guarantees have been met, we make the decision based upon what we think is going to be the best answer for the consumer, because that's usually going to be the best answer for TripAdvisor.
What I mean is, we have to evaluate how good the content is, the quality of the room description, because a consumer wants to see that in order to hit the book button.
We also care a lot about the price.
And so whoever has a cheaper price is also going to have a higher conversion rate on our site.
And then finally, the commission does come into play.
You can imagine an extreme of somebody offering to pay the 20 ---+ a ridiculous 20% commission for a property while somebody else is offering to pay a 12%.
If all other things are equal, then TripAdvisor is going to pick the 20% commission.
That maximizes us and does no harm to the consumer because as I said, all the other aspects of the flow were equivalent.
With the current OTAs, with Priceline, with the current brands that we have, with The Priceline Group, with eventually multiple brands from The Priceline Group, I think we'll have quite a choice as to who could fulfill the offer.
And we'll look at it from, mostly, what's the best experience for the consumer and secondarily, who has a good commission to us.
You should interpret that as at the end of the day, that combination is probably going to maximize TripAdvisor's revenue because I care the most about how many people are booking.
And if I make a little bit less commission per booking, but more people convert, we're going to make more money, consumers are going to be happier and that's the win-win math we're looking for.
For the second part of the question, the ---+ if I understand correctly, who gets the benefit of the brand placement in the booking flow.
It's a bit ---+ from our perspective, it's too early to tell.
We just haven't been in the marketplace long enough on enough of our platforms in order to see who might get ---+ and I'm not even sure how carefully I could measure, but I'm not sure who's going to get that second booking.
The second trip, which tends not to happen the next day or even the next week.
So, we want to be very clear with all of our partners and certainly our travelers that it's Getaroom, or that it's booking.com, or that it's Marriot that is powering this transaction.
They're the folks that you are going to go to when you want to make a change.
They're the ---+ Marriott, they're the owner of the property, they can answer the question a lot faster than we can if the traveler has one.
And if it's a second time booking for a similar property, we're certainly okay if that ends up being supplier direct.
Our biggest opportunity is the traveler who comes to our site, enjoys the reviews, sees the room tips, looks at a dozen different candid photos and says, yes, this is the property I'm looking for.
I like the price.
Maybe I go down the Instant Book flow, I select the type of room.
But I'm not ready to book right now.
And the next day, or later in the week, when they are sure they want to take that trip, sure they want to stay in that property, they come back to TripAdvisor to finish the booking.
And if we can close that leak, just that one piece of the ---+ plug the leak, phenomenal huge win on TripAdvisor, even if the partner that powers the transaction, the Marriott, or the Priceline, wins the second booking, because they have a great remarketing or retargeting campaign.
Getting that first booking for us is ---+ obviously I want both, but getting that first booking for us by changing the mindset of the traveler, that's the biggest win that we see over the next couple of years.
You're welcome.
I don't ---+ I wouldn't claim yet that I have an answer as to how we can quickly change consumers' mindsets.
I look back and say, TripAdvisor hasn't really had an awareness issue in most of our markets.
TV does a great job growing awareness, so we see how it's worked for so many other companies.
But the other companies have tended to be at a different awareness stage, different growth stage.
And so we went forward with TV, knowing that it wasn't to move our awareness numbers, but to educate folks on that one could now book on TripAdvisor.
And it's been ---+ we did surveys on the TV and certainly the book message stood out.
But it was harder to see the behavior change on TripAdvisor.
We saw more traffic.
We made more money.
But it was softer to draw the conclusion that it got people to actually complete a transaction to book on TripAdvisor.
So it would be, in my mind, no harm whatsoever in continuing a TV campaign that had the same message or, I like the creative, but the same or different creative.
Nothing wrong with that, couldn't possibly hurt.
But in the judgment call of, is that where we want to push on our branding and marketing for next year, we made the judgment call ---+ because you have to make this one in advance, that said, we're going to pause.
I use the word pause carefully, because I'm not saying we wouldn't change our minds.
We wouldn't do something else in 2017 or maybe even late 2016, but the notion is that's not ---+ it's a big dollar bet, and that's not what we're going to spend those dollars on in 2016.
When we look at it from, wow, you have 100-plus million travelers on the site in a month.
150 million, 175 million.
Surely, that's a big enough sample size to work on the educational message, and recently, we've been doing quite a bit on that.
If you go to the site, many of our devices, not all, you'll see a much stronger you can book on TripAdvisor.
And combined with the appearance of a book on TripAdvisor button, on hundreds of thousands or more properties, plus the global rollout, plus being packaged with some other brand communications, better, different/cheaper than TV, we think that there's ---+ well, as I started ---+ a judgment call, there was nothing wrong with the TV, but we think we can achieve our goals better in terms of training book by spending our time and some of our dollars elsewhere.
Great.
Thank you very much.
Take care, <UN<UNK>>.
Sure.
I ---+ yes.
To the best of my knowledge, the restatement of the hotel shoppers was entirely bot or fake user related.
I do not believe it changed at all the ---+ whether it was a hotel bot or a restaurant bot, they're all hitting us all the time.
I look at the percentage of visitors to TripAdvisor and I still put it at roughly half in the somewhere in the hotel half, some were looking at hotels.
It's a rough approximation.
It is different by device, but I'm trying to give some color on the average.
And there was no change in any de-duping.
There was nothing else under the covers there.
Sure thing.
I ---+ so we ---+ Priceline's been a great partner.
We've been talking to them and every other OTA for quite some time about joining Instant Book.
Many of them have.
Priceline and Expedia were the two notable ones that had declined, and I think Priceline ---+ again, feel free to ask them, but in ongoing discussions, we each made some compromises and we found a common ground that allows them to get obviously what they're looking for out of the relationship, which is a branded experience that makes sure customers know that Priceline is powering the booking.
We are perfectly happy with that.
They get to grow in transactions from our platform.
And we, of course, we get the Instant Book rolling out globally.
We get the improved content from our display and hopefully the improved conversion that comes with it.
We can continue to show other OTAs and other suppliers in our store.
We look forward to the remaining hotel brands joining in Instant Book.
We look forward to having more Instant Book options across the board.
We continue to sign up independent hotels at a decent pace.
We're building our own content management system, as I mentioned, to make sure those properties are represented on our site with excellent content and strong pricing.
And it's like what we've done with meta, we're building a really strong marketplace, globally or lots of different folks, hotels or the intermediaries.
To be able to power the bookings of folks that choose to book on TripAdvisor.
I take the opportunity to talk about Instant Booking and that up and I will always refer to it as Instant Booking and meta - and I will always refer to it as Instant Booking and meta - we love our Instant Book strategy, you've heard me talk about it over and over.
But I don't want anyone to think that meta is going away.
Our messaging of plan, compare, and book plan, the reviews, the content.
That's a great decision-support information that we have in order to help the consumer find exactly where they want to go, where they want to stay, what they want to do to have the great trip.
That's the plan message, the compare is that everyone's looking for the best price.
Showing a price on TripAdvisor and Instant Booking is one of the options and showing the price that is available elsewhere on the web from all the other players, that the traveler's aware of is part of that core compare message.
And we expect to have that compare message for the forever future.
It's just part of our core positioning, and plan, compare and book.
And we want TripAdvisor Instant Booking to offer a great price, terrific content, the trusted brand of TripAdvisor, as to why you should click in, seeing the content and the brand provided by whoever's actually doing ---+ powering the booking for us, the hotel itself or the high quality travel agent, like Priceline or any of the other OTAs that are in the store, and it completes that part of the purchase.
And then the rest of the TripAdvisor value proposition, which we are still very excited about, but we classify into our other businesses.
The attractions and the restaurants and the other ways that are going to make a trip incredibly powerful.
But it's Instant Booking and meta as that core monetization vehicle for hotels; it's restaurants and attractions in other services in the on the trip piece.
It's vacation rental and alternative lodging in general that helps people well.
When a hotel isn't quite what you're looking for, we have these other options.
Whether it be urban inventory that we're sourcing through our vacation rental, standard alternative lodging, like the traditional vacation rental, those were all part of our store.
And it's our job to ---+ our challenge or opportunity to present them at the right time to the travelers that are on our site.
All in all, it's a pretty complete picture.
Doesn't have everything, but when we look at the things that travelers are most interested, we have a real ---+ we would like to think the best offering in the plan space.
We have a great offering in the compare space.
We're learning how to have the best offering in the book space.
We don't have it yet, but we're getting there.
And we have best offering in the in-destination market for attractions and restaurants globally.
It's a pretty good coverage of that life cycle, and I guess the question started with Priceline, and so Priceline really helps us deliver on that book component.
Thanks for the question.
All right.
With that, I think we're a bit out of time so let me say, thank you very much.
We're moving fast.
It we're making great progress on these long-term goals.
And I have to say I'm really fortunate to have a great team on the job.
So to all of our employees throughout the entire TripAdvisor family, thank you again and again for your terrific work, for your hard work, it's showing results.
I'm really proud, and I look forward to updating everyone again on the next quarter.
Thank you.
| 2015_TRIP |
2015 | OMI | OMI
#I think when you take the negative 1.8% and back out acquisitions and some of the FX, we were about 3% year-over-year growth rate.
We did point out that, that did incorporate a pretty significant change of one customer from a buy-sell to a fee-for-services which fairly dramatically changes the orientation of both revenue and gross profit position.
So that did have some headwind related to our trend.
Overall, our European business, we continue to expect it to gross nicely year-over-year.
As we said in the fourth quarter and, I think, back at Investor Day, if we didn't get to an amicable relationship with a particular customer in the UK, that we'd probably have a little bit of cost associated with unwinding that.
But again we reiterated guidance so we're comfortable with being able to work through that.
Clearly that will have some impact to top-line growth, that will probably be more of a second half of the year impact as we wind that relationship down.
But we would expect to offset at least a significant portion of that as we continue to grow the business.
We feel comfortable that the UK business, as well as the rest of Europe, is on a positive track.
Sure.
Certainly change can provide opportunity and as these companies come together and get bigger, there is definitely a broadened array of opportunities that are available to both of us.
As you will note in all of those transactions, there are relatively aggressive, robust cost-savings expectations that those companies have put forth.
And we think that our value proposition plays very well into that.
We know the businesses well that we have served in the past and we can help new owners operationalize many of the concepts that they had as they were designing the list of cost strategies as part of a transaction So all in all, I think it's a great opportunity.
We have teams assigned to any of those transactions, all of those transactions, that are working with those customers as we speak.
We are excited about potential opportunities that exist.
Our guidance was clearly around a 38% to 39% range.
We were just on, adjusted basis ---+ just a hair under that, about 37.5% for the quarter.
With the acquisitions that we made last year and the continued change in profitability of our broader European based business we continue to be able to leverage our European platform favorably.
At this point, where we look out to the rest of the year, we think that 38% to 39% is probably the appropriate range as we sort of look to the full year.
I don't think we're doing anything out of the ordinary so we're not contemplating any inversions or anything unique like that.
It's kind of plain vanilla stuff, our usual leveraging of a lower tax jurisdiction.
And as we move to greater profitability outside the US, we're just getting the benefit of that.
Sure, <UNK>.
I think the search committee of our Board of Directors has been actively involved in candidate interviews.
I think they are very pleased with the progress of the search and the opportunities that they have seen.
So it's underway and any additional comments probably would be premature at this time.
Sure, <UNK>.
I think as we look out in the future, we continue to look at different ways to continue to expand the business.
Certainly the UK is not as homogenous market as the US is as well, so you have got to approach it in a slightly different fashion.
Today we do have a few provider customers in the UK that we provide some basic services to, so it's not as if we aren't doing that today as we look to the future.
I think there's a platform and a basis for us to do those things, although we don't have any plans today to directly invest into a particular provider platform in Europe.
Other than the fact that we terminated a relationship with our customer in the UK, we saw a fairly reasonable customer retention.
We've got a European [line] price increase going on with the vast majority of our customers.
We've had some good wins that continue to improve and sustain the growth rate.
But clearly, as with all businesses, we have had some minor losses.
This year, though I would characterize that we haven't had any significant or major losses in any particular market.
We've had a pretty good retention rate and we're seeing a lot of activity around a lot of what I characterize are multi-country customers looking to expand into other countries or other regions, which is all part of the leveraging of the platform in Europe.
So we continue to feel pretty good about where the European business is moving.
We have now almost had a full year of profitability and the European ---+ the continental side of it, as we continue to work through the UK challenges, but overall I think we're pleased with where we are at the end of the first quarter.
There's a fairly lean sales organization in Europe.
Again, it's a different sales organization than the one we have here.
It's more focused on the manufacturing side of the fence, selling 3PL services.
And, again, you have got more of a regional and local focus in some areas.
We have spent a particularly long period of time in how we want to position that organization, both last year and as we move into this year.
But I would say we manage a fairly lean organization that is looking both on a pan-European base to leverage our European and global customers as we align with some of our US manufacturing activities.
As well as continuing to service our local customers as well, so we incorporate a lot of key account and customer service managers, as well, into that organization.
It's still a two-thirds fee for service.
That's about where we are, and that would include ArcRoyal as ArcRoyal is providing services to the manufacturer.
And we don't break out our products and packaging segment so we'll have to leave a little mystery to that as we're going forward.
But, suffice it to say, it did contribute in the quarter and we continue to see very good activity in leveraging our packaging business across our manufacturing platform, both over in Europe, as well as here in the United States.
We don't give particular specific guidance around cash flow but if you look back over the last couple of years and you look at what, generally speaking, our cash flow has been ---+ it's always been, on average, on a rolling basis, about $150 million to $175 million.
So I think if you take that as sort of a proxy, I think that's a reasonable place, to where any given quarter, certainly last quarter highlighted it, you know, we've got some timing issues where we had some use of cash and otherwise.
But generally, if you go back and do sort of a rolling four quarters, you're going to probably see us oscillating around that $150 million to $175 million range.
I guess what I would do is go back to what we said at Investor Day and in the bridging schedule that we provided that talked about our acquisition, so this would be both Medical Action and ArcRoyal, net of the new financing that we did that <UNK> has referred to.
You know, we fundamentally were saying that it would contribute around 4% to 6% of the 10% targeted growth rate that we were looking at.
I think the other color we offered is that in the initial year of ownership, that had more to do with getting cost synergies and cost reduction as to anything else.
And then my final comment on this would be, and this was in part of the prepared remarks, that we're generally on schedule.
What we have targeted at this point in the year, we're slightly ahead on some of the timing of some of the cost reduction efforts we put in place.
That's a fair amount of color around the acquisitions.
Thank you, <UNK>.
Thank you Marcus.
Well that concludes our first quarter 2015 conference call.
And, again, thank you all for your interest in Owens & Minor.
Have a good day.
| 2015_OMI |
2016 | VMI | VMI
#Thank you, Kayla.
Welcome to the Valmont Industries third-quarter 2016 earnings conference call.
With me today are <UNK> <UNK>, Chairman and Chief Executive Officer; <UNK> <UNK>, President and Chief Operating Officer; <UNK> <UNK>, Executive Vice President and Chief Financial Officer; and Tim Francis, Vice President and Corporate Controller.
Before we begin, please note that this call is subject to our disclosure on forward-looking statements which applies to today's discussion and will be read in full at the end of the call.
The instructions for accessing a replay of the call can be found in our press release.
We'd now like to turn the floor over to our Chairman and Chief Executive Officer, <UNK> <UNK>.
Thank you, <UNK>, and good morning everyone.
Thank you for joining us and I trust you've all read the press release.
Today I will address highlights of the third quarter, then <UNK> will provide the update on segment performance.
As you know earlier this fall the Board appointed <UNK> to the Chief Operating Officer position, which is an important step in our succession process.
<UNK> has been with Valmont for more than six years most recently serving as Group President of our Utility Support Structure segment, and we are excited to have him in this new position.
Next, <UNK> will provide an overview of the financial results and our capital deployment efforts.
With that let me turn to this period's highlights.
Revenue in the third quarter of $610.2 million was lower by 3 1/2% year over year.
The primary drivers were lower demand in international utility and North American coatings.
Let me first address the Coatings segment results which are clearly disappointing.
We had unexpected operational issues at a couple of sites that resulted in downtime.
However we were able to leverage our facilities network and execute our order from customers with no negative impact to them.
The necessary repairs have been made and we have put these issues to rest.
As well, we have proactively taken additional cost reduction actions to address the slower demand.
The segment benefited from an accrual reversal which basically offset the expenses from the operational issues.
We did experience an unexpected falloff in galvanizing demand largely related to the solar industry, which <UNK> will address in further detail.
It is this shortfall in Coatings segment demand that prompted us to adjust our guidance.
With that let me turn to our broader restructuring efforts.
In 2015 we set out to improve profitability for the Corporation without help from the market.
This year our operating performance benefited from $17 million of cost savings that were realized from our restructuring efforts.
In the third quarter we commenced additional restructuring initiatives associated with our Australia operations as we talked to you about in the last call.
Turning to our other segments we are seeing a meaningful improvement in the Energy and Mining segment cost structure.
This segment, however, continues to experience weakness in their markets.
We are generating the expected margin enhancement in Utility Support Structures that we predicted.
Combined with a solid performance in Engineered Support Structures and good performance in Irrigation during the seasonally low quarter, we delivered third quarter adjusted operating income as a percentage of sales of 6.9%.
We continue to believe that our markets will remain soft and mixed over the near-term with sales flat overall.
However we anticipate continued better financial performance through improved operational efficiencies, cost takeouts and further market penetration.
Growth initiatives will focus on new product development, geographic expansion and disciplined M&A.
And I will now turn the call over to <UNK> who will review the segment performance.
Thank you <UNK>, and good morning everyone.
In the Engineered Support Structures segment, overall sales were slightly higher.
Drilling down, in North America the lighting and traffic markets grew mostly due to improved nonresidential construction demand.
While last year's highway bill extension has lead to increased sales inquiries, it has not yet resulted in a meaningful increase in revenue.
As a reminder, lighting goes in last in roadway expansion projects and we anticipate any upside from these inquiries and the highway bill to begin in 2017.
In the North America wireless communication market weakness is due to reduced capital spend by the major players.
Industry participants link the weakness to carriers taking to the sidelines in advance of the recent FCC spectrum auction.
In the Asia-Pacific region wireless communication sales remained firm.
In EMEA, sales were similar to last year.
Low levels of government infrastructure investment in Europe were offset by new product introductions in Middle East infrastructure markets.
We continue to leverage our unique capabilities in this region which is currently experiencing solid infrastructure investment.
In Utility Support Structures, sales declined 9% year-over-year.
Most of the decline reflects lower international project sales and the impact of lower steel costs on revenue.
A sizable project order in Europe was pushed out and is now expected to ship in the fourth quarter.
In North America overall volumes increased.
We are seeing increased market lead times, which support our view of tightening industry capacity.
The quality of segment earnings remains double-digit at 10.6%.
Our biggest challenge for the quarter was the performance of the Coatings segment, which over the long-term has been a very solid and predictable performer.
As <UNK> noted North American sales fell associated with significantly lower demand from the solar industry.
Specifically, Coatings demand had been supported by an urgency to complete solar projects before expiring investment tax credits, which did not come to pass.
This highlights the challenges of forecasting and managing a business with no backlog.
Sudden swings in demand can lead to fixed cost and labor leverage and deleverage until the cost structure is rebalanced.
As you know we serve outside customers and our own segments in Coatings.
In addition to lower external sales, internal volumes were also meaningfully lower specifically in utility, which produced a greater mix of weathering steel, a material that does not require galvanizing.
The benefit of the earnout and the impact of the operational issues largely offset each other.
The major factor affecting Coating's operating income was volume deleverage from lower sales.
In the Energy and Mining segment, improved performance was driven by strong grinding media profitability and improved operating performance in access systems benefiting from last year's restructuring.
The access systems team has made progress towards reducing the reliance on energy and mining end-markets through diversification.
In the Irrigation segment, low crop prices weighed on the seasonally slowed North America markets, and plentiful rain in the corn belt lessened the need to irrigate and consequently reduced part sales.
The pricing environment remains mostly unchanged.
Our international sales improved mostly driven by better markets in Brazil, where government financing arrangements remain attractive to growers.
In Africa sales rose due to increased project activity in the sub-Saharan region.
Tubing was impacted by week agricultural markets and slack demand from steel service centers.
Despite lower tubing profitability, segment operating income was flat in the irrigation segment.
Let me take a moment to discuss steel.
Average steel index prices rose in the second quarter and declined in the third quarter.
Third-quarter prices were above last year.
When steel prices increased in the second quarter, our segments were successful in recovering increases in the market.
The decline in steel prices during the third quarter offset the rise in the second quarter.
As a result there was no material impact on margins for the Company.
Now I will turn the call over to <UNK>.
Thank you, <UNK>, and hello everyone.
Starting with earnings per share, EPS before restructuring charges and the UK tax rate change, which I will address in a moment, were $1.48 per share, up from $1.39 in 2015.
The effective currency translation on the Q3 results was not significant.
Before reviewing the elements of the income statement, I would like to note that the figures for 2016 and 2015 are before restructuring and impairment charges.
As an update on our corporate-wide 2015 restructuring, we still expect to provide $30 million of annualized savings, approximately $8 million of which was realized in FY15.
We realized approximately $17 million of cost savings through the first three quarters of 2016.
In addition to our 2015 restructuring, our 2016 Australia restructuring plan discussed in our second-quarter earnings release is estimated to cost approximately $4.7 million.
The lower cost structure realized through these activities will provide approximately $5 million of annualized savings, the majority of which will be realized in FY17.
Gross profit margin was 26.7% in 2016, virtually unchanged from 2015 despite very volatile steel prices and absorbing increased LIFO expense in 2016.
We are pleased to have maintained gross margins in this environment, due to a combination of efforts to improve our supply chain, opportunistic purchases of steel when prices were lower and the effects of restructuring efforts started in 2015.
SG&A spending was down from 2015, mainly associated with cost savings related to restructuring and the write back of the aforementioned contingent purchase price accrual related to a Coatings acquisition.
Net corporate expense increased primarily due to a $3.2 million increase in deferred compensation expense.
This is offset in the income statement by an increase in investment income which is below the operating income line.
Operating income before charges was $58.3 million in 2016 compared with $61 million in 2015.
It should be noted that after taking into account the movement in deferred compensation mentioned above, operating income for 2016 would have been $61.5 million.
Let me take a moment to comment on our income tax rate.
Our reported rate for the quarter was 32.6% which included a charge of $1.9 million related to a UK tax rate reduction.
This event required us to reduce our net deferred tax assets and gave rise to the expense.
Our tax rate for the quarter without this expense would have been 28.3%, which is lower than historical rates, due to a stronger mix of foreign earnings and certain tax contingencies that were removed due to statute expirations.
Over the longer term, based on current tax rates, expected geographic mix of income and tax planning strategies in process, we expect our effective tax rate to be around 31%.
Operating cash flows for the year to date in 2016 were $127 million and capital spending is at $42 million.
Our free cash flow as a percent of net earnings is about 80% so far this year, below our stated corporate goal of 100%.
However we expect working capital to improve by year end bringing us much closer to our stated goal.
During the quarter we repurchased 138,000 shares at an average price of around $129 per share.
Under the current authorization, which does not have an expiration date, we have $138 million remaining.
Our balance sheet remains strong with a leverage of 2.6 times EBITDA, which is appropriate for the cyclical nature of our businesses and provides flexibility to pursue growth investments in our core businesses and/or M&A.
Cash at the end of the quarter was $349 million, the majority of which is outside the United States and net debt of $408 million.
We had no borrowings under our revolving credit agreement at the end of the quarter and we remain fully committed to maintaining an investment grade credit rating which was reaffirmed this quarter by Moody's and S&P.
Our cash priorities are unchanged.
That is to support our current businesses through working capital and capital spending as needed, acquiring companies that strengthen or are closely adjacent to our existing businesses, pay dividends at 15% of net earnings over time and opportunistically repurchase shares.
I will now turn the call back over to <UNK>.
Good morning <UNK>.
I can answer your question but even more qualified to answer is <UNK>, so I will turn it over to him.
Good morning <UNK>.
Yes we have seen improved pricing particularly in the bid market as you know we have a mix of alliance and bid customers.
And so the alliance customers are fairly fixed over the period of the term adjusting for steel.
But in the bid market we are seeing now improved margins and expect that to continue as we go into 2017.
No it is marginally better.
It is not significantly better but it is starting to move in the right direction.
So we are seeing a good pipeline of both project work and just our normal utility customers with additional O&M spend.
And so overall from a market perspective we see the market improving by about 5% in terms of total opportunities that are out there for next year.
The issues that we had were specifically around kettles.
We had one kettle in Asia that as we were going through the normal maintenance process there was a failure in the startup procedure and we end up warping the tank and had to put a new tank back in.
So that was during the course of normal maintenance.
We also had another one at a North American facility.
We were a week away from the replacement cycle and got by this.
In terms of the overall maintenance that we are doing out there we don't anticipate any additional CapEx.
We have a very robust preventative maintenance program.
It was just some errors and some bad luck there.
We don't anticipate anything going forward.
Good morning, <UNK>.
<UNK>, this is <UNK>.
Yes it does include it.
As it got mentioned in the prepared remarks, the positive impact of that was largely offset by the negative effects related to the operational issues.
No I think in the prepared remarks we indicated that our quarter-to-quarter basis, fourth quarter was expected to be down from last year.
Because of movement in the demand side of the equation.
This is <UNK>, let me address that.
I would not rule out further downward pressure on the business.
As we have said time and again net farm income is a close approximator to short-term revenue.
So as we talk about here in the fourth quarter, we expect North American revenue could be down but we expect international revenue to offset and being up.
But in general this environment is not going to change until we either have a demand change somewhere in the world or we have a production problem somewhere in the world.
There is no other drivers that would improve commodity prices and therefore net farm income.
Now even with low prices of course it looks like yields will be pretty good so farm income is a multiplication of yields and price.
But I will not rule out that this could get softer.
But I am not ruling it out.
I would say that in general international pricing tends to be more competitive than North American pricing, but it varies from country to country.
The profitability picture from various regions could be very different.
Project business is more typical for international opportunities than individual sales often and that creates more pricing pressure.
But we have not seen anything different than what we have seen in previous year in international, but these are ---+ a lot of them are virgin markets and a lot of them are markets where competitors, not only North American competitors, but local competitors are trying to get established.
But I would say that even in that environment because of our broad global footprint our ability to maximize profitability by sourcing from various of our plants depending on transportation cost and capabilities and exchange rates et cetera, et cetera, our international business has continued to improve its quality of earnings and quantity of earnings.
I think on the broad utility market and this is including both poles and lattice towers, you are starting to see a fair amount of rationalization.
There are a number of players who are either exiting the market or have closed facilities like we did earlier in the 2015.
So I think all of that is bringing capacity back to more of a rational viewpoint.
I still think there is excess capacity in the market.
So it's kind of muting some of the ability to raise price.
As I mentioned earlier we are seeing some opportunities to do that but it's not a broad-based recovery like 2013.
From an international perspective the main issue there is that it is primarily concrete poles and lattice towers and those are opportunities for us to play much better.
We do have significant pole projects that come along from time to time that we can participate in.
But were looking at expanding further into those markets.
Utility as a whole globally still has very good drivers behind it with the electrification of developing countries and just the improvement in reliability in developed countries.
And so we see at least for the next three 3 to 5 years very good market outlook in total.
Specifically in steel and in zinc I would say that largely the short increase we saw in second quarter was erased in the third quarter and so we tend to view it as neutral and again our markets are pretty resilient in passing through any changes in commodity prices if and when they do occur.
So I think we are in good shape as we look into 2017.
We do expect a return to growth.
As I mentioned earlier we see the overall market growing by about 5%.
And that is, again we came off of 2013 which were historically record levels to settle back down to levels that are historically above the 10 or 20 year average in this market plate.
So they are at good levels but there are still good drivers and good return on equity for the players in the market to go after more transmission projects and in the distribution market to replace older structures.
So you're starting to see both the replacement cycle kick in as well as new investment.
I would say that the inquiries are up meaningfully.
So we see that there's a lot more work and the upfront quoting process.
We do not yet see anything from a revenue perspective.
I think it is early on and as the highway bill has come into play, you know states over the last couple of years have really found some creative ways to fund infrastructure projects within their areas because they needed to do road and bridge projects.
And now with the federal funding I think everybody is just try to assess where is the funding going to come from.
Is it going to come from the feds or is it going to come from the state.
And I think they will work through those issues and then you'll start to see in 2017 where we expect to see some good impacts from that overall.
Well we obviously service ourselves as well as being in the Midwest so agriculture type products are down.
In addition to the solar, oil and gas has been muted over the both 2015 and 2016 time period.
The segment really does service a number of end market verticals and so where we see down we see up in others.
And so it is well diversified.
Outside of solar we don't see any dramatic shifts in market, other end markets at this point.
This is <UNK>.
I would say to get beyond 10% topline growth and that's neutralized the effect of steel which could have a major impact depending on where that goes.
We'll have trial acquisitions also.
You know our markets by themselves will not develop those opportunities even if we expand our geographic product footprint and add maybe additional product lines.
And when it comes to acquisitions, what you've noticed over the last year or so we've spent a very significant amount of time, and our managers have, to take cost out, reorganize how we do business and improve productivity.
That pendulum is now switching also towards looking at, more at acquisitions, working on the acquisition pipeline and opportunities with new market niches within our current businesses and new products introductions to the marketplace.
So getting back to your 10% in your question that would also require precisions, which of course are very difficult to predict and again as we state all the time when we look at acquisitions we are not looking at EPS accretion we are looking at a way to beat our cost per capital.
I would say we can add significant additional revenue without changing our cost structure.
We have plenty of capacity even though we have streamlined a lot of our operations utility is a good example where yes we exited a couple of facilities but we do not exit the equipment necessary to ramp up capacity and so you would see very limited additional capacity capital even if markets turnaround when they turn around.
So we should see very good leverage.
Actually the biggest challenge when you ramp up is getting labor in and get them trained fast enough.
Irrigation I don't think will be a problem.
We have been through that now for 60 years.
But frankly in the utility business our challenge is since volume is not down, our challenge is to continue to bring on people, welders et cetera, and get them trained and up and going.
Our bottleneck in adding revenue is not equipment or facilities it is getting the right people on board fast enough.
You know we highlighted sub-Saharan Africa which is kind of project business, which is difficult to predict.
Brazil is more an established market and despite everything you read about and I was there earlier this year, the one portion of their economy that has actually continued to do better than I thought it would is the agriculture and irrigation business it is driven by FINAME financing which is still very attractive for farmers and it is not at the record levels we saw several years ago, but it is substantially better than I thought it would be.
So if FINAME financing stays in place and the general political situation is stabilizing somewhat in Brazil, we will continue to expect improvement in the market also going into next year.
You know they will have an election in 2018 and that will probably be the next step in their normalizing their political environment from impeachment et cetera, et cetera.
| 2016_VMI |
2017 | MSFT | MSFT
#Thank you, <UNK>, and good afternoon, everyone
This quarter, revenue was $24.7 billion, up 9% and 10% in constant currency, with stronger than expected performance across all segments
Gross margin grew 11% and 12% in constant currency
Operating income increased 13% and 16% in constant currency
And earnings per share was $0.98, increasing 42% and 43% in constant currency, which includes $0.23 from the utilization of phone-related losses from prior years that were previously non-deductible
At a company level, LinkedIn contributed approximately 5 points of revenue and gross margin growth
LinkedIn’s operating loss of $361 million was a 6 point drag on total company operating income growth, and is entirely attributable to the $371 million of amortization of acquired intangibles recorded in COGS and OpEx
From a geographic perspective, our results were mostly in line with macroeconomic trends, though large markets like the US, Germany, and Japan performed better than we expected
We had a strong quarter in our commercial business, reflecting terrific execution from our sales teams and partners in the largest quarter of our year
We increased commitment to our commercial cloud and healthy renewals on a record volume of expirations
We closed the highest number of multi-million-dollar Azure deals to date, and improved our annuity mix to 86%, up 3 points year-over-year
As a result, commercial bookings grew 30%, and commercial unearned revenue was $27.8 billion, significantly higher than we expected
Our contracted not billed balance increased to more than $31.5 billion
As <UNK> mentioned earlier, our commercial cloud annualized revenue run rate exceeded $18.9 billion this quarter, growing 56%
We finished the year with nearly $15 billion in commercial cloud revenue
At the start of the year, we committed to material improvement in commercial cloud gross margin percentage and dollars
This quarter, our commercial cloud gross margin percentage was 52%, up 10 points year-over-year, with positive gross margin in each cloud service
Commercial cloud gross margin dollars grew 92% from strength across all services
Our company gross margin was 66%, up 1 point from the prior year, as sales mix of higher margin products and services offset the impact of the growing mix of cloud revenue and $217 million of LinkedIn amortization costs
FX was mostly in line with our expectations, with 1 point of negative impact on total revenue growth even with a slightly weaker than expected US dollar
At the segment level, FX had a negative impact of 2 points on Productivity and Business Processes, 1 point on Intelligent Cloud and 1 point on More Personal Computing
Total operating expenses grew 9% and 10% in constant currency, with LinkedIn contributing 12 points of growth, including $154 million of amortization of acquired intangibles expense
Now, to our segment results
Revenue from our Productivity and Business Processes segment grew 21% and 23% in constant currency to $8.4 billion, with LinkedIn contributing 15 points of growth
Office Commercial revenue increased 5% and 6% in constant currency
Office 365 commercial revenue grew 43% and 44% in constant currency with continued installed base growth across all workloads, ARPU expansion and emerging E5 momentum
For the first time, Office 365 Commercial revenue surpassed revenue from our traditional licensing business
Office Consumer revenue increased 13%, driven by recurring subscription revenue and growth in our subscriber base
Our Dynamics business grew 7% and 9% in constant currency, and Dynamics 365 grew 74% and 75% in constant currency
LinkedIn revenue for the quarter was approximately$1.1 billion, a bit better than expected
Segment gross margin dollars grew 14% and 16% in constant currency, with 12 points of contribution from LinkedIn, including $217 million of amortization
Gross margin percentage declined from an increasing cloud revenue mix and the impact of LinkedIn related amortization
Operating expenses increased 41%, with 40 points from LinkedIn, including $154 million of amortization expense
Operating income declined 8% and 5% in constant currency, with 12 points of impact from LinkedIn
The Intelligent Cloud segment delivered $7.4 billion in revenue, growing 11% and 12% in constant currency
Our server products and cloud services revenue grew 15% and 16% in constant currency with double digit annuity revenue growth
Azure revenue growth accelerated to 97%, up 98% in constant currency
Azure Premium revenue grew triple-digits for the twelfth consecutive quarter
Enterprise Services revenue declined 3% and 1% in constant currency, driven by a lower volume of Windows Server 2003 custom support agreements, partially offset by growth in Premier Support Services
Segment gross margin dollars grew 8% and 9% in constant currency, and segment gross margin percentage declined due to increasing cloud revenue mix and lower Enterprise Services margins, partially offset by material improvement in Azure margins
We grew operating expenses by 2% and 3% in constant currency with continued investment in sales capacity and developer engagement
Operating income increased 15%, up 18% in constant currency
Now to More Personal Computing
Revenue from this segment was $8.8 billion, down 2% and 1% in constant currency, with 4 points of decline from phone
Our OEM business grew 1% this quarter, as both our commercial and consumer OEM businesses were slightly ahead of the PC market
OEM Pro revenue grew 3%, ahead of the commercial PC market, mainly due to a higher mix of premium SKUs
Windows 10 deployment cycles continue to drive commercial customer hardware demand
OEM Non-Pro revenue was flat, ahead of the consumer PC market, with continued positive impact from Windows premium device mix
Inventories remain in the normal range
Windows commercial cloud products and services grew 8%, driven by annuity revenue growth
Enterprise customers increasingly chose Windows 10 on new and existing devices, which led to install base growth and higher adoption of our cloud security solutions
Patent licensing declined this quarter, primarily from lower revenue per unit
Search revenue ex-TAC grew 10% and 11% in constant currency, driven by higher revenue per search and search volume
Devices revenue declined 28% and 27% in constant currency
Our Surface business performed better than we expected, declining 2% and 1% in constant currency, with strong sales execution on our Surface Pro product transition and early positive signals from customers and partners on our Surface Laptop launch in June
Our gaming business grew 3% and 4% in constant currency
Xbox software and services growth of 11%, 13% in constant currency, offset declines in hardware
And our engaged user base grew 8% to 53 million monthly active users across console, mobile and Windows 10 platforms
Segment gross margin dollars increased 9% and 10% in constant currency
Gross margin percentage increased, primarily due to sales mix shift to higher margin products and services
Operating expenses declined 10%, and 9% in constant currency, from lower Phone expense, as well as Surface and gaming marketing spend in the prior year
As a result, operating income grew 68% and 72% in constant currency
Now back to the overall company results
This quarter, we invested approximately $3.3 billion in capital expenditures, including capital leases, up sequentially in part due to the planned Q3 datacenter spend pushed into this Q4. This includes approximately $2.3 billion of cash paid for property and equipment, which was down year-over-year as we utilized more capital leases
Free cash flow grew 50% year-over-year, driven primarily by operating cash flow growth of 30%, as well as lower cash outlays for CapEx
Operating cash flow increased due to higher collections from customers following strong billings growth, as well as working capital improvements in our hardware business
Other income and expense was $215 million, more than originally planned, as we continue to see opportunities in the equities market to realize gains throughout the quarter
Our non-GAAP effective tax rate was negative 6%, significantly lower than we expected, due to a $1.8 billion impact related to the utilization of prior years’ losses from our phone business that were not deductible in the years incurred
Excluding this item, our non-GAAP effective tax rate was 19% this quarter and 20% for the full year
This quarter, we returned $4.6 billion to shareholders through share repurchases and dividends
Now let’s turn to the outlook
The key trends for FY 2018 from the Financial Analyst Briefing remain largely unchanged
For the full year, we expect about 1 point of negative FX impact assuming current rates remain stable
In our commercial business, we anticipate that increasing demand for cloud services and healthy renewals will continue to drive a higher annuity mix
Our commercial transactional business will continue to decline driven by the transition to the cloud
We remain focused on improving our commercial cloud gross margin percentage in each of our cloud services
As a reminder, given seasonality and revenue mix, commercial cloud gross margin will experience quarterly variability
Cloud migrations, deployments and new scenarios are driving greater customer usage
We will increase our capital investment to meet growing demand and capacity needs
Total CapEx spend will continue to have variability quarter-to-quarter
At the company level, our gross margin percentage should decline about a point in FY 2018 with increasing cloud revenue mix, a full year of LinkedIn amortization and hardware launches, including our new console, Xbox One X
We expect LinkedIn quarterly amortization expense in COGS to be approximately $220 million, or about $880 million for the full year
Next, operating expenses
You should think about our FY 2018 operating expenses in two categories
First, organic Microsoft expenses, which we expect to grow between 3% and 4%, reflecting the investments we are making to support our top line growth
Second, LinkedIn
We are making incremental investments in LinkedIn to fuel its continued strong revenue growth
Additionally, we will recognize our first full year of operating expenses, including $620 million of amortization expense
Importantly, we expect our company operating margin to only decline by about a point as we continue to grow our cloud revenue, we fund new investment to support growth in strategic areas and absorb $1.5 billion of LinkedIn amortization in COGS and OpEx
Excluding the LinkedIn impact, operating margin should be flat year-over-year
Next, our effective tax rate
As a reminder, our tax rate is impacted by at least three major factors: the proportion of services revenue versus licensing revenue, the geographic mix of revenue, and the timing of equity vests
As cloud revenue mix increases, we anticipate our tax rate will move higher
With quarterly variability based on these factors, we anticipate our full year non-GAAP tax rate to be 23%, plus or minus 2 points
And finally, we expect LinkedIn, ex-purchase accounting, to be non-dilutive in FY 2018, as it was in Q4. Now, to the outlook for next quarter
Based on current FX rates, we expect less than 1 point of negative impact on revenue growth overall and for each segment
We expect commercial unearned revenue to be within the range of $24.85 to $25.05 billion
In Productivity and Business Processes, we expect revenue between $8.1 and $8.3 billion
Office 365 commercial revenue growth will continue to be driven by install base growth, ARPU expansion, and adoption of premium services like E5, and should outpace the rate of transactional decline
We expect a more moderate rate of growth in our Office consumer business given prior year comparables
In our Dynamics business, Dynamics 365 will continue to drive our cloud mix higher
And we expect approximately $1.1 billion of revenue from LinkedIn, adjusted for the impact of purchase accounting
For Intelligent Cloud, we expect revenue between $6.9 billion and $7.1 billion
Customer demand for Azure and our hybrid cloud offerings remains strong, and we anticipate another quarter of double-digit revenue growth across server products and cloud services
Enterprise Services should decline, given lower volumes of custom support agreements
We expect More Personal Computing revenue between $8.6 billion and $8.9 billion
We anticipate OEM revenue will move more closely in line with the PC market
Devices revenue growth will continue to be impacted by the prior year phone comparable
Surface revenue will continue to be driven by the product lifecycle transition between Pro 4 and our new Surface Laptop and Surface Pro
In Search, Bing’s revenue growth ex-TAC should be similar to prior quarters
And we expect gaming to have the typical seasonality revenue pattern for a pre-holiday quarter
We expect COGS between $8.2 billion and $8.3 billion, including approximately $400 million from LinkedIn
LinkedIn COGS include about $220 million of amortization
We expect CapEx, on an accrual dollar basis, to be similar to Q4 as we grow our investment to meet demand
We expect operating expenses of $8.6 billion to $8.7 billion, with about $1 billion from LinkedIn, of which roughly $155 million is related to amortization
Other income and expense should be about $250 million, as we expect to realize more gains from our equities portfolio
Given the volume of equity vests that occur in our first quarter and based on today’s stock value, we expect our first quarter non-GAAP effective tax rate to be approximately 4 points lower than the estimated full year tax rate
Finally, we adopted the new revenue standard, ASU 606, effective at the start of fiscal year 2018. To assist in the transition, <UNK> along with our Chief Accounting Officer, Frank Brod, will be hosting a conference call in early August to discuss these changes, present historical restated financial results, and share Q1 guidance converted to the new standard
And with that let’s go to Q&A
Let me break down the question in a couple of ways
Overall, when you think about COGS and the pacing, the depreciation rates of our servers don't change
It’s generally over a three-year period and there is other pieces of equipment that have a longer, shorter depreciation life
So that piece of depreciation doesn't change per se
If you're looking to see how we see demand, obviously this quarter in Q4, we felt very good about cloud demand across all three services, but in particular with Azure
I feel confident in our ability to produce gross margin improvement across all those services
I feel confident in our ability to continue to make progress on our overall commercial cloud gross margin growth, and I am encouraged by the demand signals we are getting
All of those things I think, it’s not really about the pace, it is much about the progress and demand and meeting those things as closely as we can and I feel really good about the team's execution
And I think in many ways <UNK> what we have done is a really a natural extension of some of the investments we’ve made over the past 18 months to add technical resources to be more present in customer accounts, to really drive their transformation towards success outcomes
You are seeing it even in our intelligent cloud results for the last quarter and this quarter
We’re taking that learning over the past 18 months and really applying it at a broader scale across the sales force to put those resources where we feel confident that they will have a good long-term return in that next phase of transformation
Thanks <UNK>
Let me make sure I cover of on most of those
Let me start by saying, the biggest driver in commercial bookings growth this quarter was excellent execution on a large base of renewals
The second component of that is the execution on new revenue; in particular Azure, as well as Windows commercial, and billings in the quarter were very good and quite encouraging overall
There was no change in any way to invoicing people paying earlier, paying more upfront, that’s definitely not an impact on that number
And so overall, I think while it is certainly aided by the large expiry base because it tends to impact the CNB balance the most, it is really I think to your point; it is clearly encouraging because it gives us a very good base of support going into FY 2018 to come in to the GAAP reporting numbers
There’s a couple of things, but in general it is almost always mix shift
While we saw improvement in the gross margin percentage in Office 365 and continue to make progress on that it is also the balance, right
This is the first quarter where we’ve actually seen the balance tip in terms of recognized revenue to online versus perpetual
So, I actually feel very good, but as we continue to accelerate the growth trajectory that you are not seeing frankly much impact on the gross margin line and we are seeing a lot of leverage in that through OpEx all the way down to the operating income line
When you think about, you are right, it is a big number, and I feel very good about it, and for the year on a pure basis it was $15 billion of commercial cloud revenue
So we are starting to get to that point <UNK> where you have a big base, which is still growing at a fast rate, and so especially ARR numbers can see big jumps in the one that you saw this quarter, and your right, Q4 is also historically quite a big quarter and this one certainly was as well
But you also saw - and what really does matter, especially in Azure is usage of growth, really consumption growth having customers use deploy, be successful, and really continue to get you think sort of meters up and running and that continues to build on itself, and so when you start to see that you can, and I do think and we will continue to see good growth in this number
Let me start by saying, first I feel very good about meeting our stated goal of $20 billion in commercial cloud ARR
Next, I think across every service the momentum we’ve seen in Q4 and in particular, I would say, I think not many people focus on it, but even things like Windows E5, advanced threat protection services, those types of deployments really will add to momentum in our offerings
One of the things we often talk about is, we sell Microsoft 365. That’s Windows 10 with securities and services
It is a modern workplace that includes up-to-date Office 365 and it includes EMS
We really did see strength across all of them
So I don't really think it’s about a percentage, but it’s about each of them continuing to make progress
Why don't you start and I will do the next one
And so to your point and it’s a nice transition from <UNK>'s point about, especially the midmarket offering coming in the fall for Microsoft 365 is installed base growth
You are right, in terms of Office commercial 365 the primary driver is still installed base, both the transition as well as new
I think we are optimistic as we head into FY 2018 for the installed base growth possible in particular for some of these midmarket offerings that we’re quite proud off The ARPU growth that you saw and have seen in the past couple of quarters continues to primarily, Phil, be related still to the E1 to E3 transition
When we mentioned E5, I think that’s frankly encouraging for us because all of these premium offers do best when you start the deployment motion
People start using E1 then they use E3 and then you start to see the momentum in E5, and we did see that
<UNK>owever, in terms of ARPU impact very, very small in quarter
So that’s something that over time you will continue to see improvement in terms of impact on ARPU.
Thanks Kash
Let me go through the bookings, again with that 30% the first and best contributor to that is the strong performance on the renewals in quarter
It was a reasonably consistent Kash, there was not a geo in particular that I would say was a massive outlier although in two of our largest geos, the U.S
and Germany they did have very good years in particular in Q4. Now if you separate the fact that we had the larger base with clearly contribute to that bookings number being big, aside from that in particular Azure in the last year point did really show up in that 18.9, it didn't, the strong billings growth really showed up in that unearned outperformance, which you saw versus the guide and it was significant, a lot of that is the Azure fillings
I think we felt very good, those as well, I think we’re pretty broad-based across industry
I would also say across geo
And so while we of course get some strength from our largest geos, and I would say they were probably the largest contributors if it was actually quite broad there is not only one place for me to say that we just saw it here, and then the final component that I would say was better than we anticipated and the way you’d see that cash, again versus the unearned guidance and the beat that we had there with that final piece around our security value prop, ATP - Windows annuity growth was very good
That’s in the KPI Windows commercial products and services
It is the place you will look and see that number and outside of that I mean those really are the biggest contributors
And I think maybe, I should have also mentioned, when you think about seeing that type of performance and <UNK> mentioned it is not just because of work done this quarter, it is a great point, but it’s also the investments we’ve made
We’ve committed, we did sales overlays
We added technical resources
We put resources at customers ahead of the curve, we did that you saw that and the operating in the intelligent cloud OpEx growth over the past few quarters, that execution is what’s landing
Okay, you are right, <UNK> it’s not exactly if I said is the Q3 from three years ago exactly the expiry base it is not exactly, but it is directionally
And so that’s a good example to say, every three years tends to be the length of our agreements and so you to tend to see that repeated, and that’s what we mean by sort of the record or the largest expiry base and that is the pattern
In terms of LinkedIn having any impact? It did not
So that is the cleanest way to think about that number
And so that leads why I always tend to say, I don't focus as much on the mix per se
I know both of them will matter and both of them are important, and so that’s why I tend to focus on that all up server KPI combination of the progress in the cloud, Azure, as well as the edge which is the on-prem
And so I think, we remain confident that double-digit target that we have for that KPI and is it really, I don't think sort of a comparability challenge per se, but that’s why we try to keep it at that high level to not get too tied to one or the other, given we know the TAM expansion that’s possible, we know we can grow within it
And I apologize, I didn't answer <UNK>s last component, so let me just go back and I had forgotten, which was, was there anything unique in the expiry base for Q1, the answer is, it is up a little year-over-year, but in certainly not through the same type of Q4 comparable
When we tend to have these, we tried to call them out like we did in Q3 leading into Q4. So, Q1 I would say is just up a little
So I wouldn't expect any material impact
Thanks <UNK>
The way I tend to think about it is, with any service you want the gross margin itself to improve, and that includes in the Azure services components themselves
The difference between core compute in-store versus the premium layers can be significant and we’ve had improvements across all of them
So, the real question on how and where should the Azure gross margin be is about sort of the ultimate mix of those
Anyhow, we saw significant improvement this year
We expect a lot of improvement again next year on each of those service lines
And where the actual mix occurs among those lines, I think we will just have to wait and see, but that’s why I tend to not focus at that layer it’s like can you get every service better, can you make material improvement, and then of course can you get usage and consumption going that leads to premium service usage, and of course over time you’d expect a higher mix of premium versus core
| 2017_MSFT |
2016 | SIX | SIX
#Okay.
<UNK>, on the international revenue we booked about $6 million in the first quarter this year.
We did book a little bit from our new deal in Vietnam.
On the membership revenue question, we are not going to break out the per cap, but Q1 was benefited by the members who had completed their 12-month commitment period.
<UNK>.
Yes, just on the incremental international, as <UNK> said there was a portion of that that represented Vietnam, but the bulk really was Dubai and China.
On the membership point, <UNK>, as <UNK> said we don't really break that out in terms of how much of our active base is members versus season pass or break out our impacts on per caps.
What I would tell you though is, and what we have said in the past is that obviously the membership, particularly as they get to that 13 plus, we recognize that revenue on a monthly basis.
You do see a more positive impact to per caps in quarters like the first quarter were there was a lower attendance amount.
Obviously the membership was a driver of per cap growth in the first quarter.
And then your last question on compensation, there was a reallocation of some of the equity within the existing programs after the Management change, but it was basically a reallocation of that equity.
Yes, I think, <UNK>, you're looking for just the incremental year-over-year amount.
It was $2 million with incremental.
On international.
On international Q1 versus ---+ it was about $2.5 million Q1 this year versus last year.
Obviously we continued to do very well on memberships.
And as you look at the growth in our active base, that came from both season pass and members.
Obviously the contribution that we're getting from that recurring revenue stream once we go past that 13th month is also increasing.
But <UNK>, we do not break that amount out.
Yes, in terms of the deals, we do think that absolutely the more deals that we announce, the more exposure and other people come to us and see us as really a true value in partnering with in different areas of the world.
Yes, absolutely we do think that helps.
In terms of how they are sourced, <UNK>, it really starts with the fact that people know our brand outside the United States.
We did a study when we were looking at our original Dubai deal.
We did a study of the brand awareness outside the United States, and our brand ranked right below Disney on brand awareness, well above others in the industry.
Our brand is widely known, so I think it starts with that.
It also is the fact that they recognize that we are known for having the expertise to not only design and build parks but ultimately run parks effectively.
As people within these various countries see the opportunity for entertainment options in areas that have rising demographic trends, whether it be population or disposable income or lack of entertainment options, they look at Six Flags as a perfect partner.
I'm sorry, that was for the ---+
I think it is a combination of both.
Because as with any of our new capital, I think it draws excitement.
People that may not have visited our park for a few years want to come back and experience this.
I also think it is driving incremental visitation from people that regularly visit us.
I think one other big driver is it is just another reason why people want to buy a season pass.
Because as you think about this, our goal obviously is to migrate people from one-day tickets to a season pass.
It's all about showing them that they get a value of a season pass around multiple visits.
To the extent that we can introduce VR in the spring, introduce our other new capital in the summer, and then further enhance Fright Fest, enhance Holiday in the Park and add it to even more parks, giving people more reasons to come to the park multiple times during the year is really what is driving the season pass penetration.
The 3% to 5% is still the number.
It's all tickets: season passes and one-day tickets.
So it's in every ticket category we have raised prices.
<UNK>, as I mentioned before obviously our increase in our pass base has helped drive incremental revenue ---+ incremental tenants.
Also I think it is a fair point as you think about from a weather standpoint, I would say Q1 of this year was a much more normal weather quarter.
We did see some adverse weather last year in 2015 in the first quarter, particularly around in the spring break of our two Texas parks, which did obviously impact our attendance last year.
This year we did have much better weather at those two locations.
So I think weather did play a part in some of that attendance gain.
<UNK>, I can't get into the specifics around the deals that we have signed with let's say Samsung and VR coasters, but what I would tell you though is as you think about VR, it has very low CapEx associated with it.
Much lower than what you would typically see if you were to be building a brand new ride.
Once we actually put VR in place, we are able to replicate that at a fairly low cost at other parks.
The ultimate goal as you think about VR, this is one of the reasons why we are so excited with virtual reality, there are so many applications for VR, and right now we have launched it on three of our rides.
We talked about the fact that we're going to do it on six more rides in the second quarter.
But ultimately, the goal would be to ---+ a guest will go on a ride and be able to pick what experience they want on that ride.
They may be able to choose from three, four, or five different experiences.
You can add those at a very, very low cost.
Secondly, I think the applications for VR in areas like Fright Fest, where we'll be able to utilize that in our mazes, whereby it will be more like augmented reality where our guest would be able to go through a maze, see what is in front of them, but there will be a number of things coming at them.
Which ultimately should reduce our labor costs at a lot of our mazes and our haunted attractions.
Then HIP, Holiday in the Park, where we can utilize VR, say, for our train ride to basically transform what would be a typical train experience into a winter wonderland.
There is a lot of applications for VR, and they are all at a relatively low cost respectively.
And so yes, you're absolutely right, that should provide a nice lift on our ROIC.
There will be an impact on OpEx because clearly we need to add more labor as you think about the labor associated with getting the people queued up, getting the headsets on.
And then obviously we have people that clean every single headset in between use.
So there is some labor that's associated with that, but I would tell you it is fairly minimal.
And if you combine both the CapEx and the OpEx, it is much, much lower than having to invest millions of dollars in new rides.
I would say that range applies to Vietnam as well.
<UNK>, one of the reasons why we have the range is because not all parks are the same size.
It may be a smaller park, it might need to be towards the lower end of that range.
Some larger parks may be at the upper end.
But we make sure that we don't compromise any of our economics when we sign these deals.
All of our deals will fall within these ranges.
There are two parks in Vietnam, a theme park and a water park.
Because the water park is smaller it will be less, but if you think about the two parks together, it will be at the higher end of that range.
Sure.
I will start with the CapEx, then I will let <UNK> talk about the REIT, the ruling.
Again, as we think about CapEx, I talked previously about how we are very efficient and creative in terms of how we invest our capital dollars, and very disciplined to make sure that we keep to a certain percentage of revenue.
I think our ability to continue to grow revenue, particularly the international which doesn't require any CapEx, allows us to think about taking that down.
<UNK>, I'm not going to say specifically in terms of how low we think that we can get that.
Obviously as we see what translates into our international growth going forward and really what we can do, because VR is still in the infancy stage here, what we can do around VR, it's a little bit too soon to tell.
But I think what we are trying to say is that because of the growth drivers and some of the things that we have that require either no CapEx or minimal amounts of CapEx, I think we continue to take that down.
I don't think we're right now in a place where we can say exactly what that number is.
In terms of the NOLs, we have about $400 million still in our NOLs.
We anticipate paying minimal taxes through 2018.
Did that answer your question.
There really is no update, <UNK>.
I think as we talked about before, we have a ruling request into the IRS on the REIT, and think it would probably be inappropriate for us to comment on either the outcome or the timing of that.
We have not seen any impact whatsoever.
I would say that there continues to be a lot of opportunities around data and utilizing that data.
I think we've talked before about a few years ago that we hired a very strong research person that was well known in the industry.
He's built a team around him, so we are able to do a lot more today than we ever have been able to do in the past.
We do millions of guest surveys.
We utilize that data to not only enhance our capital, but also enhance our in-park offerings.
For example, we are working on adding sports bars to our parks.
We've done that at a couple of locations.
It has gone over very well.
More healthy food offerings, our all-season dining plan; all of this has come from really a lot of the research that was done and what guests are looking for when they come to our park.
We are also able to do a lot more price testing to see what pricing we can actually take across all of our ticket types, which has been extremely valuable for us.
We utilize the data around not only more dynamic type pricing, but also targeting our specific guests.
For example, maybe a guest may not have ---+ has got a season pass hasn't come to the park in three months, we target them with a specific email to encourage them to come back to the park.
Because obviously we want our season pass holders to come multiple times during the year.
We've been working on that.
I think that there is still tremendous opportunities as we think about all that data, particularly that data that comes from the surveys and the research that we do.
Good morning.
That is a great question.
We are actually very excited about our all-season dining pass.
The reason being is that we have seen very good penetration to date.
I'll tell you that it's still relatively low because we are in the early innings of that product.
But as you think about how many ---+ we have millions of season pass holders and members.
If we were to get a specific penetration around our all-season dining pass, think about that with millions of those pass holders at $70 to $90, which is what our all-season dining passes run, that is a ---+ if you got X percent of your season pass holders to buy that, that is a tremendous amount of growth in your revenue base.
We are extremely excited about it.
We continue to see a nice tick up in the overall penetration, but honestly, <UNK>, we think we still have a lot of legs around that product.
In terms of using data for all-season dining, we are using the data similarly to how we do the season passes.
We're using the same kind of approach, and it is a data-intensive approach.
We know when people buy, when they come, when they eat and all of that really helps us determine when to communicate and how to communicate to our guests.
And <UNK>, as you think about all of this data, particularly around the marketing is, we now have very specific data.
So we can actually see season pass purchases.
We can see where all of those people that are buying season passes are from, what zip code.
How many people are buying from X amount of miles from the park.
How many are more in the outer areas.
We can specifically target those people and can aggressively go after in certain areas that we may not have good penetration on season passes in the past.
Thank you.
Great.
I appreciate everyone joining the call, and in closing I would like to thank everyone.
I believe we are going to have a great season ahead of us, and I hope you have the opportunity to come out and visit one of our parks this season.
Take care.
| 2016_SIX |
2017 | PNW | PNW
#Thank you, Don and thank you again everyone for joining us on the call
This morning, we reported our financial results for the second quarter of 2017. As shown on Slide 3 of the materials, for the second quarter of 2017, we earned $1.49 per share compared to $1.08 per share in the second quarter of 2016. Slide 4 outlines the variances that drove the change in our quarterly ongoing earnings per share
I’ll highlight a few of the key drivers
Total gross margin was up $0.27 per share compared with the second quarter of 2016, supported by stronger customer usage, favorable weather and higher transmission and loss fixed cost recovery revenues
Higher net sales in the second quarter of 2017 compared with the second quarter of 2016 increased earnings by $0.10 per share, which we believe reflects the improving economic conditions we are seeing locally and I’ll talk about more on that in a moment, which was supported by 1.8% customer growth as well as higher average usage by our residential customers
Weather-normalized retail, kilowatt-hour sales were up 2.9% in the quarterly comparison, net of the impact of customer conservation energy efficiency programs and distributed renewable generation
Although we are pleased with the favorable sales growth we saw in the second quarter, year-to-date, through the end of June, sales were up 0.1% and we still expect that weather-normalized sales growth will fall within the range of about 0% to 1% for the year
Lower operations and maintenance expense contributed $0.14 per share in the second quarter of 2017, primarily driven by less fossil generation plant outage activity during the current period
As you recall, we had a large plant outage at the Four Corners Power Plant in both the first and second quarters of 2016 as part of the plant’s routine maintenance schedule
And keep in mind that we expect extended outages at Four Corners in the second half of this year as we prepare for the installation of pollution control equipment
Also want to note that the quarterly O&M variance includes a charge related to the cancellation of capital projects at the Navajo Generating Station, which has an offsetting adjustment depreciation
On the topic of depreciation, higher D&A decreased earnings by $0.01 per share in the second quarter, primarily due to increased plant in service, partly offset by the Navajo plant item I just mentioned
Turning now to the Arizona’s economy, which continues to be an integral part of our investment story, I will highlight the trends we are seeing in our local economy and in particular, the Metro Phoenix area
As seen on the upper panel on Slide 5, the Phoenix Metropolitan area continued to show job growth above the national average
Through May, employment in the Metro Phoenix area increased 2.4%, compared to 1.6% for the entire U.S
This above-average job growth is driven largely by the financial services sector
The solid job growth continues to have a positive effect on the Metro Phoenix area’s commercial and residential real estate markets
Vacancy rates in commercial markets continue to fall and at are levels last seen in 2008 or earlier
Additionally, about 2 million-square-foot of new office and retail space was under construction at the end of the quarter
We expect a continuation of business expansion and related job growth in the Phoenix market, which will, in turn, support continued commercial development
Metro Phoenix has also had growth in its residential real estate market
As you can see in the lower panel on Slide 5, housing construction is expected to continue the upward post-recession trend
In 2017, housing permits are expected to increase by about 5,000 compared to 2016, driven by single-family permits
In fact, permits for new single-family homes in March through May were at their highest level seen since August of 2007. One factor driving this increase is that Maricopa County was the fastest-growing county in the U.S
in 2016. That activity in the market is providing meaningful support for home prices, which have returned to levels last seen in 2008. We believe that solid job growth, low mortgage rates and the opening up of credit to the wave of households who suffered from foreclosures during the recession should allow the Metro Phoenix housing market and the economy more generally to continue to expand at this pace over the next couple of years
As I previously mentioned, reflecting the steady improvement in economic conditions, APS’s retail customer base grew 1.8% in the second quarter
We expect that this growth rate will continue to gradually accelerate in response to the economic growth trends I just discussed
Importantly, the long-term fundamentals support future population, job growth, and economic development in Arizona prepared to be in place
Finally, a quick update on our financing and guidance plans
We expect to issue about $650 million of additional long-term debt this year, one transaction at Pinnacle, including the refinancing of the $125 million term loan and one at APS
Overall, our balance sheet and liquidity remain very strong
We plan to issue earnings guidance for 2017 after the final approval of APS’s pending rate review through a separate communication
However, to assist you with estimates, a list of key drivers that may affect 2017 ongoing earnings is included in the Appendix to today’s slides
We also plan to release 2018 ongoing guidance on our third quarter call consistent with our standard practice
This concludes our prepared remarks
I will now turn the call back over to the operator for questions
Question-and-Answer Session
I would just say, Greg, it’s a great question as one quarter we come up pretty flat to negative
We do know that consumer confidence at the residential level increased in the second quarter
And I think that’s consistent with the surge in housing permits in the second quarter
That said we will see some consumer elasticity as they get their bills in July from the warm June
So right now, we are continuing to be led here today by the commercial sector with the things we mentioned before, State Farm completing its build-out last year, but still continuing to increase forecast as we move forward
So, I think I would answer that by saying I think the third quarter is going to tell us a lot as well
So we knew our O&M was going to be back end loaded this year
I think I would look to the first quarter of ‘16 when we did similar type outages at Four Corners
That’s the guide in terms of the magnitude of that spend, Greg
No, we will provide ‘18 guidance
And then as our normal practice at the end of the third quarter – I am sorry, ‘17 guidance and at the end of the third quarter, we will do ‘18 guidance
But at this time, we have no plans to go out any further than what we normally do
No
I would expect actually our equity ratio to sort of fall as we issue fixed income securities over the next couple of years
Yes
The equity ratio and the ROE were just placed in there as parameters for us, the rate case for the black box, so the extra equity in this case, it doesn’t lead to earnings power
Earnings always goes in peaks and troughs
And keep in mind, when we do the step increase, we still have $0.5 billion of Ocotillo that’s being deferred, but not being earned on
So that would create a drag until it ultimately gets some rates hopefully in 2020.
Yes
I think we are pleased with where we are compared to our plan this year
And beyond that, we haven’t really given any guidance and we will talk about that when we get guidance out here soon
Yes
So I would say that we get probably as much impact of energy efficiency as we do rooftop, but we probably will have by the time rate goes into effect and installations that are valid we have received before that, we will probably end with 70,000 or so rooftop solar and that will be about 6% of our residential customer base will be with rooftop solar
After that, remains to be seen in terms of continued growth
We get about a 1.5% or so offset typically from the EE and DE
| 2017_PNW |
2016 | SJI | SJI
#Thanks, <UNK>, and good morning, everyone.
To begin, our full-year 2015 economic earnings results totaled $99 million as compared with $104 million in 2014.
Economic earnings per share for 2015 were $1.44 as compared with $1.57 for the prior year.
For the fourth quarter of 2015, economic earnings totaled $43.2 million as compared with $31.2 million in the prior year period.
Economic EPS for the fourth quarter of 2015 was $0.62 compared with $0.47 for the same period in 2014.
The major driver of the year-over-year decline was a write-down of our investment in the energy facility at the former Revel Casino property in 2015 and related costs we incurred.
This nonrecurring event reduced economic earnings on a comparative basis year-over-year by $15.7 million.
Of that total, $11.1 million was attributable to the write-off of our equity investment in the project and a reduction in operating income compared to the prior-year period.
In the fourth quarter of 2015, we also took an additional charge after-tax of $4.6 million resulting from a payment to a former bondholders to settle all claims associated with the project.
We are currently pursuing recovery of that payment from our financial and legal advisors as well as our insurance carriers.
We will recognize that recovery in the future period in which it occurs.
We also restructured our energy project business at the beginning of 2015 disturbing the assets held within Energenic, our energy project development joint veture among the partners.
Later in the call we will provide more detail around this transaction which resulted in a one-time after-tax charge of $1.7 million.
The charge was entirely due to recapture investment tax credits associated with several of the projects we divested.
Excluding these nonrecurring items, SJI's economic earnings and economic earnings per share for 2015 would have improved by $17.4 million and $0.25 per share respectively.
With that said, we did see some very strong operating performance within our business lines that reinforces our potential for significant earnings growth over the next five years.
I will detail that information now as we review the performance of each of our business lines.
Looking at the Utility, South Jersey Gas's earnings for the year remained stable at $66.6 million as compared with $66.5 million in 2014.
Fourth-quarter Utility net income was $22.2 million as compared to $24 million for the same period in 2014.
Earnings growth attributable to significant infrastructure investment and strong customer growth was offset by higher charges related to uncollectible accounts and post-retirement benefits as well as investments made to improve customer service.
As we discussed on the last call, the extreme cold experienced in the past few winters produced significantly higher customer bills.
Also during 2015, we revised upwards our reserve percentages for aged receivables based upon recent experience.
These events resulted in increased receivables, increased aging of those receivables and ultimately increased reserves and write-offs for those receivables.
The after-tax charges for uncollectible receivables totaled $8.8 million for the full year of 2015 and $3.8 million for the fourth quarter.
This compares to after-tax charges of $5.6 million and $3.4 million for the same periods in 2014.
We continue to educate customers on ways to reduce usage, access programs for assistance and take advantage of the various bill repayment options we offer.
As I mentioned earlier, customer growth and infrastructure investments remain key drivers of current performance and will continue to benefit utility earnings in the future.
During 2015, we added more than 6200 customers bringing our current customer count to 373,100.
During the same time period, customer growth added $2.2 million in incremental net margin as compared with the prior year period.
High for our industry, this 1.7% customer growth rate is supported by low natural gas prices from abundant local supplies, aggressive marketing efforts targeting conversions and a noteworthy increase in new construction which accounted for 2900 customers in 2015.
That was up a little over 19% from 2014 results.
Regarding investments in our gas system, we closed out 2015 with accelerated infrastructure investments totaling $70 million.
The AIRP, which replaces aging bare steel and cast iron gas mains throughout our systems and the SHARP, which replaces low-pressure gas mains along the barrier islands with high-pressure mains helped to reinforce and better protect our system.
These investments added an incremental $2.3 million of net income for the full year.
Another major initiative underway is a proposed pipeline to provide natural gas to the former BL England electric generating station.
We received final approval from the New Jersey Board of Public Utilities in December allowing the project to proceed.
While several outside parties have filed appeals to the decision, we remain optimistic that construction will begin on this project later this year.
Now we will move to the non-utility side of our business which is comprised of two segments, South Jersey Energy Services and South Jersey Energy Group.
For the full-year these segments added combined economic earnings of $31.5 million as compared to $37.6 million in 2014.
For the fourth quarter, the non-utility businesses generated $20 million compared with $7.2 million in the fourth quarter of 2014.
South Jersey Energy Services added economic earnings of $14.7 million in 2015 as compared to $24.6 million in 2014.
For the fourth quarter, South Jersey Energy Services contributed $9.3 million as compared with $3 million for the same period in 2014.
Plus this area of the business houses our entire energy production portfolio, $17.4 million of one-time charges I noted in my opening comments flowed entirely through our Energy Services Business.
While the conversation concerning Revel is a familiar one, it is worth noting that we believe the settlement reached in December puts the negative impacts of that issue fully behind us.
Further, we are in discussions to recover the $4.6 million charge incurred in the fourth quarter.
The remaining $1.7 million charge relates to the December transaction whereby substantially all of the assets housed in our joint venture, Energenic LLC, were distributed between the SJI subsidiary, Marina Energy and its partner, DCO Energy.
SJI retained all the assets associated with the provision of energy to the well-established Borgata Morgado hotel and casino property and two solar facilities.
Other landfill and CHP assets were distributed to the partner firm.
I will let <UNK> expand on the strategic rationale behind that transaction a little bit later.
Turning to our individual project businesses, our Solar business contributed $33.9 million for the full-year 2015 as compared with $25.5 million in 2014.
For the fourth quarter, this business line contributed $17.3 million in 2015 as compared with $4.1 million for the same period in 2014.
Investment tax credits drove that performance contributing $38.3 million in 2015 as compared with $30.3 million in 2014.
Operating performance continues to improve within our solar fleet and 2015 production generated approximately 136,000 solar renewable energy credits as compared with 111,000 in 2014.
As has been the case in prior quarters' results, total production is not yet fully recognized in net income due to the three- to six-month lag in the certification of certain renewable energy certificates.
Performance also reflects the fact that we have hedged a considerable amount of our SRECs when SREC prices were much lower than they are today.
Looking ahead, we expect operating performance of our solar business to continue improving as SREC prices have strengthened significantly during the last year.
We will benefit from this as we hedge future production from our new and existing solar facilities at the much higher SREC prices available in the market today.
Looking at CHP, for the full year, our portfolio reflected a loss of $13.7 million as compared with economic earnings of $1.8 million in 2014.
For the quarter, contributions from CHP reflected a loss of $5.1 million in 2015 as compared to a loss of $0.5 million in the fourth quarter of 2014.
As I previously indicated, these results directly reflect the charge associated with our energy facility of the former Revel property.
Excluding the charge, CHP was a positive contributor to economic earnings for the year.
Our landfill projects produced a loss of $4.5 million in 2015 as compared with a loss of $3.3 million in 2014.
For the quarter, landfills posted a loss of $1.3 million versus a $700,000 loss in the fourth quarter of 2014 due in large part to the inability of the landfill operator at our largest facility to provide gas in November and December.
Performance at the landfills has been an issue for awhile and that was one of the drivers behind the restructuring of our Energy Production business.
As we move forward, SJI's portfolio now includes just foujr active landfill projects which all support a single power purchase agreement for renewable energy at the Borgata property.
Within the wholesale commodity and pure management segment of our business, 2015 was a very profitable year.
South Jersey Energy Group contributed $16.8 million in 2015 compared with $13 million in the previous year, an increase of nearly 30%.
For the quarter, South Jersey Energy Group added $10.7 million as compared with $4.2 million in the fourth quarter of 2014.
I want to emphasize that this performance was particularly impressive because it was achieved without the benefit of the polar vortex that boosted 2014 results.
Rather, these results were attributable to the contributions from our three active fuel management contracts and our ability to optimize storage and transportation assets within our portfolio.
We see this performance as being repeatable in 2016.
Finally, our year-end equity to cap ratio was 42% as compared to 43% in 2014.
This ratio reflects the significant investments we made in our utility and in our solar project development business over the last year.
To support our balance sheet, we have used our dividend reinvestment plan to issue equity totaling $63.2 million in 2015.
Further, we currently maintain accumulated deferred tax benefits totaling nearly $400 million related to bonus depreciation and investment tax credits that we expect to realize over the next 10 years as we work towards strengthening our balance sheet.
At this time I will turn the call over to <UNK>.
Thanks, <UNK>.
Good morning, everyone.
It goes without saying that 2015 was a particularly challenging one for SJI but it is our performance in light of those challenges, strengthened by a new vision that has put us on a path for long-term sustainable growth.
Repositioning executed in 2015 serve as the bridge to our 2020 plan defined by four clear and achievable goals.
The first is to grow earnings to at least $150 million.
It is important to emphasize that $150 million represents earnings from our core operations.
In other words, earnings without the benefit of investment tax credits.
Effectively we are doubling SJI's earnings from operations in five years.
Next is to improve the quality of our earnings.
As we move through the second half of the decade toward 2020, we expect nearly 80% of earnings to be coming from regulated businesses.
The third tenant of our plan is to strengthen our balance sheet.
As our investment profile changes and aligns with increased opportunity in our regulated businesses, we will realize a marked and considerable deleveraging of our balance sheet.
Finally, we will accomplish all of this with a continued focus on reducing risk across our portfolio to ensure that we provide not only high quality but also consistent and reliable earnings.
As I mentioned earlier, the challenges faced in 2015 were certainly difficult and unfortunate, provided a platform for change and growth.
Specifically, the bondholders' settlement and eventual write-off of our energy assets associated with the former Revel property allowed us to relieve SJI of a significant and costly financial and resource drain.
The last six months have brought forth a renewed organizational focus on those businesses that are the foundation of our plan.
The Energenic transaction completed in December has real and tangible strategic benefits.
Our assets are now concentrated on high-performing proven CHP assets and a smaller landfill fleet, a fleet where the majority of the output is protected by a long-term power purchase agreement with Borgata.
Over the long-term, this transaction will afford a stronger and more stable income stream and considerable cost savings.
The impacts in our region from higher gas costs during extreme weather in 2014 and to a lesser extent 2015 have only deepened our commitment to critical pipeline projects like BL England and PennEast, all provide much-needed gas and electric reliability and cost savings to constrained areas of New Jersey.
2015 bolstered my confidence in our ability to deliver at least $150 million in economic earnings by 2020.
The foundation is there.
Customer growth combined with ongoing investment in our utility infrastructure supported by strong performance from our commodity marketing and fuel management business lines will drive meaningful near-term improvements in performance.
While broader initiatives like an enhanced commitment to leadership and talent development and new midstream investments like PennEast will allow for exceptional long-term growth.
Looking at 2016, due to the many advantages of natural gas, we expect significant customer growth to continue.
Additionally, investments through programs like our AIRP and SHARP will provide benefits to both customers and shareholders alike.
These impacts combined with investment in new projects like the BL England pipeline and our natural gas liquifier will position the utility to contribute more than 70% of earnings in 2016.
On the non-utility side of the business, our retail and wholesale commodity lines at South Jersey energy group are solidly positioned for the future.
On the retail side, a number of diverse multiyear customer contracts support growth from this business line year-over-year.
In 2016, two additional fuel management contracts will begin contributing when the Panda Liberty and Panda Patriot facilities come online.
With a total of eight contracts already executed, we remain well-positioned to serve at least 10 gas-fired generators by 2020.
These initiatives support our expectation that this business segment will contribute roughly 20% to 25% to earnings in 2016.
Looking at South Jersey Energy Services and in particular our Energy Production business, we would expect to see solar development continue to be a technology that demonstrates improved performance and remains highly valued within the market.
With that said though, due in large part to the impact of bonus depreciation on the timing of when we can realize the cash benefit of renewable ITCs, we anticipate a sharp decline solar investment in 2016.
As a result for this year and beyond, we expect services to contribute between 5% and 10% to economic earnings.
As we look ahead, our future will benefit from the role that 2015 played as a critical positioning year.
Because of the versatility and agility of our business, we have been able to overcome several short-term challenges without compromising our potential for significant long-term growth.
At this time I will turn the call back over to the operator for the Q&A portion.
Sure.
I think again 2016, you will see a considerable reduction in the level of renewable investment and then consequently the ITC number will be significantly less than it is or has been in recent years.
I don't want to preempt our guidance by giving you a finite number.
But I think considerable and significant are the two words that come to mind.
And I would expect that in 2017 and beyond you will see very limited investment on our part in renewable projects.
Look, I think the projects still ---+ they produce very attractive returns when you look at them on a discrete basis.
But the issue becomes when you can recognize the cash benefits of them.
So when you cut the NPV of these projects in half and start to get to de minimus returns on investment because of the nature of when you can realize the cash flows, it becomes pretty difficult to support meaningful investment.
At the same time, <UNK>, we have a lot of investment coming in front of us in the regulated businesses.
So I think our focus is to have that be the area that we look to deploy our capital.
I will let <UNK> <UNK> answer that question.
We definitely see it stabilized.
We saw a big uptick because of the polar vortex two winters ago and even last winter.
But with the combination of commodity prices dropping so drastically as well as the weather being down, we see our receivables coming down.
<UNK>, I don't have a good breakdown on it.
I can provide that at another time.
I think it is relatively straightforward.
The difference we were talking about there though was really designed to pick up kind of the variance between how it impacted us in 2014 and how it impacted us in 2015.
There were obviously several million dollars there and the settlement number was probably the biggest.
That was a pretax settlement of $7.5 million.
So getting that out of the way for us is a big deal.
Probably more important than any of that, <UNK>, is that it was the amount of management time and focus that was spent on it and that will be ---+ kind of dedicate that to profitable portions of our business as opposed to dealing with an issue of settlement.
We have gotten all the approvals that we need from both the Board of Public Utilities and the Pinelands Commission.
There have been a couple of challenges by some environmental groups.
We see those challenges probably taking anywhere in a range of nine to 12 months in total.
So we believe taht there is still an opportunity to start construction this year.
At the very least we will probably start ordering supplies and equipment for that project hopefully by the fourth quarter.
We will start with this.
We kind of joked about it a little bit.
This was a very amicable divorce if you will.
The partnership was strong throughout.
I think that we expect and hope to be able to evaluate future development opportunities together with DCO.
I think that right now the market is pretty dry as it relates to opportunities for CHP which is where our interests would lie in terms of development opportunities.
So if things change and the market picks back up and there are opportunities with creditworthy strong offtakers and attractive returns on investment then we would certainly jump at the opportunity to do something with DCO again.
So I think everything there is fine and solid.
As far as the allocation of assets, it really came down for us as to kind of ---+as part of this repositioning was getting back to our core and our core are the CHP assets that serve Borgata.
They are proven, there are profitable, there are reliable and they are complementary.
So when we acquired the cogeneration facility that serves Borgata, it was complementary to that Marina Thermal facility.
Before landfills as well are all backed by PPA contract where their output is delivered to Borgata.
So we really focused on those assets that were related to our relationship with Borgata.
That is a core assumption that drove this decision for us and the selection of the assets that we were interested in acquiring.
So, yes.
Again, I am not going to certainly run from the fact that we have had some operational challenges whether it be from gas availability or equipment issues at multiple landfill sites.
But we believe these to be the four that offer the most potential going forward and again are also benefiting from the fact that there is a PPA above market actually that backs these contracts.
Thanks.
Before we wrap up as always please feel free to contact Marissa Travaline, our Director of Investor Relations, or <UNK> <UNK>, our Treasurer, if any follow-up questions arise.
Marissa can be reached at 609-561-9000, extension 227 or by email at mtravaline@sjindustries.com.
<UNK> can be reached at extension 4143 or by email at aanthony@sjindustries.com.
Again thank you for joining us today and for your continued interest and investment in SJI.
| 2016_SJI |
2016 | BCOR | BCOR
#Good morning, and welcome to Blucora's investor conference call to discuss second-quarter 2016 earnings.
Before we begin, I'd like to remind you that during the course of call, Blucora representatives will make forward-looking statements, including but not limited to, statements regarding Blucora's expectations about its products and services, outlook for the future of our business and growth initiatives, and anticipated financial performance for 2016.
Other statements that refer to our beliefs, plans, expectations or intentions, which may be made in response to questions, are also forward-looking statements for purposes of the Safe Harbor provided at the Private Securities Litigation Reform Act.
Because these statements pertain to future events, they are subject to various risks and uncertainties, and actual results could differ materially from our current expectations and beliefs.
Factors that could cause or contribute to such differences include, but are not limited to, the risks and other factors discussed in Blucora's most recent Quarterly Report on Form 10-Q on file with the Securities and Exchange Commission.
Blucora assumes no obligation to update any forward-looking statements, which speak only as of the date the statement is made.
In addition, during this call, our management will discuss GAAP and non-GAAP financial measures.
In the press release, which has been posted on our website and filed with the SEC on Form 8-K, we present GAAP and non-GAAP results, along with reconciliation tables and the reasons for our presentation of non-GAAP information.
We've also provide supplemental financial information to our results in the Investor Relations section of our corporate website at Blucora.com, and filed with the SEC on Form 8-K.
Now I'll turn the call over to <UNK> <UNK>.
Following his comments, <UNK> <UNK> will review second-quarter results and full-year outlook; then we'll open up the call to your questions.
Thank you, <UNK>.
Good morning, everyone.
And thank you for joining our call today.
I would like to begin by simply expressing my appreciation to the entire Blucora team, our customers and our shareholders, for their support as I lead Blucora through our transformation to a strong and growing technology-enabled financial solutions company.
After a little over 100 days as CEO, I am pleased to provide an update on the exciting positive changes going on at our Company, and my views on how we'll create long-term value.
When I first joined Blucora in April this year, I knew the Company had significant potential.
Over the last few months, I've had the opportunity to watch our business evolve and to see the hard work of our teams begin to affect positive change across our operations.
I've been consistently impressed with the efforts of our people who are fully focused on delivering great value to our customers, clients and advisors.
It's exciting to be part of a company that is so committed to doing everything possible to assist those that depend upon us in the markets we serve.
As we transform Blucora, our commitment to shareholders is to deliver reliable financial performance that generates attractive returns.
The full team is focused on this commitment.
In these updates, you can expect me to share a balanced perspective on the Company, both in terms of what's working well, along with challenges we need to overcome to meet that commit.
Last quarter, I shared our near-term focus on the four Ds: divest, delever, deliver, and drive.
Each D represents an element of our action plan to reconfigure our capabilities and create a more streamlined, effective and efficient business model that delivers near-term performance while positioning the Firm to capture long-term growth opportunities.
Today, I'll report on the progress we have made on these elements.
As I discussed during our first-quarter earnings call, we reaffirmed our commitment to divest our InfoSpace and Monoprice businesses.
Since then, we've made substantial headway in these efforts, having earlier this month, announced a definitive agreement to sell InfoSpace to OpenMail for $45 million.
This transaction, which we expect to complete in the coming weeks, marks an important step in our transition, and will enable us to monetize a non-core asset, to pay down debt, and reduce our operating expenses.
Additionally, we're focused on the sale of our Monoprice business and, although the process is taking longer than we hoped, the process is competitive, with multiple parties interested and actively conducting due diligence.
We're optimistic that we will enter into a transaction in the coming months.
Second, we remain focused on our efforts to delever our business by paying down debt, and are well on our way to achieving our goal of 3X net leverage ratio.
During the second quarter, we retired $20 million of debt, bringing our total debt reduction for the first half of the year to $88 million.
Our ability to quickly and consistently delever demonstrates our strong cash flow generation capabilities at both businesses.
Looking to the third quarter, we expect to pay down more than $40 million of debt with the net proceeds we will receive from the sale of InfoSpace.
In addition, by delevering, we will be better able to tap into the benefits of our substantial NOLs.
Third, we delivered strong growth and adjusted EBITDA of 36% over prior-year and within our expectations.
This growth is fueled by very strong performance from TaxACT, counterbalanced by shortfalls, versus our revenue expectations at HD Vest.
I want to spend a few moments discussing our results in more detail while sharing context on the operating environment.
Starting with Tax Preparation, TaxACT completed this year's tax season in the second quarter and delivered another strong performance, with revenue and segment income up 18% and 21% for the full season.
This was an important year for TaxACT, as we successfully pivoted our strategy to one focused on driving profitable share growth.
The changes we made to our go-to-market strategy better positioned the business for long-term growth.
One key reason for this is our price points now align to those of the volumetric leaders, enabling consumers to see our substantial price value advantage.
From a market perspective, we're pleased to see the DIY category growth overall, and view the enlarged pool of DIY filers as future opportunity for TaxACT.
Before I move on to Wealth Management, I want to thank JoAnn Kintzel for her valuable contributions in building TaxACT into the successful business it is today.
Earlier this month, we announced that she will be stepping down as President of TaxACT once a successor is named.
Thanks in large part to JoAnn's leadership over the past five years, TaxACT is in a strong position to take advantage of the significant opportunities ahead for the business.
Turning now to Wealth Management.
Revenue performed below our expectation at $76.1 million, down 6% compared to the prior year.
Segment income came in within guidance at $9.9 million; it was down 7%.
Now let me share more insight into the revenue shortfall.
Advisor-driven revenues were down year-on-year in each primary area of fee-based trailers and transactional.
Transactional revenue is the largest driver, and was also down sequentially.
Here we're seeing two developments.
One, in June, we experienced an unforeseen decline in new investments in variable annuities.
While the product line has historically exhibited variability, the dip in June was unusually large, and centered on smaller average investment amounts.
As you can imagine we are watching this extremely closely.
For July, new investments have rebounded versus June, but early indications suggest we will continue to lag prior-year.
This challenge seems to be industrywide, as the market has been in decline from its cyclical peak in mid-2011.
Our internal analysis also indicates that variable annuity demand, we'd normally experience post-tax season, was pulled into Q4 2015 and Q1 of this year, driven by the launch of a new sales automation tool that accelerated the closing of business, as well as the unique situation created by the buyout of a well-adopted annuity by a large insurance company.
Two, compounding the softness in new investments, we also experienced declines in commission rates.
Here, the product mix has gradually moved toward product options with lower upfront fees, but with higher trailing commissions paid out over time.
This is reducing our short-term revenue in exchange for higher annualized revenue.
Generally, we like this trend as it moves toward more recurring revenue.
However, it has been, and will continue to be, a headwind.
The good news is that this is a gradual shift, and we should begin to see some relief, as trailer commissions typically kick in one year after the initial investment.
In addition, we have seen softness in fee-based net flows, which is affecting revenue performance.
Given the continuance of A largely sideways market since early 2015 combined with greater market volatility, advisors are finding it more difficult to convert clients into, and retain them in, a professionally-managed, fee-based arrangement.
Simply put, well-diversified portfolios have not delivered strong absolute returns, resulting in sluggish net inflows.
Global uncertainties and macroeconomic issues have not helped, as these also weigh heavily on many investors, and have consumed advisor bandwidth on handholding versus business development.
Lastly, given market volatility and uncertainty, we have reevaluated our assumptions for the rest of the year and are revising our outlook to assume a flat equity market and no Fed funds rate increases.
As a result of these, we are lowering our full-year guidance, and <UNK> will share more details in his prepared remarks.
Now, given the financial model of the business, we expect to achieve solid annual segment margin for HD Vest around 14% for the year.
Bigger picture, while we are disappointed with the revenue performance this quarter at HD Vest, we believe in the attractive potential of this business.
Net, the headwinds we face have become more clear; we are committed to taking the steps necessary to fight through these challenges; and we are focused on near-term execution to begin to regain momentum.
One such execution focus is making it simpler to process annuities by simplifying and streamlining operations.
We know that making it easier to do business with us drives greater advisor productivity and product usage, and should enable us to take advantage of second-half opportunities, including end-of-year tax planning season.
A second key execution focus is helping our advisors better engage with clients.
In June, we hosted our annual national conference in Washington, DC with record attendance.
A major focus of the conference was in recently-developed tools that advisors can use to build their business regardless of the operating environment.
Usage of these technology-enabled tools drives growth in assets and high-quality revenue, and we are delighted to see this usage increase.
We are especially pleased with the adoption of VestVision, our retirement planning tool facilitating client personalized plans, which grew 22% versus the second-quarter 2015.
And June was the strongest month of plan creation in VestVision since its launch in 2014.
Importantly, it was also the broadest month of plan creation as measured by unique advisor use.
We anticipate continued growth in the use of planning tools, as advisors seek to better meet client needs, as well as look ahead to fiduciary duties with respect to the new DOL rules.
This adoption is important, as advisors who work with clients on the basis of a plan, drive more assets and create monetization through increases in fee-based relationships.
It's a win for clients, too, as they benefit, over time, from being in a well-diversified portfolio managed by a professional acting as a fiduciary.
A brief comment on DOL.
As we continue to evaluate the new DOL rules, we believe we have an effective investment advisory platform, which will be available to satisfy the DOL requirements.
We also continue to educate our advisors and encourage them to get their advisory licenses.
Thus far in 2016, we are pacing ahead of last year's record number of new advisory licenses obtained.
That said, we are still assessing the impact of DOL, and will be sharing more details in the near future.
Finally, to our fourth D, our teams remain focused on driving long-term growth.
We have a path to creating a more streamlined business and opportunities to create shareholder value.
I'd like to share my current thoughts with the benefit now of being on the job for nearly four months.
Tax Preparation ---+ I like the hand we're playing in this business.
The largest competitor in the digital do-it-yourself space is growing the category by attacking the outdated and low-value storefront model.
For those that prefer or are considering DDI1, TaxACT offers incredible value.
Right now most people that are filing with larger players could come over to TaxACT, get a great experience, and pay a lot less.
And the largest player churns more filers annually than we currently serve in a given season.
So we perceive substantial opportunities to drive growth through, one: sharpening our differentiation versus competitors.
Two: getting the credit we deserve for our superior price value.
Three: tightening our marketing focus while better utilizing data.
Four: improving the client experience, which will be an ongoing focus.
Five: additionally, we continue to be well-positioned to grow in areas outside of the US consumer tax business, including professional, small business and international.
We have only begun to scratch the surface of these opportunities.
Wealth Management ---+ our long-term view on HD Vest continues to be positive as well.
I like businesses in this space that feature, one: revenue streams that are migrating towards more fee-based and recurring revenue.
Two: value to clients through a quality trusted relationship.
Three: where there is upside over time associated with the increased valuation of publicly traded securities.
Four: that offer greater revenue as interest rates rise with strong flow through to the bottom line.
And five: where there is upside to key levers that drive long-term value creation.
HD Vest checks the box in all five of these areas.
So while it's clear the IBD sector faces a number of challenges, I believe HD Vest will be the one to beat in the IBD space.
This is not just because of the aforementioned, but because, in addition, we offer a better mousetrap.
Our grow-your-own approach to adding new advisors creates a significant net revenue advantage versus others in the sector, and there is real value added for the client.
It's better for investors to work with an advisor who has an eye on tax alpha, because he simply can't assume away tax implications and properly advise the client on their investments.
Yet it's the very thing the majority of wealth managers and brokers do.
Regarding the fifth point around value-producing metrics, we continue to see significant opportunity in each key value lever, including increase the number of advisors in our network.
We currently have 4,600 advisors out of an addressable market of approximately 250,000.
Increasing the breadth of Wealth Management inside of tax provider practices.
Today, our advisors average about 25% penetration among their tax client base, and increasing the depth of penetration of their Wealth Management clients by getting rid of wallet share and increased adoption of fee-based solutions.
Additionally, these two businesses make sense together.
There is an opportunity to tap into TaxACT's 20,000 professional customers who are not yet HD Vest advisors, and to better serve TaxACT's 5 million consumer tax filers by leveraging HD Vest capabilities to offer wealth management services.
Supporting these strategic initiatives is our new operating model, which is centered on the idea of Blucora as one company.
We are in the process of transitioning from a portfolio holding company operating model with separate operations, to a more unified and collaborative structure.
Inherent in this is a shift in the role of corporate functions from adding value through M&A to being directly accountable to help the business units grow profitably.
Moving to this model will help us attract the right talent to build our team and create a more flexible nimble Blucora.
I'm committed to building the best team in the business ---+ the one everyone wants to be on.
Inevitably, there will be some new folks brought in over time in order to meet this commitment.
While we are undergoing positive change at Blucora, I believe we are laying the foundation for long-term growth and value creation.
With that, I'd like to turn over to <UNK> Emmons to discuss our financial performance over the past quarter.
Thanks, <UNK>.
Today, I will cover the second-quarter results, and then provide third-quarter outlook and update our full-year outlook.
Our consolidated results and year-on-year pro forma growth for the second quarter are as follows.
Revenue of $120.1 million, up 7%; adjusted EBITDA of $35.3 million, up 36%, reflecting year-on-year segment income growth of 30%; and non-GAAP net income of $23.4 million, up 61%; and EPS of $0.55 per diluted share.
GAAP net loss for the second quarter was $14.4 million, or a $0.34 per share loss, and reflects impairment charges associated with our discontinued operations.
Turning to the balance sheet, we have cash, cash equivalents and short-term investments of $82.1 million.
As <UNK> mentioned, we paid down $20 million of term loan B, bringing our net debt down to $437.2 million.
Net leverage exiting the quarter was 4.5 times, down from 5.2 times as of March 31, 2016.
In the third quarter, we expect to utilize 100% of the net proceeds from the InfoSpace divestiture to pay ---+ to further pay down debt, as we remain focused on reaching our net leverage goal of three times in 2017.
Shifting to segment performance starting with Tax Preparation.
Second-quarter revenue was $44 million and segment income was $29.8 million.
For the first half of 2016, which encompasses the entire tax season, revenue was $132.5 million, up 18% versus the first half of 2015, and segment income was $77.4 million, up approximately 21%.
Segment margin for the first-half of 2016 was 58.4%.
As we discussed during our first-quarter call, we pivoted our offering this year to better position us for future growth, and we were pleased with the performance and future potential of the business.
In the back-half of the year, we are making investments in technology and marketing to set up the business for a successful 2016 tax year and beyond.
We are gearing up this off-season, focusing on revitalizing our value leadership position in consumer DIY.
We look forward to sharing more on our 2017 outlook in the coming months.
Closing out on 2016, we expect full-year revenue of $137.5 million to $138.5 million, and segment margin in the 47% to mid-47% range, which reflects increased investment as we spend back a portion of our 2015 tax season overperformance.
Second-half 2016 revenue will be slightly weighted toward fourth-quarter, as will segment loss as we begin to ramp up our investment leading into tax season.
Transitioning to Wealth Management, second-quarter revenue was $76.1 million, down 6% versus the prior-year and below our expectations for the quarter.
As <UNK> mentioned, the revenue miss was largely driven by an unforeseen decline in the back-half of the quarter in our variable annuity transaction revenue.
To provide some context, June variable annuity investment volumes were down over 35% versus June 2015.
This, coupled with declines in commission rates, as advisors have gradually shifted to our product options with lesser upfront fees, has pressured transaction revenue in the quarter.
<UNK> noted that, thus far in July, volumes have bounced back on a sequential basis, and we are also seeing commission rates holding steady sequentially and are up year-on-year.
Touching quickly on assets, advisory AUM grew 2% sequentially versus the first-quarter 2016, but was down 1% versus the second-quarter 2015.
Advisory net flows were up $11 million, as advisors continued to battle client sentiment driven by volatile market swings.
Total AUA was up 2% sequentially, driven entirely by market.
Segment income for the second quarter was $9.9 million, down 7% year-on-year, and consistent with our outlook, as the team managed costs to offset the revenue shortfalls.
Turning to the third quarter and full-year 2016, we have reset our advisor-driven revenue outlook, acknowledging the headwinds the business is facing.
Our revised expectations take into account the following factors: second-quarter performance versus the second quarter outlook; transaction revenue, rate and volume variability, and market volatility.
As it relates to market volatility, we have removed all market-related upside from our 2016 outlook.
We are holding the S&P 500 flat through the end of the year, and have also assumed no Fed fund rate increases for the remainder of the year.
Our previous outlook range had included S&P 500 appreciation in the back-half of the year and one Fed rate increase.
As a reminder, a 25 bp increase is approximately $500,000 to $600,000 of revenue in segment income per quarter.
Lastly, given environmental considerations, we have adjusted down our net flow expectations for AUA and AUM for the remainder of the year.
Our third-quarter outlook for Wealth Management is revenue of $74.6 million to $78 million at a segment margin range of mid-12% to mid-13%.
For the full year, we expect Wealth Management revenue of $303 million to $313 million at a segment margin range of mid-13% to low 14%.
Finishing up on second-quarter performance with unallocated corporate operating expenses.
Second-quarter expense was $4.5 million, down 4% from the prior year.
This included approximately $900,000 in nonrecurring costs, including a severance charge of approximately $400,000.
As we think about the rest of the year, we are increasing our full-year corporate cost expectations to a range of $19.5 million to $19.8 million.
This increase is primarily the result of increased second-quarter severance costs, legal fees associated with ongoing and potential litigation matters, and recruiting related expenses.
The key takeaway is our run rate expenses are in line with our expectations, and we have a path to the $12 million annual run rate goal in the first half of 2017.
However, there are likely to be some one-time costs to achieve the reduction in run rate, and we will share these once they become more clear.
For the third quarter, we expect unallocated operating expenses of $5.2 million to $5.4 million.
With that, let's turn to consolidated outlook for the third quarter and an update to our full-year outlook.
For the third quarter, we can expect revenue between $77 million and $81 million; adjusted EBITDA between a negative $2.3 million and a negative $200,000; non-GAAP net loss from continuing operations of $15 million to $12.6 million, or a $0.36 to $0.30 loss per share; and GAAP loss from continuing operations of $16.2 million to $14.8 million, or a $0.39 to $0.36 loss per share.
For the full year, we are lowering our outlook as follows: we expect revenue between $440.5 million and $451.5 million; adjusted EBITDA between $85.8 million to $90.5 million; non-GAAP net income from continuing operations of $35.8 million to $40.9 million, or $0.84 to $0.96 per diluted share; and GAAP loss from continuing operations of $5.5 million to $2 million, or a $0.13 to $0.05 loss per share.
To reiterate, our lowering of our full-year revenue outlook is driven by headwinds in our Wealth Management segment, which captures both increased variability in our transaction revenue trends, evidenced by the second-quarter revenue softness, and environmental factors associated with increased market volatility.
Full-year outlook for adjusted EBITDA and non-GAAP net income have been lowered to reflect gross profit declines associated with the lowering of the Wealth Management revenue, as well as an increase in nonrecurring unallocated corporate expenses.
With that, let me turn to call back over to <UNK> for his closing remarks.
Thanks, <UNK>.
In my short time with the Company, we've made substantial progress towards our transformation objectives.
Our focus on the four Ds is already beginning to yield results, and we are excited about the future of the new Blucora.
We will now move to Q&A.
Hi, <UNK>.
Good morning.
Thanks for the question.
Appreciate that.
So, in terms of the order of your question, I'll sort of answer going in the same order.
There are definitely some cyclical issues in this business that are not unique to what we have in HD Vest.
As we've shared, we feel good about the future potential of that business over time.
In fact, we had ---+ as we'd sized this business up as the year unfolded, we had felt that we had largely avoided some of the sector issues.
They caught up with us a bit last quarter.
We see some of these elements stabilizing.
And we still believe very confidently that the impacts around the sector will be less over time on this business.
Now to your point on the shift, we are definitely experiencing some short-term headwind around that shift.
We love ---+ and we discussed this ---+ we love businesses that can be moving into a more recurring sort of revenue stream.
It's stickier revenue; it's higher quality revenue.
And the sorts of offers that clients end up in tend to be better for them over time.
So there is an element of that.
And we are encouraged and delighted, really, when we make that shift.
Now in the short-term, though, there is some pain.
We've done the math, and had done the math earlier, around ---+ do we like the trade from an economic point of view on top of liking the trade from a consumer point of view.
And the answer is definitely yes.
So we are going to continue to push on that.
In fact, we'd like to see acceleration in the move to fee-based offers.
We feel good about our offers.
There's a lot of room to grow there, and that's the linkage in the conversation that I just led earlier around focusing on advisor engagement.
And though the markets have not been generous and kind to anybody, we've got to focus on the things that we can control, and that's getting advisors more and more engaged with their clients, using the tools that we've built, because we know that they turn into future revenue.
So, decidedly less at risk.
If I have the option ---+ door one ---+ businesslike HD Vest, tax professionals, deep relationships with clients, used to being a fiduciary.
Door two: typical IBD stuck in the trade-day broker business or rent-day broker business where you're paying for practices and looking to grow through that fashion.
Sometimes you are in that mode, you are tempted to try to seek to generate ---+ to sort of drive your business by getting more and more tempted around buying and overpaying for practices.
So we are not in that model.
Now what it does, clearly, is put more pressure on us to get more creative on who we can find out of the 250,000 group of taxpayers that we can convince to become a wealth advisor.
And there's a long ---+ there's a longer sales cycle on that.
And then we've got the added need to be really good, and never better, at convincing people to move through that funnel to pass the test and become effective.
Now the good news there is, first of all, we're not going to get tempted and do a bunch of dumb things around sort of manufacturing advisor growth.
Second thing about that is, we are looking through that entire process ---+ Roger and the team are very focused on adding ever more science to that process so that we can generate net growth in advisors over time.
We see no structural reason why we can't do that.
But I think it's actually going to ---+ for me, it's very clearly an advantage, <UNK>.
You get some issues short-term when it becomes more difficult to recruit; it looks like it's hard to do Wealth Management and that sort of thing, but it's a far better model than the alternative.
And, over time, it's a good model.
<UNK>, it's <UNK>.
Look, I think it's just the dynamics of a sales process.
And as <UNK> touched on in his comments, we're pleased that the process remains competitive and with multiple parties continuing to do work, and ---+ you know.
Best intentions to get those done by today, but obviously we also want the best execution for our shareholders.
So that's what we're focused on.
And pretty much what <UNK> has said in his comments is really the update we can give at this time.
Thanks.
Thank you.
<UNK>, why don't you grab the latter one and I'll come back to the first question.
Sure.
You know, <UNK>, we haven't given a lot of color on either InfoSpace or Monoprice, and we are going to continue not to.
What I would say is, it's not really a end-year performance issue as it relates to the process; it's just the dynamics of a deal process, and trying to get folks to the finish line and get the right deal for shareholders.
So I wouldn't read too much into the timing versus the performance.
Obviously, we know the business has performed since we've owned it, so that creates its own challenges in a process.
But as it relates to end-year, that is not our primary issue now.
It's just getting folks to the finish line.
<UNK>, do you want to take the first question.
Yes.
Thank you.
And then thanks for the question.
So, no ---+ I mean, big picture is absolutely no new strategy that would have generated that sort of delta in that month.
It is a highly variable part of the P&L; more variable than we had anticipated actually.
But, at the same time, that was the sort of dip we had not seen previously.
It's fair to say, as I had shared upfront, though, that there have been some operational things that we've deployed, one of which we've actually brought forward some volume relatively significantly.
There's another factor that brought forward some volume as well.
And it seems to us that that had been a factor not necessarily just in June, but in the last couple of months, as advisors have absorbed new ways of working with us around annuities, which are going to be pluses over time, but also given the fact that they were able to close business much more quickly drying ---+ in Q1, and to some in Q4, drying up a bit the pipeline for us in Q2.
So, <UNK>, I think what I would say is, you think about the revenue lines, fee-based and trailers are much more stable than transactions.
Transactional revenue is based upon sales that are happening.
And, quite frankly, we had something in June that we ---+ as we went back and looked over multiple years that we hadn't seen around variable annuities in that time period.
So it did catch us a little off-guard.
What I would say is, it has given us an appreciation around the variability of that particular line item.
And so what I would say is, the forward outlook built in ---+ that variability as well as takes into account the performance through second-quarter.
And therefore, I wouldn't say stability, per se, but I think, as we look forward, we feel that fee-based and trailers are pretty stable.
Transactional has got a lot of variability, and we captured that in our go-forward projections.
| 2016_BCOR |
2018 | CMO | CMO
#Good morning.
Welcome, everyone.
I'll make a few brief comments, and then we'll open the call up to questions.
We reported EPS of $0.19 for the fourth quarter, up $0.06 from the third quarter.
About $0.04 of this earnings improvement is attributable to higher net interest margins as a result of higher cash yields on our 100% adjustable rate portfolio and a 13% decline in mortgage prepayment activity.
Together, these positives outpaced higher borrowing cost.
We also benefited from the passage of tax reform, recording about $0.02 in alternative minimum tax refunds at our largely dormant taxable REIT subsidiary.
Lastly, operating cost for our internally managed agency-only platform remained at industry-leading levels.
While earnings were much improved this quarter, book value declined $0.31 to $10.25 per share as declines in portfolio valuations exceeded increases in unrealized gains on interest-rate swap sales for hedging purposes.
This was largely a function of shorter interest ---+ shorter-term interest rates increasing considerably more than longer-term rates during the quarter, with 2-year treasury rates up 40 basis points while 10-year rates only increased 8.
Given this backdrop, our stock price has traded at a considerable discount to book value in recent months.
In response, we reactivated our $100 million stock repurchase program and repurchased $3.5 million in shares in November and another $10 million worth in January.
Together, approximately 1.5 million shares of our common stock was repurchased, over 1.6% of our outstanding shares.
These actions provided $0.01 of book value accretion in the fourth quarter and another $0.02 in 2018.
We may continue to repurchase shares in the coming months depending upon market conditions, including alternative capital investment opportunities.
Note that since year-end, 10-year Treasury rates were higher by over 30 points, outpacing increases in 2-year treasury rates.
Additionally, pricing for agency guarantee ARMs has been strong, such that thus far in 2018, changes in portfolio valuations had been relatively benign from a book value perspective and comparing quite favorably to portfolios containing a considerable amount of longer-duration ARM or fixed rate investments.
Regarding future earnings, with upward trending mortgage interest rates, we anticipate that mortgage refinancing activity in 2018 would be less of a factor than it has been in recent years, a potential positive for earnings.
Aside from this important earnings driver, 2018 quarterly earnings will largely be a function of how aggressive the Federal Reserve raises than the Fed Funds Rate.
With over half of our agency guaranteed ARM portfolio adjusting higher in coupon inside of the next 18 months, we should continue to see improving cash yields, allowing for the potential recovery of financing spreads reduced by higher borrowing rates.
For instance, as illustrated on the last page of our earnings press release, this currently resetting portion of our portfolio could reset higher in coupon by 50 basis points or so, based primarily on 6- and 12-month interest rate indices in effect at year end.
Importantly, these indices are considerably higher today than at year-end and should continue to increase with higher short-term rates.
In addition, we've held a sizable pay fixed receipt variable swap book that helps mitigate the impact of higher borrowing rates, particularly as it relates to the rest of our portfolio that consists primarily of ARMs that are scheduled to reset in rate in between 18 and 60 months.
In summary, our investment strategy of cost-effectively managing a leveraged portfolio of short-duration agency guaranteed residential ARM security, seeks to generate attractive risk-adjusted returns over the long term.
Key to our near-term success will be: Mortgage prepayment levels, the pace of future increases in short-term interest rates and the shape of the yield curve.
With that, I'll open the call up to questions.
Well, we'll have to look.
And as far as where we go long term, we'll have to evaluate that at the time.
And a lot it would be based on what we expect to be happening in the ensuing quarters and how we can use our capital.
The ---+ we bought back shares in November.
December, our share price recovered somewhat, we didn't really buy anything back.
And we did buy a lot of shares back in January.
And are quite surprised that our stock is weak right now.
We look at it from a trailing book value perspective, and obviously, what we can do with the capital at the time.
So we ---+ you can probably expect to see a fair amount of buybacks in the coming period if our price continues to be weak.
Sure.
If you look at generic space in January, they dropped another ---+ in the ARM portfolio anyway, they dropped another 5% or so from December.
We expect that to continue to trend down over the next couple of months.
And the low trench should be in March before they start recovering to some degree.
But like you said last year, we averaged around 24 CPR for the year.
We're looking for lower prints this year.
There are a couple of ---+ the burnout story on season-post resets has been valid.
Those bonds have dropped from the mid- to high 20s to the low 20s.
I would expect those, over the next several months, maybe to pick back up again.
There could be ---+ borrowers are now going reset us another 50 basis points, but the initial shock of resetting 125 basis points is not there anymore.
More of a story right now is our longer reset book, that if you look at it, we have about a 2.80% net coupon.
So those borrowers have about 3.5% mortgage rate, 5/1 now, with the increase in rates, are up to about 4 1/8%.
And the 30-year note cost is up to about 4 1/2%.
And so those borrowers, for the longest time, 5/1 rates hung around in the 3 3/8% to 3 5/8% range, and then fixed rates were in the high 3s to the 4-ish area.
And so those guys had incentive to refi in some cases, either at the new ARM or as a fixed-rate mortgage.
That's gone.
So if you look at the components of our book, you could easily see our longer-reset securities trend down to the mid-teens.
They were low to mid-20s last year.
And I would look post resets, and shorter resets, potentially being in the mid-20s area.
And so it kind of flip-flopped from where we were a year ago.
So hopefully, that answers your question.
That's a pretty plausible and realistic scenario, I think.
Well, if we're going to keep the leverage at the levels we're at, you're not going to see much future earnings improvement coming out of buyback, what you get is the book value accretion, and that's about it.
So if we can buy bonds at reasonable returns and the financing market allows for it such that we're not just redeploying capital from runoff, that will improve our earnings on return, obviously with the exposure of running a little bit higher leverage.
Whether we get there or not remains to be seen.
I think our duration gap moved out maybe 0.5 months or something like that.
A lot of that is just the inherent duration extension of our longer reset book.
Having said that, it is much more difficult right now to make a lot of sense of borrowing, for instance, 5/1s and swapping them out.
The spreads are fairly tight, and so we haven't lately done as much of that trade.
But we still are going to keep our duration gap fairly short.
I mean, still we went from, call it, just inside of 3 months to 3.4 months.
So I wouldn't look for it to drift much longer than that.
Sure, yes.
Since year-end, current market ARMs have tightened a decent amount, on a Z-spread basis, 7 or 8 Z.
And so far this year, they're trading shorter than their implied duration.
And so generically, 5/1s are down about 0.625 points right now.
Post resets are pretty much unchanged.
There's a strong bid for post reset paper.
And it's not uncommon in the first quarter to see ARMs tighten.
So they underperformed fixed rates in the fourth quarter.
So far, they're substantially outperforming fixed rates in the first quarter.
And also, supply is extremely low.
As the year curve flattened at the end of last year, originators weren't making as many ARMs.
And so you look at going from third quarter, where monthly volume was, say, $3 billion; and in the fourth quarter, monthly new issue volumes around $2 billion; in the first quarter, it's going to be significantly lower than that.
So a combination of the curve steepening, lack of supply and then underperformance of ARMs in the fourth quarter, has basically combined to cause it to perform very well in the first quarter this year.
In the first month of this year, I should say.
Well, you saw in the fourth quarter, for instance, short rates went up 40, 45 basis points and long rates only went up to 8.
And so ARMs ---+ ARM spreads didn't widen, but fixed rates tightened and ARMs spreads did ---+ so the bonds traded a little longer than you would expect them to.
So if you just extrapolate a scenario like that where, say, short rates went up 75 and long rates went up 10, that would be a very bad scenario for 5/1s, 7/1s, anything.
That would be a bad scenario 15-year passthroughs as well.
So I think the fourth quarter kind of gives you a snapshot of an environment that is not favorable for ARMs.
So just expand on that and make it a lot worse and I think you kind of get there.
| 2018_CMO |
2015 | SEIC | SEIC
#Thank you, <UNK>.
I would now like <UNK> <UNK> to give you a few Companywide statistics.
<UNK>.
Generally our collected funds services are really more admin-oriented, not asset management focused in terms of our selling as part of our asset management solution.
We do use a collected fund structure to wrap some of our asset management services, but the collected fund line item in our ---+ on that one schedule in the earnings release is really more attributable to administrative services.
So I guess we would like nothing more than ---+ you know, it would be great if those who were clients of ours on the investment management services side grew their business in the collective side, because that would enhance our service offering.
But we're not really focused directly on the collective structure as a market per se.
No, we wouldn't even view it as a market per se.
We would you it as a product structure that wraps around asset management capabilities that's scalable to particularly the institutional space.
Thank you, <UNK>.
So, everybody, in summary we feel that first-quarter 2015 was a solid quarter, created by concentrating our efforts on maintaining highly satisfied clients and growing new business events, controlling costs, and investing in projects that are critical to our future.
So looking ahead, we intend to keep our focus on long-term growth in revenue and profits.
So that concludes all of our remarks today.
I'll give you one more chance to ask any questions you might have.
Well, thank you all for joining us today, and have a good afternoon.
Thanks a lot.
| 2015_SEIC |
2016 | IEX | IEX
#Yes, so again, I want to be really, really careful.
We don't comment on any specific customer.
So, what ---+ we are ---+ where we sit in the food chain, what we experience in our numbers tends to be ---+ was already played out for us by the time it has played out in the markets for our customers generally.
Just because of how that works in the supply chain and timing, et cetera.
And so we don't see a major change in the fourth quarter based on anything you see out there the marketplace.
And also I think it's really important to note that this is ---+ we're talking about no customer being more than 2% of sales.
So we don't have a single customer that is material to the IDEX results as we think about that in the portfolio.
So with that said, as I think about the broader life sciences market, I think there's always bumps in there.
Every six or so quarters, you'll see a bump in these marketplaces based on when products are shipping, et cetera, product life cycles, supply chain.
But the story is a good news story.
We have seen strength in those markets, we expect to see strength in those markets going forward and for those to be above the IDEX average in terms of growth.
I think it's a combination of sustained improvement in a commodities world ---+ and this sounds like such a weak answer, but confidence.
There is a general lack of confidence in spending money and putting yourself out forward and putting a lot of capital forward.
And so I think that confidence is a combination of two years of a pretty soft market, a very uncertain political environment that people just aren't comfortable with how things are going to want to play out.
And I think that really needs to happen.
A little bit of improvement in the overall economic growth rate would go a long way.
Certainly people are seeing this is starting to play through in wage inflation.
And see what's going to happen in the global marketplace.
So you are seeing some elements of it spark there, but in general, you are not seeing that catalyst that is going to push that forward.
And as we think about our 2017 planning, we don't see a catalyst.
We don't see that happening.
We are well-positioned to deal with it if it does.
We have always said time and again that we are very able to react on the upside, and we never want to get caught on the downside.
And so for our ability to mobilize and execute a faster environment, we feel really comfortable around that in terms of supply chain and our ability to produce.
And at the same time, we think that this environment is going to continue here into 2017.
You know, Walt, I feel really comfortable that we can continue to drive productivity.
I'll tell you, what has accelerated our gains this year has been around the focus we've had on about a quarter of our portfolio that are fixed businesses.
We told you earlier in the year that that makes up about 25% of our business.
Into this year, we are almost 300 basis points better in profitability around those businesses.
And so that has just been a very, very good news story.
And let's keep in mind, too, that we are delivering this kind of margin profile with some of our bellwether, most profitable companies struggling that have really been hit most by this commodity and overall industrial distribution.
So if you think about Viking, Warren Rupp, BAND-IT, Banjo and even rescue tools ---+ so rescue tools has ---+ it's a different struggle for rescue tools because of the weakness in emerging markets around sovereign budget.
But if you look at those five businesses, those are big profit contributors to this Company.
And they have been hit squarely with the headwind.
And what we have been able to do is be able to really deliver the quality of earnings in those businesses, continued ---+ very, very high quality of earnings in those businesses and cash flow and, at the same time still drive overall margin potential with what we're doing in the rest of the business.
So, when I think about our execution and our positioning for any kind of improvement, we are in a good spot.
You know, Walt, with modest growth, a couple of points.
We can get 50 plus ---+
50 to 80 basis points of margin improvement, Walt, is what we have kind of said.
Yes, with a couple of points growth.
And that breakeven point ---+ when I say breakeven point, I mean the point at which we can still expand margins has gone down substantially.
And our ability to drive productivity.
And so if we continue to see a soft environment, we will still get better margins going forward.
Thank you.
The vast majority of our businesses are ---+ we are looking at book and ship.
I'm not sure I can give you a specific number.
But big capital projects, they have never been a big piece of our business.
But they can swing ---+ they can certainly swing in terms of volatility in any one quarter, and some of that we're seeing right now.
But historically we go into a quarter with half the quarter booked.
And you've got to deliver a book and ship in the quarter of about half the business.
And so that is what that kind of looks like.
Now for us, no material difference.
The difference is I think the larger CapEx really are the things that we have had in the past and were a buffer.
Those have certainly been pushed or canceled.
It can.
If you look at where we stand today and our expectations for fourth-quarter organic, that is the big pivot.
But at the same time, we are finding ways to cover it.
We are finding ways to still grow income and do a great job around cash.
I think ---+ let me talk about SFC first.
That's a very high-margin business, and that is really around a growth story.
So that's our focus with SFC.
And by the way, with AWG and Akron, growth is a critical component to the overall story.
But recognizing that when we bought the businesses, we saw more opportunity to get the margin profile ---+ margin profiles in line with our core IDEX business ---+ and that's about 500 basis points in total.
And Akron has been part of the portfolio a little bit longer.
Back earlier in the year, we bought the business.
We have had great results so far with it, and AWG is a terrific fit.
You put that together with our other safety and rescue assets, there's a lot of opportunity to grow the business and to improve margin profile.
I think what we have said in the past, and I wouldn't change it, is there is no reason you wouldn't see a couple hundred basis points out of the gate for those businesses and then the balance over three years.
So I think it takes three years to get 500 basis points, but there's no reason you wouldn't see a couple hundred basis points in that first year.
Yes, <UNK>, the bulk of it is from the acquisitions, but there are a few other areas that we are taking the opportunity to do some consolidation and get some leverage.
And so we will see some improvement in some other businesses also.
Yes, let me talk about the rationale behind it.
When we think about these things, it's not necessarily just a growth profile that we're looking at.
It is really around how are they going to be advantaged or disadvantaged long-term with us as the owners.
And so with the things that we have sold, we have sold them principally to people who have one of two things: either a different expectation of long-term performance than we have, but, more importantly, the ability to better position that business with an asset that they own.
And so ---+ and we have elected to not make the investment to get that competitive scale.
So what you are seeing us do are sell relatively small things or very small things that don't have a unique advantage today that really need some kind of relative competitive scale.
And we are selling those things that we don't ---+ we have decided that it's not worth the organic or inorganic investment to us, that the opportunities are elsewhere, and that's really how we have been making those decisions.
And also keep in mind things that are small and don't have the kind of advantage that we look for in business, they take a lot of management time.
They are disproportionate in what they require from a management time, and we would rather put those resources elsewhere.
In terms of ---+ have we said what our ---+ the businesses ---+ their business.
No.
We have not published that yet, so we won't do so.
But we're talking something that is small.
You'll see it as things roll out here in the next few weeks.
Yes, you are really talking about Viking and Warren Rupp for the most part.
When you say CFP, that is the bulk of it.
Right.
Richter, whatnot.
Really the same factors we're talking about generally.
Those are the big pieces of us ---+ of our FMT business is based in the general industrial world.
And they have had a tough go in 2017.
They have been hit disproportionately to the pressures that we are seeing in energy and the general industrial markets.
But, again, all of those businesses have seen sequential stability in their day rate business with some incremental negative on the CapEx side.
That's why we want to be very careful in saying I'm not going to call this an inflection point.
I think that would be a mistake.
We saw some improvement in the quarter.
It's been a tough story overall.
And ---+ but we did see some sequential improvement in the quarter and some year-over-year improvement in the quarter.
But I think ---+ let's be hesitant on that one.
It was good to see, but we've got to have a lot more data points before I make any commentary that I think it's ---+ we have seen a sustainable inflection.
<UNK>, it was probably depleted inventories just in channel and a pent-up demand for the replacement parts.
It's been down for almost seven quarters.
Yes, I think it's more replacement parts than it is equipment pick-up.
There's still a lot of equipment in the channel.
There is a lot of equipment in the field, there's a lot of equipment in the channel, so it's really a replacement part story versus a meaningful uptick in equipment.
Yes, I wouldn't say there's any major change.
We did note that the back-half comp started to get easier.
So, hey, we are glad to see it.
It's good to see, but is no major inflection different from what we've talked about so far.
I'm not sure I understand the question, <UNK>.
You're saying because ---+
No, I don't think so.
I think you've got ---+ when you are talking about sequencing, you have got major product cycles that are critically important.
And you have got this movement from, I will call it, the lab space into more of a commercial application.
And so that is a move that everyone has expected to happen.
And with that, you see a movement from very, very high-priced equipment down to more readily available lower-priced equipment that is more deployable into the field.
I think ---+ when you step back and think about the potential for this industry and you look at the number of sequences that are sold per year compared to the number of mass spec or analytical instruments in ultra-high-pressure liquid chromatography, it's tiny.
I mean, it is absolutely tiny.
And when you look at the applications and where those can go and land, and the number of potential units that can be sold into commercial applications ---+ and when I say commercial, I mean non-laboratory research ---+ the number is huge.
It is multiples of what is sold today.
And so it's not going to be smooth; it's not going to be perfect.
But if I think five years from now or 10 years from now compared to where we are today and the unit volume that you would expect, it's going to be much, much, much higher.
That is the bet we're making.
No, I wouldn't read into that at all.
Across our business, we are pretty asset-light.
You're talking about 1.5%, 2% CapEx intensity for the businesses.
We're not necessarily buying things that are lower than that or selling things that are higher than that.
It is really around market positioning.
Market positioning and what I would call relative competitive scale.
So, what ---+ if you look at what really works for us, it is when we are in a niche that is big enough to be attractive but small enough to not get the gorillas of the world if you wanted to compete for it.
And then we have the attractive relative market share position.
So we are a classic number one or number two.
And that ---+ the profit pools in that scenario and the attractiveness is very, very high.
When you are a distant three, four, five and you don't have a pathway, or if the niche is too small, that's where it's just not very attractive for us.
Well, thank you very much, and thank you, everybody, for joining us on the call today.
I think as I open this up, my hope is that people will really focus in on what we've done to drive operating results and what we have the ability to do given this continued weak macro environment.
And, again, I think our overall execution has been extremely strong.
The underlying operating earnings of this Company and our potential to drive earnings growth over time, I think, is substantial.
We have done a nice job with disciplined capital deployment, and we've got a great balance sheet to continue to do that.
So, look, we're going to have to continue to work through this murky macro environment that's going to be with us for a while, but we are exceptionally well-positioned to drive total shareholder return as we go forward.
So, again, thank you for your questions today, and thank you for your support of IDEX.
And we will talk to you here in about 90 days.
Take care.
| 2016_IEX |
2017 | LSTR | LSTR
#Thank you, Rita.
Good morning, and welcome to Landstar's 2017 First Quarter Earnings Conference Call.
This conference call will be limited to one hour.
Due to a high level of participation on these calls, I'm requesting that each participant have a 2-question limit.
Time permitting, we can circle back for additional questions.
But before we begin, let me read the following statement.
The following statement is a safe harbor statement under the Private Securities Litigation Reform Act of 1995.
Statements made during this conference call that are not based on historical facts are forward-looking statements.
During this conference call, we may make statements that contain forward-looking information that relates to Landstar's business objectives, plans, strategies and expectations.
Such information is by nature subject to the uncertainties and risks, including, but not limited to, the operational, financial and legal risks detailed in Landstar's Form 10-K for the 2016 fiscal year described in the section Risk Factors and other SEC filings from time to time.
These risks and uncertainties could cause actual results or events to differ materially from historical results or those anticipated.
Investors should not place undue reliance on such forward-looking information, and Landstar undertakes no obligation to publicly update or revise any forward-looking information.
Our 2017 first quarter performance exceeded our expectations.
First quarter revenue, gross profit, operating income and diluted earnings per share were all first quarter records.
During our February 2 year-end 2016 earnings conference call, we provided 2017 first quarter revenue guidance to be in a range of $725 million to $775 million and diluted earnings per share to be in a range of $0.70 to $0.75.
Revenue in the 2017 first quarter was $781 million and diluted earnings per share was $0.77, both above the high end of the guidance.
Revenue exceeded our expectations due to increased loads and revenue per load on loads hauled via truck.
Loads hauled via truck in the 2017 first quarter increased 10% over the 2016 first quarter, ahead of our mid- to high single-digit growth expectation.
In comparing 2017 first quarter truck loadings to the 2016 first quarter, the fact that January 1, 2017, fell on a Sunday and January 1, 2016, fell on a Friday favorably impacted our productivity.
We estimate that the occurrence of New Year's Day on a Sunday in 2017 versus a weekday in 2016 favorably impacted the number of loads hauled during the 2017 first quarter by approximately 2%.
Excluding the favorable impact in January of the timing of New Year's Day, we saw consistent growth in truck volumes in each month of the quarter, with truck loadings increasing over the prior year month by 9%, 7% and 9% in January, February and March, respectively.
The increase was broad based amongst many customers and industries.
Our customer base is highly diverse.
Revenue in the 2017 first quarter from our top 100 customers based on 2016 revenue was slightly lower than 2016, while revenue from all other customers increased 18% in the 2017 first quarter over the 2016 first quarter.
As it relates to revenue per load, we expected revenue per load on loads hauled via truck to be equal to or slightly below the 2016 first quarter.
Revenue per load on loads hauled via truck in the 2017 first quarter was 1% higher than the 2016 first quarter.
The trend in revenue per load on loads hauled via truck improved each month of the 2017 first quarter as revenue per load was 2% lower in January 2017 as compared to January 2016, up slightly in February over prior February and plus 3% in March over prior year March.
The favorable trend in the growth rate in revenue per load on loads hauled via truck was partly due to easier March over prior year March comparisons and with favorable gains in unsided/platform revenue per load in the 2017 first quarter.
In March 2017, we experienced a more normal seasonal uptick in revenue per load as compared to February, whereas in March 2016, revenue per load was lower than February.
Historically, revenue per load in March is typically slightly higher than February.
The number of loads hauled via rail, air and ocean carriers was slightly lower than the 2016 first quarter, and a softness in rail intermodal loading was mostly offset by increased air and ocean loads.
Revenue per load on loads hauled by each of these modes in the 2017 first quarter was below the prior year.
Revenue per load on loads hauled via van equipment was 1% below prior year's first quarter.
The percent decrease was relatively consistent each month of the quarter.
Revenue per load on loads hauled via unsided/platform capacity increased 5% over the 2016 first quarter.
The percentage change improved each month as we moved through the quarter.
The improvement was somewhat due to easier comparison to prior year's month-to-month trend.
The 5% quarter over prior year quarter increase was also partly attributable to a 2% increase in the average length of haul.
Overall, we have experienced a normal seasonal uptick in revenue per load from December until the end of the first quarter.
The number of loads hauled via van equipment during the 2017 first quarter was 11% above the 2016 first quarter, while unsided/platform loadings increased 8%.
Overall, volume increases were strong throughout each month of the quarter for both van and unsided/platform equipment, but even more so in January as a result of the timing of New Year's Day in 2017 versus 2016, as previously mentioned.
The number of loads hauled via vans or controlled trailing equipment was mostly van equipment hauled by BCOs and drop-and-hook operations were 34% of truck loadings in the 2017 first quarter, an increase of 11% over the prior year quarter.
Here's <UNK> with his review of other first quarter financial information.
Thanks, Jim.
Jim has covered certain information on our 2017 first quarter, so I will cover various other financial information included in the press release.
Gross profit, defined as revenue less the cost of purchased transportation and commissions to agents, increased 8% to $121.6 million and represented 15.6% of revenue in the 2017 first quarter compared to $112.2 million or 15.8% of revenue in 2016.
The cost of purchased transportation was 76.3% of revenue in the 2017 quarter versus 75.9% in 2016.
The rate paid to truck brokerage carriers in the 2017 first quarter was 55 basis points higher than the rate paid in the 2016 first quarter.
Commissions to agents as a percentage of revenue were 13 basis points lower in the 2017 quarter as compared to 2016, due to a decreased net revenue margin, revenue less the cost of purchased transportation on loads hauled by truck brokerage carriers.
Other operating costs were $6.9 million in the 2017 first quarter compared to $7.4 million in 2016.
This decrease was primarily due to decreased trailing equipment maintenance costs as the age of the fleet has decreased over the past few years.
The company currently has 11,223 trailers in its company-controlled fleet, a 5% increase over prior year, as the number of BCOs hauling Landstar trailing equipment has increased with the increased demand for drop-and-hook services.
Insurance and claims cost were $14.5 million in the 2017 first quarter compared to $14.2 million in 2016.
Total insurance and claims cost for the 2017 quarter were 4.0% of BCO revenue compared to 4.3% in 2016.
The increase in insurance and claims compared to the 2016 period was due to increased severity of accidents in the 2017 first quarter as compared to the 2016 first quarter.
Selling, general and administrative costs were $38.3 million in the 2017 first quarter compared to $34.6 million in 2016.
The increase in SG&A costs was mostly attributable to an increase in the provision for bonuses under the company's incentive comp plans.
The provision for incentive comp was $2.9 million in the 2017 first quarter compared to $200,000 in the 2016 first quarter.
As a result, SG&A expense as a percent of gross profit increased from 30.8% in the prior year to 31.5% in 2017.
Depreciation and amortization was $9.9 million in the 2017 first quarter compared to $8.4 million in 2016.
This increase was due to the increase in the number of company-owned trailers.
Operating income was $52.3 million or 43% of gross profit in the 2017 quarter versus $47.9 million or 42.7% of gross profit in 2016.
Operating income increased 9% year-over-year.
The effective income tax rate was 36.8% in the 2017 first quarter compared to 38% in 2016.
The effective income tax rate, which has historically approximated 38.2%, was impacted in both periods by tax benefits resulting from disqualifying dispositions of the company's common stock and in 2017 by implementation of Accounting Standards Update 2016-09.
Looking at our balance sheet, we ended the quarter with cash and short-term investments of $278 million.
Cash flow from operations for the 2017 period were $62 million, and cash CapEx was $5 million.
There are currently 1 million shares available for purchase under the company's stock purchase program.
Back to you, Jim.
Thank you, <UNK>.
We continue to attract qualified agent candidates to the model.
Revenue from new agents was $17.2 million in the 2017 first quarter.
Although below our target for new agent revenue, the agent pipeline remains full, and I expect to see improvement in new agent revenue in the upcoming quarters.
We ended the quarter with 9,370 trucks provided by business capacity owners, 69 trucks below our year-end 2016 count.
However, BCO utilization increased in the 2017 first quarter, resulting in a 10% increase in the number of loads hauled by BCO truck capacity.
During the 2017 first quarter, we recruited more BCOs than we have in recent years\xe2\x80\x99 first quarters.
However, we also experienced a slightly elevated BCO turnover rate.
We typically experience a net decrease in the number of trucks provided by BCOs during the first quarter of any year.
Overall, the net decrease in the number of BCO trucks in the 2017 quarter was consistent with the typical decrease we've experienced during the first quarter over the past 10 years.
We expect continued strength in recruiting in 2017.
We had a record number of third-party broker carriers haul freight on our behalf during the 2017 first quarter.
Our network is strong and continues to attract third-party truck capacity.
During the 2017 first quarter, we continued to have a challenging insurance and claim cost experience.
Although accident frequency was slightly below our historical frequency experience in the 2017 first quarter, increased severity of accidents drove insurance and claim costs to 4% of BCO revenue compared to 4.3% in the 2016 first quarter, both periods well above our historical run rate of insurance and claims as a percent of BCO revenue.
I continue to believe that insurance and claim costs will approximate 3.3% of BCO revenue over the long term.
However, accidents in the trucking industry can be severe, and occurrences are unpredictable.
Overall, I'm very pleased with the 2017 first quarter results.
2017 first quarter revenue increased approximately 10% compared to the 2016 first quarter on a 10% increase in the number of loads hauled.
Considering the continued soft U.S. economic environment, especially the soft U.S. manufacturing sector, the Landstar model continued to demonstrate how well we perform even in a soft economic environment as we generated record first quarter revenue, gross profit and diluted earnings per share.
As it relates to our 2017 second quarter expectations, I anticipate that truck capacity will continue to be readily available in the 2017 second quarter.
Therefore, I expect gross profit margin to be in a range of 15.3% to 15.6% in the second quarter, assuming fuel prices remain stable and truck capacity remains readily available.
Seasonally, revenue per load on loads hauled via truck in the first quarter is typically lower than the second, third and fourth quarters.
During the first quarter, we experienced a normal seasonal increase in revenue per load on loads hauled via truck.
In early April, we have been experiencing a continuation of the seasonal trend.
I expect those normal seasonal trends to continue into 2017 second quarter and therefore, expect revenue per load on loads hauled via truck to be higher than the 2016 second quarter in a range of 1% to 3%.
I also anticipate the normal seasonal increase in number of loads hauled via truck from the first quarter to the second quarter after taking into account the favorable impact of the timing of New Year's Day in the first quarter.
Therefore, I expect the number of loads hauled via truck in the 2017 second quarter to increase over the prior year second quarter in a mid- to high single-digit percentage range.
Based on the continuation of recent revenue trends, I currently anticipate 2017 second quarter revenue to be in a range of $820 million to $870 million.
Based on that range of revenue and assuming insurance and claim costs are approximately 3.3% of BCO revenue, I anticipate 2017 second quarter diluted earnings per share to be in a range of $0.84 to $0.89.
Our 2017 first quarter results were above expectations even with a soft operating environment and low economic growth in the U.S. Even with the soft pricing, 2017 first quarter diluted earnings per share were the highest first quarter diluted earnings per share in the company's history.
We continue to focus on profitable load volume growth and increasing our available capacity to hold those loads.
With continued load volume growth, we are well positioned for when the pricing environment improves.
And with that, Rita, we are ready for questions.
This is Pat O'Malley.
I would say it's all those things.
Clearly, it's bringing on new agents, that's automatic market share.
I think if you harken back to Jim's opening comments when he talks about being broad-based and across many industries and customers, I think that demonstrates the power of the model and the natural diversification that comes from using agents to generate revenue.
So to answer your question, it is ---+ it's all of those.
I don't think historically whether it's in a tight market or a loose market, we see the impact on our load volumes.
So I don't think it's a market condition other than our agents are executing well in the environment they're playing in right now.
Well, I think on the van side we're pretty consistent over the last ---+ even back into 2016 I think we're still seeing that consistency of more readily available capacity.
But I'd say we're consistent about where we were on the van side back compared to first quarter last year.
I think we're seeing a little bit of tightening on the flatbed side because we saw rates climbing as we move through the quarter.
So a little bit is coming regionalized.
You're looking at Texas region is coming off of what I would consider a pretty low point in the 2015, 2016 periods.
So I think there's a little bit of that fracking business or oil and gas kind of ---+ it's not picking up a lot, but it's starting to tighten up the flatbed side.
So from a comparison standpoint to sum up, I'd say that the vans are pretty consistent on the available capacity throughout '16 and where we sit today, but it feels like a little bit of flatbed market\u2019s tightening up a little bit.
Not extreme, but I think that's where we're seeing some tightness.
Well, clearly, out in Texas, yes.
I mean, clearly regionalized.
I think that area for us grew about 18% in that region.
I know a lot of it was driven by the flatbed business going in and out of Texas.
Yes.
I would ---+ I don't know where those comments come on the tightening in the second half unless someone really thinks there's going to be an increase in demand.
I mean, economically I can't speak to what I think is going to happen in the economy.
I would expect what's going on with the administration and some of the things they're trying to do sound all great.
And ---+ but when is that going to kick in on regulation, or tax or all the other stuff.
I don't see manufacturing picking up over the next 6 months.
If they\u2019re talking about the very back half in ELDs, yes, maybe there is a pickup there in tightening.
There aren't a lot of trucks coming out of the system.
Demand is relatively stable.
I would say we're going to stay in this market at least through the second quarter and into the third.
So I don't see that tightening of capacity any, in the short term.
And leading the flatbed, I guess, what's driving is the consumer-heavy industry right now, it seems to be some of the industry, some of the oil and gas that's driving that flatbed market.
If this infrastructure stuff kicks in or the wall kicks in, you'll see a tightening of flatbed before you see the van.
Right.
And we've seen like for a while, the van\u2019s been relatively chugging along flat.
And to see the flatbed that I do think that's a positive on the economic trends.
<UNK>, this is Joe.
Right now there's a big wait-and-see mentality for most of the small carriers, right.
I think a lot of them are still optimistic that maybe Trump will take this thing and put it on the back burner or that OOIDA might come through with some court challenge that makes a difference.
So I think there's a bit wait-and-see with some of the small guys.
And, as you know, a pretty good percentage of our brokerage capacity comes from small carriers.
But if you think about it, even our BCOs, not everybody's converted to an ELD as yet.
They're waiting to see and for a few reasons, and ---+ but generally, it's an additional cost to them, right.
So right now they're doing paper logs, they're getting along fine.
If you go to an ELD, it's $30 a month in airtime and they're just trying to avoid the airtime.
I think the mentality from most capacity providers, small capacity providers, is that they're agreeable to the fact ---+ to the notion that they're going to have to get it done, but they're going to wait till the last minute.
So I don't anticipate a huge exit of capacity from the overall marketplace or certainly, amongst our BCO community.
But I do think you'll have some, but it will be very late in the year, this year, and a big impact, probably a bigger impact, in 2018.
Yes, <UNK>.
If you go back to our first quarter release, we highlighted a couple items there.
We think the agent workflow IT projects going to be similar to slightly up this year as compared to last year.
I think we gave a range of $6.9 million to $9.5 million for the year.
Obviously, incentive comp is a headwind this year.
We're booking about $8 million to $9 million now on an annual basis.
And as far as the convention goes, it was in the same period this year as compared to last year.
It's a second quarter event in both.
So you'll see that it's about $2 million that will hit in the second quarter.
Well, I think there's a little bit of uniqueness of our model, right, <UNK>.
Our guys, as we always said, what they kill are small business owners and our role here is to support them and give them the tools they need to succeed.
And they're just hitting the market hard right now, and I think they're executing very well.
And like I said, there's a lot of demand for our trailing equipment and the drop-and-hook side.
Flatbed is starting to lift a little bit compared to where we were.
I think if you look at back 2015, 2016, heavy haul growth in load volume was negative every month for '15 and '16 except for maybe 1 or 2 months.
And we just finally seen heavy haul start to lift a little bit.
So I think there's a lot of in our niche markets and some of the special stuff we do is we're getting that penetration into the marketplace.
We're expanding it to different ---+ in some of the retail stuff.
Not that we're moving retail, but some of the large retailers are looking at us for some of those more lane-driven moves when they need capacity.
So I think we're expanding in ---+ and it's all about our agents bringing us into some new markets and along with the growth in the flatbed side and the demand on our drop-and-hook services.
So it's ---+ like we always say, it's very broad based and it continues to be that way.
The reason it's hard to describe like when we ---+ as I've said before, our top 100 customers in this first quarter were actually flat to down to last year's first quarter.
The growth came from every customer that's smaller than that.
And we just really expand our customer base in these type of environments.
It\u2019s customers doing $0.5 million a year with us.
It's those kind of customers currently driving it.
We penetrate into the smaller markets.
Yes, putting Amazon aside, let's just talk about those ---+ the ---+ we call them digital freight matching or the Ubers of transportation.
They're replicating what we have.
I mean, we already ---+ we send out 250,000 load alerts a week.
We're automated, right.
And our capacity can put in a subscription of where they want to go, at what price they want to go there.
All that technology that people are talking about exists today, and we're using it.
So from a technology standpoint, it's really not a concern.
I think what we're dealing with is guys who are trying to get into the brokerage industry and just play a price game.
The bigger concern is it's hard to compete against companies that don't want to make money.
That's really what we look at.
Amazon being a different story.
They already have scale.
And they already have a network.
That competition is probably little more real than I think.
I'm not saying that the digital freight matching companies aren't real and we're not paying attention to some of the stuff they're rolling out.
But the Amazon is a little bit different, and how they're playing the game.
But again, we have assets, we have trailers in the system.
We specialize in heavy specialized, that type of stuff.
We're not necessarily in e-commerce.
So do they ---+ are they going to go into our niche markets, yes, maybe.
But, I think we can compete pretty well there.
I mean, we're well positioned.
We're deep inside customers.
We're part of the strategic plans of a lot of our customer base.
So I think we're well positioned to compete against any of these guys.
Amazon being the ---+ that is the bigger picture to take a look and watch what they're doing.
It is not from a gross margin perspective.
There is maybe slightly better, but it wouldn't be something you'd noticed.
So I don't think from a margin perspective.
It's really about just, it's a higher revenue per load, but it's not driving bigger margin.
But when you ---+ the other piece you got to think about is on the flatbed side, most of those trailers are provided by the BCOs, whereas on the van side, 60% of the ---+ it's like 60% of our van is on our trailers, but like 40% of the flat is on our trailers.
So you have a higher PT rate, but lower operating costs.
So there's a little mix in there.
But it moves so slow, you don't see it.
That is not something you see transition within a 12-month period.
It could be a long-term thing.
But you wouldn't see the impact over the year.
Right.
Yes.
We're ---+ for insurance, we continue to expect the 3.3% be back to our normal historical trend, again, subject to the unpredictability of accidents.
But on the effect of that Easter holiday, it was like a couple ---+ we didn't mention it because it's like a couple thousand.
Those might be 2,000 loads at most on the impact of the way the holiday fell this year compared to last year.
So it's not material through the quarter.
Yes.
I mean, we talked about ---+ the reason I spoke to the effect of January 1 is because of sequential trend into the second quarter.
If you notice that we grew volumes 10% first quarter 2017 over first quarter 2016, and then we said mid- to high single digits for the second quarter and that's really just to point out the reason we grew 10% was partly due to the ---+ about 8,000 loads we got in the first quarter due to the comparison.
Yes.
Much bigger impact on the New Year's holiday than the Easter holiday.
It's about ---+ right about 24%, Matt.
This is Joe.
Yes, Matt, so we are in the process of talking.
There's about 2,200 BCOs that don't have an ELD today.
And the reason they don't have one today is because they don't really ---+ they have roadside violations for logbook, so that they are ---+ we've not required them to get one.
And we are talking to them ---+ as we speak, we've talked to about half of them to find out what their plan is to try to uncover the very questions that you just asked.
And it's a very, very small percentage that are really contemplating doing anything but waiting until the last moment, right.
So they understand they will have to get one.
They accept that.
It's purely a big brother and a cost-related issue.
But they don't intend to abandon the industry.
They don't intend to leave Landstar in great numbers.
They're just not anxious to absorb that $30 a month or whatever it might be in airtime charges unnecessarily when they're perfectly happy doing it on paper.
That's the sentiment from the BCOs that we've talked to thus far.
And again that's, over 1,000 BCOs that we've talked to one-on-one to get that assessment.
And as ---+ that relates to the sentiment towards ELDs in general, there was a surprising positive sentiment from a large percentage of our BCOs when we started to implement ELDs pretty rigorously in 2013.
And that really hasn't changed.
I think there is a fear and a more of a principle objection to ELDs.
But once they're installed, the BCOs tend to adopt them, use them.
We've done a pretty nice job of integrating them to provide some efficiencies in the way of fuel taxes as well as log submission.
So again, I think it's not going to be a huge disruption at the end of 2017 for us on the BCO front.
My pleasure, Matt.
Well, we're still kind in a prototype atmosphere, where we have 2 agents utilizing the system.
I will say we are a little bit behind.
We hope to catch up over the summer this year, where we start a rollout to a limited number of agents is kind of where we stand.
Nothing that's unexpected.
I mean, it's an IT rollout and I think we're pretty happy with where we are on it.
And we just have a lot going on.
We have a big weekend coming up, doing some testing again.
But it's ---+ the 2 agents that are on it love the system and all the agents we rolled it, we demonstrated at the convention, 2 weeks ago and are very excited to be getting it.
And we're just kind of more of a wait-and-see, and hopefully by the next call I'll tell you that we're starting to put more agents onto the system.
No, no, no.
No, big change.
We said $6.5 million to $9.5 million this year on the project.
We expect those numbers kind of to continue for the next couple of years as we roll it out.
But there's no change in the plan and no change to our expectations of how this is going to roll out.
We're probably 6 to 12 months behind of our planned 3- to 5-year project.
Yes, that's right, <UNK>.
The agent convention is $2 million to $2.5 million.
All of that will be booked in the second quarter.
So there will be no impact to the third or the fourth.
Because of the CARB regulation we've turned over our fleet over the past 5 years.
We're going to have dramatically less as far as CapEx goes.
We do the trailers by cap release anyway.
So you won't see that in the CapEx numbers on the cash flow.
But we had $5 million CapEx in the first quarter.
Part of that was the Laredo facility we opened in January.
But we still expect $8 million.
That's our run rate on an annual basis if you exclude the Laredo on ---+ for each quarter probably $2 million CapEx.
Thank you, Rita.
And thank you, and I look forward to speaking with you again on our 2017 Second Quarter Earnings Conference Call currently scheduled for July 27.
Have a nice day.
| 2017_LSTR |
2015 | FSS | FSS
#Thank you.
Good morning and welcome to Federal Signal's third-quarter 2015 conference call.
I'm <UNK> <UNK>, the Company's Chief Financial Officer.
Also on this call with me are <UNK> <UNK>, President and Chief Executive Officer, and <UNK> <UNK>, our Chief Operating Officer.
We'll refer to some presentation slides today, as well as to the news release which we issued this morning.
The slides can be followed online by going to our website, federalsignal.com, clicking on the Investor Call icon, and signing into the webcast.
We've also posted the slide presentation and the news release under the Investors tab on our website.
Before we begin, I'd like to remind you that some of our comments made today may contain forward-looking statements that are subject to the Safe Harbor language found in today's news release and in Federal Signal's filings with the Securities and Exchange Commission.
These documents are available on our website.
Our presentation also contains some measures that are not in accordance with US generally accepted accounting principles.
In our news release and filings, we reconcile these non-GAAP measures to GAAP measures.
In addition, we will file our Form 10-Q today.
<UNK> is going to begin by discussing some of the highlights for the quarter.
I will then go into some detail on the numbers, and <UNK> will wrap things up with some additional perspective on the quarter and thoughts on our full-year outlook.
I'd now like to turn the call over to <UNK>.
Thanks, <UNK>.
We are pleased to be talking about another strong quarter for Federal Signal that exceeded our expectations.
I'd like to review some of the highlights.
We had outstanding operating results in the quarter.
I was particularly pleased with our operating margin, which was up 120 basis points against last year's quarter and reflected improvement in all three of our business groups.
Our sustained strong margins reflect significant efficiencies from our 8020 and our lean efforts, our flexible manufacturing and our targeted investments in production facilities.
They also reflect continued pricing discipline and cost control, including quick reaction to changes in volumes across the product line.
What was most pleasing was that we were able to deliver these results, despite headwinds faced by many industrial companies.
And although orders have been lower, our third-quarter backlog was healthy and essentially unchanged from the second-quarter level.
In addition to our impressive margin performance, operating cash flow for the quarter was outstanding at $41 million, almost double the Q3 cash flow a year ago.
Our strong operating performance, cash generation, and lack of debt at this time obviously give us excellent flexibility to fund growth initiatives and return value to shareholders.
During the third quarter, we paid a quarterly dividend of $3.8 million, and we recently announced a 17% increase in our dividend by declaring a fourth-quarter dividend of $0.07 per share.
We also increased our repurchases during this quarter.
In today's release, we raised our earnings outlook for the year to a range of $1.00 to $1.04 per share, which represents an increase of 8% to 12% over our adjusted earnings-per-share for 2014.
With that finished in 2015, Federal Signal would surpass results for many industrial companies.
As we begin the plan for next year, we'll continue to aggressively work toward mitigating the adverse currency effects, oil and gas headwinds and software industrial demand that we do expect to continue into 2016.
You can see from our financial performance how effectively our operations have managed their businesses for profitability and growth.
There are contributions from 8020 and other operating efficiencies, as well as from product mix, price and some reduced material costs.
We are working to carry that momentum forward, and we will also continue to pursue strategic acquisitions using the disciplined process that we have previously described.
Now I'll turn things over to <UNK>.
Thanks, <UNK>.
<UNK> has hit many of the highlights which makes my job easier.
Starting with the top line, consolidated net sales were $206 million for the quarter, down 6% compared to the prior year quarter.
Excluding foreign currency translation effects, consolidated net sales were down 4%.
Operating income was $25.9 million, up 4% versus last year, and third-quarter consolidated operating margin was 12.6%.
This is almost unchanged from our record margin in the second quarter and is much higher than the 11.4% from a year ago.
Income from continuing operations was $16.4 million for the third quarter, up 8% compared to the prior year.
That translates to EPS of $0.26 per share, which is up 8% compared to $0.24 per share last year.
There are no material adjustments to our non-GAAP results in either period.
Operating cash flow for the quarter was $40.9 million, nearly doubling the Q3 cash flow last year.
We delivered this cash flow on the strength of our earnings, even as we continue to invest in our businesses and fund operating expenses and working capital to support our growth initiatives.
As <UNK> has alluded to in his remarks, orders continue to be soft and were 9% lower than last year.
At $268 million, our backlog was down from $353 million a year ago, but was about even with our second-quarter level.
As you can see in our group results, all three of our business groups reported improved operating margin versus Q3 last year.
Foreign currency translation reduced third-quarter orders and sales in our fire rescue group and to a lesser extent in our safety and security systems group.
Although our top line was affected, foreign currency changes have had no material impact on our bottom line.
The impact on third-quarter consolidated operating income was less than 2%.
Environmental Solutions Group reported a net sales decrease of $11.1 million or 8% versus last year due to reduced sales of domestic vacuum trucks and sewer cleaners.
Like the lower sales, ESG operating income matched the prior year quarter, and operating margin was 17.5%, up from 16.0% last year.
Orders were down 23% for ESG when compared to exceptionally high levels a year ago.
The prior year included several large municipal fleet orders, street sweepers and sewer cleaners.
Recent demand for vacuum trucks has been hurt by the significant downturn in oil and gas markets.
With our expanded capacity and shorter lead times, we continue to see fewer advanced stocking orders, which also contributes to a lower backlog.
At our Safety and Security Systems Group, sales were down 5% compared to last year's quarter, primarily due to unfavorable foreign currency translation effects.
On a constant currency basis, sales were down about 2%.
Operating income of $9.3 million was down slightly, while operating margin improved to 16.4% compared to 15.7% in Q3 last year.
The improvement in SSG's operating margin was primarily due to a recovery against a large order cancellation during the quarter that we previously anticipated would come in the fourth quarter.
Orders at SSG were down 4% compared to third quarter last year.
As we have noted previously, it is normal for most of SSG's businesses to operate with relatively low backlog.
In the Fire Rescue Group, net sales were $0.6 million higher than the prior year quarter, despite a $3.4 million unfavorable foreign currency translation impact.
In local currency, net sales were up 20%.
FRG reported operating income of $0.7 million for the quarter versus an operating loss of $0.2 million last year.
FRG's operating results for the third quarter also included $0.3 million of restructuring expense associated with headcount reductions intended to reduce ongoing operating costs.
In addition, FRG's third-quarter orders in local currency were up an impressive 94% compared to the third quarter of last year, primarily on the strength of order flow from the Asia-Pacific and the Middle East.
We expect Bronto's performance to improve significantly in 2016.
Corporate operating expenses of $5.6 million were down slightly compared to $5.8 million a year ago.
From a consolidated perspective, we reported a 2% improvement in gross profit and a gross margin of 28.9% for the quarter, which compares to 26.6% last year.
Selling, engineering, general and administrative expenses were $33.4 million or in line with the prior year quarter, and we saw nominal increasing costs associated with restructuring activities.
All of these factors roll into the Company's $25.9 million of third-quarter operating income.
We also reported a $0.4 million reduction in interest expense, which is associated with lower debt levels.
Tax expense for the quarter was up $0.2 million with an effective tax rate for the quarter of 34.7%, which was lower than the 35.9% reported in Q3 of last year.
We are trending toward a full-year effective tax rate for 2015 of about 35%.
From a cash perspective, we are projecting a cash tax rate of approximately 10%.
The difference between our effective tax rate and our cash tax rate relates to the use of deferred tax assets to reduce our tax payments.
These assets primarily consist of net operating loss carryforwards and tax credit carryforwards.
On an overall basis, we, therefore, earned $0.26 per share from continuing operations in Q3 compared with $0.24 per share in Q3 last year.
The balance sheet remains extremely strong, and with our robust cash flow, it continues improving.
Operating cash flow was $41 million for the third quarter and is up $24 million or 53% for the first nine months of the year.
Total debt was $47 million, down from $69 million a year earlier.
Cash on hand at the end of the third quarter exceeded total debt by $19 million.
We used some of our cash flow to pay a quarterly dividend of $3.8 million.
We also funded $5.6 million of share repurchases during the quarter, bringing our year-to-date share repurchases to $10.6 million.
We have approximately $69 million remaining under our share repurchase authorization.
That concludes my comments, and I'd like to turn the call over to <UNK>.
I mean as we look at the fourth quarter, we have ---+ we are coming out of a couple very strong quarters.
Several of our businesses are going to be able to perform well, but some of them are going to not be able to maintain those margins.
So we are ---+ there's a mix in our business as always.
All of them have done an exceptional job of delivering on margin, and they are continuing to do that.
Sure.
If you recall, Walt, last year in April of last year, so 2014, we implemented the new production lines and the plant that backed there.
And that reduced the stocking order requirement for our customers, our dealers.
And so the run rate in the last quarter and going into this quarter really, as you pointed out, reflects that study book to bill without the need for eight month leadtimes.
We are down to three to four months.
In some cases, we are actually shipping out of stock in other cases.
So that one impact is gone, so the run rate is pretty consistent.
The oil and gas, you recall, dropped off right after the first of the year for everybody.
So, the run rate of oil and gas in the fourth quarter was still pretty good last year.
But again in this last quarter and in the next quarter and going into next year, we see that that likely would be a consistent level of operation until oil and gas kind of picks back up.
So on the industrial side, I think as we move into utility a little bit more and we see a steady-state of business due to short leadtimes and oil and gas, we feel like that's a consistent run rate, at least in the near-term.
We also have visibility on some nice large orders coming late in the year next year for some of the international markets.
So like everything else, you'll see a mix.
On the municipal side on ESG, there have been fewer, you know, mega orders I'll call it for municipalities.
There's been good and consistent municipality business on ESG this year, which we think is going to be consistent and consistent going into next year.
But the big fleets we saw in 2014 we saw fleet purchase this year that were slightly smaller.
That's all.
So we see consistency, I guess, in what we are looking at going into the next year on the order base.
Yes, let me talk about that.
That has been a fun project for us.
The closeness our team reached with the users and we went back out again this summer with a couple of prototypes and we got even deeper experience with the customers and we're tweaking that, but we are in the planning stages of bringing up a production line for that.
And while we're not ready to forecast a number for next year, we're going to take the same approach that we did with the hydro excavators last year by introducing a new line for a fully engineered assembly product off the line.
So we expect good things from that next year in 2016, probably coming with product really being launched in the end of the first quarter, maybe into the first or the second quarter.
The thing about that product line, too, though, is that it also goes along with our hydro excavators.
So we'll be going to the market with really two families of product, a smaller more versatile product that we've been talking about, as well as the big vacuum trucks.
I think what we have said and what we do believe is that that business is capable of running in the 8% to 10% operating income range and that we are beginning to see the effects of the production changes.
We talked this year just recently about some of the structural changes we've made in overhead with people.
So I think the backlog is going to be strong going into next year and that I think during the year we will achieve that 8% to 10% run rate for certain quarters, and that business, as you know, things get delayed from quarter to quarter, month to month, and some months it still might be in the low single digits.
But I think that 8% to 10% in the long run for that business is achievable.
And we've invested to do it, and we have new management and leadership there, and we think we can get it done.
And Walt, the range of size and revenue, we've looked at things from $8 million or $9 million all the way up to $100 million to $200 million.
Again, <UNK> pointed out the need to be close to our core.
We really are dedicated to that.
We want to stay close to our manufacturing competencies, and we've seen lots of good opportunities.
You asked where did these opportunities come from.
We've had many presented by bankers, but we've also had many that our business units have identified as they are relationships that have existed within the marketplace, either with the supplier or with our customers, and some of these have been referred.
So it's a nice mix.
We like the closeness to the core, and we like what we think it will do for the long run.
And as <UNK> said, we would expect to have ---+ we would expect to have one or two close sometime early in the year next year.
Yes, you know, that's a good question.
And I can tell you that at our board meetings, we review every business with our Board of Directors for the ---+ if they still apply, if they are still close to the core, and whether we would keep or sell, and obviously being a public company until we decide we're going to sell something, we really couldn't explain any deeper what our thoughts might be.
Thanks so much.
In closing, I would like to conclude by saying that we are excited about our progress and the opportunities that are in front of us.
We're proud of the hard work of our employees and achieving our outstanding third-quarter results.
We do appreciate the continued support of our stockholders, our employees, all of our distributors, dealers, and customers, and without them, we wouldn't be successful and we thank them all.
Again, thank you for joining our call today, and we look forward to talking to you in the next quarter.
Goodbye.
| 2015_FSS |
2017 | BKNG | BKNG
#Well, the factors that drive the growth in supply for us is no different, whether it be a vacation rental or a regular hotel, rental car, whatever a hotel.
But we have people out there, who are trying their best to go out and make sure that the people who have that supply, understand the benefits of our low cost distribution system.
And when we show them the benefit of generally people say, yes, I want to be part of that, because they see the incredible number of customers who are coming to our site, from around the world, in 42 languages, who want to find a place to stay, rent a car, or whatever we offer.
So it's no different at all.
Now you're asking for specific areas or [whatever].
Again, I just want to make this very, very plain, that we believe we need to be everywhere, throughout the world.
So I'm not going to say, we should want this place, or that place.
We want to be everywhere, because customers are traveling around the world, and they want to stay everywhere.
And that's what we're going to do.
That's <UNK>.
Yes, <UNK>, you see the property growth on our website, and that's been driven more by vacation rentals.
So you can assume that the vacation rentals are contributing nicely to our room night growth.
We don't split out the growth rates separately, but that's been a nice tailwind to our growth rate for several years now, as we continue to add more and more vacation rentals.
And it's certainly something that we expect to continue going forward.
In terms of ROI leverage, we're not going to break that down for you by hotel versus vacation rental.
I wouldn't really think of it that way anyway.
I mean, we're out there trying to bring customers to our website, that are interested in a place to stay in Rome.
And maybe they're thinking they're going to look for a hotel or two hotel rooms for their family.
And then, since our teams have done such a good job of integrating the vacation rentals into the search results, in a very intuitive way, that customer may just say, you know what, this apartment, in the heart of Rome is perfect for my family.
We don't need to stay in two separate hotel rooms, and the price is great, and it's got a kitchen, so this is what I want.
So we're not really trying to target separately.
There are some key words that maybe lend themselves more to the vacation rental space, but we look at it from an overall portfolio perspective.
You're welcome.
Yes, I think it is.
When people become loyal to a particular site, that ties meta particularly, specifically, because they're offering great services.
And it's one of those things, where the people are great, providing it to our hotel, [metasearch] or for our flight one, by being able to provide the great ways to go out, and see those different prices, and be able to see all their different choices, and then go easily to actually book it, that's the advantage.
Now clearly, we believe that KAYAK is ---+ Momondo, now that's mostly a flight one, you've seen that in press, et cetera.
But we know that we're good in both areas, and we're hoping to make sure we to continue to do that.
Listen, we want to thank everybody for coming on the call, and thank you very much for attending.
| 2017_BKNG |
2017 | MRK | MRK
#Good morning, everyone
This morning I'll provide highlights in Global Human Health performance for the first quarter of 2017, and my comments will be on a constant currency basis
We are off to a solid start for the year
Global Human Health sales of $8.2 billion increased 2%, with growth from launched products including KEYTRUDA, BRIDION, and ZEPATIER, as well as our broad portfolio of vaccines, which more than offset the impact of LOEs in the U.S
We had a strong quarter outside the U.S
, with growth of 7%
I'll now highlight a few of our key franchises and product launches, and I'll start with oncology
We continue to execute on the significant opportunity we see with KEYTRUDA and our global leadership position in immuno-oncology
Global sales in the first quarter were $584 million, which represents significant growth versus the first quarter of last year, including U.S
growth of approximately 170%
In the United States, KEYTRUDA growth was driven by the launch in first-line lung, as well as the rapid penetration of head and neck cancer and continued strength in melanoma
After seeing a significant increase in PD-L1 testing following our first-line lung approval in the fourth quarter, we are starting to see that translate into demand
In fact, the vast majority of patients as defined by our label are already being prescribed KEYTRUDA
Based on IMS brand impact new patient data, KEYTRUDA is now the most prescribed product in the first-line-lung setting
In addition, our second-line-lung share has been relatively stable, and we're working to grow that share with our expanded indication into all PD-L1 positive patients
Outside of the United States, melanoma continues to drive the majority of KEYTRUDA sales with approvals in almost 60 countries
We're now working through the reimbursement process for both first-line and second-line lung, so anticipate lung will become a much larger contributor outside of the U.S
as we progress through the year
Now I'll move to primary care
Global sales for JANUVIA franchise reached $1.3 billion and experienced a decline of 5% in the quarter driven by the U.S
We continue to see good TRx growth of approximately 3% in the U.S
; however, as we mentioned previously, the timing of customer buying makes a difficult comparison versus last year
JANUVIA continues to maintain DPP-4 leadership with more than a 70% market share in the U.S
and 65% market share globally
We remain confident in the diabetes franchise and look forward to expanding the franchise with our SGLT2 and SGLT2 combination with JANUVIA which we filed in the first quarter of this year
Moving to vaccines, sales reached $1.5 billion and grew 21%, primarily driven by increases in GARDASIL and PNEUMOVAX
The addition of approximately $65 million of sales from the terminated vaccine joint venture with Sanofi, most of which was GARDASIL, also contributed to growth
Global GARDASIL sales grew 41% this quarter, also on strength in the U.S
and emerging markets
, GARDASIL sales growth of 25% reflects increased demand as well as timing of CDC purchases of approximately $45 million
We've continued to monitor the negative impact of the transition to a two-dose regimen in the U.S
PNEUMOVAX sales increased 52% in the quarter
Growth was driven by another strong quarter in the U.S
, where we continue to benefit from adoption of the ACIP recommendation for patients 65 and older
Moving now to hospital and specialty care
We continue to execute well on the launches of both ZEPATIER and BRIDION
ZEPATIER generated $378 million in sales for the quarter
We have seen rapid uptake in Europe and Japan since ZEPATIER's launch in late 2016, while we remain encouraged by initial feedback from physicians, payers and scientific leaders
In the U.S
, we continue to drive share gains for ZEPATIER across public and private payer segments
Sales in the quarter also reflect an approximately $40 million favorable adjustment to rebate accruals
BRIDION delivered another strong quarter with growth of more than 60%
We continue to see strong uptake from the launch in the U.S
, as well as growth in underlying demand in Europe and the emerging markets
As of this quarter, the U.S
represents the largest market for BRIDION sales
In conclusion, this quarter we had to contend with a nearly $700 million decline in sales due to LOEs
We anticipate further erosion from these products in 2017, but as we did in the first quarter, we will continue to look for opportunities to offset these losses with strength from across our broad portfolio of products and from our multiple new-product launches, which are each off to a very strong start
Now I'll turn the call over to <UNK>
Hi, Geoff
This is <UNK>
So let me start by saying we're pleased with the progress that we have with KEYTRUDA across indications including lung
And if you look at what we've done with our proved indication, the vast majority of patients within our indication are already being prescribed KEYTRUDA for first-line lung, and KEYTRUDA's now the most prescribed drug for first-line lung in the marketplace
As we start to think about KEYNOTE-021G, first of all, it obviously expands the market opportunity in nonsquamous patients and it also includes patients with low or no PD-L1 expression, so basically, it opens up the rest of the market
But with that said, there's a couple other things to consider
First of all, we believe that physicians will look at individual patients and decide whether or not combination therapy is right to start those patients
So if you have a younger patient that's relatively healthy, they might think about treating that patient with combo differently than if they have an older patient that's more complicated
In addition to that, we believe that, since we've studied the drug with ALIMTA, that early adoption will probably be used where physicians would use ALIMTA
Over time that'll expand, we believe, to other chemotherapies as the physicians start to see the results with the combination that we studied
So, in summary, we believe it's a very significant opportunity
It's not a pent-up demand
I would look at it as a build as new patients come into the market and I think that it really is exciting opportunity for lung cancer patients, but also to establish KEYTRUDA further as a real preferred treatment therapy
Yeah, so this is <UNK>
First of all, we're pleased with the progress of KEYTRUDA and the $584 million in sales
If you look at the U.S
which is the first market where we're really launching lung because we're still working on reimbursement outside the U.S
, and we saw a 170% increase versus the same quarter prior-year
And if you look at quarter-over-quarter growth and you adjust it for the $40 million that we told you about last quarter, you had over 30% quarter-over-quarter growth in the United States
And if you look at the data from simply (33:18) other areas, you would've gotten to about the number that we achieved
In addition to that, to provide additional context, if you look at the sales in the United States, right now about 40% of it is coming from lung
So you've seen a very significant increase in the amount of sales coming from the lung indication and in fact the first quarter of this year is the first quarter in which lung is the largest percent of our total sales
So we remain optimistic about the progress with KEYTRUDA
We think that there are opportunities to continue to grow with all the indications that we have and we'll look forward to seeing what happens with 021G
And, Jami, if you look at the share, it's about 25% in non-small lung cancer
And as I said in my remarks, I think that it'll start off with physicians using it within whatever the indication is
So if it's with ALIMTA, they'll use it with ALIMTA
We'll obviously continue to promote based upon the label that we have
I do believe that over time, physicians will begin to use it with other chemotherapy, irrespective of label
But again, that's nothing that we would promote
And then if you look at GARDASIL, we had $530 million of sales
The two things I'd point out is one, there's about $45 million of CDC purchases in the quarter, that was due to timing; the second thing is, there's about $50 million of sales from Europe because we dissolved the joint venture with Sanofi
Outside of those two things, I would say demand remains strong, and we continue to see increased penetration rates, not just in males, but even in females as well
And right now, Tony, our market share is greater than 90% globally, almost 100% in the United States
So we remain optimistic about demand
To me, the key thing is, is what happens with the two-dose regimen
So we're seeing increased demand right now, a lot of people getting their first doses
The question will be, do they come back for their second dose in six months? Or will it be next year, a year later? And we still have to wait to see how the two doses plays out
Yep
So for HCV, we continue to see good progress with ZEPATIER and we saw it, not just in the U.S
, but we've seen good progress in Europe, but also in Japan
As you look at the HCV market, there's no doubt that it's a large market and it's a large opportunity, but it's going to play out over many years
And as we look at the market, we see a reduction in number of patients being treated this year versus last year, and we think that that's going to continue to be difficult, as it's harder to get new patients into the market
Many of the tough-to-treat patients or those that were already previously diagnosed have been treated
Although there's still a lot of patients, we have to work harder to get those patients into the buying process
That's particularly true in the United States, but it's also true in country like Japan, where there's less patients each and every year, and there's not a lot of new patients coming into the Japanese market
So with that, we believe that it's still a significant opportunity
As we look at increased competition, we'll have to see what final labels look like, and we'll have to see pricing strategies and those types of things, but my expectation is that this continues to be a large market, albeit a declining market
Let me give you some additional context on KEYTRUDA
So first of all, we're seeing pretty broad adoption
As I mentioned, the vast majority of patients within our approved indication for lung cancer are being treated
So that tells you it has to be both an academic but also outside of academic centers
So for our first line share to be what it is, you would have to see pretty broad utilization
And if you look now, melanoma is 30% of our total sales but head and neck is also 15% of our sales
So we're seeing increased utilization in head and neck as well, which we're seeing fairly broad-based for physicians that treat that type of cancer
In addition to that, as you look at what we're seeing, physicians are using the products primarily based upon the indications we have
In terms of looking at the dosing regimens, I do think we may have an advantage there with our dosing regimen and scheduling versus competition
But it really is about efficacy
It's about what indications that you have and it's about ensuring the appropriate utilization based on your indications
And I think that's what's allowing us to win in the marketplace as we sit here today
Yeah, so <UNK>, as you look at the utilization of KEYTRUDA in the U.S, and this is, again, a rough estimate with the data that we have, about 40% is lung, 30% melanoma, 15% head and neck and then 15% is all other utilization of the product
And if you look at PD-L1 testing, the vast majority of patients are being tested somewhere between 75% to 80% in the United States
If you look at our share in first-line lung, our share is about – if you look at early data, one in four patients or so are being treated for first-line setting
And then if you look at second-line lung patients, we have a share of about 15% which has been pretty stable over time
Outside the U.S, PD-L1 testing is increasing significantly
In Japan, it's remarkable how fast they've begun to adopt PD-L1 testing and frankly, even in Europe, about two thirds of physicians are already testing PD-L1 including about 80% in Germany and 60% or so in the U.K
So we're seeing PD-L1 testing pick up around the world, frankly
| 2017_MRK |
2015 | NUE | NUE
#Okay, over the next two to three years.
Beyond that, we will continue to grow in that market, as we will continue to grow in all high-quality, higher valued and more importantly, system products.
I would start off by saying that we do think that the rate of growth in nonresidential construction, as we measure it in square footage, has slowed.
At the beginning of the year we were anticipating somewhere about an 8% or 9% growth over the course of the year.
Today, we would say that that number is probably closer to 5% or 6%, today.
So, we do see the rate of increase, the rate of growth, slowing as the year has progressed.
Now, when I look at our Business in particular, Nucor's business and our downstream businesses, which is frankly going to the nonresidential construction, we are feeling pretty good about our backlogs.
Our backlog today in all three of our downstream businesses, Vulcraft, Verco Building Systems, and Harris, our backlogs are the strongest they have been, the strongest they have been in a ten-year period, and when you couple that with the profitability that we talked about earlier, we've had a very good quarter for our downstream businesses.
Although we've seen the rate of improvement slowing, we still feel pretty good about our downstream businesses and their ability to complete in the construction market.
It's hard to take a look at ---+ that's a business that those products are long-term projects, some of them spanning several years.
So as you look at the length of time, it becomes cyclical.
The order entry rate becomes cyclical.
The shipping rates become cyclical.
It's hard to look at any one particular quarter compared to another particular period of time.
You've got to really look at the overall order entry rate and the backlogs and that what we use to track how we see the business performing.
I'll start with that one, but I would like to address both of them.
We are absolutely concerned about TPP passing in its present form.
Now, remember, all of us have not yet gotten a chance to take a look at the complete documents.
I'm not going to say whether or not we would favor it or we would struggle with it until we have an opportunity to read and study the entire document, which we have not had at this time.
That said, I will say that we are extremely, extremely disappointed that it's not ---+ that currency manipulation is not more strongly baked into that agreement.
At the end of the day, you can have all kinds of trade agreements and if a country manipulates its currency, it's guaranteed to have an unfair trade advantage.
And so we have ---+ what we are insisting on with TPP is that it does as it's promising to do, and that is to provide a more level playing field on which we can compete.
We at Nucor are absolutely convinced that if we were given a level playing field to compete upon we would compete successfully against any company or any country in the world.
So, we're taking a hard look at TPP before we come out with a definitive statement, but you are absolutely correct in saying that currency manipulation not being a part of that agreement makes us really struggle about the impact it will have on our Company, the impact it will have in our industry, the impact it will have on manufacturing in the United States, and the impact most importantly that it will have on middle-class Americans working hard to make a living and make a better life for themselves and their family.
You've got a little philosophical, so did I, okay.
Now, to infrastructure.
Once again I have to say that I'm disappointed in the administration and frankly in Congress in not taking advantage of what I consider a great opportunity.
Right now steel costs are down.
What a time to focus on rebuilding our infrastructure.
Energy, okay, how important is energy in going forward in the manufacturing world and for our country, frankly.
What a great time to be able to rebuild our energy infrastructure, our power grids.
Frankly, with the price of oil where it is today and the resulting price of gasoline at the pump, it seems to me like this would be a great time to be able to, and I know this is politically unpopular, but I'm not running for office so I can say it, okay, this would be a great time to put a little bump on the tax rate on gasoline and use that money to rebuild the crumbling infrastructure of this country.
What an embarrassment; 30, 40, 50 years ago our country was known for its infrastructure.
People came here to study how we build bridges and today you look at it and overall our bridges, our infrastructure as a whole just recently received a D+ and they were bragging on the fact that it wasn't a D, it was a D+.
We don't need infrastructure ---+ if we are going to have a manufacturing powerhouse of the 21st century, we need infrastructure that gets an A+ not a D+.
This is a great opportunity to rebuild our infrastructure.
I'm extremely disappointed that we continue to kick the can down the road on funding with three-month extensions after extension after extension.
I believe that there is something like 33 or 34 three-month extensions since 2008.
That's an embarrassment.
And I really hope that our leaders step up to the plate and do not miss this great opportunity to rebuild the infrastructure in this country.
But now, given the pricing that we're seeing a natural gas and that we expect to continue through 2016, we don't see any significant change in our drilling program.
There might be a couple of wells that we might have to drill in order to maintain the leases on the property and we would want to do that.
We've got some great property there and we want to maintain the leases on those properties.
Frankly, I don't see us changing our drilling program at this time.
And in terms of hedging, we feel confident that we see natural gas pricing remaining low for at least next year.
So, we're pretty comfortable with our gas position.
Can you repeat that.
I didn't catch the last part of that.
The wells are incurring a very small loss right now, but they are actually our cash flow positive.
So, it's not meaningful.
That was <UNK> <UNK>.
Okay.
Is that the end of the questions.
Okay.
Let me conclude by saying thank you to our shareholders for your confidence and your support.
Thank you to our customers, we truly appreciate your business.
We know that without you, there would be no us.
And I want to say thank you to my Nucor teammates for creating value for our customers, generating attractive returns for our shareholders, and building a sustainable future for all of us.
And most importantly, thank you all for doing it safely.
Thanks for your interest in Nucor.
Have a great day.
| 2015_NUE |
2015 | SYNA | SYNA
#Okay.
I'll let <UNK> dig out the China revenue question.
In terms of the marketplace, I think everybody in the industry is looking at results and input over the last few weeks.
And there's clearly a lot of churn around well how strong is the China market going to be, as we go through the second half of calendar 2015.
And we're kind of in that same mode as well.
In some ways it's good news where last year Q2 was so strong, there was a bit of inventory build-up.
We don't see that affect this year, and so we think we're seeing good, natural sell-through in the marketplace.
And, overall, I would say we see a pretty solid market, but we're playing it conservative at this juncture and expecting fairly modest growth rates in the China market
Yeah.
Just at a percentage level of our overall mobile revenue, in Q4 we were in the upper teens from a revenue percentage standpoint for China mobile products.
And actually moving into Q1 we expect similar levels of mix from China mobile.
For those that have followed us, you know, that's an uptick.
We kind of said low to mid-teens for the past few quarters so, as I said, we're seeing a nice overall bump there as we see our display integrated products take a more prominent role with the China OEMs.
So haptics is linked with Force, and I think any implementation you see on Force, will for the most part we'll have some sort of haptic response.
That can range from a variety of things, from just auditory to the actual ---+ the physical vibration that you get in some solutions.
So we'll see a range of haptic implementation going forward.
Okay.
Well, again, thank you, everyone.
We had a good robust set of questions there.
Appreciate it everyone getting in on the call today, and we look forward to talking to you in a few months.
Thank you very much.
| 2015_SYNA |
2015 | DSW | DSW
#We have not provided specific guidance around the actual Q4 margin rates, but I think if you do the math implicit in the fourth quarter margin rates, is a total decline in the 400 basis point range.
We do think we have taken a fairly conservative approach to that.
We think that there may be some upside as we see the success of the events, but we will have more to come on that in our fourth quarter as we see the fourth-quarter results reported in March.
Sure, <UNK>.
Thank you.
The incentive comp benefit in the full year is approximately $16 million, of which just over $11 million of that benefited the third quarter.
The balance falls into the fourth quarter.
The other areas that we have looked at in terms of expense reductions includes open positions, holding on certain headcounts, looking at areas of variable expenses that we could control, that we can reduce easily and quickly.
We've also looked at flexing our storage expenses appropriately with the sales declines that we are seeing.
Those are the primary areas that comprise the balance of that $27 million.
And as I mentioned before, one of the areas that we are increasing in using some of that savings for is to reinvest in some marketing to ensure our messaging is resonating with our customers.
In terms of future guidance, I'm going to defer on that, as we are in the process preparing our plan, and we will have more information in terms of our outlook at a future date.
Okay.
So I think ---+ I think year over year is $8 million in Q3 and what, $6 million in Q4.
If you're asking how is it going so far, we don't comment on intra-quarter performance.
But if I misinterpreted your question, let me know, <UNK>.
Okay.
Thank you.
Well, we have learned a lot.
I think I have said before that when a customer is within driving distance of a 25,000 square foot store, but they're closer to a 10,000 square foot store, they end up gravitating to that 25,000 square foot store.
That was very instructive to us as we go forward, in terms of locating these small format stores.
So yes, there's definitely real estate learning.
Well, I think there is countervailing influences.
There is some spin-up, particularly right now, in terms of the competitiveness, and obviously the transparency of pricing, that causes us to need to be sharp and on our toes, and continuously assessing our value proposition compared to the relevant competitors.
We've already ---+ we have been doing that every quarter, but next year, we will put in place a tool that will allow us to do it dynamically, which is just going to give us much greater information with more frequency, so we can react more quickly.
But I think the things that worked in the other direction, are things like assortment planning.
Things like order routing optimization, and it is those kinds of systemic technologies that are going to help us offset whatever there might be, in terms of competitive pressure.
We don't think that we are in a shrinking margin situation.
We think that right now it is taking more compelling value to get the customer to get up off the couch and either go to her computer or go to the store and we are reacting to that situation that exists.
And hopefully we are reacting strongly and it will have the desired impact.
I don't think the current situation is necessarily indicative of longer-term trends, and we do have some things that will fight whatever that competitive impact is.
We are taking a look at it right now, and it will be part of our next year planning process.
It is possible, but we may need to tweak that, but we have not made that decision yet.
<UNK>, can I just tack on something.
When you think, <UNK>, about fourth quarter, we have said we're going to get more aggressive, and that is true, compared to last year.
But a different perspective on what we are going to do in fourth quarter is that we are going to use our promotion and marketing plan to take advantage of an opportunity that we've always had in the fourth quarter, and let me tell you what I mean.
Just like other retailers, as we move from October to November, and November to December, customer traffic increases.
However, unlike other retailers, our capture rate, our conversion rate tends to decline.
And if you actually look at our weekly sales, our October weekly sales are greater than November, and November is greater than December.
So it's an anomalous situation, that we should take advantage of.
That's why, when you go into our stores right now, you will see a much stronger set of collateral to support gift giving.
Not just accessories, but shoes, as well.
And so we're going to take advantage of that additional traffic that naturally comes into our stores, and we are going to convert more of those customers by virtue of our offers and by virtue of our holiday gift giving stance.
And so yes, we're ramping it up versus prior year, but I think what we are doing is taking advantage of an opportunity we have really had, and haven't taken full advantage of.
Hopefully that helps.
Yes.
It certainly does.
I think the advantage, or the opportunity that we have in Q4 is somewhat unique.
But, we are going to take the learnings that we get from this Q4 and apply to those other parts of the year where it makes sense to.
And so hopefully that helps you understand where we are in our thinking.
Okay thanks, <UNK>.
<UNK> what I would tell you is for the past two years I've been working with our leadership team to build our strategy.
So, frankly, very much aligned with what we have been communicating.
And our goal would be, when we have our Q4 earnings call, to give you some updates on some tweaks that we would likely make to our strategy but I don't see it as any material change from the work that we have already been doing.
Thanks, <UNK>.
Sure.
The CAD80 million investment is in long-term investment.
And the short-term investment shift to long-term during the quarter reflects a shift of our investment management to an external third-party, and the intention at the end of the quarter for those investments that were moved to a third-party to be held long-term.
Thanks very much, and thanks to all of you on the call for your interest and your attention today.
And I hope that you and your families all have a very happy Thanksgiving holiday, and I hope we all have a successful Black Friday weekend.
Thanks again.
| 2015_DSW |
2017 | IR | IR
#Please go to slide number 6. I'd like to begin with a summary of main points to take away from today's call
As <UNK> discussed, 2016 was a very strong year for Ingersoll-Rand and marked another year of continued top tier performance on free cash flow, organic revenue growth, operating margin improvement and earnings per share growth
While we recognize the fourth quarter contained more one-offs and noise than any of us would have liked and distorted our fourth quarter earnings report, fundamentally, it was still a strong quarter for the company relative to our core businesses
There shouldn't be any significant read through to our go-forward results
Free cash flow was more than $350 million in the quarter, bringing our 2016 free cash flow to $1.35 billion, which is up 37% versus 2015 or more than 120% of our adjusted net income
From a segment perspective, the combined Climate and Industrial segments' adjusted operating income results were solid and a bit better than our expectations for the quarter
Our bookings performance was very strong, with commercial and residential HVAC leading the way, with both at low teens growth
Residential revenues increased low teens
Operating margins also expanded in both businesses
We were pleased with our Industrial business performance which showed slow but steady adjusted margin improvement after hitting a low in the first quarter
We continued to take additional actions on operational excellence initiatives, increased commercial focus on aftermarket parts and service offerings, and took additional cost reduction activities to improve operating results going forward
EPS in the quarter was negatively impacted by discrete items in G&A, negative other operating income and taxes, as I'll discuss on the next slide
Please go to slide 7. We've provided a bridge from the fourth quarter guidance range we provided on our Q3 earnings call to our actual Q4 results
As I noted earlier, our segment operating performance was in line with our expectations, actually about $0.01 better
We incurred higher than expected corporate costs, primarily due to stock based and other incentive based compensation, given our strong cash flow performance and stock performance in 2016 and from increased information technology, infrastructure and security expenditures
These items combined for a negative impact of about $0.04. We expect our corporate G&A expenses to come back down to a more normalized run rate of about $60 million per quarter in 2017. We also incurred higher than expected non-operating cost as a result of foreign exchange losses related to the balance sheet, given the strengthening of the US dollar, which had a non-cash impact of $0.01. Lastly, we had a higher than expected mix of earnings from high tax jurisdictions which impacted us by about $0.03. While this was a significant negative in the fourth quarter, our adjusted tax rate for the year of 21.4% was on the low side of the 21% to 22% range we updated on our second quarter call
I feel good about the effective tax rate
And more importantly, we expect the rate to remain in the 21% to 22% range for 2017 as well
Please go to slide number 8. Top-line organic growth of 2% was solid, highlighted by our North America HVAC businesses
Operating margins and adjusted operating income plus depreciation and amortization were both down, primarily driven by Industrial segment margin declines and the higher than expected costs we previously discussed
Please go to slide 9. Organic orders were very strong in the fourth quarter, up 7%, led by our Climate segment and partially offset by modest declines in our Industrial segment
Climate bookings were up in every region in business globally and up 10% overall
Organic commercial HVAC bookings were up low teens in equipment, with strong results from both unitary and applied products
We also continued to drive excellent growth in service, controls and contracting with low teens growth in the quarter
Residential bookings continued to be exceptional, up low teens
Organic transport orders were up mid single digits, primarily driven by growth in Europe, partially offset by declines in marine equipment and auxiliary power units
We also had mid single digit increase in North America trailer orders in the fourth quarter
On balance, the Industrial businesses bookings were flat to down slightly in the quarter, reflecting some stabilization in end markets
Please go to slide number 10. This slide provides a directional view of our segment revenue performance by region
In our Climate segment, revenue was strong in North America, flat in Asia and down in Europe, Middle East and Africa and Latin America
In our Industrial segment, overall performance was down low single digits, primarily due to difficult comparisons with 2015 on large air compressor shipments in North America and Europe, Middle East and Africa
Revenues improved in Latin America and Asia
Overall, North America revenues were up mid single digits and international revenues were down mid single digits, netting a positive 2% organic revenue growth rate for the enterprise
Please go to slide number 11. Q4 operating margin declined 50 basis points, primarily due to headwinds resulting from material inflation in steel and higher corporate costs in the quarter
On a year over year basis, lower Industrial margins also contributed to the decline
Volume and mix was positive in the quarter
Please go to slide number 12. Overall Climate performance was strong in the quarter with organic revenues up 4% and adjusted operating margins up 70 basis points to 13.6%
Strong revenue growth in both commercial and residential HVAC was partially offset by transport revenues, which were down mid single digits in the quarter, primarily due to weak auxiliary power unit and marine markets partially offset by growth in aftermarket and in Asia
Climate operating margins expanded 70 basis points year over year
Favorable volume, mix and productivity was partially offset by material inflation headwinds and continued investments in the business
Please go to slide 13. Fourth quarter industrial margins declined by 220 basis points compared with 2015, while organic revenues declined 3%
Revenues were down mid single digits in compressors with growth in aftermarket
Other industrial products were down by high single digits with material handling showing the largest decline, more than 50%, owing to its significant oil and gas exposure
Small electric vehicles were up slightly in the quarter from growth in golf
Industrial's operating margin of 10.5% was down 220 basis points versus the prior year, but in line or slightly ahead of our expectations for the quarter
Looking forward, we expect margins to improve in 2017, given ongoing margin improvement actions, although we do expect some quarterly variability due to cyclicality
Please go to slide 14. Excellent full year 2016 free cash flow of $1.3 billion improved 37% versus the prior year and was over 120% of net income
Strong operating income and working capital improvement were the primary drivers of the improvement
For the quarter, working capital as a percentage of revenue was 3.4% versus our 2016 goal of 4% and improved 80 basis points versus 2015. We have a proud history returning cash to shareholders
Since 2011, our free cash flow as a percentage of net income has averaged 100%
Over the same timeframe, we've returned more than $6.5 billion in cash to shareholders through dividends of $1.5 billion and share buybacks of $5.1 billion
Please go to slide 15. Our strong cash performance in 2016 will enable us to, one, invest in our business as our number one priority
These include investments in innovation and in strategic growth programs as <UNK> outlined earlier
In addition to the core strategic investments, we're also investing in long-term growth through innovative and differentiated products in areas such as wireless, controls for buildings as a resource, intelligent monitoring and self-healing systems, just to name a few
Two, we've paid an annual dividend for 106 years and have consistently raised this dividend over time
Over the past five years, we've raised our annual dividend at a 20% compound annual growth rate
In 2016, we raised our annualized dividend from $1.16 to $1.60 per share or nearly 40%
Three, we also spent $250 million repurchasing sweeping shares sufficient to offset dilution
Four, additionally in 2016, we continued to develop and vet a pipeline of potential acquisition targets
And five, lastly in 2016, we strengthened our balance sheet, which provides stability and optionality as our markets evolve
We also maintain a BBB credit rating, which at this time we believe is appropriate for the company
We will continue to create long-term value for our shareholders through a dynamic capital allocation strategy as we have consistently done for years
And with that, I will turn it back to <UNK> to discuss our market outlook as we begin our guidance conversation
Thanks, <UNK>
Please go to slide 18. Moving on to our guidance, we expect total organic revenues to be up approximately 3% in 2017. We expect the Climate segment to continue to show good growth of approximately 4% organic
For the Industrial segment, we expect the markets overall to be pretty flat, but for our organic revenues to be down slightly given the high volume of large compressors we shipped out of backlog in 2016, which will make for tougher compares in 2017. The difference between our organic and reported revenue contemplates about 1 percentage point of negative foreign exchange from a strengthening US dollar outlook
For the enterprise, we expect adjusted operating margins of between 12.2% and 12.6%
We expect adjusted operating margins for the Climate segment to be in the range of 14.5% to 15%, and in the range of 11% to 12% for the Industrial segment
Please go to slide 19. We expect continuing adjusted earnings per share for 2017 to be in the range of $4.30 to $4.50 excluding about $0.15 of restructuring
The company also provides the following guidance
Share count is expected to be approximately 262 million shares
Target free cash flow is 100% of net income
The tax rate is expected to be between 21% and 22%
Corporate, general and administrative expenses are expected to be approximately $240 million and capital expenditures are expected to be approximately $250 million
Please go to slide 20. Relative to the company's plans for capital allocation investing, in the business is our highest priority, so we continue to make investments in innovation and growth in things like wireless and digital and connected capabilities, productivity, sustainability and in our employees just to name a few areas
Paying a highly competitive dividend is also a key priority for us and based on our most recent dividend raise last October to $1.60 per share, we expect to spend approximately $420 million on dividends in 2017. In 2017, we're also targeting spending approximately $1.5 billion between a combination of share buybacks and acquisitions
Maintaining a strong balance sheet also remains a priority and provides us optionality as our markets continue to evolve
Let's go to slide 21. And now, I'd like to turn the call back over to <UNK> to discuss a few of the key topics we know are on the minds of investors as we enter 2017.
Good morning
Shannon, that's a great question for us
Free cash flow was really strong in 2016 because we really focused on all of the basic fundamentals
What we wanted was we wanted our operating income to flow through to cash flow
So, we were very focused on making sure that on the accounts receivable side that our terms for our customers were balanced with our terms for our suppliers
We went after disputes
We went and talked to our customers that had past-dues
We worked with the supply base on accounts payable terms, and we also did a lot of work on our inventory processes as part of the business operating system
So we really, really focused on getting the operating income to drop through, getting the working capital to a level that was not only good, but also sustainable
And then our spending on other items, we didn't limit anything on CapEx, to your point
We didn't do anything like that
We asked for good investments as a part of the business
So, we actually used free cash flow in a very good way in 2016 and we had a very good result
And I think another point to give you on – not only was free cash flow excellent based on the performance of each of our businesses and the corporate folks, but it was also pretty evenly measured throughout 2016 as opposed to being a very lumpy free cash flow
So, I think everything came together for that in 2016.
No
There was really nothing that was unusual about the 2016 performance, <UNK>
What I did as I looked at 2017 is I did a couple of things
One, on working capital, I was really allowing working capital to go back up to around the 4% level, and I'll tell you why
As our markets are a little bit lumpy, choppy, some of them recovering, I want to make sure that our businesses have the option to have inventory on hand so that not only can we meet customer requirements, but that we can meet on-time delivery requirements
So, I'm giving us room for a little more working capital and really I'm primarily talking about inventory in terms of 2017. The other part of that is our capital expenditures are actually going up a bit year over year
I gave you a guide of $250 million
And really the majority of the increase in the CapEx year over year is really in our factories, in productivity producing projects and things like primarily precision machining and in the factory
So, I gave a little room for all of that and that really takes it down to the $1.1 billion to $1.2 billion level
Sure, <UNK>, let me start out and give you some basic parameters around this
So we knew going into Q4 that we were going to be in an inflationary environment for steel
Pricing did not offset the inflation in the fourth quarter, so we were down 40 basis points as you saw on the slides and heard from our commentary
As we look at 2017, we've got that currently pegged at price over material inflation at about 10 basis points
Really working towards trying to get back to our norm of 20 to 30 basis points
But let me talk a little about what's happening in 2017. So if you think about what drives the material inflation, it's really all around steel, the nonferrous, so the copper and the aluminum
First of all, we're locked about 68% on copper going into 2017, but those should be relatively flat, so neither inflationary or deflationary as we see it right now
Steel has two components to it, one of which is just the raw commodity that's there
And then an even bigger part of that is actually the Tier 2 materials that contain steel that become inflationary
And one of the questions that I ask our group and wanted to pass on as we think about that is, my question was can we just really negotiate with the supply base
And part of this is really on how we've done contracts and written in escalation clauses
So long story short, steel and components that contains steel are going to be inflationary in 2017. And like I say, we'll continue to work price as we go throughout the organization
Now, when you think about price and you think about different areas, we've been successful at getting price in both of our segments in 2016. And I think we'll get price in both segments in 2017. Asia is going to be tough
That one's an interesting market
Some of the others, again price is not for us just a catalog and a price on a particular item
We're baking price into every engineered to order type of project as we go along
So again, pricing is going to be a work in progress
I think there is going to be a little pressure on that as we go into 2017, but inflation comes from steel
And I would add just a little bit to that, <UNK>, in terms of if you look at the full year of 2016, we started out the year, and we obviously talk pretty regularly to all of the teams around the company
And we really said, don't let our costs get out ahead of what the revenue profile is
So if you looked at corporate costs for really the first three quarters of 2016, you would see that our run rate was actually under what would be typical for a $240 million year
That doesn't mean that because you're under, you should go out and do some things
But it also adds to part of the thinking, when you get to an area where you have some items that you need to spend money on, you go forward and say for the year, our costs, whether it's in IT, whether it's in legal, HR, finance, whatever part of our functional spending are actually flat from 2015 to 2016 and actually will be flat into 2017. So, there's also a little bit of a timing element that is a part of that too
Doesn't explain the difference in the guidance, but I also wanted to give you some context of what we were thinking as we went into the fourth quarter
No, <UNK>
I think the comment that we were actually making, and perhaps we didn't make it as well as we thought, was that what we didn't want anyone to do was to take and draw a straight line on margin improvement each and every quarter in the industrial business
We were saying that it could be a little bit lumpy from quarter to quarter, and would follow its typical pattern
So we just didn't want anybody to get concerned if there was some variation there
So, it was a pretty simple comment that might have been confusing
And I think, <UNK>, from you asked the question on SEER
So as we went through 2016, the 14, the 13 and 14 SEER kind of combined for roughly about 50% of our revenues, and then the 15 SEER and greater was a smaller percent
So really, what you saw was the 13 SEER go into the 14 SEER product and the 15 SEER and above sort of stay the same
Cash flow
| 2017_IR |
2016 | OLN | OLN
#I don't know that we can speak for the industry.
I would tell you our operating rate profile because of the seasonal aspects around chlorine and bleach will grow ---+ will be higher in April, higher in May, higher in June.
This is <UNK>.
We do have exports.
We have a good portfolio of export business that we will move in and out of over time depending on the market conditions.
We really don't give out a percentage.
It's in the 8% to 10% of our third-party sales.
This is <UNK> again.
As far as the overall market goes there was some an initial tightening immediate on-the-spot market from the explosion and so forth but we're still waiting to see exactly how that plant is going to run over time and whether it's a longer-term impact.
I think we're still in the wait and see mode there.
I don't think we sell any caustic sodas at DuPont anymore.
It's a very small amount.
Most of the caustic consumption products that were part of historically part of DuPont were part ---+ are now part of Chemours.
Not near as much as with the Chemours business when that company was created.
No, Sir.
To put it in perspective HCl pricing whether you're talking about fourth quarter or first quarter or second quarter is significantly lower than has been historically.
So that's important to note because we're talking about numbers significantly different than what we saw a year ago when HCl pricing peaked.
For the first quarter HCl pricing was impacted by the continued delayed startup of a couple of new plants that were bringing HCl burners online and were supposed to start up the end of the year.
Those startups have been delayed.
So that additional capacity did not come to market.
The other side of what occurred in January was that the part of capacity that is ---+ comes from other producers that's by-product HCl, that volume was off in January as well.
It's not changed materially, no.
It's being driven by the market and by what's happening in the oil and gas patch and to some extent some other in markets that are just weak now.
<UNK> the capacity that Olin had was about 10% of it's ECUs or 200,000 tons.
The Dow acquisition did not add any capacity.
So what we're selling is essentially unchanged other than the weaker markets so there is less demand.
Herb this is <UNK>.
The foreign currency exchange in our results the amount was immaterial and it was very small in the first quarter.
The stock-based compensation number is now closer to $300,000 to $400,000 as opposed to the old $700,000 number.
Yes it is because of the payout last ---+ at the end of last year for deferred compensation.
We didn't talk about how much our chlorine price was up specifically.
We just said it was up and we said the index was up.
Give us two seconds we can tell you ---+
The index is up in April, $20 a ton.
Demand really hasn't changed.
What is changing is supply.
Companies like Olin have the capability to use chlorine to either make HCl or use chlorine and sell it is chlorine.
So with some improvement in pricing and improvement in demand on the chlorine side a producer like Olin with capability will actually reduce HCl production, use the chlorine where it generates more value and tighten up the supply side of the HCl market at the same time.
Not all producers are created equally in terms of their capability to do that.
Some are and some I would guess our maybe looking at it the same way that we look at it.
But it's really supply side.
We have not seen any real ---+ any real return of demand.
This is <UNK> <UNK>.
There's three major initiatives that we been embarking on.
The first one has been around, improving our productivity and our cost structure.
The second area around just better utilizing our upstream and midstream capacity.
So running our plants harder and lowering those unit costs.
And thirdly, which is a little bit more difficult is to move more downstream and to really change the mix of more differentiated type of offerings.
Those are the three key areas that we continued focus on and we will continue to drive improvement in Epoxy.
No, we've been showing continued improvement here.
As we mentioned earlier from Q4 to Q1.
We've got to maintenance turnarounds in Q2.
Q2 will be just a bit better.
When you take out the maintenance.
So we see just ongoing continued improvement in Epoxy.
The biggest thing we buy is electricity.
With the Dow acquisition, the majority ---+ the larger part of that electricity is now based on natural gas.
We've obviously seen benefits from that.
We saw gas hit some pretty low levels in Q1.
I would also say that the lower level of natural gas prices has actually caused the electricity purchased by the heritage Olin business to go down in sympathy.
I would say from a materials standpoint that's the biggest single thing.
And that has been a positive and we called that out.
No.
Propylene, benzene those are formula-based contracts and there's really no material effect in the way we manage that upstream part of our business.
No.
<UNK> we really wouldn't comment on that.
I think overall the volume is really being driven throughout the whole Epoxy value chain whether be the upstream or the midstream LER we just continue to be aggressive and running our plants harder and taking share with our low-cost position.
Yes.
Most of the area where we saw pricing attrition was in the midstream in the liquid epoxy resins and to a little extent solid epoxy resins.
All of that pressure was coming from Asian imports and we were being competitive and making sure that we keep running our plants hard.
I really can't comment on the downstream movement on epoxy prices.
That's literally hundreds or thousands of products there and it's a very broad mix.
I really can't ---+ I don't have a good answer for that.
We have seen in the Olin system a tightening of our availability to where we've had to turn away customers a couple of times.
We've also seen a couple of instances where imported product was available to certain people historically that recently haven't been as available.
We think both of those facts are sustainable over the longer-term.
I think the Europe thing should not be underestimated in terms of its potential impact on the North American market and on the global market because there's a million tons that's potentially not there.
The other thing I would point to the comment that we made about exports going ---+ exports for alumina that have gone from zero in 2008 to 360,000 tons in 2015 and we have evidence that suggests that that's growing further in 2016.
That is I think the best evidence we have to suggest the supply demand balance we discussed around China is changing.
This is <UNK>.
The spot in contract, there will always be some kind of relationship there.
But as you know spot prices are going to go with the demand and the exports and that's what's taking place right now so there will be relationship there.
I can't comment on exactly what that is going to look like over a long period of time.
We have not noticed any material differences as a result of the somewhat small improvement in oil prices.
Yes.
This is <UNK>.
Domestically here in the U.S. it's not really a robust market.
We might see 1% to 2% growth this year.
In Europe I would say it's more optimistic.
In Europe we see in the neighborhood of 3.5% to 4.5% type growth rates over there.
It's a bigger epoxy market in Europe as well.
That's right.
I think you're looking at industrial production as probably as good a proxy as any.
Industrial production has been fairly anemic year domestically.
I think what you've seen over a long period of time is a shrinking of the amount of merchant chlorine that is available in the market as producers like Olin, <UNK> <UNK> talked about HCl going back and forth.
Olin continues to expand bleach.
Bleach is continuing to grow as a product.
And I think what you're seeing is both constrained supply and then seasonal pickup in demand and you can get price increases.
I think the same thing applies.
Thank you for joining us today and we look forward to talking to you at the end of the second quarter.
| 2016_OLN |
2018 | MAT | MAT
#Thank you, Margo.
I'm very excited about the opportunity to lead Mattel as its new CEO and deliver on our strategic plan as we return the company to its leadership position as a high-performing toy company.
We have a lot of work to do to reach our objectives.
But I'm very confident that we have the right plan and the right team in place.
And as you will hear today, we are already making strong progress against our strategic pillars.
My immediate focus includes the following priorities: Implementing our Structural Simplification to restore profitability; stabilizing revenue; reinvigorating our concept to drive creativity, which I believe is essential to our success; and strengthening our collaboration with our partners.
Long term, I'm committed to better leveraging our intellectual property to unlock the full potential of this great company.
I look forward to working with the talented team here to deliver on our transformation plan and maximize long-term value.
And I look forward to speaking and meeting with all of you, our analysts and investors, as we continue to provide updates and discuss our opportunities ahead.
I want to thank Margo for her leadership, her hard work and her many important contributions.
It has been a pleasure working alongside her at Mattel during my time with her in this company.
I'm happy to take your questions at the end of the call.
And now I'll turn over to <UNK> to take over from here
Thank you, <UNK>.
I\
Thank you, <UNK>, and good afternoon, everyone.
Let me start by thanking Margo for being a great partner.
She has had a tremendous impact on the organization over the past year and I wish her all the best in her new endeavor.
I look forward to partnering with <UNK> and believe we are in great hands with him at the helm.
I have no doubt that his insights and expertise will be invaluable as we progress our strategy and operationalize our plan forward.
So with that, let\
So Tim, I'll take the first part of the question.
It's <UNK> here.
On the Barbie and Hot Wheels front, we are very proud of the performance for the quarter.
But as you know, these brands in our portfolio has been in deep work in the context of getting POS and shipment aligned and ultimately, driving the 360-degree play systems that these brands are now getting traction with.
But I think we are seeing the beginning results of what we believe is great momentum and Barbie of course having a really terrific quarter, Hot Wheels right behind it.
We are excited with the programs that we have to maintain these numbers and we expect to have continued great narration in the future.
This is Joe.
In regards to the second part of your question, I think everybody is pointing towards midyear maybe in the summer.
But it's ---+ there's so many moving pieces with the T<UNK>U liquidation.
I mean you got everything going on in Asia.
You got what just happened with Smith's, you've got the Canadian deals.
So it's really hard to predict.
Yes, without a doubt.
I mean, remember in December we went out and sort of restructured our capital structure by putting on the $1 billion and then putting the $1.6 billion ABL in place.
So we feel good about that.
We haven't had to draw on the ABL to date.
We are focused on the Structural Simplification program that helps take the cost out of the company.
So yes, we know we have the maturity coming up in May of 2019.
We feel we have the access to the markets.
We feel we are pretty well-positioned.
Thank you.
Thank you.
Well, nice to meet you.
I actually do have toy experience from my work at Fox Kids that I launched and ran and took public.
But I bring to this more than 20 years of relevant experience, including having served as Chairman and CEO of three companies.
I successfully delivered transformation to create significant value to shareholders.
And more than anything, I focus ---+ I have deep experience in focusing on operations and execution of turnaround plans.
So I feel pretty good about where I sit.
Very good.
I mean, we are feeling very good about our positioning and working with our customers.
So we are ---+ I mean, we feel like we are getting our mojo back, quite frankly.
I mean the team really executed well in the first quarter and we continue to maintain ---+ we did a great job at year end, bringing down those inventories to a very, very tight level.
We continue to monitor that.
And we clearly want on a going forward basis to have demand before we have supply.
Yes, we can.
I think those are sort of apples and oranges sort of positioning.
We haven't really given those numbers.
But remember that the delta probably what you're looking for is probably 2%, give or take.
It's probably.
.
Yes, we can ---+ we haven't disclosed that information.
But we can take a look at that for you.
I understand what you're trying to do, the Easter impact to how big it was.
I think, we have pretty good momentum.
But I don't have that number for you.
<UNK>, Easter was about two weeks earlier this year, which provided may be mid-single POS digit increases in the quarter.
But it's really important to understand that Easter actually didn't drive the quarter.
Barbie and Hot Wheels truly drove the quarter.
Yes.
Yes, I\
Obviously, Toys "<UNK>" Us was ---+ is a big impact to us.
Just to size it for you, so if you want sort of the book ends, we did say at Toy Fair, before we knew the liquidation and stuff, that we thought we would be flat on a top line basis.
And that was assuming they just announced some store closures.
So that was about 25%.
And if you go back to our 10-K at the end of \
Yes.
Look, I'm very excited to be here.
The big picture opportunity is to transform Mattel to an IT driven high-performing toy company, that is more efficient, more profitable and has a higher growth trajectory.
We have very strong assets, including some of the world's best and greatest toy brands.
We have a very good team and we have a strong strategy that I feel very good about.
So our focus now is to deliver on our transformation plan and maximize value for the company and our shareholders.
This is not going to be easy.
There's no denying that we faced significant challenges over the last few years and there are still headwinds in certain key areas of our business.
But I feel confident about where we sit and what we have to do to take it on.
Sure.
We are incredibly proud of the Barbie brand performance globally and across all accounts.
We\
No.
There's no association with any impact that I could speak of that would affect it.
No, well, it's all about our POS.
And our POS has been literally double digits around the world.
Our inventory was down approximately 20%.
And now our stocks are in line with our POS.
And so we feel very strong about the quality of inventory that we have.
The momentum on the top line is driving of course the shipments.
And we feel we are completely in line with where the brand is headed and our inventory models are in line as well.
Shipping and POS has been ---+ never been better in the context of the Barbie brand.
Yes.
I mean, look, we just finished the recapitalization with the $1 billion in the ABL.
We've got 12 months out to do something.
The markets are open to us.
My belief is we had a pretty good ---+ we had a great quarter here and we are working on the next one.
So we have some runway room to come up with the answer to that question.
Sure, <UNK>.
So Hot Wheels also had a great quarter on top of what was a really solid year last year, which was as you know, a big vehicle category driven year.
We\
So I think a couple of things.
One is we have a new guy running Europe, who was just really starting to gain some momentum.
We reorganized the Asia Pac region under Peter, who is just doing fantastic and bringing all those properties to bear.
So I think really what you'll start seeing is with some of the people movement we had and the brands that are doing so well, we are just starting to gain some momentum back and move forward.
<UNK>, what do you think.
Yes, I would just add to that.
Our focus on consistent execution of our Power Brands around the world is paying off.
A lot of time and energy has been spent reengineering the line architecture, driving new media and marketing for momentum.
And as you know, we've been spending a lot of time developing those retail relationships.
And I think you're just starting to see the beginnings of what is traction on those brands.
We are continuing to develop our partnerships with people like Alibaba, Fosun, Babytree and they're continuing to enable us to differentiate in the China market.
The partnerships are growing and advancing.
We will continue to update you as they have more updates to share.
But we are really pleased with all of the progress that we are making and we are on track with our performance and our expectations of where these partnerships will go as well as working on rollouts.
In particular with some of these partnerships around Asia and around the rest of the world.
Yes, I think in regards to that, it's sort of an ongoing process.
But remember, a lot of the SKU reduction isn't really sort of an elimination of the brand but might be different things within the brand.
So ---+ but we've made great progress on it, it's something that each of the brands are very, very focused on and managing that tightly.
And it makes ---+ and we continue to work on it.
So it's something that will be ---+ has provided some benefit to date and will provide added benefit in the future.
Yes, we won't share the specificity on what the expectations are for that total.
But I can tell you, early reads are incredibly exciting.
The merchandise that has hit has been flying off the shelves.
Around the world, we have incredible excitement, not only for the product itself but obviously for the movie that comes out in June.
And it is strategically part of our Toy Box narrative that will ultimately make up some of the volume from Cars.
That being said, it's important to note.
Cars is performing really well.
We're having a great partnership with Disney.
We've been working very closely to continue that momentum.
We believe it's an evergreen property.
And so we've been really pleased with the performance and we continue to work very closely with them to ensure that we have a good year in Cars.
And we are working, as Joe was talking about the Toy Box, amazing partners.
And with the depth that we have and experience that we have on great innovative items, concentrating on innovation and creativity, not necessarily SKU count.
We are trying to get the best product that we can out there in the marketplace.
I'll start and Joe can add.
I mean, when you step back, we continue to take a lot of pride in the American Girl franchise.
And it's not necessarily a silver bullet answer.
We're overhauling the entire omnichannel experience, which includes evaluating bricks and mortar, ensuring also that we get the best product and price value equation right.
Customer relationships, whether they're online or in-store, is paramount for us to get exceptionally better at.
Data management, C<UNK>M is a really important part of the future, proof of that brand particularly as it started out as a direct brand, origins of that brand was as a catalog, delivering more effective direct marketing and loyalty programs to build attachment.
All of these things are really important ingredients that make up what is American Girl.
We take a lot of pride in that in-store experience and making sure that the relationships our consumers have when they get there is incredibly robust and exciting.
But ultimately, there's a lot of work to do on American Girl.
And as we've mentioned, it's in all these different parts.
Yes, I think the reality is we're kicking off this turnaround process now in these four key areas that we talked about.
So the idea would be once we start getting into '19, we start making that progress, we start flattening things out and then ultimately get back to growth.
We have a lot of repositioning to do, as <UNK> said.
But there's no doubt that focusing on the direct, focusing on the experiential store experience are all key parts to making American Girl successful.
I think any of us who are dads, who may be have gone through the experience at American Girl is memories we keep forever with our daughters.
So we will get back to that.
| 2018_MAT |
2017 | CME | CME
#Thanks, <UNK>
I want to thank you all for joining us this morning
We appreciate your interest in CME Group
We made great progress during Q3 broad-based volume growth coupled with expense discipline drove double-digit net adjusted EPS growth
We also have several new initiatives in the works
We know many of you are incredibly busy during the earnings season and also often are juggling multiple calls
We are coming up on our 15th anniversary of becoming a public company and we decided to assess our earnings delivery process
We decided to create a quarterly highlight document that we made available 90 minutes ago with the press release
This will replace the normal scripted remarks
Hopefully you had a chance to look at it
One of the notable financial metrics I would like to mention is when comparing year-to-date this year versus 2014, our revenue was up $473 million, our total expenses remained flat, and non-operating income is up $80 million
These results reflect a lot of hard work across the whole company as we focus on acquiring new global customers and being efficient
We intend to continue with this mindset
With that we would like to open up the call for your questions
Given the number of analysts who cover us, we ask that you start off with one question, so we can get to everyone
If you have another question feel free to jump back into the queue
Thank you and we look forward to your questions
Question-and-Answer Session
So I'll take the latter part of that question first, Dan, and when you look at what we've done over the last year especially taken down our investment in Europe getting out of the credit market ---+ credit business and getting out of the investment we had in Brazil just to name a few
I think that we're pretty much just where we need to be right now by taking down those investments
I'm a big believer and they don't work after while you eventually have to call the question and it wasn't where Europe wasn't completely working, it’s just we built the liquidity here in U.S
here and Chicago round the clock which made it much more efficient for the company to run
So that's really the reasons behind that
And the other investments especially Brazil, I'm a big believer if shareholders want us to invest their money, they can do it themselves, they don't need us to do it for them and as it relates to credit that was just a losing proposition for us and eventually needed to call the question
So those are a couple of the main ones that I think you're referring to and I think that's pretty much where we want to be right now
We're analyzing some smaller incentive plans things of that nature but nothing that would move the radar
As far as other M&A activity, <UNK>, I would like you to comment on
<UNK>?
<UNK> one of the things I will say it's Terry <UNK> is when you have a mandatory law such as Dodd-Frank that implements on the certain particular day people care for that
When you have what’s under the uncleared margin rules as it relates to FX it's economics that dictates the behavior of the participant, when the economics come under actually almost much more powerful than a mandatory date
So without us trying to give any timeline of when we think that’s going to have an uptick one way or another I think that you have to look at the differences and economics around these particular rules always seem to live up
Mike, I'll take ---+ I will make comment on that
I had the opportunity to meet several times the treasury along with Kim <UNK> and other people in the organization and got a chance to go through the report and got a good summary as if you've seen the report it's rather lengthy but there is a couple of things in that that I will point out that the supplemental leverage ratio that the stance of the treasury is taking in that report is very positive, we think that they're spot on with the way of looking at that
As it relates to some of the other things in the report, I think for the most part it doesn't have any adverse impact on CME Group or the businesses that we run but from that standpoint we're going to ---+ we're fine with the report
So the one thing that is in there again even though it’s that supplemental leverage ratio and Kim if you want to comment any further on that report but we ---+
Right
So that's kind of how we look at that report, Mike
So <UNK> why don't you go ahead and start off the data?
So <UNK> you want to deal with the clearing revenue question he was talking about?
Ken does that give you some color on your questions
Thanks, Ken
So Patrick we’re going to have <UNK> comment a little bit about the growth and then <UNK> talk about the products
So <UNK>?
Rich, the only thing I will say and I'll kind of follow-up with <UNK> said earlier and that is we’re going to look and continue to look and because we put ourselves in a position to analyze so many different transactions of what's going to add value to the client, I said a year ago when I took over as CEO my major focus was building the end user clients and that's what we’re continuing to do
So we freed up a lot of capital, we’re continuing to do new client acquisition and if there is a potential transaction that makes sense that will add to the bottom-line for our clients, I truly believe that's the formula that we will in return to deliver value for our shareholders
So that’s the path that I’m going down and as far as the regulation goes and who regulates that particular product that we go after it, we will take that under consideration but I will not shy away from something that I think will deliver value from the company just because of who regulates it
Well we want to thank you as I said at the outset for your participation in CME and your interest and we hope you have a good day and thank you very much
| 2017_CME |
2015 | KMX | KMX
#That's a good question and I have the same answer as before.
We're keeping a close eye on it and we'll decide if that's something we need to go after.
As of this moment we're not heading down the peer-to-peer path.
If you really think about the way CarMax works, the fact that we make a cash offer on every car, is enabling a lot of peer-to-peer transactions and some of those are coming through us that would have otherwise gone peer to peer.
A customer who normally would have put their car online before or put up in their yard and put a for sale sign on it, now a lot of those customers are bringing their cars directly to us and selling it to us.
I may not be exactly the way you're thinking of it but I think we're getting plenty of customers who would have gone through the peer-to-peer channel and are deciding to sell their car directly to CarMax.
We're evaluating all different options and we're open to any way that makes our business better and delivers a better return for our shareholders.
On the first question, that number's been around 30% for quite a long time now.
But that's a big number.
We sold 600,000 cars last year which means we transferred roughly 200,000 cars at the customer's request to the store nearest them and then sold the car.
We're transferring as many cars or more than anybody else at the customer's request.
When they see a great presentation of that car through our website, with 40 high-definition pictures and zoom capability, I think we'll continue to make progress there.
But the number's been relatively flat.
But again, it's a very big number.
In terms of our regional differences, we never comment on regional differences.
The only thing I'd tell you is I continue to be very proud of our CarMax team.
Whenever we have a disaster in any area that involves large-scale loss of product, we're able to be there for the consumer when they are ready to buy something else.
And we also are a place where people can get rid of their cars.
If a car has flood damage or hail damage, we still make an offer on the car and we turn around and wholesale that car.
We won't retail one of those cars but we still are there for the consumer when they need us in markets that have some trouble.
But I can't really comment on any differences in performance.
Okay.
Being there's no further questions, I want to thank everybody for your interest in CarMax and for joining us on the call today.
And I especially want to thank our over 22,000 CarMax associates nationwide for all you do every day to make CarMax such a success.
And we'll talk to you guys next quarter.
Thank you.
| 2015_KMX |
2016 | AAN | AAN
#Thank you very much, <UNK>.
I'll certainly miss you, but don't think I will miss you.
I think we'll be in contact in the future.
Gil's going to be here throughout the year, so definitely stay involved with all of the critical aspects of the business that he's been so critical to in the past.
So we are very fortunate to have him to help us transition.
Is that all the questions.
Thank you very much.
Yes.
We're going to certainly maintain a focus on cost and managing the business for EBITDA.
And as the year progresses, we'll be able to make adjustments in those regards.
We are going to continue to invest though, to be clear, in key areas; so around e-comm, for example, we're going to continue to invest capital to build that platform because we think it is one of the keys to getting our comps back to positive.
And we hope, as we said in our guidance, that we trend back to a positive comp.
Our franchisees have done that and we hope to follow their lead on that.
So there are cost opportunities.
There always are.
We've done a good job in 2015 of managing costs better than we've ever done.
And in 2016, we're going to maintain that discipline, but that doesn't mean we're not going to make some investments, because we do think our prospects going forward are good.
And as Steve said, the core side of our business is exciting when you layer the e-comm platform on top of our stores, on top of our distribution, on top of our great people.
And so we feel like that's a really viable model.
So, I want to be clear that we're going to keep our eyes on costs, be very cost conscious, but also looking forward and investing in the future.
Sure thing, <UNK>.
Ryan here.
So the impact in Q4, it was a little ---+ it was the net effect of the impact of the acquisition accounting.
It kind of mucks with things a little bit.
So the revenue impact in Q4 was just a few million, a couple million, and about breakeven on EBITDA for that stub period.
Just not material.
And again, primarily driven by the acquisition accounting.
I think the revenue is just a shade under $3 million.
As Ryan said, it's a couple million.
We look at that a lot and we see the same macro data that a lot of you folks see.
And the reality, from our perspective, is we see our numbers and it still feels like it's choppy for our customer out there.
We don't see any big change in Q4 versus the rest of the year, but it still feels like there's some headwinds for our customer.
We've not seen any tail winds from lower gas prices.
You would think over time that would help us, but we can't say that in our data we've seen that.
So I would say it's the same from what we've been seeing and we certainly hope it gets better, but it's challenging overall.
That's it for this call.
We look forward to talking to you on our next quarterly update.
Thank you.
| 2016_AAN |
2016 | TILE | TILE
#Thank you, operator.
Good morning and welcome to Interface's conference call regarding second quarter 2016 results.
Joining us from the Company are <UNK> <UNK>, Chairman and Chief Executive Officer, <UNK> <UNK>, President and Chief Operating Officer, and <UNK> <UNK>, Senior Vice President and Chief Financial Officer.
<UNK> and <UNK> will review highlights from the quarter, as well as Interface's business outlook.
<UNK> will then review the Company's key performance metrics and financial results.
We will then open the call for Q&A.
A copy of the earnings release can be downloaded off the Investor Relations section of Interface's website.
An archived version of this conference call will also be available through that website.
Before we begin the formal remarks, please note that during today's conference call, management's comments regarding Interface's business, which are not historical information, are forward-looking statements.
Forward-looking statements involve a number of risks and uncertainties that could cause actual results to differ materially from any such statements, including risks and uncertainties associated with the economic conditions in the commercial interiors industry, as well as the risks and uncertainties discussed under the heading Risk Factors in Item 1A of the Company's Annual Report on Form 10-K for the fiscal year ended January 3, 2016, which has been filed with the Securities and Exchange Commission.
We direct all listeners to that document.
Any such forward-looking statements are made pursuant to the Private Securities Litigation Reform Act of 1995.
The Company assumes no responsibility to update or revise forward-looking statements made during this call and cautions listeners not to place undue reliance on any such forward-looking statements.
Management's remarks during this call refer to certain non-GAAP measures.
A reconciliation of these non-GAAP measures to the most comparable GAAP measures is contained in the Company's earnings release and Form 8-K filed with the SEC yesterday.
These documents can be found on the Investor Relations portion of the Company's website, www.interfaceglobal.com.
Lastly, please note that this call is being recorded and broadcasted for Interface.
It contains copyrighted material and may not be rerecorded or rebroadcasted without Interface's express permission.
Your participation on the call confirms your consent to the Company's taping and broadcasting of it.
Now, I'd like to turn the call over to <UNK> <UNK>.
Please go ahead, <UNK>.
Good morning, everyone.
I'll start at the top line where our sales of $248 million were very solid, especially considering the sluggish start to the year with first quarter orders of only $222 million.
This [order] of sales fill rate is the best we've have experienced in a decade.
Like the past year and a half, the best story of the second quarter was our improvement in gross margins, up 150 basis points to an all-time quarterly record of 39.9%.
This is simply outstanding performance and I could not be happier with our progress here.
SG&A expenses were down slightly year-over-year, and we've cut spending in each division across the Company.
But the revenue shortfall is causing SG&A as a percentage of sales to remain elevated above our target level of 26%.
Nevertheless, our improvement at the gross margin line made up for a lot of our lost ground and pushed out operating margins to 12.8%, up from 12.6% in the prior-year period.
At the bottom line, the result of earnings per share of $0.32, which represents our second best quarterly earnings ever compared with the record $0.33 in the second quarter of last year.
For additional highlights of the quarter and discussion of our outlook for the remainder of the year, I'll turn the call over to our President, <UNK> <UNK>.
Certainly the lead story of the quarter is our gross margin improvement, up 150 basis points to an all-time quarterly record of 39.9%.
This achievement represents months of really hard work throughout our Company.
Each of our divisions contributed to the margin improvement.
There were three main drivers of the year-over-year increase.
First, raw material savings; secondly, improved manufacturing efficiencies; and thirdly, a shift in our product mix towards higher margin plank and other tapestry products.
Perhaps most impressive though is that gross margin increase was not driven by increased production volume.
In other words, we achieved this record margin during a quarter in which we actually reduced production by 7% and drew down our inventories by $5 million.
So truly wonderful progress throughout our organization.
The margin improvement made up for almost all of the 6% sales decline.
Let me give you a little bit more color on the topline.
First, I'd like to point out we are facing a very strong sales comparative of $264 million in the second quarter of 2015.
As <UNK> mentioned, realizing sales of $248 million on the heels of only $222 million of first quarter orders is a great sequential fill rate.
The drivers of the year-over-year sales decrease were mostly the same as those we talked about in the first quarter.
In the Americas region, 65% of the sales decline was really the result of one account in the Interface Services business that has delayed but not cancelled major flooring projects from the first half of the year and pushed them into the second half of the year.
Also within the Americas region, we saw the effects of suffering oil and gas sector, with particular influence in Brazil, Western Canada and Houston.
In Europe, the sales decline was attributed to geopolitical and economic issues, including the uncertainty and hesitation in the region leading up to the June 23 Brexit referendum.
And we all know how that turned out.
In addition to Brexit, the region also dealt with other difficulties, including a weakened banking and financial services sector, terrorist activities and, of course, the refugee crisis.
Sales in Asia were pretty solid, especially in India and China, but that was slightly more than offset with the decline in Australia.
We did make progress in SG&A with flat or lower spending across every business unit, and experienced the small year-over-year decrease in absolute dollars on a consolidated basis.
But the revenue decline kept these expenses at an elevated 27.1% of sales for the quarter.
That was much better than the 29.5% we saw in the first quarter, but still higher than our target and higher than our prior-year period.
We experienced flatter declining spend across the majority of our SG&A categories with the only substantial year-over-year increase being in marketing expenses.
And on this particular point, we are making longer-term investments to support our growth initiatives such as branding, market development and product introductions.
On the strength of our gross margin improvement, our operating margin improved 20 basis points year-over-year to 12.8%.
Our earnings per share were strong at $0.32, just a penny short of the all-time record of $0.33.
So with our margins shaping up nicely, we are now even more focused on growing the topline, and we have several key initiatives underway.
In the second quarter, we launched our new global product, the World Woven Collection, which won a Best of NeoCon Silver award.
The market's reaction's been fantastic thus far.
Worldwide, we are also introducing more products in lower priced categories where demand has been accelerating.
These new products are also margin accretive.
Sales in our Interface Services business should improve in the second half of the year as the delayed projects that I mentioned earlier flow through in a shortened time window in the back half of the year.
Among other tactics, we're also enhancing our dealer programs, driving sales in non-office segments such as hospitality and also targeting specific geographic growth areas.
With our core US modular business remaining healthy and with the Asia-Pacific generally on track, we believe that our biggest uncertainty now lies in Europe where the Brexit vote, terrorist activities and other problems have disrupted business conditions and, frankly, severely impacted the value of the British pound sterling.
About 7% of our annual sales are in the UK, so we do expect to see an impact on our business there, with potentially spill-over effects in mainland Europe.
But, at the same time, we believe it could give rise to other market opportunity as many businesses such as banks and other financial institutions look to expand or relocate to new offices outside of the UK.
With the uncertainty in Europe, it's somewhat difficult to forecast but we believe second-half sales and earnings will be an improvement over the first six months of the year.
With that, I'll turn the call over to <UNK> for the financial details.
Sales for the quarter were down 5.9% to $248.2 million versus $263.6 million in the second quarter of 2015.
Currency did not have a significant impact on the consolidated comparison versus the second quarter 2015 as the strength of the euro was offset by the weaker Aussie dollar.
Although <UNK>'s already discussed this, I do think it bears a quick repeating.
Our record-breaking gross margin performance is at the high point of the quarter and continues the trends we've been seeing.
Although raw materials are starting to see some small upticks in the second half of the year, we still expect in average that our input prices will be lower in the second half of 2016 versus the second half of 2015.
In the Americas, we saw sales decline of about 6% but, as mentioned, it was largely the result of the continued customer delays in our services business as well as the softness in Canada and Latin America.
On the positive side, our hospitality and healthcare markets experienced double-digit increases for the quarter, and our gross margin performance continued to improve over a very impressive second quarter of 2015.
Sales in Europe were down approximately 9% in local currency and 8% as translated in US dollars.
The decline was mostly experienced in the corporate office market, which was down 11% on local currency and 9% in US dollars, as buying decisions were deferred amongst the Brexit uncertainty.
Non-office segments were down to a lesser degree with the decline in education partly offset by increases in all other non-corporate office market segments.
Despite the sales topline decline, the region saw a gross margin expansion of nearly 150 basis points, which led to an operating profitability that was close to our record second quarter 2015.
Gross margin again was a bright spot across our Asia-Pacific region.
Despite a sales decline of 2%, we experienced expanded operating profitability as a percentage of sales in absolute dollars.
Our gross margin there was up over 200 basis points for the quarter and, when coupled with a steady SG&A expense, the result was a very strong second quarter for our Asia-Pacific region.
I feel better about the direction of our SG&A spend for the quarter as we were below the 2015 levels in terms on absolute dollars.
As <UNK> mentioned, we're still not where we want to be as a percentage of sales, but we're happy with the sequential trend here and continue to invest in the initiatives that support our longer-term growth.
Thanks to our gross margin performance and despite additional SG&A spending and the sales decline, operating income of $31.8 million was within striking distance of our operating income of $33.2 million we turned in for the second quarter of 2015.
It's also important to note that our operating margin increased to 12.8% in the second quarter of 2016 versus 12.6% in the same period of 2015.
Outside the gross margin expansion, the second most impressive number in the quarter is our cash-flow generation.
Despite repaying $7.5 million in debt and using $10.4 million to repurchase and retire 660,000 shares of our outstanding common stock, we were still able to generate $5 million in cash during the quarter.
If you remember from our first quarter call, we increased our share repurchase program to a maximum of $50 million.
Our balance sheet is in great shape and leaves us with the flexibility to invest as necessary in the business as well as continue to return capital to our shareholders.
As a result, we increased our quarterly dividend to $0.06 per share per quarter.
Depreciation and amortization was $7.5 million in the quarter compared with $7.8 million last year.
Capital expenditures in the second quarter were $8.3 million compared with $7.6 million in the comparable period in 2015.
For the full-year 2016, we expect our capital expenditures to be in the range of $35 million to $40 million.
With that, I'd like to turn the call over to the Operator for questions, please.
I wouldn't say that it's materially different but it trends to be lower in our services business, slightly lower than our traditional core modular business but it is lower.
Sequentially, pricing is pretty neutral.
On a year-over-year basis we're up a little bit in pricing but there certainly is some pricing pressure in the market and we'll continue to monitor that over the next couple quarters.
Right now, it seems to have kind of stabilized.
I think sequentially for the balance of the year you'll see right around these dollars in absolute and we'll get better as a percentage over the second half of the year.
Right now we're looking at ---+ we'll still be lower year-over-year but it's going to uptick a little bit here.
Right now the current projections are about $2.5 million increase in yarn cost for the balance of the year based on some recent pricing we took on yarn.
So that $7 million, $8 million is coming down by about $2 million, $2.5 million for the second half of the year.
Sure.
Orders April, May, June ---+ we finished April down 6%.
May was up about 5%, and then June was a very difficult comp, probably our single largest month in our history.
We came in around 10% down in June.
So the net effect for the full quarter was down about 5%, and we're currently trending about down mid-single digits here in the first three weeks of July.
July continues to be a tough comp.
The comps get easier in August and September.
I think it really goes back to the end of 2014 where we really saw a softness in 2014 and the early part of 2015 and then came through pretty strong Q1, Q2 and midway through Q3 that worked its way through, which created a pretty strong environment for two-thirds of the year there in 2015.
I think we'd be consistent with that, <UNK>.
We're seeing ---+ 80% of our business is renovation, which tend to be smaller projects like that.
People tend to do a floor at a time as opposed to a building.
I would say we're consistent with the trends you're seeing from other building products.
It really was the production manufacturing efficiencies and the benefit of a lot of our lean manufacturing initiatives around the world that are really paying some pretty significant dividends right now to more than offset a 7% decline in production.
Our folks have really done a tremendous job to create some really positive manufacturing variances despite lower volumes.
So I would say manufacturing efficiencies was really our biggest driver.
They were down for the quarter.
We have seen a rebound though overall in Australia, and we expect growth for the full year.
Bit of an anomaly in last year's numbers and the comparative.
We had a big order in last year's second quarter numbers.
No, we didn't and we haven't really covered that yet, <UNK>.
I would say FLOR had a tough quarter.
We were down double-digit topline.
We lost about $1 million in the quarter operating.
Our June promotion didn't meet our expectations there.
So it was a bit of a tough quarter for FLOR in Q2.
Consolidated company, <UNK>.
I don't know that ---+ I mean, I think we'll continue to be opportunistic as we have been.
Right now, I have to ---+ a lot of that cash right now is overseas.
It's going to take me three or four months here to reconfigure a few of our legal entities and so forth to get that cash repatriated but, hopefully, have that done by the end of the year and that will facilitate some of the share repurchases and so forth.
Broadly speaking across most metrics.
Seasonally the Q3, Q4 have historically been our better than the first half of the year and we expect that trend to continue here in 2016.
I think for the back half of the year we'll be consistent where we've been in the mid- to high-39 range.
As you called out, we do have a couple of things working against us in terms of raw materials and then perhaps some [downward] pressure on the topline related to the Brexit across EMIA.
But what we've done in our efforts there, we'll probably still stay around the mid-39s to high-39 range for the balance of the year.
We have certainly been hit by the decline in the pound, just as we translate that back.
People are concerned but, you're right, the order pattern in Europe is still pretty strong.
Now the UK is a bit weak but the rest of Europe has more than made up for that thus far.
So right now, it's a watch out, a warning signal, but that hasn't translated to the order sheet yet.
The first half of the year was impacted by $10 million or $11 million from that one customer.
We don't think we can execute that full boat there, but I think we can get 75% of it in the back half.
That also is a drain on gross margin.
It was a positive in the first half; it's a drain in the second half.
Yes.
Thank you for listening to the call, and hopefully we'll have great news in the third quarter.
Thank you.
| 2016_TILE |
2018 | PJC | PJC
#Good morning, and thanks to everyone joining the call.
This is the first for Tim <UNK>, our new CFO, and me to host our earnings call.
So we are very excited to be on the call today.
We are especially excited to report our fourth consecutive year of record revenues.
Deb <UNK>, who is an old pro at doing earnings calls, is with us today as well.
So Deb and I will take a few minutes to discuss the business and markets and then hand the call over to Tim to go through the financials in more detail.
We will then open up the call for questions.
The record revenue levels we have produced is a testament to the skills and dedication of all of our partners across the firm, both on the front line and support.
I want to thank them for their long-term commitment.
The significant number of professionals we've added to the firm over the past few years made meaningful contributions to our record results.
Maybe even more important, however, is that very few professionals have left the firm.
The culture we have at Piper Jaffray is unique and, we believe, a competitive advantage.
Our constant focus is on making Piper Jaffray the best possible home for our employees to serve their clients' interests.
And the continuity of our professionals reflects that we are getting this right.
The main driver for revenue growth has been our advisory business.
This has been an area of strategic focus and investment for the firm over the past several years.
We like the attributes of this business as it doesn't use capital and it has a variable cost structure.
We believe that remixing our business toward more advisory revenue would improve our overall profitability and return on capital.
This has played out as we intended.
The growth trajectory of our advisory business has been dramatic and broad based.
With over $440 million in revenue for 2017, the business has grown fivefold since 2013.
We accomplished this with some pretty big jumps in revenue.
In 2014, we more than doubled the business to over $200 million of revenue.
We exceeded $300 million last year.
And this year, we approached $450 million in revenue.
These results required a comprehensive effort and investment through both the P&L, as we hired teams, and the balance sheet through acquisitions.
In terms of industry exposure, we added energy with the Simmons acquisition and FIG through aggressive hiring and a small acquisition.
We also added subverticals like healthy living in consumer and strengthened certain franchises like our biotech and healthcare IT practices.
Our healthcare, energy and consumer teams each had record years in advisory in 2017.
These groups provided solid and diversified foundation for our business.
We supplemented our advisory expansion with new products, particularly the addition of the debt capital markets team in 2015.
This team, with its debt advisory capabilities, executed on transactions across our banking platform, contributing revenue and enhancing our competitive position.
This product really added to the range of advice we can provide our clients, and we look to expand our capabilities in this area.
When we look at where we are today in advisory, there is no doubt we have grown by capturing significant market share gains over the past few years, supplemented by very constructive markets.
Given the slope of our growth trajectory, the pace of growth could slow somewhat.
Advisory is inherently lumpy and can vary significantly on a quarterly basis.
We expect that we will continue to invest in the business as we look to add or strengthen subverticals across all of our industry groups.
I'm confident we can take a platform that today is a solid $400 million a year per business and build it to north of $500 million and beyond in a reasonably good market over the next few years.
Our equity capital raising business had a very strong year, generating revenue of $100 million in a much better market environment.
The market for equity capital raising dropped in the first half of 2016 and has improved significantly since then.
Our biotech team led the way for us in 2017, as that factor again was the most active segment in the market for capital raising.
Our Simmons Energy team also contributed to the strong results.
Prior to our acquisition in 2016, Simmons had book-run only 1 transaction in its history.
We completed 8 book-run transactions in 2017.
This represents an important revenue synergy arising from our combination.
I will now hand the call over to Deb to discuss the rest of our businesses.
Thanks, <UNK>.
Public finance recorded strong results in 2017 on the heels of a record year for both us and the new issue market in 2016.
We experienced a wave of issuance in Q4 spurred by pending changes arising from the Federal Tax Bill that passed in December.
Under the new tax law, tax exempt advance refundings will be eliminated, which drove a surge of refunding activity late in the year.
We participated in this activity as Q4 was the best quarter of the year for public finance.
However, we expect a new issuance market will be down meaningfully in 2018 as some of the demand was pulled forward into 2017.
Refundings overall represent about half of the market issuance over the past several years, and we expect this segment of the market will be lower in 2018.
We think 2018 will get off to a slow start after the surge of activity at the end of 2017, and we are confident that we will maintain our prominent position in this market.
Moving on to our brokerage businesses.
Equities had a good year relative to a very tough market condition.
For the year, our business was down about 7% compared to a decline of 11% in market volume.
Historically low levels of volatility, once again, led to subdued activities.
We believe continued market share gains are available to us as we find ways to create and communicate the value we bring to our clients.
For much of the year, the potential impact of [method two] on the industry has been a major topic of discussion.
Since this is European Regulation, our expectation is that the impact on the U.S. market might be more gradual and less severe.
While we will closely monitor this situation, our main area of focus continues to be providing our clients with the highest possible quality of service.
Fixed income finished 2017 on a high note, reporting the best quarter of the year.
The huge influx of new issues that swamps the market late in the quarter was challenging for the market to absorb.
This created some price dislocations for munis.
Given our deep knowledge of the muni market, we were able to adapt the trading posture to take advantage of the dislocation.
This contributed to our strong results for the quarter.
Customer activity remained light for most of the year, given very low interest rates and the flat yield curve.
Our Asset Management business continued to face persistent market headwinds throughout the year.
The predominant market trend was a shift from active managers to passive strategies, and we were not immune from this trend.
Our year-end assets under management were down about 16%.
A large portion of the decline was the result of our decision to exit the Japan value product mid-year.
Outflows in domestic value and international small-cap products also contributed to the decline in assets partially offset by inflows associated with our new global dividend product.
Business continued to contribute to the overall profits of the firm.
I will now turn the call over to Tim to discuss our financial performance in greater detail.
Thanks, Deb.
As context, unless specifically noted, my remarks will be focused on our adjusted non-GAAP results.
We finished the year very strong with revenue for the quarter just slightly behind last quarter's record levels.
For the year, we generated record revenues of $870 million.
<UNK> discussed some of the progress we've made in the shift to advisory, which shows up in the numbers.
For 2017, advisory was 51% of total revenues versus 41% in 2016.
With over half of our revenue coming from advisory, we are seeing the positive impacts on our overall business model we expected.
Revenue growth coming from advisory contributed to increased operating leverage, as our operating income was up 38% on a revenue increase of 18%.
This resulted in a 260 basis point improvement in operating margin, which really was attributed to a lower noncomp ratio.
Since advisory places much lower demands on the fixed infrastructure, noncomps were up only 2% for the year on 18% revenue growth.
These results translated into much better return for our shareholders in 2017.
We produced a record adjusted EPS of $7.12 for the year, an increase of 52% over 2016.
Our adjusted return on equity for the year was a little over 14% versus about 9% in 2016.
As mentioned on last quarter's call, in addition to the very strong operating earnings, there were a couple of other items favorably impacting our adjusted ROE for the year.
First was the positive earnings impact attributable to the tax benefit associated with the vesting of employee stock awards.
It's worth mentioning that the impact of employee stock award vesting from taxes will vary from year-to-year.
The second favorable impact on ROE was the reduction of our equity related to 2 noncash asset write-offs this year.
In Q3, we reported a reduction in good will, and in Q4, a reduction to our deferred tax assets, which I will address shortly.
ROE will continue to be impacted by these noncash write-offs, as they have permanently reduced our equity base.
If we exclude these items, our adjusted ROE still exceeds our cost of capital and represents a significant improvement over the prior year.
Now I would like to discuss some of the other items in the earnings release.
As you may note, the comp ratio for the quarter and year looks elevated and above our prior guidance.
A remix in the compensation structure for our senior executives was the driver for the higher comp ratio.
Based on feedback from our investors, we change the mix of total comp for our senior executives to increase the portion of performance-based grants or PSUs and reduce time-based awards.
Given the magnitude of remixing comp to PSUs, we revised the retirement provisions for all of our leadership team members to look more like our restricted stock awards.
The net effect of this change is that the PSU grants, which will be awarded in early 2018 as a part of 2017 comp, were expensed in 2017.
Given the timing of board approval, the entire impact of this change was captured in Q4.
This increased the comp ratio in the quarter by about 200 basis points and the full year by about 50 basis points.
Going forward, we believe our comp ratio will be in a relatively tight range around 64% depending on total revenue, revenue mix and investment opportunities available to us.
Our noncomp expenses of about $41 million for the quarter exceeded the high end of the $38 million to $40 million per quarter range we communicated previously.
The variance is attributable to increased travel and conferences and additional legal and professional fees.
For the year, noncomp expenses averaged a little over $38 million per quarter, well within our target range.
Despite the growth in the business, we are comfortable reaffirming our noncomp target range of $38 million to $40 million per quarter going forward.
Next, I would like to address a couple of tax related items.
First, we previewed in our Form 10-Q filing for the third quarter that the new Federal Tax law was expected to result in a $50 million to $55 million write-off of our deferred tax assets.
Our DTA write-off came in at the high end of the range at around $54 million.
From a P&L perspective, this shows up as additional tax expense in our GAAP results.
Our adjusted results exclude the impact of this write-off.
Looking at our tax rate going forward, we believe it will be in the 25% to 27% range.
The federal tax rate was reduced by 14 percentage points to 21%.
Offsetting this, the new law removed some expense deductions.
We expect the net impact of the lower rate and fewer deductions plus state taxes puts us in the 25% to 27% range.
I will finish up here with the dividend.
As we disclosed in our Form 8-K filed in November, management recommended a change to our dividend policy, which the board approved.
We made this change largely due to the increased portion of our business coming from advisory.
The favorable impact of advisory on our business model gives us greater earnings and flexibility to return more capital to shareholders through the dividend.
Under the new policy, the dividend for the year will be based on a payout ratio of the year's adjusted earnings.
Since we already pay a quarterly dividend, each year, we will have a make-whole payment, which will be calculated based on the payout ratio approved by the board less dividends already paid for the year.
For 2017, the board determined that we would pay out 40% of adjusted earnings.
Based on our reported adjusted EPS of $7.12, the total dividend for 2017 would about $2.87 per share.
We have already paid $1.25 per share in quarterly dividends, so our make-whole dividend for the year will be $1.62 per share.
This special dividend will be paid in conjunction with our regular quarterly dividend on March 15 to shareholders of record as of the close of business on February 26.
I would like to remind everyone that the board also approved a 20% increase to our regular quarterly dividend from the 2017 level of $0.3125 per share to $0.375 per share beginning in the first quarter of 2018.
Thanks, Tim.
Operator, we'd like to open up the line for questions.
Yes.
I'll address that.
I think, for us, obviously, we've seen such big growth the last couple of years in advisory, and we're continually adding to the platform.
What I would say is it's not evident that, that growth is going to show up every quarter in a linear fashion.
And I do think ---+ we do believe there's significant continued growth, whether that shows up every quarter or all in a particular year.
We're focused on building the platform, and over time, we really believe that's going to show up in the advisory growth.
Yes, <UNK>.
Clearly, there was a large-pull forward from '18 into '17 and there's a lot of perspective ranging anywhere from $20 billion to $40 billion out in the market.
And I guess, I feel like it's probably more in the lower end of that range than the higher.
But at the end of the day, that was pulled forward.
There was ---+ there has been a decline in refundings just as interest rates have stayed low for a long period of time.
And really, I think in terms of your question around the more long-term impact from the tax bill, you look at the elimination of tax exempt advanced refundings, and overtime, that will moderate and sort of even out as ultimately, the deals that are in the marketplace have an ability to be called.
So it's really just a time period where the advanced refundings won't be able to be done.
If you think about what that means for 2018, and you talked about the ---+ how that plays out over the year, I think there's just a lot of questions and it's quite unknown.
Clearly, the first quarter is going to be impacted by the pull-forward.
I think, that is pretty evident.
And overall, issuance is likely to be off meaningfully on a year-over-year basis.
But how that plays out throughout the year, I think, it's really an unknown.
Yes.
<UNK>, it is prior to the benefit that we will see in 2018 related to stock-based awards.
We'll see most of that likely in Q1 based on the timing of when we issue those awards.
It is dependent on the stock price, and we will actually disclose a specific number around that in our 10-K filing, but are not providing any additional guidance on that piece at this point.
Sorry if I missed this, I joined the call a little bit late.
But I was hoping you could just give us some color on what sectors were the largest contributors to advisory this quarter.
And how that relates to what drove strength earlier this year.
Yes, it's interesting.
Throughout the year, we've had different pockets of strength with healthcare and consumer, and in particular, in Q4, we had a very strong energy quarter.
Okay.
Perfect.
And just a follow-up on your commentary regarding the debt advisory business.
So just from a higher-level perspective, can you give us a sense for what you see as the market opportunity there.
And what type of scale we might see that business become within your platform over the next couple of years.
Yes.
So for us, there's been a pretty good focus on ---+ as we've really built an advisory business, and we have a significant platform of investment bankers.
We saw a great opportunity to provide advisory around the debt placements.
And that business has grown, and we've had a couple of great years, and we frankly think that can continue.
The more large M&A deals we work on that need to be financed, the more opportunity there is for us.
There is a whole bunch of alternative lenders and sources for capital that are unique, and we can really offer those relationships to our clients.
So we expect pretty good things going forward with our debt capital markets product, and look for that to continue to be a growth engine.
Okay, thank you.
Clearly, the strategy we have in place is working and our execution is solid.
We are actively seeking investment opportunities that are in line with our strategy, as we look to expand our industry footprint and broaden our product offerings.
We would also be open to consolidating opportunities, where we can add revenue to the platform while eliminating costs.
Our emergence as a market leader across many of our businesses is evidence of the strength of the entire team here.
We look forward to continuing to produce great results for our shareholders.
Finally, before we close the call today, on behalf of our entire organization, we'd like to express our gratitude to Andrew Duff, who retired as CEO at the end of 2017.
He guided us with a steady hand over the past 17 years and certainly leaves some big shoes for us to fill.
We look forward to working with Andrew in his role as Chairman of the Board in 2018.
Thanks to everyone, and have a great day.
| 2018_PJC |
2016 | MSM | MSM
#Sure, <UNK>.
So CCSG, I would say we cite CCSG and metalworking both being below Company average, honestly, both in similar ranges.
Certainly, I'd like to see CCSG growing faster.
I'd like to see metalworking growing fast, and I'd like see the business growing faster.
I think the overwhelming headline there is they are being impacted by the macro like everybody else.
Execution at CCSG remains focused on the three levers that we've talked about, which are service improvements ---+ core customer service improvements, which are going quite well; cross-selling, which is really picking up traction; and then salesforce retooling and transformation, which I would say remains a work in process, have a lot of confidence in the Team and the plan there.
Thank you, <UNK>.
Good morning.
Thank you.
Yes, sure, <UNK>.
So let me start.
When we look at share gains, we begin with the bottom line, so we'll look top down to evaluate overall Company performance, and then in a very granular way, we look bottom up at a ton of different metrics.
The bottom line for us when we look top down is, how does the Company's growth rate compare to industry.
And as you know, we triangulate ---+ and by the way, your work is an excellent piece of work, along with some others on the distributor surveys.
We triangulate data, including your surveys, including supplier feedback, including macro indices, peer comparisons, to get at what we believe market is growing at and assess our growth relative to market.
At the end of the day, that is the bottom line, and that's what we can't out run.
Our assessment is that our share gain performance remains quite strong as measured along that dimension.
I think what you're then getting at is, hey, where is it coming from.
The where is it coming from, there's two things I'm going to cite.
One is program execution, and that program execution is both directed at share of wallet penetration and new account acquisition.
And the other is going back to the strength of the value proposition and the customer service.
Particularly what we find in times like this, when times are tough and customers really need to lean out their operation, they need to rely more heavily on supplier partners, whether that's helping them in the plant, whether that's them getting product quickly, so we see the MSC advantage really being widened when times get difficult So I think that's part of the story.
The other part of the story is program execution, again, directed at share of wallet penetration and account acquisition.
I'll touch on one other thing you mentioned, piggybacking on the account acquisition piece, and that's customer count.
Not surprising to us here, it's a metric that we've said for awhile is not top of mind for us.
It's really been a left over.
It's more of a direct marketing metric.
Not surprising to us that it would flatten out.
If you look back at other periods of economic difficulty, that number tends to ebb and flow with the economy.
In fact, in the last downturn, it was down significantly.
It's now flat, so not a particularly surprising result to us.
No, I couldn't, and for probably competitive reasons and the fact that we work with our suppliers, and just for competitive reasons, I couldn't.
But those are the main drivers, and they are just the levers, <UNK>, that we keep working on.
Thanks, <UNK>.
Yes, Rob, so let me start with two things there.
I'll start with energy and then get to the December number.
But on the energy front, really no change.
And just a reminder, our direct exposure to energy is really low, really low meaning well under 5%.
The indirect exposure is I think what's taken everybody by surprise, not only at MSC, but in the broader economy, and it's ugly.
There's no other way to say it.
And I think in the past, we've shared that when we look at our manufacturing end markets, that they're what would be traditionally thought of as metalworking markets in areas that are energy exposed, i.
e.
, Texas, Oklahoma, et cetera.
The results are really, really poor, and not surprisingly.
I would not read anything into that.
With respect to December, as I've said, the holiday impact, call it roughly 250 basis points, when we look month to month, there can be noise in the growth rates.
What we're really focused on is what's happening on an average daily sales level in absolute dollars.
And what we're seeing there, over the past couple of quarters, going into our Q2 guide, is effectively average daily sales stabilization.
And I think that's really where we're focused because the growth rate is strictly a function of how it lines up to comparisons prior year, and again, I think we feel pretty good.
What we've seen is average daily sales stabilization in the face of a deteriorating environment.
Well <UNK>, if you just continue to assume that we have sales per day running per day at more or less the same level as we're running today, and we don't have the visibility to be able to tell you any different to that, right.
If you project at that, the back half of the year would be close to breakeven, very slightly negative, call it, you can do the math yourself, but close to breakeven.
Well first of all, we also ---+ we prefer the approach of working through very bottoms up, very collectively with the Team and trying to see how we can improve productivity and doing it without trying to take cost out, purely reactively to market conditions, right.
That's one of the reasons why MSC bounced back so strongly from 2008 and 2009 as well.
So right now, we're not really seeing an environment where we need to do that.
If things get much worse, then obviously, we'll respond accordingly, accelerate cost actions that we've taken and do stuff.
But as of now, no, I think we continue to innovate discipline with focus and execute and let the Team run away with it.
No, Rob, I think <UNK> is really leading us through the approach to expense management and productivity in a very effective way, and it's not going to be about a big bang and a massive transformation.
The transformation is happening one cost center at a time with just doing things smarter, one productivity initiative at a time, and I think it's working.
I will tell you, I think there's still a lot of runway.
That's the exciting part.
It just is not going to be in a big bang.
The only other thing I would add to <UNK>'s first comment and your question on the back half of the year, look, we are squarely ---+ one thing I want to reiterate ---+ we are squarely in that lower left quadrant, so that demand quadrant that we call slightly negative and we said was 0 to minus 4, right now, with everything we see, and granted, our visibility is extremely low, but we would characterize it as right smack in that quadrant.
You too, <UNK>.
Yes, Dave, good questions.
Nothing major to report on weather that would have been a factor either way.
We didn't see anything big there.
With respect to shutdown activity, we would characterize the shutdown activity as relatively similar to last year.
So if you take a similar level of shutdown activity combined with the benefit of the Thursday versus the Friday holiday effect, we think that's what helped us in those last couple of weeks.
And I'll admit it's hard to parse out the shutdown activity from the Thursday-Friday phenomenon because again, just going back to the analogy, when the holidays fall on a Thursday, it's unlikely that a business is going to come back for that Friday, so you're effectively losing a selling day twice, one for Christmas, one for New Year.
So hard to parse those out, but I'd call it similar to last year.
Yes, boy, I wish I had something [quantitive].
It's a tough one to get precise on, Dave.
What I would tell you is, certainly, like what MSC is doing, which you see inventory levels have come down, our customers are doing the same thing.
However, I would say I want to draw your attention to what we see as the bigger headline, which is the results we saw and others have seen in terms of the macro for the back half of the year and the last few months.
The primary driver there is a reduction in incoming orders, in demand, in backlogs, not in destocking, and I think that's the bigger headline.
Dave, I think the honest answer is we're thinking about the relationship ---+ if you go back, and you probably have seen the same thing with other distributors, but historically, the correlation with PMI was quite tight, and over the past couple of years, not just for us but for peers, it's not been nearly as tight.
So we certainly look at it, but we look at a bunch of other factors as well in forming judgments.
We introduced for awhile now the MVI, which seems to have a tighter correlation.
So again, we'll look at PMI, but not with the same degree.
I don't think it has the same degree of predictive correlation as it did years ago.
Hey, <UNK>.
Happy New Year to you.
Yes.
<UNK>, I think what we try to do is highlight for you, and there's three dimensions by which we look at the business, by customer type, by product type, and by channel, to highlight for you what we think is driving ---+ and look, I think we're doing well in a lot of areas, but certainly, what we'll do during the prepared remarks is highlight where we think we're doing particularly well.
So by customer type, we've been calling out the large accounts as an area that's done particularly well, and that's not just national accounts, but we think that it's an area where technology is allowing for supplier consolidation to happen at our customers at an accelerated pace, and we think we're benefiting quite nicely from that.
Along the product dimension, look, we've talked about metalworking as a key area of focus, as an area of leadership where we feel like we're doing quite well.
We've talked about the Class C area as an area of focus.
And then along the channel dimension, there's two that we've highlighted that we think are doing quite well, vending and eCommerce So those are the ones that we call most attention to.
I'll take that.
We do see that gradually beginning to accelerate as we go on, and that's ---+ we've been working with our suppliers, and the suppliers who see us as a value add driver of growth, the brand building platform, they're investing in us, and obviously, we're focusing more on them.
And we kicked off a lot of work on this back in November with a second round pretty much rolling out now, and so we've seen some of these benefits come in as we go into the back half of the year, and then some of them will actually flow into FY17.
Broader.
We started with our key strategic suppliers, clearly, and focused on that, but definitely broader.
It's working across the whole base.
<UNK>, the one comment I'll add-on the supplier front is this has been ongoing.
It's not a one and done.
It's ongoing discussions.
It's ongoing actions.
And look, to some degree, it has to be a win-win situation, so it's not just a matter of us going back and beating the supplier over the head saying give us more money.
That's not going to be sustainable and long term not good for both sides.
So it's been about dialogue, certainly, with strategic suppliers, as <UNK> said, going broader, but also about not just what the supplier is going to do for us, but what can we do for them to make it worth their investment in us.
Sure, absolutely.
Well, we've been self-insured through the end of calendar 2015, and so we've always had variability in our quarterly medical costs, right.
And this year's Q1, which for us ends at the end of November, remember, so it's been compounded by the introduction.
The Q1 peak that we [haven't seen] was compounded by the introduction of our private health exchange.
And then probably see, based on what we've seen anyway so far, some reasonably high medical costs so far coming through December, right.
But going into Q3 and Q4, then you'll start to see the benefits of a steadier run rate of medical costs and certainly a lower run rate than what we've had in Q1.
In this particular quarter, medical costs were almost $4 million higher sequentially compared to the quarter before.
But like I said, you don't really take away too much from that because they do vary quite a bit.
They bounce around quite a bit.
Thank you, <UNK>.
Hi, <UNK>.
<UNK>, it's been an area of focus; it remains an area of focus.
And it's been ---+ I think what you're seeing as slight positive is ---+ it's again, going back to the two drivers of performance right now in terms of execution and the strength of the value proposition, and I think both are at play with respect to national accounts and with respect to government.
So both of those segments have been pretty soft, so we feel good about a positive result as being indicative of strong share gains, and that's been an ongoing area of focus, and it will remain an ongoing area of focus.
Yes, sure, <UNK>.
I would say despite the significant changes in environment, not a significant change in our approach here and what we're seeing or in how we're thinking about M&A, which is we certainly keep our ears and eyes wide open.
Have not seen a radical change in activity levels, and certainly, M&A part of the equation.
And as I've said for the last couple of quarters and I'd reiterate is, at the moment, certainly, we're open to, it but the bar is a bit higher than it normally is just given everything going on inside the Company and outside of the Company, and quite honestly, the nice traction that I think we're seeing on the top line, on gross margin, and on expense controls.
I feel like the Company is executing well, and so to divert attention to an acquisition, we would do it for the right acquisition, but the bar is just a bit higher.
We certainly have the capacity to make acquisitions as well because remember that under our debt covenants, we can go up to 3X, if you would, and we're at 0.71.
Thank you, <UNK>.
Hi, <UNK>.
<UNK>, you got it.
It's just that it's a partial day.
It's not that it's ---+ there's business coming in, but it's not a full day, so that's it [that set us apart].
It's not ---+ those days are not the equivalent of a full day.
Yes, it does.
And I think that's how I look at it.
I couch it by saying, as <UNK> said, our visibility right now is extremely low.
This is always a tough quarter for us, <UNK>, because we come off of the holidays and really don't have any peek into how things bounce back.
It's compounded, the low visibility this year, by the environment.
But yes, essentially, you're right.
If you do the math, you're right.
It averages about 4% down January, February, and our assumption is more or less a continuation of what we're seeing in the environment.
<UNK>, good catch on Government.
Not so much an anomaly.
Generally, there's a seasonal pattern with the Government.
You're right, their fiscal year ends in September, so as you can imagine, there's a lot of spending leading up through September and then a big drop off as people spend their final budget dollars.
That happens every year, so no big surprise there.
We've been really pleased with the performance in Government.
That has been a very strong grower for us.
You are right to note the growth slowed down.
The big factor there, and it wasn't so much ADS, it was more a function of the ongoing lack of budget resolution within the Federal Government that did not get resolved until late December that most certainly had an impact on spending environment in Government.
We did see a change there.
We're hopeful with resolution ---+ hopefully, that bodes well for the back half of the year, but like everything else, visibility is low and to be seen, but that was the big driver.
<UNK>, let me take your questions in reverse order.
Look, I do think there is still some runway there left, and yes, we've been adding them at 100,000, 150,000 clip for the last few years.
We still do see some runway there.
And look, I do think it's been a piece of the market share story has been capture of new products.
No question.
To answer your question, the 70,000 would not have a material impact on the results to date.
Think of these in waves that hit the beach, so the impact actually happens cumulatively over a couple of years, but the 70,000 would not yet have a material impact on the current results.
At some point, I hope so because it means we've grown so much that we do.
We've talked about on the warehouse side is that what we see right now, Columbus should take us to $4 billion, assuming the next billion looks like the first $3 billion, and that's factoring in what we're doing on the SKU front.
The other thing I'll call out we've talked about is we are trying to be smart about these, that they get added to the web.
They don't immediately get added to stock until we see them trip certain thresholds, so we're trying to be inventory and capital wise about how we do it.
Thank you, <UNK>.
Okay, thank you, everyone, for joining us today.
Our next earnings date is going to be April 6, and we certainly look forward to speaking with you over the coming months.
Take care.
| 2016_MSM |
2016 | ANSS | ANSS
#Thank you.
More macro, basically.
I mean, there are elements of both because, as we mentioned, the maturation curve, we need it to be a little bit faster than it was.
But it is the macro thing.
I mean, you just, again, if you even read the news that's come out over the last three months.
I mean it's not that we're reading that news and adjusting, we are hearing from our customers things that echo what you are also reading in the broader news.
So there are pockets in Asia that were typically much more robust 12 months ago.
Now, a couple of those are tending to soften up.
There's a lot of mixed bag in Europe, so we factored those in.
But, again, it's all driven out of the pipeline build, the forecast, and the guidance going in.
But as you say, it's a very modest ---+ it's not much of a change, but we still want to reflect it in the things that we actually see.
Okay, well, the first thing you'd see is that at the upper-end accounts, where we had the focus, we've got a very good coverage there.
Now keep in mind, we did a couple of specific things.
We took our more experienced sales reps and we put them into a named account realm.
I'm sorry, for recent listeners who may not know some of those terms, but essentially it was on focusing them on limited number of accounts, such that they would actually spend their time doing more developmental activities as opposed to ad hoc responses.
Now, those have started to ramp up in the next [tier].
However, it took those people time to evolve and cover those accounts.
Now, in the territory basis then we had more of the new sales capacity put in there.
And essentially, that is one that therefore needs to take a little bit more ramp-up and that is the area where we have seen the slowest uptake.
And you would expect a little bit more resistance in that, given the fact that the macro headwinds are a little bit higher.
So we think that it takes a little bit more time to ramp those up and basically those will key right at a handful of initiatives, that I mentioned that we already have in place, because that is a strong target area for us.
Hi, <UNK>.
No problem.
Good morning, <UNK>.
Well, you're absolutely right, cloud computing does fit this model in the long term very well.
And for the very reason that it implies virtually infinite computing, however, therein also lies the issues that customers are looking at.
Because infinite computing can cost ---+ even if it's more economic, it can cost infinite dollars.
And as a result, what they don't want to do is, for instance, open up the tap and leave the water running and then all of a sudden find out that they've gotten caught in a very difficult economic model.
That is the reason, as I mentioned, for the economic evaluations and proof-of-concepts that are going on right now.
This really is not fundamentally different than what they always did when they were building their internal clouds.
And, in general, that's why a lot of people didn't have 100,000 node clusters because, well, they don't need it most of the time, so they are not going to invest to have one sitting around.
So, we also think that being able to look at that model, of how people do that internal, and buy what they normally would, but now have the access to scale up on those periodic bases when they need a full scale simulation.
But, given the fact that there isn't a body of history on this, and that people are very cognizant of budgets right now, that is what's driving the overall issue.
Now, on top of it, it used to be that R&D would decide, okay, I'm going to buy this computer and as long as IT says, yes, this is an okay computer, then the purchase was relatively an R&D expenditure.
We find, as the cloud and the larger scale computing comes in, R&D has to do it, but in addition, IT has to also really sanction and bring it into play.
Actually make it usable, take care of cybersecurity concerns that weren't there before, all the budgetary concerns, and things like that.
And the expansionary opportunities of that model are what also drives the complexity and uncertainty that's causing these extended evaluation cycles right now.
Well, <UNK>, if you look back, our ability to return value to our stockholders, the greatest value has been created through the M&A that we've done over the past two decades.
And so, there are opportunities for us to continue to accelerate our longer term strategy and our customer adoption model with our customers, through M&A.
So we want to make sure that we balance and prioritize where we think the greatest opportunity to return value to our shareholders is.
Good morning, <UNK>.
Well, I think the first part is, you have to have requisite capabilities, and normally for people to shift, you have to have additional capabilities over and above.
But as I mentioned, the portfolio, there are a couple of elements, one of which ---+ moving to a broader usage pattern.
Second of all, was also being able to use a broader usage pattern in terms of users, I'm sorry.
And then, broader usage in terms of the span of products, there in some of the portfolio aspect.
So, again, superior capabilities and superior breadth in terms of that, plus a platform for running on those; it just turns out, from a long-term perspective, if you're building a long-term strategy for simulation adoption, this probably has a much better survivability curve.
Well, sorry if you see the ---+ the semiconductor market for us grew at a low single-digit amount.
So, given the fact that it's a fair amount of our business, mathematically it had probably a 1% or 2% drag associated with that.
Again, being short-term one, as we said, we don't think it's a fundamental one.
<UNK>, just one point to add on to that.
One of the things that we are seeing is, China was a very bright spot for us in the quarter.
And, one of the bright spots around China is the government's push in the semiconductor industry.
As a result of that, we are seeing benefits from our portfolio of solutions that we've got for semis, as the Chinese government makes a push into that.
So while there were some dampening effects from continued consolidation, we are seeing some positive aspects of portfolio in China from semis.
No.
At this point in time, no, but keep in mind that I don't think that's closed.
<UNK>, add anything.
I don't think that's closed.
I think they announced the acquisition.
We really haven't seen an impact one way or the other on that currently.
But no, it's not been a factor.
Yes, hold on, <UNK>.
Negative $5.1 million.
Well, yes, it is now.
We see the ---+ first of all, in the first iteration of somebody moving to an enterprise license agreement, that type of assumption, it's the first one that takes the time.
Thereafter, it then tends to ramp up.
Sometimes it can get into several months when you talking about the dollars and you're talking about the legal agreements and understanding all the terms going in there.
So, we'll see that.
That's usually a cost of switching the kind of arrangement that's felt in the first iteration and then isn't felt in the outlying years.
The second part is, we also mentioned the addition of the new logos.
Now, the new logos, that's a real good thing for us because we have a pretty good track record of continuing to build off of those and retaining those customers.
However, whenever a customer takes that first step into simulation, they normally take a little bit longer to absorb it also.
So you'll see at both ends of the curve, that just from the procurement differences, that the sales cycles are lengthening out.
I am saying that's in addition to the overall effect you might see from the macros that can go up or down at any given period of time.
Well, yes.
When you stretch out the time, yes.
The thing is that even if these behaviors persist, we would expect that the low-end customers will have that normal digestion process for their first iteration of software.
However, as we get more and more customers on the enterprise license agreement, we've already covered that first cost of getting them on.
But as we mentioned, it's getting those added on is a several-year process.
It just tends to taper off and build over time.
But once you hit steady state, you're really past that large-end digestion problem.
I'm not sure.
We did not cut with a chainsaw, <UNK>.
What we did was took a look, as I said in my comments.
One, we are at this point factoring in no economic improvement through the remainder of the year.
So we expect the same kind of headwinds that we've been facing.
We don't see upticks in oil and gas happening anytime soon.
So our business in parts of Europe, in Brazil, in Southwest, in Canada will continue to be, unfortunately negatively impacted by that sector.
We have factored in the pipeline that we see, of those larger accounts, in the second half that are currently being worked now, largely in North America with a handful in Europe.
And we've also factored in some of the softness in some of the parts of Asia.
So we have tried to take a conservative view on our business for the remainder of the year so that we don't have to repeat this going forward.
Okay, thanks, Robert, and thanks everybody on the call.
So I'd actually like to thank all of you for your participation on our call today and for the continuing following and support of ANSYS.
And I'd also like to thank the entire ANSYS team, by the way, for their dedication in Q1 and the continued commitment to driving the results that we've been talking about.
So, bottom line is that we believe that we're well-positioned to drive growth and achieve our goals.
So basically we have an unparalleled product offering.
We've got extraordinary longevity with our customers.
We've got extremely high recurring revenues and the opportunity to augment our growth through new product features and exciting technologies from acquisition.
So, we're committed to driving revenue and earnings growth, but also keeping that operating cash flow and significant returns for our stockholders.
So, I thank all of you very much and we will catch you no later than at the next quarterly call.
| 2016_ANSS |
2018 | GWR | GWR
#Sure.
I mean, with respect to this steam coal, I mean, the coal that we handle is the cleanest, lowest ash, highest BTU stuff that gets ---+ it's the last ---+ literally the last coal burning on earth.
So a good chunk of what we sell actually doesn't even go to China, it's consumed in Japan and South Korea and Taiwan.
It's very high-grade stuff from first and second quartile-type mines, and so ---+ and even to the extent that there are restrictions on coal consumption within China, the quality of coal that we're handling there is going to get ---+ it's going to be blended into the mix.
It's not a relevant competitor for things like lower-grade Indonesian coal and the like.
So this is ---+ so the answer ---+ the immediate answer is the coal business is very strong and stable.
What's the other part of the question.
Queensland.
Yes, I mean, with respect to other geographies, there's always opportunity in different parts of Australia for new contracts that we are regularly bidding on and if customers want us in a given geography, we go.
And so we've got open dialogues in several markets.
Well, you have 2 questions there.
Let me turn the first part of your question around rate renewals to <UNK> and then I'll hit your second part of the question.
Yes, and <UNK>, with respect to the mix issue, I would just turn it over to <UNK> so I can look at my underlying analysis.
And the mix headwinds we saw in Q1 are really the ones that we expect for the full year.
It's largely ag and coal.
Yes, that one, in a competitive market, I can't answer.
That gives a ---+ that's a step too far given that we compete for that business.
Well, you've got 9 coal sets in operation today.
You've heard us say we're adding 2 more, one that's coming in June, the other that's coming in at the end of the year.
In both instances, we're using excess ---+ those are only wagons because we're using excess high horsepower locomotives from South Australia that used to serve one of the mines that's no longer shipping.
And so this is the last of our excess locomotive capacity in Australia that we're deploying there.
And so you've got 2 incremental ---+ you have 2 incremental train sets for spot moves.
Recall that there are forward ---+ there's forward opportunity with our core contract with Glencore where those, if they weren't in spot service, they would be cascaded into permanently contracted status within 2 years, by the way.
And so this is ---+ these will be making money between here and there.
I'm sorry, I didn't quite understand.
Say it again.
Yes, I do think that number would be misleading because it's embedded in specific contract terms that were of a multibillion-dollar deal.
Yes, you wouldn't ---+ that wouldn't put you on the right path.
You can certainly assume that you're going to earn your cost of capital on that under some very comfortable assumptions or you wouldn't be doing it.
And you can certainly assume that one prices spot moves at a premium to contracted moves because there's implicitly more risk to it.
But I think I would leave it at that.
The answer is both.
The answer is that we wouldn't be doing it if we didn't think it was a good use of our capital on ---+ I mean it's ---+ if you do the math, it's, obviously, highly book accretive.
But that's not the primary driver.
We look at free cash flow generation of the business and what we think it's worth, and we think this is a wise way to deploy capital.
I wouldn't say necessarily ---+ there are certainly acquisitions that ---+ certain types of acquisitions that we could fold in, perhaps at an even more economically attractive basis than buying our own shares.
And so you've got to keep the dry powder available to do those and we're certainly looking at those as well.
But given how much debt we've paid down, we're very comfortable that we can look at doing both over time, and that's what we ramped up here through April.
Operator, we're out of time so please review the replay instructions.
And thank you, very much for joining us on this call.
| 2018_GWR |
2017 | MRK | MRK
#Thank you, Rob, and good morning, everyone
This morning I'll provide highlights on the Performance of Global Human Health for the third quarter
And my comments will be on a constant currency basis
Global Human Health delivered sales of $9.2 billion, a decline of 4%, primarily driven by the loss of exclusivity for several products
We continue to see strong underlying growth from launch products, including KEYTRUDA, ZEPATIER, and BRIDION
Now I'll highlight a few of our key franchises and product launches, and I'll start with oncology
This is an exciting time for Merck as a global leader in immuno-oncology
We remain focused on executing on the extensive opportunity that we have with KEYTRUDA
And we are also excited about the growth opportunity for LYNPARZA, which we have begun co-marketing globally with AstraZeneca
I'll start with KEYTRUDA
Worldwide sales for KEYTRUDA in the quarter exceeded $1 billion for the first time, making KEYTRUDA the second-largest product in the Merck portfolio
And in 2017 alone, we have launched six new indications in the U.S
, four in Europe, and three in Japan
, more new patients now start on KEYTRUDA than any other I-O agent across all indications
With 10 indications in six tumor types and MSI-high cancers, U.S
KEYTRUDA sales grew to just over $600 million in the quarter
Although there was some noise in the channel this quarter, as distributors normalized their inventory levels, if you look at the most recent script data, we have seen substantial growth in demand both year over year as well as quarter over quarter
We continued to build on our leadership position in lung cancer with growth driven by continued adoption of KEYTRUDA monotherapy in high expressers, as well as the uptake of the KEYTRUDA/ALIMTA combination in the first-line setting
Across all of lung cancer, nearly one in three new lung cancer patients in the U.S
are being started on KEYRUDA, making it the most prescribed treatment for new metastatic lung cancer patients
Lung cancer was our largest tumor type, but indications outside of lung cancer contributed to approximately 45% of U.S
sales
In addition to continued leadership position in melanoma and head and neck cancer, we have seen strong momentum for the bladder cancer launch
Within just two months in the second line or greater setting, KEYTRUDA achieved I-O leadership in new Rx share, despite being the fifth market entrant
Outside of the United States, KEYTRUDA continues to maintain a leadership position in the PD-1 class in melanoma
And we are seeing a greater contribution from lung cancer, as reimbursement is established in additional markets in the first-line and second-line settings
Following our recent 1bladder cancer approval in Europe, we're now also working through the reimbursement process for this indication in each country
Early performance in Japan is also strong, with PD-L1 testing rates in lung cancer consistent with that in the U.S
Altogether, we see great opportunity for KEYTRUDA around the world, and we remain focused on establishing KEYTRUDA as a foundation for the treatment of cancer
We also began working side by side with our colleagues at AstraZeneca and are ramping up our sales force to support the ongoing launch of LYNPARZA
We are excited about the opportunity we see with the broader label in ovarian cancer
And we're looking forward to the upcoming opportunity in metastatic breast cancer
Now I'll move to JANUVIA
Global sales for the JANUVIA franchise were $1.5 billion, a decline of 2%
While we saw volume growth globally, we also experienced continued pricing pressure as we've discussed for the last several years
While we expect pricing pressure to continue, macro trends support volume growth going forward, especially outside of the U.S
As a result, we view our diabetes franchise as a relatively stable foundation from which to grow our portfolio of new products
Moving now to our Vaccine business
Global sales were $1.9 billion with growth outside of the U.S
, including the contribution from the European JV termination
Underlying demand for GARDASIL remains strong
And increased patient starts are helping to offset the negative impact in the transition to the two-dose regimen in the U.S
GARDASIL worldwide sales would have grown in the quarter absent our borrowing from the stockpile
Based on current trends, we are confident in the continuous supply in the U.S
going forward
We continue to see opportunities for growth in our Vaccine business, particularly from the continued strength in GARDASIL as we move into the next year
Moving now to Hospital and Specialty
The ZEPATIER launch progressed well in the quarter with growth driven by Europe, Japan, and the U.S
However, we recognize the evolving marketplace and competitive landscape
And while we remain focused on maximizing its potential, we expect significant pressure on ZEPATIER throughout the remainder of this year and into next year
Finally, BRIDION delivered another great quarter with growth of more than 30%, driven by strong demand in most markets around the world, including the ongoing launch in the U.S
We have seen nearly 95% repurchasing from top accounts in the U.S
, which demonstrates the market's continued positive experience with BRIDION
In closing, our results show the benefit from our strong execution and the contribution from launches
We have good momentum in our global oncology and Vaccine businesses in addition to others
And we believe these franchises position us well for success heading into 2018. Now I'll turn the call over to <UNK>
And to answer your question regarding the uptake in lung cancer, I mean in the United States and also in Japan, we're seeing a very strong uptake in lung cancer
And if you look at the high expressers above 50, we're seeing significant utilization of KEYTRUDA monotherapy
If you look at expressers between 1 and 50, that's where we're seeing increased use of the combination with ALIMTA
We're hearing that now that it's in our label, physicians are being more comfortable to prescribe the combination therapy
We're hearing that a lot in the community sector where they treat most of the lung cancer patients
And they're used to using chemotherapy, so they feel very comfortable with the combination
In addition, what we're really trying to work on now is in the non-expressers or in the patients that are not PD-L1 tested to reinforce that we have the indication for the combination to be used in those patients, which we think represents an additional significant opportunity
And we're spending a lot of time educating physicians on those patient types
To give you a rough estimate, we think about 55% of our sales are coming from lung cancer in the U.S
, about 20% melanoma, 10% head and neck, 5% bladder, and then 10% everything else
And with regard to lung, we continue to see good progress
And in the EU, we've worked really hard to increase the number of patients being tested for PD-L1 status
And as you look across the various countries, we're seeing the pickup very significantly
So in Germany, it's over 60% already
In the UK, it's greater than 90%
Our focus right now is really continuing to work through the reimbursement process for first-line and second-line lung
And each and every month, we have new countries that are coming on
And we're getting more and more reimbursement
We'll have to wait ultimately to see more about KEYNOTE-021G before we can comment
| 2017_MRK |
2015 | ULTI | ULTI
#The Strategic market lives in the same exact infrastructure as the Mid-market.
Same management team.
And their per-employee, per-month is very similar to the Mid-market, especially if you ---+ a little higher than the Mid-market.
You're welcome.
There is no gaining factor, it's just ---+ like I said, building the infrastructure before you just bring on salespeople without the solution experts, the technical consultants who support them out there.
But no gaining factor.
We have people all of the time looking for great people.
If someone walked in my office right now and they were great, I would hire them.
Oh, yes.
We always grow average annual productivity.
We call those people legends, the ones you're talking about.
Thank you.
No, just ---+ hey, thanks for being on the call, and we'll talk to a lot of you in a few minutes, and the rest of you next quarter.
All of the best.
And you've got to believe out there, you've got to believe.
| 2015_ULTI |
2016 | RCII | RCII
#Yes, we didn't say that, <UNK>, although, we have been tracking about 20 basis points of sequential improvement every quarter since the rollout of the new sourcing initiative.
So, we've been up 20 basis points in the fourth quarter; 40 in the first quarter; 60 in the second quarter, although in total we were up 120 in the second quarter, but about 60 of that was related to the sourcing event.
I would have expected that we would have been, call it, 60 to 80 basis points up in the core had it not been for the clearance event.
So it did have an impact on gross margins as a result.
Of course now some of those items are in our portfolio, so they certainly will continue to have an impact moving forward.
But we're also in a much better position in terms of percent new moving into the fourth quarter.
So, items that we add to the portfolio now should have a disproportionately positive impact moving forward.
I wouldn't want to suggest that what happened in Q3 will carry over and be the case again in Q4.
I think we also ---+ we're well positioned now as a result of the higher percent new to improve upon the gross margin number that we deliver in the third quarter.
We have not seen instances of retail partners wanting to do this on their own.
Certainly there are other alternatives to Acceptance Now out in the marketplace ---+ none that serves customers to the level and degree that we do by having human beings and co-workers in stores to help overcome objections, and explain the rental transaction, and really nurture the consumer from end-to-end on the process, as well as take the burden off the retail partner by being available to explain the transaction to the consumer.
So from our perspective, albeit there is heightened competition in the marketplace, we still continue to believe in our manned model as we march forward.
Having said that, not seeing retail partners doing this themselves.
In this instance, in the one case I referred to, that retail partner is issuing an RFP to other competitors and ourselves.
And we, frankly, just chose not to participate given the irrational requirements that they were asking for us to acquiesce to.
Again, as we sit here today and we're poised for growth in Acceptance Now, I am a firm proponent of the approach we're taking, and I'm excited about our national accounts approach as well as the other manned locations we've opened year-to-date.
Thank you, Shelby, and thank you, everyone, for joining us today.
Appreciate your interest, your time, your attention, and your support.
Certainly, a challenging third quarter related to our systems issues that, unfortunately, had a material impact in Q3.
As I indicated in my prepared comments, I'm encouraged by current tone of business, trends we're seeing.
And this important fourth quarter, in my opinion, is going to be very productive for us.
So, I look forward to reporting back those results next quarter.
Thank you.
| 2016_RCII |
2016 | FCF | FCF
#Thank you, Chad.
As a reminder, a copy of today's earnings release can be accessed by logging on to fcbanking.com and selecting the Investor Relations link at the top of the page.
We've also included a slide presentation on our Investor Relations page, with supplemental financial information that will be referenced throughout today's call.
With me in the room today are <UNK> <UNK>, President and CEO of First Commonwealth Financial Corporation; and <UNK> <UNK>, Executive Vice President and Chief Financial Officer.
After brief comments from Management, we will open the phone lines to your questions.
For that portion of the call, we will be joined by <UNK> Emmerich, our Chief Credit Officer; and Mark Lopushansky, our Chief Treasury Officer.
Before we begin, I would like to caution listeners that this conference call will contain forward-looking statements about First Commonwealth, its businesses, strategies, and prospects.
Please refer to our forward-looking statements disclaimer on page 2 of the slide presentation for a description of risks and uncertainties that could cause actual results to differ materially from those reflected in the forward-looking statements.
And, now, I would like to turn the call over to <UNK> <UNK>.
Thank you, <UNK>.
And welcome to our first-quarter earnings conference call.
We appreciate your interest and investment in time in First Commonwealth.
Joining me this morning, or this afternoon, is <UNK> <UNK>, our Chief Financial Officer.
Yesterday morning, we reported earnings per share of $0.14 for the first quarter of 2016, which is an increase of $0.03 from the previous quarter, but fell some $0.02 short of the first quarter one year ago.
The shortfall year over year was driven by an outsized provision this quarter, namely a $6 million specific reserve for a single credit, tied to the steel and aluminum industries.
This credit drove a $6.5 million in total provision expense, and really overshadowed the fundamental progress we've made on several fronts.
Let me begin with some encouraging trends this quarter.
First, we had $115 million in loan growth, and $106 million in deposit growth.
A few comments here.
Commercial loan balances were up $150 million, which more than offset $35 million in consumer loan runoff.
We had a strong first quarter in new commercial loan originations, with roughly half in commercial real estate and construction, and the other half in C&I lending.
We're also experiencing good traction from our Ohio activities.
Our ramp-up with our mortgage loan originators, on the heels of our Columbus acquisition, is exceeding our expectations.
Also, approximately $50 million, or one-third of this quarter's commercial loan growth, came from Ohio.
We now have $535 million in outstandings in Ohio, to include Legacy First Community Bank, a new mortgage platform, centered in Columbus, our Northern Ohio LPO, and other C&I and commercial real estate relationships.
Our mortgage loan production continues to increase each quarter and topped $41 million in funded-loan volume in the first quarter.
A healthy portion of our funded-loan dollars are coming from Ohio, where the average loan balance is almost twice the Western PA figure.
Mortgage loan outstandings were $124 million in the first quarter, up from $109 million one year earlier.
The mortgage portfolio growth boosts our net interest margin, but our long-term expectation is still at approximately 70% of mortgage originations will be sold in the secondary market, even though individual quarters will vary, based on how much opportunity we have to do jumbo or home construction mortgage lending.
Lastly, under growth, core deposits grew $111 million, or 10.8% on an annualized basis, to $4.2 billion, due in part to improved deposit gathering efforts in our corporate banking unit.
The second encouraging trend this quarter was a three-basis-point improvement in the margin.
This was a confluence of several factors, most notably, solid loan and core-deposit growth, coupled with the Federal Reserve rate hike in December of last year, which helped support the expansion.
<UNK> will elaborate further here in a few minutes.
Third, our operating expenses of $38.4 million fell well below our stated $40 million per quarter goal.
This is the lowest level since 2007, and propelled our efficiency ratio to 60.1%.
As we've gotten leaner, we've freed up investment dollars to improve our digital experience for clients and add new revenue platforms.
Additionally, we continue to evolve our retail branch banking model, given changing customer preferences and declining branch usage.
I'm struck by the progress we're making in digital delivery, to include markedly better penetration in mobile banking, bill pay, and on-line banking, over the last year.
Our mobile-banking usage has increased 50% over the last year.
Additionally, our on-line account opening platform, Opening Act, is showing steady traction.
All of this has taken place while the number of customer households and checking accounts continues to increase.
In fact, if you look at the supplemental deck on page 7, our non-interest-bearing deposits have increased 11% over the course of the last year.
Lastly, and on a less positive note, the strain evident in the energy and commodity markets percolated again in the first quarter, with a $6 million specific reserve for a local steel-servicing company.
This was disappointing and led to an overall provision expense of $6.5 million in the first quarter, which followed $6.1 million in provision in the fourth quarter of 2015, and $4.6 million of provision expense in the third quarter of 2015.
Provision expense for the last three-quarters was driven primarily by three credits, and each was tied to energy or metals.
We feel we do a good job of monitoring credit, but we could see some strain in the next couple of quarters with our provision expense, as we work through a handful of credits impacted by lower energy and commodity prices.
With credit, we acknowledge the specter of a multi-year price trough in oil and gas and other commodities.
However, our exposure is limited, as we have been disciplined in our loan portfolio concentration limits, which, in turn allows us to service our customers in new segments, but limits the overall downside to the Bank.
As I have shared in the past, we have an internal discipline around energy and credit concentrations which has kept our oil and gas exposure to approximately 1.4% of our total loans, or about $65 million of loan outstandings.
We have also kept the granularity of our commercial portfolio constant over the last several years, so the growth we have experienced has not come from larger exposures.
With that, I will turn it over to <UNK>.
Thanks, <UNK>.
The first quarter's results were obviously impacted by the $6 million specific reserve that <UNK> mentioned earlier.
Beyond credit, however, the Bank experienced strong underlying financial performance for the quarter, in terms of both spread income and expense control.
Net interest income hasn't been this high since the fourth quarter of 2010.
The net-interest margin expanded to 3.29%, and combined with $115.1 million of loan growth, produced improved spread income.
Because our loan growth was funded by $105.8 million in total deposit growth, the loan-to-deposit ratio declined slightly, even while the total cost of deposits came down by 2 basis points.
Loan yields benefited from the December rise in interest rates, which increased the yield on approximately a third of our loan portfolio, over the course of the first quarter.
We had anticipated that increases in deposit rates might be necessary following a rise in rates, but deposit rate increases have not been necessary in our local markets.
We have seen deposit inflows and have experienced virtually no market pressure to raise rates.
Savings, NOW accounts, and non-interest-bearing deposit balances all grew in the first quarter.
Non-interest bearing deposits now represent 27% of total deposits.
Fee income was dragged down by a $1 million mark-to-market adjustment on our swap portfolio, which was driven by changes in the yield curve.
Core swap income, from writing swaps for our commercial-loan customers, was actually quite strong, at $445,000 in the quarter, as commercial customers sought to lock in fixed rates before anticipated rate rise.
Deposit fees were $390,000 ahead of last year, and mortgage gain on sale income continued its steady progression, contributing nearly $700,000 of fee income in the quarter.
Non-interest expense of $38.1 million is well below our announced target of $40 million per quarter and benefited from lower operating costs due to the mild winter.
I am pleased to note that some of the efforts we made over the last few quarters to lower our occupancy expense, by disposing of underutilized branches and buildings, has paid off, in that, if you adjust for snow-removal expense, it has allowed us to absorb the cost of running the newly-added Columbus region, while keeping occupancy expense flat year over year.
Non-interest expense also benefited from the implementation of the restructuring of our consumer businesses, some of which is still taking place.
Looking back at our efficiency efforts over the last several years, the total amount of money we spend to run the Company has fallen from $176.8 million, in 2011, to $163.9 million, in 2015.
That's a decrease of $12.9 million.
More importantly, we're spending that money more effectively.
For every dollar that we do spend, a higher proportion is now spent on revenue-producing lines of business, and relatively less is spent on back-office support functions.
In 2011, only 47% of our non-interest expense was spent on revenue-producing lines of business, which means that the majority was spent on support.
By 2015, that proportion was effectively reversed, with 55% of our dollars spent on revenue and the rest spent on support.
So, we're not just spending less money to run the Company.
We're spending it in a more effective way.
In closing, I would note that our effective tax rate was 30.1% at the end of the first quarter, and we expect it to be in the range of 29.5% to 30.1% in 2016.
And with that we will take any questions you may have.
Operator, questions.
I'm talking about the current range.
I think the guidance <UNK> gave last quarter was ---+ we would be up from our $15 million provision in 2000 and ---+ likely be a little up, and I think the range for you, as analysts, is like $15 million to $19 million.
And I think we could, after $6 million or $6.5 million in the first quarter, we could be in the upper end of that range.
It's what we've talked about.
Credit is volatile.
It's credit by credit.
We work through it quarter by quarter.
And we hope that's not the case.
But we've had some strain consistently here the last three quarters.
Now, our list, in the dugout of credits that are problematic, is steadier coming down, and we're working through them one by one.
But, I just think that's fair to share that perspective with you.
Not exactly.
I'll just give you a little detail, then we can talk about it.
We are in the business of doing swaps for our commercial loan customers, where they want a fixed rate, a lock in their rates.
We want a variable-rate exposure, so we will do a back-to-back swap with them, one at a time.
In addition to just the variable-rate commercial we might originate, if we ---+ people want that kind of arrangement, we'll do those back-to-back swaps, as well.
So, we have a little over $0.25 billion of those on our balance sheet right now.
With those, we have to estimate the probability of default and then as loss-given default, if someone, one of the underlying credits goes bad and we have to, in that event, unwind the swap.
So, that's what the derivative mark-to-market is all about.
It's really driven by corporate bond spreads, for the underlying corporate customers, to kind of estimate the probability of default, and then the loss-given default is really driven buy any changes in the 10-year swap curve.
So, it just moves around with interest rates.
If no one defaults, the number just converges on to zero over time.
Any market in one quarter, eventually you'll get back.
But that's what's really driving it.
What we try to do, is parse out that number in the financials - if you look at the supplemental deck, you'll see that line in the adjusted earnings page and then non-GAAP disclosures on a separate line, just because it's volatile.
One quarter it will be up and the next quarter it'll be down.
It was positive $200,000 in the fourth quarter and negative $1 million here in the first quarter.
It just has that kind of volatility, so we wanted to allow you to see the number and break it out.
What we want to make sure we're clear on, is that, that's separate from the kind of swap income we do when we originate the swap for the customer, and that's the $445,000 figure that I gave for the first quarter.
That number goes right into total fee income, as well.
Does that help a little bit.
Or is that ---+.
Yes.
That's right.
It can narrow over time.
So, like I said, if an underlying credit defaults, and we have done one swap, that's when you might actually have an expense.
This number is just an estimate of that and, so, barring that, it just will, like I said, it'll go up one quarter, down the next quarter and eventually it will converge over time.
Thanks, <UNK>.
Yes, I can do that.
We have about six or seven.
One is a scrap processor in our backyard, at about $8 million.
Another one is the credit last quarter that we took a specific reserve for, which was $6.8 million, and that's the oil-field-services company.
And I think we took $6.1 million, if memory serves me right on that one.
Is that right, guys.
$4 million ---+ okay.
And, then, we have an oil-field pipeline and construction services company.
That one is $2.5 million.
Then we have one that has been around for six or seven years that we've talked about from time to time.
This is the shallow-gas-well company, based here in Pennsylvania, and that's $2.4 million.
And, then, we have a larger manufacturer of mine safety products, and that's about $10 million.
And so that's really the dugout that I mentioned.
And then, of course, the one this quarter, which we took - and this was on the watch list and this was a credit that was an $11 million credit, that we took the $6.1 million.
That's the list.
Yes, sure, I can address that.
So, last quarter we gave guidance that our margin being in the $3.20 to $3.30 range.
We would stick with that guidance.
The Bank did get the benefit of rising rates, just because about 46% of the total Bank's portfolio is variable, or adjustable rate, and about two-thirds of that, which means about a third of the total portfolio, actually did adjust up in December.
We've had really good results with deposit inflows to fund loan growth, so, we really have not been compelled by market forces to raise rates.
We have started to raise ---+ offer some specials in our local markets.
It really didn't affect numbers in the first quarter.
They might affect numbers in the second quarter, though we started to raise some rates in deposits just to test the waters and test the elasticity of the local deposit market, to rising rates.
That's, actually, been quite effective.
So, there might be some of that, that impacts the margin the second quarter.
And that's why I would stick with that $3.20 to $3.30 guidance.
So, the second part of your question, the rising rates would definitely help us.
We have been seeing, for some time, were asset-sensitive.
For the most part, we're fairly neutral when we publish our current yield-curve shifts in the first year; then the real asset sensitivity kicks in, in the second year.
Some of that near-term asset sensitivity is growing a bit, as we've had such a robust loan-origination activity of variable-rate loans here, early on this year, and if that continues, that'll just increase our asset sensitivity throughout 2016.
I would just add to <UNK>'s comments, as we tested the elasticity, we had a figure in mind of deposits we want to raise.
We thought that would take us several months, and it took us about three-and-a-half weeks.
So, we feel like our deposit book is well positioned, should we get to the point where rates begin to rise, that we can ---+ our customers will move some money to us and they're pretty loyal to us.
So, that was a pleasant surprise, as well.
I think we've given the guidance around sub-40, and I think that still holds true.
We really accelerated some retail transformation from, really, the latter part of the second quarter, into December in the first quarter.
So we're getting some benefit from that.
We might see a $0.5 million tick-up in more personnel expenses, but we've ---+ we're in pretty good shape with expenses.
And we've really not only kept them flat to down, but we took the savings and really built out a mortgage platform, an Ohio platform, without increasing expenses.
And as <UNK> shared, the mix of our composition of our expenses have changed markedly from, really, more staff to more in line in customer facing.
So we feel good about all of that.
And we'll continue to make progress there.
The catalyst was really operation excellence, our conversion several years ago.
It really allows us, also, to get to market quicker with digital solutions.
I think that's benefiting some of the deposits and some things that you're seeing in more of the ground game, with our loan and deposit growth, in terms of just having better offerings for our clients.
Yes, the loan growth we're seeing for last year and in the first quarter of 2016, is predominantly on the commercial real estate and the construction side.
We've had a little growth in the C&I side, but certainly not as much.
We're just looking at kind of quality regional projects with good developers, nice anchors.
Some of them, we're doing direct loans.
Some of them, I would say, are more club deals with two or three banks, $20 million to $30 million, nice construction project, really in a community bank circle.
And, they're just nice projects.
I think we have a good brand in Western Pennsylvania and Ohio.
It's just a ---+ it's really been a nice tailwind for us.
If you really look back, since 2012, we've just had ---+ we've had almost $450 million of growth.
And these construction projects are not ---+ they're not speculative.
They're really good anchors and really some quality projects.
That's correct.
Correct.
Yes, the pipeline is pretty strong.
I think that what I had shared in the past, maybe in the third or fourth quarter, was we probably had $100 million of takedown in construction that would propel our portfolio forward, if we did nothing.
We still feel that way.
We've probably used a little bit of that, but not all of it.
But ---+ so, we'll have some loan growth there, just on the takedowns on approved construction, quality construction loans.
So, it's remained relatively robust on the commercial real estate and the construction side.
Yes, we are.
I think that, consistent with what we were talking about last quarter, a lot the growth in fee income we see this year is going to come as the mortgage business we have continues to grow, because that's generally designed as a originate-to-sell model.
Originate-to-sale ratio, we generally project over the long term, is about 70% sold, versus 30% retained to portfolio.
Now, if we have opportunity to do a construction loan on the residential side, or jumbo loans, those would generally stay in portfolio, so that will change the mix on a quarter-by-quarter basis, but really, generally, it's going to be originate-to-sell model.
So as that model ramps up, and we continue to hire more mortgage-loan originators and build that business up, that's really the thing that's going to drive the income up.
It's actually related to the question that came up earlier on the non-interest expense and why we're sticking with the $40 million guidance, because, as mortgage originations go up, you're going to be also paying origination fees and commissions on that, and, so, that's going to go into a non-interest-expense base, as well, but it should drive fee income for the Company.
That's ---+ mortgage, growth in mortgage gain on sale can show you the primary driver.
We have seen some ---+ a little bit of seasonal slowdown in some of the brokerages and other businesses, and some of those are actually looking a little better in the second quarter.
So, those will contribute, as well, as will our insurance business, which is benefiting from the acquisition of the insurance agency that we did last year.
So, those are meaningful contributors, as well, but the growth this year is really going to come from mortgage gain on sale.
Thank you.
Thanks, <UNK>.
Just appreciate your sincere interest in our Company and thank you for your thoughtful questions.
And if you have any follow-up questions, don't hesitate to call either myself or <UNK>.
Have a good afternoon.
| 2016_FCF |
2017 | CPB | CPB
#Thank you, <UNK>
Good morning, everyone and welcome to our fourth quarter call
Today, I’ll focus my remarks on the marketplace, our performance, our plans and our outlook for fiscal 2018. As we’ve discussed previously, the operating environment remains challenging across the food industry
While macro economic conditions in the U.S
continue to improve in the quarter, the seismic shifts we’ve described in the past continue to alter the consumer food and retail landscapes
These disruptions include shifting demographics, changing consumer preferences for food with a focus on fresh and health and well-being and increase snacking behavior, a range of socioeconomic forces and technology advancements that are reshaping the consumer shopping experience
Additionally, there is no denying that the retailer landscape is changing dramatically with the emergence of new players, new store formats, and evolving business models
Several variables are at play, including value players expanding their presence in the U.S
, the growth of store brands and the explosion of e-commerce and meal delivery services disrupting the market
We expect conditions to remain hypercompetitive for the foreseeable future
In this environment what is Campbell doing to compete differently? First, we’re prioritizing investments, aligning our resources to future growth areas and creating opportunities from the disruptions in the market
To our growth agenda, we’re focusing on four strategic imperatives to strengthen our core business and at the same time expand in the faster growing spaces
Second, we’ve redesigned our retailer selling and support capabilities in June of fiscal 2017. Our new integrated structure aligns our sales and marketing resources to drive growth with existing customers and to pursue business in new channels
We’re rethinking our approach to collaborating with key customers around platform merchandising, such as health and well-being and snacking
We’re enhancing our data-driven shopper insights
And through our strategic foresights work, we’re better positioned to drive innovation and customization across both the perimeter and in the center store
Most customers have welcomed this new level of engagement and collaboration
Third, we’ve established a distinct digital e-commerce business unit to address both pure play and omni-channel opportunities
Finally, we believe that investing to differentiate our brands is the best way to appeal to consumers and build loyalty in a crowded market
Make no mistakes, these shifts are accelerating and converging and they’re having a dramatic impact on Campbell and across the industry
In this environment, sales growth remains challenging
With this as a backdrop, our performance in the quarter was mixed
Organic sales declined 1%, while adjusted EBIT and adjusted EPS, both increased double-digits
Despite multiple headwinds, we finished fiscal 2017 within our guidance and delivered another year of growth in adjusted EBIT and adjusted EPS
For the fourth quarter, our Global Biscuits and Snacks performance was slightly below what I would have liked in terms of the top line, but the team delivered a double-digit earnings increase versus the year-ago quarter
Americas Simple Meals and Beverages continued to deliver against its portfolio role, with sales performance in line with the categories in which we compete and margin expansion
I’m not happy with our performance in Campbell Fresh, but remain encouraged by the progress we’ve made this year to address our key executional issues
C-Fresh delivered modest sales growth and we expect this business to return to profitable growth in fiscal 2018. Let me now offer my perspective on each division’s performance and highlight our plans for fiscal 2018, starting with Global Biscuits and Snacks
Overall, I’m satisfied with the performance of the division in the quarter
Organic sales were comparable to a year ago, with expected gains in Pepperidge Farm, but below my expectations in Arnott’s due to our performance in Indonesia
Importantly, the business delivered a double-digit increase in operating earnings
I’m particularly pleased with the performance of Pepperidge Farm snacks, especially the Goldfish brand, which once again delivered strong sales results
In the quarter, growth was fueled by larger pack sizes
Over an extended period of time, this team has delivered a steady cadence of innovation and effective marketing programs, while also expanding the brand’s health and well-being credentials with organic and whole grain offerings
I’m also enthusiastic about the launch of our new Pepperidge Farm Farmhouse Cookie line, a thin crispy cookie made with simple ingredients
Farmhouse is on track to be the biggest Pepperidge Farm snack launch in more than a decade
In Australia, the team delivered growth in biscuits behind the return to the original version of Arnott’s Shapes crackers
Additionally, our new Tim Tam gelato-inspired varieties performed well
Segment operating earnings increased 35%, as a result of our strong enabler program, a return to more normal marketing levels and reduced administrative costs
Looking ahead to fiscal 2018, we expect to grow sales in Global Biscuits and Snacks
In Pepperidge Farm, we intend to dial up our real food and health and well-being efforts by emphasizing our goodness credentials
New snacking consumer insights will also shape how we connect with our consumers develop new packaging formats and adapt to new retail environments
In particular, we have plans to extend Goldfish to older kids, a new demographic for the brand
We’ll continue to execute the successful marketing strategy that has led to both sales and share gains this year by investing behind our proven Milano Moments’ campaign
We also plan to build on the successful launch of Farmhouse Cookies and drive increased trial of Tim Tam biscuits in the U.S
from both traditional retailers and e-commerce channels
In Australia, we have plans to strengthen our core with new varieties of Shapes crackers, expand our health and well-being offerings with new Arnott’s Vita-Wheat cracker chips and Cruskits products, drive on-the-go snacking with a variety of new multi-pack single serve products, and we recently launched an integrated Arnott’s master brand advertising campaign to support the business
Turning now to Campbell Fresh
I’m not satisfied with the performance this quarter, but I’m optimistic that our key executional issues are now largely behind us
In the fourth quarter, Campbell Fresh returned to growth with a modest 1% increase in sales, driven by Garden Fresh Gourmet in our farms business
However, sales in the beverage business declined slightly as we continue to deal with capacity constraints, largely due to newly enhanced quality processes we put in place, both in our plant and with our new co-packer
As we previously said, we began increasing promotional activity towards the end of the fourth quarter, and we continue to expect to ramp up to normal promotional levels during the first quarter of fiscal 2018. Let me be clear, I’m disappointed with the operating loss in Campbell Fresh this quarter, which reflects a number of costs that are one-time in nature, including higher carrot costs, as well as increased expenses to further refine our new quality protocols
We have plans underway to increase efficiencies as part of our overall effort to eliminate supply constraints and improve margins, while delivering our new higher-quality standards
As I said before, we’ve learned some tough lessons in C-Fresh
Despite the executional challenges, we remain confident in the growth potential of the Packaged Fresh category, and believe our C-Fresh strategy is sound
Throughout fiscal 2017, we took steps to build a stronger foundation for growth under our new C-Fresh leadership team
Looking ahead, we plan for the business to grow profitably in fiscal 2018, as we return to more normal capacity and promotional activity across the beverage portfolio
We also have a robust innovation pipeline to help fuel additional growth and we’ll begin to introduce new beverage products to the market, such as plant protein milk
We also plan to expand distribution of Garden Fresh Gourmet sauces and fresh soup
Finally, our largest division, Americas Simple Meals and Beverages
Similar to other center store categories, sales declined
Organic sales decreased 3% in the quarter, driven by soup and V8 beverages
Operating earnings increased 4%
Let me start with our shelf stable beverage business
Sales declined in the quarter
As we’ve discussed previously, the entire shelf stable beverage category has been hurt by ongoing consumer concerns about sugar and calories, and by consumer shopping the store perimeter for fresh juices and other functional beverages
These trends continue to negatively impact our V8 portfolio, in particular, V8 V-Fusion and V8 Splash
However, V8 100% Vegetable Juice and V8 +Energy continue to meet the demands of consumers seeking beverages that deliver health and well-being benefit
In the quarter, consumption of V8 Vegetable Juice increase behind our ongoing media investment, focused on our core baby boomer consumers and we expanded distribution of V8 +Energy
Looking ahead, as discussed at our Investor Day, we have a clear strategy to improve performance of the V8 brand with continued focus on V8 Vegetable Juice, the revitalization of V8 Blends with new benefits focused messaging on the front of the label and steady growth V8 +Energy
While our performance will improve, we do not expect this business to return to growth in fiscal 2018. Now let’s turn to soup
As you know, this was a relatively small quarter for U.S
While consumer takeaway was consistent with a year ago, soup sales declined 4%, all of which was related to lower retailer inventory levels
For the year, U.S
soup sales declined 1%, while sales of condensed soup and broth declined, I’m pleased with the growth of our ready-to-serve portfolio, including Chunky, Slow Kettle and the meaningful contribution from the successful mid-year launch of our new Well Yes! line
We’ve modified our outlook for 2018 in U.S
soup, since we spoke in July for sales, as we now expect additional headwinds, let me explain
As I mentioned at the outset of my remarks, the retailer landscape is changing dramatically amidst intense competitive activity
Each year, we enter a set of complex negotiations with our key retail partners
Our goal is to drive growth, both for our customers and for Campbell
Unfortunately, this year we’ve been unable to reach an agreement with a large customer on a promotional program for soup
We expect this will negatively impact our U.S
soup sales with this customer, particularly in the first-half Accordingly, we now expect our soup sales to decline in fiscal 2018. We are taking a number of steps to mitigate the profit risk, and of course, we’re continuing discussions with this customer to create a win-win solution
We believe, our fiscal 2018 soup lineup and promotional programs are strong, and we’re pleased that, they’ve been well received in the balance of the marketplace
For the upcoming soup season, we’ll build on the continued launch of Well Yes! Soup and introduced five new varieties
We have compelling brand partnerships with popular movie franchise to drive our kids’ soups
We’re rolling out innovation in Swanson broth
We have robust holiday plans across the portfolio
We’re launching the New Chunky Maxx line with 40% more protein, and we have strong integrated marketing, including a New Chunky campaign that fully leverages our NFL sponsorship
We’ll continue to work closely with all of our customers to maximize the sales opportunity during the upcoming soup season
And now a quick update on the pending acquisition of Pacific Foods
You may have seen recent media reports regarding a lawsuit involving the estate of one of the co-founders in Pacific
Campbell is not named in the suit and we’re not going to comment on the litigation
We remain enthusiastic about Pacific
It will add another purpose-driven brand, with a track record of growth to our portfolio
We’re working to resolve outstanding issues, so that we may complete this transaction in the coming months
A highlight for fiscal 2017 was our successful multi-year cost savings initiative
As announced this year, we increased our target by $150 million and now expect to deliver $450 million in savings by the end of fiscal 2020. We remain committed to managing costs aggressively and reinvesting a portion of the savings back into the business in fiscal 2018 to position the company for long-term growth
As we outlined in July, we’re focusing our investments on our four strategic imperatives, as we believe, these areas will be future growth drivers of our business
First, as I mentioned earlier, we created a new e-commerce business unit to scale our capabilities across North America, including content creation, data analytics and forging new partnerships
Expanding our e-commerce organization is critical to capture more than our fair share of the rapidly growing market for online grocery, which we expect to reach $66 billion annually by 2021. We’re in a good position to do so with experienced digital and e-commerce leadership in place and a solid strategy to develop new capabilities
Second, we’re targeting increased investment in snacking, as consumers continue to seek new and better-for-you snacking options
The snacking market is worth approximately $125 billion in the U.S
alone and growing around 3%
We plan to invest in people and resources to expand our business beyond cookies and baked snacks to other snacking and mini meal categories
Third, we’ll continue to invest in our real food credentials in our core business; including adding more vegetables and whole grains; converting all our soups to chicken with no antibiotics, while continuing to eliminate artificial colors and flavors from our products and completing the removal of BPA from the lining of our cans in the U.S
and Canada
Finally, in the health and well-being space, we plan to invest across the company, focusing on food with attributes such as natural, organic, functional and fresh
Additionally, for the longer-term, we’ll continue to fund Habit, our personalized nutrition start-up
We’re applying the learnings from our successful beta test in San Francisco, as we expand the service nationally
We continue to expect multiple business models to emerge that ultimately will create value
These four strategic imperatives represent significant growth potential for Campbell, as we continue to differentiate our company and our brands over time
The rapidly evolving marketplace requires new approaches and smart investment to engage with new and existing customers to make our brands more relevant to new generations of consumers, while satisfying our loyal core consumers and to explore new models of innovation
This longer-term view sometimes comes at the expense of shorter-term performance
We have our eye on the long-term targets, as we continue to believe that they are attainable
However, to achieve them, we must further invest to diversify our portfolio towards the faster-growing consumer spaces of health and well-being and snacking, while increasing our participation in the growing e-commerce space
And we must do this, while raising the bar on transparency and making our food more real and more sustainable
Looking ahead to fiscal 2018, we expect sales growth in both Global Biscuits and Snacks and Campbell’s Fresh
However, we expect sales to decline in Americas Simple Meals and Beverages
As I outlined earlier, U.S
soup sales will be negatively impacted by lower promotional support with a large customer
Additionally, we do not expect our V8 beverage business to grow in fiscal 2018. Given the difficult operating environment, the outlook for our Americas division and our plan to invest back in the business for the long-term, we expect net sales to change by minus 2% to 0%, adjusted EBIT to change by minus 1% to plus 1%, and adjusted EPS to change by 0% to plus 2%, this guidance excludes the pending acquisition of Pacific Foods
<UNK> will walk you through additional details during his remarks
In closing, across the industry, the pace of change and disruption continues to accelerate
We expect the operating environment to remain challenging in fiscal 2018. Campbell is prepared to address the short-term challenges we’re facing, and make the necessary investments to position the company for long-term growth
Our purpose, growth agenda and strategic imperatives provide the guide as we take the steps to be the leading health and well-being food company
Thank you
And now I’ll turn the call over to our Chief Financial Officer, <UNK> <UNK>
Good morning, <UNK>
<UNK>, you raised a very good point and it’s always a very thoughtful process to balance the performance in the short-term with significant long-term investments
In this environment and for the last several years, we have been acting very decisively and aggressively
When you think about it, we bought five companies in the last five years
If you include the pending acquisition of Pacific, we divested lower performing businesses
We have closed several manufacturing facilities and consolidated assets and giving – give – invested to give us much more flexibility and cost savings in our supply chain
We’ve realized our cost savings program over delivering the $300 million a year early and setting a goal for another $150 million, which we have a line of sight to
And we’ve really amped up new models of innovation going into places that we haven’t gone before
So we haven’t been sitting still for a moment
And this continued stream of investment is on top of all of that activity
And we believe that the investments that we’re making really – are in sufficient support in 2018 to get these ideas jumpstarted and/or continue to invest where we have already been activating
And so I’m comfortable with the fact that, it’s the right level of investment and we’re still able to show some EPS and EBIT growth in the process
Hi, Matt
Yes, we don’t necessarily comment on the specifics with a customer, but let me answer the question more in aggregate
Our negotiations with customers for soup season involve joint business planning with plans for spending and merchandising linked to a sales goal
And what we seek are win-win-win solutions, win for the consumer, win for the customer and win for Campbell
And so, in this particular situation, we were not able to achieve that negotiation
And so what I can tell you though is, our programs are strong, our A&C investment is robust and our new products are really unique with the Well Yes! and Chunky Maxx
And they’ve been really well received by customers in general in the marketplace, and we will continue to keep the dialogue open and strive for that win-win-win solution
Yes, I think that the – again, as I said, I think the retailer environment right now is hypercompetitive
I mean, you’ve got the Amazon acquisition of Whole Foods, the expansion of Leadle and Aldie, creating some new retail formats and some escalated competition in the marketplace
However, I’m optimistic that retail continues to morph
I mean, I remember and I’m going way back when club stores and supercenters were a new format
And the retailer market and companies like ours adjust to that
So we’re really focused on making our brands accessible in multiple channels, and we believe that the new sales design that we have will help us in that effort
So, yes, I do think these are challenging times
And I do think that, as the consumer changes, retailers will change with the consumer and we’ve got to do the same
Hello, <UNK>
So in the snacking area, I’ll take it in three parts
The first is our internal innovation
And we have real insights about the frequency of consumer snacking and mini meal consumption now five times a day as opposed to only about a third of the population eating three square meals
So we think that’s a very rich space for us to expand with our brands internally
So we have a concerted effort across the enterprise to really look at the – a series of platforms that we’ve identified and bring health and well-being more into the front and center on snacking, starting with mindful kids snacking, which we think is a good base for us
So the investment is really in the people and resources to amp up that internal innovation
The second part of it is partnerships, and we’re continuing to look at partnerships like Chef’d, for example, where we can actually incorporate our brands into new models and accessible channels
And then the third would be, smart M&A
And we continue to be very disciplined about the M&A that we do and this will be no different
But this is an area, where we have an interest, particularly in the better-for-you snacking arena
So it’s really a three-pronged approach, but we do believe that’s a very robust space for us as a company across the enterprise
I think that’s built into the growth expectations for the Global Biscuits and Snacks Division, and some of the innovations that we will be developing will also be hitting the marketplace in future years
Thank you
I’m comfortable that we’ve given you the information that we’re willing to disclose
So, beyond that, I don’t believe we should be talking about the details
Yes, we have a very disciplined robust process with our customers in joint business planning, which starts with discovery of opportunities, development of ideas, decisions made and then delivery and execution
And so, we have been working on these joint business plans for many years with many customers
They really involve things like pricing merchandising shelves, performance, consumer activation, customization, packaging, product assortment, they’re very, very comprehensive strategic plans that we co-develop with our customers
And we have very strong programs this year and very robust plans with customers
So I’m optimistic with this other one situation that we will get to a win-win solution
Hi, <UNK>
We’re not experiencing this in other categories
We believe that we have the right balance of strengthening our core business and at the same time expanding into faster growing spaces
So, again, we believe that we are spending adequately and aggressively in our Global Biscuits and Snacks in our Campbell Fresh business to build those very on-trend categories
Just a reminder, though, the soup business is still a very large and profitable business for us, and we have to keep our brands differentiated and relevant
And so we’ve been really investing very specifically in the real food credentials of our core business to better satisfy consumers and customers and innovation to keep the center store robust, which is definitely needed in today’s environment
We – that said, we have had really good margin expansion in the category and we’re operating as a company very profitably
So, I do think that if there are M&A opportunities out there that we can bolt-on or supplement what we’re doing, we are open to that, but we’re again, very disciplined about our approach to that
Hi, <UNK>
Private label has definitely been around for a long time and has traditionally been below average share in our categories
And acknowledging the fact that we did feel the impact on Swanson broth this year
We believe in a world of private label that the best insulation is brand differentiation and that’s where we’re focused
And so, and the other – the flip side of it is, in the Fresh business, we do participate with store brands in some of our fresh categories
So it’s not a one size fits all on how to work in an environment with private label
Yes, we have specific plans to differentiate broth this year
| 2017_CPB |
2016 | NBHC | NBHC
#Thank you.
Thanks, <UNK>
Good morning, <UNK>.
No, <UNK>, what we're trying to broadcast is the energy---+ we expect we will have charge-offs to the energy that will move the allowance number, but what <UNK>---+ I think did a real good job---+ was giving you the provision for loan losses ---+
<UNK>, <UNK> actually referenced this.
We have $11 million specifically against the non-accruals.
And call it just under 3.5% of that 3.4% against all other of the performing loans.
Go ahead, <UNK>.
I think you will see a big make-up here in the second quarter.
We saw a fair amount of business slide into the second quarter, and we are benefiting from that in the early stages of this quarter.
<UNK>, I actually feel very good about the prospects for our loan growth.
Again, a lot of what we have done has been related to taking market share, earning new relationships.
And so as we look at our pipeline, our queue of opportunities, I think our bankers are getting more traction every quarter.
I want to go back ---+ you asked a very good question about the resolution of these four specific energy credits.
I want to remind you---+ I don't really have to remind you, you all know, our special assets teams worked through roughly $2.5 billion of acquired, very troubled loans.
They did so very successfully.
We do not think the outcome with these four specific credits will be any different in terms of their ability to successfully resolve these situations.
So I think that is important context.
You bet.
Amy.
Thank you, Amy, and as always to those of you that had questions for us this morning, thank you for taking the time to research our business.
Very thoughtful questions, and we hope we answered them adequately.
And certainly invite any follow-up.
Have a good day.
Thank you.
| 2016_NBHC |
2016 | OXM | OXM
#Well, both, hopefully.
The benefits of the combination, which will take a year or two really to realize, are that Oxford Golf was part of the Oxford Apparel Group that we sold a little over five years ago now.
And when we sold that business to Li & Fung we retained Oxford Golf, which was really the one part of that business that was an owned brand within the whole Oxford Apparel portfolio.
So it sort of sat out on its own as a less than $20 million business, really as sort of an orphan on its own.
And it's hard for it to be as efficient as it could be from an operating leverage standpoint when you're that small.
So if you look at it sort of from the Oxford Golf side, putting it in as part of a larger organization will help with profitability over time because they can leverage off of Lanier's platform and infrastructure.
From the Lanier side, what it does is more and more their customers just want them to be a private label resource.
Their product skills historically are all in the highly constructed, tailored business, so real dress trousers and tailored sportcoats.
More and more their customers are asking them for sportswear-type products.
They were slowly developing those skills on their own, but by adding Oxford Golf into the mix they immediately have a high level of competence in a wide range of sportswear products.
So it should help develop sales opportunities as well as help with profitability.
But it won't all happen over time.
Obviously in 2016 we're not planning on seeing a whole lot of that.
But we think that that will develop and help on both fronts.
So I'll start with the first question about what we think is going on.
I think there are a couple of issues.
Obviously, <UNK>my is very ---+ has a very big presence in some markets that have a heavy foreign tourist element.
So a place like Hawaii in particular has a lot of Canadian tourists, Australian tourists, Japanese tourists, other tourists.
Most of those places, and take Canada as an example.
The currency has devalued significantly against the US dollar over the last year.
And so when those folks ---+ either they aren't traveling, or when they come all of a sudden things feel very, very expensive to them.
And we think that's a significant part of the issue.
Beyond that, <UNK>, I think it's ---+ while we do think the tourist part of it's a big piece of it, there's no doubt that it's also the domestic guests, the US guest that's not showing up as much as they did.
And we believe it has to do more with sort of what's going on in the financial markets and in the headlines than it does the actual economy.
As you know well, I think if you look at most of the key economic indicators, they're really sort of where they've been for the last couple of years.
We're in this mode of a painfully slow recovery, but a recovery nonetheless.
Particularly at the beginning part of this year, we saw sort of a disconnect between the economy and the financial markets where we had huge drops in the financial markets.
And we think for our customer those kinds of events matter a lot and have impacted their willingness to spend money right now.
We don't think we're alone either in what we're seeing in traffic.
It has slowed down but it's ---+ online's better than stores.
Well, certainly we're doing a lot of business there.
It immediately jumped to one of our top locations in Hawaii.
All that said, it's not in any way immune from this sort of general down-draft that you have going on in Hawaii.
So it's a bit like the women's situation.
When you're in a down market it's a little hard to know how you're doing.
We are doing a lot of business there.
It's not quite as much as we'd like to be doing.
But we're not doing as much business anywhere in Hawaii as we'd like to be doing right now.
<UNK>, I don't know if you ---+
We think we are seeing Japan, we're seeing some good pick-ups in Japan, which we think Waikiki is helping that.
So that's encouraging.
It's a very small base, but it's encouraging to see good comps in that market.
The calendar for the month of March, which is a big month for us, is really significantly different than it was last year.
So <UNK>, I'm sure you're familiar with the Lunch at Lilly promotion, which was almost two weeks ago now on Saturday.
That was a week earlier this year than last year.
Easter's shifting.
That, for some school systems, ends up shifting the Spring Break.
So the year-to-year comparison's a little tough to fully get our arms around.
But we think we're doing quite well this year.
Yes.
We think we're ---+ we believe we're doing quite well.
And of course as you get closer to the end of the month, the timing differences during the course of the month become less meaningful.
And month to date we're looking really good in Lilly.
Thanks a lot.
Hey, <UNK>.
Well, I think the characteristics of what we're looking for in a potential acquisition really haven't changed over time.
We've been very consistent with these, really for the last decade.
So we'd like a strong lifestyle brand, a good management team that we're ---+ or the type of people that we'd like to continue with, distribution that's sort of ---+ if you think of it as sort of Nordstrom and up-type distribution, that's what we're looking for.
And finally, something that's got a ---+ got the potential, at least over time, to have its own retail stores and e-commerce business.
So that hadn't really changed.
In terms of size, we think anything up to $200 million or so in revenue would be a good size for us.
If you get much below $25 million or $30 million in sales, you get into a zone where you question whether it's big enough to spend the time and energy necessary to get it done.
But somewhere in that zone is a good zone for us.
And there are actually a lot of privately held apparel companies that fit into that size range.
So does that help.
Okay.
You know where to find us.
We had an awfully bodacious comp in Q1 of last year.
We really ended up having it through the whole year.
I think the ---+ I'm trying to help you out here, <UNK>.
The first half certainly will be much tougher comps, given the momentum we had last year where last year we comped up [20%] and then we comped up [41%].
Those are certainly tough numbers to go against.
I think these shifts <UNK> talked about pretty much flushed themselves out by the end of the first quarter.
It's just within the quarter there's some big shifts within the quarter but by the time we get out of the quarter, shifts in the Lunch with Lilly and Easter kind of flush themselves out.
But the first half are definitely difficult comps.
But as <UNK> mentioned, we have a bigger database.
We've got some great marketing plans and we've got great product.
We certainly don't expect to match the comp level of last year, but we do expect positive comps even though we're going against a difficult period.
And then it'll ---+ although we had very, very good comps from the second half of 2015, they're not quite the level they were in the first half.
And they're also off of smaller numbers so they don't drive as much in terms of dollars.
So first, where we are right now is we're comping negatively sort of in the mid-single digit range.
And that's basically what we've got baked into our first quarter forecast.
And there are two parts, as I mentioned, of what's driving that.
First, we don't necessarily see traffic picking up.
And secondly, we had a loyalty gift card promotion that hit the end of first quarter last year that won't be in first quarter this year.
As to second quarter, we have the full loyalty gift card promotion in there this year whereas we didn't last year.
So that should help a good bit with the comp in the second quarter.
And I think that's part of our assumption of where we're going to get to a positive comp.
And then as you get into Q3 and Q4, we were having negative store comps in 2015 so the comparison gets easier.
But to be very direct about it, <UNK>, things do need to get a bit better from a macro standpoint in terms of this traffic issue or it's probably going to be hard for us to you achieve our plan.
We think we've got the best.
We balanced all this appropriately in our forecast, and we're playing it straight down the middle.
But it does need to ---+ things do need to pick up a little bit.
I don't think we mentioned it, but we can give you a little color on what the e-com growth rates were for the quarter.
If you'll bear with us just a second.
Don't want to give you wrong direction here.
12% at <UNK>my in Q4 and just under 25% at Lilly.
(Inaudible) very strong e-commerce quarter for you us.
We moderated both comps some going forward, just because they're going against a bigger base.
But we still see e-com being the stronger comps than our brick and mortar.
Thanks a lot, <UNK>.
Thanks again for your time this afternoon.
We very much appreciate your interest in our Company.
And we look forward to speaking to you again in June.
| 2016_OXM |
2015 | LAMR | LAMR
#Thank you, Tiffany, and good morning and welcome all to Lamar's 2015 Q1 Earnings Call.
I'm pleased to report a great quarter.
We seem to be hitting on all cylinders.
In fact, we haven't seen this kind of top-line growth since the great recession, so that's nice to see.
Let me highlight three data points from the release before I turn it over to <UNK>.
Number one, local sales are exceptionally strong, up 6.7%.
If you look behind the strength in our bulletin sales, it was almost all driven by rate.
That is great to see.
We haven't been able to say that, again, since the great recession.
That is a good thing, and hopefully continues.
That all translates into an exceptional 32% increase in AFFO per share.
That of course is the key metric by which REITs are measured.
I think that again is exceptional performance.
<UNK>.
Okay.
Good morning, everybody.
First, let me just say that as far as the press release itself, all the revenue numbers in there are daily, including the pro forma results.
There are no more hybrid daily/monthly mix of numbers in there, nor will there be going forward.
As you saw on a reported basis, revenue was up 6.2%, EBITDA was up 13.6%.
On a pro forma basis, revenue was up 5.2%, of which almost all of that increase came from the billboard segment, which generates approximately 90% of our annual revenues.
Pro forma consolidated expenses was up 1%.
The resulting pro forma EBITDA increased 12.3%.
As these numbers illustrate, mid-single-digit growth in revenue and low-single-digit growth in expenses produced significant increases in EBITDA.
As a footnote for the past five years, 2010 through 2014, our pro forma consolidated expense growth averaged 2% per year during that period.
A couple of other items to note for Q1.
Our EBITDA margin was 39.2% versus 36.6% last year.
In the first quarter a pick-up of almost 3 points.
<UNK> mentioned AFFO per share.
On an actual basis, the actual AFFO increased by $20 million, or 34%.
Cash interest expense declined by $5.5 million.
That was due to some opportunistic refinancing that we completed in 2014.
Last, for 2015, we project our D&A for the full year to be approximately $200 million.
<UNK>, with that, back to you.
Great.
Let me highlight a few other statistics for you.
I mentioned local sales at 6.7% up.
National in the first quarter was up 2.5%.
The tone of national business seems to be improving slightly, and we think it will turn in a slightly better performance in the second on the national side.
While we turned in 5%s and 6%s on the top in Q1, it is going to be difficult to repeat that performance in Q2.
We're seeing things that are more in the 3% to 4%-ish top-line growth.
Tone of business for Q2 is fine.
We are going to ---+ we hopefully will turn in a nice print, but it's not quite as robust as what we saw in Q1.
That probably has something to do with the comps.
Two other stats.
On the digital side we were very busy in Q1.
We added 58 digital units in Q1.
Please don't multiply that number by four.
We're planning on being aggressive, but not that quite aggressive, throughout the course of the year.
You can model something in the neighborhood of 175 to 200 new digital units for 2015.
Let me highlight a couple of categories of business.
Some are just stats, but others are a little more meaningful.
On the service side we did exceptionally well.
Our service revenues were up 17% for that category of business Q over Q.
Hospital and health care was up 8%.
Automotive was up 4%.
Big categories doing well.
But I really want to talk about two other ones.
As you know, really since 9-11 and through the great recession, we've been struggling with the hotel-motel category.
It appears to have stabilized, and gotten back into our top ten categories, which we haven't seen that in some time.
At 3% of our book of business, it is now number 10.
That is good to see.
Finally, the real estate is knocking on the door of our top ten categories, which it hadn't been in since the great recession.
Real estate in Q1 was up 15%.
Seeing relative strength in those two categories, which again portends well for the future.
Before I turn it over to questions, I do want to mention one other initiative we have going.
You hear a lot about automated billing in both the out-of-home industry and other ad-supported platforms.
We went live with our automated billing platform last weekend.
We had a test customer go up and run it through its paces.
By all accounts, it performed well.
This was a test case, automated buying customer.
We hope in the next couple of weeks to go live with paying customers.
We will see how that goes.
For the industry this is very important, because the ad budget pie is separate from the digital budget pie.
Things that go through this automated buying process come out of digital budget.
For us to get a piece of that going forward is an important thing.
More to come on that.
We will probably do some sort of release on those results in incoming weeks.
With that Tiffany, I'll open it up for questions.
We were tempted to raise guidance for you guys.
What we're waiting for is a little more clarity on Q4.
We've got some difficult comps.
It wouldn't surprise me if we didn't raise the next time we visit.
But again, we wanted to be cautious and get a little more visibility into Q4.
They're doing fine.
If you look at the whole platform it's up double digits.
The same board was relatively flattish.
Obviously most of the increase was those new additions that we put up.
It has been quite some time since we have been able to drive rate up.
I think we've been answering this question every quarter since 2010.
Most of the growth that comes out of recession in our platform initially comes from increases in occupancy.
That's traditionally coming in and out of recessions for the last four that we've managed through.
That has been the case.
Now with this recession, everything happened a little slower.
Getting the normalized occupancy took longer.
It took four years.
Now that we are at normalized occupancy, with a little bit of a tail wind behind us on the macro-economy, we are able to see and drive rates.
There's not really a trade-off between driving rate and digital conversions.
As a general rule, we are converting our best and most profitable units from analog to digital, because that's where you see the best lift.
It's really a function of really the attractiveness of an individual unit to a digital conversion, more so than a trade-off between analog rate and the conversion, if that makes sense.
Yes, <UNK> you'll remember that we converted from monthly to daily billing last year.
That created two issues for us.
Number one, our historical rate and occupancy statistics hadn't developed a lot of noise, and really became not too relevant.
Number two, calculating occupancy on a daily basis also becomes a little bit problematic.
We are working on trying to figure out a way to give you very meaningful and relevant statistics.
Right now, we are trying to highlight same-board growth.
If you look at what we highlighted in the release, pro forma analog bulletin revenue, that's a same-board growth without breaking it out for rate and occupancy gains.
We can tell you, though, that the vast majority of that was rate.
I can't give you a hard number, but I can tell you the vast majority of that was rate.
What was the other question.
It hasn't really turned around.
But the good news is we've lapped the comp.
Whereas in previous quarters you would see double-digit declines in that category, because we've lapped the comp, they're now flat.
Thanks.
I think it's really the strength, relative strength, of Main Street USA.
It's easier for us to drive rate when we are talking to one of our 45,000 local customers and generate demand amongst that universe of buyers, than it is for us to drive rate with national buyers, because they're buying in bulk.
If I had to point to one thing, it seems to be relative strength of local economies and Main Street, as opposed to Madison Avenue.
I misspoke, I called it automated billing.
What I meant to say was automated buying.
It's a buying platform that allows customers that are used to buying digital through an automatic, automated, or programmatic mechanism that uses an algorithm to place their buys, based on the demos and CPMs they are trying to reach.
What are the ramifications.
It's a digital-only product, so hopefully it helps us sell available digital inventory.
It is a different, as I mentioned, pool of money.
Agencies and customers increasingly have a digital pot of money that they're spending, and an ad budget they're spending.
The ad budget is actually slowly contracting over time.
The digital budgets are getting bigger.
As an industry, again it's very important for outdoor, because we have a dynamic digital platform that reaches a lot of eyeballs to participate in that shift from traditional ad budgets to digital budgets.
Right now this is a science project.
It will hopefully be embraced.
I think what's of note is that we are live, and we have run a real live, although test customer, through the paces, and everything worked.
We are a bottom-up, not top-down organization.
Our local general managers are complete business people.
They make calls on managing their local inventory, yield management, and importantly, the deployment of digital within their market.
When you see us accelerate, that's a sign of local confidence, that our local managers are saying look, I'm seeing sufficient demand to increase my digital capacity.
On the issue of what we're seeing in Q2, my comments on 3%s and 4%s on the top line, as opposed to the 5%s and 6%s we were seeing in the first, was really meant to modulate enthusiasm just a bit.
Because we're not going to ---+ I don't think we can repeat what we did in the first on the top.
The bottom line looks super, so hopefully we don't have any expense surprises, and I think we should be perfectly fine there.
But it's a little early in the day to slice and dice the top by product.
Sure, great question.
Yes, on hospitals that was a pleasant Q1.
Hospitals actually are number three for us now.
They're 10% of our book.
They were up 8% in the queue, so that's nice to see.
The emerging categories that are going to be I think helpful ---+ again, this is not Lamar specific ---+ but industry initiatives that Jeremy Mayo talks about on measurement, on buying platform, I think are going to inure to our benefit.
That will help us get, again, pieces of that digital spend.
Now, I can ---+ if we were going to get categories we don't get, the largest and most important would be packaged goods.
If we can get into the head of P&G, and get a piece of what they are doing on other screens, that would be very powerful.
Again, to do that we need the kind of buying platforms that I referenced went live for us last week, and that Jeremy and out front are developing.
The other big category, I think, and these are people that appreciate outdoor, they love the big splash.
But if you look at what Apple and Google are beginning to do in their branding, they are beginning to look at large format out of home again.
I shouldn't say again, because Apple has always used us.
But I think to a greater degree.
Yes, good question, and you're right.
The best-performing regions were coastal.
Extremely good performances turned in on the west coast and the eastern seaboard.
Some of that was driven by real estate recovery, absolutely.
The oil patch question is interesting.
I was out in Midland Odessa a couple of weeks ago.
There seems to be more confidence than you think out there.
West Texas markets are still pacing up in the low single digits.
We are struggling a little bit in some of our south Louisiana markets, where rig counts are just vital to businesses like the offshore servicing businesses.
We're seeing a little bit of erosion in places like Houma, Louisiana, and Lafayette, Louisiana.
But overall, it's not the end of the world in those places.
They're doing okay.
Relative to our overall platform, it's not material.
Well great, everybody.
Appreciate your interest in Lamar, and look forward to visiting in August.
| 2015_LAMR |
2016 | FFBC | FFBC
#Good morning, and welcome to the First Financial Bancorp second-quarter 2016 earnings conference call and webcast.
(Operator Instructions) Please note, this event is being recorded.
I would now like to turn the conference over to Mr.
<UNK> <UNK>, Corporate Controller.
Please go ahead.
Thank you, Allison.
Good morning, everyone, and thank you for joining us on today's conference call to discuss First Financial Bancorp's second-quarter 2016 financial results.
Discussing our financial results today will be <UNK> <UNK>, Chief Executive Officer; <UNK> <UNK>, Chief Operating Officer; and <UNK> <UNK>, Chief Financial Officer.
Before we get started, I'd like to highlight that we've updated the press release announcing our financial results to a more streamlined format and added an accompanying slide presentation this quarter.
Both the press release we issued yesterday and the accompanying slide presentation are available on our website at www.BankAtFirst.com under the Investor Relations section.
We will make reference to the slides contained in the accompanying presentation during today's call, and welcome any feedback you may have on the format of the release.
Additionally, please refer to the forward-looking statement disclosure contained in the second-quarter 2016 earnings release, as well as our SEC filings, for a discussion of the Company's risk factors.
The information we provide today is accurate as of June 30, 2016, and we will not be updating any forward-looking statements to reflect facts or circumstances after this call.
I will now turn the call over to <UNK> <UNK>.
Thanks, <UNK>, and thanks to those joining the call today.
Yesterday afternoon, we announced our financial results for the second quarter.
As shown on slide 3, we had another solid quarter of results, which is now 103 consecutive quarters of profitability.
We are pleased with our results, which reflect continued strong loan growth across our Metropolitan markets and specialty finance businesses.
Net interest margin remained stable, as we manage our balance sheet [metrics] and funding costs.
We are also pleased with the rebounded fee income during the second quarter from the seasonal lows we experienced early in the year, and remain focused on improving our performance in this area.
Expense management remained disciplined during the second quarter as we remained focused on improving the efficiency of our businesses, while continuing to invest in strategic areas.
Finally, while the second quarter was marked by significant market volatility resulting from global economic and political uncertainty, we continue to see solid credit demand and financial performance across our clients and prospects.
We believe the overall credit outlook across our markets remain steady and conducive to continued growth opportunities.
As we work towards improving the performance level of the Company, our focus remains centered on serving the financial needs of our business, consumer and wealth management clients, while remaining disciplined in our approach.
Overall, the Company remains well-positioned to continue to grow organically and meet our strategic objectives.
With that, I'll now turn the call over to <UNK>.
Thank you, <UNK>.
I'd like to turn your attention to slide 3, highlighting our second quarter performance and the key drivers of that performance.
To touch on a couple of points, GAAP earnings were $0.36 per diluted share, with a return on average tangible common equity of 14.5%.
Loan growth was the star of the quarter, as period-end loans increased 14% annualized compared to the first quarter, primarily in the C&I an investor CRE categories.
As in previous quarters, this growth was largely in our metro markets, but all markets are seeing good opportunity.
Credit quality is stable, with metrics and lost coverage ratios trending favorably.
Capital ratios remain strong, but dipped slightly, given the balance sheet growth.
On slide 5, we provide a reconciliation of our GAAP earnings to earnings that reflect adjustments for those items that we do not expect to occur on a regular basis.
Including these adjustments, earnings per diluted share were $0.35.
The largest adjustment was the recognition of previously unrealized income on a limited partnership investment that was realized when the investment was redeemed in cash.
Slide 6 provides the loan portfolio product mix, with additional granularity on the CRE portfolio, as well as the drivers of the linked-quarter growth.
While market pricing remains competitive, the weighted average return on our second-quarter production exceeded our internal hurdle rates, demonstrating our ability to remain disciplined.
The specialty platforms and national lending verticals had solid quarters as well.
Our asset quality metrics, as shown on slide 7, remained stable, with the increase in provision expense primarily driven by the quarter's strong loan growth.
The uptick in classified assets was driven by the downward migration of a few credits, but nothing material and no indication of broader issues at this time.
With that, I will now turn the call over to <UNK>.
Thank you, <UNK>, and good morning, everyone.
Turning to slide 8, net interest income for the second quarter was $67.1 million, an increase of $600,000 or approximately 1% when compared to the linked quarter.
Higher interest income from loans and modestly lower funding costs more than offset a decline in interest income earned on investment securities during the period.
With the decline in income from securities primarily driven by a lower average portfolio balance as we continue to redeploy cash flows to fund loan growth.
Net interest margin was 3.67% on a fully tax-equivalent basis, down 1 basis point from the prior quarter, as modest declines in the yields earned on loans and securities were largely offset by lower funding costs and the shift in our earning asset mix during the period.
Slide 9 details our noninterest income mix and trend.
For the second quarter, noninterest income totaled $20.2 million, a $4.7 million or 30% increase over the prior period.
As <UNK> mentioned, noninterest income included $2.4 million of previously unrealized income from the redemption of a limited partnership investment, as well as $200,000 of losses on sales of securities during the quarter.
Excluding these items, noninterest income increased $2.5 million as compared to the linked quarter, with higher client derivative fees, mortgage revenues, bank card and loss share-related income being the primary drivers.
Turning to slide 10, noninterest expense declined $1.3 million or 3% from the linked quarter to $49.4 million, including approximately $200,000 of expenses related to branch consolidation activity.
Primary drivers of the linked quarter decline include lower occupancy costs from branch consolidation activities, and lower professional services expense from seasonal tax services associated with our wealth management business.
As <UNK> noted, our second-quarter results reflect the continued efforts of our associates to improve the efficiency of our operating platform, while allowing us to continue investing in strategic priorities.
Slide 12 provides an update on our thoughts regarding the second half of 2016, including full-year loan growth trending toward high single-digit and possibly low double-digit growth.
Continued stability in our net interest margin over the near-term, with potential fluctuation in either direction, dependent on production mix and prepayment activity.
Additionally, I'll note that our interest-rate risk profile continues to trend toward higher asset sensitivity, but we remain positioned to be no worse than neutral under flattening yield-curve scenarios.
And finally, we expect noninterest expense to remain flat through the second half of the year.
This concludes my remarks, and I'll now turn the call back over to <UNK>.
Great.
Thanks, <UNK>.
And Allison, we will open the call up for questions now.
(Operator Instructions) <UNK> <UNK> of Sandler O'Neill.
Hi, <UNK>.
<UNK> or <UNK>, I was hoping that one of you could expand upon <UNK>'s comments from the beginning on credit costs specifically, and then I guess the increase in classified.
I mean, it sounds like there's just a handful of things.
But if there was one delta relative to what I was looking for, was that the provision came in higher.
So one, any expanded thoughts you can give on deterioration you are seeing in the classified piece.
And then two and more broadly, just your thoughts about how you're thinking about the credit environment and provisioning levels.
And I think mostly, my best guess is, there is no real deterioration, but you guys are just looking at things with a more conservative lens, particularly in light of such strong balance sheet growth.
So I guess I would just be curious to hear your thoughts.
Sure.
Yes, I will start, <UNK>, and then let <UNK> or <UNK> fill in.
You know, on the classified piece, that was the one move up in terms of absolute dollars.
And you know, it was a handful of predominantly C&I credits where we saw some deterioration in performance also.
In almost all those cases, we expect that our clients and believe our clients have plans in place to improve performance, so we are monitoring it closely.
Any time a credit goes substandard, you want to be cautious and manage appropriately.
But at this point, we don't see that it is any kind of systemic issue or broader portfolio concern or question.
And we feel good about our overall portfolio.
If you look at all the other metrics, very solid.
Provision was predominantly driven by the growth in the loan portfolio being unusually strong, so that was really the main driver of that.
I don't know, <UNK>, if there is anything you would add on the provision piece.
No, I think you covered the key components there, with the two drivers being the very strong loan growth we saw during the quarter, as well as the modest uptick in classified, and some of the reserving that was associated with that.
All right, that is helpful, thank you.
And then maybe if I could switch gears to fees for a second.
Just curious, your thoughts.
I know fees have been a more recent area of focus, and it seemed to shine through in the second quarter.
Just as you look at things, how much of that was just a natural seasonal improvement, and then how much was related to some of your more recent efforts.
I would say, <UNK>, that certainly we do see a seasonal uptick after the first quarter, which we always see as unusually low.
So that would be the biggest part of that improvement and what I would call the core-fee income.
We certainly are focused on and trying to improve it.
We've been looking at pricing, as well is just volume increases and sales, whether that's in mortgage, trust and investment, consumer DDA, treasury management.
Those are all of our key focus areas.
And that is the one area I would say that we continue to feel like we've got opportunity to improve more significantly than even other areas.
I would just add to that, <UNK>.
As we said on the call last quarter, we are taking a much more strategic and intentional plan of action on fees related to deposits.
But you are likely to see more of just an increasing trend there than any kind of a step increase.
These things take time.
So we would expect that you would see just more of an upward trend.
Okay, all right, that's perfect, thank you.
And just one final point.
Whoever was responsible for the format change in the release, I think, probably deserves a raise.
I like it quite a bit, so please keep that up.
Thank you, yes, we appreciate it.
We were looking for feedback on the approach change.
We thought it would be a bit more understandable and straightforward.
So appreciate that comment.
I agree.
So thanks again.
<UNK> <UNK> of Jefferies.
Just one more question on the provision.
You guys did have particularly strong end-of-period loan growth this quarter.
With similar levels of ---+ were you to see similar levels of loan growth going forward, is the reserve build in this quarter representative of what we should expect going forward.
Or how should we think about what you are actually quantitatively putting aside for the loan growth portion versus what was the classified build.
Yes, <UNK>, this is <UNK>.
I think certainly if we continue to see strong loan growth, you should expect to see the reserve build and provision associated with that.
Now, it's not, obviously we are putting on pass-rated loans, so those aren't going to be our allowance ratio as a percentage of total loans.
At 99 basis points, it is not going to be dollar for dollar or point for point there.
The reserve rates on pass-rated credits are generally lower than that, but we would expect to build provision and the allowance in lock-step with loan growth there.
And then outside of that, you've got a couple other moving pieces, with classified trends and any credit migration you are seeing.
And those, obviously as they move down the credit spectrum, they're going to get higher general reserve rates.
If they go non-accrual, they flip over into specific reserves, and you can be a little more granular there, as well as just macroeconomic conditions and some of the qualitative factors that go along with it.
So it depends on the facts and circumstances, where we are in those future periods.
But absolutely, we would expect to build the reserve along with loan growth.
Got it, thanks.
That was helpful.
Sorry to belabor that point.
And then it's interesting to see the commercial real estate as the driver of growth this quarter.
Are you seeing any better opportunities there as a result of the regulatory environment, in that product.
Yes, <UNK>, this is <UNK>.
I wouldn't say anything better.
We have seen strong commercial real estate markets in our metropolitan markets, mainly Cincinnati, Columbus, Indianapolis.
This quarter we saw more growth in that category than we did the C&I.
However, I think if you look at the chart on slide 6, you'll see that as a percentage of the total portfolio, we have seen about a 2-point pick-up in construction and CRE versus the 4-point pick-up in C&I.
And as we think about the balance of the portfolio, with about 47% in C&I and owner-occupied CRE, and about 35% in the ICRE categories, those are right relative mixes, with a plus or minus of a few points.
We think there is no trend there, other than over time, you'll see the construction bucket plateau.
We saw some usually good construction deals over the last year, year-and-a-half.
We don't expect to see the same level of growth in construction that we've had during that period.
Got it, okay.
Thanks for taking the questions.
Yes, hey, <UNK>, this is <UNK>.
I think you are correct.
As conditions stand today, we expect the securities portfolio to continue to migrate down similar through the second half, similar to what you saw in the first half.
And we don't have a hard peg or target on the securities portfolio.
It's really dependent on what we see on the loan production side and what our opportunities are there.
But I will say, in the last few years, the securities portfolio has probably been higher than we generally would prefer it to be, probably peaking out somewhere around 25%, 26% of assets.
Ideally, we probably would prefer to see that 15% to 20% of assets.
But again, it depends on the opportunities we see on the loan side.
I don't have that offhand, <UNK>.
But I can tell you that the formerly covered loan accretion, that contributed about 7 basis points to our overall margin.
Yes.
I think we have talked about it in the past, just the mix of that portfolio being a little more biased towards the consumer assets now than it once was.
We expect it is going to be a slow and gradual burn down.
Yes, <UNK>, the way we are approaching M&A is, as we said on slide 12, we are predominantly focused on organic growth.
We feel really good about the combination of markets' business lines and what that is producing in terms of growth.
So we don't feel the need to do M&A for growth purpose, unless we find a deal that's strategically compelling.
So I would assume that we are predominantly focused on organic, unless we find that right deal in that right market.
Then we will take a look at it.
But otherwise, it is predominantly focused organically.
Good morning, <UNK>.
Well, first thing, and this is <UNK>, is I think what helps us is that ability to remix.
So as we put on loan growth, having that come from investment securities is providing a nice remix opportunity, one.
I think two has been the mix of our business that we've been doing, the combination of some solid C&I, in terms of core C&I.
Some of our specialty platforms that may have higher yields, as well as even on the ICRE side, we are trying to hold pricing.
<UNK> referenced in this comments that we monitor all of our production versus internal hurdle rate, and we had a good strong quarter this last quarter.
So it's the mix of business, it's the remix of the balance sheet.
All that said, it is competitive, especially for the best clients.
And we will just have to see if the yield curve flattens even more, what that holds for loan pricing.
But to this point, we have not seen it degrade to where it goes below our hurdle rates.
Well, a couple things.
I think one is, our teams continue to do a good job of focusing on the core deposit business.
We also see some seasonal change, first quarter being low, and we see some improvement in the second quarter.
So some of that was seasonal as well.
Yes, <UNK>, this is <UNK>.
I don't have the exact figure.
We have taken a look at it with some of the guidance that the FDIC has put out there.
We expect it to probably be a couple hundred thousand dollar-per-quarter-type benefit to us.
But that, I will just note, that, that's included in my guidance on our non-interest expense levels for the second half of the year.
You bet.
Good morning, <UNK>.
<UNK>, I think that is just a function of the production mix.
I think in recent periods, our loan production has been pretty heavily biased towards floating-rate loans.
So that's going to put some pressure on the overall portfolio yield.
But to <UNK>'s earlier comments, we are hoping to offset that.
We are seeing stronger growth out of our specialty finance businesses, which are higher yields generally, so that helps.
And then the earning-asset remix out of the securities portfolio and into loans, should help as well.
Just higher mortgage production.
We saw a good quarter in mortgage, which has continued to be a building business for us.
But second quarter was stronger than first.
I don't have that percentage in front of me.
We are not a large refinance shop.
We tend to do more purchased, just because we don't have a large servicing portfolio.
But it was a higher percentage in the second quarter than it had been previously.
I just don't have it in front of me, <UNK>.
You bet, thank you.
Good morning, Dan.
Yes, when you look at it in terms of what moves the needle, especially in a quarter like this, it's going to be some larger deals.
I would say the average loan size was high, was higher.
But I don't know that it's any higher than it's been over the last four to six quarters.
<UNK>.
Yes, I would say, just as I mentioned, I think, on <UNK>'s question, just a few C&I credits were really the driver of that.
And it was really related to some downgrade in their performance, most of which we think is manageable, and they have plans to improve.
So at this point, we don't see it as a portfolio-level issue.
But anytime you see even a small increase in a classified category, you are sensitive and want to manage it aggressively.
And not get specific to any single industry.
No.
Correct.
Thank you.
Hey, <UNK>.
Well, we're continuing to see strength, <UNK>.
I wouldn't expect that level of strength.
As <UNK> mentioned, we just hit on all cylinders in the second quarter.
You also can see a couple of big deals hit that will move the dial a little bit.
But we expect good solid growth in the second half that leads to that high single digit, low double digit for the year that <UNK> mentioned.
But the second quarter was unusually strong.
Thanks, Allison.
And again, thanks to everyone for joining the call, and your interest and support of First Financial.
Thank you.
| 2016_FFBC |
2015 | AGYS | AGYS
#Thank you, Andrea, and good morning, everyone.
We appreciate you joining us on the call today to review our fiscal 2016 second-quarter results.
Joining me today is our Chief Financial Officer, <UNK> <UNK>.
Before we get started, just a quick reminder that on the call today we will be discussing some non-GAAP metrics, primarily adjusted cash from operations and adjusted EBITDA which eliminates the effect of restructuring and other items that are either noncash or nonrecurring.
Reconciliation to GAAP metrics are provided in the financial section of the press release issued earlier today.
Starting with a brief overview of our financial results, total net revenue for the second quarter increased 13% to $29.6 million compared to total net revenue of $26.3 million in the comparable prior year period.
While we are pleased with the overall result, we are equally pleased with the 7% increase in recurring revenue, both on a quarterly as well as on a year-to-date basis to $14.7 million and $29.6 million respectively.
Within recurring revenue, our subscription-based revenues continues to grow posting 35% growth in the second quarter of fiscal 2016 compared to the year-ago period and now represents 18% of total recurring revenue versus 14% in the second quarter of fiscal 2015.
Taking a look at the rest of our key financial metrics, gross margin was 59% in our fiscal 2016 second quarter compared to 63% in the prior year period.
Adjusted EBITDA for the quarter was $1.5 million compared to adjusted EBITDA of $1.6 million in the same period last year.
And this led to a net loss in the fiscal 2016 second quarter of $400,000 or a loss of $0.02 per diluted share which compares to a net loss of $1.1 million or a loss of $0.05 per diluted share in the prior year period.
Now <UNK> will provide a more extensive review of our financial results including the income statement and balance sheet as well as our expectations for the balance of fiscal 2016.
Looking now at the business as a whole, we are making progress towards our goal of evolving our offerings and growing our customer base both through the evolution of our established traditional solution such as InfoGenesis and LMS as well as through the ongoing rollout of our next generation of solutions around the rGuest platform.
This progress is evidenced in many ways and our dedication to delivering a more powerful and flexible solution to our customers continues.
We recently made our industry-leading property management solution, LMS, available as a hosted solution in addition to traditional on-site deployment.
With hosted delivery of LMS, LMS becomes even easier to deploy and further enables our customers to lower costs, reduce overhead, tighten security and focus attention on creating lasting and meaningful connections with guests.
Another key point is that the hosted version of LMS provides a foundation for these customers to more seamlessly transition to the rGuest Stay platform in the future.
Two such examples include Magnolia Bluffs Casino in Mississippi, a new client, selected LMS hosted solution to manage its recently renovated gaming, lodging and dining property, and Terrible's Roadhouse Casino in Nevada, also a new customer, selected LMS hosted solutions to help them manage their property.
LMS is now also fully integrated with the rGuest Pay and rGuest Analyze and we have already completed a number of deployments including Grand Sierra Resort and Casino in Reno and the Westgate Las Vegas Resort & Casino, both selecting a suite of products including LMS, InfoGenesis and rGuest Pay.
Also we recently introduced two new versions of InfoGenesis and InfoGenesis Flex that are fully integrated with rGuest Pay, rGuest Seat and rGuest Analyze to enable food and beverage operators to transform the dining experience through personalization at every stage of the guest visit.
1 Hotel & Homes in South Beach selected the InfoGenesis and InfoGenesis Flex solutions to streamline food and beverage operations at their recently opened beachfront property.
As we continue to develop the rGuest platform, rGuest Pay continues to grow at a robust pace with 117 deals closed in the second quarter of fiscal 2016 alone, this bringing the total to over 200 deals.
We are also making significant gains in leveraging our entire portfolio of solutions by creating a tighter integration between InfoGenesis and LMS and the rGuest platform that not only positively impacts our business today but also paves the way for rGuest to establish itself as the platform standard in hospitality.
With regard to our customer base, there is no better evidence than the number of new business wins totaling 30 for the second quarter of fiscal 2016 and 75 in the first half of fiscal 2016, more than doubling the new customer acquisition in the first half of last year.
The markets and our customers recognize us for delivering peer-leading deployment and support service, performance stability with key innovations, and taking a leadership position in the effective use of cloud enabled solutions, specifically tailored toward the needs of the hospitality industry.
I also want to point out that over the last several quarters we have secured a much higher rate of competitive displacements than historical levels creating a great pipeline of new business that while not focused on our new rGuest solutions exclusively, it is helping us establish new relationships, or in some cases, deepening already existing relationships.
One such example is the Atlantis Casino in Reno, Nevada, who has been a long- time LMS user who this quarter selected InfoGenesis as its new point-of-sale solution along with rGuest Pay.
With respect to our salesforce, we ended the second quarter of fiscal 2016 with 28 quota carrying salespeople of which 12 are focused on new customer acquisition and of those, seven have joined Agilysys within the past six months.
With regard to our install base, we currently have more than 25,000 point-of-sale endpoints installed with a 10% growth in point-of-sale endpoint count in the past 12 months.
Additionally, our property management solutions are currently helping to manage more than 200,000 hotel rooms.
Our goal is to continue to grow both the total number of terminal endpoints and hotel rooms as well as the average yield these deployments generate.
Taking a look at the health and state of each of our business verticals starting with commercial and travel gaming, this vertical represents over 50% of our total revenues and is a primary focus for growing our business.
This is evidenced in the key customer wins discussed earlier including Atlantis Casino, Grand Sierra Resort and Casino and Magnolia Bluffs Casino.
This vertical continues to show healthy growth for Agilysys.
And the Hotels, Resorts and Cruise vertical represent almost 25% of our revenue, we are making good progress in getting our solution offerings in front of operators and showing them how we can help them improve guest recruitment, increase wallet share, improve operational efficiency all while strengthening guest connections with more personalized services.
A recent example would include the Colonial Williamsburg Foundation in Williamsburg, Virginia, selecting Visual One and rGuest Pay to establish an integrated, scalable technology to help it build exceptional guest relationships, maximize revenue opportunities and grow their hospitality business.
I also want to highlight the engagement we secured with Tropicana Casinos at their hotel property in Greenville, South Carolina.
This customer and a large hotel chain customer previously announced during the quarter, are expected to adopt rGuest Stay, our next generation property management solution and both will serve as potential segues for future installs.
We now expect general availability of rGuest Stay in April of 2016.
These two deals offer a promising glimpse into the hospitality market, embraces innovation as the best in class solution to run and grow their business.
In the Foodservice Management vertical, which represents approximately 13% of our total revenues, we see continued opportunity to increase our market share and deliver an array of best-of-breed solutions to the foodservice industry.
Finally, moving to the Restaurants, Universities, Stadia and Healthcare, or RUSH, the industry continues to rapidly evolve and new openings continue to come into the market to meet the need for a more sophisticated dining experience.
Just last week we announced that Middlebury College in Vermont selected a suite of Agilysys solutions including InfoGenesis Eatec and rGuest Pay to enhance efficiency and streamline food service operations across its campus including three dining halls, a snack bar, several retail dining operations and catering services for a wide range of campus and private functions.
Our products continue to receive recognition from industry thought leaders.
Most recently we were listed as a champion in Info-Tech Research Group's property management system vendor landscape report being recognized as an outstanding vendor in the technology marketplace.
We were also listed as a champion in the Info-Tech Research Group's food and beverage point-of-sale solution vendor landscape report for InfoGenesis point-of-sale.
I also want to mention that the success we had at this year's Integrated Resort Experience at the Global Gaming Expo in Las Vegas a few weeks ago.
We demonstrated LMS, InfoGenesis Flex and the rGuest Buy self-service kiosk solution and received an overwhelmingly positive perception.
In summary, the changes we've begun to implement just a few years ago are helping us to better align our business and strategic goals with the needs of the end markets we serve and to improve the value proposition to the customers in those markets.
The changes we implemented are favorably impacting our results for fiscal 2016 as we experienced improved product revenue growth from our installed base, increased the number of new customers, more multiple solutions sales, growth in new rGuest platform based solutions, an increase in the percentage of subscription-based sales.
With that I would now like to turn the call over to our Chief Financial Officer, <UNK> <UNK>, who will review our financial results before going and opening the lines for questions.
<UNK>.
Thanks, <UNK>, and good morning, everyone.
Our second-quarter fiscal 2016 revenue was $29.6 million, a 13% increase compared to total net revenue of $26.3 million in the comparable prior year period and a 14% increase for the first half of fiscal 2016 compared to the first half of fiscal 2015.
Looking at revenue in greater detail, product revenue increased 30% or $2.3 million to $9.9 million or 34% of total revenue.
The increase was primarily related to our on-premise proprietary offerings and growth in remarketed products associated with our rGuest platform.
Support, maintenance and subscription revenue increased 7% or $900,000 to $14.7 million compared to the second quarter of fiscal 2017 largely as a result of our continued focus on selling hosted, perpetual and subscription-based service.
Subscription-based revenue grew by over 35% in the second quarter versus the prior year period and 29% on a year-to-date basis versus the first half of fiscal 2015.
Professional services revenue remained flat increasing $100,000 to $5 million compared to the second quarter of fiscal 2015.
We are pleased to see growth in total net revenue and are pleased ---+ and are particularly pleased to see continued growth in our recurring revenues which accounted for 50% of our total net revenue for the second quarter and 52% for the first half of fiscal 2016.
Moving down the income statement, cost of goods sold totaled $12.1 million or a 26% increase versus the prior year period leading to an overall gross margin of 59% for the second quarter of fiscal 2016 compared to 63% in the prior year period.
The decline in gross margin for the fiscal 2016 second quarter was the result of a higher portion of re-marketed product related sales.
Going forward, we expect full-year fiscal 2016 overall gross margin will be consistent with full-year fiscal 2015 levels in the high 50% range.
Operating expenses, which include product development, selling and marketing, general and administrative and depreciation expense, totaled $17.8 million, comparable to the prior-year period.
However, as a percent of net revenue, operating expenses improved to 60% for the second quarter versus 63% in the prior-year period.
This led to an overall operating loss of $400,000 for the second quarter of fiscal 2016 compared to an operating loss of $1.1 million in the prior-year period.
As expected, product development expense remained at similar levels to fiscal 2016 increasing by 10% to $6.8 million in the second quarter of fiscal 2016 compared to $6.2 million in the second quarter of fiscal 2015 as we continue investing in engineering resources around both rGuest and non-rGuest product enhancements to expand the current customer experience across our installed base as well as our future offerings with existing and new customers.
Going forward, we expect product development to be in the mid-20% range as a percentage of revenue through fiscal 2016, comparable to fiscal 2015 levels.
Sales and marketing costs increased $1.5 million or 39% in the second quarter of fiscal 2016 compared with the second quarter of fiscal 2015 primarily reflecting an increase in headcount of quota carrying salespeople and commission expense in line with revenue achievements during the second quarter of fiscal 2016.
During the past 12 months, we have hired 13 salespeople and filled a number of strategic positions to better support the growth of traditional products such as InfoGenesis and LMS as well as our rGuest suite of products across all verticals.
General and administrative expense decreased 14% for the fiscal second quarter of 2016 versus the prior year as we saw a reduction in spend related to system upgrades that occurred during the second quarter of fiscal 2015.
And regarding amortization of intangibles, we saw a $300 decrease in comparison with the second quarter of fiscal 2015 primarily due to a reduction in expenses related to assets becoming fully amortized and assets being replaced or impaired during fiscal 2015.
This led to a $400,000 net loss for a $0.02 loss per diluted share, a significant improvement compared to a net loss of $1.1 million or a $0.05 loss per diluted share in the second quarter of fiscal 2015 and adjusted EBITDA was $1.5 million versus $1.6 million in adjusted EBITDA in the second quarter of fiscal 2015.
Moving to the balance sheet and cash flow statement, cash and marketable securities as of September 30, 2015 totaled $62.1 million, compared to $75.1 million at March 31, 2015.
The decrease in cash reflects approximately $10 million in spend for our ongoing product development investment.
We now expect to end fiscal 2016 with more than $55 million in cash as a result of our favorable results and improvements in working capital management.
Previously, we guided that we would end fiscal 2016 with more than $50 million in cash as we continued to invest in the transition to a subscription business and the rGuest platform this year.
Cash used in operations was $200,000, an improvement compared to net cash used in operations of $9.5 million for the first half of fiscal 2015.
Adjusted for nonrecurring items, net adjusted cash provided by operations for the first half of fiscal was $200,000 compared to net cash used by operations of $7 million in the prior year period.
We are pleased that we generated adjusted cash from operations in the first half of the year as this has historically been a period where Agilysys has been a user of cash.
As our accelerated next-generation product development cycle slows to more normal levels later this year, we expect to significantly decrease our capital cycle while further improving operational efficiencies.
Together with topline growth, these initiatives will help us generate positive free cash flow for fiscal 2017.
And in terms of our NOLs, we currently have $180 million on our books, for which we can attribute a full valuation allowance and will help us remain only liable for taxes paid in foreign jurisdictions along with minimal state taxes for the foreseeable future.
With regards to our outlook for the balance of fiscal 2016, we are increasing our full-year revenue projection and now expect full-year revenue of $110 million to $112 million, up from prior guidance of $106 million to $108 million.
We expect that our higher revenue forecast and success in managing costs will similarly translate to an increase in the outlook for year-over-year growth in adjusted EBITDA.
Based on the results of the first six months of fiscal 2016 and the outlook for the second half of the year, we now expect adjusted EBITDA to more than double year-over-year compared to 2015 adjusted EBITDA of $1.2 million.
And as mentioned earlier, we continue to expect that gross margin for fiscal 2016 will be consistent with full fiscal 2015 levels in the high 50% range.
In closing, overall the Company performed quite well.
The underlying drivers are improving and we're gaining share as we continue to invest in our business.
We have successfully delivered against each of our operating, balance sheet and expense targets and are confident that we will deliver on our new financial targets for fiscal 2016.
Before taking your questions, I wanted to thank everyone who attended our annual Analyst Day in New York City earlier this year.
The feedback we received was overwhelmingly positive and reassuring that we are moving in the right direction in our business strategy, development of the rGuest platform, our product roadmap and our go-to-market strategy.
With that, let's open the call for your questions.
Andrea.
So on a sequential basis, it's actually a little bit down with results just some of the remarketed that we have in our numbers, so it's nothing that impacts the total support.
From a recurring support, we're at about a 2% growth year over year.
It was just a couple of small items in last quarter that drove a little bit higher than normal number.
<UNK>, when you say premium in pricing, the pricing is going to reflect for a hosted solution like it normally does, fees for the utilization and the infrastructure, the support services, the licenses itself.
So as you think about, let's say, annual recurring maintenance that might come from an acquired license and then maintenance and support that's paid, the per room per month charge for hosted LMS is going to align to say an increase in recurring revenue that's going to be at least two times on a per month basis what we would ordinarily get from just a typical maintenance and subscription ---+ or I'm sorry, a maintenance and support recurring component.
Does that make sense.
Oh, it's going to ---+
Yes, it is going to be similar, so it is going to be a subscription service.
It's not an owned license so in that subscription service stack you're going to have a subscription license, not a permanent license to use the software, and then all of the other managed services around that infrastructure will be incorporated into the whole fee stack to come up with your subscription service fee on a monthly basis.
So it's going to be pricewise similar to a SaaS or subscription offering.
The only reason I don't want to say it's cloud as we want to be very particular, when we say cloud it's a technology definition, in my mind, and subscription is a business relationship versus a license.
I just want to be clear on what's technical and what's business.
It's about the same target.
Same target.
We've only got a couple remaining that are outstanding to hire.
<UNK>, as I look ahead, I think it's going to be probably another 18 months before SaaS is a primary growth driver.
I think one of the things I want the investors and really the entire team to focus on is that while the primary driver of the business is to push further into subscription service opportunities, as we go to the line and we're calling the plays, the market right now with respect to the competitive landscape is offering us an opportunity where, as we check down the line, we see an uncovered receiver and we're quickly calling an audible because the market opportunity is leaving that receiver open and we've been able to take a couple of flyers down the field and score.
And we're going to continue to look for those opportunities as we're focused on our core business.
It just so happens that as we mentioned in our prepared remarks, the competitive landscape is giving us opportunities to have a higher than historical level of competitive opportunities to win and we're not trying to force that solution to be a subscription.
We're just doing all we can to secure that customer and then work with them over time to migrate them eventually to a subscription-based relationship.
But right now we're taking what the market is giving us and it's been generous to us in the first half of this year.
Thank you, Andrea.
Thank you for your interest in our Company.
I want to take this opportunity to thank the very talented and dedicated team at Agilysys.
Their work drives our success.
I also want to thank our many customers and partners who entrust us with their business.
We believe Agilysys continues to make progress as we focus our resources on the highest value opportunities and our chosen end markets and manage the business for the longer-term to deliver sustainable value to our customers and shareholders.
We look forward to updating you on our progress during our fiscal 2016 third-quarter call.
Thank you.
| 2015_AGYS |
2018 | PPBI | PPBI
#Thank you, Austin.
Good morning, everyone.
I appreciate you joining us today.
As you're all aware, earlier this morning, we released our earnings report for the first quarter of 2018.
I'm going to walk through some of the notable items.
Ron <UNK> is going to review a few of the financial details, and then we'll open up the call to questions.
I'll also note that in our earnings release this morning, we have the safe harbor statement relative to the forward-looking comments, and I'd encourage all of you to take a look and read through those.
Overall, this was a very busy and productive quarter for our team as we managed a number of projects and priorities.
We have nearly completed the integration of the Plaza Bancorp clients and employees and are well prepared for the system conversion, which is set for this coming weekend.
We conducted due diligence, negotiated and signed a definitive agreement, announcing the acquisition of Grandpoint Capital.
We have made significant headway in integrating the Grandpoint team, and we have identified the regional presidents for the combined company in each of our key markets.
Additionally, all Grandpoint employees have been notified in writing of their status following the closing of the transaction.
Our team is planning and preparing for the Grandpoint system conversion, which will take place in October of this year.
And importantly, we generated quality profitable growth during the first quarter of this year.
On a GAAP basis, we reported net income of $28 million or $0.60 per diluted share in the quarter, which includes $936,000 of merger-related expense.
Excluding the merger-related expense, we generated $0.62 in earnings per share, generating a return on average assets of 1.43% and a return on average tangible common equity of 16.95%.
On our last call, we mentioned that the strong loan production we had in the fourth quarter had resulted in the pipeline being softer going into the new year.
Our loan closings during the quarter reflected that fact as we generated $488 million of new loan commitments, which is down from the fourth quarter but high ---+ but 7% higher than the first quarter of last year.
It's also worth noting that despite the increased business optimism following the implementation of corporate tax reform, we did not see that sentiment materialize into higher loan demand.
Instead, plants who are benefiting from lower tax rates and strong liquidity positions are paying down debt and deleveraging their balance sheets.
Additionally, we've seen increasing competition within multifamily and investor-owned CRE asset classes, which has resulted in unattractive yields for some of these loans.
Our disciplined approach to appropriately pricing risk will not change.
And as such, we saw our production soften for these loan types.
In aggregate, our new commitments on multifamily and investor CRE loans was approximately $95 million lower than last quarter.
Again, this drop was a function of our decision to raise interest rates on these loan products and, to a lesser extent, the broader softness in overall loan demand.
We will continue to focus on the key areas where our expertise, relationships and outstanding service enable us to generate more attractive risk-adjusted yields.
Most notably, these are C&I, construction, franchise and SBA loans, which accounted for the majority of our loan production in the first quarter, totaling $363 million or 74% of new loan commitments.
As a result of our focus on higher-yielding asset classes, importantly, the average rate on our new loan production was 5.27%, up from 5% last quarter.
We remain optimistic that the stimulative effects of tax reform and a strengthening economy will translate into increased loan demand, and we may be seeing the first signs of that pickup in demand as our loan pipeline has begun to build and we are hopeful that will translate into higher loan originations in the coming months.
Our focus on higher-yielding loans is helping to mitigate the impact of increasing deposit costs on our net interest margin.
Deposit pricing has become increasingly competitive, and we are seeing the most pronounced effect on our money market products, where a good portion of our commercial deposit balances are maintained.
Despite the competition, we grew our deposits overall during the quarter by 7% annually and, in particular, our noninterest-bearing deposits by almost 4%, highlighting the positive impact of our relationship-focused business model.
Overall, we saw a 7 basis point increase in our cost to deposits during the first quarter.
However, due to the higher yields on earning assets, we were still able to hold our core net interest margin flat at 4.26%.
Of course, the most significant event of the quarter was the announcement of our acquisition of Grandpoint Capital.
With Grandpoint, we are able to achieve 2 major elements of our long-term strategic plan: add a highly talented and experienced commercial banking team that will strengthen and build upon our presence in the Southern California market; and add sufficient scale in surpassing the $10 billion asset threshold in a meaningful way, thus, further improving our operating leverage and efficiency.
Following the completion of this transaction, Pacific Premier will be a nearly $12 billion commercial bank with a strong position in some of the most attractive markets in the country.
As I previously mentioned, we have already completed a significant amount of the integration and are eager to close this transaction and begin leveraging the combined strengths of both organizations.
One of the areas that we're particularly optimistic about is the specialty deposit product team at Grandpoint.
In the current environment, low-cost deposit gathering capability takes on even greater importance, and as such, we are making investments in this area to further enhance the team's ability to attract new clients to the combined bank.
Looking ahead to the rest of 2018, we believe this will be a year in which we further strengthen the franchise and build upon the solid foundation that will be instrumental in driving additional value in the years ahead.
We have clear priorities in place for 2018.
First, we're focused on completing the integration of Plaza in this coming weekend.
Following the system conversion, we expect to see additional cost savings start to flow through from this transaction in the third quarter.
Second, we are focused on completing the Grandpoint acquisition, fully integrating their operations, the conversion of their core systems and realizing the synergies that we project for this transaction.
Third, we're preparing for the heightened regulatory requirements as we cross the $10 billion asset threshold.
To this end, we continue to make investments in the company's infrastructure, systems and people to ensure that we meet the expectations for a high-growth regional bank.
And fourth, we remain focused on generating quality, profitable growth in both loans and deposits.
With the addition of Grandpoint, coupled with our unique approach to business development and client acquisition, we will be well positioned to further improve the company's franchise value.
With that, I'm going to turn the call over to Ron to provide a little bit more detail on our first quarter results.
Ron.
Thanks, Steve, and good morning, everyone.
As in the past, I will be reviewing some of the more significant items in the quarter, focusing primarily on the linked quarter comparison.
As highlighted in our earnings release, reported net income was $28 million for the quarter, and we earned $0.60 per diluted share compared with net income of $16.2 million and $0.36 per diluted share in the fourth quarter of 2017.
As Steve mentioned, excluding the merger-related costs, we earned $0.62 per share on a fully diluted basis, a $0.06 increase over the prior quarter's operating EPS.
Major items impacting the quarter's results include our Plaza acquisition, included for a full 3 months in the current quarter; our effective tax rate for the quarter, which came in at 24% compared with 38% in the prior quarter; total revenue, which increased $1.3 million to $88.9 million for the first quarter despite 2 less days of interest and lower accretion; and lastly, total operating expense, excluding merger-related costs, came in at $48.9 million compared with $44.5 million in the prior quarter.
Taking a closer look at the income statement, our total revenue was driven by higher net interest income of $81.3 million, a $3.1 million increase compared with the prior quarter of $78.2 million.
Favorably impacting net interest income for the quarter was the inclusion of Plaza for the full quarter, which contributed $4 million in net interest as well as higher earning asset yields and average balances, apart from Plaza, which contributed $3.5 million.
Partially offsetting these favorable impacts were 2 less days of interest income, lower accretion and prepayment income, and higher overall cost of funds.
Our net interest margin decreased to 4.5% from 4.56% in the prior quarter with accretion income accounting for $3.7 million for the quarter compared with $4.7 million in the prior quarter.
Excluding the impact of accretion, our core net interest margin remained unchanged at 4.26%.
Our overall cost of deposits of 0.39% increased 7 basis points, driven predominantly by higher money market rates.
As we've previously guided, our net interest margin benefited from the fed rate hike but was effectively offset by the increase in our cost of funds.
We expect our core net interest margin to remain fairly consistent in the 4.25% to 4.3% range for the second quarter.
The company recorded a provision for loan loss of $2.3 million in the quarter compared with $2.2 million in the prior quarter.
The small increase was primarily due to slightly higher net charge-offs and, to a lesser extent, a small change in our first quarter loan originations mix.
Going forward, we expect our loan loss provision to be in the $2.5 million to $3.0 million range per quarter as the fair value discount on acquired loans amortizes down.
Noninterest income of $7.7 million decreased $1.8 million from the prior quarter, which included a decrease of $2.2 million on recoveries of previously charged-off acquired loans.
Loan sale gains of $3 million were comparable to the prior quarter and included our reoccurring SBA loan sales of $36 million, essentially flat to the prior quarter.
For the second quarter, we expect our noninterest income to be in the range of $7.5 million to $8.0 million based upon recurring income and normal business activities.
Our noninterest expense came in at $48.9 million, excluding $936,000 of merger-related costs compared with $44.5 million in the prior quarter.
The majority of the increase is attributable to the Plaza operations, which previously had a monthly expense run rate of approximately $3 million.
To date, we believe we have captured approximately 50% of the total projected cost savings.
The majority of the remaining cost savings is expected to be fully realized by the end of the second quarter, following the system conversion this weekend.
Our noninterest expense was also negatively impacted by seasonally higher payroll tax expense, which contributed $1.2 million to our increased compensation costs sequentially.
Staffing finished the quarter at 883 employees compared with 842 as of December 31.
Of the 41 staff additions, 74% were in revenue-producing-related positions.
We anticipate our quarterly expense run rate to be approximately $50 million to $51 million in the second quarter as we complete the Plaza system conversion and continue to prepare for the Grandpoint closing and surpassing the $10 billion mark.
Notably, we anticipate the full benefit of cost savings from Plaza to be realized in Q3 this year and for Grandpoint in Q1 of 2019.
Our effective tax rate was 24.1% in the first quarter compared to 38.6% for the fourth quarter of 2017.
Impacting the effective tax rate was the tax effect of exercise-invested share-based compensation awards resulting in a $1.4 million tax benefit to the company for the first quarter of 2018.
As we guided previously, we expect our estimated full year effective tax rate to be approximately 27% to 28% pre-Grandpoint.
Turning now to the balance sheet highlights.
Total assets came in at $8.1 billion with total gross loans of $6.2 billion, an increase of $51 million for the quarter.
Loan growth was impacted by lower new loan commitments of $488 million.
Our new loan origination and commitment yields came in at 5.27% for the quarter compared with 5.0% in the prior quarter.
Although prepayment rates fell compared with the prior quarter, line utilization rates were flat to the prior quarter.
Our investment portfolio finished the quarter at $888 million compared with $806 million at the end of the first quarter.
We saw a 20 basis point increase in our securities portfolio yield primarily related to new investments in higher-yielding MBS and corporates.
Total deposits finished the quarter at $6.2 billion, growing 7% annually with nonmaturity deposits of $5.1 billion or 82% of total deposits.
We saw solid growth in our noninterest-bearing deposits of almost 4% sequentially while interest-bearing money market accounts remained relatively flat in an increasingly competitive rate environment.
Our loan-to-deposit ratio finished the quarter at 100.8%, down from the prior quarter of 101.8%.
Lastly, taking a look at the allowance and asset quality, our allowance for loan loss ended the quarter at $30.5 million, an increase of $1.6 million from the prior quarter.
Our allowance-to-loans coverage ratio ended the quarter at 0.49% of total loans held for investment compared with 0.47% in the prior quarter.
Notable, we now have approximately 36% of our total loan portfolio under fair value accounting with a total discount of $24.5 million or 0.39% of total loans held for investment.
Although we saw modest increases in both nonperforming loans and delinquencies in the quarter, both credit measures remain at relatively low levels.
With that, we would be happy to answer any questions you may have.
Operator, please open up the call for questions.
I think that as we get more visibility, Matt, as we move through the year, we'll have some better clarity.
I think given our unique sales culture and focus on business development that there's no reason we can't grow in the high single digits potentially better, but we'll leave it at that.
As I did mention, we are starting to see the pipeline build somewhat here from where we were at early part of January, and so that is encouraging.
But at the same time, we're going to maintain our discipline around pricing.
We could certainly get more volume if we wanted it but not at the kind of yields that are available in the marketplace by some of our competitors.
Yes.
As Ron mentioned in the headcount, the headcount was up in Q1 over where we ended Q4.
In part, that's in preparation for closing Grandpoint, having the system conversions teams in place and prepared to do 2 conversions in the year.
But the majority of those hires were in revenue-producing areas in the bank, and so we expect it to benefit from it.
I think that one of the things historically that we've talked about is we have always been willing ---+ and I can say this as long as I'll be here, we will always hire ahead of the curve and where we expect to be in 12 to 18 months from a size and complexity standpoint.
And that was certainly the case here in Q1.
Sure.
I don't know if we were necessarily more disciplined.
I think we sort of approached it just as we always do.
Maybe some of our brethren may have been less so.
As I mentioned, our CRE and multifamily was down by nearly 50% compared to where it was in Q4, $100 million.
So we'll see.
I think that folks will start to realize that they can't originate or it's not prudent long term to originate loans at some of the yields that we've seen.
But regardless, we'll remain disciplined.
We think that we had a lot of activity going on in Q1.
I'm never going to allow any of our managers to have that as an excuse, but I think it is a reality that played in a little bit.
And we're encouraged by the building of the pipeline that we're seeing here over the last several weeks.
Again, we'll see whether that pulls through and translates into additional loan production, and then we'll see where we come out on the payoffs and paydowns in the loan portfolio that obviously have an impact on net growth.
I mentioned that Grandpoint has an attractive specialty deposit products group.
We've already started to make some investments around that group.
It was something that we had been thinking about for some time, was one of the attractive aspects of Grandpoint to us.
And so we've been making some investments around those people and then seeing where we can utilize some synergies from the investments we've made in technology around HOA and implement those in some of these various specialty deposit ---+ products groups.
And then some of the other investments have gone into some of the upgrades that we've made in relationship bankers, some of our senior commercial bankers and end-market presidents as well.
We're seeing some pretty aggressive pricing out there by both banks and nonbanks, some of the money market funds that are available.
We're going to continue to maintain our discipline around it, deal with our customers individually and in the way that we manage the total relationship and view those.
And then add in our approach to business development, new client acquisition, I think, is ---+ we continually seek to improve that and get better in that area, and that's no different today.
And that's what's allowed us to grow more quickly than others, I think, in the past, and I don't see that changing going forward.
It's hard to say.
It could be the case.
But as I said, I'm cautiously optimistic on the growing pipeline.
But I think it does bear watching here my comments earlier regarding what we have seen a little bit, which is as the fed has moved up and as interest rates have moved up, some of our clients are utilizing the excess liquidity and cash that they have to delever their balance sheet.
So that impacts us on both sides of our balance sheet, both liabilities and assets.
It remains to be seen whether this trend continues and how widespread it is.
So we'll ---+ I think we'll have better clarity and visibility as we move through the year here.
Ron, on your noninterest expense outlook for second quarter, $50 million, $51 million, just to clarify, is that a core number.
Or does that include any assumptions on conversion costs or any other merger-related costs in there.
Well, that is a core number.
But of course, that includes the additional personnel related to the system conversion.
So we've got some hangover of folks, obviously, still with us from Plaza who are seeing us through the conversion and then some as we work through some of the documentation and the reconciliation process postconversion.
So there's some excess people that will subsequently go away, but we do count those as core.
And that $50 million, $51 million is that total core number.
Okay.
And then I noticed this quarter, you started ---+ you've broke out interchange fees, which I don't think you'd broken out in the income statement previously.
Obviously, it was up a lot on a year-over-year basis, which actually was just over the course of the additional ---+ with Plaza and otherwise.
Do you have a sense of what the Grandpoint interchange income is, how it relates to yours in terms of size.
Trying to get to kind of an all-in number as it relates to the Durbin commitment.
Yes.
I don't have that number handy, <UNK>.
But you're absolutely right.
We did break it out as a result of some enhanced reporting and revenue-recognition pronouncement.
They came out from an accounting standpoint.
We felt that it was material enough where we needed to disclose that.
But I can follow up with you subsequent on that ---+ the Grandpoint-related interchange fees.
Keep in mind also, <UNK>, that increase that you're seeing year-over-year is the benefit of not only Plaza but also Heritage Oaks.
So that's important to note.
No.
It's really partially as we prepare for Grandpoint and to keep the securities portfolio around that 10% to 12% of total asset level.
That's all it had to do with, Andrew.
Yes ---+ no, <UNK>, not at this juncture.
Obviously we're working through all of the acquisition considerations, including the fair value and then the ---+ obviously, then the impacts of accretion, but I really don't want to comment on that at this time.
It's a little too early yet and premature.
No, it doesn't.
No.
I don't have that handy, Jackie, but I can follow up on our next call on that.
Yes.
Just a one-off loan.
We're not seeing trends anywhere, and we're very well secured on that credit.
It is, Don.
And it's that team, as we talked about.
When we acquired Heritage Oaks, we were ---+ had done quite a bit of due diligence on that team.
We were very comfortable with the credits and the folks on the team.
And so we've grown it a little bit.
And then there's also some seasonality that plays into that line of business, as you might imagine.
I mean, we've always considered and, at various times, have done loan purchases.
It's something that we would consider, but we're not currently looking at, at this point.
Yes ---+ no.
Absolutely.
I think that, that is still the way that we're modeling it and thinking about it.
We, obviously, have a lot of work to do to get through here, 2018.
But following the Grandpoint system conversion in October of this year that we would expect that all of the cost savings would ultimately be realized in Q1 of 2019.
And with the teams fully integrated, we think we'd be in good position to begin to realize those levels of efficiencies in 2019.
Thank you, Austin, and I want to thank everyone for joining us this morning.
If you have any further questions, please feel free to give either Ron or myself a call, and we'd be happy to talk to you.
Have a great day.
| 2018_PPBI |
2017 | ABBV | ABBV
#Thank you, Rick
In order to allow time for our strategic update, I'll keep my prepared remarks brief, highlighting just a few of the noteworthy milestones from the quarter
As Rick mentioned, we've continued to make significant progress across our pipeline
In immunology, we reported results from several mid and late-stage trials
Just yesterday, we announced positive top line results from three Phase III studies evaluating risankizumab in psoriasis
Data from these trials demonstrated superior skin clearance with risankizumab treatment versus two leading biologics, Stelara and HUMIRA
In the ultIMMa-1 and ultIMMa-2 trials, 75% of patients receiving risankizumab in both studies achieved PASI 90 compared to 42% and 48% of patients receiving Stelara, respectively
We are particularly encouraged by the durable rates of skin clearance demonstrated in these two studies
At one year, roughly twice as many patients treated with risankizumab achieved full skin clearance compared to Stelara, with 56% and 60% of the risankizumab patients achieving PASI 100 in ultIMMa-1 and ultIMMa-2 respectively
We also saw very high rates of efficacy in the IMMvent study, with risankizumab demonstrating superior rates of skin clearance compared to HUMIRA
Within this trial, we designed a portion of the study to evaluate risankizumab's efficacy in patients who had an inadequate response to HUMIRA
In this portion of the study, patients with an inadequate response to HUMIRA after 16 weeks were re-randomized to risankizumab or HUMIRA
And, of these patients, 66% treated with risankizumab achieved PASI 90, compared to 21% who continued with HUMIRA, demonstrating risankizumab's potential in the growing TNF inadequate responder population
We look forward to seeing data next year from the remaining trial in the psoriasis pivotal program
Our regulatory submission is on track for 2018, with commercialization expected in 2019. Moving now to upadacitinib, our oral selective JAK1 inhibitor, in development for six indications
Last month we announced top line results from the second of our Phase III studies, the SELECT-BEYOND study
In this trial, which evaluated patients who did not respond adequately or were intolerant to biologic DMARDs, both doses of upadacitinib met all primary and ranked secondary endpoints at week 12 and patient-sustained clinical response through week 24. Upadacitinib drove very high levels of response at ACR20. But more importantly, it drove strong levels of response on more stringent clinical endpoints, such as ACR50, ACR70, low disease activity, and DAS remission
We saw levels of efficacy in this difficult-to-treat refractory population, similar to efficacy more typically observed in bio-naive patients
We are aware that there continues to be significant investor interest regarding the topic of DVT and PE event rates
As we stated on our last earnings call, we have a comprehensive monitoring program in place for upadacitinib and have not observed anything in our Phase III program that we consider a signal, and the rate of DVT and PE across the program is consistent with the expected background rate in an RA population
While we can appreciate the desire to characterize event rates for upadacitinib, it is important to keep in mind that estimates based on individual events or a subset of trials have the potential to be inaccurate and misleading
The upadacitinib program is designed to provide a comprehensive safety database with more than 3,000 upadacitinib-treated patients
Evaluation of unblinded event rates and comparisons to rates in control groups and expected background rates must be done in the context of our overall program once the core studies have read out
Given the fact that we have reported data from two of our six registrational trials and that the majority of our database remains blinded, we view any attempt to calculate event rates or compare rates across upadacitinib and control groups as premature at the present time
Furthermore, providing unblinded data from ongoing studies could impact the integrity of these trials, which is something that we obviously cannot and will not do
In addition to our internal safety monitoring program, we have an independent data monitoring committee, or DMC, in place for upadacitinib in order to ensure patient safety
The DMC has access to all data from the program, including unblinded data, and monitors it for safety on an ongoing basis
The DMC is also obviously aware of the heightened interest in DVTs and PEs in this setting and has consistently made the recommendation to proceed with the program without modification
We remain very confident in upadacitinib and are investing in and advancing multiple indications in a manner that is consistent with our confidence
We also recently reported positive top line results from the upadacitinib Phase II study in atopic dermatitis, demonstrating very strong efficacy across all doses compared to placebo
In the trial, we saw very rapid response times, with upadacitinib demonstrating reduction in pruritus within the first week and improvement in skin lesions within the first two weeks for all doses
Roughly half of patients achieved a 90% or greater improvement in skin lesions by week 16. Based on these data, we plan to advance upadacitinib into Phase III studies in atopic dermatitis in the first half of 2018. Moving now to oncology, in the third quarter, we reported that the DMC for the Phase III MURANO trial recommended we unblind the study for efficacy, indicating that VENCLEXTA in combination with RITUXAN met the primary endpoint of the study of demonstrating significantly prolonged progression-free survival in patients with relapsed/refractory CLL compared to a combination of bendamustine and RITUXAN, a standard regimen in this patient population
We plan to present detailed findings from the trial at an upcoming medical meeting, and the data will support our regulatory application for broader use in the relapsed/refractory CLL population
Also in the third quarter, we received regulatory approval for the use of IMBRUVICA in chronic graft-versus-host disease after failure of one or more lines of systemic therapy
And before the end of the year we expect data from an interim analysis of the SHINE study in front-line mantle cell lymphoma, which if successful would support a label update for IMBRUVICA in this indication
We continue to make good progress with our solid tumor efforts as well, where we currently have more than 20 solid tumor assets in the clinic, 17 of which are in Phase I studies
We have started seeing early data from several of these programs, and we look forward to many more readouts as data mature over the next 12 to 18 months
At ESMO last month, we presented early data from the Rova-T BASKET study in neuroendocrine tumors
While the data are very early, we are encouraged by the findings, which showed reduction in tumor burden and confirmed responses in solid tumors beyond small cell lung cancer
Our Phase III Rova-T studies in small-cell lung cancer continue to progress, with the TAHOE study in the second-line setting and the MERU study in the front-line setting both now well underway
TRINITY, our registrational study in third-line or greater small-cell lung cancer, also continues to progress well
As we prepare for our forthcoming regulatory submissions, we've been actively engaged in discussions with regulators
We recently received feedback from the FDA that they would like to see six-month durability data as part of our regulatory submission data package
This request is not unusual in development programs where single-arm studies are being used to support approval
We anticipate that six-month data will be available in the second quarter of 2018. Therefore, we have moved the final analysis for the TRINITY study to the second quarter of next year in order to meet the FDA's request
We continue to expect our regulatory submission to follow shortly thereafter
In the area of virology, early in the third quarter, we received regulatory approvals in the U.S
, Europe, and Japan for MAVYRET
And in the area of women's health, we submitted our regulatory application for elagolix as a treatment for women suffering from endometriosis-associated pain
And this morning, we announced that we received a Priority Review designation from the FDA
While 2017 to date has already been a very eventful and productive year, we anticipate seeing several additional clinical development milestones in the coming months, and 2018 will also be a milestone-filled year
With that, I'll turn the call over to Bill for additional comments on our third quarter performance
So on upadacitinib, what we've said is that we monitor the program very carefully, and we look at the aggregate data
And so when we monitor the data at this stage, we're looking in a blinded manner across our entire database
And it's important to understand that because I can't give you a rate that is a upadacitinib rate today without talking about unblinded data and ongoing studies, and I can't do that
So what I'll do is I'll talk about aggregate rates
And what we said and what remains true is that those aggregate rates are consistent with the background
And we've said that the background, there's variability in that background, but those estimates are around 0.8. And so that hasn't changed
It also hasn't changed that we haven't seen anything that we consider a signal
And the aggregate of our monitoring program tells us that all the statements that we've made are still holding
Okay, and so this is Mike
I'll take the question about Stemcentrx and our overall portfolio
So as we mentioned on the call, we have a very robust portfolio overall in R&D
And certainly within oncology, we are building considerable momentum
As I mentioned, we have 20 programs in the clinic, 17 of those are in early development
And that's a mix between Stemcentrx and other AbbVie programs
And so that makes it difficult to give you a percentage that Stemcentrx will represent going forward because, of course, that's going to be based on the total number of programs that advance into later-stage development
What I would say is we're seeing encouraging signs across that portfolio, on stem programs and other programs of activity, so we'd expect to advance a number of those programs
And with respect to your question about targeting technologies, we certainly have a number of ADCs in our portfolio
We feel that the talents we have as an organization fit that very well in terms of our skills in small molecule chemistry and protein engineering and antibody engineering, but we are in no way limited to ADCs
We have very robust capabilities in small molecules, in novel biologics beyond monoclonal antibodies
We have a presence now in oncolytic viruses and other novel means to modulate targets
And so we're going to look at the targets that we have available, and we're going to pick the best modality that we can to address them, and that is in no way going to be limited to ADCs
So small-cell lung cancer remains an area of very, very substantial unmet medical need
The standard of care hasn't changed in many years
And we view it in a positive way overall that there are now some therapies that look like they can make a real difference here, Rova-T included
I'm not sure that the bar has changed substantially though
So for example, if you look at third-line or greater small-cell lung cancer, there are no approved therapies
Response rates based on expert opinion, because there really are no good clinical studies here, would probably be in the low single-digit range, if not zero
And survival is dismal
And as Rick mentioned, with recent I-O releases, objective response rates of 10% or 20% are meaningfully different from that
And so there's a huge unmet medical need here, and there's an unmet medical need that relates not only to response rates but also to getting patients on a course that allows them to have good long-term outcomes
And those longer-term outcomes have been a strength of Rova-T based on its stem cell-targeting approach, cancer stem cell-targeting approach
So while there are encouraging signs, there's still a huge unmet medical need, and I don't think the bar has changed substantially
Okay, so this is Mike
With respect to the RA studies for upadacitinib and what will support an NDA next year, as you mentioned, we have six studies, and those cover a range of patients from methotrexate inadequate responders to biologic inadequate responders
They include active comparator studies and studies aimed to look at structural endpoints
And so we will file with at least five studies of the six
We've always considered five studies our core
There was a sixth study, which is a structural study, which was originally anticipated to take longer than the others, but it is moving forward ahead of schedule
So it's possible that that could actually come in at a time that it can be included, but we're going to continue to evaluate that, but it would either be five or six studies that we would include
Certainly
So with respect to rates across the program, I think the best answer that I can give you is the answer that I gave you in my prepared remarks, which is that we monitor the program in aggregate across all of the studies
And of course, we're still blinded on the majority of the studies and therefore the majority of our database
And when we look at that and when we look at those rates, those rates are consistent with the background rate that we've stated on a number of occasions
We're going to continue to monitor carefully, but we do not see that situation change
I'll also refer to the remarks I made about our DMC
We are firewalled from our DMC by design, but our DMC has access to all of the data, including the unblinded data, and they have consistently recommended that we continue the program without any modifications
And if they had concerns, you certainly wouldn't expect that to have been their course of action
With respect to platelet changes, we've looked at it
We've not seen any changes with platelets
Platelets remain stable on therapy
And I think platelets don't seem to be playing any part of the picture for upadacitinib
In terms of launches in UC and Crohn's, it's early on in those programs
So we're always going to try to move as quickly as we can and advance programs rapidly, but we're not seeing any bottlenecks in sites
We're not seeing any bottlenecks in patients
In fact, recruitment across the program has gone very well, I think indicative of strong investigator and patient interest in the upadacitinib program broadly
| 2017_ABBV |
2018 | SUPN | SUPN
#Thank you, <UNK>.
Good morning, everyone, and thanks for taking the time to join us as we discuss our 2017 fourth quarter and full-year results.
2017 was another year of record growth and significant accomplishments for Supernus.
We closed the year with record quarterly and annual financial results.
Total revenues for 2017 grew by 41% reaching for the first time the $300 million mark with earnings before income tax growing by 100% and reaching a milestone of $100 million.
We were able to achieve the strong growth in earnings before income tax despite our increased investments in our sales force to a sizable expansion of 40 additional sales representatives and increased R&D investments behind 8 ongoing Phase III studies on SPN-810 and SPN-812.
Total net sales for 2017 grew by 40% over 2016 reaching $294.1 million at the top end of our revised guidance.
This robust performance in net sales was fueled primarily by the impressive launch of Trokendi XR in migraine and the continued strong growth in Oxtellar XR.
Total prescriptions for Trokendi XR and Oxtellar XR as reported by IQVIA showed growth of 34% in 2017 over full-year 2016 and 47% in the fourth quarter of 2017 over the same period in 2016.
The company launched Trokendi XR in April of 2017 as a new product for prophylaxis of migraine headaches in adults and adolescents 12 years and older.
At year-end 2016 prior to the launch of migraine, Trokendi XR had a national market share of approximately 2.87% of the total IQVIA topiramate prescriptions.
1 year later, as of the end of 2017, Trokendi XR reached a national market share of approximately 4.63% representing a 61% growth in market penetration.
The acceleration of Trokendi XR prescription growth continued in the fourth quarter of 2017 where total prescriptions increased by 16,470 prescriptions or 11.3% as compared to the third quarter of 2017.
This growth is more than 4x the increase of 3,654 prescriptions in the fourth quarter of 2016 over the third quarter of 2016.
In addition, Trokendi XR exited 2017 with an all-time high market share of 10.24% of topiramate prescriptions in our target call-on universe of physicians.
Similarly, Oxtellar XR exited 2017 with a market share of 10.22% of oxcarbazepine prescriptions in our target call-on universe of physicians.
Assuming consistent commercial execution and support for a product, typically a product's market share and the target call-on universe can be a good indicator for the levels where the national market share is heading to.
In summary, our commercial organization had a year of superb execution on both products.
We are very pleased with the double-digit prescription growth for Oxtellar XR in 2017 despite the fact that Trokendi XR received the bulk of our attention and resources for most of the year.
We continue to believe that the potential of Oxtellar XR and Trokendi XR in neurology is more than $500 million in peak sales and can exceed $800 million with the bipolar opportunity for Oxtellar XR.
Moving on to our pipeline and starting with SPN-812, a novel non-stimulant for ADHD.
Overall enrollment in the 4 ongoing Phase III trials has been progressing well and is at approximately 38% of the total number of patients to be randomized.
The program consists of 4 3-arm placebo-controlled trials, 2 of which are pediatric trials and the other 2 are adolescent trials.
In addition, patients who complete these trials can choose to enroll in an open-label extension trial.
We expect enrollment to continue till mid-2018 and to have data from this Phase III program available by the first quarter of 2019.
Regarding SPN-810, enrollment continues in both Phase III trials in impulsive aggression in pediatric patients who have ADHD.
The first trial is now at approximately 80% enrollment and the second trial is at approximately 65%.
Enrollment in both trials is expected to continue through mid-2018 and we anticipate having data by the first quarter of 2019.
In addition, a Phase III trial for SPN-810 treating impulsive aggression in adolescents who have ADHD is expected to start in mid-2018.
We do not expect this trial to materially affect the overall timing of the regulatory submission process for SPN-810.
Patients who have completed the SPN-810 trials continue to enter the open-label extension study at a high rate.
We believe this rate of enrollment, which is approximately 90%, reflects a high level of satisfaction from physicians and patients.
This study is important in collecting longer-term data on an increasingly larger number of patients as the open-label study continues.
The longer duration data will help provide us with a better picture of longer-term tolerability for SPN-810, particularly in growing young children.
Regarding Oxtellar XR, the investigator-sponsored trial in bipolar disorder is expected to complete enrollment by year-end 2018.
This randomized open-label study is designed to enroll approximately 90 patients among 3 study sites with each patient completing 6 weeks of therapy on either Oxtellar XR or oxcarbazepine immediate release added to existing therapy.
We're very excited about our late stage pipeline, which now consists of 3 sizable opportunities in psychiatry with SPN-810 and SPN-812 in Phase III clinical testing and Oxtellar XR in a mid-stage proof-of-concept trial.
Our strategy in 2018 is to advance our SPN-810 and SPN-812 through Phase III clinical development moving us closer to our goal of delivering from our current pipeline 2 novel and differentiated treatments, both addressing billion dollar market opportunities.
Finally, we continue to be active on the corporate development side looking for neurology and psychiatry assets that represent a strategic fit with our portfolio.
I will now turn the call over to Greg, who will provide more details on our fourth quarter and full-year operating performance.
Thanks, <UNK>, and good morning, everyone.
As I review our fourth quarter and full-year 2017 financial results, I'm reminding listeners to refer to the fourth quarter and full-year earnings press release issued yesterday after the market closed.
Net product sales for Trokendi XR for the fourth quarter of 2017 were $69.1 million, a 48% increase as compared to the prior year period.
Net product sales for Oxtellar XR in the fourth quarter of 2017 was $17.2 million, a 19.4% increase as compared to the prior year period.
Total revenue for the fourth quarter of 2017 was $88.4 million, a 41.7% increase as compared to $62.4 million in 2016.
Total revenue for the fourth quarter of 2017 included net product sales of $86.3 million, non-cash royalty revenue of $2 million and licensing revenue of $72,000 as compared to $61.1 million, $1.2 million and $52,000 respectively in the fourth quarter of 2016.
As regards full-year results, net product sales for Trokendi XR were $226.5 million, a 43% increase as compared to 2016.
Net product sales for Oxtellar XR for full-year 2017 was $67.6 million, a 30.8% increase as compared to 2016.
I want to point out that net product sales grew by approximately $84 million from 2016 to 2017 whereas net product sales grew by approximately $67 million from 2015 to 2016.
These data clearly demonstrate that growth in net product sales has accelerated from 2016 into 2017.
Total revenue for full-year 2017 was $302.2 million as compared to $215 million in 2016.
Total revenue for full-year 2017 included net product sales of $294.1 million, non-cash royalty revenue of $6.4 million and licensing revenue of $1.8 million as compared to $210.1 million, $4.7 million and $0.2 million respectively for 2016.
Turning now to expenses.
For the fourth quarter of 2017, research and development expenses were $16.2 million as compared to $13.3 million in the same quarter in the prior year.
For full-year 2017, research and development expenses were $49.6 million as compared to $42.8 million for 2016.
The year-over-year increase is primarily due to the initiation of the 4 Phase III clinical trials for SPN-812, which commenced in the second half of 2017.
Selling, general and administrative expenses in the fourth quarter of 2017 were $33.8 million as compared to $29.1 million in the same quarter of the previous year.
For full-year 2017, selling, general and administrative expenses were $137.9 million as compared to $106 million in 2016.
The increase for both periods is primarily to the expansion of the salesforce by 40 sales representatives.
These were fully deployed as of the fourth quarter of 2017.
In addition, the development and production of promotional materials and marketing programs associated with the launch of the migraine indication for Trokendi XR and an increase in share-based compensation expense contributed to the year-over-year expense increase.
Operating earnings in the fourth quarter of 2017 were $34.3 million, a 110.4% increase over $16.3 million in the same period the prior year.
Operating earnings for full-year 2017 were $99.5 million, an 83.6% increase over $54.2 million in 2016.
The improvement in operating earnings in both periods is primarily due to increased net product sales.
GAAP net earnings in the fourth quarter of 2017 were $13.7 million as compared to $14.3 million in the same period last year.
GAAP net earnings for full-year 2017 were $57.3 million as compared to $91.2 million in 2016.
Both the fourth quarter and full-year 2017 net earnings results reflect the impact of non-recurring tax items.
First, there is an unfavorable impact of approximately $10 million in 2017 related to the enactment of the Tax Cuts and Jobs Act in 2017.
Second, the release of a valuation allowance on our deferred tax assets in 2016 created a non-recurring favorable impact of $56 million in 2016.
Excluding these 2 non-recurring impacts from the reported results in 2017 and 2016, net earnings would have increased by 307% for the quarter and 90% for the full year.
I refer you to table in our fourth quarter and full-year 2017 press release issued yesterday for further detail.
Going forward, we expect that the Tax Cuts and Jobs Act will have a beneficial impact on the company yielding an effective tax rate in 2018 ranging from 23% to 25%.
GAAP diluted earnings per share for the fourth quarter of 2017 and 2016 were $0.26 per share.
GAAP diluted earnings per share were $1.08 in 2017 compared to $1.76 per share in 2016.
Excluding the non-recurring tax effects on net earnings as just described, diluted earnings per share in the fourth quarter of 2017 would have been $0.44 per share or 4x higher than $0.10 per share in the fourth quarter of 2016.
Full-year diluted earnings per share for 2017 would have been $1.26 as compared to $0.68 in 2016 or an increase of 85%.
Weighted average diluted common shares outstanding were approximately 53.5 million and 53.3 million in the fourth quarter and full-year of 2017 respectively as compared to approximately 52 million and 51.7 million in each of the respective periods the prior year.
As of December 31, 2017 the company had $273.7 million in cash, cash equivalents, marketable securities and long-term marketable securities, a $108.2 million increase or 65% higher than $165.5 million as of December 31, 2016.
Now turning to financial guidance for 2018.
We expect full-year 2018 net product sales to be in the range of $375 million to $400 million.
At the midpoint of the range, this represents year-over-year growth of approximately $93 million or 32% as compared to 2017.
R&D expenses in 2018 are expected to total approximately $80 million.
Operating earnings are expected to range from $125 million to $135 million.
Full-year 2018 operating earnings include approximately $7 million of licensing and non-cash royalty revenue.
I will now turn the call back to the operator for questions.
Regarding SPN-810, let me just clarify what we've been saying.
The 90% that we've been citing, that's actually the rate of enrollment into the open-label extension out of those who complete the first main section of the trials and that continues to be the case actually.
So, that has not changed.
We continue to see 90%, 91% enrollment from those who complete the main trial and enroll ---+ choose to enroll into the open-label extension.
So, we continue to be very excited about the program.
And as you may have noticed, we also are planning on initiating a third trial, which is an adolescent patient population, hopefully by mid of this year.
So, that's a new trial that we are embarking on to generate data in the adolescent patient population that we believe we need to have some of that data in the NDA filing.
So, we continue to be excited about the program and what we continue to see in the open-label extension.
As far as business development, our strategy continues to be consistent with what we've been saying as far as the kind of assets that we are looking at, the priorities that we are looking at in neurology and psychiatry combined.
We are looking at earlier stage kind of pipeline opportunities as well because you're absolutely right, 12 months from now or less than 12 months from now hopefully we're looking at positive data from both 810 and 812 and these 2 products are marching towards an NDA filing, we have to reload the pipeline.
So, we're very conscious about that and we're working pretty hard to reload the pipeline with earlier stage assets.
And clearly once we have something which is more meaningful or something more concrete, we'll be more than happy to share that with everyone.
But, Ken, clearly one of the places the company's going to look very keenly are other indications for 810 for IA and diseases such as autism, schizophrenia, PTSD, et cetera that we've said before and I think we'll be trying to frame those out in a more discrete sort of way as we move forward.
I'll comment on the salesforce expansion and let Greg take the other 3 questions.
As far as the salesforce, we ---+ as we've always done it in the past is we do things in stages and step-wise approach because we always want to make sure any additional investment, whether it's in the salesforce or R&D or whatever it is, is going to give us the return we expect.
So, clearly we will be monitoring closely the growth in prescriptions and the expansion and the activity in the field and we'll make these decisions whether we need to expand or we are interested in expanding the salesforce any further more than we've already done.
We feel very comfortable with the size that we have now.
But exactly to your point if we continue to see acceleration in the growth and specifically related to the expansion we just did back in the fourth quarter of last year, absolutely we will be even more excited and more encouraged to expand it further if we believe that return on investment is going to be coming.
So with that, I'll let Greg answer the other questions on SG&A, stocking and free cash flow.
Regards stocking, destocking; we look at that very, very carefully.
There are I think minor perturbations quarter-to-quarter as they always are, but we have not seen ---+ and even going into this quarter we have not seen any significant movements one way or the other in terms of stocking or destocking.
As regards the quarter-to-quarter drop off in SG&A, I'd say that's really the confluence of some lumpy spending programs which sort of ramped up in the third quarter.
These would include some Medical Affairs Programs, which do tend to have some lumpiness to their spending patterns.
Number 2, some one-time expenditures associated with the onboarding the sales force, the expenses with onboarding the group that tend to be very front-end loaded and once they're employed into the field, expenses do tend to wane off a little bit.
And then programs, particularly in the supply chain area regarding ---+ regarding samples and other programs which we have running there.
Regarding free cash flow for the year, I would expect it to be on par with the free cash flow for this year so I would say something around $100 million is probably a reasonable expectation.
Regarding Oxtellar XR, it's a little bit different than Trokendi XR situation because Oxtellar XR, we only go to neurologists and therefore we don't even have contact with psychiatrists who use of oxcarbazepine in bipolar or other psychiatric disorders.
So if there is any usage currently on Oxtellar XR, it's probably very, very negligible if anything at all in the psychiatry space and therefore we look at the bipolar opportunity for Oxtellar XR as completely 100% an incremental add-on opportunity to our current franchise in the epilepsy space.
As far as Trokendi XR or even Oxtellar XR in general as far as managed care and coverage and so forth, I mean the environment is always challenging and continues to be challenging as you rightfully pointed to.
We don't expect significant changes in 2018 versus the year before, but on that front we always take it day by day and month by month and so forth and we monitor it very closely.
But these 2 products continue to enjoy very, very strong levels of coverage in both areas, epilepsy and migraine.
We know ---+ because it's an open label so we can see what is going on and we can have some observations of how patients are doing in the trial and so forth and the feedback we will be getting from the investigators.
So, clearly we could jump in a little bit ahead of the enrollment completion if things are going extremely well.
We will not start Phase III studies this year so that's for sure, but it remains to be seen.
I mean if by August, September, October things look good and the study is going very well, then we could potentially trigger Phase III in 2019.
We don't have to wait all the way till the end of the trial.
Regarding 810 and 812 and the question on the salesforce size depending on which one launches before obviously, but give or take we're looking at the first product to be supported by a salesforce somewhere between 130 reps and 170 reps in the psychiatry space.
And then once the second product is launched about a year later, and that's about the timing we would like to devote for these launches so we can do an excellent job in launching each product, then we will augment it by the remaining number so that we can hit somewhere around 300 sales representatives in total for the psychiatry business behind 810 and 812.
Now at the same time, we have also few Oxtellar XR in bipolar, which is also synergistic with 810 and 812 potentially from a salesforce point of view and by targeting psychiatrists.
So once we are in the marketplace, and hopefully we will be with all 3 opportunities, we envision the salesforce to be closer to the 350 sales representative.
So, that's the kind of planning we're working on as far as these 3 assets in that space.
The big obviously unknown here is which one is going to come first and so forth, but as we get closer, we'll get a clear picture is 812 going to launch before 810 or 810 is going to jump in ahead because it could have a priority review.
So, I mean we really don't know at this point.
But 812 seems to be now enrolling much faster than 810 so we always said there is a likelihood it could jump in front of 810 and therefore we'll have to make decisions.
We don't want to launch 2 products on top of each other so one may end up being in the 2020, another one in 2021.
It all remains to be seen.
As far as the ---+ your question on manufacturing and batches and the scale-up.
Definitely just by the fact that we started Phase III studies, Phase III studies use clinical supplies that are actually from the commercial side.
So, the answer is yes.
We've already scaled up the product and the manufacturing on a commercial scale and things went pretty well on that front as well.
Regarding the potential of the assets and I wasn't clear whether you're referring to the SPN-810 and 812, each of these ---+ each of these assets about $750 million or were you referring to the Oxtellar XR, Trokendi XR combination.
Yes.
I mean for Trokendi XR, Oxtellar XR, we continue to say $500 million in neurology and more than $800 million in psychiatry.
I did also reference in the prepared remarks that for the call-on universe of physicians, we're already at 10% market share in both products and typically that market share is a leading indicator.
All other things being equal; product support, market dynamics, everything; that typically is a good leading indicator as to where the national market share could be heading to.
And I guess if you take a 10% market share and project it out, out of the total potential, you could say yes, potentially Trokendi XR, Oxtellar XR in neurology could be $700 million or $750 million.
That could work out absolutely.
And then with the bipolar opportunity, we're definitely approaching $1 billion for both products combined.
And then finally, your question regarding the gross to net.
I mean moving forward, we've said we're not going to really make any specific comments on the gross to net or give folks any forecast on gross to net and so forth; but we are very, very excited about the guidance we gave for 2018 with net product sales growing in the midpoint of the range of about 32%.
I think this is amazing growth for products that have been in the market close to 5 years or even a little bit more than 5 years to continue to deliver the kind of growth in this space is really incredible.
Regarding the open label.
I mean the enrollment is 90% plus and people are actually sticking around meaning they are in the open-label extension for a duration, if I recall closer to the 7, 8 months, which is really extremely a good number because remember these folks have to show up at the site every other month or so for testing, safety monitoring and collection of data.
Some people at one point give up all that and say that's too much of a hassle.
So we're very, very encouraged with the length of stay of these patients in the open-label extension in addition to the fact that so many of them are actually choosing to enroll from the beginning.
And the safety, tolerability, side effects; it's your typical collection of that data that you would expect from any open-label extension that we're trying to gather on the study.
I mean you're hitting on one of the key criteria we've been looking at and we've talked about on the BD side, which is potentially looking for an asset in psychiatry that could be launched before 810 and 812.
And you're absolutely right that as time goes on and as that window narrows between us launching 810 or 812 or any of our own pipeline, it becomes harder to bring in another asset ---+ never mind the 3 we already have, to bring in another 1 and launch 4 products in psychiatry.
So, clearly a lot is going into the planning and the timing of these assets and the kind of things we look for and the difficulty obviously in BD is, as some of you may know, you're looking at some assets and typically you think it will launch in a certain time frame; but by the time you look at it, it's always later and later meaning it might end up overlap over 812 and 810.
So, we are very conscious about all that from a planning point of view because we want to make sure whatever we launch, we want to do an excellent job.
You only launch a product once and we want to make sure we get it the right whatever product we're launching.
And therefore, we will be very hesitant to do something just for the sake of doing it and jeopardizing our own launches for our own products and that's why we take a very disciplined approach in the kind of assets that we look for and try to bring in-house.
And over time as we get closer to end of '18 and '19, most likely we are looking at that time for more mid-stage or even earlier stage kind of assets versus later stage kind of assets for the same reason I mentioned.
That is correct if you acquire something already in the market.
If you acquire something that you would be launching, you're always launching the first product.
So, the first product will always be the first product without the benefit of your existence in psychiatry, right.
So at any point in time, there will always be a product which is the first product to be launched for Supernus to be in psychiatry.
The benefit will come in only if you're able to acquire something already launched in psychiatry and you take it over and then you can almost overnight establish your presence there.
And that's something we consider clearly because whether I launch product A or I launch product B as the first product in psychiatry, pretty much the challenges and opportunities are pretty much the same in trying to establish Supernus as a name, as a player in that space.
I mean the activity will pretty much have to be the same thing.
Our interest in adolescent has been right from the beginning of the program.
I don't know if you remember, we had talked about adolescent way back last year about potentially adding that patient population to the 301, 302 studies, the first 2 studies that we are currently doing in pediatrics.
And the only reason we did not end up adding the adolescent patients to those ongoing studies is because of the interim analysis that we did and we said let's just keep it clean one patient population, let's not introduce any other variables into the existing studies and that's why we took the time to go and discuss it back with the FD<UNK>
We continue to be interested in launching a product in all patient populations not just pediatric or adolescent, even eventually hopefully in the adult segment as well, and we submitted the protocol to the agency and that's what they have right now in front of them.
And as you might imagine given our experience now with the pediatric trials, we believe we can execute the adolescent trials with all the learnings we've had from the pediatric trials and hopefully do them even quicker and the adolescent trial is not going to be the same size as doing 2 pediatric trials clearly as far as the number of patients you need to add.
So therefore to your last question, we don't expect any significant material impact on the submission and the reason we say that is because also that is still open to negotiation with the FDA as far as to how we roll the NDA and what kind of data they are requiring or will require on adolescent patients for the initial NDA and also it's open because we have the potential of getting a priority view.
So, there is a lot of factors here that we don't have complete clarity on at this point.
And at the end of the day also as far as the timing of launch of SPN-810 ---+ related to the question I just answered a little bit before for <UNK>, as far as the launch of SPN-810, it may not matter at the end of the day whether the adolescent delays the program a couple months here or 6 months here or whatever it is because we may choose anyway to launch SPN-810 a year later after 812 regardless.
And therefore this whole issue of adolescent trial, it's not to us a major factor or may not be even on the critical path.
That is still a possibility.
We know we need to generate adolescent data and that's why we are interested in it because of 2 reasons, for the FDA as well as for us from a marketing point of view.
I mean ideally we would like to have an indication in both patient populations from day 1 as we get out of the gate from a marketing point of view, from maximizing the potential of the launch and so forth.
So, it's serving 2 purposes clearly.
How we roll that data into the NDA whether initially we just submit safety data and then roll in later the efficacy data or ---+ so that is still a little bit open, it is still influx at this point.
I mean we talk about this several times and our take on this whole situation is the following.
First of all, I think we are currently operating in the worst environment you could ever think with our 2 products, Oxtellar XR and Trokendi XR, where we have the exact same molecule in both of these products as the generics in the marketplace.
And I think from the results we've seen in the past 5 years, we've been very, very successful in penetrating these markets with very high market share penetration in both of them.
And therefore with viloxazine, which will be a new molecule in a Strattera generic market, so it's a very different scenario.
It's not like I'm coming in with another atomoxetine with a controlled release formulation and I'm trying to compete with the generic atomoxetine market or I have a guanfacine ---+ different version of guanfacine and competing with the Intuniv generic market.
With viloxazine or SPN-812, it's a new chemical entity that will be coming with a whole new Phase III clinical program, which by the way I didn't have on Trokendi XR.
We never had a Phase III clinical data and look at the results we've been able to generate there.
So with SPN-812 even if I do exactly what I did with Trokendi XR, which is the worst case scenario, I'm getting a 4% or 5% market share of the ADHD market and if I do that, that's easily a billion dollar product at peak.
And that's why sometimes I don't understand why people have $100 million in their models or in the pipelines because it just doesn't make any sense for us to do half what Intuniv did back in 2014 or '13 at peak.
So to us, it's fairly straightforward.
As far as the competitive products, we all know in this market there is always a hunger for products that actually work because not all patients respond to all products.
And when you're looking at the non-stimulant market, you only have really 2 major players and that's about it; Intuniv and Strattera and yes, you may have ---+ you will have or may have Synovia.
You look at many other CNS areas, you have 20 agents treating epilepsy.
So ADHD continues to be a market, which really needs extra options, needs new options and specifically in the non-stimulant segment that continues to be only an 8% or 9% of the whole ADHD market.
So, there is a huge room here for expansion of that pie of the non-stimulant market whether it's 2 players or 3 additional players and at end of the day, it's all about execution and the team who is actually launching these products and the product differentiation.
Regarding Oxtellar XR and Trokendi XR in the epilepsy space and any new agents that come to epilepsy.
Our market and our positioning in the market is not to convince the physician to use topiramate versus lamotrigine or versus valproic acid or versus a new chemical entity or new product that comes into epilepsy.
Our positioning is going to physicians who are already using topiramate and already using oxcarbazepine and try to switch these patients who currently are on these immediate release products, switch them to the extended release product.
This is not to say that they are not really competitors.
So in general, yes, we are competing with the whole epilepsy market absolutely; but our relevant market segment that we go after and that we target is really the topiramate market itself and the oxcarbazepine market itself.
And in general when you look at epilepsy and if you look at the IMS or IQVIA data over the last 20 years or decades, typically new chemical entity in epilepsy whether it's cannabinoid or ---+ which will probably be the first time ever we see cannabinoid approved in epilepsy, typically the uptake for new chemical entities in epilepsy in neurology is a slow uptake and the reason for that because a lot of these products over the years have not been any major breakthrough therapy.
They have been just an added option to the many options that already exist and so many neurologists are always hesitant to switch people just because all of a sudden there is a new chemical entity or a new molecule.
Once a patient is stable, they are hesitant to switch them just because this is another exciting new product and they will only switch that patient if that patient is encountering issues or problems and so forth, which is ---+ also applies to our products.
However, in our case we offer them the same molecule and therefore the fear of switch or the resistance to switch may not be as a high as it is with completely new chemical entities.
So, that's a dynamic clearly which plays also in favor of Oxtellar XR and Trokendi XR.
As far as the CGRPs in migraine, I mean we continue to monitor the kind of data that continues to be released and we'll see when the first product gets launched or potentially 3 different products could be launched by year-end.
There is a lot of variables that are unknown at this point starting with the label they get, the pricing they come in at, the kind of coverage they may have and so forth.
For one thing we're already excited as far as the activity in the market, the activity in the whole category.
We think there's going to be a very heightened level of investment behind this category, behind prevention in migraine, which will benefit everybody in the marketplace.
And topiramate as a molecule is actually an excellent molecule for preventing migraines; if it is in the right formulation and in the right dosage form, it can be an excellent choice for many patients out there.
So in general, we're very excited about the activity in the market that's to come and we'll be watching closely as far as to the profile of these CGRPs.
Regarding your question, <UNK>, about sequential changes in operating expenses, I would think that it will be a fairly flattish quarter-to-quarter situation in aggregate.
There's some pushes and pulls here.
R&D spending more likely than not would be more front-end loaded in the year or heavier I would say in the first half versus the second half.
Why do I say that.
Because we're targeting to get most of the recruitment for 812 accomplished in that time frame.
Of course the recruitment for SPN-810 continues to roll forward rather steadily, but that too is expected to complete largely in the first 3 quarters.
Once the active part of the trials are done, there still is an open-label extension, but those tend to be less intensive from an activity and expense standpoint.
So, I think R&D maybe a little bit more emphasizing the first couple of quarters or maybe even the first 3 quarters.
Sales and marketing, further to <UNK>'s comment about competition, that might actually intensify more in the second and third quarter when CGRPs start launching and they get more active in the marketplace.
There are programs that we haven't played to address that competition and so I might expect that to intensify more towards the mid and back-end of the year.
G&A very, very difficult.
The timing of sample runs, our SOX 404 spending is tended to be higher this year versus last year, that will intensify over the course of the year.
Medical Affairs, very difficult to predict the timing of their programs and the like.
Unless we see realization with respect to supply chain, that was the word I was searching for earlier in that ---+ in the call, that program is running as well.
Tough to forecast exactly how that's going to lay out over the year.
So, G&A I would expect to be pretty flattish over the year as well.
So in aggregate, pretty flat with some emphasis, some differentiation amongst the individual subgroups.
If I could predict the recruitment, I would quit this job and do another job.
It's very difficult to say.
I don't know if it will be skewed quite that much.
Maybe $45 million/$35 million if everything kind of lines up exactly the way we think it should.
Tough to say.
I'm not ---+ let me say this thing.
I'm not surprised by the response that you got or the results from the survey.
All the work we've done so far, psychiatrists are very, very excited which is really related to the comment I made earlier ---+ are very excited about another novel new chemical entity in the ADHD space.
This is not to knock on other products, but a lot of psychiatrists voiced the frustration with a lot of the new products that have been coming to the place ---+ to the marketplace being just another formulation of amphetamine and methylphenidate and that's all that we keep getting, yet another dosage form and another formulation of these molecules that we've known for years.
We are looking for something different, we are looking for something that could really help the non-responders to some of these older molecules.
So in a way, it does confirm a lot of the things that we have been hearing during our research.
Thank you.
2017 was another outstanding year for Supernus with record financial results and significant accomplishments on the commercial side as well as on the R&D side.
February of 2018 represents the 5th year anniversary of launching our first commercial product Oxtellar XR and over that 5-year period, Supernus has delivered a compounded annual growth rate of 122% in net sales coupled with 118% compounded annual growth rate in operating income since we became profitable.
We have established a high growth and successful specialty CNS company with a solid foundation for sustainable future growth and expect 2018 to be yet another outstanding year with strong net product sales and operating income growth.
I thank all our employees for their continued commitment to our patients and to our longstanding heritage and reputation of delivering outstanding results.
Thank you, everyone, for joining us this morning and we look forward to updating you throughout the year.
| 2018_SUPN |
2016 | ELY | ELY
#Another good question, <UNK>.
We made great progresses in industry last year so we talked about it on the call probably this time last year, but there hadn't been as nearly ---+ I can't remember if there was progress or if we were just talking about making progress at that point.
But there was a nice reduction in inventory and it's a trend that's happening on a global basis.
You're exactly right.
It's definitely positive for the industry, but you could go too far.
Not ---+ I don't think there's any risk of that.
I do think it favors companies like Callaway with our quick turnaround and global reach and the great custom fitting capabilities.
You see us going up 24% in our custom fitting business in the US.
That's a great fit for this change in environment and I think we'll thrive and be able to support it and are we all the way through it, are we partway through it.
It's hard to be sure.
People are still talking about lowering overall inventories out there so we're not all the way through it, but inventory levels are down and we're at least partway through it, if not more than part.
So I can't really predict what that end point is, but I know we're making good progress there and I think it will be a good thing in the long run.
Thank you.
Yes, that's a great insider question there that somebody knows the industry, <UNK>.
That ---+ at some places we won't be able to, but we'll show nice progress.
We're increasing our staff position and green grass is in general a lagging indicator.
In other words, they take less risk on inventory.
So when we launched Chrome Soft in 2015 and shipped in February of 2015 and we're trying to sell it in the fall, we were in telling them the story about how we finally got it right and this was going to be the ball that changed the ball and, quite frankly, the green grass guys probably thought yes, I have heard that before and so it was a very hard sell.
And our distribution at green grass was a bit of a slugfest.
Now as we go into green grass they will have seen that the Chrome Soft performed beautifully and that consumers were asking for it and it was the fastest growing ball in the category last year and so it will be easier as we become a proven player, momentum is a great ally in that perspective and we are growing the green grass so I expect us to make progress, I like the direction.
There will still be some accounts that have some very strong brand (inaudible) we won't get into, but ---+ and I'm already seeing we are number two in market share and we should be number two and growing in our distribution strength at green grass as well.
Yes.
Well, first I think I got to get you playing it, <UNK>, but assuming that that may take me awhile.
The ---+ yes, that will help.
And you may or may not have seen Tom Watson played it in his debut with us in Hawaii and he created some interest and excitement about it.
And we have seen accounts that have been exclusive to other brands, have never brought in a Callaway ball and they have called their rep begrudgingly needing to bring in what they call the soccer ball.
And so we will look for opportunities to have it gain more exposure, including potentially some tour play and it's not an overwhelming portion of our business right now, but it's a fun little niche that you never know if it did catch on it certainly differentiated.
We have a 100% market share of those that like us soccer ball (inaudible).
Thanks, <UNK>.
Appreciate it.
I want to just thank everybody for dialing in today to the Callaway team.
Great job on a strong 2015 and looking forward to keeping it going in 2016.
Thank you for the call.
| 2016_ELY |
2015 | RMBS | RMBS
#Thank you, Amanda, and welcome to the Rambus second-quarter 2015 results conference call.
I'm <UNK> <UNK>, CFO.
On the call today with me is Dr.
<UNK> <UNK>, our President and CEO.
The press release with the results that will be discussed here today have been filed with the SEC on Form 8-K.
A replay of this call will be available for the next week at 855-859-2056.
You can hear the replay by dialing the toll-free number, and then entering ID number 77962571 when you hear the prompt.
In addition, we are simultaneously webcasting this call; and along with the audio, we are webcasting slides.
So, even if you're joining us via conference call, you may want to access the website for the slide presentation.
A replay of this call can be accessed on our website beginning today at 5PM Pacific time.
In an effort to provide greater clarity in our financials, we are using both GAAP and non-GAAP pro forma format in our press release and also on this call.
I need to advise you that the discussion today will contain forward-looking statements regarding our financial prospects and demand for our technologies, among other things.
These statements are subject to risks and uncertainties that are discussed during this call, and may be more fully described in the documents we file with the SEC, including our 8-Ks 10-Qs and 10-Ks.
These forward-looking statements may differ materially from our actual results, and we are under no obligation to update these statements.
Further, as mentioned, we will discuss non-GAAP financial results today, and have posted on our website reconciliations of these non-GAAP financials to the most directly comparable GAAP measures.
You can find a copy of our earnings release and the recon on our website at rambus.com on the investor relations page under financial releases.
Now I'll turn the call over to Ron to provide an overview of the quarter.
Ron.
Thank you, <UNK>, and good afternoon, everyone.
We ended Q2 at $72.8 million in revenue, which is close to the midpoint of our revenue guidance.
Expenses came in at the low end of what we expected, so profitability was at the high end of guidance.
I continue to be pleased with the team's performance and careful management of costs and expenses while still investing heavily in key strategic areas for growth.
<UNK> will review all the financials in a moment.
But from a guidance perspective, it is important to note that we are keeping our projections for the year unchanged in the range of $300 million to $315 million.
So, we remain optimistic about sequential growth because we have so many deals in the pipeline.
One of the biggest events to occur in the second quarter was the renewal of the SK Hynix agreement.
Some have wondered why renew this agreement now, particularly since it was not slated to term until 2018.
Recall that as we began our initiative to really engage and collaborate with the industry a few years ago, Hynix was the first partner to sign; and at that time, chose to take the standard five-year agreement.
As our strategy dictated being more open to more flexible terms, other customers chose to sign longer-term agreements.
For instance, Micron signed a seven-year deal, and Samsung resigned to a 10-year deal.
So, looking at this structure, it was natural for us to offer an extended license to Hynix.
And it's a great deal for us from a financial standpoint, providing a steady revenue stream over a more extended period of time, totaling $432 million over the extended term, with an average rate of $12 million per quarter until 2024.
As a reminder to our investors, our licensing contracts with the DRAM industry are fixed, so we're not subject to fluctuations and volatility in the DRAM market, which we think is a great position to be in.
Last quarter, we also announced that we renewed the license agreement with Renesas, which was set to come due this year, and is now renewed into 2020.
This agreement includes not only our memory and interface technologies, but also some of our security offerings, which, again, formulates a basis to begin potential engagements beyond pure patent licensing.
Having these patent license agreements in place really helps as we look to build deeper collaboration with the industry.
In fact, we've talked about working to solve some of the industry's tough challenges and, to that end, we're gearing up for a new product announcement just ahead of the Intel Developer Forum next month.
This product pertains to two of the strategic memory programs we discussed previously.
We can't tell you everything right now, but what we can say is that we have been working for the past few years to make our IP consumable, taking our [innovative] technologies and expertise in the memory space, and packaging it into a product that will help improve server-based memory performance.
As our customers and their customers all know, the era of big data is placing tremendous demands on the data center to optimize performance, power, CapEx and OpEx for vast amounts of data.
Our product, while not related to storage class memory architectures, as some have speculated, will improve both bandwidth and capacity requirements to meet the growing needs of the data center.
Unfortunately, that's all we can say about the program now, but look forward to sharing the official news in the coming weeks.
The other memory-related program that we've discussed is born out of our emerging solutions group, which is where our next generation initiatives in Rambus labs organization reside.
This program is focused on improving memory architectures in the data center, but more at the rack level, and focuses on software.
We also plan to discuss this strategic program in more detail at our Analyst Day in mid-September, so we'll be revealing more later in the year.
On the security side, we continue to make good progress with Qualcomm as our lead customer for our CryptoManager platform.
At this stage of the program, we are laser focused on delivering the various elements and expanding functionality.
To remind everyone, there are several parts of the overall CryptoManager platform that are being developed and deployed: a security engine, which is a type of small secure element that sits within the customer's SOC; infrastructure, which is basically a secure server that injects keys during the SOC manufacturing process; and enterprise class software for controlling the infrastructure.
We get paid for the security engine, infrastructure and software, and eventually also royalties for programming third-party keys for configuring new features downstream or applications that can benefit from a hardware root of trust such as DRM, EPN and payment.
At the upcoming investor day, we'll take a deeper look at the downstream royalty opportunity for third-party keys, but suffice it to say that it dwarfs Rambus's current revenue.
Interestingly, from a new business model standpoint, CryptoManager opens up an entirely new customer base for us that the companies most interested in downstream configuration and security application are handset manufacturers, mobile operators, mobile application providers, and [software] mobile service providers.
Few, if any, semiconductor companies, let alone semiconductor IP companies, have truly found a path to monetize this downstream part of the value chain, so we really believe we are doing something unique and possibly even disruptive here.
The last here I want to touch on is the work we've been doing out of our emerging solutions division.
I spoke earlier about the second strategic memory program, so I won't cover that again.
But this is also the group that is developing our computational sense and imaging programs, such as our binary pixel and lensless smart sensor technologies.
We shared last quarter that our lensless smart sensor received another Best-of Mobile World Congress award, and that this technology has now also been named a finalist for an EE Times ACE Award.
We also discussed the Partners-in-Development program, or POD program, we kicked off with our partners, frog design and IXDS.
We're pleased to share that our partners have been working with the developer kits, which include the lensless smart sensor and the algorithms, and they are working through scenarios in vertical applications.
So, we look forward to sharing some exciting results soon.
In summary, Q2 was another good quarter.
We are executing and cautiously optimistic that we're on track to meet the financial goals we set forth at the beginning of this year.
We are making good progress across all of our strategic programs, and are excited to share more news with you next month, right before IDF, and then even more again in September at our Analyst Day.
With that, I'll turn the call over to <UNK> to give a readout on the financial results.
<UNK>.
Thanks, Ron.
I'd like to remind everyone that, for this call and for internal assessment, we use non-GAAP or pro forma numbers to discuss our operating results, as well as forward-looking projections, which we believe are indicative of complete performance as they include certain cash events, and exclude certain non-cash and discrete events, such as stock-based comp, amortization, impairment and restructuring charges, as we believe these are not indicators of long-term performance.
As noted earlier, we will provide reconciliations to the most comparable GAAP measures on our website.
In the case of any forward-looking projections or estimates containing non-GAAP information discussed on this call, a reconciliation may not be available due to the unreasonable effort to make such a determination or provide such information as more fully described on our website.
Let me first review some of the financial highlights for the second quarter.
As Ron mentioned, revenue for the second quarter was $72.8 million, within our guidance of $70 million to $74 million, flat to the first quarter, and a decrease of 4.8% year over year.
For the current quarter, our memory and interface revenue was $54.6 million, cryptography research was $11.8 million, and our lighting and display technology revenue was $6.4 million.
Quarter over quarter, these numbers represent flat revenue for MID, a decrease of 7.8% for cryptography research, and an increase of 18.5% for lighting industry technology.
CRD, or cryptography research, has a couple of annual licenses which pay in Q1 of every year, hence the decrease in revenue for CRD.
Year over year, revenue decreased by 6.8% and 7.8% for MID and cryptography research, respectively, and increased by 25.5% for lighting industry technology.
In Q2 of last year, we had an extra initial payment from Qualcomm when we signed another license fee and a customer.
In addition, year over year, we also had lower royalty payments from two customers, driving lower revenue for MID and for CRD.
For LDT, shipments continue to increase, and we had high royalty, as well as high product revenue.
Cost of revenue plus operating expenses, or what I'll refer to as total operating expenses, for the quarter came in at $46.5 million, at the low end of our guidance of $46 million to $49 million.
This was an increase of $1.6 million from the previous quarter, and an increase of $2.7 million from the quarter a year ago.
These increases were primarily driven by prototyping expenses, and additional resources and engineering.
We ended the quarter with headcount of 513 as compared to 500 in the previous quarter and 484 in the quarter a year ago.
Operating income for the quarter was $26.3 million, towards the high end of our guidance of $21 million to $28 million.
On a sequential basis, this is a decrease of 6.1%, and a decrease of 19.6% year over year.
The decrease year over year was driven primarily by lower patent revenue in Q2 of 2015 since we've kept our total OpEx relatively flat over the year.
For the quarter, EBITDA margin was 40%, as compared to 43% in Q1 2015, and 47% in Q2 of 2014.
Interest and other expenses for the second quarter were $1.3 million, as compared to $1.4 million in Q1 of 2015, and $3.2 million in Q2 of 2014.
As a reminder, the 5% coupon convert matured in June of 2014, causing the reduction in interest expense year over year.
Using a flat rate of 36% for pro forma pre-tax, net income for the quarter was $16 million or $0.13 a share, as compared to $17 million last quarter, and $18.9 million in the quarter a year ago.
During the quarter, the fully diluted share count increased by approximately 3.7 million from 117.4 million to 120.9 million, primarily due to the dilutive effect of the convertible notes, since our average share price during the quarter was $14.29, which was higher than the $12.07 conversion price on the convertible notes.
Overall cash, defined as cash, cash equivalents and marketable securities, was $348 million, an increase of $30 million from the previous quarter.
Net cash at the end of the quarter was $210 million, as compared to $108 million a year ago.
During the quarter, we generated approximately $24 million in cash from operations.
Now I'll provide pro forma guidance for the third-quarter 2015, as well as for the full year.
The guidance reflects a reasonable estimate, and our actual results could differ materially from what I'm about to review.
For the third quarter, we expect revenue to be between $73 million and $78 million.
We expect total operating expenses for the quarter to be between $46 million and $49 million.
Pro forma operating income is expected to be between $24 million and $32 million.
As Ron mentioned, for the full year we're keeping our guidance unchanged, both for revenue and for operating expenses.
We are negotiating a couple of large deals, and it's hard to predict when exactly they will close.
Currently, we have modeled them to close in the fourth quarter, which explains the expected increase from Q3 to Q4.
As in any quarter, this forecast is not without risk; and if any of these deals get pushed on to next year, we could experience lower revenue.
And we will update you accordingly at the next earnings call when we will have more visibility on the progress of these deals.
We are now ready to open the lines for Q&A.
Operator, please open the lines.
Yes, <UNK>, thanks for the nice words.
It's really just process going through it.
We have a very nice pipeline, it's very rich.
The team has been doing a great job.
And just a question of when they close or not.
<UNK> has always done a good a job of foundry conditioning those, you can tell.
He's probably more pessimistic which is good and I'm more optimistic which is good.
So, it's just the normal stuff.
Yes, let me reiterate that, we said that, is the NASDAQ with Jefferies Conference.
There was a lot of speculation that we heard that it was a storage class memory and so at the last webcast at the NASDAQ Conference we said explicitly that it is not a storage class memory.
Now we do have a program, and this is where people were connecting dots that are very logical but not necessarily correct.
We have a lot of work that we've done on resistive RAM that's incredibly excited.
We've licensed that to Tezzaron.
We are working with a variety of different companies in producing some larger production quality chips and really extending it.
I've said one of the things that we were concerned about is the stability at higher temperature.
We're making progress on that.
So that's a great program, but it's a little further out.
This is a product that we'd be essentially ramping this year and next year.
The storage class memory I think is more like 2017 before we would see something.
It's an exciting program.
Could be great.
But that's not what we're talking about either in the one that's coming in the business unit where it's more shorter term revenue or the strategic ---+ other strategic more software orientated memory program which we hope to demonstrate to you during the Analyst Day.
That's in the emerging solutions division which is also where the RRAM is.
So, no not storage class.
Something different.
It'll be rather obvious when you see it.
It's kind of exciting.
Straightforward, but there's a great road map with a lot of innovation there.
We have been incurring prototyping costs for the memory we're talking about and I think those are included in some of the forecasts and the guidance we give.
So nothing out of the ordinary.
When we give guidance for next year, we'll see how much we need to do in terms of prototyping and we'll probably adjust our guidance accordingly.
But right now we have already included the estimates in our full-year guidance.
Yes, there could be an inflection but don't forget this is a program we just announced last year in June.
And we have to have our customers start shipping their chips first and then there will be adoption in the marketplace.
So as we mentioned in the past, yes we are getting revenue from Qualcomm.
The downstream revenue won't happen until about late 2016 timeframe.
Yes, what we'll be announcing we do not believe that it will have any delay effect on that.
No, it was not.
In the direct sense, that was simply an extension of the licenses, it was a rather straightforward one.
As I mentioned from our perspective we both want to work collaboratively on things that could be the new memory project, but this was just an extension of the license.
And for the $432 million extending into 2024 it was from our perspective for shareholders, it was a great deal and is just a great platform to introduce some of these new products.
<UNK>, we stopped doing that because it really doesn't matter because if you talk about percentages depending on what the revenue is, the percentage will change every quarter.
So I think what we try to guide people to is that when the D from the DRAM side, we have been getting consistently fixed dollar numbers.
And from the DRAM industry we should expect to receive $158 million for the full year in 2015.
And that's a fixed number no matter what volatility there is in the DRAM industry, whatever pricing may be up or down.
It might be up or down.
So I think that part you can say that at least around 50% of our revenue is fixed.
On the others we have both fixed and variable.
And some of them are unit-based, so they're variable.
Others, they may pay us a fixed amount but the amount varies over time.
So it's very difficult to quantify a percentage in terms of fixed and floating.
So there's a sum of a lot of things, some of them are extension renewals.
Some of them are new opportunities.
Some of them are more technology based.
Some of them are more straight then normal patent licensing based.
So it's really a mixed bag.
When you look at the pipeline, it's just really large which is what you would expect you would normally have.
And the question is just simply how much gets achieved this quarter and next quarter.
There are scenarios where we go significantly above the estimate, but they're just unlikely which is why we remain in between those two.
So, I guess the best way to say it again, <UNK>, is cautiously optimistic.
And as <UNK> said, we'll update you when we find out something new.
You're right, we don't show in the balance sheet.
It has gone up.
I can check and let you know, but I think it's gone up by a couple million quarter over quarter.
I think we might be around $6 million or $7 million as of the end of last quarter.
It was like $4.5 million last quarter ---+
Right.
The previous quarter, so probably $6.5 million.
It's up quarter over quarter, I'll try and have that number next time.
Sure.
And the answer is, of course.
And I've said it just repeatedly, there's a pipeline of things that just take time to get through and the team is doing it.
We're really excited about the new memory product.
We're excited about the things that are even more strategically out there.
We didn't talk about it formally in the prepared remarks, but we have customers that are really excited and working with us very proactively on things like the binary pixel which could provide a nice little bump.
So, we have a lot of deals.
We have a lot of people partners.
It really comes down to CryptoManager.
If you want to look at the biggest chunks, CryptoManager is one that we're really excited about, both in terms of new customers but also the downstream revenue opportunities that we alluded to and we'll talk about, where the total opportunity dwarfs the total revenue of Rambus.
And we're not the only ones to see that.
Other people are seeing that and wanting to partner with us.
So I think it requires us to execute on CryptoManager, it requires us to execute on the new memory opportunity.
And the combination of those with our customers, of course, to execute.
As we look more like a typical product company, whether the product is IP or physical product like CryptoManager, of course both of those have to work.
So as <UNK> had said, it's not without risk but I'm really pretty pumped about the Company and what it's doing now from a strategic opportunities standpoint.
It was $6.6 million.
Sure.
Yes, so M&A still remains our number one priority.
We have been seeing some good opportunities and it's been a pretty busy quarter looking at different opportunities.
Maybe a little more so than last quarter but again I think the valuation side and possibly a little more on the culture side of the two things that are slowing us down or stopping us from moving ahead with that.
We'll continue looking.
We don't want to jump in prematurely or haphazardly.
We want to make sure that we have the right return for our shareholders and our employees.
On the buyback side we did not buy back any shares.
We had said that the program is opportunistic and with stock being at about [$15] and decided that it's not a good time to be buying back shares.
But secondly I want to make sure that my business units and my M&A team tells me that they have exhausted possibilities or I can use the cash for buyback at which time I can move in that direction.
<UNK>, let me add a little bit onto that.
We have a regular pipeline, we are spending time on it.
I'm spending time with Senior Executives repeatedly almost each week.
We just had a meeting today where we approved another process where we're going to engage more directly with a particular company that's very attractive in one of our strategic areas.
So I think that's good.
One of the things that I think is changing a little bit, albeit slowly, is the expectation on value.
I think a lot of people are seeing some macro economic storm clouds that are out there.
The stock market in China which has been contained but can spill over in different areas.
The Greek exit and the Greek ordeal is challenging.
Maybe not again it's going to go outside of Europe but it certainly adds some instability there.
PC sales are declining.
We saw big stocks like Intel that get hit a bit.
Handset sales are declining.
We saw companies like Qualcomm and even ARM suffer a little bit.
We've seen ourselves trade almost sympathetically with the difficulties that Micron had and ARM and others even though we are really, as we've noted, detached from much of that because of our fixed contracts.
Which is exactly what we chose that.
So I'm getting a little more hopeful that as people look at some of these macroeconomic storm clouds that may make some transactions a little bit more complicated, but they'll be a little more realistic.
And we're fortunate that we have the profitability that we do while still investing very heavily in the strategic programs that we have ongoing.
And so we're going to take advantage of this ---+ these opportunities if they come forward.
Sure.
Well I think there were some global issues and not specifically Qualcomm, so I don't want to make that assertion.
We're engaged with a lot of customers on this.
The obvious place is mobile because of the starting point with Qualcomm and the very nature of having this hardware route of trust, there's many secure elements whatever you want to call it that could be in existence and be used from applications downstream.
So that's a very natural place.
However, we have interest in the networking side of various businesses where they want to also configure; again secure their supply chain.
We have completely different industrial customers that are interested.
So I think in some ways from a semiconductor standpoint it's a paradigm shift, it's a new way of thinking about it.
It's a new way of managing inventory and managing cash and working capital.
But it's also a new way to enter into monetizing in different applications.
So I think at some customers are starting to sense that that's interesting.
Some of our partners that we're talking to are also interested in that.
As I mentioned in the prepared remarks, if you think about this, what a platform like CryptoManager allows you to do is offer a value proposition to an application provider that would be on a different platform to have an aspect to use something to secure a transaction or configure a device securely.
And today most semiconductor companies monetize only through an OEM.
They sell a chip to the system OEM, he puts it in, they give him some money and that's it.
What we like about this is the disruptive nature that wow, maybe we can create relationships with other vendors.
Oh, by the way, some of these application providers, what they're talking about is securing customer relationships that are worth now $6.99 a month in some type of DRM type of application, not in programming a $5 chip.
So what we get for a $5 chip is pennies.
What you can get for securing a highly valuable content with a customer who has an annuity stream forever is a very different value proposition.
Of course, there's inherent risk in all this, as we say that we don't want to be delusional.
We have to crawl, then walk, then run.
But this is a fantastic upside opportunity.
Thank you all for your continued interest and support.
We look forward to sharing more details on our business and key programs at our Analyst Day which will be held on September 15 in New York.
Thank you.
| 2015_RMBS |
2017 | FWRD | FWRD
#Thank you, Julia, and good morning to everyone on the call.
Before we move to Q&A, we would like to make a few remarks about our recently announced acquisition of Atlantic.
As Julia mentioned, we're joined on the call today by Matt <UNK>, who oversees our Intermodal and Truckload businesses.
Matt, let me turn it over to you to provide an overview of the transaction.
Thanks, Mike.
On April 10, we announced that our wholly owned subsidiary CST had entered into a definitive agreement to acquire substantially all of the assets of Atlantic Trucking Company.
This transaction has been a few years in the making.
Since acquiring CST in 2014, we've been actively looking for an intermodal company with the right mix of customers, locations, driver fleet and management expertise to serve our ---+ as our Southeast beachhead and we found that in Atlantic.
Atlantic is headquartered in Charleston, South Carolina, with 8 other locations, Savannah, Atlanta, Charlotte, Norfolk, Nashville, Jacksonville, Memphis and Houston.
It has 416 drivers, 83 company and 333 independent contractors.
It has a legacy leadership team that has all agreed to stay on, and has a great blend of liner, freight forwarder and BCO customers.
To acquire Atlantic, Forward Air will pay $22.5 million, with the potential for a $1 million earn out.
Assuming the earn out is achieved, the $23.5 million purchase price represents a 4.6x Atlantic's 2016 EBITD<UNK>
We expect the transaction to close on or before May 15, and we're very excited to welcome Atlantic to the Forward Air family and I want to personally thank the entire CST team and Atlantic's owners, Kevin Gregg and Julie O'Donnell, for all of their hard work and helping us put this transaction together.
Thanks, Matt.
Matt will remain on the call this morning to address any questions about Atlantic or our Intermodal and Truckload businesses in general.
Before we move to Q&A, I will mention that we expect Atlantic to be $0.02 to $0.03 accretive and provide roughly $2.5 million of EBITDA in 2017.
So with that, Julia, let's open the line for Q&<UNK>
The emphasis is we.
I ---+ the quick answer is, Pool, even though they are suffering from a tough market today.
The good side of that is their competitors are going out of business left and right.
So we've been able to do a number of things that we haven't been able to do in the past.
So for instance, we've been able to get through reasonable rate increases, we've been able to establish a really stable management team that is really doing a top-notch job led by Roger Gellis.
So a lot of really positive things and the bottom line that's interesting to me because what everybody reads, that business is not doing that bad in terms of year-over-year business.
So kind of the interesting year woe and everything is awful, but in reality it's okay.
Yes, sure, <UNK>.
I'll start on the response to the 1Q tonnage and let <UNK> chime in.
We were really tracking our forecast through the first 2.5 months in the quarter and we were surprisingly spot on.
And then as we got into the back end of March, things accelerated and the LTL team did a great job taking advantage, driving the opportunity and then taking advantage of it from an operations perspective to bring the profit in to the bottom line.
So it was really a second half of March acceleration.
Looking to the second quarter, we've returned to normal April trends, so the acceleration in the second half of March is decelerated.
And what we've got baked in for the full quarter is essentially flattish, flat tonnage on a year-over-year basis for the second quarter.
Because right now given the trends and the overall sluggishness in the environment, we don't see a catalyst at this stage for Q2 to have a pickup in tonnage year-on-year.
I'm not sure there was a specific, <UNK>, but it seemed like almost an old March, old meaning like 5, 6, 7 years ago.
So it was great.
It was wonderful to see.
We're hopeful that it continues.
We, however, stay on the sidelines in terms of, gee, it's going to be a boomer the rest of the year.
Yield jumping all over the place or being driven all over the place.
As opposed in the past were the criteria for yield was fairly stable, today it's not.
So having said that, we're seeing a length of haul that's shortening.
We're seeing shipment size that's getting just a little bit smaller.
And then you have the Complete being thrown on top of it.
So a lot of mixture going on there that we haven't had in the past.
All that having been said, we're very happy with where yield is.
We will, as we always do on an annual basis, come summer time we'll be looking at, do we need to do a GRI or not.
We have a lot of work to do before we get there and we'll comment on that next quarter probably.
Sure.
Sure, I'll take that, <UNK>.
We didn't put Atlantic in because the transaction has yet to close.
If we had put it in, it wouldn't have had a noticeable effect in all likelihood.
Assuming a May 15 close, but we're in a short stub period, if it slips a week or whatever, you don't have a lot of opportunity for incremental contribution.
So we decided to just leave it out for those reasons.
If you do assume a mid-May close, then we would see it adding, as I mentioned, $0.02 to $0.03 for the balance so May 15 to December 31, for the balance of 2017, and again assuming a mid-May close of about $2.5 million of EBITDA for the balance of '17.
Yes, sure.
So we have very little exposure to the Southeast ports which have been the fastest growing in the last few years.
So we're really needed, as I've described it a beachhead in the Southeast, to really generate access to those ports and those revenues.
And frankly, we were a Midwest-based company with small presences in Savannah and Charleston and Houston.
But this gives us access to all the Norfolk port which is growing very fast, Savannah which is growing extremely fast.
They just announced an alliance between those 2 ports, Virginia and Georgia announced an alliance there to deal with the supersized ships that are coming in.
Houston is growing.
This gives us a bigger presence in Houston.
And frankly, a lot of our Midwest customers have always asked, do we have a presence here, can we handle their business in these other induction points, and we couldn't.
So not only is this going to position us for some really good organic growth in new markets, but it's also going to allow us to have a platform in which to bolt on other acquisitions in these new markets.
So it's both an organic and an inorganic play and it just ---+ it takes us up to 19 locations now which is when we ---+ essentially, Atlantic is the same size as what CST was when we acquired it.
So we've really done a, in terms of expanding on the footprint, expanding our opportunities both organically and inorganically, this is a huge play for us.
The answer is yes.
I think we have to keep in mind the perspective and the perspective is, Q1 was up over Q1 of a year ago, which was terrible.
So it's nice to see.
We're happy the business came on.
We obviously got to participate in it.
We're certainly not selling our company based on that.
That's traction.
We have a number of initiatives going on today in our air expedite group.
The big one is our 3PL push.
So we have entered that market, actually entered it a year ago.
Had to do a lot of, what I call, back office work to get ready for it, to handle it properly.
They have done a terrific job, and especially, as we have started 2017, they've really done a great job of penetrating that market.
We look for a lot more to come.
And all of that business for the most part, is related to Complete.
So not only does it help our Linehaul product, but it also helps our Complete product.
It depends on the situation.
In most cases, you're right.
But it's not ---+ to us, it's not meaningful because we look at that as incremental.
We look at the Linehaul that it provides us purely incremental to our model.
That we're actually looking at all of it.
Yes, no pay pressure at the moment.
We have been able to recruit.
The TLX side of the world is a tough one to keep drivers happy.
As opposed to the Air Expedite where they're running on their dedicated run.
So we have a little bit more turnover there.
But we have ramped up our efforts to make sure we have the right ratio.
There is a good ratio there when you do have the opportunity to outsource.
But you also want to make sure you can move, let's say, the majority of the freight on our trucks.
I think that's very fair.
| 2017_FWRD |
2016 | WMB | WMB
#Thank you.
Great.
Well thank you all very much.
Appreciate all the great questions as always.
I know it's a busy day.
And so we're just very excited to be in the space we are on the natural gas front right now and are really seeing our strategy really starting to pay off for us and appreciate your continued commitment to the Company.
Thank you.
| 2016_WMB |
2016 | FARO | FARO
#Yes, the latter.
So you are correct.
As we go through this verticalization and this reorganization, we will be looking to reinvest into the business to be able to support this and to further grow the business.
Well, we view the aerospace market, which isn't defined as a market before, kind of like another ---+ it's a whole world because we can sell ---+ we sell products for BIMCIM for the factories, we sell components for automated metrology.
We even sell crash components for things like automotive and aerospace.
They have automated and manual components.
They have metrology.
So we would speak to almost every level of the aerospace manufacturing market.
It's clear that the people who are involved in the factory setup are not the same people that are doing metrology for the actual parts being assembled or for the automated large components, which would [be] the factory automation.
So if you think about it, aerospace can be touched by almost all the verticals.
So we expect to see activity in all those fronts and benefit from that.
We're really not looking at the cycles.
We're so under penetrated in our mind that it's really about just doing a better job at what we're doing.
There are tremendous numbers of opportunities out there, a lot of demos that we wish were closing that aren't that we need to improve on.
So my personal feeling is that it has less to do with cycles than it does to do with execution.
We had an unusually low tax rate this quarter.
It was attributed for a variety of things, primarily that the higher tax rate jurisdictions had lower profits than the lower tax rate jurisdictions.
I wouldn't anticipate that our go-forward tax rate would be any different than historically what it's at, which is in the low 20s.
Yes.
Well, clearly, the two parts of that equation, the top line and then our operating expenses give you what you're looking for there.
We would like to be at the top of the band of comparables and we'd like to benchmark other companies.
We would like to be the more profitable of them.
So if you took our comparables and then you looked at the variations of those, I would look for us trying to achieve or exceed the best in our comparables.
Well, first, my comment about the 10% was in no reference to Jay's performance, one which I respect deeply.
Jay did a fantastic job for the decade shepherding the Company through various cycles and through significant changes and expansion in the world.
So thanks to Jay for that.
What is in it for shareholders is an interesting question because, from a management point of view, one expects that by increasing the top line, reducing costs, generating more profit, that you have an EPS.
I know I'm going to ---+ it's going to sound patronizing because the question was, in a way, the most generic question you could ask about what a company does in a public market.
So you'll note that I have not stated any unrealistic goals.
I talk about returning to top-line growth that's better than the 10%.
I talked about getting gross margins to historical highs.
I tied that to the fact that if we lose technological leadership, then we lose the ability to charge premium prices, and margins start to drop.
So the importance thereby of good R&D and good responsiveness to the market.
So we are going to improve our efficiencies around the world.
That should reduce SG&A, simply tracking sales, but give us a little bit more leverage.
What do I expect for shareholders from that.
I expect that if we generate a better return on every dollar of volume, that you'll get EPS, you'll get a growth rate, and you'll have the stock going up.
Now, it's true that in the past couple years or more, four or five years, the stock has hit numbers like in the mid-50s and in the 60s.
In general, if you look back over the last 10 years, the stock has significantly beat the NASDAQ growth overall.
And so from that point of view, only this last few quarters has the pricing been kind of anomalous to the NASDAQ, and for reasons which I don't completely understand, because the nature, the basic nature of the Company has not changed that much.
You raised the point, though, of numbers that are ---+ goals that are set.
And while we won't be the first that stated goals that we didn't quite live up to, however, the return to shareholders has been quite extensive for holders of FARO stock, particularly long-term holders of FARO stock.
So I hope I answered your question a little better.
It's a little bit hard to know exactly what you meant by it.
And I wasn't sure if it was a criticism or it was a support for doing the kinds of things that you need.
Okay.
And I'm not sure if the question's fair or unfair, but, I mean, I'm going to make an effort to answer it.
I think our analysis shows that one of the reasons we haven't been able to scale the earnings with the top-line growth is the fact that the business is very, very complex.
We sell into enormous number of markets.
We operate in eight languages.
We do it globally, even though we're a small, relatively small company in the context with a lot of global players.
And as I noted in my preamble, the complexity of the operations has grown commensurately in the different regions.
And when you're in China, you're operating ---+ or in the APAC, you're operating in quite a few different companies ---+ countries, rather.
And in Europe, same situation, irrespective of the common market.
So that's been complicated.
And part of that has resulted in a regionalization of processes, which we analyzed as one of the major contributors to not being able to scale the SG&A down as a percentage of sales.
So you might ask, well, what's the natural thing you can do for that.
And that's what we're trying to do is to harmonize and reduce those expenses, while also pushing the top line.
The best thing that we can do is we can provide you our best intentions.
With respect to the modeling of it, and there's a lot of companies that operate just in the United States that have G&A of 10%, let alone one like us at 10% or 11% having something global like we do.
So we're not doing terribly, but I believe that we can do much better.
And it's going to be these little incremental pieces with every part of our operational lines, and hopefully they'll add up to something significant.
Really a combination of a few things.
The fact that the team, the global finance team working in combination with the sales team, really made an effort to collect, improve collections through various efficiencies and processes.
And it was, I think also the nature that we are seeing some strong financials with many of our customers who have the ability to pay.
Well, thank you everybody for taking our talk and asking the terrific questions.
We look forward to reporting to you on how the reorganization builds in subsequent quarters.
Thank you, and good night.
| 2016_FARO |
2017 | LNTH | LNTH
#Thank you, <UNK>, and welcome to everyone joining us today on our conference call.
We entered 2017 with a goal to build upon the momentum established in 2016.
And with the first quarter now behind us, I am pleased to report that the momentum has persisted.
During the first quarter of 2017, we once again grew revenue and volume in our higher-margin products and improved our liquidity and capital structure through the refinancing of our debt facility.
Shortly following the end of the quarter, we finalized our collaboration agreement with GE Healthcare for the worldwide development and commercialization of Flurpiridaz F 18.
Further, as disclosed in our earnings release earlier today, we have exceeded our first quarter guidance, and as <UNK> will discuss in more detail shortly, have raised our guidance for the full year.
In short, it is clear that 2017 is off to a strong start.
During the first quarter, we continued to grow revenue of our flagship imaging agent DEFINITY with US revenues up 20% year-over-year.
Our reintroduction of DEFINITY in UK, Germany, Austria, and the Netherlands continues to gain traction with international revenues up by 25% over that same time period.
We have also continued to successfully pursue regulatory approval to sell DEFINITY in other markets around the world; most recently with our approval in Taiwan.
Our nuclear product portfolio was once again anchored by TechneLite sales growth worldwide.
Regarding our nuclear medicine product contracting strategy, we have now renewed multi-year commercial supply agreements with two of the four major radiopharmacy groups.
In addition to our UPPI contract that runs through 2019 announced last year, we recently announced a new expanded contract with GE Healthcare that runs through 2020.
Under the GE agreement, Lantheus will supply TechneLite, Xenon-133, and Gallium-67 at committed pricing and increased volume levels for these products.
Focusing now on our continued effort to improve upon our capital structure, we announced during the first quarter the closing of a $275 million term loan facility, as well as a new $75 million five-year cash flow revolver.
The transaction, led by J.
P.
Morgan Chase with Citizens Bank and Wells Fargo Securities acting as joint lead arrangers, replaced our previous term loan and asset based loan facilities.
We believe the more attractive provisions under this term loan should yield an improvement to our cash flow of approximately $5 million per year over the term.
Additionally, the revolver provides increased liquidity and flexibility to support strategic initiatives.
Finally, a few words on our flurpiridaz F 18 collaboration with GE Healthcare.
We are thrilled to have GE Healthcare as our global partner to bring this next generation PET cardiac imaging agent to market.
GE Healthcare's presence across the entire PET diagnostic spectrum creates exciting opportunities for this agent on a global basis.
Following the signing of the definitive agreement last week, we received our initial upfront payment of $5 million.
The process will now focus on executing the knowledge transfer necessary for GE to assume responsibility for future development and commercialization of this agent.
We will continue to collaborate in both the development and commercialization of this promising agent through a joint steering committee, as GE drives the development and commercialization process and timelines.
I now invite <UNK> to provide a more detailed review of our first quarter 2017 results, as well as our updated guidance for the year, after which I will provide closing comments.
Good afternoon, everyone.
As a reminder, the tables included in today's press release include a reconciliation of our GAAP results to the as-adjusted non-GAAP performance I'll be covering with you today.
Lantheus delivered 81.4 million in revenue for the first quarter of 2017, an increase of 6.4% compared to the first quarter of 2016.
These results were driven by continued growth of DEFINITY, and the successful execution of our nuclear contracting strategy.
Looking at our revenue results on a product line basis, DEFINITY posted worldwide revenue of 37.7 million in the first quarter for a 20% increase over the same period in 2016.
Our TechneLite business also grew during the first quarter, posting worldwide revenue of 26.8 million, an improvement of 8% compared to the first quarter of 2016.
Worldwide Xenon revenue totaled 8.1 million in the first quarter, consistent with performance from one year ago.
Finally, worldwide revenue from our Other product category, which represents approximately 11% of our total revenue, was 8.8 million during the first quarter of 2017, down 3.3 million as compared to the same period last year.
This decrease was attributable to the divestiture of our Canadian and Australian radiopharmacy businesses in the first and third quarters of 2016 respectively.
Moving below the revenue line, our first quarter 2017 gross profit margin, excluding technology transfer activities, which we refer to in our reconciliations as new manufacturing costs, totaled approximately 50%, an increase of 500 basis points on a year over year basis.
This improvement demonstrates the impact of higher DIFINITY revenues in savings related to Xenon production costs, as we now process and finish Xenon at our Billerica facility.
Operating expenses were $27.8 million for the first quarter of 2017, an increase of $6 million from the same period one year ago.
This is primarily attributable to $2.4 million in R&D expense related to accelerated depreciation under our campus consolidation plan, $1.7 million in GNA expense related to costs associated with our debt refinancing, as well as continued investment in our Echo business.
Operating income for the first quarter of 2017 was $11.9 million, a decrease of $5.8 million on a year over year basis.
Excluding last year's gain on the sale of the Canadian radiopharmacy business, as well as this year's accelerated depreciation and debt refinancing and offering costs, adjusted operating income for the first quarter of 2017 grew by 4.5 million, or 38% compared to the prior year period.
Moving below operating income.
First quarter interest expense totaled 5.4 million, a 23% improvement over the same period of one year ago as a result of our aggregate 75 million of voluntary prepayments made on the principal of our term facility over the course of 2016.
A lower interest rate and additional reduction in principal associated with our financing - refinancing activities during the first quarter did not have material impact on interest expense for the quarter, as the transaction closed one day prior to quarter end.
We believe that the more attractive provisions under the term loan should yield an improvement to our cash flow of approximately $5 million per year over the term of the facility.
Net income for the first quarter of 2017 was $4.1 million or .
11 cents per diluted share compared to $10.3 million or .
34 cents per diluted share for the first quarter of 2016.
Excluding last year's gain on the sale of the Canadian radiopharmacy business as well as this year's accelerated depreciation, debt refinancing and offering costs and loss on debt extinguishment, adjusted net income for the first quarter of 2017, grew by $6.2 million or 138% compared to the prior year period.
Moving on to our quarter-end balance sheet, cash flow and liquidity, as of March 31, 2017 we had cash and cash equivalents totally $40.9 million.
Borrowing capacity under our revolving credit facility was $75 million, making our total liquidity, including cash on hand, $115.9 million, providing substantial support for our operating needs and representing a 48% improvement compared to the same period one year ago.
First quarter 2017 operating cash flow totaled $5.5 million compared to $3.8 million for the first quarter of 2016.
Capital expenditures during the first quarter of 2017 were $4.9 million compared to $1.7 million in the first quarter of 2016.
Turning to our guidance for both the upcoming quarter and full year, as <UNK> <UNK> mentioned earlier, we exceeded our first quarter guidance for both total revenue and Adjusted EBITDA.
As a result, we are increasing our full year guidance to a total revenue range of $313 to $318 million and a range of $80 to $83 million for Adjusted EBITDA.
For the second quarter of 2017 we anticipate a total revenue range of $79 to $82 million and Adjusted EBITDA range of $18 to $20 million.
Please note our guidance does not reflect any impact of the partnership for flurpiridaz F 18.
In closing, we are very happy with our performance for the first quarter of 2017 and look forward to building upon our early success throughout the remainder of the year.
With that I will now turn the call back over to <UNK> <UNK>.
Thank you <UNK>.
On our last earnings call, I shared our vision that 2017 would be the start of the story about growth.
Our accomplishments during the first few months of 2017 demonstrate this.
We are very excited by our prospects.
Our ability to continually advance our other pipeline assets, deploy additional resources towards our next generation program for DEFINITY, and opportunistically pursue additional near term business development activities, should also help us to realize this vision.
In the months to come, you will hear me speak in more detail about some of these projects and how they can contribute to the Lantheus growth story.
In the meantime, we remain committed to building value for our shareholders.
With that I'll conclude my comments and open the call for questions.
No problem <UNK> and welcome to the call.
Your questions are good ones and what I say in response is actually a little bit of all of that and just great execution from our sales team.
It's a market that has unmet demand that we're still tapping into and we find that physicians are very responsive to our sales messages and you're seeing it in our results.
We look forward to continuing that type of performance.
You're right <UNK>, especially I would say in 2015 you heard us talking about using price as somewhat of a competitive strategic lever in the market place.
That dynamic will continue.
I think that what I will share is that versus the percent drop we saw in 2015 we're probably seeing more of a stabilizing of what that percent drop looks like over time.
Sure, thanks <UNK>.
Yes, you're right.
I mean a lot of it was driven because as we move the sales toward the higher margin DEFINITY product, that certainly has a positive impact.
The other item I mentioned, which is also meaningful for us is the transition of Xenon production into our facility.
If you recall during the fourth quarter of last year, we transitioned Xenon sourcing from Nordion in Canada and as part of that activity we brought a lot more of the inspection and finishing activities onto our Billerica Campus so we're also seeing some uptick from that.
Having said that, we had about a really closer to 50 percent of gross margin when you exclude the technology transfer activities.
I don't know if that's completely sustainable.
We do expect to see some transition of expenses from Q1 into Q2 which is kind of reflected in the guidance.
But we're looking at the high 40's as our target range for gross margin.
So the - I cited three products that are key to the agreement, <UNK>, TechneLite, Xenon 133, and Gallium 67.
And as I noted about the agreement, not only is it longer now it goes out to 2020, but it also has committed volumes that are increased versus prior, the prior contracts for those products.
So it's really a win-win for us, and we think it's a great relationship with GE.
I'll speak to some of the opportunities and then I'll turn over to <UNK> for capital structure, <UNK>.
I think the way that we look at ourselves now is as a company, we've gotten to a point where we've been able to build a level of stability and liquidity that really now puts us on the offensive for looking out around the landscape whether it be in our nuclear business or in our echo business to build out those franchises.
They are very different.
Our echo business is a growth business.
There's a lot of untapped demand there and there's a lot of ways to spread out both vertically and horizontally there.
Our nuclear business is more of a mature business and so as we look at opportunities there, we look at more tuck in opportunities that generally either expand our portfolio offerings or make expanded use of the facilities that we have on our campus for manufacturing.
I'm not ready at this point to share specifics with you.
I did, I will say tease you in my remarks, that as we move into the rest of year, you will hear me speaking more specifically about taking action on some of those opportunities.
<UNK>.
Yes, thanks <UNK> <UNK>.
So <UNK> as we look at our capital structure and the flexibility under that, we we're really excited obviously about the refinancing activities in Q1 to get a much better interest rate and to do an additional pay down of debt.
You know we feel we're in a really good position from a leverage ratio perspective now.
In terms of the additional flexibility, I think the swapping out of an asset backed loan with a revolving cash flow, not only did we increase the capacity of 50 million under the asset-backed loan to 75 million under the revolving cash flow, but there's a lot more flexibility under the cash flow.
It's just not restricted by the limiting amount of assets that get calculated.
So we feel we have a lot more flexibility to be able to react to any opportunistic investments that <UNK> Anna spoke about.
Sure, so <UNK>, you may not be aware because of when you joined coverage on us but DEFINITY was approved initially in Europe when the asset belonged to Bristol Meyer Squib and it had what is called common act approval in the EU which includes 22 countries.
Those approvals went dormant when Lantheus was formed because Lantheus did not have a commercial footprint in Europe.
That's why you hear us talking about the re-introduction of DEFINITY into European markets.
And as you saw me note, we're ---+ we've already entered back into some of the larger markets and I would specifically cite the U.K. Obviously, the other kind of G5 type markets are attractive to us as well as some of the Asia PAC markets.
We have a partnership under way for China which is with a partner named Double-Crane which is still in the regulatory process of ---+ of application approval and our partner at Double-Crane is handling that for us.
But we certainly see that as a very large market for the future.
Sure.
So as we disclosed, we have four major contracted customers that somewhat govern the nuclear pharmacy space and we have contracted all four of them.
The contracts that you're referring to, <UNK>, with Cardinal and with Triad isotopes do kind of close out or kind of end at the end of this year.
Having said that, I will tell you we are in constant communication and conversation about how to take our relationship forward and certainly part of that discussion are price volume discussions that look at what are the commitments of the customers for percent of their volume to us.
And for having offered, I will say higher volumes, there are certainly price concessions that we will consider.
I will note that the discussions we have now about price volume are different than those you heard us talk about at the end of 15 when we launched our nuclear product contracting strategy.
That was more specifically related to Xenon.
As we looked out at the market and we looked out at the very high likelihood, which did happen, of a Xenon competitor coming into the market.
We had a very concerted effort at that time to shore up our contracts and make sure that there were committed volume commitments for Xenon.
These are more now, I would say, renegotiation and extension of existing contracts with partners and I would certainly hope to announce them to you for the end of 17.
I would not say there is yet, <UNK>, and I'm not surprised by that because they would have inherited with that transaction the contracts that were in place.
The one note I will make is that the companies have renamed themselves the joint company and that includes the assets from Mallinckrodt as well as the assets from IBA are now called Curium.
My ---+ my true kind of trend here and you'll hear me repeat this often.
I don't talk about my competitors.
I would prefer they not talk about me.
I'm happy to refer to them as you say to offer you that piece of information about the naming but I never try to guess or especially publically comment on their strategy.
Sure.
We are now deep into the process with the signing of the finalized signing of the collaboration agreement but the kind of the doors were open for knowledge transfer.
And we are actively working to take all the knowledge that we had housed here about the molecule, the studies done to date, and transfer that over to our partners at GE.
They, as we mentioned, they are now in charge of and responsible for the regulatory path to commercialization to approval and commercialization.
We're still in the early days here, otherwise I would say we're on time for how we thought the partnership would roll out and we have great confidence in GE to drive the process forward.
They obviously have by their size and the popularity of the products that they offer.
They have an ongoing relationship with the FDA and we're confident that they will pick that up and run smoothly with it.
| 2017_LNTH |
2016 | ETN | ETN
#<UNK> <UNK>, Wells Fargo.
Let me take oil and gas off the table, but if you speak to the other non-manufacturing, we actually had a very good quarter, fourth quarter in terms of quotations.
And we look at all the quotations and negotiations that we are involved in, the stronger part of the commercial market from our perspective and we have a very big window looking at ---+ I am speaking to the US here ---+ has been the smaller projects.
It has been projects that you can say start off the residential base and then get up into medium-size projects.
It's the really big ones that have tended to be a little bit less strong in the marketplace.
Now, you are seeing a number big stadiums built around the US that really started in the second quarter of last year.
And that will continue through this year.
But the weakness we have seen in construction in the US has been the very big power-using construction where a lot of medium voltage is used, and it tends to be industrial or very, very big commercial.
The strength has been more toward smaller projects.
We don't see that as a high probability.
We do think that we are in this frustratingly slow environment that can often cause people to use the recession word.
But I think that's almost more of an emotional issue than it is a factual basis.
We think the GDP is likely to grow in the mid 2%s again this year.
However, if you're on the industrial side of the economy, we are seeing industrial production numbers that are more like one.
So that all that we have been ---+ I'm just repeating what we probably all read is there has been more action on the consumer and services side than there has been on the industrial side.
That is what been leading to the lack of capital investment for this MRO industrial malaise, and that has clearly been affecting ours and many of our peers' markets.
I think that is more of the tone, and you compare the US growth to around the world, it is not significantly different than the total global GDP.
There are countries slower and faster.
But that is how we see it.
We just think it's a time when it is really critical that companies get their cost base adjusted, that they don't assume that economic growth is going to bail them out.
If they control those things that they can control, and that is exactly what our plan is all about, but it is not based on, nor do we think it is a high probability that there is a recession.
<UNK> <UNK>, RBC.
The commercial side continues to be the stronger side.
If we look at the three elements of booking within aerospace, we were seeing commercial be up on the order of roughly 7%.
Military was down on the order of about 6%.
After market was up to 14%.
That is not a bad way to think about how things work going forward as we think about a market we are saying will be up 2% next year.
You assume the commercial will be a slight premium to that market, the military will be a slight discount to it.
We would hope that the after-market that we could grow a little faster than the average.
It won't be like a 14% or 15% number, but it will be slightly above our average number.
Our rate, as you point out, was 8% for 2015; the midpoint of our guidance of 10% for 2016.
And really that is a function of more US income.
It is a function of the restructuring actions, a lot of which do increase US income, as well as the fact that the US is ---+ there are some parts of our US business that are still growing pretty healthily, certainly relative to some other parts of the world.
If you look longer term, I continue to believe that the rates will be somewhere between 10% and 15% and will probably slowly tick up.
But I would emphasize slowly: not likely more than 1 or 2 percentage point moves in a given year.
<UNK> <UNK>, KeyBanc.
There is very little that is restructuring at this point.
I would regard that as principally the core corporate cost.
It is all built in to the total number that we gave you.
But what I am indicating is the amount of actual corporate cost for restructuring in 2016 are a very, very tiny part of that $140 million.
Single-digit millions.
There will be a substantial improvement in pension or reduction in pension cost.
It is a number that ---+ for two reasons it will be a number that is down on the order of north of $50 million.
The biggest part of that is going to be that we did move to the split rate pension that so many of our peers have moved to.
We think it is better accounting, so that is the biggest driver of that.
Also the US discount rate has gone up about 25 basis points, simply a reflection of where interest rates ended the year.
<UNK> <UNK>, Oppenheimer.
Our expectation, <UNK>, is that we would refinance the debt coming due in 2017.
As I mentioned, the restructuring cost is $70 million in the first, $35 million in the second and the last $35 million across the last two.
From a benefits point of view, all the benefits occur in quarters two, three, four.
And they build as you go from quarter to quarter, so the higher savings will be out in the third and fourth quarter.
Thank you all for joining us today.
Unfortunately we have reached the end of our allotted time for the call today.
As always we will be available for follow-up calls through the remainder of the day and the rest of the week.
Thank you very much for joining us today.
| 2016_ETN |
2018 | CVCO | CVCO
#Thank you, and welcome, everyone, to our third quarter conference call.
We'll begin with our Executive Vice President, Dan <UNK>, providing the financial report, and then we'll be happy to take any of your questions.
Dan.
Hello, everyone.
Before we begin, we respectfully remind you that certain statements made on this call, either in our remarks or in our responses to questions, may not be historical in nature and therefore are considered forward-looking.
All statements and comments today are made within the context of safe harbor rules.
All forward-looking statements are subject to risks and uncertainties, many of which are beyond our control.
Our actual results or performance may differ materially from anticipated results or performance.
Cavco disclaims any obligation to update any forward-looking statements made on this call, and investors should not place reliance on any of them.
More complete information on this subject is included ---+ is part of our earnings release filed yesterday and is available on our website and from other sources.
Now for our financial results.
Net revenue for the third fiscal quarter was $221 million, up 9% compared to $202 million during the third quarter of fiscal year 2017.
Breaking this increase down by business segment, factory-built housing net revenue increased $18.6 million from improved home sales volume, including incremental sales from our new Lexington Homes factory in Mississippi and a larger proportion of higher-priced homes.
Factor ---+ financial services segment net revenue increased 3% from higher home loan sales volume and more insurance policies in force compared to the prior year.
Consolidated gross profit in the third fiscal quarter as a percentage of net revenue was 22.5%, up from 21.5% in the same period last year.
The improvement was the result of a $3.4 million favorable dispute settlement resolution this quarter.
The constrained labor market and rising material prices continued to be key challenges to gross margin growth.
We have implemented higher product prices to offset rising input costs, although large order backlogs deferred full realization of the benefits.
Selling, general and administrative expenses in the fiscal 2018 third quarter as a percentage of net revenue was 11.8% compared to 12.9% during the same quarter last year.
The improvement was related to fixed cost efficiencies gained from higher net revenue levels and effective cost controls.
Income tax expense benefited from the U.S. government's December enactment of comprehensive tax legislation.
The company recorded a net income tax benefit of $5.6 million this quarter, the result of a lower federal income tax liability and revaluation of net deferred income taxes.
This resulted in a transitional effective income tax rate this quarter of only 9.5% in order to adjust to full fiscal year lower income tax obligations.
The final fiscal quarter that ends this coming March is expected to have an estimated tax rate of approximately 30%, which reflects the blended rates before and after the new tax law, which span our fiscal year.
Lastly, fiscal year 2019 should benefit fully from lower income tax rates and reflect an estimated effective tax rate in the low 20s.
Net income for the third quarter of fiscal 2018 was $21.4 million compared to net income of $12.3 million reported in the same quarter of the prior year.
Net income per diluted share this quarter was $2.33 versus $1.35 in last year's third quarter.
Comparing the December 30, 2017, balance sheet to April 1, 2017, Lexington Homes balances are only included in the current consolidated balance sheet as the acquisition occurred at the beginning of this fiscal year.
Our cash balance was approximately $139 million compared to $133 million 9 months earlier.
The increase was mainly from net income and cash net ---+ net cash provided by operating activities.
Accounts receivable increased primarily from higher sales during the period.
Inventories increased for more homes in the final stages of sales at the end of the quarter.
Inventory is also higher from stocking additional raw materials to feed increased home production rates.
Accrued liabilities increased from customer deposits and higher volume rebate accruals incident to home sales growth, partially offset by decreases in salary and wage accruals at the end of the quarter.
Lastly, stockholders' equity grew to approximately $436 million as of December 30, 2017, up approximately $42 million from the April 1, 2017, balance.
Joe, that completes the financial report.
Thank you, Dan.
I'd like to make a few general comments.
The U.S. homeownership rate rose in 2017 for the first time in 13 years.
Reports indicate that young buyers drove this.
The increase last year is particularly notable because it comes after the federal government restrained previous policies and encouraged banks to ease lending standards to boost homeownership.
On prior conference calls and other public comments, Cavco has taken exception with a certain school of thought that younger people would continue to rent rather than buy their homes.
Now what appears to be driving the market is a move to own rather than rent, coming from the largest home-buying generation since the baby boomers, millennials.
The homeownership rate among households headed by someone under the age of 35 rose to 36% in the fourth quarter of calendar '17 from a 34.7% rate a year earlier, the largest increase of any age group during that quarter.
The homeownership rate bottomed out at 62.9% in early 2016, which was a 50-year low.
According to the U.S. Census Bureau, in the fourth quarter of calendar 2017, homeownership rose to 64.2%.
In addition, these figures have been climbing since the first quarter of last year, indicating a reliable upward trend.
The homeownership rate is still below the long-term average of approximately 65%.
Some reports suggest that homeownership rates will take years to fully recover as home prices are growing faster than wages and inflation.
The S&P CoreLogic Case-Shiller National Home Price Index report that single-family home prices rose 6.2% in the 12 months ended November 2017, about 3x the rate of inflation.
This trend and other factors such as potentially rising mortgage rates and tax code changes that offer pure incentives for homeownership might suggest headwinds for new home sales.
We believe, however, that in such an economic environment, the value and affordability of Cavco's factory-constructed homes actually becomes more apparent to buyers.
Certainly, we are not immune to adverse factors.
Our company must face the challenges of inflation in materials and wages and even the availability of qualified people to build our homes, the same as on-site construction builders must face.
The difference is that our system's process of building homes is a very efficient method of construction.
Far less waste of materials and much more effective use of labor results in our ability to offer new homes at very competitive prices.
Furthermore, we can reach affordable price points that are generally not of interest to on-site builders.
We're not suggesting that factory-built homes fit all market needs, but national home prices reached a record in September 2016, and with the prospect of continued price escalation in 2018, we think there should be steady demand for affordable housing.
We have robust employment; 2 large and growing demographic segments, the millennials and baby boomers, from which many of our buyers typically come; tax changes that could help our buyers save for downpayment and qualify for a loan; and indications of an improving economy.
With the positive economic environment and for the reasons, among others, that I've just suggested, we feel we can meet the challenges that lie ahead and generate attractive long-term growth.
There's lots of work to do but we have the capital and people talent to accomplish our objectives.
And now we'd be glad to take any of your questions.
Well, I don't think the environment's changed all that much just quarter-to-quarter, but it still remains an issue.
Labor availability, availability of qualified labor, that is people who will pass our requirements for employment.
And this is not an issue that we see just in our business or even in our industry, although we hear it from our peers and competitors.
We hear it from our vendors.
We hear it from, certainly, the on-site builders all point out to this problem.
And we hear it from other industries, people we come across.
So it's ---+ I think it's a systemic issue and challenge for the entire country, and we are facing it as everyone else is.
Now we're trying to do all sorts of things to address that.
We have full-time recruiter that we've brought on board, and her work is all and exclusively runs around recruiting talent in all areas of our company.
We're using all the social media.
We have different newly devised training programs, onboarding programs for people.
We've looked at wages and continue to wage surveys in various areas, incentive programs.
Even the work environment, we look at our facilities, and we'll ---+ we have been and will continue to invest in our facilities to provide an attractive working environment.
And so we try to do all these things with that goal in mind of attracting and then, more importantly, retaining good people.
But I couldn't tell you how much that will help us or restrain us from growing production to the extent we like.
It's just an issue we have to face, and we are addressing.
And we think we can make good progress.
But the full utilization of our facilities certainly depends on our ability to hire a substantial enough workforce to accomplish full utilization, and we're not quite there yet.
Yes.
I'm glad you asked.
The GSEs, Fannie Mae and Freddie Mac, both have been involved in our industry trade association, making presentations to the industry in general.
They both have programs to increase their participation with manufactured home lending.
Specifically, Freddie Mac plans to increase its purchase of manufactured homes' title as real property, that is traditional mortgages, if you will.
In '18 and '19 and '20, they've set specific objectives for increasing the number of loans they will finance.
It's a not huge numbers in and of themselves, but it indicates a trend that they're moving in the right direction.
Fannie Mae also makes an additional statement that they will add an additional 4,000 to 5,000 manufactured home loans secured by real estate over 3 years, which equals an estimated contribution of $500 million to about $660 million in loans.
And then on the chattel side, the personal property lending, where the home is the only collateral for the loan, again, both GSEs indicate that they intend to start preliminary chattel loan programs but not until next year, and we actually await that.
We think it'll be a good move for the industry.
There's certainly a lack of availability of chattel financing, and their involvement will help.
But they're ---+ they're still going through data.
And they move a little bit slower than we like, but it looks like they're at least making some progress.
Yes.
Again, good question.
For those of you on the call who are not familiar with that news, HUD did make a public announcement on January 25 that they were going to do a wholesale review of manufactured housing rules.
We've mentioned it in the past to many of you that we welcome HUD's regulation of the industry.
It kind of levels the playing field.
All our homes in our industry, manufactured homes, are built to a federal preemptive code.
So all prime materials are used.
The homes are thoroughly inspected.
In fact, arguably, much more inspected than an on-site construction is.
So HUD's regulation is not a negative thing.
The problem has been that HUD has not made any adjustments, improvements to their regulation and their reinforcement of interpretation of the rules in many years.
And I think what Secretary Carson is now doing is very welcome in that they will thoroughly review rules, look for what's outdated, what's hampering the growth of manufactured housing in the country, look what needs to be added.
And I think they've recognized, and they, in fact, they've stated publicly that manufactured housing plays a vital role in meeting the country's affordable housing needs.
Right now, it provides about 10% of total single-family housing stock, but there's no reason that percent couldn't be higher with some flexibility and cooperation between HUD and the manufacturers.
So we welcome this.
I think it's a great indication of HUD listening to the needs of the industry and also, of course, continuing the protection of the consumer and building quality homes.
So we feel very positive about this.
It's the most positive move and news that we have heard from HUD, our regulator, in many, many years.
And we look forward to a more cooperative relationship with that agency.
Sure.
Yes.
Happy to address that.
This is Dan.
The average sales price you're seeing there or calculating, of course, as a reminder, is based on our mix of wholesale homes, which is predominantly what we sell and then retail homes that sell through our company-owned retail stores, which carry a ---+ naturally a higher sales price.
So that can add variability, and that's the primary component of variability that we always refer to and have to remind you of.
But nonetheless, the larger and higher-priced homes can provide often a better gross margin for us.
And so we can lean, in times like this, towards more profitable gross profit homes, and so we'll do that.
We have done that.
We'll continue to do that, obviously paying attention to all the demands and needs in the marketplace to serve our customers as well.
But those take a little bit longer to produce, and we have to monitor the balance, if you will.
So we'll remain focused on bottom line improvement as opposed to top line unit shipment growth.
And I'd also add one important reminder that when we ship a double-section home, that counts as one unit.
And when we ship a single-section home, that counts as one unit.
So as we have certain quarters that may have higher counts of double-section homes, then the unit growth will be lower than others that have single-section counts, if you will, or higher mixes that way.
Well, as to the first part of your question, I'm not sure that we'll get into a lot of detail there.
Some of that's proprietary.
We always pride ourselves on maintaining efficient cost controls and keeping our SG&A among the lowest in the industry, in fact, when there was more industry to compare to publicly.
With respect to ---+ going forward, I'll let Dan address that.
Sure.
And yes, <UNK>, as we just naturally see the leverage in the SG&A component as revenues go higher, we'd expect to see continued improvement in the percentage of sales.
I think there's still little bit more room there to grow or to reduce the percentage even though the dollars for SG&A would continue to increase.
But yes, there's more room there.
And we probably wouldn't get as low as our all-time lows, which are in the single digits, but we think that we can get lower.
We now ---+ the reason we wouldn't get down to the low single digits again, we don't think, is because we have higher SG&A businesses included in our consolidated statements now, namely our finance company, our insurance company and also our retail division.
So that being said, together, we think there's still more leverage in the statement that way.
Well, we didn't provide color specifically, really just because it's a onetime event.
It's a settlement.
It's an issue we've been dealing with for a while and got resolution, favorable resolution.
And so we just wanted to make sure we called it out for what it was, but we don't have any specific color to add on that, no.
The only thing I would add to Dan's comment is that it's something ---+ it reflects expense we've incurred in previous quarters that we didn't feel were our responsibility.
And obviously, it ---+ the result was that we received favorable response.
To our belief, it wasn't our responsibility, and so we got that settlement.
So that's something, as Dan said, we've been working on for some time, but it's an unusual and onetime event.
Well, we do think that we have room, and we've worked towards increasing our prices based on demand levels to get the benefit in our gross margin.
And we don't have a percentage we could give you over cost that we are shooting towards to do that.
But we want to also be sensitive, obviously, to the long-term nature of the business being able to serve all the demands in the marketplace and the price points that we do produce.
So the short answer is yes, we'll continue to look at market factors in addition to just cost when we set price points for our products to be able to benefit as much as we possibly can there without losing business or turning away business that is good business for us in long term, in good times and in tougher times.
Our backlogs now are a little over $200 million, and that is roughly equivalent with our most recent reported numbers a quarter ago.
And the capacity utilization is running around 80% of our brick-and-mortar utilization, if you will.
Just a note on that, what that means is we have capacity to build more homes in all of our factories, speaking generally.
Our limitation is what Joe talked about in labor and the ability to ramp up as quickly as we'd like to meet the current market demand.
Hence, the reason we have a higher backlog than we typically would if we were producing more homes.
So the 2 are kind of related to each other directly.
But the 80% number is a brick-and-mortar number.
I just want to make sure you know that.
But we're really kind of constrained with labor right now, and we'll need to build more homes by more people we hire.
Yes, I don't think it will.
No.
We know both companies.
They're good competitors, and wouldn't really expect any significant changes there.
Well, capital allocation-wise, lending, we'll continue to invest in our mortgage operation but that will be fairly modest in the whole scheme of things.
We'll also be investing in our facilities.
As I mentioned in my comments, we'll be adding 2 facilities, in some cases, some expansions.
We'll also be looking at ways to automate, if you will, and that might be too strong a word because there's not ---+ I don't want to imply there's not a robotics kind of activities in our industry.
But certainly, we can look at ways to reduce the lifting and effort of building homes and try to make it more ergonomically friendly.
So we're looking at conveyance methods, the way we move materials around.
That will require some investment.
So I think our capital spending will be up somewhat.
It'll still be modest, I think, in relation to our cash flow, but it'll be up somewhat from prior years as we continue to look at ways to improve our facilities and maximize throughput.
Well, thank you, and appreciate being on the call and the questions, and we'll be happy to provide any follow-up information.
And we look forward to a good quarter and speaking to you again in 3 months.
Thank you.
| 2018_CVCO |
2016 | DLR | DLR
#Thanks for the question, and thanks for fitting five questions into one question.
Yes, south-side's got that skill.
That's right.
So while I would certainly characterize it as you did, I was not pleased with what I'd call below average scale product signing in the quarter.
We do think that the pace was due to a couple of things that you mentioned, but also, the normal lumpiness that's become part of our business, especially given the new hyper scale demand that out there.
But also, as you said, a more selective approach to making sure that we land the right mix of customers to maximize the long-term value that we think we have inside of our ecosystem.
So this means, as you said, one of the potential reasons for that number is our continued commitment to a disciplined approach to our underwriting criteria and focusing really on top tier markets and not focusing on tertiary markets where some customers may have a desire to go.
And then maintaining a disciplined underwriting and pricing regimen to protect long-term value.
On your second question, really, the overall demand remains strong.
It's evidenced by the July that we've had so far in both sections of our global business as well as the healthy pipeline that I talked about which has the potential for margin expansion as we move on.
We do think that we are on track now resume normal levels in the second half across all parts of the business in 2016.
Specifically though, with regard to your question about demand and cloud demand remaining strong, especially where we are in our global markets, where we operate, it's important to remember that that cloud business is still one of the fastest-growing segments landing in our industry and from analysts from RightScale all the way through to Gartner, they all tend to agree that we are actually in the early innings of this new cloud ecosystem breaking out.
We're also starting to see the green shoes.
We're seeing mass adoption of a diversity of cloud players, not just the major cloud players and early adopters that are out there, which we think, and to get to your last question, we think we're uniquely situated to be able to land.
We do believe that we're the only company in this space that is very focused on providing great scale solutions for folks who need scale solutions, including those cloud service providers, but also providing colocation right next to it at a latency that can't be beat as well as the security that comes with the power of private networking in our interconnection products.
So we really think that the secular demand drivers in the cloud industry are continuing to push them and we are uniquely situated to be able to address it.
Sure.
Let me chime in.
This is <UNK>, since <UNK> has been addressing with some of these already.
So a couple of topics.
One, timing wise, I always love to have a better fiscal second quarter.
I'd rather have a better deal on July 1 than a less attractive deal on June 30.
So and I think you saw a little bit of that with the volume of signs that just got signed the first few days or weeks of the month of July.
And just to put a little more meat on the bone, that is been from a diversity of different types of customers.
It has included hyper scale top three cloud providers, a sizable chunk from other cloud providers that aren't in the top three, and then another chunk from the rest of what we call SMACC or the digital economy or IT service or other transaction verticals.
So we are seeing that our demand signs in the second quarter and July from diverse growing customers sets.
The other thing I think that draw us at a distinction, it's not just about pricing or profitability too.
We're really focused on driving the long term growth in the cash flow and attractiveness and value of our assets and our campuses and our gateways with a diversity of different customers versus some of our peers who may be more focused on being in a non-core market to us or doing a full bill to suit with one customer in one shot.
We always want more exposure and more signings at the right rates from these top cloud providers, but we're focused on the collective portfolio and growing that cash flow and the value of our assets.
<UNK>, just to give you a little bit of color, while we had a good quarter with regard to those top cloud service providers, still 37% the revenue we closed year-to-date has come from other cloud service providers, so we have a diversity of cloud exposure, including 50 new logos that were landed year-to-date inside the SMACC verticals, so we're very happy with that diversity.
Sure.
The breakdown on the $0.10 is really kind of a third, a third, a third story.
The first third is out-performance, which we have already mentioned: top line, G&A, OpEx, that we'd kind of got in the bag from our performance in the quarter.
The second third is kind of flow-through from that operational performance into the back half of the year.
And the last third is due to the overall net accretion from buying the European portfolio acquisition and the funding with the asset sales and the equity and also the repayment of the debt in preferred.
So a third, a third, a third.
The first two third operational related, the last third more accretion from our most recent investment.
On the top line, the two things which kind of held us back from nudging that up at this turn, one was the, we're going to lose some revenue when we sell our fully leased property at St.
Denis here fairly shortly, and number two, we do have some FX headwinds in the top revenue line item which are hedged when it comes down to core FFO per share gains, but on that top line of our guidance, it's going to mute the growth.
Hello, Vince.
The key guys are intending to stay through the balance of the year, and we are working on contracts for them that will tie them up beyond that.
The one thing I would add is that this particular team, really of their own volition, went into this process along with these eight assets to kind of essentially, at the user request, set up a standalone business that could stand on its own if it had to.
So talented individuals across multiple departments coming together with a strong leader and, quite fortunately, it landed in our hands where it was a complementary buyer.
No synergies expected, so very little overlap, if any, and we were able to kind of, we think that the combination of our European portfolio plus data assets and the teams, one plus one we feel is greater than two there.
I, quite frankly, we're fairly cautious when it comes to kind of looking out too far in terms of future rent growth here.
I could say at the larger end of the scale, the biggest buyers that buying in bulk and taking down numerous megawatts have the greatest pricing power and their rates are certainly flat.
They're not seeing any type of rent spike.
If you walk down to the other side of the spectrum and look at our smallest footprint colocation, I think we can look at the cash releasing spreads which is up now 5% for the second quarter and it was a pretty sizable this quarter actually, the amount of leases just in terms of colocation that rolled up.
So when we're able to roll these customers up 5%, we are able to generate some pricing power.
Between those two goalposts, it's very market and customer episodic.
<UNK>, I'm trying to flip to get to that page in our financial supplemental.
The only, I think we may be more accurately mapping towards the NOI buckets this quarter than previously.
I'm not aware of a dramatic change quarter-over-quarter.
Sorry about that.
I think the short number just is a smaller sample site that actually closed during the quarter.
So I think you're going to get back to the previous bars on what signs in July and the rest of the quarter.
We like the short sign to commencement because the cash flow comes, right.
Versus kind of the leasing something that you can't, you have to build and come online in a year to two years, but I don't think, one and a half months is definitely an anomaly.
<UNK>, it was a disproportionate focus on market ready inventory that we were still clearing out so I would agree with <UNK> that while I would love the 1.5 to stick a little bit, you should expect to see it revert to the norm coming up, especially given July.
Thanks, <UNK>.
The competitive environment is, I would characterize it as strong for, especially what we term the hyper scale opportunities that out there, about 3.5 megawatts and above.
And as you know, we are certainly not new to the cloud service provider environment and we continue to get our fair share each and every quarter, but most importantly, our focus is getting them at the right returns for Digital Realty.
So we stay very focused on that.
With the competitive bids, it does put a certain amount of power in these cloud service providers' hands and we find that the closeness that we have with a number of them and extending to all of them as we move forward gives us the ability to have that value for value conversation that I referenced earlier.
So we know that they have a high degree of value on things like inventory availability and large-scale inventory availability as well as connectivity to a colocation facility.
As we unearth those opportunities to these cloud service providers, they see the value, they match the value, and it allows us to not just go to the lowest price, but to go to the best value for Digital Realty.
And so that's really been our focus and it's going to continue to be our focus.
There's a range of revenues (inaudible) closer to (inaudible) probably offset some of these (inaudible) underwriting we remain confident in (inaudible).
<UNK>, could you hear the answer to that last question.
Okay.
I've got it.
It's brilliant, you got here it.
We'll see if I say the same answer twice.
We just fixed our microphones here so if this one goes out, we're in trouble.
In terms of the underwriting, the second part of your question, we still believe in our underwriting of the 13 times EBITDA that we announced when we made the acquisition announcement last May.
So nothing has changed in terms of our outlook there and that's what's included in our revised guidance for 2016.
In terms of revenue, it's really about the gain from a partial-year period on the pre-portfolio is being offset by FX headwinds and revenue lost associated with the safety knee asset and also the portfolio assets that we've now closed on.
Both of those disposed, we lose some revenue in the back half of the year and we have some FX headwinds offsetting the revenue gains from the European portfolio.
Out of that we do.
Sure, so the whole reason with the timing is really just to the moving parts on the sources and uses and we didn't have 100% clarity when we were going to be able to close our four-asset dispose and we think the safety knee disk fill will close shortly but it could be at the beginning of August, could be at the end of August, and we cannot repay that preferred or debt until late summer anyways.
So what we did is we closed on the revolver short-term, we used the revolver to close on the acquisition short-term, and then when all the dust settles and with all of these other uses of capital, we plan to pull down all or substantially all of the equity which is 14.3 million shares including the over allotment option that would exercised.
Probably, I wouldn't say probably before September 30, maybe beginning of September is my guess when all the dust settles here.
I think, just to clarify, and I will let <UNK> clarify as well, because he had some of the commentary.
I don't think that its, we have lots of great customers and we are over 2,000 customers now, including our most recent acquisition.
I don't think we are choosing customers that we don't want to do business with in any regard.
I think all of our customers are great and we want to continue to do more business and grow our customer base.
I think it's making sure we pick our spots on the right opportunities, so building buildings on our campus or within our gateways that we can fill with a diversity of different big and small cloud service providers, other parts of our SMACC vertical, IT service providers, corporate enterprise, that all want to thrive and continue to grow space in there.
We find that as a better opportunity to land versus with in the core market or outside the core market, especially not going after kind of one big swath of leasing slash capital and almost like single tenant bill to suit opportunities.
We think the former versus the latter is more attractive to where we put our capital.
And, <UNK>, just real quick, there are couple of places where we are being more selective moving toward.
As you know from the most recent investor day, our focus on serving enterprise customers through the channel is certainly one of those cases which actually makes the terms that those organizations accept a little bit easier on us and makes the economics a little bit better for us as well as for the end customers down the road.
The second piece is that the ecosystem development that we are undergoing right now will really drive who we pursue in terms of end target customers.
We've moved to a new account targeting solution that allows us to hit not just the top cloud service providers, not just the massive cloud service providers, but really about 500 targeted accounts that we can focus on and then also focus on the channels.
So that is the targeting that I was really referring to.
And the final piece is we do continue to have a great strategy of building up incredible campuses and so we want to make sure that we have a multi-data center campus facility and so we need to attract those types of customers and I will that <UNK> top it off.
Hello, <UNK>.
This is <UNK>.
Even with the absorption of, you're correct, lower margin than existing digital, based on the out-performance we've seen on the EBITDA side, or expense side, year-to-date, and where we're trending up for the remainder of the year, we think we're going to be able to absorb the portfolio and continue to maintain, or I should say, deliver slightly higher than previously disclosed EBITDA margin.
There is a little bit of a magnitude going on here with the portfolio being $900 million relative to digital size.
On the development CapEx spend, I think you're right, we're probably, if you looked at those two goal posts, we're probably closer to the low end than the high end but I wouldn't put it out of reach yet.
But I would say we're probably guiding towards a little bit on that spend towards the low end.
Sure, <UNK>.
I would say, so our bumps are 2% to 3%.
They're not all 3%, just to be clear.
So I think the reason we really changed or increased our same capital of cash NOI growth, we are doing a little bit better on the retention, doing a little bit better on our cash mark-to-market then from a quarter ago and that kind of translates into that kind of 3, 3.5 constant currency growth rate.
You're not, that space and there is a pretty demonstrative footnote at the top, does not have the Telx colocation mark-to-market really running through it, because we wanted to really reflect a true same capital stabilized portfolio.
So you're not getting the 5% plus mark-to-markets like we're seeing on the colo side yet.
Next year, it will be in that pool, but right now, this is just really retention and modest mark-to-market from more of our scale leases that are expiring, a handful of those, and those 2% to 3% rent bumps and then managing the OpEx prudently.
Thank you, Dan.
I'd like to wrap up our call today by recapping our second-quarter highlights as outlined here on page 19.
We had another very productive quarter characterized by solid execution against our strategic plan.
In particular, we further advanced our global footprint with the European portfolio acquisition.
We also delivered solid current-period financial results.
We beat the street by $0.04 with better-than-expected results above and below the NOI line.
We also delivered outsized AFFO per share growth during the quarter.
The quality of our earnings is improving and the growth in cash flow is accelerating.
We raised guidance by $0.10 with an improving outlook for most of our key metrics and solid progress towards our three-year target of 200 basis points of EBITDA margin expansion.
Finally, we further strengthened our balance sheet with proceeds from asset sales and a successful forward equity offering that coincided with our inclusion in the S&P 500 index.
In conclusion, I would like to say thank you to the entire Digital Realty team whose hard work and dedication is directly responsible for this consistent execution against our strategic plan.
Thank you all for joining us and have a great summer.
| 2016_DLR |
2018 | AMZN | AMZN
#Yes.
Sure, <UNK>.
I would say, advertising continues to be a bright spot, both from a product standpoint, and also, financially.
It was ---+ continued to be a strong contributor to profitability in Q1.
It's now a multibillion-dollar program.
You can see the ---+ in our supplemental revenue disclosure, it's in other revenue, and it's the majority of the other revenue in that line item.
So we ---+ our philosophy there, again, is we're continuing to focus on finding valuable ways to make our advertising opportunities better for customers, showing them new products that they may not have seen otherwise, and also for emerging and established brands, helping them to reach customers.
I think the advertisers, generally, are all shapes and sizes, and their common theme is they want to reach our customers, generally, to drive brand awareness, discovery, and eventually, purchase.
Before I go on to the second question, I want to make a comment about the Prime program.
Prime program continues to drive great strength in our top line, as you've seen over the last few years, actually.
We continue to increase the value of Prime, including speed selection and digital entertainment options.
We've been expanding FREE Same-Day Shipping and 1-day options.
And our 2-day shipping, it's now available on over 100 million items, up from 20 million as recently as 2014.
And we continue to add digital benefits, like Prime Video.
The value of Prime to customers has never been greater.
And the cost is also high.
As we pointed out especially with shipping options and digital benefits, we continue to see rises in costs.
So effective <UNK> 11, we're going to increase the price of our U.S. annual plan from $99 to $119, for new members.
The new price will apply to renewals starting on <UNK>ne 16.
Prime provides a unique combination of benefits, and we continue to invest in making this Prime program even more valuable for our members.
As a reminder, we haven't increased the U.S. annual price Prime since our single increase, which was in March of 2014.
Sure.
On your first question about Prime penetration, without getting into any statistics on penetration and by country, I would say we do have other options for, if you'll notice, there's the monthly option, obviously provides more flexibility for people who want to try out Prime before committing to the annual plan.
There's discounted student plans.
There's also discounts for other groups.
So we do feel it's still the best deal in retail, and we just work to make it better and better each day.
The second thing you mentioned is a good example.
So the ability in 10 cities to get Prime Now deliveries of Whole Foods groceries is an added benefit for people in that market using Prime ---+ those markets using Prime Now.
So as far as the Whole Foods, specifically on the question of what'll ---+ what we'll look at as far as expanding that grocery delivery, we're going to use the 10 cities as a test and see how customers respond, just like we always do, and make sure that our deliveries are great for those people, and then we'll announce expansion plans once we digest that, the feedback we get from customers.
Sure.
So first, with the ---+ you've mentioned North America revenue growth, and you can calculate that with and without the impact of Whole Foods, I'm sure, but the general drivers continues to be Prime and the Prime Flywheel, so we see strong customer demand, not only for the benefits that we associate with Prime, we're seeing better engagement with Prime Benefits, especially Digital and Benefits, and that is always good news for eventual sales of other things.
We're also selling more subscriptions, Amazon Music Unlimited, multiple ---+ Kindle Unlimited, there's a number of services.
So there's different revenue streams that we see.
So not much more I can add by product line to North America.
Now I talk about AWS revenue, again, we're ---+ we are accelerating.
We've accelerated for the last 2 quarters.
The FX-neutral growth was 48% in Q1, up from 44% on the same basis in Q4 and 42% in Q3.
And now nearly a $22 billion run rate.
So what we're seeing is just continued strong usage, both by existing customers and signing new customers for ---+ see an increased pace of enterprise migrations as customers are having success with AWS and increasingly trying new services.
We are seeing people move more and more of their workloads to AWS and at a faster pace.
And customers are moving databases to AWS as their work continues to grow at a very rapid clip.
So stepping back, I would say, what is driving the growth, we believe, again, it's the value that we create for AWS customers.
We have the functionality and pace of innovation that others don't.
We have partner and ecosystem that others don't, and we have proven operational capability and security expertise that's highly valued to AWS customer base.
And on the question on capacity, excuse me, cap ---+ I'll address this CapEx and capital leases, we're still seeing strong investment there.
If I look at the quarterly trends, you're right that this quarter was up 33% in isolation versus last year.
I look back to last year's first quarter and we grew 82% year-over-year.
So it was a particularly heavy quarter, particularly for investment and warehouses.
So if I step back on the trailing 12 months though, CapEx, which is predominantly tied to our fulfillment center network, is up 47%.
That is above the Amazon fulfilled unit growth rate, but we've combined the strength of the FBA program and the space requirements as we ---+ get into bigger and bigger products.
That ---+ it's a representative number for that period.
On the capital leases, which is a good proxy for the spend to support the AWS business, that's up 49% year-over-year on the trailing 12 months.
So again, usage rates continue to exceed the revenue growth rates.
Usage rates are strong, but we also have a number of projects underway that seek to increase our efficiency of our data centers.
So there's a couple of things at play there that, hopefully, keep that number closer to the revenue growth rate.
Sure.
Yes, we came in well above our range that we had given of $300 million to $1 billion.
I would attribute it primarily to a few things.
First, the top line growth was ---+ continued to be strong coming out of Q4.
We had great consumer business strength.
We also had strong AWS revenue strength, where I already mentioned that we accelerated into the quarter, which is a different trend than we've seen recently.
So customer adoption and AWS remained strong.
And when we hit the higher end of our range or just above our range on ---+ with FX included, we generally see really good drop through on the incremental sales, given our ---+ the fixed costs we have in fulfillment centers and data centers, and quite frankly, people.
So we saw great efficiencies at the higher level of revenue, and we're able to handle it.
So that was generally very good financially.
We ---+ at the time of guidance, we were concerned a bit about the high ---+ relatively high inventory we had at year-end in space utilizations.
We were still very full in our fulfillment centers.
But we were able to correct that due to the high sales without handling ---+ without having additional handling and transportation cost that you would normally see to reconfigure inventory locations.
So that also helped and probably was a differential versus the guidance estimate.
And then, lastly, I would say, advertising continues to be a strong contributor to profitability and had strong results this quarter.
As far as what that portends for future quarters, for now, I want to focus on Q2 and it's incorporated into our Q2 guidance.
So we expect a lot of the strength areas to continue, consumer demand, AWS and advertising.
We will definitely see higher investments as we move through the year.
For example, video content spend will increase year-over-year, and we'll continue to hire, in particular, software engineers.
We'll have some cost in Q2 ahead of what's anticipated to be a Prime Day in early Q3.
So ---+ and then as you know, Q3 is generally a lower quarter due to all the work to get ready for holiday and the hiring of people and building teams.
So I won't go beyond Q2 at this point, but again, we're very happy with customer reception we had in Q1, and then, the income that that drove.
Sure.
Let me wax eloquently, try to anyway.
So let's start with the $239 million, that is essentially where attributable to warrants that we have in companies that we've partnered with.
We have transportation companies that we've partnered with and other technology companies.
As the stock market increased in Q1, a lot of those companies also went up.
So that's where we book the gain on warrants that we have with ---+ on investments.
It's also ---+ there was a good bit of FX gain due to the shift in currency and the weakening of the dollar.
That showed up on a lot of lines on the P&L, but that one was positive.
On advertising, so let's step back a bit.
It's now a multibillion-dollar program and growing very quickly.
Our main goal here is to help customers discover new brands and products.
So when we show sponsored products, we're trying to show people things that they had ---+ maybe wouldn't have seen otherwise in their normal search results.
So we're looking for a good balance here, as we said.
We want customers to get the benefit of the new brand and product discovery, and then, we want to let sellers, for both emerging and established brands, reach those customers.
Those advertisers are all shapes and sizes with the main goal of, again, trying to reach our customers whether it's to drive brand awareness, discovery or hopefully, purchase.
So we take the responsibility for that very seriously and are always balancing the helpfulness of the advertising and try not to make it disruptive.
But you're right, there are always pressures in that we will come down on the side of the customer.
On your question on video advertising, yes, there may be opportunities over time to have more advertising in our Video, but we choose to not do that right now.
<UNK>, if you're still on, can you elaborate on the countries you're talking about, specifically.
Oh, on the global store.
Okay.
Yes.
Sorry, I thought you meant to some of our expansion countries.
So yes, I don't have a lot to share on that today, but I think you hit on the main point, is selection and opportunities for sellers in ---+ who are with us in different countries to reach buyers outside of their home country.
So it's a great benefit for sellers, and it only works if it's a great benefit for customers on the other side.
Sure.
Let me start with transportation.
We have a great group of carriers that we use globally and you know who they are, but we're also growing our teams and capabilities to ensure that we can keep up with increased volume on our own, particularly around the holiday season.
So that's driven a lot of our expansion of Amazon Logistics, it's driven the creation of sort centers, it's driven the purchase of airplanes to move product between points within our delivery network.
So we will continue to operate with this combination of external partners and internal capability.
We like what we see so far with our Amazon Logistics capability.
It's well over 50% in some countries, particularly the U.K. It helps with, again, Prime Now and AmazonFresh and a lot of initiatives that we'll see, which again, we've mentioned that Prime Now is tied in with Whole Foods, now in 10 cities.
So we think it's a core competency that we have and we need to have, and we'll continue to invest in that.
Sure.
We always evaluate the price of Prime in all the countries we're in, and we're looking for creative ways to reach the customer, as I mentioned earlier, create ---+ or excuse me, monthly plans, student plans, et cetera.
So it's really nothing more than looking at the state of the program, the high benefit it's delivering.
I mentioned that 4 years ago, when we last increased the price of Prime, if you get 20 million products within 2 days, today you can get over 100 million products within 2 days, and many, many, many, products within 1 day, same day, or 2 hours.
So there's all kinds of new features that we've continually added to the Prime program.
It's much different than it was in 2014.
This is a reflection of that, that's a better reflection of the cost value of the program.
Sure.
Yes, I don't want to project relative proportions of the different segments, but what I can say is, that international continues to see the same level of investment as we're seeing in North America or have seen in North America.
So when we add Benefits, Prime Benefits, we're probably adding them at an earlier stage of life in the Prime program internationally than we did in the U.S. So they have different dynamics.
We think, at the end of the day, customers behave the same globally, and that they value low prices, selection and great customer experience.
So we'll continue to make these investments in Prime.
We'll continue to expand selection, continue to build FBA programs so that it increases selection even more and build great partnerships with sellers.
We'll continue to accelerate shipping.
We'll continue to lower prices.
And sorry, I cut out ---+ the last person got cut off a bit.
We'll continue to build device business globally including Alexa, which we think has great stickiness with ---+ in the home and I think creates a lot of value in the home and also allows you to access, over time, Amazon products better.
We'll continue to invest in India where we're seeing great progress with both sellers, and also, customers.
And we like the momentum we've seen there.
The Prime program started in the first year in India, grew faster than any Prime ---+ excuse me, any Prime program we had seen in other countries.
We're adding local content in India ---+ video content, excuse me.
We're also adding other benefits, Prime Benefits.
We are rolling out devices there, and we're seeing Indian developers developing skills for Alexa, and Alexa's up ---+ as you saw the press release, to 40,000 skills (technical difficulty) But it's ---+ it is important to us that they all are still delighting customers and growing to the best of their ability.
| 2018_AMZN |
2018 | BNED | BNED
#Thank you.
Good morning, and welcome to our Third Quarter 2018 Earnings Call.
Joining us today are Mike <UNK>, Chairman and CEO; <UNK> <UNK>, Chief Operating Officer, Barnes & Noble Education, and President of Barnes & Noble College; <UNK> <UNK>, our CFO; <UNK> <UNK>, Vice President Strategy and Development, and Chief Operating Officer of Digital Education; as well as other members of our senior management team.
Before we begin, I would remind you that the statements we will make on today's call are covered by our safe harbor disclaimer contained in our press release and public documents.
The contents of this call are the property of Barnes & Noble Education and are not for rebroadcast or use by any other party without prior written consent of Barnes & Noble Education.
During this call, we will be making forward-looking statements with predictions, projections and other statements about future events.
These statements are based upon current expectations and assumptions that are subject to risks and uncertainties, including those contained in our press release and public filings with the Securities and Exchange Commission.
The company disclaims any obligation to update any forward-looking statements that may be made or discussed during this call.
At this time, I will turn the call over to Mike <UNK>.
Thanks, Tom.
Good morning, everyone, and thank you for joining us.
We're pleased with our results this quarter, both from an operational and the financial perspective.
Barnes & Noble Education has always been, and continues to be, in the center of aggregating and distributing the best educational content available for our higher education partners.
We've allocated capital prudently to fund operating systems, product development and expanded skill sets, so we can strengthen our position at that center of aggregation and distribution, both for physical and digital formats of course material.
Today, I'll give important new and specific examples of how our expertise and relationships are translating into new opportunities for BNED to continue to be a leader in delivering the best educational courseware and system solutions to our customers.
But first, some observations on the market.
While the higher education market continues to evolve rapidly, we experienced similar trends this Spring Rush to those we noted last fall, including our lower average selling prices on course materials, driven by lower publisher prices; and continued student migration to lower-cost Courseware alternatives, including digital offerings.
Our business continues to address an increasing emphasis on affordability and measurable achievement related to course content and student success as well as declining enrollment trends and an accelerating shift to digital and other less costly formats of developing and delivering educational content.
Given these dynamics, we are actively transforming our business for even greater success in the market.
We remain well positioned to capture new market share and collaborate with an increasing number of schools and strategic partners, both within and outside of our store footprint.
Our acquisitions of MBS and Student Brands, which both performed extremely well this quarter, as well as our newly expanded relationships with leading publishers, are key accomplishments and enhance our ability to offer more content and services to the students, faculty and institutions we serve.
To briefly highlight our consolidated results for the quarter, BNED consolidated sales of $603.4 million increased 15.7% as compared to the prior year period.
Year-to-date, consolidated sales of $1,846,000,000 increased 20.5% as compared to the prior year period.
Consolidated third quarter GAAP net loss was $283.2 million as compared to net income of $3.8 million in the prior year period.
Year-to-date GAAP net loss was $269.6 million as compared to net income of $5.1 million in the prior year period.
The third quarter and year-to-date net loss includes the impact of a noncash goodwill impairment charge of $313.1 million in the BNC segment.
Consolidated third quarter non-GAAP adjusted earnings was $19.6 million compared to $4 million in the prior year period.
And year-to-date non-GAAP adjusted earnings was $39.8 million compared to $7.8 million in the prior year period.
Consolidated third quarter non-GAAP adjusted EBITDA was $34.6 million, an increase of $15.8 million or 84% compared to the prior year period.
And year-to-date non-GAAP adjusted EBITDA was $104.6 million, an increase of $51.9 million or 98% compared to the prior year period.
<UNK> will discuss our updated outlook in his remarks.
Moving to our third quarter financial results, and the business priorities we are focusing on in each of our segments.
In our Barnes & Noble College segment, third quarter 2018 sales were approximately $15.2 million less than last year, and $13.3 million lower for the 39 weeks of this fiscal year compared with last year.
The comp store sales decline for BNC was $31.3 million or a decline of 6.2%, primarily driven by lower textbook sales, which were down 7.2% on a comparable store basis for the quarter.
The Spring Rush is flipped between the months of January, when our third quarter ends; and February, which falls into our fourth quarter.
Taking into account our estimated sales for the month of February, comp store sales declined 4.2% on a year-to-date basis.
The lower textbook sales reflect decreasing enrollments, especially at community colleges, as well as increasing competition and a continuing shift to digital textbooks and Courseware.
Approximately 60% of our comparable textbook sales decline relates to lower average textbook prices, which in addition to expanded customization options, affected the mix of learning materials sold and rented in the quarter.
Students have prioritized buying course materials not only by price but also by ease of access.
General merchandise sales in the third quarter, which accounted for approximately 26% of total sales for BNC, decreased by $3.5 million or 2.8% on a comp-store basis; while the year-to-date gross merchandise comp sales decreased by just under 1%.
The decline in gross merchandise sales for the quarter was driven by more generic categories like school supplies, computers and convenience, partially offset by increases in emblematic clothing and gifts.
In response to these dynamics, we continue to enhance our multichannel retail experience, ensuring that our customers have access to our products in our stores, online through our school-branded e-commerce sites and on our mobile apps.
Our Web orders for the quarter continued to grow, increasing 5.8% over last year, representing approximately 33% of BNC's total sales for the quarter.
In addition to our school-branded e-commerce sites and mobile apps, we also operate 87 dedicated athletic and alumni sites called True Spirit sites.
We expect to continue to grow those True Spirit sites ---+ websites given their positive impact on sales.
In response to the changing dynamics in the course materials landscape, especially the ongoing shift to digital content, we continue to enhance and promote our inclusive access program, which we brand as First Day.
Inclusive access programs effectively address the needs of students, the institutions and the publishers offering course materials at reduced prices through a course materials fee for participating programs.
These models ensure that students receive their materials on or before the first day of class, and they have a proven track record of driving positive outcomes for students.
During the Spring Rush period, we successfully piloted our proprietary First Day systems and have proved they are ready to scale in the fall of this year.
Our recently announced important agreements with McGraw-Hill Education and Pearson allow us to offer their content through inclusive access models, including First Day at our campus stores nationwide.
The ability to offer their content through our proprietary systems further strengthens our position at the center of content aggregation and distribution for the students, faculties and institutions we serve.
In fiscal year of 2019, we expect to double the amount of First Day's options; and using our scalability, expect to substantially increase the sell-through volume of content by us and our publishing partners.
As we continue to roll out First Day initiatives, we're also reinforcing our contractual exclusivity rights as a sole provider of course materials on those campuses.
Approximately 90% of our contracts provide for such exclusivity rights.
As we move forward, we will continue to explore, broaden and deepen such relationships that enhance our educational services and our distribution platforms or that create compelling content offerings we can earn a good return on.
As we continue to successfully compete and develop new relevant services in the marketplace for our largest platform, which is our college bookstore platform, we also continue to grow our digital offerings.
We've gained significant momentum in OER Courseware adoptions, with a broad spectrum of institutional clients.
This past fall, and now again in this spring, we offered 18 OER courses serving more than 16,000 students.
We expect to continue to grow and emphasize 2 broad digital initiatives.
First, an increased focus on the direct-to-student digital market.
Our August acquisition of Student Brands, which gave us our first direct-to-student sales channel and expanded our digital footprint to include Student Brands' 20 million unique monthly visitors.
As a leading direct-to-student subscription-based writing skills services business, Student Brands contributed $10.1 million of revenue and $5.8 million of adjusted EBITDA to BNC in its first 2 quarters of integration, exceeding our expectations with its strong performance.
We are gradually developing additional digital services we can market and distribute effectively across our 6 million student footprint as well as outside of our current footprint.
Second, our institutional market focus: our LoudCloud analytics platform, which allows us to provide institutions with an advanced data-driven solution for driving outcomes on their campuses.
60% of students seeking a bachelor's degree at a 4-year institution graduate in 6 years.
Clearly, schools want and need tools that will help them increase success for their students, which equates to the success of the institution itself.
With LoudCloud and our host of other products and services, we are uniquely positioned to help institutions solve these pain points.
Looking ahead, we're continuing to focus on our position at the center of aggregating and delivering high quality, more affordable Courseware and solutions by optimizing our physical and digital assets, both separately, but just as importantly, together.
Turning now to our MBS segment.
MBS's total sales for the quarter were $138.9 million, with $92.2 million attributable to MBS wholesale and $46.7 million attributable to MBS Direct.
MBS continues to perform well and exceed our acquisition-date expectations.
When we acquired MBS, which was almost exactly a year ago, our intention was to stabilize the business and utilize MBS's advanced distribution platform.
And now a year later, we are optimistic that we will achieve that objective.
We continue to recognize synergies of inventory management by transferring [under utilized] inventory from BNC to MBS, which sells it to its school partners.
One significant recent example of MBS's leverage.
We recently announced that MBS, as well as BNC, will play an important role as a key distributor of McGraw-Hill Education's new rental program.
Our company will drive the success of this program through our large footprint and expertise in rental programs; with MBS, in particular, bringing the many benefits of their centralized advanced distribution center.
MBS is able to administer, track and invoice each and every rental book used by participating students of this program, regardless of their campus or bookstore affiliation.
Other publishers have announced, tested and begun to implement similar rental programs.
And we believe we have unique capabilities and experience to help them all make their rental program successful ones.
In closing, we remain energized to create and deliver what our customers are demanding: affordable and high quality integrated educational services and content that will result in improved student and partner experiences and outcomes.
Accomplishing this mission of ours will translate to value creation for BNED and all of our stakeholders.
As we head to all-inclusive models that's showed a much higher Courseware sell-through for us, we expect to leverage that increased penetration across our various offerings for the benefit of our college partners, students, our publishing partners and BNE<UNK>
We expect to be able to maintain our central position in aggregating and distributing both physical and digital educational content, while we also develop and roll out exciting new services and solutions that will gain increased visibility in our upcoming fiscal year 2019.
We're focused on executing our strategy for change, to drive results and build long-term value.
We have significantly expanded our addressable market through accretive acquisitions, strategic partnerships and continued innovation.
Our goal remains to offer the most comprehensive suite of quality educational products and services to our existing and future customers.
With that, I'll turn it over to <UNK> for the financial review.
Thank you, Mike.
Please note that the third quarter ended on January 27, 2018, and consisted of 13 weeks.
All comparisons will be to the third quarter of fiscal 2017, which excludes MBS and Student Brands, both of which were acquired after last year's third quarter.
Total sales for the quarter were $603.4 million compared with $521.6 million from the prior year.
This increase of $81.7 million or 15.7% was primarily driven by revenue of $138.9 million from the MBS segment, partially offset by a $15.2 million decrease at the BNC segment and intercompany sales eliminations of $42 million.
I will explain the impact of the timing of the intercompany eliminations in just a few moments.
The sales at BNC decreased as comparable store sales decline of $31.3 million exceeded the sales increase related to net new stores of $11.9 million and the increase of service revenue, which includes Student Brands revenue of $5.6 million.
Our service revenue includes high margin revenue from Student Brands, income from brand partnerships, along with Promoversity and LoudCloud.
Each of these businesses allow us to derive new sources of revenue in and out of our footprint and further monetize our customer base.
Comparable store sales decreased by 6.2% as compared to a decrease of 5.3% in the prior year period.
Comparable store sales were impacted by the later school rushes; lower student enrollment, specifically, in 2-year community colleges; increased consumer purchases directly from the publishers and other online providers; and other more general, negative retail trends.
The third quarter includes our spring Back to School rush sales that are impacted by students purchasing textbooks later in the semester, extending the rush period past the end of the quarter and into February.
After factoring in the month of February that contributed to the Spring Rush, the comp sales decline to the fiscal year-to-date, including February, was 4.2%.
Textbook sales for the third quarter declined 7.2% compared to a prior year period decline of 6.7%, impacted by the items previously mentioned and by lower average selling prices of course materials, driven by lower publisher prices resulting from a shift to lower cost and more affordable solutions, including digital.
We saw large increases in the sale of digital textbooks and smaller decreases in the sale of new digital books, while sales and rental and used textbooks decreased.
Sales for MBS in the third quarter were $138.9 million and in line with expectations.
The third quarter is the second highest sales quarter for MBS wholesale, due to the spring Back to School sales for higher ed.
Fiscal year-to-date sales at MBS were $413.6 million compared with $438.4 million in the fiscal 2017 pro forma quarterly financials.
The $24.8 million decline is in wholesale and primarily the result of the lower supply of bulk purchases of new textbooks that we previously discussed.
Our rental income for the quarter was $62.5 million, a decrease of $2 million or 3.1% as a result of more affordable publisher solutions, including digital; lower average selling prices; and the lower supply of used inventory in BNC stores, as we continue to optimize the inventory between BNC and MBS.
Gross margins increased by 26.4% to $146.5 million or 24.3% of sales.
The margin at BNC of 23.2% was 100 basis points higher than the previous period.
The increase was primarily the result of including the high margin Student Brands service revenue, higher rental margin rates and lower contract costs associated, partially offset by an unfavorable sales mix, including lower margin Courseware.
The gross margin at MBS was 25.2% in the third quarter and is consistent with the rate in the second quarter.
Selling and Administrative expenses increased by $14.9 million or 15.3% due to $14.1 million of expenses at MBS, including $1.7 million of expense allocations from BNC to MBS.
BNC's selling and administrative expenses increased by $0.7 million or 0.7% to $97.8 million from $97.1 million.
The increase was primarily due to a $0.7 million increase in new store payroll and operating expenses, net of closed stores; and a $2.1 million increase in Student Brands expenses; and $0.9 million increase in corporate overhead, including digital expenses.
These were partially offset by a $1.3 million decrease in comp store payroll and operating expenses and [$1 million] of shared corporate overhead costs allocated to MBS.
The intercompany elimination for sales and cost of sales are primarily related to sales from MBS to BNC and wholesale commissions earned on textbooks sold to MBS by BNC.
As expected, in the quarter, the gross profit elimination is smaller than the first quarter fiscal 2018, as BNC purchases are lower for the Spring Rush compared with the fall; and BNC was able to sell through a portion of the inventory in the third quarter, with $5.8 million of adjusted EBITDA remaining to be sold in the fourth quarter by BNC.
In the third quarter, the company completed its annual goodwill impairment test required by GAAP and determined that the carrying amount of goodwill at BNC exceeded its estimated fair value due to the reduction in BNED's market capitalization.
As a result, the company recorded a pretax, noncash impairment charge of $313.1 million at BNC or $302.9 million on a net tax basis.
The fiscal third quarter net loss of $283.2 million or $6.04 per diluted share compared with income of $3.8 million or $0.08 per diluted year in the prior year due to the inclusion of the goodwill impairment charge in the current fiscal quarter.
Due to the acquisition of MBS and Student Brands and their results, our total adjusted EBITDA increased by $15.8 million or 84% to $34.6 million for the quarter.
During the quarter, BNC contributed $19.6 million of adjusted EBITDA, while MBS contributed $20.8 million of adjusted EBITDA and $5.8 million of the gross profit was eliminated.
Fiscal year-to-date BNC adjusted EBITDA was $54.3 million, an increase by $1.6 million as the contribution of net new stores, the acquisition of MBS and the segment allocation ---+ the acquisition of Student Brands and the segment allocations to MBS exceeded the impact of the comp store sales decline.
Fiscal year-to-date MBS adjusted EBITDA was $56 million and decreased by $3.5 million as compared to the pro forma financials, as the EBITDA impact of the lower sales and the segment allocations exceeded the favorable margin and expense savings.
The MBS adjusted EBITDA continues to exceed the amounts included in our financial models at the time of the acquisition.
The effective tax rate for the fiscal third quarter was 5.1% compared with 16.8% in the prior year.
The effective tax rate for the 13 weeks ended January 27, 2018, is significantly lower as compared to the comparable prior year period due to the tax benefit of the U.S. tax reform; partially offset by permanent differences, which in this quarter, include the nondeductible portion of the goodwill impairment.
As a result of the Tax Reform Act, reducing the federal corporate tax rate from 35% to 21%, our net deferred and long-term liabilities were reduced by $21.1 million, which lowered the income tax expense in the quarter.
In addition, the company's effective tax rate for fiscal year 2019 will be approximately 28%.
Our cash balance at the end of the quarter was $22.4 million, and we had $113 million of outstanding borrowings.
The lower cash and higher borrowings compared with last year are the result of the MBS and Student Brands acquisitions, and we continue to expect the average debt to be approximately $150 million during fiscal year 2018.
At the end of the fiscal third quarter, inventory increased by $120.5 million compared to the same period in fiscal '17, due to the inclusion of MBS; as BNC inventory decreased by $4.7 million as a result of the continued improvements in purchasing and inventory management, and BNC realizing the synergies related to the inventory optimization by transferring underutilized inventory from BNC to MBS.
Accounts payable was $8.6 million higher, also reflecting the inclusion of MBS.
Capital expenditures for the third quarter were $7.7 million compared with $9 million in the prior year and $30.1 million on a fiscal year-to-date basis compared with $26.5 million in the prior year.
The fiscal year-to-date increase of $3.6 million was primarily due to an increase in construction costs related to the contracts signed in fiscal '17, along with contracts renewed and, of course, the inclusion of MBS.
Currently, our BNC store count is 782, having opened 6 new stores and closing 1 in the quarter.
We plan on opening another store in fiscal '18 based upon the contracts signed to date, with an additional $2 million of annualized estimated sales, bringing the BNC 2018 total annualized new business sales to $63 million.
Our MBS Direct store count is 698, having signed 19 and closed 33 contracts during the fiscal 2018 year-to-date.
Turning to our fiscal 2018 outlook.
For fiscal '18, we continue to expect sales at BNC to be relatively flat, while comparable store sales are now projected to decline in the mid-single-digit percentage point range year-over-year.
We continue to expect consolidated sales to be in the range of $2.25 billion to $2.35 billion before intercompany eliminations.
We are raising our consolidated adjusted EBITDA guidance and now expect to achieve consolidated adjusted EBITDA of $115 million to $125 million, up from the previous range of $105 million to $120 million.
Capital expenditures are now projected to be approximately $45 million, down from the prior guidance of $50 million, an overall increase from fiscal year 2017 due to the new store growth.
With that, we will open the call for questions.
Operator, please provide the instructions for those interested in asking a question.
Thank you, <UNK>, this is <UNK>.
The overall margin rate at BNC is up versus last year.
Large contributor of that is Student ---+ the acquisition of Student Brands and the high margin products that they contribute to the company as well as all of our service revenue, which includes the partnership marketing, LoudCloud and Promoversity, which allow us to increase our revenue and has the high margin rates.
And we're able to generate that business, both within our footprint and outside of our footprint, as we leverage all the relationships that we have across the entire company.
Hey, <UNK>, it's Mike <UNK>.
I ---+ the only thing I would to add to that is that we would expect to have probably more transparency in the next fiscal year about the various businesses, which I think you'd be able to see how margins are shaking out.
We don't want ---+ really want to speculate on what's going to happen with the margin within BNC once you separate out ---+ if we separate out Student Brands, for example, or ---+ to the digital services.
But as <UNK> said, there are other services like the co-branded partnerships and marketing partnerships, et cetera, that are bringing in higher revenue.
The other thing I think that's important to realize based on what we said today is that, for example, First Day, to the extent that First Day achieves penetration with digital Courseware, we expect much higher sell-through with First Day than we do with traditional physical book penetration.
So for example, if 100 students come in, and we don't disclose penetration, let's say, we only sell to 40 of them, we have a 40% penetration, we would expect with ---+ the First Day products, digital products to have penetrations over 90%.
So how those margins shake out in terms of the margin sharing with the publishers and how we cut our rental deals with the school ---+ is it the same rent that we're paying.
Or is it ---+ we don't know the answers to all that yet.
But we're obviously going to do our best to drive margins higher through higher volumes in digital products as well as through negotiating and renegotiating the deals we have in place today.
Hi, Greg, this is <UNK> <UNK>.
It's really a combination of what you just said.
We have seen the average selling price move down this quarter, again, over the same period last year.
So that's driving it down.
But it's also the growth of the digital products, that students are starting to migrate there more often.
And we did see a significant uptick of our First Day programs that we ran year-over-year.
So all that together is a bit of an effect.
If it is a First Day inclusive model, that does eat in to the rental business because those are for sale and not for rental.
We're seeing both at the same time, Greg.
We're seeing universities expand the number of courses.
In fact, yesterday, we had a meeting at Wright State University that announced that they were expanding it to us and adding more sections, as well as growing the number of schools that are going to participate for the first time.
And this is an area where we work in partnership with our publishing partners as they promote the program as well as ourselves.
So it's really a very good program, and one that we are very optimistic about in the future.
It's rather broad based.
We have private schools, they're participating.
But it's not only the price savings.
That is a big piece of it; but it also is proven to improve outcomes of students.
And that's the big driver of this: improving the outcomes of the students because they have the product.
Everybody has it, the First Day; as Mike said, it's over an 80% ---+ 90% participation rate in the program.
And that's a big driver of this.
It's all about improving the outcomes.
Yes, one of other thing, Greg, is that ---+ Greg, one other thing is that having an inclusive access model, and as <UNK> said, having all the digital material available to First Day to everybody, from a publisher perspective, is a really good thing.
So the publishers ---+ and we are very aligned on this ---+ it doesn't make any sense to try to counterfeit, copy, unauthorized copies or share the content as is done with physical.
That's been pretty widely publicized in the last year.
If you have it all in First Day, it's included in your Courseware fee, in your tuition.
So that equates to higher sell-through but it also ---+ it involves a lot more ---+ or a sense, a lot more cooperation between us and the publishers; and presenting something that's lower cost, but also doesn't have the risk associated with it that most content does of having it duplicated on an unauthorized basis.
Thank you all for joining us on today's call.
Please note that our next scheduled financial release will be our 2018 fiscal fourth quarter earnings on or about June 26.
Have a great day.
Thank you.
| 2018_BNED |
2015 | DSW | DSW
#Sure.
Okay, so in terms of regional performance, I think <UNK>'s comments spoke to a fairly even performance in the quarter.
And over longer periods of time, the performance tends to even out.
To the point about the extreme weather, our business is very weather affected.
And when temperatures are seasonal, we do exceptionally well, and when they're inclement, we struggle.
And so to your point about February, the first half of February was very good.
And the second half of February was very weak because of the obvious weather issues we faced.
In terms of SG&A, I think our comments were fairly straightforward.
In terms of what we expect in SG&A, we expect some minor deleveraging SG&A in 2015, and it's due to the two items I mentioned, the incentive compensation and the equity compensation.
Were it not for that, we would lever a little bit.
We are focusing on driving topline and we think that's the engine that drives long-term profitability so that's what were going to do.
In terms of Town, Town is doing ---+ let me comment on the DSW stores and the Town Shoes business.
They've opened up the same two stores that they opened last year in August; those stores are tracking to sales volume that would be consistent with an average DSW store in the United States.
Aside from that, Town had mixed business in 2014, as they invested in their infrastructure to be ready for more growth in the future.
And so we're pleased with our investment in Town.
It's approximately equal to what we said it as going to be in terms of the impact on our P&L.
And there are going to be several more DSW store openings in Canada in 2015.
Thank you.
That was the first part.
And then <UNK>, on the endless aisle question.
Our average store has 2,000, 2,500 style color choices and to your point, our small format stores have about half that.
And when you consider that we've got probably 10X that in our total assortment, 10X to 2,000 or 2,500, there is a wealth of additional choices out there for the customer.
And I think you know, from day one when we started opening these small format stores, we said the key is going to be to open up the full assortment to those customers, because they're already looking at a reduced choice count in terms of what shoes are physically in that store.
So the technology-based and higher service model test that we're going to initiate shortly in 10 stores, is really designed to exploit that opportunity and it will be both technology and service.
And those test stores will include certain small format stores as well.
So we're going to really be patient with the test.
We're going to monitor it over a year, but getting that right, is essential to our growth strategy relative to small format stores.
It is important to all stores, but it is especially important to small format stores.
So one thing you may have seen in our stores, <UNK>, is we just put up a new signing package that speaks to more styles, more colors, more widths, more sizes, and that, in a pretty obvious way, is announcing to our customer that there's much more beyond just what you see in the store.
And in the ten technology test stores, that message will be even clearer to the customer.
Yes, we've got seven of them open right now.
And the first two opened in the fourth quarter, third and fourth quarter of 2013, so most of them aren't even comparable.
I would say they are all making a healthy return; about half of them are achieving our sales expectations and half are a little short.
And so we are not where we want to be.
We are not a finished product yet but it's not stopping us from moving forward because we're committed to getting it right in terms of what we put in the stores, in terms of how we service the customer in those stores, in terms of the signing and the technology we use in those stores, and in terms of the cost of the buildout.
So we are working on all of those things, and we're confident we will get it right, and we're continuing to work on it right now.
<UNK> ---+
Sure, I think <UNK> mentioned that we haven't yet seen an impact year to date relative to our guidance.
From the fact that we're down in inventories from where we expected.
So from that perspective, we have not yet seen an impact.
We are watching carefully, in terms of getting those deliveries caught up in managing the inventories very carefully within the merchant teams to ensure that we're able to meet our customer sales demand.
So could there still be an impact from it here to the balance of Spring.
It's possible.
And that would not yet be reflected in our guidance.
The 6% down in the inventory relative to where we thought we would be is not factored into the guidance.
That would be a fair statement.
<UNK>, I think we said in the remarks that fourth-quarter IMU was down 50 bips or 55 bips and that was offset by 25 bips worth of markdown improvement.
So I think that fourth-quarter experience is probably the best way to look at what might happen going forward.
What do you mean an evolution.
Okay, thanks very much, and thanks to all of you for your interest in DSW, your support of DSW and your excellent questions.
Have a great day.
Happy St.
Patty's Day.
| 2015_DSW |
2016 | STRA | STRA
#Thank you, Rob.
Good morning, everyone.
I have just a few comments on our third-quarter results and our fall term enrollment before <UNK> will walk you through the financials in more detail.
Our third-quarter revenue of $102 million grew 3% from the prior year, and that represents our first year-over-year growth in revenue since the second quarter of 2011.
When we reduced our undergraduate tuition by 20% at the start of 2014, we said that once we achieved consistent enrollment growth, revenue growth would trail by roughly four quarters ---+ and that is essentially the case here, as our total enrollments have been growing since the third quarter of last year.
Our third-quarter operating expenses were up 6% over last year, as we previously indicated they would be, to support our various growth initiatives.
And these are investments that we anticipate continuing throughout the fourth quarter.
And based on that, we expect our operating expenses for the full year to be up somewhere between 5% and 5.5%.
Turning to the fall term enrollment results, we grew our total student population by 6% to 45,509 students.
That is the highest fall term enrollment we have had since 2012, and that is our sixth consecutive quarter of total enrollment growth.
For the fall term, our continuing students grew 4% and our new students grew 13%.
We were also very pleased that the Jack Welch Management Institute was recognized by the Princeton Review as one of the top 25 online MBA programs in its very first year of consideration.
For the fall term, JWMI grew 29%, and it increased their continuation rate 300 basis points to a University-leading 97%.
Lastly, late last week we received the Department of Education's draft gainful employment data, which showed that none of our programs failed.
Draft data did show that two of our very small associate programs indicated in the zone.
We are in the process of reviewing all of this draft data and will report once the data is finalized.
<UNK>.
Thank you, <UNK>, and good morning.
First, I would like to remind everyone that our financial statements continue to include the impact of non-cash adjustments to our liability for losses on facilities that we ceased using during the fourth quarter of 2013.
Consequently, we will continue to describe our operating income, net income, and earnings per share with and without these non-cash adjustments.
Now onto our third quarter.
Revenue for the quarter was $102.2 million, up 3% from last year; and as <UNK> mentioned, the increase was driven by increased enrollment, partly offset by lower revenue per student.
Income from operations was $4.8 million for the quarter compared to $7.3 million for the same period last year.
Excluding non-cash adjustments, income from operations was $4.6 million and $6.9 million for the third quarter of 2016 and 2015, respectively.
Operating margin was 4.5% for the third quarter of 2016, compared to 6.9% for the same period in 2015, excluding the non-cash adjustments.
The roughly 6% increase in total operating expenses was primarily the result of accelerated investments in NYCDA expansion, academic program enhancements, and brand awareness initiatives.
Bad debt expense was 3.8% for the quarter compared to 2.3% for the same period last year.
Bad debt for the quarter was in line with our second quarter this year, though higher than the same period in 2015 due to a one-time true-up we recorded in our third quarter last year.
Net income was $2.9 million compared to $3.7 million in 2015.
Excluding non-cash adjustments, net income was $2.7 million for the third quarter compared to $3.5 million for the same period in 2015.
Consistent with the first half of this year, net income in our third quarter benefited from lower interest expense resulting from the payoff of our term loan last year.
Diluted earnings per share was $0.27 for the quarter compared to $0.35 for the same period in 2015.
Excluding non-cash adjustments, earnings per share was $0.25 for the quarter compared to $0.32 for the same period in 2015.
Our ongoing investment in the growth of NYCDA resulted in about $0.17 of dilution to our Q3 earnings.
Moving to year-to-date results, revenues year to date increased slightly to $321.8 million compared to $320.8 million for the first three quarters of 2015 due to increased enrollment, offset by lower revenue per student.
Income from operations was $37.8 million for the first three quarters this year compared to $48 million in 2015, a decrease of 21%.
Excluding non-cash adjustments, year-to-date income from operations was $35.9 million and $47.6 million in 2015.
Our operating margin was 11.1% compared to 14.8% for the same period in 2015 when excluding the non-cash adjustments.
Net income was $23.1 million for the first three quarters of the year compared to $27 million last year, a decrease of 14%.
And excluding non-cash adjustments, year-to-date net income was $21.9 million compared to $26.7 million in 2015.
Earnings per share was $2.14 compared to $2.52 for 2015.
And excluding non-cash adjustments, EPS was $2.03 for the first third of this ---+ sorry; three quarters of this year compared to $2.49 last year.
And year to date, our investment in NYCDA has resulted in about $0.34 of dilution to EPS.
Our diluted shares outstanding as of the end of our third quarter increased 1% to 10,803,000.
We ended the quarter with $120.5 million of cash and no debt.
Year to date, our cash from operations was $30.1 million compared to $54.5 million in 2015.
And as I mentioned last quarter, our cash flow from operations of this year has been negatively impacted by a few moving pieces, including our investment in NYCDA as well as a 2015 tax payment we made in the first quarter of this year; higher graduation fund redemptions; and in this third quarter, some unfavorable timing on a few large vendor payments.
Regarding capital expenditures, we spent about $7.5 million year to date 2016 compared to $9.6 million in the same period 2015.
We expect full-year capital expenditures to be at the lower end of my previously communicated range of 3% to 4% of revenue.
And, finally, we continue to maintain $150 million in available credit on our revolver.
Rob.
Well, good morning, <UNK>.
We said at the last quarterly call that we seem to have seen a better economy ---+ a firming up of the economy, which seems to have helped our unaffiliated undergraduate students.
I would say that that is a trend that has continued into the fall term.
We saw a lot of interest among that segment of students.
It remains to be seen what happens in future quarters, but it definitely is an improved environment from our perspective with respect to undergraduate students.
No.
It was pretty consistent across most of our programs.
So I can't say that it was concentrated in one particular area.
Well, we are in seven locations.
We are ---+
Seven new locations ---+ nine total.
It is still relatively early.
They have only been operating just starting into their second quarter.
So that is something, <UNK>, that we will comment on in future quarters.
But we are very excited to have made the acquisition, as we said last quarter.
And we are working to integrate their systems where we can inside of Strayer.
And we will comment on it as we get forward into the future.
Last year we had a one-time true-up that was related to what we determined was an overaccrual on some of our AR.
So it was a benefit in the third quarter last year.
On the expense side.
Not necessarily, <UNK>.
For the full year, we expect that the dilution will be in the range of $0.45 ---+.
And some of the expense, though, is ---+
Integration related.
And that is not going to continue into next year, <UNK>.
Correct.
Yes, the Forbes School is a different organization.
Well, the Jack Welch Management Institute is becoming a big part of our graduate enrollments.
It grew just under 30% in the quarter.
As I said, it was rep recognized by the Princeton Review as a top 25 online MBA program, and it is basically five years old.
So to go from a standing start to a top 25 program inside of five years ---+ we are very proud of that, obviously.
Our corporate channels remain very strong.
Enrollments in that channel were up 9% for the quarter.
So we continue to see strength there, and it remains a big part of our focus.
Well, the JWMI enrollments are about 1,300 students now, so you can just divide that by our total population to get the mix.
Our affiliated students are about a third of our total student population.
No.
We don't.
No, it did not, <UNK>.
Well, it is a completely different program, obviously ---+ much shorter in duration.
Most of the students so far that have gone through NYCDA's programs are already college graduates.
Some of them actually have graduate degrees.
Typically, these are individuals either who just have a love of programming or mobile app design ---+ or, more frequently, are interested in career switching.
And they find that this is a good value proposition for them to spend 10 weeks full-time or about 16 weeks part time to become a junior web developer, mobile app designer.
With respect to marketing, we use similar channels ---+ meaning digital, some radio advertising, and so forth.
The message is a little bit different, obviously, because, as I said, it is a very different program.
We have seen some early traction in some of these other markets in terms of generating awareness.
But as I said, it is so early that we really need to get a few more quarters under our belt before we'll have a better sense of what the trends look like.
| 2016_STRA |
2016 | PTEN | PTEN
#I think we have to go on our own track record.
The APEX rigs have done very well in overall utilization over the years.
The APEX-XK is a very high-performing rig in the basins that it works in, and we just have a solid track record when it comes to our own operations.
And we'll remain very competitive.
Yes.
That's correct.
Pretty close to it.
It is hard to say in the market today if I'm going to be able to put standby rigs back to work.
So it's ---+ there is still a lot of moving parts in there, in the overall numbers between rigs on standby, rigs on term contracts, rigs that are working at market rates.
There's just ---+ there's a mix.
Some of the standby rigs are under term contracts, which could be finishing up, too.
So, some rigs could be coming off standby because the term contracts are ending.
Today, we are just giving you the average for the year.
We just haven't called that out.
We give you what the average rig revenue per day is, the cost per day and margins, of course, but we just haven't called out what the average term contract rate is.
But what I have ---+ there is a progression in 2016 where the term contract rates go up because of the timing of when those rigs were signed.
Except for rigs that could be on standby.
No, I don't see that there is any real advantage, especially with some of the smaller companies.
I think they're trying to survive.
And one scenario that is potentially playing out right now is you have companies who are working at negative cash flow because they are still going through bank evaluations and working with bankers.
And if that equipment is not working, then the asset value goes to near zero.
But if the equipment is working, even though they are at negative cash flow, they get more valuation on the asset.
And so I think this is that part of the cycle where you have companies that are just fighting to survive in that respect as well.
I believe you would feel the labor market tightening up within the first year.
I think it is hard to know, but it is going to be in that first year or less.
Because I think a number of employees, unfortunately, we have had to release, have found work elsewhere.
And we recruit nationally.
We have people that rotate across the country.
And in their hometowns, which aren't necessarily <UNK> Texas or places where the rigs work, they found other employment in some cases, because there is a labor market around us.
So, first off, pricing, dayrates, are still very competitive.
It is going to remain very competitive in 2016 because of where activity is.
But in the scenario when we do start to get a recovery, the rigs that are going to go back to work first are going to be the 1,500 horsepower with the walking systems, 7,500 psi circulating systems, maybe three pumps on the rig, 75 ---+ or 750 [tips mast] load.
So, it's those kinds of specifications that we think the customers are going to want first.
And those are going to go back to work first.
I don't think you get immediate pricing power with a rig like that, just because utilization is low in the market, and we all have rigs like that that are stacked on the sideline.
But I do think you get some pricing power relatively quick after that, maybe relative to other segments ---+ even relative to pressure pumping.
And pressure pumping, I think it is going to take a little bit more to get the pricing back up in that market where there is a number of competitors out there.
No, not at all.
In fact, when you look at the fleet of AC rigs that are stacked on the sidelines today, if you start to dissect that fleet, you see a number of less capable rigs, whether they are 1,000 horsepower, whether they are super singles.
They are not pad-capable.
So, you have to break those out of the fleet that's stacked on the sidelines.
Any consolidation in pressure pumping is positive for that sector of the business.
Whether it is somebody else doing the consolidating or ourselves doing the consolidating, any consolidating is a plus.
There's too many companies in pressure pumping and the pricing is unsustainable.
Yes, there are so many moving parts, I don't have that number in front of me.
It is more than just the standby there.
We just don't have that with us right now.
So we did in the fourth quarter.
We did sign a couple of term contracts, very short-term, and at what we consider a reasonable market rate.
We are still margin-focused, but we did sign a couple of very short-term contracts.
They were APEX rigs, because that is pretty much all we are working right now.
And, of course, being a APEX rig, they are very good quality.
They had good performance metrics in the basins that they were working in previously, which is why we were able to get the ---+ keep the rigs working.
And the short-term contract that we signed gave us a commitment on the rigs.
So, it was mutually beneficial for both parties.
You know, <UNK>, today, we are just very focused on the businesses we are in, in drilling and pressure pumping, and just trying to maintain the margins that we have.
I think we have said before, we are open to looking at opportunities to do other things, whether it could be organic, it could be through acquisition.
We are going to look at opportunities.
But this has been a pretty challenging downturn, and we've had to really stay focused on what we do best right now.
So, in a reactivation scenario ---+ which we are hopeful that eventually we'll get to, but we are not there yet ---+ we are going to have costs associated with labor.
In drilling, it could be two to four weeks of labor costs as we get the rig back out.
In pressure pumping, I am anticipating maybe a month of crude labor to get the equipment back out.
And therefore, because of that, the cost ---+ or the pricing to get the equipment back out is higher than equipment that is already working.
So when we talk about reactivation equipment, we are talking about equipment that we expect to go out at a higher price than maybe equipment is working today.
You have the transportation to mobilize it out, but outside of that, we don't expect any major expenditures to mobilize a rig or even the pressure pumping equipment.
So, let's start with the first part.
The number of 1,500 horsepower rigs that are stacked on the sidelines is probably less than 800.
I don't have that in front of me right now, but that seems a little bit high.
The total fleet ---+ it just seems a little bit high.
But also, what I want to get to this, in the 1,500 horsepower rig category, what you don't see in a lot of the macro data that circulates is not all these 1,500 horsepower rigs have the 750,000 pound rated mast.
And so, there are some older rigs that are mixed in with that, that might have a lighter mast, that are just going to be less marketable when we get to eventual recovery and when people are looking at rigs.
So, you have really got to kind of dissect what that rig fleet looks like, more than just the horsepower.
Yes, so <UNK> just called the number and we believe there is approximately 700 1,500-horsepower AC rigs total in the industry.
And then, I don't have the number of ---+ that breaks down into what I have described before, but it's probably in the 200 to 300 range, but I don't know for sure offhand.
But the other part of your question was really about pricing and utilization.
What we have seen historically is, there was pricing power in high spec drilling rigs below 80% utilization.
We saw that in 2013 and 2014.
Well, we will have to bring people back if we are reactivating rigs.
The way that we've structured how we are operating today is we have kept as much of the experience as we can in key leadership positions.
So, when we do bring people back, we are talking about bringing back the entry level people, more the floor-hands.
And so, the training time to get people back is not as much as maybe people think.
So, I think we can put out and we can reactivate rigs within two to four weeks.
You know, there's ---+ in general, there is no limit to how many rigs we can put back to work that are stacked on the sidelines.
The equipment is in good condition; it is just a matter of putting the labor force back in place.
But that labor force is going to tighten up.
And so, it is really a labor issue more than just the equipment issue.
But that is all very market-dependent, as to how many rigs we would put back and how fast that would happen.
That's close.
That's not too far off.
Correct.
Yes.
You ---+
Q1, I think it is safe to say, because of commodity prices, got off to a very difficult start.
And that is why we are projecting that the average rig count is going to go to 70 in the US.
And your number for an exit is probably not too far off.
But I wouldn't say we had visibility on what I would call opportunities right now.
It is still a difficult market.
It is in the range of weeks to 30 days.
We just don't ---+ it is certainly not within a ---+ it's not ---+ we don't get a quarter's notice on some of these things right now.
There are customers who are reacting to commodity prices.
They pick up the phone, they call us, we have a discussion.
But some of these things are happening relatively quick.
You know, in 2015, I give a lot of credit to our operations, working with our supply chain teams, and then working with our suppliers to get our costs down, which ---+ in terms ---+ especially in terms of products like sand and chemicals, gets the cost down for our customers.
But in 2016, I am not sure how much more we can get out of this supply chain, whether it's from the mines, whether it is from the chemical suppliers ---+ we worked hard in 2015 to take cost of the system.
It is getting more challenging in 2016 to take cost out of the system.
So, we have been in Canada for a while.
We successfully put a new APEX rig up there under a term contract, and very pleased with the performance of that rig.
So, we anticipate that, long-term, we will be successful in Canada, but Canada is in a very difficult situation as an industry right now.
And their market reacts a little bit different from the US market, both in terms of magnitude and timing, just because their take-aways move in different directions, whether it is natural gas or oil in Canada.
I wouldn't say it has been a big change.
It only increased from 10 to 12 in the fourth quarter, and then we are likely to see some of those roll off in 2016.
But I wouldn't say it is a big shift.
Thanks.
| 2016_PTEN |
2015 | RBC | RBC
#It's a good question.
Thanks, <UNK>.
Good morning, <UNK>.
Yes, we did have selling synergies in our estimate.
It was roughly 20% to 30% of the total, if I recall correctly.
The good news is we've already seen a little bit already.
We had a customer recently give us a big order that he told us had it not been for your capability with PTS you probably wouldn't have got that order.
We're already seeing a little bit of that, and we expect more going into the future.
I can promise you we are targeting every opportunity across both businesses and it goes both ways.
We'll see benefits on the PT side, where we will be selling our gearing products to a larger customer base, and also on the electric motor side, where we'll be trying to use the strong footprint of the acquired business to sell more of our electric motors.
We absolutely see opportunities there, and we expect more in the back half of this year and into next year.
Well, nothing's changed from our ---+ as you know, we're pretty passionate about that.
We believe innovation is key in our businesses here.
<UNK> mentioned one of the very exciting SyMAX product line.
We're expecting that product line into higher-horsepower motors, so we're quite excited about that opportunity.
But we've been on a pace to do roughly 50 to 70 new products a year, and that won't change.
We still believe innovation is key for this business moving forward.
Thank you, <UNK>.
Thank you for your questions and for your interest in Regal.
Have a great day.
| 2015_RBC |
2018 | AMSF | AMSF
#Good morning.
Welcome to the AMERISAFE 2017 Fourth Quarter and Year-end Investor Call.
If you have not received the earnings release, it is available on our website at www.amerisafe.com.
This call is being recorded.
A replay of today's call will be available.
Details on how to access the replay are in the earnings release.
During this call, we will be making forward-looking statements.
These statements are based on current expectations and assumptions that are subject to various risks and uncertainties.
Actual results may differ materially from the results expressed or implied in these statements if the underlying assumptions prove to be incorrect or as the results of risks, uncertainties and other factors, including factors discussed in today's earnings release, in the comments made during this call and in the Risk Factor section of our Form 10-K, Form 10-Qs and other reports and filings with the Securities and Exchange Commission.
We do not undertake any duty to update any forward-looking statement.
I will now turn the call over to <UNK> <UNK>, AMERISAFE's President and CEO.
Thank you, <UNK>, and good morning, everyone.
For some time now, we have discussed the challenge for AMERISAFE of declining loss cost in an increasingly competitive marketplace.
Early in the soft cycle, we outlined our strategy to maintain discipline, sustain underwriting profitability, provide superior returns to our shareholders and deliver value-adding services to our policyholders.
Allow me to quickly highlight some financial results for the year to emphasize my point before moving on to the quarterly metrics.
Our ROE for 2017 was at 10.5% and 13.3% on an operating basis, taking out the impact of tax reform.
Our combined ratio was 84.7%, and we paid out $4.30 in dividends to our shareholders.
I believe these results, along with our strong balance sheet, reflect our stability and our commitment to our shareholders and policyholders, as outlined in our strategy.
Now onto the quarterly metrics.
Gross premiums written in the quarter were up slightly from fourth quarter of 2016.
The increase was spurred by audit and related premium adjustments, which added $2.1 million to gross premiums written in the quarter compared to $1.2 million in the fourth quarter of 2016.
While debt premium was down less than $0.5 million for the quarter, we grew voluntary policy count 1.3% at an average ELCM of 1.65.
The ELCM was down only slightly from 1.67 in the fourth quarter of 2016.
We also had strong 93.3% policy retention rate in the fourth quarter for those policies for which we offered renewal.
I believe our retention rate reflects our responsiveness to the competitive environment while maintaining our discipline.
It's that same discipline, which ultimately earns the appropriate level of premium for the risk we underwrite, as reflected in our loss ratio.
Our net loss and LAE ratio was 66.7% for the quarter and 60.5% for the full year.
Our estimate for the current accident year loss ratio changed in the quarter from 69% to 70.5%.
Both frequency, as a function of premium and severity trends, were up for accident year 2017 compared to '16.
If you recall, we assumed such increases when we set our initial estimate for 2017 back in the first quarter.
Throughout the year, claims reported were down compared to that year ---+ to the prior year.
For the full year, our claims reported were down 3.4%, while net earned premium was down 6.1%.
During last quarter's call, we noted some concerns about severity in the current accident year.
As the fourth quarter progressed, we saw a further increase in severity trends, which caused us to change our estimate for the accident year 2017.
The impact of this change, in estimate, added 4.5 percentage points to the quarterly loss ratio.
As for prior accident years, we experienced $7.2 million of favorable development in the quarter, primarily from case development in accident years '10, '11, '14 and '15.
Our open inventory of claims at the end of 2017 was down 4.1% from 2016, as we continue to manage our claims for maximum medical improvement, return to work in closing the claim.
Workers' compensation contends to be a very ---+ continues to be a very profitable line for us and for the industry.
This fad drives competition.
History has a way of repeating itself, and I believe underwriters who maintain discipline when loss cost trends begin to increase will avoid building loss deficiencies as the cycle turns and ultimately, provide greater returns to shareholders and stability for policyholders.
I'll now turn the call over to <UNK> to discuss the financial results.
Thank you, <UNK>, and good morning, everyone.
For the fourth quarter of 2017, AMERISAFE reported net income of $649,000 or $0.03 per diluted share compared with $19.1 million or $0.99 per diluted share in last year's fourth quarter.
Overall, net income was impacted by tax reform due to a revaluation of our net deferred tax assets at the new lower corporate rate of 21%.
This created a noncash charge of $12.6 million in the fourth quarter, which lowered net income by $0.66 per share.
Obviously, AMERISAFE will benefit significantly on a go-forward basis with the new lower corporate tax rate of 21%.
Operating net income, which excludes the tax impact as well as realized gains and losses on our investment portfolio, was $13.2 million for the quarter or $0.69 per share, a decrease from $1.04 in the fourth quarter of 2016.
For the full year 2017, AMERISAFE produced net income of $46.2 million or $2.40 per share, a decrease from the record net income we reported in 2016.
Operating net income for the full year 2017 was $59.3 million or $3.08 per share.
This level of operating income is our third-best year but was a decrease of 24% when compared to the record operating earnings in 2016.
Revenues in the quarter declined 3.7% to $94.9 million compared with the fourth quarter of 2016.
Net premiums earned decreased 5.1% to $87.4 million when compared to last year's fourth quarter.
For the full year, net premiums earned were down 6.1% coming in at $346.2 million.
Turning to net investment income.
We saw a decrease of 6.9% in the fourth quarter to $7.3 million compared with $7.9 million in the fourth quarter of 2016.
The decrease was largely due to the increase in value of a hedge fund investment in last year's fourth quarter.
Net investment income for the full year was up 4.2% to $29.3 million compared with $28.1 million in 2016.
The tax-equivalent yield on our investment portfolio was 2.9% at year-end.
This yield reflects the new tax rate of 21% on taxable investment income.
The pretax yield on the portfolio at year-end was 2.54%, up slightly from 2.46% 1 year ago.
There were no impairments on any of the securities held in the portfolio during the quarter or for the full year of 2017.
And there were no significant realized gains or losses during the quarter.
The investment portfolio is high quality, carrying an average AA rating with current duration of 4.03, and we have 60% in municipal bonds, 19% in corporate bonds, 13% in U.S. trades, treasuries and agencies and the remainder in cash and other investments.
Approximately 57% of our bond portfolio is comprised of held-to-maturity securities, which were in an overall unrealized gain position of $9.6 million at year-end.
These gains are not reflected in our year-end book value, as these bonds are carried in amortized cost.
Moving now to operating expenses.
Our total underwriting and other expenses were $18.1 million in the quarter compared with $17.1 million in the fourth quarter of 2016.
The increase was primarily due to higher insurance-based assessments compared to the same quarter last year.
By category, the 2017 fourth quarter expenses included $6.7 million of salaries and benefits, $6.4 million of commissions and $5 million of underwriting and other costs.
Our expense ratio for the quarter was 20.7% compared with 18.6% for the fourth quarter of 2016.
For the full year 2017, operating expenses decreased $1.8 million or 2.3%.
Even with lower operating expenses, our expense ratio was slightly higher for the year at 22.8% compared with 21.9% in 2016 due to lower earned premium in 2017.
Our tax rate was significant during the fourth quarter and for all of 2017, as a result of the tax reform bill and the $12.6 million impact on our net deferred tax assets.
Excluding the impact, our tax rate decreased to 25.5% in the quarter, down from 31.4% a year ago.
The decrease reflects a larger amount of tax-exempt income relative to taxable income compared with a year ago.
For the full year 2017, excluding tax reform, the effective tax rate was 28.4% compared with 31.0% in 2016.
As we look to 2018, we expect to see substantial benefit for the new lower tax rate, as our underwriting profits will now be taxed at 21% instead of 35%.
Return on equity for the fourth quarter of 2017 was 0.6% compared to 15.8% for the fourth quarter of 2016, impacted, again, by tax reform.
Operating ROE for the quarter was 11.4%.
For the full year, ROE was 10.5% compared with 17.1% last year, while operating ROE for the full year was 13.3% compared with 17.2% in 2016.
And now to capital management.
During the fourth quarter, the company paid its regular quarterly cash dividend of $0.20 per share as well as an extraordinary dividend of $3.50 per share.
This quarter, the board has declared a quarterly cash dividend of $0.22 per share payable on March 23, 2018, to shareholders of record as of March 9, 2018.
This represents a 10% increase in the regular quarterly dividend.
And finally, just a couple of other noteworthy items.
Book value per share at December 31, 2017, was $22.10, down slightly compared with the last year's $23.72 per share.
And we paid out $4.30 per share in dividends to shareholders during the year.
Our statutory surplus was $382 million at December 31, 2017, compared with $394 million last year at this time.
And finally, we will be filing our Form 10-K with the SEC tomorrow, February 28, after market close.
That concludes my remarks, and we'd now like to open it up for the question-and-answer session.
Operator.
Thank you, Randy and good question.
So let me start with talk about the book as a whole.
If you look at our industry mix, when you see the 10-K, that <UNK> alluded to, will be filed on the next day.
There's not really a change in the mix of our business.
So there's not a large shift between the industries.
It's pretty steady state from what you've seen.
So that's been a very consistent approach.
Secondly, our reserving philosophy here at AMERISAFE has not changed in regards to how we reserved accident years '15, '16 or '17.
There's no real change in the reserving philosophy there, because we've talked in the past about coming out of the Great Recession.
I do think, from a case reserving philosophy, maybe we were ---+ we did increased things and living in this new world of return to work and what that meant for our claims.
But to your question about the large losses, so when we talk about claims over $1 million, we ended accident year 2017 with 17 claims over $1 million, which, if you look back at 2016, same point in time, we had 17 claims.
In '16, those 17 claims range from incurred of $1 million to, I think, the upper end was $4 million.
In '17, it ranges from $1 million to the largest claim there is $10 million.
So there is a ---+ obviously, an increase in severity and just in the dollar volume of those large claims.
But looking through my book, I don't see anything in terms of ---+ to your point, is it systematic or not.
1 year does not make a trend, so I don't want to say that.
But I can only tell you what we're seeing in the '17 data, which is something we alluded to in the third quarter call, that we had concerns there in terms of severity.
I think it's the severity of the accident.
So obviously, you're right.
The medical piece drives more VAT than the indemnity piece does.
When I look at ---+ even if I just look at this universe of large claims, it's our typical accidents.
Motor vehicle accidents and falls.
Those are the major injuries that we have, those are the major injuries we had in '17.
They just seem to be a little bit more severe.
But keep in mind, because we talked about this when we set the initial estimate for '17 in the first quarter, we assumed coming into the year that we thought frequency was going to be as in terms of premium.
And that came to be ---+ it came to fruition, our actual claim counts are down.
So to your point of, is it the mix of business.
Our claim counts are down, and I grew policy count.
It's just the severity of those claims is where our concern is for accident year '17.
No, I can't speak for the industry as a whole.
Because keep in mind, we are writing a niche, and we are writing high-hazard carrier ---+ high-hazard insured.
So they tend to have more severe accidents.
So that's a good question.
Will that prove out in the industry-wide data.
I don't have the answer to that.
Rephrase the question.
So you said, medically, are they getting hurt more.
Again, the claim counts are down.
Yes.
That's a good question.
I do think, at least in the accident year 2017, we did see more severe accidents.
We saw a lot of single-vehicle accidents, which ---+ we're trying to figure out, what does that mean in terms of the data.
Is that something new that we're going to see.
There's a lots of nationwide data out there about distracted driving and those sorts of things.
I don't know if that answers your question or not.
Yes.
And if I'm thinking in terms of our large losses that I just named out to 17, yes.
There were more severe injuries, a quad, for example, where in a motor vertical accident, where ---+ I don't think we get a lot of ---+ you wouldn't think in a motor vehicle accident, you would get a lot of quads.
But in this case, we did.
At this point, I can't say it's a trend.
I hearken back if there's an over-under, I'm going to use the word lumpy.
We are in a lumpy business.
And particularly, with these high-hazard insureds, it's just a matter of how they fell.
We know they're going to fall, but how they fell, and how they landed adds to the severity of the industry ---+ injury.
And that is sort of ---+ I hate to say, luck of the draw, but that's what adds to the lumpiness of what we do.
I can't ---+ I don't want to give too much forward-looking guidance.
I will say this, I don't see anything on a macro basis that seems to be moving the needle in terms of what we've ---+ what we're experiencing in the industry.
So we had declining underlying loss costs this ---+ in 2017.
I think will probably still ---+ that will continue into '18, probably not to the degree that we saw in '17.
There were plenty of CATS in 2017, but I don't think that was enough to move the needle in terms of the excess capacity in the marketplace.
So I believe '18 will be as competitive.
So if you translate that into how pricing will affect the loss ratio, is that ---+ I know, I'm getting a long way there, how pricing will affect the loss ratio, I don't see anything dramatically changing the trend we saw in '17.
Right.
So I'm going to be ---+ it's really a function of the premium, I'm collecting, right.
And I'm going to earn, at this point, it appears, earning less premium with those policies that I have written in '17.
The marketplace is certainly competitive.
It's a little bit hard to look at ELCM's consecutive quarters.
Because if you're looking at it in terms of renewable books, it's really what ELCM did, we charged on that book of business last fourth quarter.
So I was really comparing the 1.67 to the 1.65, which is a very slight decrease.
But I do think, we were responsive to the market, simply because, as I said in my opening remarks, our retention rate for those policies we chose to offer renewal was at 93.3%, which is a very high percentage.
No, <UNK>.
This is <UNK> <UNK>.
No, we would expect to continue to try to manage the expense ratio as we expect to see a declining premium environment.
So our guidance for the expense ratio would not change.
I think, we would look at in the 24% to the 25% range, which we think has been our historical guidance.
No, it's hard for us to give guidance on likely tax rate, because it would imply some level of favorable development.
And obviously, we don't forecast favorable development.
So it's difficult for us, other than underwriting profits will now be taxed at 21%.
The amount of taxable income would be taxed at 21%.
And then the change on the ---+ the tax rate on the munis has not changed.
Yes.
Yes, we would expect that it would be lower than that.
I'm ---+ I won't go there.
But if you do the math, you'll come up with the tax rate.
Thank you for your interest in AMERISAFE and for joining the call today.
We are pleased with our results for 2017.
And believe the company is well positioned to execute on our long-term strategy.
Thank you.
| 2018_AMSF |
2016 | CWT | CWT
#Thank you, Melanie.
Welcome everyone to the second quarter earnings results call for California Water Service Group.
With me today is <UNK> <UNK>, our President and CEO, and <UNK> <UNK>, our Vice President, Chief Financial Officer, and Treasurer.
A replay of today's proceedings will be available beginning July 28, 2016 through September 28, 2016 at 1-888-203-1112 or at 1-719-457-0820 with a replay pass code of 7514207.
As a reminder, before we begin the Company has a slide deck to accompany the earnings call this quarter.
The slide deck was furnished with an 8-K this morning and is also available at the Company's website at www.calwatergroup.com/docs/earningsslidesmarch2016.
pdf Before looking at this quarter's results, we would like to take a few moments to cover forward-looking statements.
During the course of this call, the company may make certain forward-looking statements.
Because these statements deal with future events, they are subject to various risks and uncertainties and actual results could differ materially from the company's current expectations.
Because of this, the company strongly advises all current shareholders as well as interested parties to carefully read and understand the Company's disclosures on risks and uncertainties found in our Form 10-K, Form 10-Q and other reports filed from time to time with the Securities and Exchange Commission.
Now, let's look at the second quarter 2016 results.
I am going to pass it over Tom to begin.
Thanks, <UNK> and good morning everyone.
On our presentation this morning, we'll discuss our financial results and some highlights from that, and give drought and regulatory updates, and then Marty will conclude with some thoughts about the business going forward.
So I'm going to turn to the financial results for the quarter and point out that operating revenue was up 5.6%.
Net income was $11.5 million compared to $9.8 million in the second quarter of 2016.
The net income was up 16.9%.
The earnings per share was $0.24 for the quarter, up from $0.21 in the second quarter of 2015, and looking at the six month results, our operating revenue was up 2.9% to $274.2 million.
Our net income was down slightly to $10.7 million from $11.4 million in the first half of 2015 and earnings per share for the first half of the year, $0.22 versus $0.24 in the first half of 2015.
In talking about financial highlights, what's happened to cause that, the first thing is to remember that 2016 is the third year of our California GRC cycle.
It's a very limited rate release that we have in California and our biggest service areas because of that cycle and we'll talk a little bit about where we are with the rate case.
Our year to date earnings have been reduced by incremental drought expenses $2.2 million on a year to date basis.
As we will discuss later, there is a ---+ what am I trying to say ---+ the curve of that seems to be favorable for us.
So in the first quarter, we had $2 million of drought expenses.
In the second quarter, $1.2 million of drought expenses.
We do anticipate in the third and fourth quarters that will even come down further as we take off the drought surcharges and move away from that regime.
Our maintenance expenses for the year are up $2.2 million and again, we talked about this on prior calls.
Since July 2015, our maintenance expenses have increased because we've changed operations to improve our response to leaks and that's evident in our results here.
In addition, in June of 2016, Cal Water incurred an estimated $400,000 in costs to respond to a fire called the Erskine Fire, which affected our Kern River Valley District.
And Marty, you wanted to mention a few things about that.
Yes, sure.
That was actually a fairly extraordinary event in one of our districts in the central part of the state, which is a more rural area, kind of more rugged hilly area.
The Erskine Fire began on the afternoon of June 23rd and quickly went from 2,000 acres to 30,000 acres overnight.
The hot dry conditions coupled with 30 mile an hour winds rapidly spread that fire into what's about a 75 square mile radius, or 48,000 acres, which were totally burned.
So the fire and the fire crews were going from the 23rd of June through July 5th.
Concurrently with that, we got our crews going around the clock during the same time.
Part of what you see in the financial statements is $400,000 of those costs are rolling in and those are being recorded ---+ well, they're being expensed in the P&L.
They're being recorded in a memorandum account.
We serve approximately 4,000 customers in the current area.
During the fire, 300 structures were burned.
Of the 300 structures, 280 were homes.
Of the 280 homes that were burned, 250 were our customers.
All power lines, all cell lines, everything that was in the way of this fire burned.
And to give you an idea, some of you may have seen this on the news.
You could see the fire coming over the ridge and within a matter of second, anything that was downhill from that ridge was up in flames.
So it's a fairly devastating event that took place in the central valley.
Overall, we brought in crews from eight districts and we brought in different equipment from around the state.
We didn't suffer a whole lot of damage, which is good.
I think the team responded very well, although our customers did ---+ the company and the employees did an outstanding job doing 24/7 and being a first responder.
We'd given out over 3,000 cases of water to our employees.
In addition, being a first responder, in most cases we were on the ground before many of the relief agencies, including the Red Cross, the Company and its employees, so not rate payers, have given out over $25,000 in gift cards to our customers who lost everything.
Literally, we have customers that had the flip flops on their feet and the shirt on their back and that was it.
They got out just in the nick of time.
In addition, the company and its employees, the company matched our employees.
We did a fund drive and with some of our local suppliers, we raised an additional $45,000 that was donated for the fire relief to the Salvation Army in the area.
So devastating event, but the Company's performance, our emergency operations center, and all of our employees did an outstanding job, and we are currently in the process of going through the rebuilding with our customers in that area.
Tom, back to you.
Great.
Thanks.
Thanks, Marty.
The last major item on financial highlights for the year to date is our interest expense and as you'll recall, we did long-term financing in October and March and that has increased our interest expense $1.8 million on a year to date basis.
Two other highlights.
Our capital program for 2016, on a year to date basis we have spent $116.2 million on capital expense.
That compares to $75.8 million in the year before period, an increase of $40 million or 53% and the Company remains on track to meet the annual target that we've set out between $180 million to $210 million of CapEx for the year.
The last item on financial highlights is our WRAM decoupling mechanism, and the balance here is $28.9 million in the mechanism.
That is money that is owed to us by the customers and I will point out that at the beginning of the drought period, when there was some concern about where the WRAM balance might go, we had a WRAM balance of $47.9 million.
So the fact that we had a drought surcharge and other factors that went into the rate making really helped drive this balance down when it very easily could have gone up.
And so now, I'm going to turn it over to Marty for a drought update.
Thanks, Tom.
As many of you may have seen on the news, California has officially entered its fifth year of a drought.
We're still under emergency declaration but in May, during the quarter, the state made a couple changes in its drought program.
In particular, the state allowed for water retailers and agencies, and municipalities to sell certified, and said a different way, instead of having a mandated target given by the state, based on local supply conditions and water supply analysis, that's a prescribed calculation, we could certify at each of our districts what would be the appropriate target.
And as many of you know, Cal Water being a rate regulated company, keeps 25 year supply plans that we update through the rate case process.
Accordingly, when we did our self-certifications for all of our districts, the required reduction in all but one district was zero and we had one district that requires a 2% required production.
Having said that, the Company's position is that we would've preferred having a hard target out there for all districts because the state has made a great deal of progress over the last 12 months in terms of water conservation and obviously, the drought is far from over.
I think the Erskine fire, the fire in Kern County I just talked about, is a good example of that.
That's pretty early.
We're not officially into fire season yet.
That's usually in August, September, or October and reservoir levels are starting to drop-down fairly rapidly in the state.
In addition, one piece of good news with the drought is the state water project, which is one of our major backbones that moves water from the north to the south has a 60% allocation that it has authorized.
So that's the highest since 2011.
That's really driven by the fact we've had average or above-average rainfall in the North and that allows that water to move down through the Central Valley and then down to Southern California.
The team has busy implementing the new regulations which for us will include eliminating drought surcharges actually effective the end of this month, July.
In addition, we have agreed to share our data with the state in terms of drop ---+ best practices and what were some of the things we did to help achieve a greater than 25% reduction system wide.
So overall, the supply situation in California in the north is still holding well, but the south is very dry.
And we continue to monitor drought conditions in each of our locations throughout the state.
In addition, with the changes that we put in, which includes elimination of the drought surcharges, we are asking all customers to meet a minimum 10% conservation target in most of our areas.
And we are ---+ that's included on the bill.
So we show them what their water budget is without the adjustment.
Then we show them what it is with the adjustment and we show them what their actual usage is.
So we're still trying to keep people focused on a minimum 10% conservation target.
So that's kind of where we are with the drought.
If you go to the next page, Tom, I think this is for you.
Thanks.
So we've shown this page in the past quarter so I won't go into full detail on it, but the California Commission has given us several mechanisms over the years that allow us to get through the drought without a significant financial impact.
Of course, the decoupling, which we talk about every quarter, that helps when sales change as a result of the drought.
The drought costs I identified in the prior section.
.
Yes, one thing that's noteworthy on the drought, Tom and I, we had our board meeting yesterday and we actually had the drop team up here giving an update to our Board about the new regulations and now we're adopting them.
If you remember in the drought, our benchmark year was 2013 and so if you look at the period January 1st of 2015 ---+ excuse me ---+ June 1st of 2015 to June 1st of 2016 and compare that to the same period in 2013, our customers have saved over 35 billion gallons of water.
And to give you a visual on that, that's the equivalent of filling 53,000 Olympic size swimming pools.
A little piece of the Olympic data as we get the Olympics kicked off here.
So overall, our customers have done a very good job of conservation and we hope they continue to do so as we go into the dry months here in California I'm going to talk a little bit about the general rate case on slide 10.
That shows the rate case as it was filed.
As many of you may recall, in this rate case, the Company made a commitment to hold or try to hold expense related headcount flat and only increase our headcount on the capital side.
So people that are involved in the direct implementation of capital projects, especially with our capital program.
And 80% of the increase that we had the rate case is really driven by capital.
So the rate increase that was requested was just shy of $95 million with two-step increases, one in 2018 and one in 2019 of approximately $23 million each.
And as many of you know, it's about an 18 month process.
If you go on page 11, in this process that we're in right now, there are approximately 17 parties plus us that are akin to the settlement discussions.
Of the 17, ten are cities and counties, and I think that's probably driven by the drought and wanting to understand more what's happening with the drought and water supplies.
Of the 17 parties akin to the settlement, approximately nine are active.
So you have eight of them who are not active in the process but kind of listening in.
So as you may recall, at the last earnings call, we had just received the intervener's report and the Company has responded to that.
And during the months of June and July, the Company and the intervening parties have been in settlement discussions.
And on July 18th, we had one day of evidentiary hearings associated with the general rate case.
We can't say much more than that right now as the case is moving forward and settlement discussions are considered confidential.
What we can say though is that as many of you know, the rate case is very complicated and there's tens of thousands of pages of documentation and project justifications that go into the process.
All parties who have been participating have been very good about taking the time to have fruitful and correct discussions around what the products being submitted and the justifications around them.
Everyone has been very, very professional and we believe that the case is being processed in accordance with the adopted schedule that would allow for a decision by the end of this year.
In addition, the judge assigned to the case as well as the commissioner assigned to the case have continued to express their interest in having this wrapped up before the end of the year.
Unfortunately, we can't say much more than that right now.
In the event there was a settlement, it would immediately be ---+ once it's filed, it would be filed by the Company with the Securities and Exchange Commission via a Form 8-K.
Tom.
Thanks, Marty.
I'll just cover a couple of graphs here at the end of the presentation.
First, the capital investment history.
I will point out it was $116 million that we have spent on capital through the first six months of this year.
It's actually equal to the amount we spent for the entire year of 2013.
So I think that's a good visualization of what we've been able to do in terms of capital execution and delivery.
The blue bars on the right-hand side of the graph due still represent the numbers that were filed in the California GRC plus expectations for the other subsidiaries.
So those numbers may change as we go through the GRC process.
Flipping to the WRAM MCBA balance, we talked about this.
It did reach a high of $51 million at the end of 2011 and is now back in the range where it was in 2010.
We started the decoupling in 2008.
So it's good to see those numbers moderating a bit.
Last slide for me is the EPS bridge.
We mentioned here the incremental drought expenses, the increased maintenance expense, and the increased interest expense.
We also on this chart show a small change related to our incremental uncollectible accounts.
We put in a new billing system in the first quarter of this year and we suspended our collection process for about wo months.
And so we are seeing the effect of that.
That's a temporary effect and should even out as we go forward.
And the rest of the chart we talked about.
I will mention the unbilled revenue accrual, which is factored here on the quarter and on the year to date.
If you'll recall in 2015, in the second quarter we had a very negative unbilled revenue accrual that affected our earnings.
So in the comparable period last year.
So the positive here is certainly a positive for us but in addition, it's kind of a reaction to what had happened in the year before period.
And with that, I'm going to turn it over to Mary for a couple of final comments.
Yes, so on the last page that you see there is really talking about some of the recent awards in California.
And normally, we wouldn't put a page like this in for discussion, but we thought it was relevant given where we've been the last 12 months as a Company, as a team here at Cal Water.
In particular, if you talk to some of our employees who have been here, 40,45 years, and we have a number of employees who have been here a long time, they would tell you that 2015 and so far, 2016, have been two of the busiest periods in their memory in terms of being a Company, with the drought and all the work associated with the drought, and everything else that's been going on in the state of California.
It was a very taxing and stressful time as we reallocate our resources to deal with the drought emergency, et cetera.
And so during this period, I think, and this is reflective of how the hearts and souls of our employees, how they put their hearts and souls into their work, we won a number of what I believe are critical awards, starting with the JD Power and Associates.
This is the first time in the U.S., JD Power has ranked water utilities across the U.S. The ranking broke the U.S. into four districts, or four regions, the Midwest, Northeast, the South, and the West.
And Cal Water was ranked by customers that were interviewed during the survey in all the states as number one in the West.
In addition, we earned what they call the Elite 10, which is the top ranking of water utilities in the U.S. in terms of customer service.
So we're very, very proud of that.
In addition, last month, we were named a top Bay Area workplace for our fifth consecutive year.
So the Bay Area covers a very big kind of footprint as far south as Santa Cruz, and as far north as the North Bay up in Marin and Sonoma, and all of the East Bay.
The significance of this is that we're a 90-year-old utility right in the heart of Silicon Valley and we compete with engineering talent, and accounting talent, and HR talent, with high-tech companies, companies like Google, like Facebook, like Intel, like Hewlett-Packard and so many of these technology firms that are in our backyard.
So it's really an honor to be recognized again as our fifth year in a row as a top Bay Area workplace, top 100 Bay Area workplace.
In addition, our IT and operations people took an award for best mobile project.
Now, we didn't take first place for this.
We got second place normally I wouldn't be talking about coming in second on a conference call but the significance of it is Duke energy took first place and since they have 45,000 employees and a balance sheet and income statement that's significantly bigger than ours, I'm very proud that we gave them a run for the money for that first-place position, and our team did a great job rolling out our mobile workforce.
And lastly, and perhaps this may be the most important award that kind of feeds into the JD Powers award.
As we received a platinum creative award for outstanding drought communications in the state of California.
And as we talked about before taking a customer first approach meant we had a lot of communications that we had to do between local cities and us, our customers and us, and constantly reinforcing drought concepts.
And so we got the highest award for drought communications in the state of California.
So reflecting on the last year with so many challenges that we've had to overcome and obstacles that we had to hop over.
Our employees clearly put their hearts and souls into their work here at Cal Water and I think these awards highlight kind of how much our employees care about our customers and our company.
And it's very gratifying to look back now and to have these awards.
And these awards all came in here during the second quarter and kind of celebrates the success of being able to help the state meet the drought mandate and be recognized for our customers, for best service, best communications, et cetera.
I think it really shows how well the company has performed the last 12 months.
Having said that, we are officially halfway through the year and we're moving into the second half of 2016.
Time is flying, as Tom mentioned.
We're very happy with the capital program numbers and we continue to get good productivity out of the changes we've made in engineering and some of the reorganization things we've done internally to expedite getting capital in the ground.
Going forward, we really have three focuses during the second half of the year, or three priorities.
First, keep the GRC moving.
The GRC is a big project with a lot of tentacles, and we've got to keep all those things moving and make sure we drive that to conclusion before the end of the year.
The drought, obviously, we're still in a drought emergency.
I think with the changes the State water resources control Board made, there's a sense that the drought's over in the state of California and it's not.
We are still under the same emergency declaration and mandatory conservation numbers can be called back on and turned back on at any time.
And that's a function of the state EOC, state emergency operations center, and the governor.
So making sure we stay focused on the drought.
And then lastly, as Tom said, it's the third year of the rate case so budget to actual management is always one of the things we're looking at, but it's very critical this year in that the margins remain tight as we try to get the rate case wrapped up and get the stepped up rate relief going into 2017.
So we'll remain vigilant in terms of budget to actual management and making sure we are operating as efficiently as possible as we move into the last half of the year.
So with that, Tom.
Yes, Melanie.
That concludes our presentation.
We'll be happy to take questions at this point.
That is still approximately correct, yes.
The things that are going to drive that toward the end of the year is how much capital we get in the ground, how much deduction get on the repairs and maintenance deduction.
So right now, that's our estimate and we'll keep updating that quarter to quarter.
Sure.
Let's take those in turn.
So we do expect that obviously, if we hadn't had the drought surcharges during this period, the last 12 months, we would have seen a spike up in the WRAM MCBA net balance.
So the real question on the go-forward basis for the rest of the year is how much water are our customers going to use.
We do have a 10% conversation call and we do still want our customers to conserve.
If they do relax their conversation efforts a little bit, that could help that balance but right now, I think you're correct that you would expect to see it flat to trending slightly upward as we go forward in the year.
Again, it's all recoverable and it's all subject to the mechanisms.
And so even if it were to go a little bit higher, we would surcharge that in the next year or just as we've been doing for the last eight years.
Regarding any long-term issues with our mechanisms and the state board's action, to give you maybe the smallest hint of what they're talking about, what we hear is they really talk about budgets and setting individual water budgets for customers.
And that is kind of the undercurrent that you hear from the state board is that's what they would really like to do, rather than setting percentage calls and saying, well, everybody in this district needs to conserve 30% or what have you.
They're really looking to be a little bit more interventionist and say people in this area should be using X, and if they use more than X( they should pay a higher rate for that maybe.
That is a concept that's going to have a lot of difficulty getting through a lot of public agencies.
I think we're very indifferent to it considering the WRAM mechanism.
But it'll be interesting to see the political behind the scenes and what comes out about their proposal.
So Marty, do you have anything else to add.
I think that's ---+
Yes, I think to that point, <UNK>, our systems are set up to already do that.
That was one of the things we did with the drought last year is we adjusted the customer's water consumption target based on the calculations for that area and then we reported on that.
And so we're keeping that process going on the customer bills.
So in the event they do want have water budgets, we're already set up to do that.
And I think overall, this process with the state, Tom kind of hinted on it a little bit, you know, we've actually submitted testimony recommending keeping a minimum target, as did the California Water Association.
But you also have a lot of municipal systems that were lobbying the other way.
And if you think about it, with consumption taking such a dramatic decline, I'm sure many of them had a hard time covering their revenue requirement or their operating costs.
And so the states I think weighed these two things out and they were dealing with some of the politics.
And having said that, I also think the state is probably realizing they may have made a mistake.
And it's been hot in California so far.
It's been very hot in Southern California.
We're watching the drought levels on the reservoirs and they're moving quickly in Southern California.
So I think the governor and then the state is going to come up with more stringent long-term reduction targets that will include landscaping ordinances, that will include ordinances that will effect how homes are built, what type of appliance go in homes, things more focused on long-term water conservation and efficiency.
And as I mentioned in my part of the call this morning, we're participating in those discussions and there's a couple studies underway.
One is with the public policy institute.
We're partnering with them and giving them our data that they can use in their study and with the state as well.
So if it is to be determined but I said I don't think it's going away anytime soon.
And California passed up France for now the sixth largest economy in the world, with 39 million people.
And so we're going to have to come to terms with water.
You just need more water and you've got to be more efficient with water.
And we'll know more in January, but we are going to stay actively engaged with the process, and we believe in leading from the front.
And we're going to continue to do that, especially when it comes to water use efficiency.
I think that if you're talking ---+ we could have an offline discussion about the mechanics of rate design.
There's graduate level courses in rate design.
So the concept is really one that's more on a tiered rate basis.
If you think about ---+ and there are utilities in California that have adopted this mechanism.
Irvine Ranch Water District has had this adopted for many years where you identify kind of a base water use and anything about that gets charged the higher rate.
So in a sense, I think that accomplishes some of the same thing that we have had with the drought surcharges in the last year where you see a higher kind of penalty type rate that goes in if you're well above that water budget.
What typically happens, <UNK>, if the regulation comes out from the state, it'll then go to the commission and the commission will look at do we adopt it or don't we.
And if they say we have to adopt it, then typically we would be allowed to work on the rate design at that point.
And obviously, we think the drought rate design was outstanding.
We're not profiting from the surcharge to customers.
It goes to anyone's who saving water is not paying more, as long as they're coming under their budget.
But anyone who's using more than their budget, they're paying the penalty surcharge and they're paying the WRAM balance down for everybody else who's doing the right thing, which is conserving.
So we think the rate design has worked very well.
But we'll have to wait and see what the state comes out with and from there, we'll go into the rate design once we know the blueprint from the state and we'll have to file an application with the commission to how we want to implement it.
Consistent with what we talked about before, over the last 18 months, Tom and I have worked with the company on strategically shifting away from kind of ---+ I don't want to use the word minutia ---+ that we've had in the rate cases before where we would be looking at $20,000 projects.
So part of the process and what took so long in the last rate case was we were reviewing 3,000 jobs.
Some of them were big and those should be reviewed and some of them were tiny.
In fact, there was one case I think where one of the interveners was trying to get down to $5,000 jobs, which you'd never get a rate case done if you operate at that level.
In this rate case, we took much more a programmatic approach, starting with the main replacement program, and you have a water supply program, you have a well rehabilitation program.
And so we tried to focus the discussions more at the program level and it gives more a holistic view across the state and allows us to focus more on water supply strategy, main replacement strategy, and long-term replacement rates of capital.
So that's what we went into going this rate case.
The company spent an enormous amount of time preparing for this rate case.
So we were very comfortable.
With all the justifications that were submitted, but our goal was to push those discussions up at the program level and not get lost on the well rehab project in Bakersfield, for example.
And I think when I talk about people being professional and embracing this concept that the discussions have been going okay.
I mean there's been no ---+ they've been fruitful.
They've been progressive.
People have embraced the concept and that's about all we can say about it.
So the procedure from here on out is if there's a settlement to be filed, we will 8-K that.
That settlement, whether it's ---+ so it'll go before the judge.
The judge will have an opportunity to review the settlement and decide whether it's in the public interest.
Again, resuming there's a settlement, and then any issues that are not in a settlement have to be decided by the judge as well.
So there's a full public airing of the judge's proposed decision before a decision is rendered by the commission.
So the three kind of steps are settlement filing, if there's a settlement to file, the judge's proposed decision, that it will happen in every case and then a final decision.
And so we'll make it clear out there.
Certainly, any of those milestones happens, we'll let everybody know.
So the schedule I believe, and I'd have to double check this, but I believe it gives the judge about 90 days to write a decision in any of these cases.
Now, obviously, we've seen instances where a judge has taken much longer to do that and I've actually seen some instances where a judge was much quicker than that, especially in the presence of a settlement.
I had a judge one time when I was VP of rates or manager of rates that did a case in about three weeks.
So it can be done quickly.
It can be done slowly.
That depends on what's going on with the judge and also the review process of the commission.
Certainly, if there are complicated issues as there are in this case, just like any other multi-district rate case, the amount of issues that the judge has to deal with will in large part determine how quickly they can get it done.
So obviously, you can look to one of our peers that had a fully litigated case and that took a year and a half for the judge to write a decision because there were 1,000 issues in the case.
So right now, we think we're on schedule.
We're optimistic that the judge and the commissioner and all the parties want to get this done.
The only thing that's published as of now is that I believe there's going to be an all-party status conference in mid-August and maybe more will be known on the schedule at that point.
But I don't have any more to give you there.
^ Again, in order to get a decision out by the end of the year, has to be out in public for at least 20 days.
You can work backward from the last commission meeting of the year and go to a point some time in November where a proposed decision would have to be published to get it voted on by the end of the year.
And I know what I was going to say.
Just a reminder that in any of these cases, the end of the year would be fabulous because it would keep us from having to implement interim rates, but we do have the interim rate mechanism as do all the other water utilities in California.
So if it does slip, we will go to interim rates and get the rates when we get the rates.
So the delay is not going to affect the company except on a short-term basis.
Yes, I think what <UNK> was doing in terms of trying to back into it, if at a real high level September actually is a critical month for the rate case, right.
if you take the steps are to have it resolved by the end of the year, a lot has to happen between now and September.
And there's two paths.
There's path A, which is a settlement path and that has one set of steps.
And there's path B, which is a (inaudible) litigated, which has another set of steps.
So I think September is probably the month to watch, <UNK>.
That is correct.
Our revenue policy is that we'll book that when it's authorized for recovery.
All right, well, again, thank you everyone for your interest in California Water Service Group.
We'll look forward to talking with you on our third quarter call.
Thanks everyone.
| 2016_CWT |
2018 | MCF | MCF
#Thank you, and welcome, everyone, to our call today.
Joining me in the call is our management team that consists of Joe <UNK>, Steve <UNK> and Tommy Atkins.
Like to provide you with a brief overview, and then we'll turn it over to Joe for some financial information and we'll come back and talk about operationally what we're doing.
But before we get started, I want to remind everyone that we're ---+ that our earnings press release and the related discussion this morning may contain forward-looking statements as defined by the SEC and which may include comments and assumptions concerning Contango's strategic plans, expectations and objectives for future operations.
These statements are based on assumptions we believe are ---+ to be appropriate under the circumstances.
However, those statements are just estimates and not guarantees of future performance or results and therefore should be considered in that context.
Looking back on this past quarter, we've made a lot of progress with respect to our operations in the Southern Delaware Basin, Pecos County, Texas.
We seem to be really gaining some momentum there.
We had a really good quarter.
We've ---+ today now, we've drilled in the Southern Delaware Basin.
We drilled.
We have 6 wells that are producing, 1 that's flowing back currently, 1 that's going to be complete ---+ started its completion next week.
And then we're drilling a well now.
We've got the 1-rig program, as I think most of you are familiar with.
We did have a ---+ as in the release you saw this morning, we had 25% increase in year-end reserves, which was an increase of about 37.5 Bcfe.
We had about a 55% increase in SEC PV-10 value at year-end, which is an increase of about $91 million.
We participated in a discovery in the Zavala-Dimmit County area for the ---+ in the Georgetown formation.
We were not the operator of that well, but we do hold a fair amount of acreage in that area.
And kind of excited about that, and we'll talk about that in a few moments.
But again, we've made a lot of progress operationally as well as reducing our cost and our drilling operations in West Texas, and we look forward to having a very active year moving forward.
So with that, Joe, I'm going to turn it over to you and let you give a brief summary of our financial results for the quarter.
Okay.
Thanks, <UNK>.
First of all, Contango recorded a net loss in the quarter of approximately $5.6 million or $0.23 per basic and diluted share compared to a net loss of $16.8 million or $0.69 per share for the prior-year quarter.
That improvement in our net results was attributable primarily to a few things: Lower cash G&A cost, lower DD&A, and in the prior year, a higher impairment number related to the impairment of noncore undeveloped leasehold cost.
Adjusted EBITDAX, a measure of operational cash flow, and as we define it in our release, was approximately $10.2 million compared to $8.2 million generated in the prior-year quarter.
And that's an improvement attributable primarily to the aforementioned reduction in cash G&A cost, better realized results from our hedging activity and a gain on the sale of a small stock investment in a [nonmaturing] company.
Cash flow per share, exclusive of the impact of changes in working capital, was approximately $0.36 per share for the quarter compared to $0.30 per share for the prior-year quarter.
Revenue was $20 million for the quarter compared to $21.7 million for the prior year quarter, a slight decrease attributable to lower production offset in part by higher oil and liquids prices.
Production for the quarter was approximately 4.8 Bcfe or 51.8 Mmcfe equivalent per day compared to 64.3 Mmcfe per day for the prior-year quarter.
And that was just under the midpoint of guidance, caused primarily by some downtime related to the freezes in the month of December.
Our guidance for the upcoming quarter is estimated at 50 million to 55 million equivalents per day, or roughly flat with the fourth quarter.
Additionally, we expect a new production to commence from the River Rattler that just started flowback; and from the Ragin Bull #2, expected to start flowback in April ---+ in early April.
Total operating expenses, exclusive of production and ad valorem taxes, were $6.4 million for the quarter, which is at the low end of our guidance and equal to the third quarter despite a fourth quarter accrual of approximately $1 million from anticipated throughput deficiency for 2018 in one of our onshore properties.
Our first quarter guidance of $6.4 million to $6.9 million ---+ or is $6.4 million to $6.9 million and likely will be on the low end of that.
And that includes about $400,000 to $500,000 in anticipated workovers.
Cash G&A expenses, that is excluding stock compensation expense, were $4 million for the quarter compared to $5.9 million, prior year quarter, due to the lower performance bonuses accrued for 2017 and because of lower insurance and office cost.
Guidance for the first quarter of 2018 is slightly higher than the current quarter due to severance costs associated in activity based reduction in certain support functions in the corporate headquarters.
We had approximately $85 million outstanding on our revolving credit facility at year-end.
As noted in our current operations release, we currently forecast 2018 CapEx to be in the below $50 million range for a 1-rig program for the year and roughly for 9 to 10 gross wells.
At that level, that is currently forecasted to be a slight outspend, but we expect to more than cover that shortfall with sales of noncore onshore assets.
And that concludes the financial review.
I'll now turn it back over to <UNK> for a more extensive operations update.
Thanks, Joe.
Yes, as Joe mentioned, we ---+ our focus continues to be derisking and the development of our Southern Delaware position that we acquired in the latter part of 2016.
In the release, in our operations release, it gives the specifics of our progress there.
As I mentioned earlier, counting the River Rattler that just started production, we now have 7 horizontal wells in production in Pecos County.
The first 6 producers were all in the Wolfcamp A, while the River Rattler's our first Wolfcamp B well.
As we've mentioned previously, we did ---+ had experienced a number of challenges in our early wells.
And now we've made significant process to overcome all that.
So very pleased with the progress that we've made, and we've been ---+ encountered very few problems in our most recent wells, at getting them get into TD, which actually reduces the number of drilling days on each well that we drill.
And we ---+ as I had mentioned earlier, we've also been successful in reducing our cost related to some of our completion work.
That includes proppant, liquids, and chemicals.
So our view is that we'll keep a 1-rig program in place now.
We're going to continue to find ways to reduce our drilling and completion cost without sacrificing our production performance.
We're very pleased with the team that we have in-house and also in the field, that we can drill and complete these wells, we can design our production systems.
And especially with our last ---+ our most recent well, the Ragin Bull #2, it being as good as our 2 previous best wells that cost a lot more.
So we're making really nice progress there.
As you saw in our operations release, we are going to be testing various zones in addition to Wolfcamp A.
I mentioned to the Wolfcamp B.
And we also will be testing the Bone Springs formation, which has been tested by some offset operators.
As Joe also said, we believe that our cash flow, combined with certain noncore asset sales, will be more than sufficient to fund our program.
However, I would just add to that, if we do see continued improvement in oil prices and we have successful drilling results, again, with the success of our noncore asset sales, we might pursue other prudent ways of accessing additional drilling capital for an increase in activity later in the year.
The details of each of the wells are in our release.
But be happy to discuss any of those.
So that really concludes our remarks at this point, and we'll open it up to the operator for any questions.
Yes.
So, <UNK>, thanks for that question.
Yes, we do have plans to drill a well down here.
There's an operator down there that just drilled a Bone Springs test.
We're kind of watching that and awaiting the results from that well.
But yes, in the southeastern corner of our acreage, I think that's a General ---+ was it.
.
General Paxton unit that are ---+ a well that we would drill on our schedule later in the year.
Yes.
Steve, won't you.
Yes.
This is Steve <UNK>.
So on the Crusader well.
We ---+ first off is, we flow our wells up using annular gas lift.
We start out flowing up casing, and then we go to annular river gas lift.
That gives us the maximum rate.
We're trying to find a solution that we can move as much rate as possible without having to go to submersible pumps, and the annular gas lift does.
We think it's better, cheaper, et cetera, and that's why we do it.
And it's worked out pretty good so far.
We're actually producing more fluid than our offsets.
On the Crusader, however, what happens is, is as you've got ---+ you flow up casing, and then when the well dies, then you go in and you run tubing and you get prep work prepared for that.
And that can ---+ you can be shut-in for, sometimes a week or 10 days, depending on rig availability, et cetera, because they don't give any warning.
When they die, they just die.
So on the Crusader, the crusader was the first well that we decided that, rather than flow up casing in the beginning and then lose that a week or 10 days, that we would go ahead and run tubing up front and do the annular gas lift from day 1.
And so I'm not saying that's the only reason, but that is something that we did different on that well.
Just the whole relationship between flow and choke sizes, et cetera, just all changes.
And so we're just kind of getting evened out on that.
I will say that it seems like the well is, has ---+ the decline is a little shallower than the rest of them, so that, maybe flowing lower rates helps.
We'll monitor that.
The next ---+ the second well that we did that on, that the same thing, where we ran tubing up front was our Ragin Bull 3.
And that looks to be consistent with our best wells.
So we're just ---+ we're understanding how to flow, given the way that we're plumbing these things out.
So.
.
Well, <UNK>, it is a slight outspend, but as I mentioned, we are looking at noncore asset sales.
We've already started the process on some and we feel good about those being able to cover whatever shortfall we end up with, plus some.
We're obviously adding reserves as we go along, so hopefully, we'll not see any degradation in the borrowing base and maybe even an improvement as we go along the year as well.
I'm not sure I can give you exact numbers.
But the reason we wanted to avoid the submersible pump is, everything that we've seen, different operators in different plays struggle with keeping the wells online.
They're not ---+ they don't handle sand production, whereas we can handle sand production with gas lift.
And so that can cause problems with the pumps.
And we have seen the number of workovers.
I mean, maybe you can get a year out of a submersible pump, but I'd say probably on average, it may be closer to 6 months.
And that's just a costly intervention.
So as far as would it cost for annular gas lift, you've got the compressor that supplies the gas.
We've got a central facility, so we're able to do that and get gas to all of our wells, basically, with 1 central compressor.
And when you have that rental and others than that, that's pretty much it.
So the operating costs are considerably lower than the SPs.
Yes.
So we have seen improvement in terms of our cost.
When we started here a little over a year ago, the service costs had ramped up pretty significantly.
But we are continuing to make progress in terms of our drilling days.
I think the ---+ one of the ---+ the biggest factor has been just the completion and the cost associated with that.
One of the things that we've been able to ---+ how we've been able to reduce cost is just adjust our completion recipe and also the amount of proppant that we're using, the amount of fluid that we're using.
We'll continue to see improvement in those areas.
So with the proppant market kind of evolving out there, especially with these West Texas mines opening, that's going to continue to be something that we're going to follow very closely.
But we have seen an improvement in cost from, I would say, something north of $11 million per well to something at $10.5 million or less.
So we're getting ---+ we're seeing some benefit of a little bit more experience and additional capacity added to the market out here.
Yes.
So I think that the drilling complete those wells out there.
You're probably looking at something in the kind of $3 million per well neighborhood.
The well that we participated in, the flowback on that was ---+ and the production from that well has been outstanding.
It is a somewhat of a statistical play.
We're drilling to carbonate reservoir that's ---+ the key out there is being connected to the fracture system.
So there is some science involved, but it also involves a little bit of statistics in terms of what your results are going to be.
But I would tell you that the well that we participated in, the rate of return on that well is going to be very, very high.
Well, I think it's ---+ go ahead, Joe.
I was just going to say, Brad, everything's for sale at the right price, right.
And other than the what we consider core, which is obviously West Texas, our source of cash flow is the offshore.
So other than those, everything has a potential.
But during the course of the year, we'll be evaluating each and every one, determine what the value is to keeping it versus what we can sell for.
So ---+ but again, from a total standpoint, what we expect from that exercise will more than compensate for the outspend that we have in the initial budget.
Just a couple of quick ones for me.
Appreciating the Q1 guidance that you put out, but was wondering maybe if you could speak to kind of the trajectory for the rest of the year on production.
And also just kind of how the mix should trend over time there.
Well, I would ---+ I think that our view is that ---+ we'll ---+ as we drill each well, it takes somewhere between, from the time we spud a well toward the time we bring a well online, is somewhere 75 to 90 days to get well on stream.
We'd like to reduce that time frame, but lining up these frac jobs is certainly a challenge.
But we're using that as our guideline.
We do have high-volume gas that we're producing from the Gulf.
And so when we're trying to replace that with a relatively low-volume oil.
So in terms of production guidance, I think we provide that on a quarterly basis.
Joe, I don't know if you have any further comments regarding any kind of view on guidance for production, but our oil mix is certainly going to increase.
And to the extent we can reduce our time from spud to flowback, we will do that to try to enhance our production rates.
Okay.
That's helpful.
And then maybe just to kind of clarify.
So the $52 million CapEx number, is that inclusive of leasing and kind of other spend as well for the year.
Yes.
So the $52 million is---+ basically covers all of our activity in the Pecos County area.
We do have some minor leasehold cost in there.
We haven't really budgeted for participation in any drilling activity in the Georgetown play.
We're evaluating that play and working with the operator and other partners there to try to determine kind of the path forward there.
But again, those wells are relatively inexpensive, and we've got ---+ we don't have a large working interest there.
So any incremental capital required to develop that is not going to be all that impactful.
And as Joe mentioned earlier from a liquidity standpoint, given the fact that we're right at trying to stay inside of cash flow.
But to the extent we go out, with these noncore asset sales, that will more than make up for any deficit there.
Got it.
Okay.
That's helpful.
And then maybe lastly for me.
Could you maybe quantify the weather impacts on Q4 volumes.
Probably, I'd guess in terms of quantity, I believe that it was probably, what, around 200 million cubic foot equivalent, plus or minus.
So what is that.
That's about (inaudible).
Well, we're still monitoring it.
I mean, obviously, when we cut back our ---+ I mean, we cut our proppant back to 2,500 pounds per foot to 2,250, and we cut our fluid back from 80 barrels per foot to 60.
And that's still consistent with what kind of the average is of ---+ that people are doing in the play.
So it's not ---+ we didn't change it too dramatically, but we are obviously monitoring results just to be sure that we're not hurting our overall flow.
The Crusader concerned us a little bit, but we, again, believe that that was probably for different reasons.
But I can tell you on there, again, the Ragin Bull is as good as our best well, and we've been flowing the River Rattler back for a day or 2.
And in terms of the fluid that we're seeing out of it ---+ I mean, again, because it gets back to total rate that we can flow out of these things, and the River Rattler so far is in line with our better wells as well.
So that's kind of what we're looking at.
If we end up making overall less total fluid, then we'll reconsider.
But we haven't seen that yet.
We just appreciate everybody's participating in the call today.
And look forward to updating you in the future with the results of our activity for the next quarter.
So thanks again for joining us today.
| 2018_MCF |
2017 | CTXS | CTXS
#Thank you, <UNK>, and welcome to everyone
I'm excited to join you today in my new role at Citrix
As you can see, the business results are strong
As <UNK> shared, top line revenue is in line with our forecasts, growing 3% year-on-year, but that alone really doesn't tell the full story
When you look at bookings and deferred revenue, we saw a significant acceleration in our business last quarter, including 76 deals over $1 million of which nine were for Citrix Cloud
We can directly see the model shift when measuring the percentage of product bookings in the quarter that came in as subscription-based versus perpetual
In Q2, this mix of subscription doubled year-on-year to 30% of the product bookings mix, driving the increase in deferred revenue, which as <UNK> mentioned, over $1.7 billion, up more than 13% year-on-year
In fact, the total contract value of bookings for Workspace Services was up more than 10% from last year with an average contract duration approaching three years
We're also beginning to see this move show up in recognized SaaS revenue which is growing quickly, up 27% year-on-year, and we expect to accelerate throughout the back half of this year
Up until now, we've been trying to gradually manage this move to a more subscription-based model, but the rapid shift in demand from customers is showing that we need to be much more aggressive and speed up this transition moving forward
The faster-than-expected shift is a strong indicator of our customers' belief in our long-term vision
They want their infrastructure to run in either a hybrid or a SaaS model
Our holistic approach gives customers the confidence that they can transition to the cloud at their own pace with Citrix and have the future flexibility to access cloud-based innovations that their businesses are going to need
The move to subscription is obviously impacting the P&L in the short term for both revenue and margin
As we work on the plan to move faster, we're going to do so with a commitment to operational efficiency
We're recognizing that OpEx is up significantly over the last few quarters, as <UNK> mentioned, both from variable expenses as well as investments in multiple areas of the company
Looking forward, our goal is to manage the business closely through this transition so that we can both accelerate our move to subscription while balancing op margin both over the medium and long term
We're currently working on a multiyear plan including capital, and we expect to share these details and metrics on the Q3 call
Citrix has a mission that has remained largely unchanged for nearly 30 years and we have a strategy that is clearly resonating with our customers
It's now our job to be more intentional about the transformation needed in all areas of the business to drive solid growth and profitability into the future
Looking at our products, I believe we currently have the strongest product portfolio and roadmap that I've seen in my tenure with the company
Our desktop and app business is accelerating because the cloud and hybrid approach gives customers the flexibility they want, along with the growing need for security-use cases
We're seeing this especially with large competitive wins worldwide, particularly in education and healthcare during Q2. For example, a large U.S
health system and a major Korean university chose Citrix to better manage their cloud transitions while maintaining the security and compliance needed, and alleviating growing concerns around ransomware and malware within their organizations
In the networking space, we're seeing our Enterprise segment bookings grow in the double digits because of our capacity investments, as well as our software-based architecture strategy
Organizations are clearly going to evolve their networks to a more software-defined perimeter approach over time
And since NetScaler is a software platform, we're very well positioned to meet our customers' needs well into the future without forcing them to go through a complex and expensive hardware refresh cycle
For example, Masonite International, a large building products manufacturer, was facing an end of life on a competitor's hardware platform this quarter
They weighed upgrading with that competitor with switching to Citrix's NetScaler, ultimately choosing NetScaler with the addition of XenApp citing both Citrix's product integration capabilities and the completeness of vision to help them well into the future as unmatched reasons for this switch
Looking at our partnerships, our product alignment with Microsoft is driving real results
This quarter we saw many large joint customer wins for Citrix Cloud with Microsoft Azure driven by the strength, usability and simplicity of our solution
Arizona State University, for example, which is currently undergoing a hybrid cloud effort as part of a new Cloud first IT initiative is just one large example
In addition to that, one of the world's largest advertising, marketing and communications agencies, as well as one of the world's largest professional software firms both chose Citrix Cloud on Azure in multimillion-dollar deals driven by cost, efficiency and security concerns
A professional services firm needed an IT environment built from the ground up for one of its divisions to meet U.S
government regulations, and they cited Citrix Cloud on Microsoft Azure as the single easiest and most secure way to mobilize their workforce and meet their regulatory compliance needs
And the work that we're doing is extending to other partners as well
This quarter, we announced an expanded partnership with Google to bring Citrix Cloud's desktop and application delivery and NetScaler CPS to the Google Cloud Platform, and to better integrate ShareFile and the security and control that we can offer with the full G Suite of solutions
And just this week, we'll be announcing the availability of Citrix SD-WAN 9.3 with an extended partnership to make it available on the AWS marketplace
This is just the start of the investments to offer customers choice and flexibility into how they manage their IT environments with any platform provider
From a competitive standpoint, we had more than 1,100 competitive wins in our core areas
For example, M&T Bank replaced a major competitor of XenMobile because of better user experience and features like single-touch desktop access and our ability to securely integrate with our existing NetScaler infrastructure
In fact, several customers also replaced networking competitors with NetScaler, including Telecom Italia, citing superior performance, usability, stability and overall scalability as the driving factors in these large deals
And overall we're also seeing several big desktop replacements when displacement transactions, including one of the large medical foundations, a major hospital system and a large services company, driven by the advanced performance and quality of our solutions and the unique Citrix-only capabilities like integration with ShareFile to deliver a complete workspace solution
So to sum it all up, business is strong
We recognize that our profitability is getting pressured by the cloud transition
Going forward, we're going to manage both the transition and efficiencies in a balanced manner
We have, clearly, work to do, but you'll see our response over the next several quarters
Additionally, we're working hard to align the entire company towards a multiyear cloud transformation, and as I said, after Q3 of this year, we intend to share new metrics and our multiyear plan so everyone can better understand the rapid pace of our evolution, the demands we're seeing from our customers in our hybrid cloud vision
Thank you very much
And as always, we look forward to your questions
Question-and-Answer Session
The quickest way to answer that is just look at the mix from Q2. Just about 85% of the mix was coming from new customers or maybe existing customers with new use cases
The remaining 15% was coming from an installed base that was just doing a migration
So at this point in time, the vast majority is net new
It's the way we've designed it for this year, one of the reasons why it's impacting the top line as much as it has been
I mean, we haven't had any change in leadership across our R&D and innovation engine
In fact, it's stronger than it has been in many, many, many years now
We've got two great leaders running both product and engineering, and we've recently gone through a unification from an org model standpoint to bring together all of our product and engineering efforts
And the driver there is really just to allow us to move faster, to deliver integrated solutions both on-prem and the cloud, and I feel really good about our roadmap
We're releasing a number of new capabilities
Just released like, for example, a NetScaler software web gateway, which is a web security solution with user behavior analytics built into it
It's an extension of really what we're doing across the broader NetScaler platform, leverages mass and various other web services like threat intelligence, et cetera
So we're working hard across all those fronts and I think you should expect to see more innovation coming from us as you go forward
Overall, I think it's going quite well
I mean it's just to remind everyone, we announced a voluntary migration in the first half of the year
We had a couple of promotions going
In the second period, roughly 40% of customers that were renewing chose to renew on CSS, versus their option to renew on subscription advantage
The uptick in price we saw on an ASP basis was about 19%, so it's moving exactly as we expect
The mandatory migration starts right now in the beginning of Q3. So this is the part where we're being just a little bit cautious to make sure that we understand any potential impact to renewal rates or ASPs
But as of right now, we haven't seen any degradation
We feel very good about it
Our challenge is just make sure that we're out and educating customers along the way
So feel really good, good progress and we'll see over the back half of the year
Sure, Kash
First off, thank you
I appreciate the support
Second, in terms of – you had a number of questions in there, and I'd probably bucket all those in the context of our multiyear plan
I mean, the leadership team right now is working aggressively to lay out what is effectively a 2020 plan
And within that, we're looking at the pace at which we want to shift to a subscription-based model, both in a hybrid fashion and in pure SaaS
We're looking at where we can (19:43) accelerates margin expansion over that three-year timeframe, and as I mentioned earlier, we're looking at capital in the context of that as well
So a lot of work to do
We're doing that over the course of the next three months
We'll talk about it on the quarter
We see a lot of opportunities
We see opportunities to not only run the business more efficiently but to actually deliver an acceleration of customer value by migrating them to the cloud
If you think about some of the transitions we've already started making in the last few months around reorganizing the engineering team, the product teams and all these others
And as I said to Rob's question, that's going to accelerate our ability to innovate and deliver tightly integrated solutions on a faster time scale
And that's important because frankly that's what customers are looking for right now
So I'd say stay tuned
Give us three months to finish out this plan
Overall, we're excited about where we can go and we think there's opportunities both to accelerate revenue and deliver leverage expansion over the next three years
Kash, let us do the work, and then come back with some real specifics
But what I will say around that is you look at the last three quarters, as a percent of product mix, we've gone from 10% to 20% to 30%, and that's a reflection of customer demand, it's a reflection of making it comp neutral, and it's a reflection of really where we're going
I will say for the balance of this year, we'll probably settle out somewhere around this 30%, 35% of the mix for the back half
And as we go into next year, we're going to be much more programmatic in terms of how we're driving alignment with both our field-facing teams as well as our partner network, how we're aligning the offers and we're aligning incentives
But in terms of the output, we're still working on it, so we'll come back in a few months and just lay out metrics, as well as a three-year expectation for revenue and margin and EPS at the same time
In terms of top line, like I said just a second ago, we're assume about a third of the mix is going to be coming via subscription on a go-forward basis, that's what it looks like in Q3 and in Q4 as well
We're working hard on expenses right now
We were running hot in the first half of the year
Some of that's variable expense because as we're migrating to the cloud, bookings are running ahead of plan but we're paying all the variable comp and commissions upfront and recognizing the revenue over an extended period
There's also been a number of investments in other parts of the business, and the leadership team is working on where do we prioritize and where do we focus on the back half of the year
So again, I'd say stay tuned
The core takeaway is that business has been very strong, but the subscription mix is moving faster than we anticipated, more than double the pace that we were expecting a year ago
So that's going to impact the P&L in the short term
Sure, <UNK>
I mean, we didn't get into a whole lot of details on the prepared remarks, but when you look at networking in total, there's a couple of things that I would point out
First, in the aggregate, there's a little bit of a headwind, about a $10 million headwind from some portfolio rationalization we did a year ago
That was the last big quarter for ByteMobile and so that one is effectively zero right now so we got a little bit of a headwind there
In terms of the overall business, I mean, we did make a pass at the investments last year across what is largely enterprise accounts
The fastest-growing part of the networking business has been in pure play
So if you think about our kind of three main markets, service providers attached to other Citrix solutions and what I would call pure-play ADC, the pure play was up strong double digits in the quarter so we're actually being able to engage and win in a much greater number of competitive transactions
And part of the reason there is just simply what we've said for the last several quarters
We've got a software-based platform that allows customers to have much more flexibility
We're not relying on a rip-and-replace hardware cycle for growth at this point in time
We've got a number of different innovations that we've brought forward like MAS, our Management Analytics System, which provides a nice competitive differentiator
We've created pooled-capacity licensing so customers can share capacity across their cloud and prem models, and a number of other innovations is allowing us to grow pretty aggressively
So that's what we're doing so that's the primary strategy, expand the base and drive share, and we've been successful over the last couple of quarters doing that
<UNK>, it's an imperfect number so that's the caveat
If you were to look at all things that were delivered via subscription and you were to change that to a perpetual license, it's probably approaching $100 million for the year
But I want to put the caveat on that that there will always be some level of subscription
So it's a little bit apples and oranges, but that's an approximate number the way to think about it
Best way to measure the business in the short-term is look at the other metrics
Not just reported revenue but the fact that deferred revenue was up 13%, roughly 10% current, 20% long-term
Billings growth was 8.5%
We did have double-digit bookings growth across all three of our main businesses so the underlying trends have been positive
It does tend to be more back-end loaded
So I don't know the exact number off the top of my head, but roughly it would be 60%, maybe as much as 65% of the renewal pool would come up in the Q3, Q4 timeframe
I'm not exactly sure what you're talking about, <UNK>
But, overall, I'd say if you look at the field organization, and the big takeaway is that we're executing now internationally whereas we had been driving a lot of the growth domestically over the last couple of years
As we've talked about, a lot of work went into the U.S
back in the 2013, 2014, 2015 timeframe
We started that work later in the international markets and now they're delivering significant growth
EMEA was up mid-singles, APJ had the second double-digit quarter in a row, and those teams are really coming together and starting to jell
I'd say in terms of the actual focus from the teams, we've made it comp neutral in terms of selling subscriptions versus perpetual license for the most part, and so we're not really trying to drive one or the other
Obviously, as we go through a more longer term transition, we'll be thinking about that in more ACD terms versus TCD
But that's a transformation that's 2018, not 2017.
No, it's the latter, <UNK>
It's not just the mix shift
I mean, we're running ahead on our original bookings plan and we've also taken some discretionary expenses as well
So we have the ability to moderate expense growth and do that in a way that expense growth looks more close to revenue growth
Two things, in terms of the top line, it's a reasonably seasonal ramp for the enterprise business
I think the thing that's masked that for a lot of people as they looked historically is how much was coming off of SaaS from the GoTo properties
Besides that, we're just looking at things coming off the balance sheet plus the current bookings forecast
We are building up more and more off the balance sheet so that will provide a cushion over time as well
The place where you're going to see that hit the P&L is most directly through the SaaS line
That number has started to accelerate over the last couple of quarters and I would expect that as we go into the back half of the year, we'll exit north of 40% growth in SaaS revenue for Q4 as well
So that's a place you'll start to see that come back in
In terms of OpEx, I don't want to get into any details
Like I said, we're looking at prioritization and where we're going to drive spending in the back half
Yeah, unit growth was strong
It was low double-digit unit growth
Yeah, Josh, I can't talk to the individual one-offs
I mean, there's always situations where every large deal as you'd imagine is highly competitive
We do tend to be the higher priced competitor
We don't lead on price, historically, so I'd have to understand more detail to give you a specific answer
But I looked at ASPs coming out of the quarter, and for the most part, ASPs are unchanged as to where they were a year ago
So in the aggregate, not a big shift
At a micro level, yes, it's a hypercompetitive environment right now
I mean, there is almost never a transaction over a couple hundred thousand dollars that isn't a head-to-head bake off with some other competitor
We are not going to win on price
It's not a long-term strategy
We're going to win on integrations and features and performance
We will get aggressive on price if we have to in some circumstances like everyone will, but that's certainly not our strategy
Yeah, I mean, the Operations and Capital Committee, we created another committee on the board to help management as we accelerate some of our multiyear planning
The focus is going to be around looking at our cloud transformation and helping us test a lot of those assumptions, operations in the P&L as it relates to margins and other
We'll work with them on capital planning, and we'll work with them on helping vet M&A ideas
So just to work collaboratively with the leadership team
I wouldn't anticipate that you're going to have any large announcements from this, but it's just in the context of us transforming the business and doing it as quickly as we can
Well, thank you again for joining us today
We hope that everyone is excited as we are for the next great chapter in Citrix's transformation
I'd say we're moving quickly
We're driving customer value, and we're really looking forward to sharing the details of our multiyear plan with you at the end of this quarter
Thanks again
Talk to you in three months
| 2017_CTXS |
2018 | FRED | FRED
#Thank you, <UNK>, and good morning, everyone.
Last week, I was named interim CEO of Fred's, in addition to my role as CFO.
I'm excited to lead the company during this new chapter and execute the turnaround plan we've developed.
When I originally took the job as CFO, I did it knowing full well the magnitude of the challenges and opportunities at Fred's, and I'm happy to say that I've never been more enthusiastic about the prospects for this company.
I've been in situations like this before, where the results have been disappointing for too long and a significant reset is needed to get the business back on track.
That is exactly where we are today here at Fred's.
Let me be clear.
We are entirely dissatisfied with the results of the company over the last 2 years.
However, we have a turnaround plan that is underway, and it has 2 main goals: eliminating our debt balance and generating significant positive EBITDA and free cash flow on a run rate basis by Q4 of fiscal '18.
Here's how we plan on getting there.
We are focused on 5 key areas: strategic transactions, optimizing cost structure and capital allocation, talent acquisition, revenue and margin initiatives and assortment optimization.
On the strategic transactions side, we are well underway in various processes to monetize noncore assets, including significant pieces of our real estate portfolio as well as our Specialty Pharmacy business.
These potential transactions are expected to provide significant cash proceeds that we expect to use to reduce our debt balance.
We are also evaluating various options for our Retail Pharmacy portfolio.
Our operational turnaround is well underway, and we have made significant progress on the expense side of the business with more to come.
We've executed on $30 million to $40 million of expense reduction opportunities for the fiscal year 2018 and are evaluating more opportunities for reductions every day.
I personally approve every invoice here over $5,000, and that has given me tremendous insight into the vast majority of our expenses.
We are going to continue to be maniacal about reducing expenses and capital expenditures in every part of our business, which we expect will help us achieve significant positive EBITDA and free cash flow on a run rate basis by Q4 of 2018.
From a talent perspective, we recently brought in great people in store operations, supply chain, private brands, finance and real estate.
We will continue to focus on talent acquisition in all areas as a key priority of the business.
Overall, we've reduced corporate headcount significantly over the last 6 months, and we expect this trend to continue as we reset the size of the organization, its culture and the type of people we need to accomplish our objectives.
Additionally, we have a plan for how to address the issues we are seeing in revenue and gross margin within our Front Store.
The plan focuses on 4 key initiatives: private brand penetration, closeouts, increased direct importing and optimizing our SKU count.
We plan to increase private brand penetration from current levels of 12% to over 40% over the next 2 years, which will drive both sales and gross margin.
To help achieve this goal, we recently hired Brent Tininenko as Vice President of Private Brands.
Brent spent 14 years at Walmart, with his last 12 being that of Senior Director of International Private Brands.
We also want to become a much bigger player in closeouts, which will create a treasure hunt environment in our stores, driving traffic, basket and gross margin.
We are working with multiple partners to rapidly develop this program and roll it out to our stores.
Additionally, we want to significantly increase our direct importing from overseas partners.
The closer we can get to the factory, the more impact we can have on our cost of goods and overall gross margins.
And finally, we want to continue to optimize and reduce our current SKU count while evaluating and testing new categories.
Beer and wine is an example of a new category where we've seen some encouraging results.
We are currently selling beer in 240 stores and wine in 70 stores, and we expect to be in 428 stores for beer and 279 stores for wine by the end of fiscal 2018.
We are encouraged by our initial results as we are seeing that when customers purchase beer and wine, the average basket is approximately 40% higher than a basket without beer and wine.
Moving fast is the key to any successful turnaround, and we are confident that we can do just that to make the changes needed to reset this business, which should result providing a better experience for our customers and improved operating results for our shareholders.
I will now turn to the numbers and will address the fourth quarter results and trends on a year-over-year basis.
And as a reminder, all of them reflect the fact that our Specialty Pharmacy business has been classified as a discontinued operation.
For the fourth quarter of 2017, net sales increased 2% to $477.3 million from $467.6 million for the fourth quarter of 2016.
There were 14 weeks in the fiscal fourth quarter of 2017 compared to 13 weeks in the fourth quarter of last year.
Comparable store sales for the quarter decreased 0.9% compared to a 4.8% decrease in comparable store sales in the fourth quarter of last year.
Gross profit in the fourth quarter decreased 8% to $115.1 million from $125.7 million in the prior year period.
Gross margin decreased 280 basis points to 24.1% from 26.9% in the same quarter last year.
Most of that decrease came from the Front Store, and that's exactly where we are focused to see the biggest opportunity in 2018.
Gross margin for the quarter was negatively impacted in the Front Store by the mix of sales and by markdowns on clearance inventory; and in the pharmacy, by pressure on reimbursement rates and higher-than-expected DIR fees, which are fees we are required to pay PBMs after the point of sale.
We reduced our inventory levels throughout 2017, which was one initiative that helped improve our free cash flow.
One of the biggest drags on gross margin in both the quarter and the full year was our decision to discontinue more poor-performing and stale merchandise through clearance sale events.
In the fourth quarter, we stepped up this clearance activity, which resulted in a reduction in inventory of $48 million year-over-year.
There will likely be additional inventory reduction and clearance activity in 2018 as we continue to refine our assortment, although we do not anticipate clearance events to be at the levels we have seen over the last 2 years.
Our mix of sales had a negative impact on gross margin as we sold more beer, wine and tobacco.
While these are great items from a traffic-driving perspective, we are working to optimize our assortments so that we can increase gross margins.
We are continuing to work on reducing SG&A.
And in the fourth quarter, SG&A, including depreciation and amortization, improved year-over-year by 350 basis points to 28.4% of sales from 31.9% last year.
Much of the improvement in expenses was attributable to a reduction in professional, legal and banking fees related to the attempt to acquire Rite Aid stores in the fourth quarter of 2016 that obviously did not repeat in the fourth quarter of 2017.
We are also starting to realize the benefits of our various cost-saving initiatives.
And excluding expenses related to the Rite Aid deal, we saw a year-over-year improvement in SG&A of 230 basis points to 28.4% from 30.7%.
Net loss for the fourth quarter totaled approximately $22.6 million or $0.62 per share compared to a net loss of $21.7 million or $0.58 per share in the fourth quarter of 2016.
For the fourth quarter of 2017, adjusted EBITDA, which further excludes items management does not consider to be indicative of our core operating performance, was negative $18.9 million compared to $13 million in 2016.
Turning to our balance sheet.
We ended the year with approximately $6.6 million in cash compared to $5.8 million at the end of fiscal 2016.
Inventory at year-end was $279 million, down from $327 million last year, a $48 million reduction, with day sales of inventory declining 11 days to 76 from 87 days a year ago.
Total debt stood at $167.2 million compared to $128.4 million at the end of last year.
In terms of capital deployment.
In the fourth quarter, our CapEx was $2.9 million compared to $3.6 million a year ago.
And we repurchased approximately 1.2 million shares in the quarter for a total of $5 million, leaving 2.6 million shares remaining on the share buyback program.
Before I end the call, I'd like to reiterate a couple of things.
We are moving with speed and urgency to eliminate debt and return to significant positive EBITDA and free cash flow.
We are confident in our plan and look forward to updating folks as we have new developments to share.
If you have any questions, please coordinate with <UNK> <UNK> to set up a time to speak with me directly.
Thank you for participating today, and we look forward to addressing you when we report our first quarter results in June.
| 2018_FRED |
2016 | POOL | POOL
#No, it would be very simi<UNK>r.
And really what you're talking about is order of magnitude.
So, therefore, what it trans<UNK>tes to is if that grows 1% to 2% less, right, that sector which impacts our overall sales growth by, let's say, 1% ---+ well, that's what you're talking about.
Yes, sure.
Yes, no discernible difference there.
(<UNK>ughter) By the way, we do do that.
We do review cell phone contracts and we do shut off the lights at night.
And our warehouses are ---+ a good majority of them have automatic timers set on the lighting in the warehouse.
So we are conscious of all of that and we have all sorts of agreements on trash removal and things of that nature.
So we try to look for every nickel we can find.
Really, the impact on exchange in terms of expenses was about 2%.
So it is just being judicious.
We have had ---+ when <UNK> talked about the fact that excluding acquisitions our headcount was only up 1%, what that does when you factor into that, we continue to incur productivity gains and that's through process improvements.
And while we make investments in IT and to drive ---+ to help support some of those process improvements, at the end of the day, we're looking for return on that capital.
So and the paradigm is the same there as we do for investing in a new location or a new market.
So when it's all said and done, all of these things more than pay for themselves.
If not, we wouldn't do them.
So, does that answer the question or help answer the question.
If it were one or two, I'd be remiss.
But let me just ---+ because in distribution there's seldom one silver bullet.
You've got to have many, many bullets and you've got to keep on firing continuously to drive performance improvement and raise the service level at the same time.
If I were to highlight a few, certainly our B2B portal that enables customers to do a lot of stuff and, in fact, we have linked that in with a number of customers and their businesses to enable automatic replenishment.
Those kind of tools are very efficient for our customers, enhance our service level and provide some efficiencies for us.
When I look at, for example, how we pick orders and our facilities and the fact that we have <UNK>rgely converted domestically to what we refer to internally as paperless pick, which is basically using automation and saving on paper costs but, more importantly, really enabling us to be much more efficient in the pick process is another tool.
I mean when you look at our DCs, for example, a few years ago we went to voice pick and on average when we did the study in our first location ---+ this was about four or five years ago ---+ we were saving $0.07 per pick.
So, I mean I'm just giving you some color and context of different things that we continue to do and work on to drive a higher service level, as well as reduce mistakes, as well as do it all more efficiently.
Incremental.
There, <UNK>, we have two areas that are kind of going in different directions.
I'll speak about the negatives first.
What we have there is from a product ---+ and this is mainly product mix revenue.
From a product mix standpoint, when you're looking at remodeling a rep<UNK>cement activity those are typically bigger ticket items.
And by virtue of them being bigger ticket, generally speaking, the margin percents are smaller than on smaller ticket items where the cost to serve is logically much higher than as a percentage of the product being sold.
So that's factor number one kind of going against us.
Factor number two going against us is that manufacturers have progressively been investing in innovation and ---+ as a result of that innovation ---+ providing products are developing and coming to market with new products that are either much more efficient and/or provide a greater aesthetic value.
In both cases, the products are sold for a higher price.
And what drives there is some of the same logic but because of them being a higher price, generally speaking, we get more GP dol<UNK>rs but typically a smaller percent.
So those are the two drivers against us.
On the other side of the equation going against that, we continue to improve our service level by what we just covered earlier.
That there's efficiency gains but there's also service level gains.
If I talk to you about our in-stock position, the stock outs or fill rates that we have.
And the fact that they continue to improve every single year and even enabled us to do that with greater turns, I mean that's just part of the equation.
But factor number one is improve service levels of the customer; and then secondly, we have to sell that so improve sales execution.
And then third, improve sourcing.
So to mitigate the impact the adverse impact of product mix in both the forms I described earlier, improve service levels, improve sales execution, improve sourcing execution should approximately negate that.
So our expectations are that gross margins prospectively should be about f<UNK>t in terms of percent.
But there are efficiencies being gained by virtue of the fact that our cost to serve proportionately is less when we are selling higher value products.
Or whether it be in aggregate dol<UNK>rs or by virtue of the fact that it's a variable speed pump or it's a single speed pump or LED lighting versus fluorescent lighting or whatever.
We didn't communicate that, but in the fourth quarter the green business increased at a rate faster than our blue business.
That's a great question, <UNK>.
And I think here what impacts that is a little bit of math because of the exchange.
As you know, and many on the call know, exchange cost us approximately 2% in terms of topline and certainly benefited us on the expense side.
But what happens here is, if you do on a constant currency analysis and you assume that we would have call it round numbers, $40 million more in sales than the improvement in terms of operating or contribution margin is inside our normal 15% to 20% range.
If I may, <UNK>, I just want to c<UNK>rify something.
I misspoke a second ago in answering the green versus the blue.
I was looking at the wrong line on my chart.
The green business grew a little slower than the blue business but both had very strong growth in the fourth quarter.
For the past 15 years, we typically have between 50 to 75 projects underway; and as those projects could accomplished, new ones are added to the list.
And the list is as robust now as it was 15 years ago.
Although obviously, we've accomplished a lot over that period of time.
No, if you look at it, really again I think you have got to p<UNK>y the impact of currency into the mix.
So, if you add $40 million in sales and you add also the associated expenses, right, you still get the ---+ not quite the same but a simi<UNK>r operating profit improvement and the leverage, while it may have been a little higher, it wasn't exceptionally higher than previous years.
You know what, there's two parts to the answer.
First, when you look at Texas ---+ Texas has a very diversified economy and as a result has proven to be very resilient.
When you look at our results in 2015, Houston, which is our fourth <UNK>rgest market, the one you would think would be affected the most ---+ Houston had a very, very solid year, very strong growth in every important line other than expenses that had more modest growth.
So Houston did very well.
So, that's part one.
And if you look at markets like Dal<UNK>s and Austin, extremely robust, very little dependency on energy.
In fact, you can easily make the argument that particu<UNK>rly North Texas suffered with heavy rainfalls during the course of 2015.
Where we are ---+ so, that's part one, and by the way just to support that, our growth in Texas in the fourth quarter, both blue and green, was a little bit above the Company average, okay.
So that gives you context there.
What we anticipate is that the markets that are going to be most affected with the energy situation are more East and West Texas as well as neighboring states like Ok<UNK>homa and the western portions of Louisiana.
We believe those are the ones that really will feel the impact more so than Dal<UNK>s Metroplex, Houston Metroplex, Austin or San Antonio.
Hey, <UNK>, if I could add one comment on to your question about expenses and how we ---+ 2015 was a little unusual.
If you look at our growth by quarter, most of our growth for the year came in the first quarter and the fourth quarter, which are generally seasonally lower volumes for us and so to the extent that people aren't quite as busy as they are during the second and third quarter, there are able to do more and pick up that volume without adding headcount and <UNK>bor.
So if that growth was in the second, third quarter, it would be a different story.
So that I think helped in terms of the leverage that we realized in 2015, unusual and probably not something we're going to certainly look to do every year.
And that's an excellent point and that just confirms part of the rationale for why we're making sure that our retail customers have our stock ahead of the season and get that activity done as early as possible when we have can't say idle time but more avai<UNK>ble time then we do as we get into the season.
Thank you, sir.
I have to do the math here.
So just bear with me a second, <UNK>.
Do you have another question.
Texas represented approximately 14% of our sales <UNK>st year.
And just for context, California is our biggest state overall, and Florida and Texas are very simi<UNK>r.
They're not nowhere near as significant as the first three, obviously, and even when you look at it, those are ---+ we do business and we have locations in Lafayette, Shreveport, Longview, and now we opened recently in Lubbock.
So there are markets that we serve and we also serve a number of them remotely from other centers.
But in the big picture when you look at when you look at the overall Company, you're talking about, again, fractions of 1% in terms of the anticipated impact on the overall business.
Our base business sales growth would have been about the same as our domestic blue business.
Two things, or a two-part answer.
The first-part answer is the major drivers there were delivery vehicles and, secondly, IT.
And in terms of going forward, I would look for that to be 1% to 1.5%.
Years ago, we would lease most of our vehicles and a few years ago, we shifted over to buying those vehicles instead of leasing.
Sure, first from a use of cash is internal needs, which is both in the form of CapEx as well as working capital.
CapEx being delivery fleet, IT and leasehold improvements on facilities.
In terms of working capital, that's driven to support growth both on the AR side as well as on the inventory side, for existing business as well as working capital to support the opening of new locations.
And we have a handful of new locations targeted for this year as we do most years.
Generally speaking, new locations don't add anything to the bottom line in their first year to speak of, but it basically provides us a p<UNK>tform for growth as we grow share in those markets over the course of time.
That's number one.
Number two is ---+ or are acquisitions.
Same methodology in terms of return on invested capital drivers that we have and everything else ---+ filters as we have everything else.
And to that end, that number is going to not going to be super material in the big picture over the course of time.
Most of the acquisitions that we do are re<UNK>tively small for our size and they basically are focused on markets where we have little to no presence as a way to enter the market.
And we do that and always p<UNK>y that off against opening our own new locations.
And over the <UNK>st 15 years or so, we've done a lot of both.
In fact, if anything more opening our own then acquisitions.
That's number two.
Number three is dividends.
Dividends, we target a payout rate of 35% of net income 3-5% of net income and that is reviewed every year by the Board.
And the Board will do that at the May Board meeting and determine the go-forward dividend for the next four quarters.
And that's number three in terms of priority.
Then after that, it depends where we are from a capital structure standpoint or where we are on debt vis a vis our targeted capital structure.
Our targeted capital structure is 1.5 to 2 times debt to EBITDA.
So provided we are below 2 times the debt to EBITDA, we are buying shares.
And as <UNK> mentioned earlier, we are targeting to buy at least $100 million to $150 million worth.
In a typical year, that number will, over the course of time, grow with our profitability; but $100 million to $150 million is a reasonable number to expect.
It could be higher.
Last year it was a shade lower.
We finished at $92 million but, again, the target in the current level is approximately $100 million to $150 million.
If there's an acquisition or something else that pops up that gets us over 2 times debt to EBITDA, we would probably still buy shares but at a more modest rate.
Thank you.
Yes, it sure was, <UNK>.
Chemicals are for basic pool maintenance.
And the chemical sector ---+ I'll give you the industry information first ---+ modestly up because of the <UNK>te season but very modestly up, I'm talking about 1 to 2%.
Our own chemical sales were up a little more than that and chemicals as you can well imagine is an important, very important product category within our retail ---+ the retail portion of our business.
You know what, that's ---+ I'm optimistic that some of that will begin to kick in.
We are still ---+ let me start with a positive.
We began to see <UNK>st year financing begin to open up where you had appraisals and banks willing to lend close to 80% loan to value on, call it, current appraisal values as opposed to very conservative appraisal values when you're doing a remodeling.
So that's beginning to open up.
Frankly, I believe that higher interest rates are going to help us there.
As banks are able to realize return, they will be inclined to take a little bit more risk than being as selective as they have been for the past seven years where basically they have only been lending to pristine credits whether it be on the commercial or consumer side.
Sure, in terms of inf<UNK>tion, negligible.
I think the market vo<UNK>tility, the energy costs being what they are, I think there's going to be negligible price increases.
There is going to be a higher, I'll call it a better mix of products from manufacturers from an innovation standpoint.
But in terms of more the commodity type products, there will be no inf<UNK>tion there to speak of.
In terms of the recovery, let me just first address remodeling and rep<UNK>cement.
That ---+ as I mentioned earlier, that recovery we believe began in earnest in 2011 and have continued to date.
Our expectations were that on a dol<UNK>r-weighted basis that sector was down almost 40% at the trough from normalized behavior.
We believe that, by <UNK>st year, that behavior was about 15% ---+ midteens percent below normalized behavior; and we believe that that recovery will continue such that probably by 2018 ---+ at the <UNK>test, 2019 ---+ behavior will be back to normal.
And in that, there's been some recovery component as well from some of that deferred activity, so that's number one.
In terms of new Pool construction, new Pool construction is still down about 70%.
For that to really kick back in and really gather significant momentum, we need financing to be avai<UNK>ble for the middle-of-the-road homeowner from a credit standpoint.
And that middle tier homeowner, single-family homeowner is really the key target as they look to improve the quality of their home life.
About $20 million.
Thank you, by the way, you can presume re<UNK>tively modest, very modest earnings contribution the first year.
Yes.
Thank you, Andrew, and thank you all for listening.
Our next conference call is scheduled for April 21, mark your calendars, when we will discuss our first-quarter 2016 results.
Have a great day.
Thank you.
| 2016_POOL |
2016 | EA | EA
#On the first piece, I think we will continue to see subscriptions grow, particularly with EA Access and the strength of that product, and obviously based on the strength of that, we rolled out Origin Access, which is our Origin-based PC-based gaming, with a similar structure as EA Access.
We'll continue to push that.
We think subscriptions are an important part of the future of this business, and you'll see that continue to grow.
In the past, remember we've had some accounting differences between products, where something that looks like DLC might have been booked as a subscription, because it was a series of DLCs over time, and that's what made the subscription number go up and down over time.
You'll continue to probably see some of that as we have different accounting methods, but I think the combination of extra content and subscriptions should continue to be a larger and larger portion of our business over time.
I think that's an important piece of the mix.
I think also, as you look at the business, you'll see greater mobile concentration of growth and the combination of mobile plus extra content subscriptions is now starting to create a very nice foundation for the business.
With that, plus full game downloads, we mentioned we're at $2.5 billion.
That's a wonderful foundation to make the revenue much smoother over time.
On the revenue growth, let me be clear.
It's not our aspiration to have single digit revenue growth.
It's our focus to try to maintain discipline on the operating model in the Company.
We don't want to over-invest, and not deliver the revenue.
That was the problem we had historically.
So we talk about single digit revenue growth, simply because that's how we think about our investment, but we're trying to drive higher revenue growth, if possible.
And we'll do that on a case by case basis, and decide if revenue ---+ if we can push the revenue harder or not.
And sometimes products get moved based on when those products are ready, or timing in the marketplace.
But our goal is to try to drive both revenue, top line growth, and drive earnings growth, and if we can get both of those in double digits, that would be fantastic.
We've been lucky enough to drive double-digit bottom line growth, and we'll continue to see that over the next few years, we believe.
It's probably in that zone, could be plus or minus $25 million or $30 million.
I remind people, there's a couple components of that.
One is our marketing and sales.
We've tried to target that number between 12% and 13% of revenue.
So obviously in a bigger revenue year like this year, we're going to spend more on marketing and sales to support things like Battlefield and Titanfall.
So that's going to see a flux up and down, based on the revenue component.
Our R&D expenses, we've tried to target around 21% to 22% of revenue, and we're tracking around that level now.
And we feel like there's a huge opportunity for us to continue to invest in new areas of the business, like the action genre, where we haven't completed historically.
It's a very ripe opportunity for us, and we've been able to bring great talent in to try to build out that part of the business.
Our new mobile areas, with new studios coming on, has also been important for us.
And we'll continue to invest there.
And then last but not least, continuing to build out the platform in which we operate all our games on and we're trying to leverage through that network will continue to be a key part of our investment.
You'll probably see that rough level, as a percentage of sales, be the focus going forward.
Which is a combination of the R&D level around 21% to 22%, marketing in the 12% to 13% and G&A in the 7% to 8% range.
Yes, it's again, a great question.
Advertising is certainly an important part of our business, both now and going forward.
We have been ---+ we have had ads in both our console games and our mobile games for some years, and that business has continued to grow.
We often walk the fine line between maintaining the integrity of the entertainment experience, with the provision of advertising inside those experiences.
Right now, we have ad technology that we are implementing in some of our key mobile titles that is very targeted in nature, and we believe is additive to the overall experience, in the long term, and players have been responding positively to that.
So there is some advertising in our FY17 number.
I would expect that as our network continues to grow beyond the hundreds of millions that we have today, that it will become a more meaningful part of our business in the future.
One thing to remember there, particularly for us, is that there's both the ability to sell advertising, but maybe equally or more important, is the ability to cross-promote to players, to keep them in your network.
And as we have a broader and broader portfolio of games, particularly in mobile, that cross-promotion advertising is very valuable to us.
Holding onto a player in your network is very powerful, and so you'll see take type of advertising, which may be less obvious to the average user than a traditional ad that you might see in a game.
Let me take the first one and then I'll have <UNK> talk a little about Battlefield.
It's a difficult prediction, right.
We know that PCs took about eight years to go from 0% to 75% in full game downloads.
There's a lot of differences between the PC business and the console business.
We do know that the consumer is very interested in convenience, and we want to have product wherever the consumer wants to shop, be it a retail store, or a console.
We obviously have great partners in retail, and we want to continue to have great partners over time, and so we'll support them with great in-store merchandise and training and support, and at the same time, try to help educate our console partners as well, on how to best market the products digitally.
Our best guess today is that growth continues at about the pace that it has over the last couple of years, since Gen 4 consoles were rolled out.
So could we see another 5% pop, meaning going from, say, the high 20s to the mid-30s, we do think that's possible.
I think the big issues remain bandwidth, they remain cashless transactions.
Many of our customers may not have a credit card, and they need a cashless transaction method to be able to pay digitally, as well as obviously the residual value that some game retailers provide.
All of those things are changing over time, and we see that will continue to help support the growth of full game downloads.
But we want to allow the consumer to decide.
We'll give them opportunities to buy certain things digitally, that they may not be able to buy physically, special digital-only offers.
But at the end of the day, we really want to make sure we're allowing the consumer to buy the product wherever the consumer wishes to do that, and we want to make sure we're there.
As relates to Battlefield 1 and extra monetization opportunity, taking a step back, any time we think about extra monetization inside an experience, we really think about it on two vectors: One, are we able to provide value to the gamer, in terms of extending and enhancing their experience.
And two, are we able to do that in a world where we give them choice.
We never want to be in a place where there's a belief that we are providing a pay to win mechanic inside of one of our games.
I think what you've seen from us over the last couple of years is our ability to balance this and deliver tremendous value through choice to our player, which is why our extra content line of business has continued to grow healthily.
As we look at FY17, we are forecasting, again, continued growth in that category.
Given that in Battlefield 1, you will see both macro monetization opportunities from us like maps and large scale content, as well as micro monetization opportunities, smaller increments of gameplay, and then over time, what you will see from us is elements of gameplay that allow gamers to engage and drive, and extend and enhance their experience, much the way people do with FIFA Ultimate Team or Madden Ultimate Team today.
We feel very confident in our ability to deliver that in a way that is deemed valuable by our player, and drives increased engagement over time with them.
I think, again, we have been undergoing a fairly fundamental transformation of our business over the last few years.
We feel like we're in a very, very strong place.
We feel like we have a strong and predictable revenue source, and that the Company's operating very well right now, and the management team are doing great things, in a world where our industry continues to grow.
And we want to take the opportunity to share our vision for the future, how we see the industry growing, where we think the vectors for growth exist inside that industry, and how we believe Electronic Arts is uniquely well-positioned to benefit from those vectors of growth in the years ahead.
I think part of that, the goal is to make sure we're giving both the sell-side and the buy-side exposure to the broader management team, and the chance to see the depth of what we've developed here, as we feel very confident of it, and we're excited to make sure we showcase that next week.
I can't tell you a lot about what Microsoft or Sony or other console makers' plans are.
I think we've all seen some of the discounting that's been going on in the industry, both through the holidays and post holidays.
And there's continued aggressive bundling across the industry, and I think all of that acts to continue to drive people into consoles.
I think the other thing that's important to remember is there are very few Gen 3 titles being still made.
Most of the new titles that we're talking about, as well as the industry's talking about are Gen 4 only, and that is ---+ will clearly start to push people to ultimately buy a new console, if they've resisted, because they've had a choice to play a game on either Gen 3 or Gen 4.
In terms of any mid-cycle upgrades, once again I can't predict, but what I can tell you is that what we've heard, I think, publicly from the console makers, is they're realizing that the compatibility issue across consoles is an important consumer issue.
As Microsoft has shown, they've tried to do with some backward compatibility on older titles and new titles.
I think that's going to be an important part of what a mid-cycle might look like, if there is one, which removes a lot of the risk associated with what we've seen historically with console cycles.
We don't spend a lot of time worrying about it because we feel like our ability to develop for whatever new technology comes, the risk of that's been minimized, because we've moved towards one single engine, Frostbite, and we're able to port that to whatever platform, or point that to whatever platform is evolving or is upgraded.
In addition, our business model is so much more diverse now than it has been historically, that the notion of a console cycle becomes somewhat irrelevant in our ability to generate strong earnings and cash flow.
So we'll all be interested to see where Microsoft and Sony come out, if they do something at E3, or sometime in the year to come.
But we're excited about the continued growth in the business and not afraid of a cycle change, if that was to occur.
As it relates to mobile, again, when you have the benefit of the depth and breadth of our portfolio of great brands and IP, in a world where discovery is becoming challenged, and the mobile market is increasingly fraught with competition, utilization of those brands is certainly a great strength for us.
And as you heard us in our prepared comments, we had the most installs of any publisher in calendar year 2015, and a lot of that is driven around the recognition of our brand and our IP, and the quality of experiences that come as part of those brands.
As we look forward, certainly you will see more great experience from us that are based around the depth and breadth of our IP portfolio.
But at the same time, like in our console business and our PC business, we also look at opportunities to develop new IP in this space.
And so you would expect from us in the future, a balanced approach to the marketplace.
But certainly, we're not turning our back on our existing portfolio.
In terms of M&A, I think over the last three years, we've gone through quite a transformation as a Company.
And three years ago, we could not have talked about M&A without having most of you throw something at us.
And we feel like we've now at least earned the right to talk about it.
The reality is, there's not a lot of things out there to buy.
This is an industry that's fairly consolidated already.
We look at everything that is ---+ that's being considered to be sold out there, or shopped.
Most of them, either we're not interested in, or are at a price that doesn't make sense to us, to create value for shareholders.
But we'll continue to do that, and we'll continue to look for ways to bring in new talent and new properties, over time, if those are an opportunity.
But we're certainly listening probably more than we did three years ago, and we're well aware of the opportunities out there, and we'll continue to look at them.
With that, I think we're wrapped up.
So I want to thank everyone and we'll see people here next week for analyst day and if not, we hope to see you at EA PLAY in <UNK>ne.
Thanks for your time.
Thank you.
| 2016_EA |
2016 | SBSI | SBSI
#One is a loan that we acquired in the merger.
The other loan is a loan that's been on nonaccrual for probably a year and a quarter.
Both of them matured during the quarter, and we have dealt with them basically through foreclosures, and we are in the process of selling the assets.
We have a contract on one of them, and we have a letter of intent on the other one ---+ the assets.
And we anticipate, assuming everything goes as planned that these will sell in August.
And this will take care of 62% of the nonperforming loans that were on the books at March, and there really aren't any other major credits that we see at this time, and that was basically the impetus behind the reserve that we had to put out there in the second quarter.
Yes, I think that's one of the reasons that we're positive about the second half of the year, <UNK>.
We felt like we've dealt with our problem children.
Right now, we see clear sailing.
We are anticipating that loan growth that we saw last year.
It's a little frustrating that it doesn't come exactly when we want it to, but we know that the fundings will come.
A lot of the loans that we've approved have a large equity portion that has to go in before they start to draw, and so we feel like that the second half offers some real potential for us.
I mean, we've already seen close to half of the decrease in the loans in the second quarter have already funded up in July.
And then we have a large loan that is supposed to fund on Monday that will put us back almost on track with where we were at 3/31.
They're both commercial loans.
They were not CRE loans.
They were both commercial loans, and one of them was an acquired loan, and the other one was a loan that we made several years ago.
They are not energy-related.
No, these were around $20 million if I'm ---+ is that correct, Julie.
<UNK> Speaker: Yes.
<UNK> Speaker: Yes, one of them was ---+
---+ was around $13 million, roughly, and the other one was around $7 million.
And we had reserves built up on them.
One of them ---+ the one we acquired had, you know, through purchase accounting, had charged down pretty heavily.
You know, with the Omni discount, I think it's up closer to 77, and, you know, we have a little over ---+ I think it's around $280 million, or $292 million of municipal loans out there that we keep a reserve of about 0.25%, because we've never had a loss on any of those.
So that brings that reserve down.
We have a fairly large one-to-four-family home loan portfolio.
That reserve is not sitting at 1%.
So when you look at the size of the types of loans that we have out there in the risk profile, it doesn't necessarily generate an overall 1% reserve.
But, yes, I mean, eventually, we'll ---+ the reserve will build back up some.
Right now, the reserve, we believe, is adequate.
It's tough to say exactly how much lower it's going to go, but there are more things that we're working on there, and some of it is going to happen through attrition, over time.
There's additional branch cost control that is going to occur.
There are a number of things that are rolling off over the balance of this year.
So I think there's room for, probably, another, at least, maybe $0.5 million a quarter if not maybe a little bit more.
I think one of the things that we had always said is that we really wanted to see our efficiency ratio maybe in the mid-50s.
Right.
And I think now we have brought it down to the lower 50s, and I think that that certainly is something we've attained and something we should be able to hold.
And who knows.
It might press even lower.
I mean, I don't think we've got anything radical on the line at this point but, again, there are still measures out there that I think will prove fruitful to our bottom line.
So ---+
And I'm forgetting the fact that we also had the professional fees associated with the consultants that we won't be paying at that level on a go-forward basis, either.
(multiple speakers).
So the expenses are going to continue to come down.
Basically, what happened was we started seeing a lot of additional losses in this quarter that he was having that were unusual in nature.
And so his projections just weren't coming to fruition, and the losses were significantly greater than what they had been in the past.
And so we just decided not to renew and to work out a friendly foreclosure with him and liquidate the assets and sell them.
We decided to do that before we ended up with virtually nothing.
What we see today is where we are.
There's really nothing to pursue.
He put in several million dollars himself.
I forget the exact amount, but he probably put in $7 million or $8 million himself, and there really wasn't anything to pursue.
We did have marketable securities, and we've liquidated those.
Fortunately, a biggest part of our mortgage-backed Securities portfolio were in the commercial mortgage-backed Securities and locked out of CMOs.
So our amortization expense isn't really going to be that volatile, going forward, because the CMBS portfolio is such a huge percentage of the mortgage-backed Securities portfolio.
It's probably two-thirds to maybe 75% of that mortgage-backed Securities portfolio.
So it's just locked in there, and it's not going to move, and that's what's driven the appreciation in the Securities portfolio and kept the duration where it is.
That is correct.
It's probably going to be near 20%.
We may buy some additional municipals, but I think probably near that 20%.
I don't think we're going to push it a whole lot lower.
We may get it down to 19%, but it's probably going to be close to that 20%.
The pace of conversations has definitely picked up.
We are definitely hearing from more folks that have an interest.
Pricing expectations, it's kind of all over the board.
Some people's pricing expectations are unrealistic, others are realistic.
Obviously, those that are more what we would consider realistic, the conversations we're more interested in.
And so where our currency is and the markets that some of these folks are in, you know, we are actively considering, and there's a possibility if everything makes sense.
That would be the main focus area, most definitely.
We did have ---+ there was about $130,000 that we had in fee income ---+ or it was a gain in the first quarter on one of our investments, CRA investments, that they came back and said that it really wasn't a gain late in the second quarter.
So we had to reverse that, so that would have come out of the first quarter, really, and it had to come out in the second quarter.
Other than that, it's just things that we had in the first quarter that didn't repeat in the second quarter.
Right now, we screen on construction at that level and just a hair above it.
I think we're at 105, 106 ---+ 105 on construction, but when we run our cash flows, by Christmas, if we didn't approve any more construction, we'd be way below it.
So we feel like we can continue to make construction commitments because they typically don't fund for quite some time.
The regulators have been in, they have looked under the hood, and as long as we're not planning on going to 150 or something like that, I think they're comfortable.
On CRE, we're well below the limits, so there's no issue there.
No.
We honestly don't know why that's occurring.
It just seems to have occurred.
Last year, it all happened in the last four months of the year.
It's not something we certainly planned.
Once again, it seems to be happening again this year.
Hopefully, it's not going to be the last four months.
We have had some good loan growth in July, and it looks like we're going to have some good loan growth in August.
So, hopefully, it's the last six months of the year this year.
But, no, it's not something we're anticipating is going to be a repeat every year, but I can't guarantee that.
Yes, we're not planning it that way, by the way.
It seems to occur that way, so we can't explain it.
And we don't like it much, either.
That's not our game plan.
(laughter)
We continue to hire lenders of all types that ---+ because we're not ---+ our buckets really aren't full anywhere except on the construction side, and the construction side, usually it converts pretty quickly to regular CRE.
So we're hiring loan officers that have good books of business that are seasoned, quality loan officers in all of our markets because they're all strong, you know, very healthy, vibrant markets.
So we're open for business and looking for strong quality loan officers in all the markets.
That was driven a lot by ---+ we have some public fund deposits, and there were some dropoffs in some of the public funds deposits, and their fiscal year-ends are usually September 30th.
And so it could be driven by their budgetary situations as they come to the close of the year.
And I do not know that.
It could be that also because we're not out there trying to bid up on different types of funds.
We don't see rates going up anytime soon.
I'll let Julie ---+
Are you talking about purchase accretions.
Actually, the one acquired from Omni was, I believe, it was in the outskirts of Dallas in Rockwall.
And the one ---+ the other one was in Houston.
It was a car dealer.
Our asset quality is strong, while loan growth has been late to the party, we still anticipate 7% to 9% loan portfolio growth for 2016.
We expect 2016 to be an exceptional year.
Thank you for joining us today.
| 2016_SBSI |
2017 | ANDE | ANDE
#Thanks, <UNK>, and good morning, everyone.
Thank you for joining our call this morning to review our first quarter 2017 performance.
After <UNK> <UNK> provides a business review, I'll conclude our prepared remarks with some comments about our outlook for the balance of 2017.
The first quarter results were substantially improved over the first quarter of 2016.
While much improved, we continued to manage through some less-than-ideal market conditions.
We also continue to manage excellent strides in addressing underperforming areas.
Increasing productivity and efficiency and progressing on the path we're paving to improve the company's long-term performance.
We continue to focus on 3 main areas.
First, we continued to proactively manage our asset portfolio.
We're in the process of closing our remaining 4 retail stores.
Choosing to close a long-term business is never easy.
While seeing our colleagues depart as this business winds down has been difficult, the closing process is going about as well as we could expect.
We expect the stores to be closed in early June and are working through the disposition of the group's remaining assets.
In our Plant Nutrient business, we sold our Florida farm centers.
These decisions, along with similar previous actions, are among those that will allow us to focus our time and our capital on better performing assets and prospects.
Second, we have made more progress towards creating a productivity culture at the Andersons.
As we shared last quarter, we hit our initial $10 million run rate cost savings goal a year early and have embarked on an effort to save an additional $10 million by the end of 2018.
We continue to streamline the organization and improve operational efficiency.
One consequence of that work is a 10% year-over-year reduction in base wage expense this quarter.
Third, we continue to make targeted investments in our businesses.
The expansion of our Albion, Michigan ethanol plant is fully operational.
In addition to this project being safe, ahead of schedule and on budget, we began operating the new assets earlier than planned.
We also agreed to purchase a small ancient grains milling facility in Hudson, Michigan.
This is our first foray into milling and adds to the value-added food origination assets we've acquired in Western Canada and our growing food grade corn business.
We're also pleased to have purchased more than 600 railcars with leases attached, which comprises the largest single number of cars we have purchased in a quarter in nearly 2 years.
I'll speak later in the call about our outlook for the remainder of 2017 and some of the actions we are taking to improve our performance this year.
Our CFO, <UNK> <UNK>, will now walk you through a more detailed review of our financial results for the first quarter.
<UNK>.
Thanks, Pat.
Good morning, everyone.
In the first quarter of 2017, the company incurred a net loss attributable to the Andersons of $3.1 million or $0.11 per diluted share on revenues of $852 million.
These results compared to the first quarter of 2016, when our revenues of $888 million generated a net loss of $14.7 million or $0.52 per diluted share.
The 2017 first quarter results, include $7.8 million in pretax charges associated with the company's exit from its retail business as well as a $4.7 million pretax gain on the sale of our Florida farm centers.
Many of our other operating metrics improved when compared to the first quarter of last year.
Gross profit was up almost 13% to $76.5 million from $67.8 million, and operating, general and administrative expenses were down, when taking into account employee separation expenses incurred in each period.
Long-term debt dropped by $36.4 million or approximately 9% during the quarter, and the company's long-term debt-to-equity ratio improved to 0.47 to 1.
We next present a bridge graph that compares 2016 pretax income to 2017 pretax income year-over-year for the first quarter.
In the first quarter, we registered improved year-over-year pretax income from the Grain, Ethanol and Plant Nutrient groups.
The decline in Rail Group results was driven by lower based leasing income.
The decline in Retail Group results was driven by the exit charges noted earlier.
These costs were partially offset by an increase in gross profit due to higher sale.
For the first quarter, unallocated other expenses were $2.7 million lower than a year ago.
Our Grain Group continued to improve year-over-year in the first quarter.
While the group lost money during the quarter, its pretax loss of $5.1 million was a $12.3 million improvement over the pretax loss of $17.4 million in the same period of 2016.
Base grain incurred a pretax loss of $3.6 million in the first quarter compared to a pretax loss of $13.3 million for the first quarter in 2016.
A $9.7 million improvement matches the nearly $10 million year-over-year improvement in Base Grain operating results we realized in the fourth quarter of 2016.
Grains affiliates, Lansing Trade Group and Thompsons Limited, also showed year-over-year improvement.
Lansing and Thompsons pretax earnings improved by $2.6 million, combining for a pretax loss of $1.5 million in the first quarter compared to a pretax loss of $4.1 million for the same period of 2016.
The Ethanol Group registered improved results in a comparatively better margin environment.
First quarter pretax income reached $1.7 million, a $4.4 million improvement over the $2.7 million pretax loss the group incurred in the first quarter of 2016.
The group benefited from its decision to hedge about half of its production coming into the quarter.
The group continues to be negatively impacted by lower DDG margins due to both low demand from China and Eastern Corn Belt vomitoxin issue.
The group also was negatively impacted by 2 shutdowns, which occurred in the first quarter that are usually completed in the second quarter.
Finally, the group welcomed an earlier-than-expected startup of the new capacity at its Albion, Michigan plant.
The Plant Nutrient Group earned pretax income of $6.7 million in the first quarter compared to pretax income of $1.7 million in 2016 first quarter.
The 2017 results included a $4.7 million gain on the sale of the group's Florida farm centers in March.
Base nutrient tons were down more than 5% year-over-year, but margins did improve some.
Value-added volume was slightly higher than a year ago, but margins were compressed due to oversupply, particularly in the Western Corn Belt.
The Rail Group generated $6.1 million of pretax income in the first quarter compared to $9.4 million last year.
Utilization rate averaged 83.6% for the quarter compared to 91.5% in 2016.
Average lease rates were flat year-over-year.
Lower utilization, along with higher maintenance, storage and trade expenses, contributed to a base leasing income results of $700,000, down from $4.4 million a year earlier.
The group recorded income from car sales of $3.6 million, up about 50% from the $2.4 million of pretax income earned in the first quarter of 2016.
Most of the increase was generated from nonrecourse financing transactions.
The group also benefited from higher scrap prices.
The group's repair and fabrication businesses continued their strong performance, setting all-time quarterly records for both revenue and pretax income during the quarter.
Those results helped to offset the loss of income from an investment in a short line railroad that was redeemed in the first quarter of 2016.
As we announced in January, the company is closing its remaining 4 retail stores and exiting the retail business in the second quarter.
That process is going as planned.
During the quarter, the group incurred $7.8 million in exit costs, mostly for employee separation expenses.
As a result of a pickup in sales during the early stages of inventory liquidation, and notwithstanding exit costs, the group's pretax income improved by about $3 million over the first quarter of 2016.
We continued to expect to record pretax charges between $9 million and $14 million in 2017 related to the closing process.
Pat earlier referred to the great progress we have made on our cost savings and productivity initiatives.
We have built good momentum and are continuously working towards a leaner, more scalable infrastructure.
As a result of headcount reductions made during 2016, our first quarter 2017 base labor costs were 9% lower than in 2016.
I'll now turn the call back over to Pat for a few comments on our outlook for 2017.
Thanks, <UNK>.
As we look forward to the rest of 2017, we still expect our overall company results to improve significantly over those of 2016.
More specifically, we'll continue our focus on operating efficiency by lowering our costs to serve and thus improve the performance of our businesses.
We will also continue to look to improve our portfolio via asset optimization and invest in our core and targeted growth areas.
The Grain Group had another significant year-over-year improvement in the first quarter and remains positioned for a better 2017.
As expected, the return in more normal grain production in the Eastern Corn Belt, with the fall harvest of 2016, has been a positive contributor to 2017's base income.
Last quarter, we estimated corn planting acreage of 90 million to 93 million acres and soy bean planting acreage of 87 to 90 million acres.
Our current estimates are now at the low end of the corn range and the high end of the soybean range in line with current USDA estimates.
Cold and wet conditions may cause some changes in planting decisions from corn to soybeans in some regions.
While we still expect better results in 2017, a shift from some acres from corn to soybeans could reduce our volume of grain handled as we look ahead.
In ethanol, 2017 is off to a much better start than a year ago.
We now entered the higher demand spring and summer months with the new Albion capacity online and a solid the outlook for margins.
Weaker DDG values are being negatively impacted by Chinese import tariffs, and we are further impacted by localized vomitoxin present at our 3 Eastern plants.
The vomitoxin issues are likely to persist until the new crop harvest begins.
We expect that robust ethanol exports will continue through the year.
Overall, we believe our ethanol facilities are ready to run at full capacity as some spring shutdowns were taken early in the first quarter and Albion is now running at its new capacity.
This positions us to perform well in 2017.
Our Plant Nutrient Group is off to a slow start due to the markets' inability to sustain improved conditions.
While the anticipated corn planting acreage is supportive of nutrient sales in the planting season, continued heavy rains may narrow the window farmers have to apply fertilizer.
This could have a negative impact on group performance.
We anticipate better results from higher-margin, value-added nutrient products, as we approach the peak sales season in the second quarter, although planting delays here also may impact farmer buying decisions on our products, including value-added nutrients.
We believe that these products will continue to support sustainable agriculture in the U.S. Our enhanced portfolio of these value-added nutrients is a key to our strategic growth plan.
Rail continues to be impacted by an oversupplied market, so far this year.
While carload movements and railroad efficiency data suggests that we may have seen the bottom of the downturn.
Recovery of our utilization rates may be a little later in coming and somewhat more gradual than we thought earlier in the year.
On a more positive note, we are seeing an uptick in portfolio purchase opportunities and have been more successful recently in acquiring cars, which bodes well for future results.
At a company-wide level, we continue to move forward with our productivity initiatives.
We're targeted additional $10 million of pretax run rate savings by the end of 2018.
We harvested much of the lower hanging fruit last year and the next level of productivity will take extra efforts.
We're hard at work on programs that will continue to help optimize the performance of our business with a focus on improved procurement and back office practices.
We've launched a second phase of our procurement project, which will improve our purchasing leverage.
While our first quarter results were not as strong as we wanted or expected, our performance has improved.
We continue to focus on productivity and working efficiently to drive performance in the markets we serve.
I'll now turn it over to our operator, who will help us take your questions.
Yes.
Thank you, <UNK>.
So as we mentioned, we had some of our plants shutdowns taken early in the first quarter, which are a little bit of a volume in the first quarter.
We're ready to run solid for the second quarter.
Albion, as we mentioned the expansion, to double the plant, is up and running very smoothly.
It was a great project for us.
So we feel good about our physical capability to operate, and we're optimistic about the outlook for ethanol for the balance of the year.
The one negative that we've experienced is the spotty patches of vomitoxin around the Eastern Corn Belt.
And a lot of that we had in the fourth quarter as farmers sold us some of that grain right at harvest time.
And here, in the first quarter, that vomitoxin incidence persisted, which, as you know, impacts as it flows through the DDGs, and DDGs have already been little bit impacted negatively by Chinese tariffs, et cetera.
So we're in a little bit tougher position on our DDG income and that will continue for the balance of the year.
It could be slightly better, as we think some of that grain that will come out of farmers' bins might be in better condition than the corn they moved at harvest time.
But it's a little bit of a nagging issue that relates to our DDGs.
Yes.
<UNK>, this is <UNK>.
I'll get a little more granular there.
I think at a high level, probably somewhere between $3 million to $5 million of potential drag depending on how things play out over the remaining 3 quarters of the year, that's not in each quarter, that's for the year.
Yes.
It's an interesting time.
Little bit different than last year, I think, <UNK>.
We came into the normal supply chain season of fertilizer last year with really weak commodity markets in fertilizer and lot of the prices were dropping right during the channel.
So it made difficult for distributors as farmers stood on the sideline to purchase.
I think this year's a little bit more choppy.
We have weaker margins maybe, or prices, I should say, in nitrogen and phosphates.
We've seen urea down as much as $80 a ton, but potash is up probably about $20.
So it kind of depends on the price of each individual ingredient.
But application delays are here in the East are mainly related to the rain we've had, especially last 2, 3 weeks.
So farmers are making kind of just-in-time decisions, which ---+ that's never good.
We'd love to see it nice and spread up and perfect sunny warm days every single day.
The outlook is for little bit more wet weather through the next 3 to 5 days.
The good news is that the 10 to 20 day outlook is for warmer and drier conditions.
So as you know, the farmers are very efficient, and they can really get after planting fast.
If you look at the numbers we've put in the appendix, the state averages were pretty much on normal 5-year average with the one exception of Michigan that's a little later planting, and they're a little bit behind.
So the challenge for PN is really about getting a nice application season and extending that window.
We've seen this weather is all across the belt, too.
There's been a lot of rain across the whole belt.
So what we need is just a good window of application right now.
And <UNK>, I'll just add, that I think relative to last year's second quarter, obviously, the rain impacts this.
But there is ---+ we're still feeling like we could perform as well as we did last year in the second quarter a little bit better.
Yes.
I think you have to look at the whole supply chain across the grain business from a farm all the way to the plate on a global basis.
And every company plays in that slightly different.
As you know, we're mostly a Eastern U.S. domestic player.
And so you really have 3 different stories for the 3 crops we participate in.
So when you look at wheat first, soft red wheat continues to make very good storage income.
We have a global big supply of wheat.
Markets have been pretty flat and prices have been pretty low.
Now recently we've had some weather impact in the hard red wheat belt with snowfalls that came down in Kansas.
So that's something to watch as it relates to the wheat prices all around.
But we still have about a 50% stocks to use ratio and with big wheat supplies.
The good news for us, we still hang on to 2 VSR ticks.
So wheat storage is an income maker for us, maybe not a big merchandising opportunity for trading and selling for the wheat, but we have a good storage income on wheat.
So that's commodity 1.
On 2, for soybeans, farmer did sell it at harvest, and beans were sold because cash prices were pretty decent at the time of harvest.
Since that time, we've had good appreciation in the spreads.
Our carries were out to close to full storage rates, and we've had some good merchandising opportunities in soybeans.
In fact, we've load out a few boat in the lakes already this spring.
So beans has been a better merchandising environment.
And lastly, in corn, we filled our bins, but farmer is continuing to hold on to his corn with prices relatively low.
We mentioned the vomitoxin issues in the East.
But corn spreads have moved out to close to full storage rate.
We've picked up our piles off the ground and have done a decent job of merchandising grain.
Hasn't been a bigger pickup and appreciation in margins or merchandising margins of corn as we would have liked to seen.
But eventually that's ---+ we have to bring corn to market year before the end of the year.
So the bottom line before I'll give you long answer on each of the 3 commodities, but we need to optimize our assets that we have to make sure all our plants are running full blast.
We continue to push at selling risk tools, which we feel the farmers need now more than ever, and we just try to run as efficiently as we can and capitalize on the opportunities when they come to us.
Sure.
And explain ---+ so the first year here, we looked a lot 1: we talked about looking at our portfolio and what assets didn't perform up to the level and didn't have an outlook of performance that we would have liked.
And we've dealt with several of those at least outlined that earlier and that includes a lot of that headcount that went with that.
At the same time, I think, Ken, you're aware, we've invested quite a lot here in the last several years on our new enterprise system to run our back office.
We're doing that fully in the grain business and we're down the path of our next phases in the company to roll that out to our fertilizer business.
The big thing is now capitalizing on that and optimizing the back office.
I mentioned briefly in my comments it's procurement of ---+ putting all our procurement under 1ne bucket and see how we can leverage it, and we're working on that, as we speak.
So that's an area of focus we have right now.
Like I said, the low hanging fruit was picked last year.
Now there's a lot of pick and shovel work that we have to work on to make the company more efficient.
And I see good opportunities there.
They're not huge being chunks, 1 at a time, but we're going to peck a way at it, and we have another target of another $10 million take out that I'm optimistic we'll receive.
Again that $10 million is in run rate by 2018.
I think that's a good question, Ken.
So we wanted to get our Albion plant up to double its capacity, get it over 100 million gallons to get at the bigger plant scale that we have in our other plants.
And we've accomplished that in Michigan, and there is good demand in Michigan for ethanol and a good local corn supply.
So that made sense for us.
Beyond that, we don't have any near-term expansion plans in our sites.
We're always optimizing and tweaking production to make sure we can get the best yields.
But we see the outlook is good.
Exports has been strong as we talk ---+ previous call, I said we would see $1.2 billion, the range is about $1.1 billion to $1.3 billion as you've heard from others.
So that outlook looks good.
Even if a Brazilian tariff is threatened, we still have big demand for oxygenates in the global markets.
So we should see a decent to strong ethanol offtake in the exports.
And as we get into summer driving season and spring driving season, driving demand was little slow in the first quarter and like to see it finish little stronger.
We were down 1% to 2% on the quarter.
And we'd like to see a finish with us in a plus 0.5% to 1%.
And that's where we'll see some incremental volume and demand come from.
Yes.
I think that the farmers will normal ---+ do their normal marketing patterns as they'll have to just because their bins are full.
In all conditions ---+ I mean, we have really ample subsoil moisture across all the Corn Belt, as you well know the [old] adage that rain makes grain.
I think we're in a good position.
We do need to get some nutrients out there to support the crop to get a potential record crop like we've had in the last couple of years.
With that in mind, I think the farmer won't have a choice that he's going to need the market grain as we get into the latter part of the third quarter just because of a space constraint.
And we're optimistic.
There could be a little uptick if we see any kind of price appreciation, I'm sure the farmer will sell into it.
They've done that on beans, they just haven't done that so much on corn this year.
That would also help.
I think that's a fair observation, yes.
No, we didn't say that.
And it's only about 10%, <UNK>.
So we haven't had a big hedge book going on into the quarter.
So right now, for the whole quarter, we're only about 10%.
Right.
I think we're feeling that we'll see improvements from Lansing.
As you remember, last year, just ---+ you hit it right on the head that they're a big export of DDGs to China, that hurt them.
They've some other trade losses early in the year.
But more importantly that the frac sand business wasn't very good last year, and they've seen a nice return on their frac sand business this year, maybe in the Permian.
So that market's come back for them which is good.
So we're expecting to see better performance from Lansing.
Now they are subject to the same grain industry margins that everybody is, and they're more in the Western Belt, as we where we're in the East.
So I'd say, we expect better results, I don't know about outstanding.
I think we'll just see good steady results from Lansing.
Yes.
<UNK>, I think we expect them to get back into positive territory into Q2, yes.
I mean, if you look at ANDE base grain, we improved by $10 million year-over-year in the first quarter.
And Lansing and Thompsons both improved substantially over the last year's first quarter, and we expect that momentum to continue.
Give me one second.
I think we're going to be relatively similar to last year, potentially up just slightly because we've ---+ if we hit our numbers, there will be some additional compensation expense and those type of things, but it's pretty flat.
The one thing it's a ---+ the onetime charges related to the stores closing, and we've noted that very specifically with the severances, but that's different than our regular G&A line.
We have ---+ a year ago, we took out about 400 headcount numbers, and so our base payroll, even with the additional normal increases for the year, we're still much lower than we were.
So we feel good about that.
The big things we need to focus on are now more in the administrative back office.
No, it should benefit us, but it's a thinly traded market.
So we got to be careful sometimes that 1 or 2 people raise a bid and then that looks like the market is appreciated.
I think we see opportunities for wheat, and we would like to make merchandising margins.
Of course, when you make good income on storage, you have to pull that grain out of storage with the kind of margin to elevate that pulls it out.
And we see that will happen as millers come the market for soft red wheat later in the year.
I think it's going to be interesting to watch this hard red wheat action in the West here, and how much damage was made from the snow in Kansas.
It'd be interesting to watch the inter-market spreads between KC and Chicago.
(inaudible) let this play as the next couple of weeks is just a short-term little bit deal or to get something that's a little more important to damage in hard wheat country.
But globally, we still have ample wheat stocks, so we don't see flat prices getting away on wheat.
No, not really.
Our ratio is probably of actual [bushels] hasn't actually change we bought a little bit more beans at harvest.
So we did a little better on our bean origination and maybe a little bit less corn in the fall, just because that's how the farmer marketed.
But our normal total volume ratio is probably about similar to historic.
In specialty fertilizer, are you still generating margins that are 2x to 3x higher than what's achievable in the bulk market.
And the issue is just that the base continues to move lower.
And then in the NPK market, which fertilizer prices have the greatest impact on what you can charge for your specialty products.
That's a good question, <UNK>.
So yes, that we still see the 2x to 3x spread, but it does go up and down with the commodity markets.
So when we see a baseline NPK, or let's call it, commodity fertilizer prices lower the ratio goes down and thus has a bigger impact on a specialty item.
I think it's hard to really talk about the individual components because it's kind of a different product.
Our low-salt liquid starters ---+ or actually can be quite helpful in a wet season like this, in cold temperatures, so that's it's a product that can actually help the plant get good emergence.
And so in some ways, it could be even more value added in a period when you have wet and cooler conditions like we have.
So obviously, we're trying to sell that.
The challenges that, like I said, the markets are choppy and little bit mix.
So nitrogen is amply supplied and price has been a little bit weaker.
We have new plants that are ---+ one has come online and a second is scheduled to come up.
So nitrogen looks to be like that's going to be amply supplied.
But we've seen little pickup in potash.
So I think it's just kind of ---+ you've got to look at each market.
Urea, as I mentioned earlier, it's been down pretty sharply and that's a key component.
So <UNK>, anything that you want to add there.
I think you've covered all.
.
Maybe covered.
There isn't really one particular commodity that drives that.
It's more about the volume of sales at the time of the application here in the next month.
Okay, great.
And then you discussed your expectation for robust ethanol exports through year-end.
I think the number was 1.1 to 1.3.
How do you think of that.
How high that number can move over time, particularly in light of some of the political risks that have emerged from China and Brazil.
Yes.
That's a crystal ball question.
And I think the key thing, you got to look at oxygenate value.
The U.S. corn produced ethanol still has the best value in the marketplace in the world and the market should come to U.S. ethanol to buy that.
So if we can't continue with the kind of crude oil prices where we're ---+ been ---+ even between $45 and $53, I think we're around $47 and gas has picked up a little here to about $2.50 in the spot and reasonable corn prices.
We've been $3.75 or so in corn.
That makes a very good price product for the global market and Brazilians with their focus on trying to get the most value out of their sugar crop, if that's in sugar.
They are still going to need to import ethanol.
Who knows what happens exactly with Chinese policy here going forward.
But we have many other countries, Canada, Mexico, other countries in Europe, where we can be a very good supplier.
So there's potential for it to go higher.
How much exactly, I don't know, if I'd put a number on it.
| 2017_ANDE |
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